Costs Counsel. E-journal January 2012

Transcription

1 Costs Counsel E-journal January 2012

2 Editorial As 2011 comes to an end, we look forward in 2012 to a year of dramatic change for the law and practice of costs, as the majority of the recommendations in the Jackson Report are finally implemented with a target date of October The actual effect and impact of the reforms, together with how far they will engage the law of unintended consequences, remains moot at the current time. The reforms are also not taking place in a vacuum: the parallel development of Alternative Business Structures will also work to fundamentally change the funding practices of litigation and have significant ramifications for access to justice is likely to prove a watershed year, not only for costs lawyers, but for all of those who have more than a passing interest in access to justice. Andrew Hogan January / 24

3 Legal Aid, Sentencing and Punishment of Offenders Bill A Step Too Far? Rochelle Rong and Rachel Young Introduction The Legal Aid, Sentencing and Punishment of Offenders Bill was first introduced in the House of Commons on 21st June It was passed by a divided House of Commons on 2nd November 2011 with 306 votes in favour and 228 votes against. Since then, the Bill has had two readings in the House of Lords, with the second reading concluding on 21st November This article will focus on the combined impact of Parts 1 and 2 of the Bill in its current form, as discussed by the Lord. The Bill and its intended objectives The second reading was moved by Lord McNally, Minister of State for the Ministry of Justice. He recognises that the Bill is substantial, far-reaching and seeks to introduce radical reform of the justice system. The Bill seeks to, inter alia, remove certain areas from the scope of legal aid, while encouraging a step-change in the use of mediation and other ways of resolving disputes. It also implements the recommendations of Lord Justice Jackson on reforming no-win no-fee funding arrangements which the Government consider to have become dysfunctional and inflationary. Finally, the Bill also proposes to ban referral fees. Underpinning the above aims is the intention to make a contribution to unavoidable and necessary reductions in public spending. The Government s intention was to seek to maintain access to justice whilst dealing with the difficult and unignorable problem of affordability. Part 1 of the Bill introduces major reforms to the scope of civil legal aid. The proposals seek to focus legal-aid funding on circumstances where a person s life is at stake, where they are at risk of serious physical harm, or where they face the immediate loss of their home. Part 2 implements reforms in civil litigation funding and costs, based on Lord Justice Jackson s recommendations. It is the Government s view that subsequent changes to the no-win no-fee agreements, which were first introduced by Lord Mackay of Clashfern, tilted the balance much too far in favour of claimants. The Bill intends to do something about this by ending the recoverability from losing parties of success fees and insurance premiums that drive up legal costs. This will be balanced against a 10 per cent increase in general damages for claimants. In that regard, it is the Government s aim to restore common sense to the system and stop the perverse situation in which fear of excessive costs often forces defendants to settle, even when they have a meritorious defence. This, according to Lord McNally, is a return to the kind of arrangements that prevailed when the system was first set up in the mid 1990s. 3 / 24

4 Main provisions of Part 2 of the Bill Clause 43 amends sections 58 and 58A of the Courts and Legal Services Act 1990, which currently make provision as regards the regulation of CFAs and the recoverability of success fees. The effect of the amendments is that a success fee under a CFA will no longer be recovered from a losing party in any proceedings. A lawyer will still be able to recover a success fee from a client under a CFA, but how it is to be calculated in certain proceedings will now be subject to further regulation. 1 The Bill sees a shift to damage-based agreements whereby the success fee will not be calculated by reference to costs but rather by reference to the amount of (certain) damages recovered by the claimant and the maximum percentage chargeable pursuant to the limits which may be prescribed by the Lord Chancellor. Clause 44 amends section 58AA of the Courts and Legal Services Act 1990 and enables the use of damagesbased agreements in most civil litigation by persons providing advocacy services, litigation services or claims management services. Presently, After the Event (ATE) insurance premiums are recoverable by a successful claimant from the losing party (section 29 of the Access to Justice Act 1999). Clause 45 will ban the recoverability of such premiums save and except in certain limited circumstance which may be prescribed by the Lord Chancellor in subsequent regulations. At present it is envisaged that such exceptions will include the costs of insuring against the risk of incurring a liability in respect of expert reports in clinical negligence proceedings of a prescribed description. Further limitations may be imposed in relation to the amount of ATE premium recoverable. Clause 53 allows the court to order an additional amount to be paid to the claimant by a defendant who does not accept a claimant s offer to settle where the court gives judgment for the claimant that is at least as advantageous as the claimant s offer to settle. Such an additional award may also be made in nonmonetary claims. Clauses 54 and 55 prohibit the payment and receipt by regulated persons of referral fees in respect of claims for personal injury and death. Discussions in the House of Lords the Second Reading During the second reading in the House of Lords on 21st November 2011, significant concerns and objection to Parts 1 and 2 of the Bill were raised. Although there appears to be a general consensus that measures needed to be taken to redress the balance between the access to justice of the claimants and the potential cost exposure of the defendants, questions were raised as to whether the Bill in its current form tilts the balance too far in the defendants favour. 1 Explanatory Notes to Bills: Legal Aid, Sentencing and Punishment of Offenders Bill 4 / 24

5 Access to justice is a fundamental constitutional principle. The cuts to legal aid set out in Part 1 and the potential reduction of damages that victims receive set out in Part 2 sees a drastic switch in civil litigation, the outcome of which is to place greater financial burdens on winning claimants hitherto treated as entitled to restitution for their loss and damage. It would also have a potential negative impact on access to justice for both the most impecunious in society and those of moderate means. Those of moderate means may have to resort to remortgaging their homes or getting into severe debt in order to fund the litigation which they are entitled to bring. They may also have to pay up to 25% of their damages to their lawyers excepting any award for future care. The Government plan to increase damages for pain, suffering and loss of amenity by 10 per cent. The net result of this would leave claimants with a not insignificant shortfall from the damages to which they are entitled at law. Further, it is interesting to note that at present, a deduction of 25 per cent connotes a significant contributory negligence by the claimant. 2 This has to be balanced against the defendants current unfair disadvantage in personal injury litigation. Using road traffic accidents as an example, at present, over 570,000 people present claims for whiplash. That is up 32 per cent in the past three years. The number of such claims notified increased by 72 per cent between 2002 and 2010 against a background of reduction by 16 per cent in the number of road traffic accidents notified to the police. 3 Under the current system, a defendant who is unsuccessful could end up paying four sets of costs: first, the costs he incurred himself; secondly, the costs of the claimant who won; thirdly, the uplift which could be up to 100 per cent; and fourthly, the insurance premium. 4 The combined effect of the above means that defendants are sometimes faced with an unenviable dilemma of being forced to settle claims simply to avoid the potentially significant costs consequences if they were ultimately unsuccessful in defending the claim. The Government s response to the concern with regard to the potential impact on the access to justice is that more should be done to encourage people to use alternative, less adversarial means of resolving their problems. However, Lord Alton of Liverpool considers that the idea that mediation is the complete answer is delusional. This is particularly striking in cases involving medical negligence where issues of breach of duty and causation are often complex and experts reports expensive. It is difficult to envisage how mediation is likely to benefit claimants who may not be able to afford legal representation without the benefit of ATE insurance cover or legal aid. Contrary to Lord Justice Jackson s express opinion, the Government did not exclude clinical negligence cases from the proposed cut backs on legal aid. Doubts were voiced as to whether the proposed changes in legislation would, regardless of their impact on the access to justice, bring about the benefits intended by the Government. There is no evidence to suggest that 2 Per Lord Davidson of Glen Clova, second reading in the House of Lords 3 Per Lord Hunt of Wirral, second reading in the House of Lords 4 Per Lord Woolf, second reading in the House of Lords 5 / 24

6 the proposed cuts to legal aid and the changes to the no-win no-fee agreements would save money for the tax payers. Lord Pannick warned that the money that the Government hope to save through these measures really needs to be assessed by reference to the financial costs that will have to be met by the state. Judges will need to deal with many more hearings in which litigants in person are going to waste valuable and expensive court resources. Further support to this argument was advanced by Lord Collins of Highbury. He refers to a paper shortly to be published by London Economics, Moritz Godel and Dr. Gavan Conlon which shows that while the direct savings attributable to the Jackson proposals are substantial, estimates based on public data suggest that they will be outweighed by direct and indirect costs resulting in a sizeable net loss to the Exchequer of 70.2 million per year. The main sources of loss are loss of tax and the recovery of payments from public bodies resulting from PI claims. On the other hand, there is no evidence to suggest that any savings that the insurance companies may gain from the proposed changes will be passed on to its customers. Conclusions Whilst it would appear that the obvious winners of the proposed changes will be defendants who had hitherto had to bear the excessive costs burden in civil litigation, this may not be the case. Whilst losing defendants will no longer have to pay the cost of ATE insurance and the claimants lawyers success fee, it has to be borne in mind that a successful defendant, who may not be a large company or insured person, may lose out as they will no longer be able to reclaim the costs of their defence thanks to qualified one-way cost shifting. Although part of the 25 per cent loss of damages suffered by winning claimants may in part be off set against a 10 per cent increase in general damages, the simple arithmetic shows that the increase is unlikely to replace the percentage paid to their lawyers. They will also have to bear the burden of any ATE insurance premium provided that such a service will still be available after implementation of the proposed changes. Whilst it was envisaged that wider availability of before the event insurance would solve the problem of the irrecoverability of ATE insurance premiums, the truth of the matter is that legal expenses covers are not always taken out by consumers looking for the best deal on their insurance policies. Oddly, losing claimants may gain from the proposed changes as they will no longer have to pay the costs of winning defendants. 5 The authors of this article consider that whilst changes are necessary to redress the balance, the proposals contained in the Bill have consequences well beyond the problem they seek to address. A more focused approach should be considered. The Government should consider alternative measures such as removing the automatic right to recover 100 per cent uplift in cases that conclude at trial regardless of the risks, admissions of liability and Part 36 consequences. Alternatively, a staged success fee may answer the criticism that 100 percent success fees are too expensive. 5 Per Lord Davidson of Glen Clova, second reading in the House of Lords 6 / 24

7 A further debate of the Bill took place on 20th December 2011 before a Committee of the whole House. It remains to be seen whether the many valid concerns raised during the second reading of the Bill will be properly considered in due course so that civil litigation will not become an unaffordable luxury. 5 Per Lord Davidson of Glen Clova, second reading in the House of Lords 7 / 24

8 The Civil Justice Council and the Jackson Working Party Andrew Hogan Introduction The Civil Justice Council has set up what it describes as an expert working party to help develop practical proposals to assist with the implementation of secondary legislation such as regulations or court rules in a number of areas, qualified one way cost shifting, atypical cases and behavioural aspects, the introduction of additional sanctions or rewards under Part 36 and the detail of the proportionality test with content of a practice direction and examples of when the test should not be applied. The role of the working party The role of the working party is really to consider options. The working party is not meant to be revisiting the policy objective set out in the government response but to focus on the practical measures which are required to give effect to the proposal. The detailed drafting of any secondary legislation is (says the Civil Justice Council) a matter for the Civil Procedural Rules Committee (if indeed it is part of the Civil Procedural Rules) and/or government lawyers (if it is secondary legislation properly so called) the working party intended to draft papers setting out optional solutions together with an analysis of pro and cons in the last part of The working party has produced a document entitled the CJC Working Group on Technical Aspects of Jackson Implementation: Options for Proportionality, Part 36 Offers and Qualified One Way Cross Shifting. The paper runs to 102 pages A4 and was published in October The options that it considers can be summarised under each of the three areas it has been tasked with looking at. Proportionality The working party has come up with four potential alternatives to meeting the objectives of a new rule on proportionality. (a) The Longstop Model. There would be no preliminary determination as to proportionality akin to the current Lownds Test. Instead, under this proposal reasonableness (alone) would be applied to each item of costs or category costs as disputed by the paying party or as identified by the Court. It would only be at the end of the assessment that the proportionality and the new rule would be applied and then only in exceptional cases. The purpose of the Longstop is to provide the Court with an extra tool as a Longstop to be applied only in exceptional cases to reduce otherwise reasonable costs to proportionate level. The cases falling within the Longstop would be exceptional and rare (because 8 / 24

9 under this model reasonableness is synonymous with proportionality) and in all probability would bite on cases which in the light of the overall reasonable expenditure should not have been pursued and brought to a conclusion in the way they were. These will turn to be rare and exceptional cases. (b) Reversal of Lownds model. Under this model there would be no Longstop application of proportionality. Proportionality would be applied at the end in all cases. Instead of proportionality being considered at the outset (Lownds) it would only be considered at the end and then not part of a Longstop. The bill of costs would be assessed item by item (or by category) against the sole test of reasonableness. Once the bill has been assessed as reasonable, the Court would go on as a matter of routine to apply the proportionality test to reduce the bill still further to a proportionate level. Unlike option A, the proportionality test would be applied and engaged in all cases and not just rare or exceptional cases. (c) The hybrid model. Under this model both reasonableness and proportionality are considered at the same time whenever and item or category is being assessed/budgeted. Unlike A and B proportionality (and the new rule) is applied as the items of the bill or category of costs are being assessed alongside considerations for reasonableness. There is then a residual Longstop for the Court to reduce the figures still further if the proportionality rule justifies it. This would be applied only in rare/exceptional cases. Like option A, the application of the Longstop will be in exceptional or rare cases only, but this time not because reasonableness would have catered for disproportionate costs (as in option A) but because inevitably where a Court has assessed items as being reasonable and proportionate during an assessment there will only be in exceptional rare cases that the outcome of the assessment results in a disproportionate figure (d) Retention of Lownds. Proportionality will considered at the outset. If the costs as a whole appeared disproportionate within the meaning of the new rule then the necessity test would apply. Unlike the present day application of Lowndes, the practice direction would contain lists of factors relevant to the application of a necessity test and make it clear what may it clear what may be reasonable or may not. Each of these options is potentially flawed. The notion of a long stop discount test of proportionality, is a recipe for satellite litigation, as it will introduce chronic uncertainty into the assessment of costs, both in terms of when such a deduction will be applied and in terms of what the quantum of deduction might be. Perhaps, more significantly, it is disappointing that even now, some 15 years after Lord Woolf borrowed the concept of principle of proportionality from European Union law, it remains a nebulous and uncertain concept, hard to define and even harder to apply, which is conceptually very odd, when one considers that the stated aim of Jackson was to reduce perceived disproportionate costs to a proportionate level. If you can t define proportionality, how can you judge whether you have succeeded or not in moving from a disproportionate model of costs to a proportionate one. 9 / 24

10 Sanctions for the Claimant s Part 36 Offer A key proposal of Jackson is to beef up claimant s part 36 offers, to give them more of a parity in their consequences to the effect of failing to beat a defendant s part 36 offer. The key question which is not yet settled, is whether the sanctions for failing to beat a claimant s part 36 offer should sound in damages, or costs. It is material to note that the majority, although not all, of the working group favoured a cost based sanction rather than a damages based sanction recommended by Lord Justice Jackson. If cost based sanctions were to be implemented the majority of the working group were attracted to a solution involving significantly enhanced interests on costs of a prescribed rate of say 25% above the base rate. If a cost based sanction were to be implemented it could be applied by one of 3 options. Option A1: Cost based sanction (enhanced interest on costs of a prescribed rate of say 25% above base rate) biting on Judgment only, preferred by the majority of the working group. Option A2: Cost based sanction (enhanced interest on costs of a prescribed rate of say 25% above base rate) also biting on acceptance of claimant s Part 36 offer pre-trial, preferred by a minority of the working group. Option A3: Costs based sanction applying to non-personal injury cases with a damaged based sanction only applying to personal injury cases preferred by a minority of the working group. Conversely, if a damages based sanction as proposed by Lord Justice Jackson were to be implemented, a majority of the working group agreed that a cost based sanction as outlined above should be used for nonfinancial claims or a cost based sanction should be used for what are termed mixed claims. The proposals favoured by the working party would, in effect, re-introduce recoverable success fees through the back door. In essence, the claimant s lawyers would bet that they will beat their part 36 offer and will be rewarded by a 25% interest derived, success fee. Although interest on costs nominally belongs to a client, usually, under the terms of a retainer, it will be payable to the lawyers. Such a reform, would undoubtedly give real teeth to claimant s part 36 offers however. 10 / 24

11 Qualified One Way Cost Shifting Qualified one way costs shifting is seen by Lord Justice Jackson as a panacea for providing costs protection for losing claimants and justifying the end of recoverable ATE insurance premiums in personal injury litigation. Qualified one way costs shifting is a concept that for Middle England probably has no relevance whatsoever, due to the fact it is to be means tested in its application. For that part of the population, ATE, BTE, and Trade Union indemnities will have to fill the gap, just as they did, with limited success, before 1st April What will be a new and potentially very important form of costs protection will be solicitor s indemnities, offered through alternative business structures, possessed of significant capital reserves. Such a form of funding may, in time, come to dominate the personal injury market place. The ambit of the working party is not concerned with the means testing criteria however. They are concerned with when, as a point of principle, what circumstances within the litigation might cause the loss of qualified one way costs shifting. In this respect the considerations of the working party are quite interesting. They decided that claims for personal injury should be widely interpreted for the purposes of qualified one way cost shifting and it should be noted that Rule 2.3 of the Civil Procedural Rules 1998 provides an extended definition of what is a personal injury claim in any event. The crucial point to note was that the operation of qualified one way cost shifting where a claimant has failed to beat a defendant s Part 36 offer is described as critical. A majority favoured the normal principles of Part 36 taking precedence over qualified one way cost shift shifting with a set off of damages operating as a control mechanism and a majority also favoured setting off costs as well as damages. A minority rejected the costs set off arguing that it could cause uncertainties and raise indemnity principle points. A minority favour the primacy of qualified one way cost shifting over Part 36. It cannot be stressed how important this point is. In the writer s view, if part 36 offers by a defendant cause the loss of qualified one way costs shifting protection, the benefits of the new system will prove illusory. No properly advised claimant, will take the risk of not beating a part 36 offer and risking financial disaster from doing so. 11 / 24

12 Qualified One Way Cost Shifting The working party unanimously agreed that the bringing of a fraudulent claim should cause the loss of qualified one way cost shifting protection: but of course this begs the question of what is fraudulent? Certainly, one anticipates staged accidents would fall within this category. But what of the situation of where a claimant is exaggerating the value of his claim? Or where there is a real issue as to whether the claimant was exaggerating his claim and it has been decided by a Judge that he was so exaggerating? The majority of the working party also accepted that striking out a claim for abusive process should cause the loss of qualified one way cost shifting protection and the impact of the bringing of a frivolous claim or general or unreasonable litigation conduct can be resolved in a number of ways by adopting a high threshold test or a low threshold test whilst treating the matter solely as a matter of judicial discretion. The working party also believed that qualified one way cost shifting should apply to areas and types of personal injury claims on which costs are fixed, counter-claims and cases involving multiple defendants, multi party claims in which the harm complained of falls within the personal injury definition and mixed claims in which damages for personal injury are sought alongside a long non-monetary remedy and a number of practical points arose as to how qualified one way cost shifting might apply in cases in which a claim has been discontinued. Conclusions The overall tenor of the Jackson reforms is well known. There is clarity on the key change, that of the end of recoverability of additional liabilities. But the current proposals on such topics as qualified one way costs shifting and particularly proportionality indicate that there is a long way to go before the reforms which their final shape and that there is every prospect of the law of unintended consequences being invoked, to spark off a new chain of costs wars. 12 / 24

13 Costs Update: Pre-Action Disclosure Philip Davy Introduction It is common to see an applicant for pre-action disclosure ( PAD ) asking for his costs of that application at the same time. This seems surprising in light of the general rule relating to costs of such applications, set out at Part 48.1(2) of the Civil Procedure Rules ( CPR ): 48.1 Pre-commencement disclosure and orders for disclosure against a person who is not a party (2) The general rule is that the court will award the person against whom the order is sought his costs (a) of the application; and (b) of complying with any order made on the application. The rationale behind that general rule was famously described by Moore-Bick LJ SES Contracting Limited - v- UK Coal Plc and Others [2007] EWCA Civ 791, at para.17: Although a respondent to an application may incur some costs merely in considering what response to make to an application of this kind, in most cases he will only incur substantial costs if he opposes it. By laying down a general rule that the respondent will be awarded his costs, therefore, I think that the Rules implicitly recognise that it will not usually be unreasonable for him to require the applicant to satisfy the court that he ought to be granted the relief which he seeks. The reason for that (if it be necessary to find one) lies, I think, in a recognition that a private person who is not a party to existing litigation which brings with it an obligation of disclosure, is entitled to maintain the privacy of his papers unless sufficient grounds can be shown for overriding it.... In ordinary circumstances, a respondent is entitled to oppose an application and is entitled to incur (and be reimbursed for) the costs of so doing, even where those costs may be substantial. The court does, however, have the power to make a different order. That power is set out at CPR Part 48.1(3) (3) The court may however make a different order, having regard to all the circumstances, including 14 (a) the extent to which it was reasonable for the person against whom the order was sought to oppose the application; and (b) whether the parties to the application have complied with any relevant pre-action protocol. 13 / 24

14 In SES Contracting (above), the respondent had opposed the PAD application and provided witness evidence in support of that opposition in the form of witness statements. The Judge was critical of the respondent for not attaching to those witness statements any objective evidence, for example documents. He ordered disclosure. He also ordered that the respondent should bear both parties costs of preparing for and attending the 3-day application hearing. On the respondent s appeal against the costs order, the Court of Appeal took the view that the respondent s opposition could not properly be termed unreasonable. In the particular circumstances of the case, the only means by which the respondent could objectively support its witness evidence would have been by disclosing the very documents it was seeking to keep private. To put a respondent in that position would leave him without effective means of opposing a substantive application. Merely because the respondent was subsequently ordered to disclose those documents did not necessarily mean they should have been disclosed earlier; a respondent was permitted to require the applicant to prove his entitlement to those documents first. The Court of Appeal therefore decided that no order as to costs was the appropriate order to make. Whilst the SES Contracting case is helpful in establishing that the court is prepared to depart from the general rule, it is quite fact-specific and does not of itself establish any principle which goes beyond the wording of CPR Part 48.1(3). In the earlier case of Bermuda International Securities -v- KPMG [2001] EWCA Civ 269, the Court of Appeal refused to interfere with the Judge s finding that KPMG had unreasonably resisted the PAD application and should not, therefore, be entitled to their costs thereof. Nonetheless, the Judge only went as far as to make no order as to costs, and that part of his order (at least as far as it related to the costs of the application) was also left untouched by the CA. Apart from SES Contracting and Bermuda, there is only a small number of recent cases in which the courts have considered departing from the general rule on costs, some of which are discussed below. Recent Developments Carter -v- Care Management Group (March 2007) (unreported) (Lawtel), was a decision of District Judge Jackson in the Wigan County Court and pre-dated SES Contracting. Except to acknowledge receipt of the letter of claim, the respondent had failed to provide a decision on liability within three months. The applicant had permitted the respondent a further 7 days to rectify that breach of the personal injury pre-action 15protocol, after which it threatened to issue a PAD application. The respondent did not take advantage of that extension of time and the applicant made its application. The respondent subsequently went on to provide the disclosure sought, but the applicant did not drop its application and took the matter to a hearing in an effort to get its costs. 14 / 24

15 At the hearing, the respondent sought to argue that its silence had not amounted to opposition properly so called. The Judge disagreed, finding that the respondent had acted unreasonably. Faced with a complete lack of cooperation, the applicant had been entitled to issue its application and was entitled to its costs of that application. The Carter case is interesting in another respect. Whilst the respondent appears to have failed to comply with the relevant pre-action protocol, the District Judge did not refer in any detail to that protocol. Instead, the Judge appeared to take the view that the non-compliance was effectively part-and-parcel of an overall spirit of unreasonableness on the part of the respondent, and exercised his discretion under CPR Part 48.1(3) accordingly. In Ixis Corporate and Investment Bank -v- Westlb AG and Others [2007] EWHC 2064 (Comm.), Aikens J was asked to determine the reasonableness of the respondent s opposition to a PAD application. The respondent had received correspondence requesting documents. It had taken some time to consider its position. It reached the view that the applicant was not entitled to all of the documents sought, and so effectively adopted the position that the applicant would have to go to court to get the documents. At the hearing, the respondent succeeded in cutting down the categories of documentation, but an order that it provide PAD of some of the documents was still made. Moduleco -v- Carillion [2009] EWHC 250 TCC was a decision of Akenhead J in the Technology and Construction Court. The Judge took the rather novel approach of finding that Carillion s initial opposition to the application had been reasonable, but that it had become unreasonable in the run-up to the hearing. That theory was given some support by Carillion s agreement, shortly before the hearing, to make disclosure of effectively the same documents being sought by Moduleco. In fact, there had been effectively a contract in place between the parties, pre-dating the proposed proceedings, for the provision of certain classes of document by Carillion to Moduleco, because they were also involved in a mutual dispute with a third party. The fact that that contract covered the same or similar documents to those which Moduleco was 16seeking in the index application must have been another factor which coloured the Judge s view of Carillion s continued opposition. Nonetheless, the Judge was not persuaded to depart from the general rule. He ordered the applicant to pay the respondent s costs of the application, but he reduced those costs by 50% to reflect the fact that the respondent s opposition had, at least for some of the time, been unreasonable. This case appears to suggest the existence of a further alternative for the Judge to consider, before going even as far as to make no order for costs. At the same time, the prospect of an order entirely against a respondent becomes even less likely, save in the most obvious cases of non-compliance and noncooperation. 15 / 24

16 Connaughton -v- Imperial College Healthcare NHS Trust [2010] EWHC (Costs) may have been one such case. The matter came before Master Harworth, Costs Judge, on a separate question of enforceability of CFA agreements in relation to pre-action matters and his judgment therefore gives little detail about the preceding PAD hearing. However, it is apparent that the applicant was awarded her costs of the PAD application. One indication that the respondent must have acted unreasonably in opposing the application is that it went on to provide disclosure just two days before the hearing was listed to take place. Suggestions for practice The pre-action protocols are intended to promote cooperation between prospective parties to litigation, but they often lead instead to pre-action posturing and animosity between the parties. The means of avoiding that sort of atmosphere are the same means which will assist the parties in arguing for their respective costs if a PAD application becomes necessary. Communication is key. Taking the personal injury pre-action protocol as an example, a prospective defendant is given just 3 months from receipt of a letter of claim in which to complete the following: (a) (b) (c) (d) Investigating liability; Reaching a decision on whether to admit or dispute liability (which may include obtaining legal advice); Informing the prospective claimant of that decision; and If liability is denied, obtaining, examining, copying and sending documents in support of that denial. With the best will in the world, deadlines of that nature can be problematic for defendants and their insurers. The problem is made worse if a prospective defendant has to spend valuable time seeking clarification from the claimant of some aspect of his case. It is important to bear in mind that a claimant in a personal injury action has 3 years from the date his cause of action accrued in which to bring proceedings. It is easy to envisage a situation where a prospective defendant receives the letter of claim long after the relevant incident. Reaching a decision on liability in those circumstances will be a difficult and time-consuming task. If a defendant or his insurer finds himself in genuine difficulty in complying with the protocol, he should inform the claimant of that difficulty as soon as possible, requesting a reasonable extension of time and ensuring that he is actively undertaking what investigations he can in the meantime. If the lines of communication are kept open, an application is less likely to be made. If the claimant then chooses to press ahead with an application, the defendant can at least hope to be protected by Rule 48.1(2) when it comes to costs. 16 / 24

17 From a claimant s perspective, it should be borne in mind just how high the threshold has been set in the authorities before costs will be awarded to an applicant. The PAD application is, and should be used as, a measure of last resort. Correspondence from the defendant should not go unanswered, particularly where he is seeking genuine clarification of an issue or is reporting difficulty with its investigations. If the claimant suspects a defendant is asking for clarification of an unnecessary point, or is delaying making a liability decision on flimsy grounds, that fact should be pointed out to the defendant before an application is issued. Silence works against a defendant (as in Carter), but a claimant who chooses to play his cards too close to his chest will struggle to overcome the general costs rule to any useful extent, and the PAD application can end up being a fairly costly venture. If an application is made, any draft order should be targeted; only those documents of which disclosure is likely to be ordered and which are of obvious relevance to the prospective claim should be sought. A scattergun approach will give the defendant grounds for opposing the application all the way to a hearing (see Ixis, above). The same mindset should be adopted, as a matter of good practice, when drafting the letter of claim. Where it takes the issuing of an application to prompt a slightly disorganised defendant into giving the disclosure sought, the authorities suggest that the court is unlikely to go further than to make no order for costs. In those circumstances, it would probably be more economical simply to abandon the application there and then, unless there are obvious examples of non-compliance and non-cooperation on the defendant s part. Only in the most clear-cut cases can an applicant go into a hearing confident of getting its cost 17 / 24

18 Solicitor s and Non-Party Costs Andrew Prestwich Introduction This article considers a specific issue of costs which with increasing frequency is facing Defendants. Sometimes, an unsuccessful Claimant does not have the wherewithal to pay the winning Defendant s costs. Sometimes there has been a private retainer but the Claimant does not have the funds. Sometimes there has been a Conditional Fee Agreement in respect of which the insurers have repudiated liability. Sometimes there has been no Conditional Fee Agreement at all (and in some of those cases it is questionable precisely what retainer existed). Sometimes, indeed, an appeal will be pursued by the losing Claimant. In respect of that appeal, it might well be (particularly in a low value claim) that the Solicitor in practical terms has a greater interest in the outcome than the Claimant. That is because the Solicitor s costs might be many times greater than the value of the claim. The appeal might also be lost by the Claimant. Indeed, of course, for the Solicitors there will be little direct cost in relation to the appeal (certainly not when compared with the overall value of costs in the case - particularly if Counsel on the appeal is acting pursuant to a conditional fee agreement). A Defendant in circumstances such as those outlined hereinabove might find himself with no ability to enforce costs. The Claimant might be a foreign worker who has returned home. Or the Claimant might be impecunious or difficult to trace. In what circumstances can the Defendant pursue the Claimant s Solicitors? There are two obvious possible routes by which costs might be pursued. One of them will almost always fail (except in very strong cases) but the other might have some prospect of success. The one that is likely to fail is an application for wasted costs involving improper, unreasonable or negligent conduct under Section 51(6) and (7) of the Senior Courts Act Improper conduct means the sort of conduct which would ordinarily be sufficient to justify striking off or, at least, suspension from practice or other serious professional penalty. Accordingly, it involves conduct which would be regarded as improper by the profession. Simply running a claim (and, more particularly, an appeal) in the sort of circumstances posited hereinabove, seem to me not to fall into that category. Unreasonable conduct would be that which is vexatious or is designed to harass the other side. The issue is not one of motive but of whether the conduct permits of a reasonable explanation. I do not think that pursuing the lost or unrecoverable costs in the sort of circumstances outlined hereinabove could be said to be vexatious or to constitute harassment of the Defendant. 18 / 24

19 Negligent behaviour in this context does not mean something which would be sufficient to constitute professional negligence in respect of which a cause of action would lie but it nonetheless has to constitute a display of incompetence to an extent that the Solicitor has not done that which would reasonably be expected of the ordinary Solicitor. Again, I think that one would ordinarily struggle to come within that category. But what of a non party costs order? The Court will always take account of the extent to which the third party has a direct interest in the outcome of the litigation. Thus, in T.G.A. Chapman Ltd v. Christopher (1998) 1 W.L.R. 12, the Court of Appeal considered the case of an insurer of a party who had taken the decision to contest an action in order to avoid or reduce their liability to the Claimant. The facts were that the Plaintiffs were the owner and lessee of a warehouse which the First Defendant negligently set alight. The Defendant had no assets save for an insurance policy. L.J. Phillips identified five features which justified a third party costs order on the facts of that particular case (i) The insurers determined that the claim would be fought; (ii) The insurers funded the Defence of the claim; (iii) The insurers had the conduct of the litigation; (iv) The insurers fought the claim exclusively to defend their own interests; (v) The Defence failed in its entirety. The pre-requisite, of course, is establishing that Solicitors in some sense have funded the litigation. It is my view that Solicitors always to some degree fund litigation if only in the sense that they provide their own services (effectively) for free in accordance with a Conditional Fee Agreement. Lloyd L.J. at paragraph 25 of the case of Myatt v. National Coal Board (2007) EWCA Civ. 307 dealt with this point by stating that it must be assumed that Solicitors are funding an appeal, at least by paying Counsel (who in that case were not acting on a CFA) and who were providing their own services for free; he concluded that they were acting as a funder although also as a Solicitor. So much for the issues of general principle: what of the specific position of Solicitors? Mainwaring v. Goldtech Investments Ltd (1991) The Times 19th February is regarded as Court of Appeal authority for the proposition that Solicitors who conduct litigation in the knowledge that there is no real likelihood of having their costs paid by their client (save in the event of the litigation being successful) may be made personally responsible for the other party s costs. But I would sound a note of caution in this regard because that case pre-dates the introduction of Conditional Fee Agreements in this country. It is a case which to a great extent was argued on the concepts of the indemnity principle and maintenance. However, there is one particularly helpful case, namely, Myatt v. National Coal Board (No. 2) (2007) EWCA Civ In that case, the Court of Appeal reviewed the principles applicable to the exercise of the Court s discretion 19 / 24

20 under Section 51(1) and (3) of the Supreme Court Act 1981 as set out by Lord Brown in the Privy Council in Dymocks Franchise Systems (New South Wales) Property Ltd v. Todd (2004) 1 W.L.R where at paragraph 25 he gave a summary of the position as follows: 1. Although cost orders against non-parties are to be regarded as exceptional, exceptional in this context means no more than outside the ordinary run of cases where parties pursue or defend claims for their own benefit and at their own expense. The ultimate question in any such exceptional case is whether in all the circumstances it is just to make the order. It must be recognised that this is inevitably to some extent a fact-specific jurisdiction and that there will often be a number of different considerations in play; some militating in favour of an order, some against. 3. Generally speaking, the discretion will not be exercised against pure funders described in paragraph 40 of Hamilton v. Al Fayed (No. 2) (2003) Q.B as those with no personal interest in a litigation, who do not stand to benefit from it are not funding it as a matter of business and in no way seek to control its course. In their case the Court s usual approach is to give priority to the public interest in the funded party getting access to justice over that of the successful unfunded party recovering his costs and so not having to bear the expense of vindicating his rights. 4. Where, however, a non-party not merely funds the proceedings but substantially also controls or at any rate is to benefit from them, justice would ordinarily require that if the proceedings fail he will pay the successful party s costs. The non-party in these cases is not so much facilitating access to justice by the party funded, as himself gaining access to justice for his own purposes. He himself is the real party to the litigation, a concept repeatedly invoked throughout the jurisprudence Consistently with this approach Philips L.J. described the non-party underwriters in T.G.A. Chapman Ltd v. Christopher (1998) 1 W.L.R. 12, 22 as the Defendants in all but name. Nor, indeed, is it necessary that the non-party be the only real party to the litigation in the sense explained in the Knight case, provided that he is a real party in very important and critical respects. In the Myatt case, the Solicitors had a very substantial interest in the litigation. The appeal the costs of which were at issue constituted an appeal relating to the enforceability of the Conditional Fee Agreements. In other words, the Solicitors had the principal (if not the entire) interest in the outcome of the appeal. My own view is that it would be wrong to say that they had the entire interest: their client also had an interest because, of course, in the absence of insurance, the Claimants themselves were liable to have costs orders enforced against them by the Defendant. Plainly the Claimants in Myatt had a financial interest in the appeals since they were left with a considerable shortfall in the recovery of costs and that would have to be paid from their damages. Interestingly, the agreed damages were very modest, sums of the order of 3,000 to 4,000. In giving the leading judgment in the Court of Appeal in the Myatt case, Dyson L.J. expressed the view that a 20 / 24

21 Solicitor who acts outside the role of Solicitor (in a private capacity or as a true third party funder for someone else) includes a Solicitor who is a real party in very important and critical respects and who not merely funds the proceedings but substantially also contributes, or at any rate is to benefit from them. He refused to accept that the mere fact that a Solicitor is on the record as acting for a party means that he cannot be the subject of a successful application that he should pay some or all of the costs under Section 51(1) and (3) of the Supreme Court Act Ideally, one will see the other side s file. No doubt the Solicitor will say that there is privilege and that it is the client s privilege and that it is not for the Solicitor to waive that privilege. But it seems to me that the Solicitor ought at least then to say whether he has asked his client whether privilege can be waived. It probably does not matter to the client whether privilege be waived or not. Moreover, there are certain key documents which surely do not attract legal professional privilege. If there is a Conditional Fee Agreement, it should be disclosed. It might (or might not) bear the Claimant s signature. But it will not contain any advice. Legal professional privilege should not attach to it. In any event, it is the Solicitor s document rather than the client s document. Similarly, a written retainer is provided by the Solicitor for his own protection. It is his document. Ordinarily, he will ask the client to provide a signed copy of it. My view is that that should be produced in the course for any claim for costs against the Solicitors. If one finds that there is no signed retainer and no signed Conditional Fee Agreement, one will have a much stronger case than if either of those documents exists. A more recent case of interest on this topic is Mohammed Adris v. Royal Bank of Scotland plc (Defendant) and 3 Interested Party (1) Cartel Client Review Limited (2) Richard Burley (trading as Consumer Credit Litigation Solicitors) (3) Carl Wright [2010] EWHC 941 (Queen s Bench). It is important to note that in that case the Solicitor had been given specific instructions to take out an insurance policy but had not done so. Nonetheless, it is a helpful authority in circumstances such as those which I have posited. The Applicant Bank applied for non-party Costs Orders against the Respondent Interested Parties and, in particular, against the Second and Third Interested Parties. The Second Interested Party was the relevant firm of Solicitors. The Third Interested Party was the sole shareholder and managing director of the First Interested Party which was a Claims Management company. The issue arose in Consumer Credit claim proceedings. A number of Claimants had brought claims against the Banks, alleging breaches of the Consumer Credit Act 1974 and, in particular, Section 78 thereof. The Claimants had made their claims through the First Interested Party, namely, the Claims Management company. They had been represented in their claims by the aforementioned firm of Solicitors. The Claims Management company had referred the Claimants claims to those Solicitors which became responsible for the 21 / 24