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Lack of costs advice or estimates results in solicitors’ invoice being heavily reduced

  • United Kingdom
  • Financial services disputes and investigations
  • Litigation and dispute management

02-04-2020

Dunbar v Virgo Consultancy Services Limited [2019] EWHC B12 (Costs)

Mr Dunbar instructed law firm Virgo Consultancy to assist a Greek legal team with a defence of his son, in a serious criminal offences action brought against him in Crete. A deposit of £10,000 was paid by Mr Dunbar and separately, a EURO 30,000 fixed fee was agreed with his already appointed Greek legal team.

Mr Dunbar’s son was acquitted of all charges some 4 months later and the solicitors raised a bill for £70,000 plus VAT. Mr Dunbar sought detailed assessment of the solicitors’ charges.

At a preliminary issues hearing, it was established that no estimate of costs was ever provided to Mr Dunbar, no discussions regarding costs took place until conclusion of the matter, the only agreements reached regarding costs were a £10,000 deposit being paid to the solicitors, as well as a EURO 30,000 fixed fee for his Greek lawyers.

It was held that solicitors are not able to recover costs that are unreasonably incurred, as a result of failure to provide adequate costs advice. As far as Mr Dunbar was aware, the only fees payable were the EURO 30,000 fixed fee payable to the Greek legal team and the £10,000 deposit paid to the solicitors. There was no agreement, either implied or expressly, for fees in excess of those sums to be incurred and charged. Mr Dunbar was Ordered to pay the agreed EURO 30,000 fees plus the £10,000 solicitors fees, which was equivalent to a 59% reduction to the solicitors’ invoice.

No requirement for detailed and nuanced budgeting reasons from judges at CCMCs

Gray v Commissioner of Police for the Metropolis [2019] EWHC 1780 (QB)

Having had their budget reduced from £91,427 to £44,140 at a CCMC hearing, the claimant appealed on the grounds that, inter-alia, the judge had failed to address proportionality lawfully and that the sums allowed were manifestly too low.

Lambert J observed that the CCMC hearing lasted 20 minutes and was conducted “briefly and efficiently”, the figures allowed being lower than she would have allowed, with the reasons for those reductions being “short, often only a few sentences only”. Notwithstanding this, Lambert J found that the judge took into account the relevant elements of the rules regarding proportionality and that the budget allowed wasn’t so low that the litigation could not be pursued.

Court resources are limited and CMC hearings are often listed for an hour or less, even in large commercial cases. With limited time available for judicial pre-reading and dealing with the important issue of costs budgeting, in cases where there are significant disagreements regarding budgets, it would be sensible to have the Costs Lawyer who prepared the budget to attend the CMC hearing. At the very least, parties need to ensure their costs submissions are clear and concise, so as to make best use of the limited time available and achieve the optimal outcome.

Proportionality test guidance from the Court of Appeal

West v Stockport NHS Foundation Trust and Demouilpied v Stockport NHS Foundation Trust [2019] EWCA Civ 1220

These cases relate to appeals regarding reductions to ATE insurance premiums, during a costs assessment. The Legal Aid Sentencing and Punishment of Offenders Act 2012 (‘LASPO’) abolished the recovery of such premiums, with only a limited number of exceptions, clinical negligence claims being one, which is what these cases related to. The judgment regarding the ATE premiums, therefore, is likely of little value to the audience of this publication. However, in this judgment, guidance was provided regarding the application of the proportionality test.

The test should involve a line-by-line assessment of the costs claimed, to assess reasonableness. During that line-by-line assessment, the judge may also address the proportionality of any particular item. This will result in a reasonable figure, which should then be subject to the rules regarding proportionality. If that total is found to be proportionate, having considered the relevant factors set out in the Civil Procedure Rules 1998, then no further assessment is required. If the overall figure is found to be disproportionate, a further assessment is required.

In the event a further assessment is required in respect of proportionality, this should not be a line-by-line assessment. The proportionality consideration should instead be applied to various categories of costs, for example disclosure, or “specific periods where particular costs were incurred”. At that stage, any proportionality reductions should exclude “elements of costs which are properly regarded as unavoidable, such as court fees”.

Once the above tests have taken place, the resulting figure will be the final award. There need not be a further exercise of standing back and, if necessary, undertaking a further review as to proportionality, which would “introduce the risk of double-counting”.

This really is welcome guidance in an area of law which has involved hopscotching through various and often conflicting case authorities for the past 6 years, since the introduction of LASPO. This decision should diminish the varied application of the proportionality test by judges, and reduce the arguments by legal representatives who have, often quite understandably, interpreted the rules differently.

Significant developments and revising costs budgets – Yet another cautionary tail

Seekings v Moores [2019] EWHC 1476 (Comm)

The defendant applied to revise their costs budget upwards, from £396,327 to £526,327, due to “significant developments” in the litigation. The rules state that the court may approve a revised budget providing significant developments in the litigation can be established. The “significant developments” in this claim are summarised as follows:

Disclosure – Continued electronic platform costs – The additional budget sought was minor and should have been anticipated at the budgeting stage, in any event. This was not a significant development, no increase allowed.

Requests for information - The time spent addressing the claimant’s requests was far greater than previously anticipated. This was held not to be a significant development, no increase allowed. The requests were served prior to the budgets being prepared and agreed. Having unsuccessfully resisted these requests, the defendant failed to respond to the requests adequately, leading to increased costs. The defendant ought to have known the level of work required at the time the budget was prepared.

In reaching the above decisions, HHJ Worster observed that “The starting point for the process is the budget is agreed or approved by a costs management order, so “development” is to be read as a development in the litigation since that time. Whether that development is “significant” is a question of fact and depends upon the circumstances of the case”.

This decision emphasises the importance of getting budgets correct first time, which includes budgeting for any phases of work which are reasonably anticipated and taking into account issues which may arise, which could lead to greater costs than one would usually expect. Mistakes or oversights, as case authorities continue to show, will likely result in any revisions to budgets being rejected by the courts.

As a reminder, all budgets prepared must be approved by our in-house Costs Unit before they are filed and served.

Part 36 consequences when an offer is only marginally beat at Trial

Hochtief (UK) Construction Ltd & Anor v Atkins Ltd [2019] EWHC 3028 (TCC)

The claimants were awarded £879,847 (including interest) at trial. Two years prior, the claimants had made a Part 36 offer of £875,000, meaning they had bettered that offer at trial by just £4,847. The defendant was successful in a second claim which was factually and technically different to the claimants’ claim, albeit determined at the same trial.

The defendant argued that an issues-based or proportional costs award should be made to reflect the narrow margin by which the claimants had bettered their Part 36 offer, and taking into account the fact that the defendant had won the second claim.

Deliberating as to whether such a narrow margin of victory should trigger the usual Part 36 consequences, Mr Justice O’Farrell noted that the Part 36 offer was clearly worded and despite it being made early in the proceedings, it was made at a time when both parties had enough information to make an informed decision regarding the merits of the case. It was held that it would not be unjust for the consequences of Part 36 to be triggered in the usual way, notwithstanding the very narrow margin of victory.

Regarding the defendant’s success in the second claim, the High Court ruled that, notwithstanding that the costs of each claim were easily separable, an issues-based Order would not give enough credit to the terms of the claimants’ Part 36 offer, which was to settle both claims and was an offer that should have been accepted by the defendant. The High Court decided that the fairest way to reflect the success and failure of each party at trial was to award the claimants 85% of their costs, on an indemnity basis.

This case emphasises the importance of a well-pitched Part 36 offer. Even a nominally more advantageous award at trial will lead to claimants reaping the benefits afforded by CPR Part 36.