England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)

		The Combined Court Centre Quayside Newcastle Upon Tyne 7th February 2001

1. LORD WOOLF CHIEF JUSTICE: This is an appeal as to the quantum of costs awarded by His Honour Judge Fawkes at this Court on 17 April last. The appeal is made with the permission of the Judge. In giving permission, the Judge indicated that there would be an advantage in an appellate Court giving more guidance as to the appropriate levels of costs.
2. Unfortunately, the matter was dealt with very summarily in the Court below. I should, therefore, immediately point out that Mr Ditchfield, who has appeared for the Claimant before us, did not appear in the Court below. The Judge was given limited assistance by Counsel appearing on behalf of the Claimant in the Court below on the question of costs.
3. The facts leading up to the appeal can be set out very shortly. The Claimant, Mr Jefferson, with the assistance of his Union, was bringing the claim. He had the misfortune to suffer a minor injury at work; he was a van driver and he was using a van in the course of his employment, the floor of the van was defective and he suffered an injury to his back while attempting to dislodge a wheel of a pallet truck which he was manoeuvring in the vehicle.
4. The Claimant, in his claim, limited his claim to £5000. Although this was not a matter drawn to the attention of the Judge, he made an offer under Part 36 of the CPR in the sum of £2,600, but that offer was not accepted by the Defendant who contested the claim at the hearing and alleged contributory negligence.
5. The Judge, in an admirably clear judgment, dealt with the claim, found that there was negligence on the part of the Defendants and dismissed the suggestion that there was contributory negligence. He assessed general damages, on the basis of an agreed medical report, at the sum of £1,750, with special damages agreed at £525.74. The Judge made a summary assessment of costs, and he came to the conclusion that in respect of the schedule which had been prepared by the Claimant, the appropriate sum at which to assess costs was £3,500.
6. The schedule was drawn on the basis of the Claimant's solicitors using a fellow of the Institute of Legal Executors, a grade 2 fee earner, at the hourly rate of £135. There was set out in the schedule hourly rates for various activities which, it was said, had been carried out. The total costs of the solicitors activities on behalf of the Claimants were put at £4,441.75. There were then fees for Counsel of £34 for drafting the pleadings, £500 for the hearing, making total fees of £534 for Counsel.
7. Furthermore, there were set out other expenses, including Court fees of £520 and certain minor items, coming to a total of £537.67. There was then an item for VAT on solicitors fees of £777.30, and VAT on Counsel's fees of £93.45, and there was even an item for VAT on other expenses, not Court fees, of £1.32, making a total of £6,905.49.
8. As it is contended that the approach of the Judge was far too summary, it is right that I should set out from the transcript what was said with regard to costs. The Judge asked Counsel appearing for the Defendant, "Have you seen a schedule of costs?"
9. He then replied:

"Yes, my primary submission is one of proportionality. The total damages in this case amount to, subject to interest, a little over £2,275, in fact it is £2,275 and a few pence, plus interest. Your Honour, the total sum claimed, the grand total, you will see is £6,905.49."

10. Then Counsel went on to say:

"On the question purely of proportionality, how can it be justified to incur costs of nearly £7000 for a claim which has been determined to be worth, subject to interest, only £2275. That is my primary submission, and I perhaps can go into a little more detail in the schedule itself if you wish me to."

11. The Judge then said:

"Not at the moment, proportionate has to play a part."

12. Then Counsel for the Claimant said, "Yes", and the Judge said to Counsel for the Claimant,

"Damages are £2,250 plus interest. It is difficult how it is proportionate to have costs amounting to three times that amount."

13. Counsel replied, in response, "Your Honour, the work has been carried out." The Judge then said, "I am not suggesting the work has not been carried out." And Counsel added,

"This was a trial of liability, as well as quantum. There are a number of witnesses from whom witness statements have been taken, the Defendants choose not to rely upon a third witness, but that is a matter for them. Fortunately the medical report was agreed by them. Whilst I accept, your Honour, that proportionality must, after the CPR rules, be considered, in my submission I respectfully leave the actual sum for your Honour."

14. The Judge then said,

"First of all, you do not normally claim VAT when both sides are VAT registered, that makes the costs look much higher, so that is in your interest really."

15. Counsel said, "We normally do claim that, your Honour." And the Judge said, "When do you not claim VAT?" And Counsel said, "It is not really a matter that Counsel gets involved in, your Honour." And the Judge said, "The bill was effectively £6000, and if we exclude VAT, £3,500."
16. The Judge there indicating the figure that he was going to award. Counsel said,

"I am reluctant to agree to a figure which your Honour puts forward at £3,500, is effectively halving the total expenditure which has been claimed, and my instructions are that this was not a straightforward case. We have had oral evidence, and we also have documentary evidence. A lot of vehicle inspection reports have been disclosed and had to be considered, I don't really think I can take the matter much further."

17. And Counsel for the Defendant then said,

"Unless your Honour is persuaded to go beyond the £3,500 figure you indicated a short time ago, I would not seek to persuade you to go any lower."

18. The Judge then said,

"The Defendant will pay the Claimant's costs summarily assessed at £3,500, and if you can manage to calculate those without VAT you will get rather more than you would otherwise."

19. I find the Judge's final comment about VAT a little bit difficult to understand. He was, in fact, as is now agreed, right to deduct the figure of VAT, that he was right to do so is made clear by the relevant Practice Direction. So what we have here is a Judge reducing a bill of £6000 to £3,500. He has been influenced to do so by the submission which was made by Mr Thompson, Counsel for the Defendant, primarily on, at any rate, on the basis of proportionality, which the Judge said has to play a Part.
20. Now, I have made criticism of Counsel appearing for the Claimant in this case, and I would suggest that if you consider the terms of the transcript, insofar as Counsel for the Claimant contributed to the discussion on costs, it is manifest that he was really giving the Judge virtually no assistance. However, in his submissions, Mr Ditchfield argues strongly that it is the Judge's task to investigate the matter, and not merely to deal with it in as summary a way as occurred on this occasion.
21. In order to assess the approach of the Judge, it is necessary to consider the relevant rules of the CPR which deal with the issue of costs. The starting point, therefore, is part 44.3. That provides,

"(1) The court has discretion as to -

(a) whether costs are payable by one party or another'

(b) the amount of those costs; and

(c) when they are to be paid.

(2) If the court decides to make an order about costs -

(a) the general rule is that the unsuccessful party will be ordered to pay the costs of the successful party; but

(b) the court may make a different order."

22. Then there is further provisions contained in part 44.3, to which it is not necessary to refer because they go to the circumstances in which the Court should exercise its discretion as to whether or not to make an order for costs, and nobody on this appeal suggests that the Judge was other than right to make an order for costs in favour of the Claimant.
23. The next provision of the CPR to which it is necessary to refer, is part 44.4. That part provides:

"(1) Where the court is to assess the amounts of costs (whether by summary or detailed assessment) it will assess those costs -

(a) on the standard bases; or

(b) on the indemnity bases, but the court will not in either case allow costs which have been unreasonably incurred, or are unreasonable in amount."

24. There is a reference then to rule 48.3,

"(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."

25. There is then a cross-reference to part 44.5. Subsequently, part 44.4 goes on to deal with the situation where the costs are to be assessed on the indemnity basis. The important distinctions between where costs are to be paid on indemnity basis and on a standard bases, are first of all that the issue of proportionality drops out when costs are ordered to be paid on an indemnity basis. Secondly, the position is that where the costs are made on the indemnity basis, the burden of showing the costs have not been reasonably incurred falls on the paying party rather than the party seeking to recover the costs.
26. Then, turning to part 44.5, it sets out the factors to be taken into account in deciding the amount of costs. 44.5(1), provides:

"(1) 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."

27. Then I can omit reference to (b) and I can go to little to part 44.5(3):

"(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 theproceedings in order to try to resolve the dispute;

(b) the amount of 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, specialist 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."

28. It will be observed that the provisions to which I have referred provide a code dealing with the assessment of costs, giving guidance to Judges when they have got to assess costs and setting out the considerations which are relevant. Mr Thompson also referred to the overriding principles contained in part 1, but having regard to the details in 44.5 I would question whether the overriding principles really add much to what is to be found in part 44.5.
29. There is an additional part to which it is made necessary to make reference here because this was a fast track trial, and I, for that purpose, refer to part 46.2. That sets out a table which shows, so far as trial costs are concerned, that where the value of the claim is up to £3000, £350 is recoverable and part 46.2(2) says:

"The court may not award more or less than the amount shown in the table except where -

(a) it decides not to award any fast track trial costs; or

(b) rule 46.3 applies; but the court may apportion the amount awarded between the parties to reflect their respective degrees of success on the issues at trial.

(3) Where the only claim for the payment of money -

(a) for the purpose of quantifying the fast track trial costs awarded to a claimant, the value of the claim is the total amount of the judgment excluding -

(i) interest and costs; and

(ii) any reduction made for contributory negligence."

30. Following the guidance given in 46.2, it will appear that the amount of the trial costs which were recoverable in this case where £350, rather than the counsel and solicitor's fees which were claimed by the claimant in his schedule. That that is the amount which is appropriately recovered under 46.2, is accepted by Mr Ditchfield.
31. There is, however, a power to award more or less than the amount of fast track trial costs under 46.3. That provides:

"(1) This rule sets out when a court may award -

(a) an additional amount to the amount of fast track trial costs shown in the table in rule 46.2(1); and

(b) less than those amounts.

(2) If -

(a) in addition to the advocate, a party's legal representative attends the trial;

(b) the court considers that it was necessary for a legal representative to attend to assist the advocate; and

(c) the court awards fast track trial costs to that party, the court may award an additional £250 in respect of the legal representative's attendance at the trial."

32. Mr Thompson in this case accepts that having regard to the complexity of the case, in relation to the number of witnesses called, that it was necessary for there to be someone attending on counsel, and therefore that the £250 is recoverable.
33. Mr Ditchfield submitted that one of the factors that the Judge should have taken into account in this case was that an offer to settle, under Part 36, was made by his client. However, he accepts that the fact of the offer to settle was never drawn to attention of the Judge, but he submits that the Judge could have enquired whether there was an offer to settle, and if that had been done the Judge would have been aware that the Claimant had acted perfectly reasonably.
34. There is a reference in Part 44 to a situation when there has been an offer to settle. I refer back to 44.3(4)(c). That provides:

"(4) In deciding what order (if any) to make about costs, the court must have regard to all the circumstances, including -

(c) any payment into court or admissible offer to settle made by a party which is drawn to the court's attention (whether or not made in accordance with Part 36)."

35. It seems to me that it would be quite wrong to criticise the Judge for not enquiring as to whether there was any Part 36 offer. Bearing in mind the Part 36 offer which was made was in excess of the amount recovered, its relevance is doubtful, but in any event this was not a case where it was being suggested by anyone that the Claimant was acting in any way unreasonably, and that being so I find it difficult to see how the offer would take the position any further.
36. Dealing with the substance of the Mr Ditchfield's argument, it is largely to the effect that this was too brusque a way for the Judge to deal with the question of costs when he was going to make a substantial reduction in the amount set out in a schedule which had been delivered. He should have given Mr Thompson the opportunity to expand the submissions that he wished to make.
37. I accept that the Judge indeed did deal with the matter in a very summary manner, and bearing in mind that he was going to make such a substantial reduction, it would have been desirable for him to go into greater detail. But, I express that view very much mindful of the fact that the Judge received very limited assistance from Counsel for the Claimant, and I can well understand that the Judge would be affected by the submissions which were made to him.
38. Today, this Court has heard the argument in much greater detail than it was heard by the Judge, and having heard the matter in greater detail it is possible to make a calculation which was much more precise than the Judge made. However, in bringing a matter before an appellant Court it is necessary for a claimant to establish that in all the circumstances the Judge was, as Mr Thompson submitted, wrong in the approach which he adopted, and in deciding whether he was wrong one has to take into account the submissions made before the Judge.
39. In this case the schedule was clearly disproportionate, and as the provisions to which I have referred make clear, proportionality is a very important feature of the assessment of costs on the standard basis. This is particularly true in relation to the fast track, and if a claimant is going to seek to recover a sum which is as substantially in excess of the amount recovered, as was being sought to be recovered in this case, the legal representatives of the Claimant at the hearing have to be in a position to help the Judge further than was the case here. They first of all must bear in mind that if they are going to conduct litigation of a modest nature, of the sort which was being conducted here, where the likely sum which was to be recovered, even on their own Part 36 offer, was a sum below £3000, they are under a heavy duty to conduct that litigation in as economic a manner as possible.
40. There is no decision which has been placed before this Court indicating precisely what approach should be adopted in exercising the jurisdiction which the Judge was exercising. However, we have been shown a decision of the Birmingham County Court on the 22 June of last year, when Judge Alton dealt with the issue, and if I may say so dealt with the issue in a manner which I regard as of considerable assistance. The Judge said, in particular:

"In modern 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 to 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."

41. I would respectfully endorse every word of those comments of Judge Alton.
42. Turning shortly to consider the detail of the schedule, one starts off with the fact that the hourly rate is £135 for the solicitor in question. In response to questions from the Court, Mr Ditchfield accepts that an hourly rate is not one which can properly be recovered. What was claimed by Mr Thompson's client was an hourly rate of £95, and it seems to me that that would be a much more appropriate rate.
43. In addition, there is the question as to whether it was necessary to use someone at that hourly rate to do all of the matters for which the Claimant claims. Again it is accepted by Mr Ditchfield that perhaps there is some work which could have been done by a category 3 lawyer, or assistant, which could reduce the amount which it was appropriate to recover; though I do accept what is submitted by Mr Ditchfield, that sometimes continuity is important and therefore it is undesirable to chop and change between two grades of attendant, because the lack of continuity may put up the hours that are involved.
44. When you look at the items in the schedule, bearing in mind that this was a case where the medical evidence was agreed, some of the hours engaged do seem to be on the high side, but there is certainly not sufficient information put before this Court to come to a conclusion about this.
45. My view generally of the schedule which was prepared in this case, that when it is analyzed, bearing in mind the issue of proportionality, it does clearly appear to be one which was far too high. It is not appropriate for this Court to precisely define what sum should have been recovered, but in my judgment the figure which was, in fact, awarded by the Judge appears to be within the range of acceptable awards. In those circumstances, I would not interfere with the decision of the Judge and I would content myself by saying that I do consider for the future it would be helpful for the Judge to have expressed his reasoning in rather more detail than happened here.
46. I also would say that of course a Judge, such as His Honour Judge Fawkes who was dealing with this matter, has a background knowledge with regard to costs which, although not expressed by him, could have very much influenced him in coming to the decision which he did. Costs in litigation of this scale are particularly important to the parties, and I fully accept what Mr Ditchfield submits, that a litigant who is clearly entitled to succeed on the fast track must be allowed to recover costs which enable him to bring the litigation which he seeks to do, as long as he does that in a manner which is proportionate in the context indicated by the parts of the CPR to which I have made reference. Accordingly, subject to two further comments which I have to make, I would dismiss this appeal.
47. Two further comments are as follows. First of all, this case was brought by appeal to the Court of Appeal. At the opening of the hearing the Counsel were asked whether they had considered whether the Court of Appeal was the right Court to bring this appeal. The clear conclusion that I have come to is that unless there was a special order made, which was not made in this case, this appeal should not have gone to the Court of Appeal, it should have gone to a High Court Judge. However, in view of the conclusions which we have come to as to the outcome of the appeal, that is hardly a matter of importance. But, insofar as it were necessary to do so, we would reconstitute ourselves as a Divisional Court of The High Court so as to deal with the appeal.
48. The second matter is that I made some comment about VAT. I have based my remarks on the limited material which, on Circuit, is available to me. It may be that VAT provisions are more complex than I thought, and I should certainly not want anything I have said in relation to VAT to be regarded as of general application. There is, in paragraph 5.3 of the Practice Directions about costs, this statement:

"VAT should not be included in a claim for costs if the receiving party is able to recover the VAT as input tax. Where the receiving party is able to obtain credit from Her Majesty's Customs and Excise for a proportion of that as input tax, only that proportion which is not eligible for credit should be included in the claim for costs."

5.4:

"The receiving party has a responsibility for ensuring that VAT is claimed only when the receiving party is unable to recover the VAT, or in proportion thereof as input tax."

49. In view of those statements contained in the Practice Direction, it will be clear that the position as to VAT is complex, and therefore, without a full knowledge of the circumstances of this case, it is not possible to come to any final conclusion. I, therefore, would dismiss this appeal.
50. MRS JUSTICE BLACK: I agree.