Supreme Court Costs Office
B e f o r e :
| PAUL SHERIDAN FINSTER
|- and -
Mr Sachdeva (counsel) (instructed by Davies Lavery) for the first defendant
Hearing dates : 11 December 2006
Delivered 31/1/07 but amended 7/2/07 under the slip rule pursuant to order dated 7/2/07
Crown Copyright ©
Why the claim was valued at over £1,400,000
The chronology of the claim
"The Defendant offers to permit the claimant to accept the Part 36 payment of £10,000 out of time without costs penalty. In other words the defendant offers the claimant the sum of £10,000 standing in court and additionally the defendant will pay the claimant's reasonable costs on the standard basis up to the date of acceptance."
The points of dispute
Exaggeration Points of Dispute
"The claim was pleaded in the sum of £1.4m but the claimant accepted £10,000 in full and final settlement in early 2006. The defendant is the overall "winner" in this matter, damages were reduced by £1.39m.
The defendant had originally made a Part 36 payment of £10,000 in January 2005 and this was rejected.
In early 2006 the claimant belatedly accepted the Part 36 payment made in January 2005, after unnecessarily expending a year of costs including a contested liability trial.
The claimant says there was a reluctance of witnesses to come forward and support the claim in respect of earnings. The defendant contends this should have been known to the claimant from the outset of the claim and certainly by the date of the payment into court in January 2005, as he knew that witnesses would be required to support the extravagant earnings claim.
The defendant contends that unnecessary costs have been incurred because of the exaggeration of the claim, whether it was intentional or unintentional, and that the bill of costs should be significantly reduced.
The defendant refers to CPR 44.3(5)(d) which states that, when assessing costs, the court should consider the conduct of the parties including the extent to which a claimant has exaggerated his claim. The defendant also relies on the case of Painting v University of Oxford where the receiving party was heavily penalised on costs in circumstances of less extravagant exaggeration than the present case. The bill of costs is unreasonable in all the circumstances.
The offers made in respect of time and communications in the points of dispute are all subject to the exaggeration point being dealt with at assessment and the bill being reduced accordingly."
"The Claimant reiterates the matters set out in the prιcis summary of facts. There is no adverse or issue based costs order.
The Defendant advised in their letter of the 19th December 2005 when they advised that they would permit the Claimant to accept the sum in Court "out of time without costs penalty".
The damages have not been reduced by £1.39m as the Defendant contends.
It is right that the Claimant made a claim for substantial damages based upon his high flying expectations of earnings.
There were reasonable expectations, had evidence come up to proof, that loss of earnings could have been substantial.
However for a variety of reasons, witnesses who had previously indicated they might be able to assist got "cold feet", and would not support the claim.
It is all very well for the Defendants to contend that the witnesses reluctance to give evidence should have been known to the Claimant from the outset. However this misses the point. The fact is that the witnesses at the outset were prepared to support the claim and there was no way in which the Claimant or indeed his Solicitors could have been aware that at some later date when the witnesses came to realise that they would be required to testify in court that a different complexion emerged.
The correct test to apply for these costs is whether the work done, based on the information available to the Solicitor "at the time" was carried out reasonably. The Defendants approach is one based upon hindsight which is the wrong test.
We call upon the Defendant to produce a copy of the Painting v University of Oxford case upon which they intend to rely and to do so before the Assessment Hearing."
Proportionality Points of Dispute
"The costs claimed are self-evidently disproportionate; more than six times the damages recovered."
The reply, which I need not recite in full, quotes paragraphs 11.1, 11.2 and 11.5 of the Costs Practice Direction, and cites Home Office v Lownds  EWCA Civ 365 on the point that the court should take into account the conduct of the opposing party who may reduce cost if he cooperates, and that access to justice may be impeded if lawyers felt that they could not afford to do what was necessary to conduct litigation.
The issue resolved on 23rd August 2006
The Defendant's arguments
That Arriva "won"
That Mr Finster abandoned the issue of special damages such that costs of that issue should be disallowed
That this was an exaggerated claim, due to lack of planning, which unreasonably caused inflated costs (also impacting on proportionality)
"In modem litigation, with the emphasis on proportionality, it is necessary for parties to make an assessment at the outset of the likely value of the claim and its importance and complexity, and then to plan in advance the necessary work, the appropriate level of person to carry out the work, the overall time which would be necessary and appropriate spend on the various stages in bringing the action to trial, and the likely overall cost. While it was not unusual for costs to exceed the amount in issue, it was, in the context of modest litigation such as the present case, one reason for seeking to curb the amount of work done, and the cost by reference to the need for proportionality."
"5. Since the claimant had suffered an apparently minor whiplash injury resolving within a matter of weeks but was nonetheless claiming in the region of £1.4m, the case was notorious among those of us involved in the first defendant's defence. I clearly recall that after the first defendant's payment into court of £10,000 was not accepted it was decided to fight the case, despite the previous instructions to admit liability, because in the context of the extravagant damages claimed it was a chance worth taking and because the potential costs liability was insignificant by comparison.
6. It follows that had the claim been more conservatively pleaded or had the claimant concluded the quantum investigations recommended by counsel before making a Part 36 offer of £1.3m and serving a schedule of special damage totalling £1.4m, the first defendant would not have contested liability. It also follows that the first defendant would not have joined the second defendant to the proceedings for the purpose of the split trial on liability [ ]"
The Claimant's arguments
To the argument that Arriva 'won'
To the argument that special damages, as an issue, were abandoned
To the argument that the case was exaggerated
"It has always been accepted by those advising the Claimant that, in the context of the Claimant's short-lived physical injuries, there would need to be good evidence to prove his claim for a very substantial loss of earnings. However in the light of the witness evidence that was obtained before issue, the claim as pleaded was in no sense exaggerated. It was soundly based on the witness evidence and it was proper to conclude that it had reasonable prospects of success."
"It was the Claimant's inability to secure this documentary evidence [evidence from Mr Carr] which rendered his claim for loss of earnings vulnerable and led him to accept the Defendant's offer. However in the light of Mr Adams' letters and witness statement, particularly with the other supportive statements, the difficulty in acquiring documentary evidence in support of his claim for loss of earnings could not reasonably have been anticipated."
(a) Did Arriva 'win'?
(b) Whether costs of special damages should be disallowed as being costs of an abandoned issue.
" The costs of issues abandoned, or not pursued at trial, ought, prima facie, to be disallowed against the party incurring them on an assessment of the costs of that party by the costs judge -because, again prima facie, they are costs which have been unnecessarily incurred in the litigation. To take them into account in making a special costs order carries the risk that the claimants will be doubly penalised. They will be deprived of costs under the order; and again deprived of the same costs on an assessment or taxation."
(c) Exaggeration and proportionality
44.4 (1) Where the court is to assess the amount of costs (whether by summary or detailed assessment) it will assess those costs
(a) on the standard basis; or
(b) on the indemnity basis,
but the court will not in either case allow costs which have been unreasonably incurred or are unreasonable in amount.
(2) Where the amount of costs is to be assessed on the standard basis, the court will
(a) only allow costs which are proportionate to the matters in issue; and
(b) resolve any doubt which it may have as to whether costs were reasonably incurred or reasonable and proportionate in amount in favour of the paying party.
The court is to have regard to all the circumstances in deciding whether costs were
(a) if it is assessing costs on the standard basis
(i) proportionately and reasonably incurred; or
(ii) were proportionate and reasonable in amount, or
(b) if it is assessing costs on the indemnity basis
(i) unreasonably incurred; or
(ii) unreasonable in amount.
(2) In particular the court must give effect to any orders which have already been made.
(3) The court must also have regard to
(a) the conduct of all the parties, including in particular
(i) conduct before, as well as during, the proceedings; and
(ii) the efforts made, if any, before and during the proceedings in order to try to resolve the dispute;
(b) the amount or value of any money or property involved;
(c) the importance of the matter to all the parties;
(d) the particular complexity of the matter or the difficulty or novelty of the questions raised;
(e) the skill, effort, specialised knowledge and responsibility involved;
(f) the time spent on the case; and
(g) the place where and the circumstances in which work or any part of it was done.
"39. Turning to the specific points of principle raised by May LJ (paragraph 11 above), where a claimant recovers significantly less than he has claimed, the following approach should be followed:-
Whether the costs incurred were proportionate should be decided having regard to what it was reasonable for the party in question to believe might be recovered. Thus
(i) The proportionality of the costs incurred by the claimant should be determined having regard to the sum that it was reasonable for him to believe that he might recover at the time he made his claim.
(ii) The proportionality of the costs incurred by the defendant should be determined having regard to the sum that it was reasonable for him to believe that the claimant might recover, should his claim succeed. This is likely to be the amount that the claimant has claimed, for a defendant will normally be entitled to take a claim at its face value.
40. The rationale for this approach is that a claimant should be allowed to incur the cost necessary to pursue a reasonable claim but not allowed to recover costs increased or incurred by putting forward an exaggerated claim and a defendant should not be prejudiced if he assumes the claim which was made was one which was reasonable and incurs costs in contesting the claim on this assumption."
"30. In his advice the Senior Costs Judge drew attention to the problems that can arise from "double jeopardy"; in other words from making a deduction when considering the bill item by item and then looking again at the situation as a whole and making a further global deduction. This danger will be avoided if a party receives at least a reasonable sum for the items of costs which were necessarily incurred.
31. In other words what is required is a two-stage approach. There has to be a global approach and an item by item approach. The global approach will indicate whether the total sum claimed is or appears to be disproportionate having particular regard to the considerations which Part 44.5(3) states are relevant. If the costs as a whole are not disproportionate according to that test then all that is normally required is that each item should have been reasonably incurred and the cost for that item should be reasonable. If on the other hand the costs as a whole appear disproportionate then the court will want to be satisfied that the work in relation to each item was necessary and, if necessary, that the cost of the item is reasonable. If, because of lack of planning or due to other causes, the global costs are disproportionately high, then the requirement that the costs should be proportionate means that no more should be payable than would have been payable if the litigation had been conducted in a proportionate manner. This is turn means that reasonable costs will only be recovered for the items which were necessary if the litigation had been conducted in a proportionate manner.
32. The fact that the litigation has been conducted in an insufficiently rigorous manner to meet the requirement of proportionality does not mean that no costs are recoverable. It means that only those costs which would have been recoverable if the litigation had been appropriately conducted will be recovered. No greater sum can be recovered than that which would have been recoverable item by item if the litigation had been conducted proportionately."
What sum was it reasonable for Mr Finster to believe that he might recover at the time he made his claim?
The material supporting the valuation
Obtained before issue of claim
(i) Letter from Mr Adams written for the claim, dated 8/10/01, headed company paper.
(ii) Letter from Mr Adams written for the claim, undated, handwritten. Stamped as received 11/1/02.
(iii) Letter from Mr Adams written for the claim, typed but not on company paper, dated 20/3/03.
(iv) Statement of a Mr John Mansfield dated 15/9/03 (Sucden employee)
(v) Statement of a Mr Graham Freeman dated 17/9/03 (employee of Capital Search and Selection).
(vi) Statement of Mr Graham Powis dated 17/9/03 (employee of Triland Metals).
(vii) Statement of Mr Adams dated 15/3/04 (of Sucdens).
(viii) Statement Mr Lee Pridie dated 26/7/04 (employee of Barclays).
Obtained after issue of claim
(ix) Statement of Mr Finster (Claimant) dated 20/12/04.
(x) Statement of Mr Christian Sanders dated 29/9/05 (employee of Sucdens).
Mr Finster's statement (item ix above)
(i)-(iii) Letters from Mr Adams written for the claim, dated 8/10/01, 11/1/02 and 20/3/03.
(iv) Statement of Mr John Mansfield dated 15/9/03 (Sucden employee)
(v) Statement of Mr Graham Freeman dated 17/9/03 (employee of Capital Search and Selection).
(vi) Statement of Mr Graham Powis dated 17/9/03 (employee of Triland Metals).
(vii) Statement of Mr Adams dated 15/3/04 (of Sucden).
(viii) Statement Mr Lee Pridie dated 26/7/04 (employee of Barclays).
The sum reasonably expected.
Effect of overvaluation on bill items