2021 in Costs - A Year in Review
Posted on 22nd December 2021 at 15:06
By Sean Linley, Costs Draftsman
Another year is almost over and for costs it was a significant year with a spate of developments which will have lasting consequences. We take a look back at the previous 12 months and select a key decision for each month.
January – Damages Based Agreements in the Court of Appeal
The year started with the launch of the Guideline Hourly Rate consultation and it was a clear signal that rates looked set to rise for the first time in 11 years (though formal adoption would come much later in the year). The Senior Courts Costs Office Guide was also updated in January 2021 to reflect “fundamental changes in practice which occurred before COVID-19 and which have been increased as a result of it.”
The big decision in January was all about Damages Based Agreements (DBAs) and the judgment in Zuberi v Lexlaw Ltd [2021] EWCA Civ 16 (15 January 2021) was heralded as a breakthrough in giving practitioners greater flexibility in the use of DBAs.
In Zuberi the Court of Appeal held that a termination clause which provided for payment of the solicitors’ costs on a time basis were permissible. Perhaps, somewhat controversially the judgment opened the door (in principle) for parties to agree payment of an additional sum beyond the agreed percentage of damages if the claim succeeded.
Coulson LJ stated unequivocally that:
“the term "damages-based agreement" should be given a narrow meaning. It is the agreement between the parties relating to the payment as defined in the Regulations, namely that "part of the sum recovered in respect of the claim for damages awarded that the client agrees to pay the representative". Other elements of the agreement between the solicitor and the client, such as at which of the solicitors' offices the work will be done, or the level of expenses incurred (which is expressly excluded from the payment as defined) or, as in this case, the termination provisions, have nothing to do with the payment as defined in the Regulations, and are therefore not part of the DBA itself.”
Whether or not Zuberi has led to an uptake in DBAs remains to be seen but this was a significant decision which is likely to carry long lasting implications with the Court of Appeal giving clear guidance on the enforceability of DBAs.
February – 90% Interim Payments & Pre-Judgment interest
The shortest month of the year but by no means the quietest for costs. It was confirmed that the electronic Statement of Costs scheme would be extended until March 2022 and that there would be changes to Part 36 to allow parties to make offers which included “accruals of interest”.
For February we have picked out the decision in Puharic v Silverbond Enterprises Ltd [2021] EWHC 389 (QB) (22 February 2021). The case was budgeted and saw the Court awarded 90% of the budgeted costs and 70% of incurred / non-budgeted costs as a payment on account. The case exemplifies the power of a good Costs Budget on cash-flow.
In addition the High Court awarded pre-judgment interest pursuant to CPR r44.2(6)(g), allowing interest from the date its costs were paid and at a rate of 2% above the applicable base rate. Pre-judgment interest is a good way to help compensate a party for not only costs expended but also of litigation funders (where appropriate).
March – QOCs and Counterclaiming Defendants
It was announced this month that Court fees were to increase for the first time in five years, the increase would not take effect until later in the year and the increases remain controversial.
This would not be the only month where QOCs features but the case of Sutcliffe -v- Ali (County Court at Middlesbrough 15th January 2021) shared via the barrister Stephen Elphick on the CivilLitigationBrief website is a noteworthy one.
The case concerned an RTA where liability was in dispute and the Defendant counter-claimed for damages for personal injury. The Court found that the accident was the sole fault of the Defendant.
Giving judgment it was stated that “the Jackson reforms were not intended to provide defendant insurance companies with a defence to a claim for costs where they could persuade their insured to bring claims for personal injury.”
April – Promptness and Budget Variation
Vulnerability became the sixth pillar under CPR r44.5 for the Court to consider when determining proportionality. Vulnerability is now a significant factor when addressing costs (as it ought to always have been) and practitioners should make sure that where it is relevant it is made clear when dealing with costs submissions and case management.
For anyone dealing with Costs Budgets they need to be familiar with the judgment in Persimmon Homes Ltd & Anor v Osborne Clark LLP & Anor [2021] EWHC 831 (Ch) (12 April 2021) which is our pick for April.
In this case, the Claimant had sought to make a significant variation of over £1million owing to the fact the disclosure model in the case had changed. Master Kaye did not allow the variation and was clear as to the reasoning for this:
“The Developers have not acted promptly; they have delayed applying to vary until December 2020 over a year after they acknowledged that they would need to do so. There is no satisfactory explanation for that delay. It is not the function of an application to vary to enable the Developers to address any overspend or miscalculation after the event and after a large part of those costs are incurred. I agree with Mr Hatt that the prospective predictability and control of costs outweighs the retrospective correction of costs in terms of the exercise of discretion. It is here that the issues of promptness and significance of the development re-emerge in particular as part of the exercise of discretion.
The prejudice to the Developers in having to seek to persuade a costs judge after the event to allow them to vary their costs budget or to determine the costs that are at large is far outweighed by the prejudice to OC. OC have been entitled to conduct their defence of the claim on the basis of the costs budget approved in December 2019 and on the understanding that that included the costs of a Model C disclosure exercise.”
The key message is to vary a Costs Budget as soon as possible, any delay could have significant consequences as to the recoverability of the additional costs incurred. If in doubt seek support from a costs specialist who will be able to provide guidance on the approach to be taken.
May – Default Costs Certificates can be Expensive
May saw the Civil Procedure Rules Committee confirm that changes would be coming to CPR 45 to open up the recoverability of Counsel’s Approval Advice & Translator Fees as well as an amendment to CPR r45.29I(h) to "any other disbursement that has arisen due to a particular feature of the dispute or which are required by the rules to be incurred". The changes have not been formally enacted yet and will address issues caused by the judgment in Aldred v Cham.
For May we have actually picked out two cases as they both carry a common them. Both the cases of National Bank of Kazakhstan & Anor v The Bank of New York Mellon SA/NV, London Branch & Ors [2021] EWHC B7 (Costs) (11 March 2021) and Serbian Orthodox Church - Serbian Patriarchy v Kesar & Co [2021] EWHC 1205 (QB) (13 May 2021) saw applications to set aside Default Costs Certificates (DCC) fail. In Serbian Orthodox Church a DCC was upheld in the sum of £222,256.85 whilst in National Bank of Kazakhstan a DCC of $3,730,290 remained in situ.
Both cases are lessons in what can happen where there is a lack of compliance and demonstrates a common theme that the Court’s will impose punitive sanctions on those who do not. Master Kaye in National Bank of Kazakhstan stated that “the court's duty to enforce compliance with rules and practice directions requires a defaulting party to act promptly when seeking relief from sanctions and to provide material on which the court's discretion may be based.”
As ever compliance remains the best defence.
June – The Power of Part 36
June saw a reminder that the Court can order costs budgeting in case exceeding £10million, over-riding the budgeting exemptions in CPR r3.12 ((T) Vattenfall AB & Others v Prysmian S.P.A & Others [2021] CAT 3 (05 February 2021))
However, this month we are going to focus on Part 36 which has been described by many different commentators as the most powerful tool in a litigators arsenal. Shah & Anor v Shah & Anor [2021] EWHC 1668 (QB) exemplified this with a Claimant awarded the benefits under Part 36 after beating its offer of £1.00 having been awarded nominal damages of £10.00.
The Judiciary are very clear when it comes to the utilising of the Court’s resource and actively encourages mechanisms for parties to avoid coming to Court at all. In Shah Mrs Justice Collins Rice stated that:
“The authorities are clear that the test of an injustice is a high hurdle. No court will easily set aside the Part 36 consequences of litigating, when a judgment confirms an outcome a claimant could have achieved by other means if a defendant had engaged on commercial terms.”
A victory no matter how narrow is a victory and Part 36 if deployed tactically can be an important asset.
July – A subtle but significant shift to Proportionality
July saw the opening of our second office in Newcastle upon Tyne, an exciting occasion for us and one which proved successful. The month also saw the final report into Guideline Hourly Rates published which restated the findings in the initial report in January that rates should increase across the board.
The big decision in July was all about the test of proportionality. The case of Discovery Land Company, LLC & Ors v Axis Specialty Europe SE [2021] EWHC 2146 (Comm) (30 July 2021) saw a subtle but significant shift.
Paying parties have regularly placed reliance upon the principle established in Kazakhstan Kagazy Plc & Ors v Zhunus & Ors [2015] EWHC 404 (Comm) (20 February 2015) that the proportionate sum of costs is “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."
This was widened in Discovery Land Company LLC with Peter MacDonald Eggers QC stating that the touchstone of reasonable or costs need not be the lowest amount. He stated that: “expenditure which is within a reasonable and proportionate range is still reasonable and proportionate even if it is not at the lower end."
It is a welcome contrast on proportionality and for receiving parties provides a string to the bow when tackling disputes over proportionality.
August – Fixed Costs where Portal not used
A very significant month as the Master of the Rolls accepted the increased Guideline Rates proposed by the CJC Working Group, the first formal confirmation that hourly rates would rise after remaining static for 11 years.
Fixed costs matters remain as contentious as ever and August saw judgment given in the case of Harford v Music Store Professional UK/DV247 Ltd [2021] EWHC B17 (Costs) (18 August 2021) which saw a party restricted to fixed costs after failing to utilise the Portal after unreasonably valuing a claim at over £25,000.00.
The case is a cautionary tale at the difficulties solicitors will face when assessing a claim and also in the high threshold the Court will adopt for a party who does not use the Portal.
September – Serious Implications for non-compliant Bill of Costs
The Ministry of Justice confirmed this month that the extension for fixed recoverable costs across the fast-track and in most money cases up to £100,000.00 would finally be enacted. An implementation date of October 2022 is to be aimed for though there remains a dearth of detail on what the real-world implications will be. Undoubtedly this will have sizeable impacts and we will share updates as they become available in the lead up to the implementation.
The most significant decision in costs in September was undoubtedly the case of Barking, Havering & Redbridge University Hospitals NHS Trust v AKC [2021] EWHC 2607 (QB) (29 September 2021). The Court provided extensive guidance as to the precise details required in a Bill of Costs as we summarised in our report, the key takeaways were:
1. It must be clearly identifiable as to who certified the Bill of Costs.
2. In a paper bill it is not necessary to specify the SCCO grade of each fee earner, but if such information is withheld, doubt will be resolved in favour of the Paying Party.
3. The paper bill must specify, in respect of each individual named employee, their hourly rate(s) and status, including details of any professional qualification and the number of years of post-qualification experience.
4. With the electronic bill it must:
a. Provide the detail of all the work undertaken in each phase.
b. Provide the reference formulate in a transparent manner and it must meet the ‘full functionality’ requirement under CPR PD 47 5.11(2).
c. Must include the names of each fee earner.
d. Must specify who has undertaken each item of work.
e. Must include the SCCO grade of each fee earner (unlike the paper bill where this is optional).
f. Providing such fee earner information on a separate spreadsheet would not remedy a breach, as the electronic bill must have the functionality to filter items of work by reference to individual fee earners.
Technical points are already routinely taken, highlighting the need for all relevant details to be provided. In this case the Court held that the Claimant would have to re-submit its Bill of Costs, amended to remedy the defects the Court had found. Not only does this delay the costs proceedings but also creates adverse costs which have to be met.
October – QOCs Costs Set-Off in the Supreme Court
October saw the return of Carter Burnett’s Annual Conference which took place after two years away and in Newcastle for the first time! There was plenty to talk about with the Supreme Court giving one of the most significant judgments of the year just days before the conference!
In Ho (Respondent) v Adelekun (Appellant) [2021] UKSC 45 On appeal from: [2020] EWCA Civ 517 the Supreme Court held that a Defendant cannot set-off costs against costs under the QOCs scheme. This means that Paying Parties must meet costs in order full and can only enforce costs orders of their own up to the extent of the damages awarded.
This is significant as up until the Supreme Court’s intervention the contrary view had been adopted by the Court of Appeal and it was very welcomed by Receiving Parties.
October was also significant as the guideline hourly rates formally increased for the first time in 11 years!
November – Exceptional Circumstances
November saw the publication of the consultation into Pre-Action Protocols which amongst other things will undoubtedly carry consequences and we reported on these.
The big story of November was all about exceptional circumstances with two judgments published in quick succession, though one concerned a case heard in 2019 but only published two years later!
The cases of Lloyd v 2 Sisters Poultry Ltd (Costs) [2019] EW Misc 18 (29 January 2019) and Crompton v Meadowcroft (Costs) [2021] EW Misc 20 (24 August 2021) both demonstrate that fixed costs matters continue to be contentious and hard fought.
Both matters concerned the application of CPR r45.29J and the test of exceptional circumstances which effectively provides that the Court can allow a sum above fixed recoverable costs where there are exceptional circumstances.
In both cases the Court held that there were exceptional circumstances. Reasons in support of exceptional circumstances included disability (or the prospect thereof), complications concerning losses and an unusual number of expert witnesses and medical witnesses (in Crompton there were five experts, in addition to an MRI scan, CBT and physiotherapy).
Notably, in 2 Sisters HHJ Howells observed that “it is in the context of exceptional circumstances within the fixed costs regime, not exceptional circumstances in terms of litigation of personal injury claims generally." Another subtlety but one of importance.
As well as our website reports, you can have a look at our article for the PI Brief Update Law Journal, published at the end of November.
December – Increased Guideline Hourly Rates relevant to work before they took effect
The start of the December saw the emergence of a new guidance note from the Senior Court Costs Office (SCCO) on taking deductions from damages in cases involving children and / or protected parties. One of our Directors, Lee Carter, put together a guide to what it means and it can be viewed here.
One of the biggest issues of the years centred all around Guideline Hourly Rates. The case of Goodwin v Avison and Others [2021] Costs LR 1323 arrived with firm guidance given by HHJ Davis-White QC who made it clear the new Guideline Hourly Rates were relevant to work undertaken even before they took effect.
In the Judgment HHJ Davis-White QC stated that:
"I should add that even had I carried out the exercise of preparing my judgment in September 2021, before the Guide came into force, I would have reached the same conclusions and would have taken the Guide into account as representing best practice and the hourly rates there advised as being the best evidence for an appropriate starting point when compared with the historic rates otherwise available."
The decision to utilise the new Guideline Hourly Rates retrospectively mirrors a slew of earlier decisions affirming the same point that the old Guideline Hourly Rates were so outdated that they were of little to no-use at assessment.
It has to be remembered that even the new Guideline Hourly Rates are a starting point only and are not prescriptive. It is welcome news though that the Court can and will view the new rates as the relevant starting point. It has to be borne in mind that practitioners will be inhibited by the indemnity principle and whatever hourly rate their retainer allows. For any practitioners who have yet to update their hourly rates then this ought to be done immediately either by updating the retainer for new clients and providing compliant notification to existing clients of rate increases. The effect of the increased rates should also be considered to budgeted cases and applied in new budgets (where appropriate) but also thought should be given to the impact upon any existing costs budgets.
Honourable Mentions - Best of the Rest
There are always honourable mentions whenever a review of the year is undertaken and we have selected some further highlights below:
- Part 36 Loopholes - Pallett v MGN Ltd [2021] EWHC 76 (Ch) saw a Defendant seek to exploit a loophole that the Court will determine the liability for costs where an offer is accepted after the relevant period had passed. In Pallett the Defendant accepted the offer on the 22nd day! The CPRC are looking into the matter as it ‘odd’ but there has been on concrete solution made public yet.
- Fee Remissions – A year in review is incomplete without mentioning the issue of recovering court fees where a fee remission has not been investigated. The matter has been determined on both sides and we wrote about the state of play in April. However, in November the case of Gibbs v King's College NHS Foundation Trust [2021] EWHC B24 (Costs) (22 November 2021) came to light which found that a failure to investigate a fee remission would mean that a court fee was not recoverable. Decisions remain inconsistent and the CPRC indicated earlier in the year they will look at this matter. It is also worth noting that permission to appeal was given in Gibbs so it may not be the end of it yet! Right now the best practice is to have a contemporaneous file note showing that a remission was investigated, else parties will be taking on risk that court fees may not be recoverable.
- Court Fees Only Budget – In March 2021 there was the unreported case of Hardy v Skeels (4 March 2021, County Court at Stoke) it was found that where the sanction for restricting a costs budget to court fees only was imposed it only applied to future costs and not incurred costs.
- Medical Agency fees & Fixed Costs – In Powles v Hemmings an unreported decision shared by CivilLitigationBrief it was found that the fees of the medical agency were allowed recovered in the fixed costs, reflecting the principle in the Court of Appeal case of Aldred v Cham.
- Statements of Costs – An issue which has cropped up multiple times in 2021 is the impact of failing to provide a Statement of Costs. In Mahandru v Nielson [2021] EWHC 2297 (QB) no costs were allowed where no Schedule of Costs was filed. This echoed an earlier decision in the case of Kuznetsov, R (On the Application Of) v London Borough of Camden [2019] EWHC 3910 (Admin), Mr Justice Mostyn had no sympathy at all stating that "where the court is charged with a duty to bring closure by summary assessment, and where there is a positive duty to file a Form N260, the legal advisers having failed to do so they, having made that bed, must lie in it and they will not get an award of costs.” Some sympathy, however, was given in the later decision of Vine v Belfield [2021] EWHC 3068 (QB) (05 October 2021) where costs were allowed for a party who did not file a Statement of Costs. A message worth repeating (as it was said elsewhere in this article) is that compliance is and always remains the best defence. The risk (and costs of) non-compliance can be significant.
- And finally, Part 36 benefits – Interest is relevant to whether a party has bettered a Part 36 offer and paying parties have ample opportunity to make payments on account to mitigate their liability for interest. Moreover, even if they are coming from the ‘public purse’ Part 36 benefits must stand. This was the conclusion of Deputy Master Campbell in TT, R (On the Application Of) v Secretary of State for the Home Department [2021] EWHC B21 (Costs) who did not hold back in criticisms of the Defendant.
It has been a busy year for costs and as we look ahead to 2022 it shows no signs of abeyance with reviews into the levels of fixed costs, the extension of fixed costs (and even the application of the current fixed costs rules). There are also reviews into Pre-Action Protocols and the implementation of mandatory ADR (all of which will have consequences on costs). At the same time Part 36 continues to develop and solicitor own client assessments show no signs of going away. These are just some of the issues we are to expect next year, inevitably there will be others!
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Have a lovely Christmas and enjoy the New Year as we head into 2022!
Tagged as: Bill of Costs, Costs Budgeting, Court Fees, fixed costs, Hourly Rates, Interim Payment, Part 36, Pre-Action Protocol, Proportionality, QOCS, Statement of Costs
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