SENIOR COURTS COSTS OFFICE
B e f o r e :
| BERNARD MURRELLS (Executor of the Estate of Jill Murrells deceased)
|- and -
|CAMBRIDGE UNIVERSITY NHS FOUNDATION TRUST
Mr. Wilcock (instructed by Acumension) for the Defendant
Hearing dates: 23, 24 November and 12 December 2016
Crown Copyright ©
Background and relevant earlier decisions
Part 1 Base profit costs £12,761.25 Success fee £14,464.23 VAT on profit costs £4,645.1 Disbursements £4,400 VAT on disbursements £550 Subtotal £32,820.58
Part 2 Base profit costs £14,862.75 Success fee £12,187.46 VAT on profit costs £5,410.04 Disbursements less ATE premium £5,470.50 ATE premium £22,737 VAT on disbursements £683.35 Subtotal £61351.10
The provisions of new CPR 44.3 and CPR 44.4
(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. Costs which are disproportionate in amount may be disallowed or reduced even if they were reasonably or necessarily incurred; and
(5) Costs incurred are proportionate if they bear a reasonable relationship to –
(a) the sums in issue in the proceedings;
(b) the value of any non-monetary relief in issue in the proceedings;
(c) the complexity of the litigation;
(d) any additional work generated by the conduct of the paying party; and
(e) any wider factors involved in the proceedings, such as reputation or public importance.
(7) Paragraphs (2)(a) and (5) do not apply in relation to –
(a) cases commenced before 1st April 2013; or
(b) costs incurred in respect of work done before 1st April 2013,
and in relation to such cases or costs, rule 44.4.(2)(a) as it was in force immediately before 1st April 2013 will apply instead.
(1) The court will 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) proportionate and reasonable in amount, or
(3) The court will 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;
(g) the place where and the circumstances in which work or any part of it was done; and
(h) the receiving party's last approved or agreed budget.
The Parties' Outline Submissions
Does the new test of proportionality in CPR 44.3 apply to additional liabilities and, if so, how?
A percentage increase will not be reduced simply on the ground that when added to base costs which are reasonable and (where relevant) proportionate, the total appears disproportionate.
"In summary, if the basis upon which Mr. McCracken's attack on section 11.7 and 11.9 [of the Costs Practice Direction] was founded were to be accepted, it would have imperilled the whole scheme put in place by the 1999 Act because lawyers would have been unwilling to enter into CFAs for fear that, even if successful, the uplift which that had agreed on the basis envisaged by the system embodied in the 1999 Act would have been liable to be reduced or disallowed on the assessment because it would have been held to be disproportionate what was at stake in the litigation. "
The provisions of CPR Parts 43 to 48 relating to funding arrangements, and the attendant provisions of the Costs Practice Direction, will apply in relation to a pre-commencement funding arrangement as they were in force immediately before 1 April 2013, with such modifications (if any) as may be made by a practice direction on or after that date.
"An additional liability was an element of costs: see CPR43.2(1)(o). Costs which were unreasonably incurred or which were unreasonable in amount would not be allowed (CPR 44.4(1)). Accordingly, a success fee and an ATE premium would only be allowed to the extent that they were reasonably incurred and were reasonable in amount, having regard to the factors set out at CPR 44.5(3). On the standard basis, only costs which were proportionate to the matters in issue would be allowed (CPR 44.4(2)(a)). The proportionality limitation, therefore, applied to additional liabilities as well as to base costs. CPD para 11.5 did not disapply the proportionality criterion, but confirmed that additional liabilities were to be judged by reference to proportionality, albeit separately from the base costs. The criterion of proportionality therefore applied subject only to the limitation imposed by para 11.9."
Transitional Provisions: General
Sections 44 and 46 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 ('the 2012 Act') make changes to the effect that a costs order may not include, respectively, provision requiring the payment by one party of all or part of a success fee payable by another party under a conditional fee agreement or of an amount in respect of all or part of the premium of a costs insurance policy taken out by another party. These changes come into force on 1 April 2013.
Sections 44(6) and 46(3) of the 2012 Act make saving provisions to the effect, respectively, that these changes do not apply so as to prevent a costs order including such provision where the conditional fee agreement in relation to the proceedings was entered into (or, in relation to a collective conditional fee agreement, services were provided to the party under the agreement), or the costs insurance policy in relation to the proceedings taken out, before the date on which the changes come into force.
The provisions in the CPR relating to funding arrangements have accordingly been revoked (either in whole or in part as they relate to funding arrangements) with effect from 1 April 2013; but they will remain relevant, and will continue to have effect notwithstanding the revocations, after that date for those cases covered by the saving provisions.
The provisions in the CPR in force prior to 1 April 2012 relating to funding arrangements include –
(a) CPR 43.2(1)(a), (k), (l), (m), (n), (o), 43.2(3) and 43.2(4);
(b) CPR 44.3A, 44.3B, 44.12B, 44.15 and 44.16;
(c) CPR 45.8, 45.10, 45.12, 45.13, Sections III to V (45.15 to 45.19, 45.20 to 22 and 45.23 to 26), 45.28 and 45.31 to 45.40;
(d) CPR 46.3;
(e) CPR 48.8.
(1) I would, as I have indicated above, read CPR 48.1 as simply preserving the approach under the old rules to the recovery and assessment of additional liabilities. Read naturally, it seems to be clear that it was intended to preserve CPD 11.9 which was essential to the function of the relevant funding arrangements and integral to them.
(2) I agree with Master Rowley that the restricted meaning of "costs" applies to new CPR 44.3. It seems to me that the effect of sections 44(3) and 46 (4) of LASPO is to preserve the recoverability of additional liabilities as an item of costs subject to assessment under the old rules only.
As Master Rowley has noted, the use of the term "costs" in Part 3 and the costs budgeting provisions and practices follow this restricted meaning of "costs" in new CPR 44.1 in cases where additional liabilities are claimed. Courts do not costs manage additional liabilities (Various Claimants v MGN  EWHC 1894 (Ch)). If the Defendant were right (and "costs" had a wider meaning), then there would need to be an assessment of proportionality at two stages: one in the costs management process and another in detailed assessment when the additional liabilities are known. This cannot have been intended.
(3) Practice Directions do not of themselves have legislative force: see Re C (Legal Aid Preparation of Bill of Costs)  1 FLR 602, Godwin v Swindon Borough Council  EWCA Civ 1478, Leigh v Michelin  EWCA Civ 1766 and KU v Liverpool  EWCA Civ 475. CPD 48 cannot itself amend CPR 48.1. I agree with Master Rowley that Section 1.4 of the CPD 48 does not purport to set out an exclusive list of the provisions relating to pre-commencement funding arrangements. Moreover, I consider it important to see the section in context: Sections 1-3 appear to be mere descriptions of the effect of the legislative provisions but not in themselves modifications of any of the primary or secondary legislation; I do not accept that Section 1.4 should be read any differently.
(4) It does not strike me, in any event, as surprising that the list in Section 1.4 of CD 48 should exclude old CPR 44.4 (2) because the approach to the assessment of an additional liability has been as set out above: the tests of proportionality and reasonableness/necessity generally overlapped; this is in contrast to the practice in respect of base costs.
(5) The references at section 1.4 (c) appear to confirm that in circumstances where pre-LASPO the success fee was fixed, it will remain fixed under the transitional provisions. As I see it, there is no indication in CPD 48 that a claim in respect of which the success fee was fixed under CPR 45 would also be subject to the new proportionality rules. But if the Defendant were right it would, seemingly, be necessary to aggregate such a fee with the base costs and the total would be subject to full or partial disallowance on the grounds of proportionality. This is notwithstanding the provisions of old CPR 45 which set out the amount to be allowed for an uplift in certain prescribed circumstances.
(6) New CPR 44.3 makes no reference to additional liabilities; indeed, I have difficulty reconciling its provisions, including in particular the transitional provisions at CPR 44.3 (7), with the Defendant's contention. In respect of cases commenced after 1 April 2013 the section provides that the new test does not apply to costs incurred in respect of "work done before 1 April 2013" (underlining added). It is difficult to see how the taking out of an ATE premium could be regarded as "work done". But, if it could not be so regarded, then if the Defendant is right, all such liabilities whenever incurred would, for cases issued after 1 April 2013, be caught by CPR 44.3(7). It strikes me as unlikely that the provision could be intended to have such retrospective effect; this is particularly so in circumstances where the provision does not apply retrospectively in respect of base costs. Accordingly, if I have understood CPR 44.3 (7) correctly, then it appears to support the contention that CPR 44.3 was not intended to apply to additional liabilities.
(7) If it were right that new proportionality test applied in the way contended for by the Defendant, it would moreover have a considerable prejudicial effect upon those litigants and lawyers who have entered into pre-commencement funding arrangements. It seems likely that they will have entered into such arrangements in the reasonable expectation that the additional liabilities would continue to be recoverable as they were pre-LASPO. To apply the new test to additional liabilities in the way contended for would however require many litigants to submit to a substantial, if not complete, disallowance of their additional liabilities as against the other party or parties to the litigation whilst at the same time the liability to pay an insurer or the lawyers the additional liability would be preserved. If that were right it would inevitably lead to many litigants, including -it might be observed- victims of mesothelioma, having to give up deserving claims or defences (see Coventry, paragraph 93). I agree with Master Rowley: in these circumstances the Defendant's contention cannot be reconciled with transitional provisions and the clear will of Parliament. The intention must have been to provide, at the very least, an orderly retreat from the old funding scheme.
(8) The further practical issue that arose in the course of argument was this: how should the court determine what sum is proportionate if additional liabilities are to be aggregated with base costs? I intend no disservice to Mr. Wilcock's helpful and thoughtful submissions if I were to confess that following argument it was unclear on what specific basis how in this case I should determine that any particular figure, following aggregation, was proportionate (bearing in mind the test in CPR 44.3 (5) and that additional liabilities are otherwise, in principle, recoverable). On one reading of that provision no allowance should be made for the fact that a party is acting under a funding arrangement which provides for an additional liability; a proportionate figure might well be the same or similar whether allowance is made for additional liabilities or not. If that were right, the effect of applying the proportionality rules would be simply to make additional liabilities wholly or substantially irrecoverable in many instances.
Are the Part 2 base cost disproportionate under the new test of proportionality and should any further deduction should be made?
Where the amount of costs is to be assessed on the standard basis … Costs which are disproportionate in amount may be disallowed or reduced even if they were reasonably or necessarily incurred …
"… in an assessment of costs on the standard basis, proportionality should prevail over reasonableness and the proportionality test should be applied on a global basis. The court should first make an assessment of reasonable costs, having regard to the individual items in the bill, the time reasonably spent on those items and the other factors listed in [what is now CPR 44.4(3)] and consider whether the total figure is proportionate. If the total figure is not proportionate, the court should make an appropriate reduction. There is already precedent for this approach in relation to the assessment of legal aid costs in criminal proceedings: see R v Supreme Court Taxing Office ex p John Singh and Co  1 Costs LR 49." (Final Report, para.37).
"a sensible assessment of the consequence of aggregation in the light of the overall complexities of the case and, above all, the experience of the Determining Officer and Taxing Master".
"… the obvious way of introducing proportionality is that … adopted in the [Final Report], namely by effectively reversing the approach taken in Lownds. In this way, as Sir Rupert said, disproportionate costs, whether necessarily incurred or reasonably incurred, should not be recoverable from the paying party. To put the point quite simply: necessity does not render costs proportionate. Reference to necessity can be said to be positively misleading as it suggests necessary to achieve justice on the merits: substantive justice. A fundamental tenet of both Woolf and Jackson, accepts that that aim must be tempered by the need for economy and efficiency, and, above all proportionality. On one view, once one has a proportionality requirement, necessity may add nothing; on another view, any test which incorporates necessity is one which will all too easily see necessity trump proportionality. However, it may well be that it is right to retain necessity as a requirement, provided that it is borne firmly in mind that it is one of two hurdles which have to be cleared."(Lord Neuberger MR)
" In a case such as this where very large amounts of money are at stake, it may be entirely reasonable from the point of view of a party incurring costs to spare no expense that might possibly help to influence the result of the proceedings. It does not follow, however, that such expense should be regarded as reasonably or proportionately incurred or reasonable and proportionate in amount when it comes to determining what costs are recoverable from the other party. What is reasonable and proportionate in that context must be judged objectively. The touchstone is not the amount of costs which it was in a party's best interests to incur but the lowest amount which it could reasonably have been expected to spend in order to have its case conducted and presented proficiently, having regard to all the relevant circumstances. Expenditure over and above this level should be for a party's own account and not recoverable from the other party. This approach is first of all fair. It is fair to distinguish between, on the one hand, costs which are reasonably attributable to the other party's conduct in bringing or contesting the proceeding or otherwise causing costs to be incurred and, on the other hand, costs which are attributable to a party's own choice about how best to advance its interests. There are also good policy reasons for drawing this distinction, which include discouraging waste and seeking to deter the escalation of costs for the overall benefit for litigants."
"I next considered whether the sum allowed as reasonable was also proportionate. The answer would be yes if I were to apply the test propounded by Leggatt J: I had already assessed what was the lowest amount which the Claimant could reasonably have been expected to spend in order to have this case conducted and presented proficiently, having regard to all the relevant circumstances. However, I do not think that test applies in cases such as this where the amount of reasonable costs will inevitably exceed the value of the claim. Kazakhstan Kagazy PLC was a case where the sums in issue bore no relation to the costs however high they were. However the amount of the sums in issue is one of the factors I have to take into account here and, indeed, it is the first factor listed in CPR 44.3."
"The dicta of Leggatt J in the Kazakhstan case demonstrates an understanding that there are cases where the sums at stake will be so large that the costs involved in bringing proceedings will always be "proportionate" if the costs are simply compared to the sums at stake. It was for that reason that Leggatt J cautioned against parties taking the approach of "no expense being spared" in such cases. At the other end of the scale, the case of Hobbs involved the settlement of a clinical negligence claim for £3,500 plus costs. At this lower end of the scale, it is not the case that a minimum necessary spend approach is proportionate in the way that it would be in a Kazakhstan type case." (para. 39)
In cases such as this, it seems to me that the new test of proportionality as described in paragraphs 5.5 and 5.6 of the final report (see  above), will require legal representatives to inform their clients that, even if successful, they will receive no more than a contribution to the costs that will be incurred. It may be that such advice proves to be a driver for the costs to be reduced or for alternative dispute resolution mechanisms to be explored. It is to be hoped that cases such as this one, which are in a transitional phase of understanding the new proportionality test, will be relatively rare. (para. 41)
Are the additional liabilities disproportionate and should any further deduction should be made?
The costs of the ATE premium
"For all but the more serious or specialised personal injury claims, ATE insurance is block rated rather than individually assessed. For block rating to work the insurer needs to be sure that it is receiving a full and fair selection of cases, ranging from those where liability is unlikely to be in doubt to those where it is contested. In order to avoid adverse selection it is standard practice for ATE insurers to require solicitors to insure all available cases with the ATE provider. In practice, therefore, claimants' solicitors cannot simply pick and choose from a variety of products and offer different policies to different clients. This approach is, in any event, incompatible with block rating." (para. 33)