Costs E-journal January 2013
Editorial Another year, another edition of our occasional publication, Ropewalk Chambers Costs E-journal. In this issue we consider certain points of practice and procedure which can arise at trial and a recent decision of the Court of Appeal which will have significant implications for BTE insurers, as well as the lawyers who act under the terms of such insurance. The decision foreshadows the oncoming storm of the FSA investigation into insurance bolt ons, such as BTE insurance, which will shortly break. April 2013 should see the implementation of that package of reforms, advised by Lord Justice Jackson, whose final report is now 3 years old. It should be noted that, in addition to the Jackson proposals, the whole industry of personal injury litigation is liable to be recast by other developments: not least the ongoing consultation into whiplash claims, the accelerating introduction of Alternative Business Structures and, imminently, the raising of the Small Claims Track limit. The reforms will plainly be the most significant for the industry since Woolf and the Access to Justice Act 1999 and it will take years for the satellite litigation they will create to come to an end. Andrew Hogan Ropewalk Chambers 2/17
A Warning in Settling a Case on the Day of a Trial when one of the Parties is on a Conditional Fee Agreement Andrew Lyons GEORGE LOIZOU v (1) NATHAN GORDON (2) YIANNI PATSIAS (Unreported but can be found on both Lawtel and Westlaw 21 August 2012; Senior Courts Costs Office) Introduction The latest news from the Jackson reforms appears to be that uplifts in conditional fee agreements will be allowed for all conditional fee agreements entered before April 2013 (whether or not the actual claims are issued prior or post April 2013); if this is correct the last conditional fee agreement cases will be decided even as late as 2016. This costs decision is a warning for litigants as to when a case may be deemed concluded 'at trial', for the purpose of determining the appropriate uplift on solicitors fees under CPR 45.16 and presumably counsel s fees under CPR 45.17. Facts The case arose out of a road traffic accident. The Claimant's vehicle, being driven by the Second Defendant was involved in a collision with the First Defendant. Both the Claimant and Second Defendant made claims for damages. Liability between the First and Second Defendant was disputed. On 21 st of July 2011, a liability only trial was listed before Mr Recorder Hochhauser QC. The First Defendant and his witness were not in attendance on the day of the hearing. The parties were called into court before the Judge. Counsel for the Claimant opened by introducing the parties' representatives, going no further before deferring to Counsel for the First Defendant to make an application to adjourn the liability trial to another date. The Recorder refused the application allowing only a short adjournment in the following terms: 3/17
'I will adjourn for five minutes. I will start this case at quarter to'. Following the receipt of instructions, liability was then conceded by the First Defendant by way of counsel confirming consent to judgment being entered against the First Defendant on the question of liability only. The Recorder gave judgment by consent for the Claimant against the First Defendant, dismissed the claim against the Second Defendant, and ordered the First Defendant to pay the costs of both the Claimant and Second Defendant, following quantification or agreement of damages. The Second Defendant's damages were subsequently agreed between the parties without a hearing. The Issue The assessment of the Second Defendant's costs then came before Master Leonard. The Second Defendant's solicitors acted under a conditional fee agreement. The fixed uplift allowed in relation to solicitors fees in Road Traffic cases under CPR 45.16 is 100% where a claim concludes at trial or but only 12.5% where the matter concludes before a trial has commenced. The issue to be determined was this: What is the appropriate level of uplift to be applied to the Second Defendant's costs under CPR 45.16? In other words did the claim conclude 'at trial', with the Claimant entitled to a 100% uplift on base profit costs, or 'before a trial had commenced', with the Claimant only entitled to 12.5% uplift on base profit costs? The Arguments The Judge was referred to a number of authorities including Dahele v Thomas Bates and Son [2007] EWHC 900721 (Costs) Sitapuria v Khan (Unreported 10 December 2007) Thenga v Quinn [2009] EWCA Civ 151 Gandy v Quinn [2010] EWHC 90177 Costs Amin & Anr v Mullings & Anr [2011] EWHC 278 4/17
The First Defendant's arguments focused on the following: a. A trial begins with the commencement of the 'contested hearing' rather than simply after the matter is called on an opened. b. The rules should be read purposively. A 100% uplift being applied should be applied only once the relative risk arises. The risk to the representatives of non-payment of their fees only materialises once the court commences adjudication on the substantive issue. c. No evidence was called or presented to the court to adjudicate on in this case by either party; the contest never engaged. d. A hurdle of merit is required to trigger the increased uplift. Otherwise parties would be incentivised to come before the court on interlocutory matters to trigger the increased uplift. The Second Defendant's arguments can be summarised as follows: a. A common feature of the cited authorities which allow for the 12.5% success fee is that in each case the claim had settled before the matter came before the trial judge, the judge's role being limited to approval of an agreed compromise. This case therefore comes on the other side of where rule-makers have drawn the line triggering the 100% success fee. b. Had an application for an adjournment not been made, the opening of the Claimant's case would have been just as brief as occurred on this occasion, as he was the innocent party. c. The issue of liability was at large when the trial was called on and while the application to adjourn was made. An officious bystander would conclude the application to adjourn was made within the trial and once this application was dismissed the trial situation was restored. 5/17
d. The application to adjourn, once dismissed, did not result in the case falling into a procedural no-man s land. The First Defendant could have put the Second Defendant's witnesses to proof and this did not prevent the trial continuing its ordinary course. e. In consenting to judgment being entered against her Client on liability, Counsel for the First Defendant accepted the consequences, including those on costs. f. The rules in CPR 45.15 and CPR 45.16 are plain and clear. No artificial construction of the wording of those rules is necessary. The Decision The Master concluded that a 100% uplift was appropriate as the claim concluded at trial. There being an opening of the hearing (listed as the trial), albeit brief and limited to introductions was sufficient cross the threshold for commencement of the trial. The judge accepted the argument of the Second Defendant that a distinction between the instant case and the authorities cited above, was that at the time that the trial opened all issues were still contested. The judge's analysis focused on defining a contested hearing to include the preliminary stages before evidence is heard or submissions are made. He concluded the provisions of CPR 45.15(6)(b) and CPR 45.16, when read together, refer to the commencement of a contested hearing on substantive issues without reference to the stage at which that hearing has reached, once commenced. The judge interpreted the Recorder's words; referring to making a start after the short adjournment, as meaning (once read in context) of getting underway with the evidence and submissions rather than starting the trial. Master Leonard concluded that this view was consistent with the view of Wilson LJ in Thenga; HHJ Stewart Sitapuria and Slade J in Amin. In particular, in accord with Wilson LJ, Master Leonard declined to look beyond the wording of the rules to address any mischief intended to be avoided by the rule-makers. Just 6/17
as HHJ Stewart had concluded, the contested hearing begins when it opens (or just begins to open); Master Leonard went a step further in determining that 'the line... is crossed as soon as parties' representatives appear before a judge in a contested hearing'. Discussion The reasoning of this case is a stark warning to parties that the threshold of the court will be (in many cases) the Rubicon crossed, invoking the increased fixed uplift under CPR 45.16. Certainly, the decision sends a clear message to the likely paying parties that settlement, where possible and desired, should not be left until the door of the court. The vagaries of litigation mean that parties might just step over the threshold and be faced with a heavy bill. A party without a crucial witness or evidence to rely on at trial would be well advised to consider the trial having commenced once making a formal application to adjourn on the day of trial itself, or even simply appearing before the judge. Although this case concluded at the hearing with the judge giving judgment; following the reasoning of Master Leonard, had the First Defendant been successful in its application, the trial would still have commenced irrespective of whether the parties settled the question of liability before the re-listed hearing; the 100% uplift would apply. Accordingly, a difficulty may be faced when litigants have some but little advance notice of an application by another party to adjourn. Parties in this situation are normally required to make an application under part 23. In practice, such an application (if very close to trial) would usually be listed by the court for the same time as the listed trial. If wishing to avoid any suggestion the trial has commenced, it appears imperative that the applicant open its application before the Claimant s representative opens (however briefly) the trial. It is a conceivable anomaly that the outcome of the race to speak first with concurrently listed hearings will be determinative of the question of the appropriate uplift, where an application is successful and the substantive claim settles before the re-listed trial. 7/17
A more troubling situation may arise if a litigant is forced to make an application to adjourn on the day of trial as a result of another party s conduct, for example, by its late service of witness evidence. Hypothetically speaking, even where the party responsible for the adjournment has been ordered to pay the costs thrown away as a result of the adjournment, his lawyers acting by way of a conditional fee agreement would arguably still benefit from the maximum uplift if successful settlement subsequently occurs without a further hearing. This happened to me, and I asked the Judge to put in the recital that the trial had not started in order to protect the Defendant from the Claimant arguing they were entitled to a 100% uplift if the matter settled before the next trial date. The judge agreed to put such a recital in the Order. Of course, the instant case is a first instance decision in that the Master recognised the probability that the paying party would wish to appeal. As such, he gave permission and any such appeal is yet to be heard at the time of writing this comment (due to the passage of time it seems unlikely the First Defendant will appeal this decision). In the light of the above decision, it is important that before settling a case on the day of the trial that the party settling the case seeks to come to an agreement with the other side as to what uplift is appropriate. 8/17
More trouble with Part 36 - The split trial Simon Beard At the time of writing, detailed proposals are awaited on how the Part 36 regime will operate in the post Jackson era, but it seems likely that the present regime will continue to apply to claims issued before April 2013 and will be with us for some time. If so, recent first instance High Court cases have brought into focus a problem and potential injustice, arising from the application of the Part 36 regime where there has been the trial of a preliminary issue, usually where liability has been tried before quantum. Under CPR 3.1(2)(i) the power of the Court to direct a separate trial of any issue is specifically identified and on the face of it, one would not expect the exercise of that power to place the party succeeding at the trial of the issue at a costs disadvantage. A claimant succeeding at a trial of liability either entirely, or subject contributory negligence, would have a reasonable expectation of recovering his liability costs at that stage. Unfortunately, where there has been a Part 36 offer by either party, even if the offer relates only to liability and the party has beaten his offer, the restriction on disclosure of Part 36 offers in 36.1(3) until the case has been decided presents a very real obstacle to recovery of costs, as the recent decisions demonstrate. A restriction on communication to the Court of payments in and offers has always been a feature of the former and present Part 36 regimes. Before 6 th April 2007, when the present Part 36 regime came into effect, the restriction, then in 36.19, was subject to an exception where the issue of liability had been determined before the assessment of quantum. The fact that there had, or had not, been a Part 36 payment might be relevant to the question of costs of the liability issue. The Court of Appeal considered this provision in HSS Hire Services Group Plc -v- BMB Buildings Merchants Limited [2005] 1WLR 3158 and concluded (Waller L.J. at paragraph 35), that it did not allow for the disclosure of the amount of the payment in, but simply allowed for the disclosure of the fact that there had been, or had not been, a payment in. In consequence:- 9/17
If the Court is told that there has been no payment in, then the Court is free to exercise its discretion to award costs in relation to the preliminary issue and there is no difficulty with Part 44.3(4)(c). If, however, it is told that there has been a payment in, then, in any but perhaps the most exceptional cases, I find it very difficult to think that there could be circumstances where if the issue of damages remains to be decided, the Judge can do otherwise than to reserve the question of costs until after the determination of that issue. When the payment in regime was abolished and the new rules were introduced, the Civil Procedure Rules Committee presumably had the HSS decision in mind, yet omitted the previous exclusion from disclosure where there had been a trial on liability. The new provision, 36.13(2), provides that the fact that a Part 36 offer has been made must not be communicated to the Trial Judge or to the Judge (if any) allocated in advance to conduct the trial until the case has been decided. The replacement rule could have been formulated with an exception along previous lines to cater for the position where the issue of liability, or for that matter any other issue, has been determined as a preliminary issue and the Part 36 offer relates only to that issue. As the editors of the current White Book (2012) observe in the notes to 36.13, the position where there has been a split trial is not specifically addressed and absent agreement under 36.13 (3)(c), a strictly literal interpretation of the phrase until the case has been decided would result in an embargo which might well result in the Court being denied information material to deciding what order as to costs if any, was appropriate at the split trial stage. The correctness of that comment has now been confirmed. In AB -v- CD [2011] EWHC 602, Henderson J referred to what he categorised as a real problem here with the current restriction on disclosure. He observed that in nearly all split trial cases, the parties are unlikely to agree to disclosure of a Part 36 offer and so postpone all consideration of costs to the conclusion of the whole case, because it will be in the interest of at least one party to refuse consent to its disclosure at the liability stage i.e., the losing party will want, if possible, to have its costs liability postponed. He went on to say:- 10/17
But it will often be desirable in principle, and in the wider interests of justice, for the costs of the liability hearing to be dealt with at its conclusion. Very substantial costs may well have been incurred, it will probably be clear that one party has succeeded and the general philosophy of the CPR is to encourage the determination and payment of costs on a pay as you go basis.... why, then, should the Court be compelled to deal with the costs of the liability hearing in ignorance of the fact that a Part 36 offer has been made and in ignorance of the terms of the offer, unless the relevant parties all agree? In AB the parties had in fact agreed that the Court should look at their respective Part 36 offers. However, in Ted Baker Plc -v- Axa Insurance UK Plc [2012] EWHC 1779, Eder J determined preliminary issues in favour of the claimants and concluded that he could not make an immediate order for costs because the existence of a Part 36 offer, which he could not be told about, was at least a possibility. He made two observations first, that the prohibition applies only to a Part 36 offer. It follows that an offer which is not a Part 36 offer is not caught by the provision. He saw no reason why a party who had made an offer which was not a Part 36 offer but made without prejudice save as to costs, could not at any stage unilaterally waive the privilege that would ordinarily attach to such an offer, and voluntarily communicate both the fact and terms of the offer to the Court. Second, that the prohibition does not on its language appear to prohibit the fact that a CPR Part 36 offer had not been made being communicated to the Court... if that is right and the Court is not told that a CPR Part 36 offer has not been made then the inference would seem to be that a Part 36 offer must have been made: and this would appear to undermine the prohibition in CPR Part 36.13. In Beasley -v- Alexander [2012] EWHC 2715 (9 th October 2012) Sir Raymond Jack observed that the former rule only applied to Part 36 payments, i.e., payments into Court, and therefore if there had been a case involving an offer in relation to liability or contributory negligence the previous rule would have been no bar to the Court being told about it when the issue of the costs of the liability trial arose. But now the exception has gone this must be because the Rule Committee took the view that it was unnecessary and inappropriate. The committee thus thought that in all situations, save those covered by rule 36.13(a), (b) or (c), a Trial Judge should not be informed of Part 36 offers until the case had been decided. 11/17
In agreement with Henderson J and Eder J, Sir Raymond Jack concluded that the case is used in the sense of the action or the proceeding and therefore cannot be construed as referring to part of a case. He concluded that because he could not be told the position regarding Part 36 offers, he could not deal with costs even though the claimant had succeeded in full on liability. He said (paragraph 13):- I reach that conclusion with regret because if the only offer or offers related to the percentage of contributory negligence I would be in a position to deal with the costs of liability, and I consider that there would be good policy reasons for my doing so. It also seems to me that Judges commonly carry on their business in the knowledge that offers of settlement may have been made, sometimes that they are very likely to have been made, and that knowledge does not affect their Judgment. The danger comes when a Judge knows what the offer is. The position is plainly unsatisfactory. It is difficult to believe that the Rules Committee intended the above result. But unless and until the rule is amended, and the Committee may have more pressing issues to deal with at present, a claimant who does not want his own Part 36 offer on liability to prevent him recovering his costs of a split trial may well find it advantageous not to make offers on liability under Part 36. On the other hand, a defendant who wishes to avoid an immediate costs liability if he loses the liability trial could, by making any, even a wholly unrealistic, Part 36 offer on liability could obtain the advantage of postponement of costs until the end of the case. Clearly it will still be appropriate to postpone the consideration of costs if there has been a global Part 36 offer and the determination of liability, particularly if there is contributory negligence, may have a bearing on the effectiveness of that offer and the ultimate costs position. However, even in that situation there would seem to be no need for a restriction on the disclosure of the fact, as opposed to the terms, of the offer. If the offer relates only to the issue of liability, or other preliminary issue determined, there would seem to be no good reason for the current restriction on disclosure of all Part 36 offers. 12/17
BTE insurance, rates and freedom of choice Andrew Hogan On 12th December 2012, the Court of Appeal handed down judgment in the case of Christine Brown- Quinn v Equity Syndicate Management [2012] EWCA 1633, overturning the decision of Burton J, at first instance given a year ago. The case is instructive reading, as it represents a major defeat for the practices of many BTE insurers who seek to restrict their policy holder s freedom to choose a lawyer. Although the case confirms that a BTE insurer can limit the costs they pay to a non-panel firm, whether by prescribed hourly rates or otherwise, or by way of contractual stipulations in the policy itself, this latter point could be regarded as trite in any event. The Insurance Companies (Legal Expense Insurance) Regulations 1990 state in regulation 6: (1) Where under a legal expenses insurance contract recourse is had to a lawyer (or other person having such qualification as may be necessary) to defend, represent or serve the interests of the insured in any inquiry or proceedings, the insured shall be free to choose that lawyer (or other person). (2) The insured shall also be free to choose a lawyer (or other person having such qualifications as may be necessary) to serve his interests whenever a conflict of interests arises. (3) The above rights shall be expressly recognised in the policy. As is well known, BTE insurers maintain panels of solicitors, many of whom are instructed on discounted rates or partial CFA arrangements and who may pay referral fees to the BTE insurer for receipt of instructions. 13/17
Disputes often arise between a policy holder and a BTE insurer, when they wish to instruct a non panel firm. Relying on decisions of the ombudsman, BTE insurers may argue that until proceedings are issued, there is no scope for the application of the principle of freedom of choice. The Court of Appeal does not seem to have been troubled by this argument, and indeed dealt with the notion that there could be any contractual restriction on the freedom of choice in round terms: 8. The facts of this case have revealed that the insurers exhibit an insouciance to their obligations under the Directive and the Regulations which leaves one quite breathless. The Regulations (and the Directive) make it entirely clear that the insured s freedom to have the lawyer of his choice is to be expressly stated in the contract made with the insured. What the contracts in the present case provide in General Condition 2.3 is almost the opposite: - We may choose not to accept the choice of representative to which is then added but only in exceptional circumstances which are left completely undefined. 9. To make matters worse General Condition 5 provides that if the insured s appointed representative refuses to continue acting or is dismissed The cover we provide will end at once, unless we agree to appoint another appointed representative. This provision was highly relevant to the cases of Ms Brown-Quinn and Ms Baxter who wanted to continue to instruct the same person after that person had left the firm whom they originally instructed. That was an entirely reasonable wish on their part and yet the insurers in pre-trial correspondence relied on this clause, in clear breach of the Regulations, to argue that they would not pay any of Webster Dixon s fees, thus denying the insureds the freedom of choice the existence of which they ought to have made clear in the contract. There seems little scope left for the argument that until there are proceedings, the BTE insurer can restrict the choice of representative; an argument that was in any event logically threadbare, given the need for necessary work and advice a long time prior to any proceedings might be contemplated. In terms of the hourly rates which were recoverable, the Court of Appeal having accepted the withdrawal of a concession made in the hearing before Burton J permitted the BTE insurer to argue that their liability to pay was limited to the rates provided for in the policy: 14/17
23. I would hold that, if one has regard solely to the terms of the policy of insurance, the insureds are entitled to recover the non-panel rate set out in the standard terms and conditions and no more; they are, however, entitled to recover at least those rates. If that means that they have to pay more to their chosen solicitors and arrange some other way to make such payment, that will then be their decision. The decision is significant. The effect of this decision will simply be to accelerate the destruction of the BTE sector as currently constituted, based as it is on a model of restrictively worded policies and receipt of referral fees. Instead, post April 2013 should see the reconstruction of the sector, as there will remain a clear and pressing need for insurance of this type, to cover own costs in terms of disbursements and any potential liability for adverse costs. This may in turn lead to a greater use of policies where cover is only supplied for own disbursements and adverse costs, with the policy holder s own lawyers required to work on a CFA or perhaps a partial CFA, in those cases where there is a potential for costs recovery. It could also lead to the emergence of a new type of policy, under which solicitors firms, who undertake to meet a client s liability for costs post April 2013, will wish in turn to re-insure that liability by purchasing a BTE policy for their firm s liability. 15/17
Andrew Lyons Andrew Lyons was called to the Bar in 2002. He specialises in cases involving personal injury, clinical negligence, disease, fraudulent claims, regulatory, costs, business and property and employment. He is experienced in settling points of dispute, replies to points of dispute and advises solicitors as to appropriate Part 47 offers. He regularly appears at detailed assessment hearings on behalf of both the paying and receiving party. He is also experienced in preliminary costs arguments such as conditional fee enforceability and predictable costs. andrewlyons@ropewalk.co.uk Simon Beard Simon Beard was called to the Bar in 1980, He is a specialist in personal injury, clinical negligence, disease, fraudulent claims, regulatory, costs and professional discipline and regulation cases. He has experience of dealing with a wide variety of costs issues both at the conclusion of cases in which he 16/17
has been involved and in separate proceedings and detailed assessments. simonbeard@ropewalk.co.uk Andrew Hogan Andrew Hogan was called to the Bar in 1996. His specialisms include personal injury litigation, including disease and credit hire. He is recognised nationally for his work in costs litigation and has strong practices in employment and discrimination law, and planning environmental and local government law. He is recognised nationally for his work in costs and also attracts instructions internationally to advise on the law of costs in England and Wales. His expertise is recognised in the leading directories. He undertakes work in all areas of practice including litigation costs, costs in the various tribunals, insolvency proceedings and the area of solicitor/own client disputes. andrewhogan@ropewalk.co.uk Disclaimer: The information and any commentary on the law contained in this presentation is provided free of charge for information purposes only. The opinions expressed are those of the writer and do not necessarily represent the view of Ropewalk Chambers as a whole. Every reasonable effort is made to make the information and commentary accurate and up to date, but no responsibility for its accuracy and correctness, or for any consequences of relying on it, is assumed by the writer nor by Ropewalk Chambers. The information and commentary does not, and is not intended to, amount to legal advice to any person on a specific case or matter. You are advised to obtain specific, personal advice from a lawyer about your case or matter and not to rely on the information or comment contained within this Article. 17/17