Pg. 01 March 2017 Costs Update

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2 Contents March 2017 Costs Update 1 Plevin v Paragon Personal Finance Limited 2 Car Giant Ltd and Anor v London Borough of Hammersmith & Fulham 5 Choudhury (suing by his Litigation Friend) v Markerstudy Limited 7 OMV Petrom SA v Glencore International AG 10 Contacts and Company Information 14

3 Pg. 01 March 2017 Costs Update March 2017 Costs Update Hello again from all at NWL Costs Lawyers! This is the latest instalment in our monthly update to keep you advised of some of the key changes in the world of costs. Spring has sprung, which means changes in clocks, changes in weather, changes in nature and, of course, some changes of mind in terms of approaches towards assessment of costs. Spring also brings up a special anniversary for us as we celebrate 35 years in business (about which, more to come ) This month we take a brief look at some recent case law which addresses issues including a definitive decision on recovery of costs where assignment of conditional fee agreements has taken place in Plevin v Paragon Personal Finance Limited, more budget related case law in Car Giant Ltd and Anor v London Borough of Hammersmith & Fulham, a cautionary tale of Solicitors being overly eager to sign clients up to pre-april 2013 conditional fee agreements in Choudhury (suing by his Litigation Friend) v Markerstudy Limited and more CPR Part 36 fun and games in OMV Petrom SA v Glencore International AG. As always, if there is anything from this update that you would like to discuss, just get in touch (contact details below) we are always delighted to discuss all things costs and to see if there are any areas we can help you with.

4 Pg. 02 Plevin v Paragon Personal Finance Limited Plevin v Paragon Personal Finance Limited Citation [2017] UKSC 23 (On appeal from: [2013] EWCA Civ 1658) Background This decision addressed the issue of the recoverability of costs and more specifically additional liabilities in circumstances where a pre-april 2013 conditional fee agreement is assigned. Details In this case, the Claimant entered into a CFA with the firm, Miller Gardner in 2008; the CFA was assigned when the firm became Miller Gardner LLP in 2009 and again when it transferred its business to Miller Gardner Ltd in On 12 November 2014, judgment was given dismissing Paragon s appeal and ordering them to pay Mrs Plevin s costs in the Supreme Court [2014] UKSC 61. Those costs were subsequently assessed by Master O Hare and Mrs Registrar di Mambro in judgments given by them on 5 February Costs in the Supreme Court were high, mainly because Mrs Plevin s solicitors were acting under a conditional fee agreement ( CFA ), with after the event insurance ( ATE ). They were assessed at 751,463.84, including 31, for the Solicitors success fee and 531,235 for the ATE insurance premium. Paragon applied for a review of the costs assessment on two grounds, both of which raise questions of principle. The first ground relates to the success fee. It was said that the CFA was made with the Solicitors originally instructed by Mrs Plevin and was not validly assigned to the two firms who successively replaced them on the record. The second ground related to both the success fee and the ATE premium. It was said that they were not recoverable, because they were payable under arrangements made by Mrs Plevin after the 2012 Act came into force. Decision Giving judgment for the four to one majority, Lord Sumption rejected Paragon s argument that the transfer of work in progress meant only work already done at the transfer date. He said: If this were correct, it would mean that the only right of the successor firm was to bill the clients for work done before the transfer date, leaving them with no solicitor to act for them other than the defunct shell of the old firm. This plainly cannot have been intended.

5 Pg. 03 Plevin v Paragon Personal Finance Limited The point about work in progress is that it is in progress, and clause 2.1 [of the transfer agreement] expressly transfers the work in progress to the intent that the buyer shall from the transfer date carry on the business as a going concern. Lord Sumption continued: It is right to add that even if [Paragon s] argument were sound, it would lead nowhere. Shortly after each transfer, on 30 July 2009 and 30 April 2012, the new firm wrote to Mrs Plevin informing her about the change, referring to the CFA and saying that they would continue to represent you on the same terms and conditions as previously. Mrs Plevin plainly assented to that by continuing to instruct them. The Supreme Court also rejected Paragon s arguments that variations to the CFA in August 2013 and January 2014, relating to proceedings in the Court of Appeal and SC, amounted to new agreements, and so fell under the post-laspo rules. Lord Sumption found that amending an existing CFA was a natural way of dealing with further proceedings in the same action. He concluded thus; It follows that unless the effect of the deeds [of variation] was to discharge the original CFA and replace it with new agreements made at the dates of the deeds, the success fee may properly be included in the costs order. Whether a variation amends the principal agreement or discharges and replaces it depends on the intention of the parties. The Supreme Court also upheld the recoverability of the top up ATE premiums which were provided for the appellate stages of the claim. Lord Sumption addressed that issue by stating: The purpose of the transitional provisions of [the Legal Aid, Sentencing and Punishment of Offenders Act], in relation to both success fees and ATE premiums, is to preserve vested rights and expectations arising from the previous law. That purpose would be defeated by a rigid distinction between different stages of the same litigation. It may or may not be reasonable to expect an insured party who fails at trial to abandon the fight for want of funding. That will depend mainly on the merits of the appeal. But an insured claimant who succeeds at trial and becomes the respondent to an appeal is locked into the litigation Lord Sumption continued; Unless he is prepared to forego the fruits of his judgment, which by definition represents his rights unless and until it is set aside, he has no option but to defend the appeal. The topping-up of his ATE policy to cover the

6 Pg. 04 Plevin v Paragon Personal Finance Limited appeal is in reality part of the cost of defending what he has won by virtue of being funded under the original policy. The effect, if the top-up premium is not recoverable, would be retrospectively to alter the balance of risks on the basis of which the litigation was begun. Lady Hale, Lord Clarke and Lord Carnwath agreed with the judgment of Lord Sumption. Lord Hodge agreed with the majority s conclusions on the assignment of CFAs, but did not agree that ATE premiums topped up to cover appellate proceedings should be recoverable. Comment This decision will clearly come as a great relief to receiving parties and is clear and comprehensive in its findings. This certainly appeared to be the only conclusion which could be drawn on a common sense basis and will now enable the [no doubt numerous] cases to progress which have been on hold pending this decision.

7 Pg. 05 Car Giant Ltd and Anor v London Borough of Hammersmith & Fulham Car Giant Ltd and Anor v London Borough of Hammersmith & Fulham Citation [2017] EWHC 464 (TCC). Background This decision touched upon the extent to which a Trial Judge should address budget overspends. Details This matter came before Mr Stephen Furst QC, a Deputy High Court Judge, who, in his main ruling gave judgment in favour of the Claimant for 179,125 plus interest in a claim for damages for dilapidations following the expiry of the Defendant s ( LBHF ) lease. LBHF had an approved costs budget of 110,000, but Mr Furst recorded that it had spent an extra 89,000, mainly on expert fees, but also trial preparation, trial and mediation. An issue arose in this case as the Claimant had failed to beat the Defendant s Part 36 offer and consequently the Claimant was liable to pay the Defendant s costs from the date of expiry of that offer. The Defendant sought an indication from the judge that these were reasonably incurred. Decision The Judge summarised the position as follows; Whilst LBHF recognises that it is for the Costs Judge to carry out a detailed assessment of costs and to apply CPR Pt.3.18 as he sees fit, it seeks an indication from me that certain costs which it incurred in excess of the latest cost budget were reasonably incurred. CPR Pt.3.18 provides that in assessing costs the court will have regard to the last approved or agreed budget and not depart from it unless satisfied there is good reason to do so. In summary the increases in the budget and the reasons for the excess are said to be as follows: Expert reports, 55, Mr Lenson attended the mediation when this was not budgeted for and had greater involvement in trial preparation and at trial than had been assumed;

8 Pg. 06 Car Giant Ltd and Anor v London Borough of Hammersmith & Fulham Trial preparation, 18, The budget assumed that Car Giant's solicitors would produce the trial bundle, in fact LBHF incurred significant costs assisting in this process; Trial, 10, It had been assumed that Mr Lenson would attend at trial on one day; in fact he attended for all three days of the hearing. In addition a grade D fee earner attended trial on all three days because he had primary knowledge of the trial bundles and they had to be added to at or shortly before trial; Mediation, 3, I am not clear as to why the budget is said to have been exceeded in this case. The Judge specifically declined to address the issue and concluded; In my view, whilst there are authorities showing that the courts can give such indications as are sought here, the court should be slow to do so. The circumstances in which a court should find "good reason" to depart from the approved budget were analysed in considerable detail in Merrix v Heart of England NHS Foundation Trust [2017] EWHC 346 (QB) and the question is likely to be considered by the Court of Appeal shortly. It is unclear whether the trial judge in making such comments should temper them in the light of CPR Pt.3.18 and, in any event, if such comments or observations are made as to what weight a Costs Judge would or should place on them. I can understand that there might be cases where the trial judge has a particular view of costs or on an aspect of costs, having conducted the trial or where he has had to decide an issue which is directly relevant to the assessment of costs. Absent such circumstances it would seem to me that a court should not seek to trammel the Costs Judge's jurisdiction, particularly where the Costs Judge has much greater experience of such matters than I have. In this case, there is nothing in the nature of the applications to exceed the costs budget which cannot be explained equally well to the Costs Judge and it is for that reason that I have briefly summarised the nature of this application. He will then be able to exercise the jurisdiction under CPR Pt.3.18 as he thinks fit in the light of the assessment of costs as a whole. For these reasons I decline to give any indication. Comment Though some may argue that the Deputy High Court Judge was guilty of passing the buck here, it is refreshing to see a Judge respect the specialism of his costs counterpart and defer accordingly. Once again, all eyes are on the Merrix appeal!

9 Pg. 07 Choudhury (suing by his Litigation Friend) v Markerstudy Limited Choudhury (suing by his Litigation Friend) v Markerstudy Limited Citation [2017] County Court. Background This case addressed the recoverability of costs in circumstances where no substantive work is undertaken prior to entering into a pre-april 2013 Conditional Fee Agreement. Details On 12 th March 2013 the Claimant (a minor) was involved in a road traffic accident when he was a passenger in a stationary vehicle at traffic lights when the Defendant collided with the rear of the Claimant s vehicle. The Claimant sustained neck, shoulder and back pain. The Claimant s solicitors (Irwin Mitchell LLP) wrote to the Claimant to confirm that they were instructed by the Claimant s insurer to act, on 15 th March A claim was issued in July 2014 by the Claimant s Litigation Friend. The Claimant accepted the sum of 1, in full and final settlement of his claim and the damages were approved at an Infant Approval Hearing which took place in January A bill of costs was submitted, which was provisionally assessed, but the outcome of that provisional assessment was not accepted by the Defendant, leading to the Defendant requesting a detailed assessment of the Claimant's bill of costs, which was carried out by District Judge Wildsmith. Decision The Claimant sought to rely on a CCFA entered into between Irwin Mitchell LLP and the insurer on 19 th December 2011 and contended that the CCFA provides a valid pre-laspo retainer which bound the Litigation Friend from a date prior to 1 st April The Claimant submitted that legal work had commenced before 1 st April The CCFA provided for a 12.5% success fee in the event that the case settled and a 100% success fee if the case was won after a trial. The Defendant did not dispute that if the Litigation Friend was bound by the terms of the CCFA prior to 1 st April 2013 and advocacy or litigation services had been provided prior to that date that there would be a valid retainer in place.

10 Pg. 08 Choudhury (suing by his Litigation Friend) v Markerstudy Limited Was the Claimant bound by the terms of the CCFA prior to 1 st April 2013? The Claimant maintained that his insurer had instructed the solicitors under the terms of his insurance policy that provided BTE insurance. However, the claim in this matter was actually brought by the Claimant s Litigation Friend and the Litigation Friend was not insured under the policy. The solicitors first wrote to the Litigation Friend on 15 th March Their letter made it clear that the Litigation Friend would not be bound by the terms and conditions of the CCFA unless and until they signed and returned the Terms of Business, which stated: Our General terms of Business and the Collective Conditional Fee Agreement include legal obligations which will bind you (and us) if you sign and return the General Terms of Business to us [emphasis added]. The Litigation Friend did not become bound by the terms of the CCFA until she signed and returned the Terms of Business which she did not do until 1 st April In the circumstances, the Defendant argued that the Litigation Friend had actually entered into a post-laspo, CFA and as such, the CFA was unenforceable as it did not provide for a 25% maximum limit of the success fee recoverable (as it was obliged to under Section 5 of the Conditional Fee Agreements Order 2013). Provision of Advocacy or litigation services prior to 1 st April 2013 The Defendant also argued that the CCFA would be unenforceable in any event pursuant to the transitional provisions set out at Section 44(6)(b) of LASPO and/or Article 6 of the Conditional Fee Regulations 2013 as both provisions provide for a requirement that any success fee under the CCFA must be capped at 25% unless: advocacy or litigation services were provided to [the Litigation Friend] under the agreement in connection with those proceedings before [1 st April 2013] The Claimant s formal Bill of Costs recorded just one undated routine telephone call to the Claimant prior to 1 st April A letter was sent out thereafter which said 'We write following our telephone conversation in which we confirmed you wanted us to act on your behalf in claiming compensation, and thereafter went on to go through the detail of what would be involved in the claim. It was the Defendant s submission that it was likely that the conversation related to funding matters and did not entail the provision of any advocacy or litigation services. The documents schedule to the Bill of Costs confirmed that initial steps on the file were not considered until 4 th April It was submitted by the Defendant that this was the date that ought to be taken as the first date on which litigation services were provided. That being the position, the post LASPO restrictions on success fees would apply to the Claimant s retainer which was unenforceable by virtue of its failure to set a 25% maximum limit on the success fee.

11 Pg. 09 Choudhury (suing by his Litigation Friend) v Markerstudy Limited The Claimant submitted that as the CCFA between the insurer and his solicitors was dated 19 th December 2011, it was clearly a CCFA entered into before 1 st April 2013 and the telephone call and correspondence with the Claimant pre 1 st April 2013 were items of work that fell within the definition of legal services pursuant to s.199 of the CLSA. In the circumstances he argued, the arrangement was a clear Pre Commencement Funding Arrangement within the meaning of CPR Part 48.2 and as such, the success fee was recoverable. DJ Wildsmith found that no litigation services were provided to the Litigation Friend or the Claimant in the period between the accident occurring on 12 th March 2013 and 31 st March The undated telephone call that had been charged to the file during that period was linked to the letter on 15 March that outlined the nature of the funding arrangement. As the agreement was signed on 1 st April 2013 and claimed a 12.5%/100% success fee, it fell foul of the relevant provisions and was unenforceable. As the agreement was unenforceable against the Claimant, it was inevitable that the agreement was unenforceable against the Defendant. In the circumstances, DJ Wildmsith made the following Order: 1. The Claimant s Bill be assessed at nil. 2. The Claimant is to pay the Defendant s costs in the sum of 3, plus any VAT payable. 3. Permission to appeal refused. Comment There is clearly more to this particular decision than initially meets the eye. At first glance it is one that would cause a degree of panic to receiving parties if it were simply a case of the Claimant recovering no costs at all purely due to the CFA being dated the wrong side of the great 1 April 2013 divide in fact, those circumstances are not unusual and where that is the case, the argument is whether the additional liabilities are recoverable rather than an argument as to the validity of the CFA overall. The major error in this case was of course the failure to identify the maximum limit of 25% for the success fee and the Claimant s Solicitors paid a heavy price for that oversight!

12 Pg. 10 OMV Petrom SA v Glencore International AG OMV Petrom SA v Glencore International AG Citation [2017] EWCA Civ 195. Background This was an appeal against a decision of Mr Justice Flaux delivered in March The appeal raised a straightforward but important point concerning the interest that the Court may award when a Claimant's CPR Part 36 offer is rejected, but the Claimant achieves a greater award at trial. Details The Claimant, OMV Petrom SA ("Petrom"), made a Part 36 offer on 9 th April 2014 offering to settle the litigation for US$35 million inclusive of interest together with costs. The Defendant, Glencore International AG ("Glencore"), did not respond to or accept that offer or make any counter-offer. Instead, Glencore defended the claim up hill and down dale at a lengthy trial that began on 20 th January 2015, after it had been adjourned from its original 6 th May 2014 start date. As previously stated, Mr Justice Flaux (as he then was), handed down his judgment awarding Petrom damages (without interest) in the sum of US$40,071,913. According to the judge in his judgment on interest delivered on 26 th March 2015, Petrom's case on liability "rested in large measure on the evidence of witnesses who were liars and Glencore put Petrom through the hoops of having to establish liability, in a very flagrant case of fraud, in a manner which was wholly unreasonable". Against this background, the judge awarded Petrom interest on the judgment sum up to the expiry of the Part 36 offer at the rate of 6-month US$ LIBOR plus 2.5% (the "Agreed Rate") totalling over US$44 million, and from the expiry of the Part 36 offer up to judgment at the Agreed Rate plus 3.5% per annum totalling some US$2.2 million, together also with further interest after judgment. In addition, the judge ordered Glencore to pay the sum of 75,000 under what was then CPR Part 36.14(3)(d) plus interest, and to pay Petrom's indemnity costs (in sterling, of course) plus interest at a rate of 2.5% per annum up to the expiry of the Part 36 offer, at a rate of 4.5% per annum between that date and judgment, and at a rate of 8% per annum (the judgment rate) thereafter. The rates differed according to whether the amounts in issue were in sterling or dollars. Petrom challenged in the appeal (with the permission of Lewison LJ) the rates that the judge ordered on both the judgment sum and on the costs for the period between the expiry of the Part 36 offer on 30 th April 2014 until judgment on 13 th March Petrom claimed that the judge ought to have awarded a rate of interest enhanced by the maximum amount of 10% per annum allowed under what was then CPR Part 36.14(3)(a) and (c).

13 Pg. 11 OMV Petrom SA v Glencore International AG Decision The appeal came before Sir Geoffrey Vos, Chancellor of the High Court and he firstly considered the relevant provisions of the CPR before also addressing two relevant appeal decisions in Petrotrade Inc v Texaco Ltd [2000] and McPhilemy v Times Newspapers Ltd [1999], both of which came before Ltd Woolf. The appeal was allowed, with Sir Geoffrey concluding as follows; In my judgment, the judge ought in this case to have imposed the full 10% uplift for the enhanced rate of interest on the award in this case. In a stark warning to practitioners, Vos LJ stated; parties are no longer entitled to litigate forever simply because they can afford to do so. The rights of other court users must be taken into account. The parties are obliged to make reasonable efforts to settle and to respond properly to part 36 offers made by the other side. The regime of sanctions and rewards has been introduced to incentivise parties to behave reasonably and, if they do not, the court's powers can be expected to be used to their disadvantage. The parties are obliged to conduct litigation collaboratively and to engage constructively in a settlement process. Vos LJ added that the whole thrust of the CPR after Jackson LJ's reforms is to use both the carrot and the stick (and referred to the appeal court s rulings in Denton and PGF II SA). If it were right to say that the provision for additional interest were entirely compensatory, the 10% cap would only rarely be engaged (as the judge's order demonstrates), and then probably only in unusual cases where, for example, the period of the enhanced interest award was very short. First instance courts would be required to engage in a complex and unnecessary exercise aimed at identifying what the prolongation of the litigation has cost the successful party in terms of wasted management time and other on-costs. This would be the kind of undesirable satellite litigation, perhaps involving detailed evidence, of which the court spoke in Denton. Moreover, the range of possible additional costs that might be caused by the litigation would be boundless. Vos LJ added;

14 Pg. 12 OMV Petrom SA v Glencore International AG The court undoubtedly has discretion to include a non-compensatory element to the award but the level of interest awarded must be proportionate to the circumstances of the case. I accept that those circumstances may include, for example, (a) the length of time that elapsed between the deadline for accepting the offer and judgment, (b) whether the defendant took entirely bad points or whether it had behaved reasonably in continuing the litigation, despite the offer, to pursue its defence, and (c) what general level of disruption can be seen, without a detailed inquiry, to have been caused to the claimant as a result of the refusal to negotiate or to accept the part 36 offer. But there will be many factors that may be relevant. All cases will be different. Vos LJ was particularly scathing of the defendant s conduct, referring to their refusal to engage in settlement discussions or to respond to the part 36 offer, with the eventual award being very significantly greater than the Part 36 offer. Flaux J said Glencore fought this case to the bitter end in an entirely unreasonable manner. Vos J said it was by no means automatic that the 10% uplift will be appropriate, but here it is hard to imagine a case in which there would be greater justification for the award of a 10% enhanced interest rate. He continued: The sum of $2.6m that Glencore will be required to pay may be 6.5% of the ultimate award. That does not seem to me to be an excessive or disproportionate amount, even taken in conjunction with the other three orders being made (as to indemnity costs, the 75,000 based on 10% of the award between zero and 500,000 and 5% of the award between 500,000 and 1 million, and an enhanced interest award on the costs). Concluding, Vos LJ stated; For the reasons I have given, I would allow the appeal and replace the enhanced rate of interest on both (a) the award for the period from the date the Part 36 offer lapsed until judgment, and (b) the costs with an award of interest at a rate of 10% over base rate. I should not leave the case without saying that, in my judgment, appeals on issues of the kind raised in this case should in future be rare. The judge's discretion as to the appropriate rate of enhancement under Part 36.14(3) is a wide one as I have explained and I would not expect the Court of Appeal often to be persuaded to interfere with it. Comment This case essentially tells us nothing we did not already know; parties can expect to face sanctions where their conduct is in any way unreasonable/obstructive and the importance of properly considering Part 36 offers (and the tactical advantages of making strong offers) has been exhaustively covered before. This case is a good

15 Pg. 13 OMV Petrom SA v Glencore International AG reminder of these issues however, and should refocus the minds of both paying and receiving parties in their approach towards negotiations. Thanks again for reading and very best wishes from all at NWL.

16 Pg. 14 Contacts and Company Information Contacts and Company Information Contact Information If you have any queries about the cases referred to in this Costs Update, want to subscribe for future updates or to discuss any aspect of what we do and can do for you please contact: Name Lee Evans Title Director Tel Company Information NWL Costs Lawyers Queens House, Queens Road Chester CH1 3BQ Tel Fax