No Interim Payment for Claimant's Costs Mid-Proceedings after Liability Admission
Posted on 22nd December 2021 at 10:32
By Sean Linley, Costs Draftsman
Cash flow continues to be an important issue for Practitioners and receiving parties have adopted different strategies to seek to recover costs at the earliest opportunity. This can include orders for costs on specific issues (like liability) or seeking an interim payment during the proceedings, particularly for cases which are complex and costly to bring.
In NAX v MAX & Anor [2021] EWHC 3492 (QB) (21 December 2021) the Claimant sought multiple costs orders and an order for an interim payment on account of costs pursuant to CPR r44.2(8).
The case arose from a serious Road Traffic Accident. Primary liability was admitted by the Defendant on 23 November 2018, in their Defence it was admitted that the Claimant suffered serious and life-changing injuries. Contributory negligence and the extent of the injuries were disputed, in particular the Defendant disagreed with the assertion that the Claimant had lost capacity. The Preliminary Schedule sought sums close to £8million.
The case was not yet costs managed but cost budgets in the sum of £1,228,769.00 (£399,074 incurred costs) for the Claimant and £494,819 (£174,392.00 incurred costs) for the Defendant.
The Claimant sought an order for the costs of the action up to 8 February 2019, an additional order for costs relating to quantum between 9 February and 29 July 2019 and a further order for outstanding costs of the action from 9 February 2019 for costs in the case to be agreed or determined at a later hearing. The first two costs order, was requested to be subject to detailed assessment at the conclusion of the case. It was asked that if the orders were made that an interim payment of 70% of the relevant costs.
Case Law
The Court considered two key cases around the appropriateness of making the requested orders.
Firstly Master Brown looked at the case of X v Hull & East Yorkshire Hospitals NHS Trust (unreported) where an interim payment was ordered mid-proceedings, specifically highlighting Irwin LJ’s comments in his decision refusing permission to appeal:
"The critical facts here are: (1) there is an acknowledged 90% liability (2) the claim is very large and will far exceed the interim payments awarded (3) there will be an exceptionally long period before quantum can be finalised, for the reasons set out by the Judge (4) there has been no Part 36 offer and (5) the judge has assessed there is effectively no risk that the costs now sought will prevent future set-off of costs to be paid to the Defendant, whether against costs due, or damages due, to the Plaintiff.
….
Turning to whether this was a proper case for an order such as this, in my view it clearly was, for the reasons formulated by the judge. It must be right that in such a case a key consideration is to preserve security for a defendant, so that there is no appreciable risk of a need to repay costs paid on an interim basis. Subject to that principle, it seems entirely proper to me to order interim costs payments with a view to the cashflow of solicitors in very long-lasting litigation, where very significant liability has been conceded. That must particularly be so in the case of specialist solicitors who may be facing such problems in a range of cases.”
He then looked at the decision of Master Cook in RXK v Hampshire Hospitals NHS Foundation Trust [2019] EWHC 2751 (QB) and observed the following passages:
“12….As Irwin LJ commented when refusing permission to appeal the meaning of "successful party" or "unsuccessful party" cannot be confined to a binary outcome of the whole case. But it in my view it is important to realise that what HHJ Robinson actually did when allowing the appeal from DJ Batchelor was to make a costs order down to the date of the hearing of the application for an interim payment on account before the District Judge, see paragraphs 23 and 43 of his judgment. This must be right as the wording of CPR 44.2 (8) provides that the court will make an interim payment on account of costs only where it has made a costs order which could be subject to detailed assessment. This is sometimes described as a "prospective" or "anticipatory" costs order, because it has been made before the conclusion of the proceedings, see the commentary in the White Book at 44.2.11.
13. The application which should be made in these circumstances is for a costs order down to a specific date and an interim payment on account of those costs.
14. Putting the matter this way makes it clear that the court will wish to take into account the factors listed in CPR 44.2 (4) and (5) and will normally expect to be presented with sufficient information to enable it to carry out that exercise. I do not consider there is a basis for asserting any kind of exceptionality test. The court will consider such applications on the basis of established principles.
15. A relevant consideration will be to preserve security for a Defendant and to ensure that there is a limited risk of such costs having to be repaid although I accept, as did HHJ Robinson, that a defendant who has overpaid costs to a claimant's solicitor may seek to set off such costs against damages. Without being prescriptive relevant considerations may include:
i) the type of funding agreement and details of any payments made under that
agreement,
ii) whether any Part 36 or other admissible offer has been made, and if so, full
details of the offer,
iii) details of any payments on account of damages made to date,
iv) a realistic valuation of the likely damages to be awarded at trial,
v) a realistic estimate of the quantum costs incurred to the date of the application,
vi) any other factor relevant to the final incidence of costs, such as the possibility
of an issue-based costs order, arguments over rates or relevant conduct.
vii) the likely date of trial or trial window.”
The Parties’ Positions
The Claimant position was that it was, as a matter of principle, “appropriate for [the Court] to make such an interim payment order unless there was a good reason not to do so. As to security for the Defendant's costs he said there were three forms of security: (1) the benefit of the costs order he asked me to make in the Claimant's favour; (2) the available indemnity under the ATE policy; (3) the Claimant's damages, which he said was adequate to meet any costs order in the Defendant's favour.”
The Defendant disagreed stating that:
“jurisdiction was discretionary. He contended that it was not appropriate in this case to make an order for costs of the action or for payment on account in view of the live issues in respect of liability, the early stage of the consideration of quantum issues and in the light of the Part 36 offers made. He said that the conditions necessary for the making of interim on account payments of costs had not been met.”
The Decision
Master Brown considered that given the Part 36 offers made and given evidence remained at an early stage that he was not satisfied that he could “dismiss as fanciful the possibility of exaggeration in relation to the head injury.”
Considering the Claimant’s arguments, it was observed that:
“Mr. Reddiford also argued that I should be wary of accepting the possibility of slight risks as it would prevent this jurisdiction being exercised sensibly: in almost every case it would be open to a defendant to say that it is conceivable something might emerge which might make such an order inappropriate. I accept the force of this point. Indeed on the limited evidence available it is perhaps difficult to see, for instance, that there is any substantial risk that, for instance, an order may be made under the Criminal Justice and Courts Act 2015 s.57 (for fundamental dishonesty), as was canvassed. I would also accept that simply because judgment had not been entered in respect of liability generally, contributory negligence issues remaining, this should not, in principle and of itself, prevent me from making any order of the sort contended for. Nevertheless in cases where there are or remain issues of liability it seems to me there is greater potential for issues based or conduct based costs orders at the conclusion of the case.”
“Accepting Mr. Hamill's broader argument, I am not satisfied to the high degree of confidence necessary that I should at this early stage, and on the limited evidence available, make the final orders sought. I do not think I can be satisfied that a trial judge will not consider it appropriate to make a different order, or at least one which is not consistent with the order that I am asked to make. The trial judge will be in a much better position to consider the factors set out in CPR 44.2 above which include conduct before but also during proceedings.
I might add that I am not sure that cases such as X v Hull, where it can be said that there is no effective risk that costs in relation to a distinct period will not be recovered, are that rare; indeed it is not uncommon for some agreement to pay costs on quantum when liability issues have been resolved as was the position in the recent case of IXM v Norfolk & Norwich University Hospitals NHS Foundation Trust [2020] 12 WLUK 162 (which I note was also birth injury case).”
The Court also considered the position that if they were wrong about the making of an order for costs whether an order for an interim payment should be made.
One of the key factors considered was that the period of up to 18 months between the CMC and Trial was within the range of what would be regarded as normal. An exceptionally long period before quantum can be finalised was considered to be a “critical fact” in the making of an order for an interim payment. Master Brown stated that: “It seemed to me, even accepting that such an exceptional length of time may not be a pre-condition for the making of an order, the demands on cashflow are significantly less heavy here than the sort of case which Irwin LJ had in mind.”
It was noted that the case was funded by a CFA, a disbursement funding loan and backed by ATE insurance to cover the risk of non-recovery of the Claimant’s disbursements. It was noted that:
“although the costs of funding are not generally recoverable from defendants as costs, this rule is mitigated by the general rule that judgment rate accrues on costs from the date of the final award of costs and before service of a Bill of Costs and ascertainment of the costs (the 'incipitur' rule): the costs of funding may thus be met, at least in part, out of such an award, see Simcoe v Jacuzzi UK Group plc [2012] WLR (D) 35 [39] to [48][2]. Further, in an appropriate case (and I am not suggesting this is necessarily such a case[3]) an award of interest may be made at the conclusion of the case under CPR 44.2(6)(g) which might compensate a claimant for the costs of financing disbursements (see Jones v Secretary of State for Energy and Climate Change [2014] EWCA Civ 363).”
Master Brown stated that:
“in accordance with guidance of Irwin LJ it seems to me that there would be a good reason not to make such an order if the effect of doing so would be to diminish the security in respect of a potential future set-off of the Defendants' costs against costs or damages due to the Claimant.”
“However if, as I understand to be the position, I am concerned with a future set off in respect of the Defendants' costs it follows that I should therefore have regard to the entirety of the Defendant's costs when considering the extent of the current security (see Chernunkhin v Danilina [2018] EWCA Civ 1802, [57]). Moreover, if I were persuaded to make orders for costs of the action in the form suggested by the Claimant it would be because I had been satisfied that there was no effective risk of a contrary or inconsistent order: such orders could only be reversed on appeal. The risk with which I am concerned is not the risk that such orders would be reversed and the interim payment paid back but the risk that by making an order for interim payment it would diminish such security as may currently exist against the Defendants' incurred and future costs.”
“It was not suggested that was no risk in relation to the Part 36 offers and that the Claimant was bound to beat the offers: thus it seems to that I am required to proceed on the basis that there is the potential for a costs order in the Defendants' favour at a trial in the spring or early summer of next year on the basis of the offers made. Given the very early stage at which these offers were made, and applying the approach set out above, suggests a potential award of costs in the Defendants' favour of c.£450-500,000 (noting also the limited challenge in the Claimants' Precedent R to the Defendant's budget).”
It was further found that the Claimant’s Damages would not necessarily provide security for the Defendant’s costs on the basis that payments on account of damages had already been made, there was a potential for a PPO (meaning any costs owing to the Defendant may not be available to the Claimant) and there were also risks around the impact of contributory negligence on the damages recovered.
Master Brown also expressed concern at the information provided as to the amount of costs claimed.
"I have found it very difficult to form even a preliminary view as to the reasonableness of costs in the defined pre-action periods and thus set any range for the likely recoverable costs after detailed assessment. I have considered the matters set out in the document headed 'Note as to incurred costs phase by phase' as against the work envisaged in Part D of Practice Direction 3E Costs Management for pre-action work (including work not just described in the first phase). There was time preparing the letter of claim and obtaining the medical evidence referred to above, and obtaining relevant records from a significant number of sources. There would have been consideration of the offers made. It may be also be that at some stage in these periods there was some preparation of preliminary witness statements. From what I understand of the accident it is perhaps difficult to see on the information before me that any substantial work related to the issue of primary liability, which appears to have been admitted at an early stage.
There is force, I think, in Mr. Hamill's argument that the cost the subject of this application appear highly excessive. Costs are asserted in the pre-action phase in the sum of about £54,000. This is on top of work on disclosure (some £96,000) and on witness statements (some £43,000) and considering offers (some £33,000): some of this work was done in the pre-action stage but it is difficult to form a clear view on this without considering the underlying documents; indeed it is unclear to what extent the work was carried out within periods covered by the proposed orders. All these costs seem to me to be vulnerable to heavy reduction on detailed assessment.
Further, I have some concern about whether and to what extent work between the expiry of the first offer and the third offer might be regarded as work on quantum or be as indivisible as claimed. It was said by the Claimant's solicitors that it would be disproportionate to incur significant costs on breaking down the work on an item by item basis as a number of items are said to have been "mixed together". But as Mr. Hamill suggested this assertion is perhaps surprising given the amount of costs that are claimed. The costs lawyer instructed on behalf of the Claimant is said to have looked at the work carried out and the figures advanced are based on her best estimates as to the extent to which the work relates to liability, quantum and otherwise. In short I am concerned, as Mr. Hamill argued I should be, about proceeding at this interim stage on the relatively bald assertions by the costs lawyer. In any event I would expect to see considerably more detail justifying the costs lawyer's conclusions and indeed the level of costs claimed in this period.”
Conclusions
Master Brown considered that it was not appropriate to make final orders as to costs in the action. He concluded that:
“Importantly, and in contrast to the position in X v Hull, there have been early Part 36 offers in this case. If the approach I have set out above (see [35] to [37] above) is the correct approach to the second stage of the determination then I could not with an appropriate degree of certainty, bearing in mind also potential deductions for contributory negligence, conclude that there is sufficient security for the Defendant's costs in an immediate award of damages or otherwise as proposed by Mr. Reddiford. Put another way, if I were persuaded that the underlying costs orders sought should be made, the effect of making an interim payment would be to diminish the security which is to be found in those costs orders. In all the circumstances even if I were persuaded to have made the final costs orders, I would not therefore have been satisfied that it was appropriate to make an order for interim payment of costs.
I do not underestimate the difficulties or expense of funding disbursements in a claim such as this, whether the funding is by the solicitors themselves or a disbursement funding loan. But the period in this case between the incurring of disbursements (to the extent that experts require up-front payment) is not unusually protracted.
It is reasonable to anticipate that the costs of liability issues alone up to the date of expiry of the first offer would be modest given the work described (and it is difficult to see that any substantial costs were incurred in respect of the issue of primary liability). Even if I were to allow some quantum costs (noting the date of some of the reports served), the work done at this stage was preliminary in nature and I would have had in mind a modest fraction of the sum sought.”
Analysis
The case of Nax reaffirms guidance previously given and highlights that the Court will take into account a number of factors before making an order for costs or an interim payment before proceedings are fully concluded.
This is something which practitioners will need to bear in mind when considering whether to pursue an application for such an order.
It is also clear that the Court will require sufficient detail as to costs before they can be confident in making an award for an interim payment, particularly where there are many nuances in play.
Another interesting comment practitioners ought to remain live to is the ability to seek pre-judgment interest, to aide the recovery of costs relating to funding.
Should you have a case where you are considering an application for an interim payment, do not hesitate to contact us for an expert opinion - email info@carterburnett.co.uk or call 01482 534567 to chat with our friendly team.
Tagged as: Costs Orders, Interim Payment
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