Messenger November 2017

Legal Costs Update 17
Legal Costs Update
Here, in Kain Knight Costs Lawyers regular, monthly legal costs update, we focus on those
cases which we believe are likely to have a practical relevance for its members. We welcome
feedback and if there is an area, topic or case you would like us to address, please let us know.
Long Vacation over. New term. New Lord Chief Justice. New President
of the Supreme Court and now that all the swearing-in and
opening of the New Legal Year has been accomplished, that
means new costs cases!
The “hot’ news is that the Court of Appeal has now heard the appeal
in BNM v MGM, which is the leap-frogged decision from the Senior
Costs judge about how the ‘new” proportionality rule in CPR 44.3(5)
should be applied in proceedings for detailed assessment. A strong
constitution : the Master of the Roll , sitting with LJs Longmore and
Irwin, with judgment, as expected, having been reserved. A key issue
for decision is whether additional liabilities (After-the- Event insurance
premiums and success fees) are to be taken into account when applying
the rule. Below, two costs judges have said “yes” and three have
said “no”, so it will be very interesting to see how the Court squares the
circle.
Indemnity basis costs (1) -lucky defendant
The value of an award of indemnity basis costs has grown enormously
since the “new” proportionality test was implemented because CPR
44.3(5) only applies to standard basis costs. Perhaps that has been the
reason for the increase in applications by successful parties for the
costs on the indemnity basis. Imperial Chemical Industries Ltd v
Merit Merrell Technology Ltd [2017] 5 Costs LO 631 is a good example.
Having set out the authorities concisely (judgment para [8] to
[14]), Fraser J concluded that ICI should pay indemnity basis costs on
account of a wholesale disregard for their contractual obligations and
other conduct which had demonstrated “turpitude on the part of
those involved”!
Indemnity basis costs (2) - not so lucky defendant !
Claimant sues you : you make three offers, all of which are turned
down, the claimant’s expert is discredited, the defence stands up, the
claim fails, and you ask for your costs on the indemnity basis – should
be a formality, since if the boot had been on the other foot and you
had failed to beat the claimant’s offer, you would be paying indemnity
basis costs under CPR 36.17(4)(b) !
Far from it! As the Governors and Company of the Bank of Ireland v
Watts Group Plc [2017] EWHC 2472 (Ch), illustrates, the rule does not
confer any automatic entitlement on a defendant who makes an effective
Part 36 offer to indemnity basis costs. “I know this misalignment
is considered by some to be unjustified, but it remains the law”,
said Coulson J, so Watts Group had to be content with standard basis
costs, save for expert witness work which was allowed on the indemnity
basis.
Payment on account in a costs budgeted case
What about some money on account of the costs paid out? Same case
(Watts Group). No indemnity basis costs, but can we, as the successful
defendant, at least have a payment for the amount of the last approved
budget namely £384,424, albeit that our actual costs are now
£616,000?
Answer ; the £384,424 is the starting point which the court has already
assessed as a proportionate and reasonable figure, but you can
only have 85% of that sum in order to give proper effect to rule 3.18.
And, by the way, it is now too late to apply to increase the budget to
take account of the £616,000 you have now spent because the interim
payment can never be higher than the last approved budgeted figure
-see paragraphs [13] – [18] of Coulson J’s judgment.
Tough stuff, but how does that square with Thomas Pink Ltd v Victoria’s
Secret [2015] 3 Costs LR 463 Birss J and Barkhuyson v Hamilton
[2016] 6 Costs LR 1217 Warby J where increases to budgets were allowed
after the trial ? It illustrates yet more inconsistency at High
Court level in costs budgeting, and when and if a budget can be increased
by the trial judge following judgment.
Fixed Costs regimes- limits on Solicitors’ duties to advise
Back in the Court of Appeal where Lord Justice Jackson is beginning
his last full legal term as a Lord Justice before retirement, in
Thomas v Hugh James Ford Simey Solicitors [2017] 5 Costs LO 643,
Sir Rupert criticised solicitors who had attempted to reopen a settlement
in the Vibration White Finger litigation on the basis that the original
solicitors had been negligent. The claim had first been brought
under a fixed cost scheme for low value personal injury and had been
settled seven years earlier. The Claimant had then been “recruited” by
a new firm of solicitors which had sought to reopen the settlement on
the basis that his former solicitors had been negligent in having failed
to make any claim in respect of decorating, “DIY” and gardening which
would have increased his damages by £16,650. In dismissing the appeal,
Sir Rupert did not mince his words. Solicitors acting on fixed fees
could not be expected to “turn over every stone” and to pursue avenues
which the client had closed down. As he put it succinctly “the
civil justice system exists to enable injured parties to recover compensation
for genuine wrongs. It does not exist to service artificial claims
stirred up by advertisements.“ A salutary message to ambulance
chasers.
Non-Party Costs orders
Non-party costs orders, or at least applications to make them, are now
fairly common, but a useful case as a point of reference is the decision
of HHJ Saffman in Montpelier Business Reorganisation Ltd v Armitage
Jones LLP [2017] 5 Costs LO 659. Here the situation was
slightly unusual; the claim was dismissed, but the claimant had been
unable to discharge the costs orders due to its insolvency. Applications
were then made to join various defendants on the basis that they
had had much to gain from the outcome of the proceedings and had
been the real party to the litigation. The judge accepted that submission
in relation to the 7th Defendant and his judgment contains a
useful resume of all the case law on this point.
Award of costs and statutory demands
Falling out with the client is seldom a good idea and usually ends in
tears. Dunhill v Hughmans (a firm) [2017] 5 Costs LO 589 is a good
example. As happens with dispiriting frequency, the dispute began as
a claim for the solicitor’s unpaid fees, which was met with a defence
and counterclaim alleging negligence. Summary judgment was
granted on the claim, but was later set aside and somewhere between
the two, the solicitors served a statutory demand and commenced
bankruptcy proceedings. Issues then arose about who should be paying
who in respect of the application to set the demand aside. The litigation
is ongoing, but for present purposes, note should be taken of
Barling J’s caution in a 72 paragraph judgment: “This sorry saga exemplifies
what happens when litigants set in motion satellite proceedings
prematurely, in the face of circumstances which render almost
inevitable the unnecessary expenditure of the parties’ and the court’s
time and resources. None of this need have happened if the respondent
[solicitor] had waited until the outcome of the oral renewal application
for permission to appeal”.
These are a selection of autumn cases. As always, we do not report all
costs cases, but those published are the ones likely to be of most practical
importance.
Please contact Nick McDonnell:
nick.mcdonnell@kain-knight.co.uk
or Colin Campbell:
colin.campbell@kain-knight.co.uk
if there are any points you wish to discuss.
Nick McDonnell
Colin Campbell