England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
MR JUSTICE FIELD
[2006] EWHC 2684 (QB)

		Royal Courts of Justice Strand, London, WC2A 2LL
		13th March 2007

Lord Justice Buxton :

This is the judgment of the court.

The facts and the course of the litigation

1. The accident out of which these proceedings arose regrettably occurred as long ago as September 2002. It was a routine traffic accident, in which Mrs Willis, driving her car, knocked Mr Nicolson off his motor bike. But the consequences for Mr Nicolson were far from routine. He suffered catastrophic, life-long, injuries. The damages recoverable are likely, on full liability, to be at least in the area of £ 5 million.
2. Proceedings were not issued until shortly before the expiry of the limitation period in September 2005, although the claim had been intimated by informal letter more than a year before that. The proceedings were and are strenuously defended by Mrs Willis' insurers. Although Mrs Willis had been convicted in August 2003 of an offence of driving without due care and attention in respect of the incident, her advisers pleaded, and maintained the plea, that the whole of the fault for the accident was that of the claimant, and that Mrs Willis' criminal conviction had been against the weight of the evidence. As a result, an application for an interim payment was strongly opposed, and it was not until April 2006, by order of Holland J, that such a payment was made. A separate trial was ordered in relation to liability. In July 2006, Sir John Blofeld held Mrs Willis to have been principally to blame, but that Mr Nicolson was one-third contributorily negligent in not keeping such look-out as enabled him to adjust his speed to avoid Mrs Willis. That led to a substantial increase in the amount of interim payment already made. A hearing of the issues of quantum was fixed for March 2007, but has now been adjourned for reasons unconnected with the present application.
3. This appeal, however, is not about the merits of the case, but about the costs incurred and to be incurred by the claimant, and whether the court should order a "cap" on those costs. There have been three occasions when the claimant has been obliged to provide estimates of his costs. The first two were under the requirements of CPR part 43 PD 6.4(1), at the time of the Allocation Questionnaire in October 2005 and of the pre trial check list on 19 June 2006. The third was by order of the court in connexion with the present application on 31 July 2006. The estimates provided on those occasions were as follows:

19 October 2005

Costs to date £75,000 to £80,000

Further costs to conclude £125,000 to £170,000

Total costs for the whole action £200,000 to £250,000

19 June 2006

Costs to date £417,252

Further costs to end of liability trial £146,937

Thus, total costs to end of liability trial £564,189

31 July 2006

Costs to date £499,846

Further costs on quantum £459,496

Total costs for whole action £959,342

The costs estimated for the Defendant were very significantly smaller than those of the Claimant but, as has often been observed, that discrepancy is characteristic of heavy actions of this type.

4. The size of the figures put forward on 19 June 2006, and the increase from the original estimate, caused the Defendants to issue an application for a costs capping order. That application was dismissed, but pending an estimate from the claimant for all future costs for the whole action. That was the estimate provided on 31 July 2006. The size of that estimate led to the application with which this appeal is concerned, filed on 22 September 2006, which simply asked for "an order that the Claimants' solicitors' costs be capped", and gave as the reason for the order that "there is a real and substantial risk that without such an Order costs will be disproportionately or unreasonably incurred".
5. That application came before Field J on 13 October 2006. He refused to impose a cap as such, holding that he was unable to find that there was a real risk that future costs incurred from 31 July 2006 would be unreasonable and disproportionate (that being the asserted basis of the application, as set out above), but he felt that the Defendant "merits a measure of protection". He accordingly ordered that costs incurred from 31 July 2006 to the final determination of the claim should not exceed the estimate given of £459,496. That order was no burden to the Claimant, since he was in any event prepared to give an undertaking to that effect. The Defendant appeals the order, saying that on his findings the judge should either have ordered a lower limit, or have remitted the case to a costs judge for him to set such a cap.
6. Before addressing that specific issue it is necessary to say something in general terms about "costs capping".

Costs capping

7. In cases where a Group Litigation Order has been made it is well recognised, first, that excessive costs may be a significant problem; and second that the court must for that reason, amongst others, exercise direct and continuing control over the proceedings. Costs capping, or something equivalent to it, is therefore a familiar exercise in that context. And after some uncertainty as to the exact basis for such an order in an individual case, such as the present, it is now settled that the various weapons of the Civil Procedure Rules give the court ample powers to make an order at any stage of the proceedings: King v Telegraph Group Ltd [2005] 1 WLR 2282[85]. The effect of a costs capping order is to advance the process of assessment and limitation of costs from the assessment after trial to an earlier point in the process; and to limit the amount of recoverable costs prospectively and not merely by an exercise conducted after the costs have been incurred. Unless a successful application is made to increase the cap, the party against whom an order has been made cannot recover on final assessment more than the amount of the order. That does not prevent the paying party from attempting on final assessment to reduce that amount, but the Senior Costs Judge indicated to us that his colleagues, having assessed the costs once, would look for good reasons, usually founded in a change of circumstances, before they intervened further.
8. Such orders are essentially case-management decisions, depending heavily on the judge's perception of the needs of his case, and general statements about when and in what circumstances a costs capping order should be made can only be general statements. We were shown some observations of first-instance judges, some of them of great experience in this field, that orders should only be made in limited circumstances, of which the most conspicuous is the dictum of Gage J (as he then was) in Smart v East Cheshire NHS Trust [2003] EWHC 2806 (QB) [22]:

the court should only consider making a costs cap order in [single] cases where the applicant shows by evidence that there is a real and substantial risk that without such an order costs will be disproportionately or unreasonably incurred; and that this risk may not be managed by conventional case management and a detailed assessment of costs after a trial.

By contrast, there have been various indications in this court encouraging the use of costs capping. Those indications include the observations of Sir Christopher Staughton in Solutia UK Ltd v Griffiths [2002] PIQR P176 [27]-30]; Dyson LJ in Leigh v Michelin Tyre plc [2004] 1 WLR 846[34]; and in particular Brooke LJ in King v Telegraph Group Ltd [2005] 1 WLR 2282[92]:

it would be very much better for the court to exercise control over costs in advance, rather than to wait reactively until after the case is over and the costs are being assessed.

This difference of opinion is in need of resolution, but for the reason given in §24 it is not resolved in this judgment.

9. Something must also be said about costs estimates. A capping exercise cannot proceed unless the court has estimates on which to work; and where an estimate has been ordered, and the costs sought on assessment differ by more than 20 per cent from that estimate, paragraphs 6.5A and 6.6 of the "Costs Practice Direction" (CPR 43PD) provides that that discrepancy must be explained, and may be taken into account in deciding whether the costs claimed are disproportionate or unreasonable. These provisions cannot by themselves serve the purpose intended by a costs capping order, as this court emphasised in Leigh v Michelin Tyre. A party cannot be punished on assessment just because his costs differ from the estimate if there are good reasons for that difference. That is why this court said in that case that it favoured costs capping orders, rather than reliance at the assessment stage on the effect of estimates, as a means of controlling costs.
10. But however attractive costs capping orders may be in theory, in practice they present some formidable problems. These can be demonstrated from consideration of the order sought in the present case; and from some more general observations about costs capping that we venture in the last section of the judgment.

The decision of Field J

11. The figures set out in §3 above were put before Field J, backed by fairly detailed estimates, in the costs capping application. He accepted the test, adopted in the application, of a real and substantial risk of unreasonable and disproportionate costs. He characterised the costs incurred down to 31 July 2006 as "truly remarkable". He then looked at the actual and estimated costs for the period between 1 August 2006 and the end of the quantum trial, and in §§ 11-14 of his judgment identified four areas of concern in relation to the time proposed to be spent by fee-earners in the firm of solicitors acting for the claimant:

182 hours for attending on the client and his immediate carers, at a cost of some £50,000.

80 hours attending on other lay witnesses, at a cost of some £20,000

87 hours working with counsel, at a cost of some £30,000

260 hours working on documents, at a cost of some £51,000.

He concluded, at his §15:

Although I am uneasy about the remarkably high level of costs incurred to date I feel unable to reach the conclusion, having regard to all the material before me, including the future estimate, that there is a real risk that the future costs incurred from 31 July will be unreasonable and disproportionate.

But, as we have seen, he made an order limiting future costs to the amount of the estimate.

12. That exercise in case management was complained of in the following terms in the original Grounds of Appeal:

Having rightly found that the claimant's estimated costs in this case were 'remarkable' such that the defendant 'merited some protection', the learned judge was wrong, in the exercise of his discretion, to cap the claimant's costs at the very level of the estimate which engaged his concern. The learned judge should either have imposed a cap in a substantially lower sum, or have remitted the case to a costs judge for the setting of such a cap.

13. Mr Bacon, for the Claimant, was easily able to demonstrate the fallacy in that complaint. What the judge had found remarkable was not the future estimates, but the amount already spent to 31 July 2006. When he came to the estimates he was unable to conclude, as a matter of judgement, that there was a real risk of the costs actually expended being unreasonable and disproportionate. Since that latter judgement was not appealed, that was the end of it.
14. When he entered the case, about a week before the hearing of the appeal, Mr Morgan QC, appreciating this difficulty, applied to add another ground of appeal that did challenge the judge's judgement as to the real risk of unreasonable expenditure. We refused permission, for two reasons. First, the application came very late indeed, and would have required the respondents to face a case different from that which they came to court to meet. Second, the ground would have required this court to embark on a detailed inspection of the reasonableness of the Claimant's costs for which we simply did not have the material. Mr Morgan criticised the Claimant for that position, in that he had put no detailed evidence before the court to justify the level of his estimates. That was a point that could have been taken below, in that the Defendant could have sought to persuade the judge that the estimates were unsupported, and invite him to draw adverse inferences from that fact. But since that was not done, and clearly cannot be done now, the court has no basis on which to go behind the judge's finding.
15. There is another reason why this court cannot now intervene. In his §17 the judge said:

One of the reasons for disposing of the application in this way [that is, by limiting the Claimant to his latest estimate, rather than by a costs capping order] is my concern as to the time and costs that would be involved in having a costs judge decide what the costs cap should be.

And the judge might have added that three of the (as it was then supposed to be) eight months of preparation to which the estimates applied had already expired, making any intervention on his part, and even more so a later intervention by a costs judge, very difficult to apply in practice. That is plainly even more of a difficulty when, at an even later date, this court is asked to adjust the Claimant's costs and, in so doing, adjust the Claimant's preparation of the case very close to trial.

16. There are therefore no grounds on which this court can disturb the decision of Field J, and this appeal accordingly fails.
17. When permission was given for this appeal it was suggested that the opportunity might be taken to give general guidance on costs capping. In the following section we therefore make some general observations about costs capping orders. Mr Morgan and Mr Bacon were good enough to set out in their skeletons various considerations relevant to this general enquiry, even though that was not strictly demanded of them by the terms of the appeal. We found those observations helpful, and in addition and in particular we have been very much assisted by the advice of the Senior Costs Judge, who sat with us as an assessor.

Some general observations

18. The very high costs of civil litigation in England & Wales is a matter of concern not merely to the parties in a particular case, but for the litigation system as a whole. While disputants should be given every encouragement to settle their differences without going to court, that encouragement should not include the making of litigation prohibitively costly so that litigants are deterred irrespective of the merits of their case. One element in the present high cost of litigation is undoubtedly the expectations as to annual income of the professionals who conduct it. The costs system as it at present operates cannot do anything about that, because it assesses the proper charge for work on the basis of the market rates charged by the professions, rather than attempting the no doubt difficult task of placing an objective value on the work. When the Civil Procedure Rules replaced the Rules of the Supreme Court, and encouraged active intervention by the court and the application of public values and not merely those values with which the parties were comfortable, it was hoped that that practice might change; and that hope was reinforced when this court said, in §2 of its judgment in Lownds v Home Office (Practice Note) [2002] 1 WLR 2450:

Proportionality played no part in the taxation of costs under the Rules of the Supreme Court. The only test was that of reasonableness. The problem with that test, standing on its own, was that it institutionalised, as reasonable, the level of costs which were generally charged by the profession at the time when professional services were rendered. If a rate of charges was commonly adopted it was taken to be reasonable and so allowed on taxation even though the result was far from reasonable.

19. However, in the event nothing seems to have changed. That is because, as explained in §29 of the same judgment, "proportionality" is achieved by determining whether it was necessary to incur any particular item of costs. And then "When an item of costs is necessarily incurred then a reasonable amount for the item should normally be allowed": and the reasonable amount per hour of the professional's time continues to be determined by the market. How that occurred, and further observations on the present position in respect of the assessment of rates, is to be found helpfully set out in more detail in Zuckerman, Civil Procedure (2^nd edition), at §§ 26.74 to 26.87.
20. In the present case, as the figures set out in §11 above demonstrate, that approach led to what appears to be fairly routine work in preparing for trial being charged to the other side at an average, over the range of grades of lawyer involved, of £250 per hour. In such a world, if proportionality is to mean anything, at least the courts should ensure that no more of those expensive hours are spent than the case properly justifies.
21. The focus of costs limitation thus has to be on the way in which the professionals intend to conduct the case because, as we have seen, the amount recoverable on assessment is fixed, as to rates, by the standard amounts allowed. And, as to the costs of evidence, the number of experts used is controlled by the need to obtain permission to call an expert, and at least in extreme instances by the exercise of the court's power under CPR 35.4(4) to limit the amount of experts' fees: to the extent, and very beneficially, of removing an expensive expert in favour of a more economic alternative, a type of decision upheld by this court in Kranidiotes v Paschali [2001] EWCA 357. It is also worth recording that the Senior Costs Judge indicated to us that he and his colleagues see the bills of experts in a wide field of disciplines, and in particular in personal injury work, and are comfortable in forming a view on the basis of that experience as to what it is reasonable for an expert to charge.
22. To limit the way in which the professionals intend to conduct the case is a delicate matter. As Lindsay J put it at §28 of his judgment in Weir v Secretary of State for Transport

If there is to be a cap in any case, the party capped is likely to be required to alter its conduct in relation to costs, if that were not part of the intent behind the cap then there would probably be no point in having a cap.

The court will be careful before imposing such a restriction, particularly when those restricted are, as in the present case, acting for a claimant who has suffered catastrophic injuries. To conduct the exercise properly the court will need reliable information about, and understanding of, the nature of the particular case and the general demands of that type of litigation. And both for reasons of fairness and for reasons of practicality a cap cannot be imposed retrospectively, so the enquiry must take place at a sufficiently early stage to have a real effect on expenditure: the present case demonstrates the hopelessness of leaving an application until close to the date of trial. As Gray J said in Henry v BBC [2006] 1 All ER 154[39]:

the purpose of a capping order is to enable the capped party to plan ahead the appropriate level of expenditure to bring the case to trial at a cost which is in line with the amount of the cap.

There has, accordingly, to be careful selection of the right moment in the litigation process for the consideration of a costs cap.

23. And further reasons why the exercise of costs capping should not be entered upon lightly are that amount of the cap has to be determined by a costs judge, a scarce resource; and if the exercise is to be done properly it is likely, as in effect a substitute for final assessment, to be as expensive and time-consuming as a final assessment itself.
24. With all these factors in mind we drafted a comprehensive set of principles to be applied in personal injury cases, which are the most obvious candidates for costs capping; which could also be considered for application to other types of case. However, further discussion with members of the court, including the Master of the Rolls and the Deputy Head of Civil Justice, has demonstrated that, despite the terms in which permission to appeal was granted in this case, and the observations in this court to which attention is drawn in §8 above, there remain serious doubts as to whether further guidance on costs capping, if it is to be given at all, should emanate from a constitution of the court as opposed to being formulated by the Civil Procedure Rules Committee, after extensive consultation. We are bound to recognise the imperative of that view. We therefore do not pursue the question further. It will be for the Rules Committee to decide whether, and if so with what degree of urgency, to take up the issues that we have identified earlier in this judgment.

Lady Justice Smith:

25. I agree.

Lord Justice Wilson:

26. I also agree.