An essential look back at 2019 – Professor Dominic Regan

2019 has been a busy year for the Court of Appeal, with important decisions providing essential guidance on a range of key issues.

The failure by a claimant to comply with an “unless order” as to the filing of a Trial bundle led to the action being struck out and Nicol J on appeal agreed that relief from that sanction was not to be granted. The Order was patently clear and those acting for the claimant had utterly failed to comply. The efficient conduct of a trial would be severely hampered by an incomplete bundle put together in an inept fashion. See AL-BAHAA V RAPHAEL (2019) EWHC 1323 QB.

The Autumn 2019 White Book supplement makes a comment which I think could be dangerously misleading. It appears as a note at 3.14 about the failure to file a budget on time. The suggestion is that a formal application for relief is not necessary as the Court could deal with default at the CCMC.

Promptness in making an application is a key consideration under the seminal DENTON criteria. Indeed, delay has been held by the Court of Appeal to be a barrier to what would otherwise have been a forgivable breach. See DURRANT V AVON AND SOMERSET CONSTABULARY (2013) EWCA Civ 1624 and BRITISH GAS V OAK CASH AND CARRY (2016) 1WLR 4530.Should the worst happen, make an immediate formal application for relief backed up by a detailed witness statement which satisfies the DENTON requirements.

Confusion also flows because CPR 3.14 says that no budget means no costs “unless the Court otherwise orders …”. This does not create an alternative escape route outside DENTON. So said the Court of Appeal, in the context of late witness statements under CPR 32.10, in CHARTWELL V FERGIES PROPERTIES (2014) EWCA Civ 506.

Early neutral evaluation was added to the Judicial armory in 2015 by an amendment to CPR 3.1 (2) (m); the court may “take any other step or make any other order for the purpose of managing the case and furthering the overriding objective, including hearing an Early Neutral Evaluation with the aim of helping the parties settle the case”. It took Mrs Justice Parker in LOMAX V LOMAX 10 months to decide that this could only be undertaken with the consent of all parties.

Two months later it took the Court of Appeal a morning to decide that she was wrong (as was both the Chancery and Commercial Court Guides). See the extempore judgment of August 6th, 2019 at (2019) EWCA Civ 1467. “The advantage over mediation is that a judge will evaluate the parties’ cases in a direct way and may well provide an authoritative (albeit provisional) view of the legal issues at the heart of this case and an experienced evaluation of the strength of the evidence available to deploy in addressing these legal issues. The process is particularly useful where the parties have very differing views of the prospects of success and perhaps an inadequate understanding of the risks of litigation itself” said Norris J in SEALS v WILLIAMS (2015) EWHC 1829 (Chancery).

LOMAX was a substantial, complex Inheritance claim. The view expressed at an ENE is confidential and doesn’t determine the outcome of the case. It is intended to provide a frank appraisal of the action. If your opponent fails to heed the hint, you might consider an application for Summary judgment and / or a Strike Out under CPR 3.4 (2) (a). These 2 measures are usefully explained in DEVON AND CORNWALL AUTISTIC COMMUNITY TRUST V CORNWALL COUNCIL (2015) EWHC 403 (QB).

 Third party funding has been lucrative for a number of litigation backers. The liability of the funder of a losing case was considered in DAVEY V MONEY (2019) EWHC 997 (Ch). Having successfully defended, D sought a non-party costs order against the commercial funder of the claimant. What was in issue was the extent of that liability. In ARKIN V BORCHARD LINES (2005) 1 WLR 3055 the Court of Appeal capped liability to an amount equal to the maximum of the funding it had provided. This approach was criticised by Sir Rupert Jackson in his 2010 Costs Review, but ARKIN has not been overturned. Here, the Judge described ARKIN as providing an approach and not an immutable cap. On the facts, the funder was a real party looking for commercial gain. Costs in full were awarded against it.

The Court of Appeal has refused leave in I V HULL AND EAST YORKSHIRE NHS TRUST where an interim payment on account of costs in a liability admitted clinical negligence claim was ordered by the Court.

A unanimous Court of Appeal in WOODWARD V PHOENIX HEALTHCARE (2019) EWCA Civ 985 has held that a defendant who kept quiet about a fundamental error made by the claimant had done nothing wrong. The claimant had issued on the last day of a 6-year limitation period and then sent the claim form to the defendants Solicitor with 2 days left. The recipient immediately appreciated that service was bad because it had never intimated that it was authorised to accept the claim form. A Master retrospectively validated the service under CPR 6.15 citing a breach of the DENTON requirement to cooperate (see DENTON paragraphs 39-43 inclusive).

That was wrong. Blame lay with the claimant’s Solicitor and a duty to cooperate doesn’t equate to an obligation to tell your opponent what to do. However, the Appeal Court suggested that “depending on the facts, the position may well be different if there is a substantial period before the expiry of the limitation period.”

The Court of Appeal held in BUDANA V LEEDS TEACHING HOSPITALS NHS TRUST (2017) EWCA Civ 1980 on the particular facts that the transfer of a CFA from one firm to another did empower the successor firm to mop up additional liabilities. However, one must look carefully at the circumstances of each transaction.

In ROMAN V AXA INSURANCE, decided on 13th December 2018 by HHJ Wulwik in the County Court at Central London, the original Solicitor was pursuing an injury claim from 2012 on a CFA. In 2015 the firm took the drastic step of closing the injury department. The client was told that her file would be taken over by a new firm and she executed a new CFA. BUDANA was distinguished. Here, no steps were taken to maintain the original CFA. Furthermore, the first CFA was an entire contract with payment due when it had been fulfilled. The original Solicitor had no right to peremptorily terminate the retainer on account of internal business considerations. This was not a valid reason to abandon Mrs Roman. This constituted a repudiatory breach which the claimant accepted by virtue of entering into a new CFA with another Solicitor. Consequently, it had no entitlement to payment where it had only partly performed.

The Court of Appeal decision in WEST V DEMOUILPIED (2019) EWCA Civ 1220 had a stab at Proportionality. I quote below from the judgment for the sake of completeness, but it seems to boil down to the following:

1 – All circumstances of the case are relevant to proportionality via CPR 44.1 so the 5 factors in CPR 44.3.(5) are not determinative.

2 – Such costs that are inevitable or unavoidable are, if reasonable, proportionate.

3 – An initial assessment should be directed to reasonableness.

Should the total of those costs appear disproportionate one must vet the bill afresh looking at categories of activity or specific periods (and not a re- run of the line by line approach already undertaken).If the figures survive that scrutiny it must follow that the total is payable. There is to be no final step back and possible adjustment which the same Court thought at paragraph 54 of HARRISON (2017) was to be undertaken!

Roger Mallalieu thinks we are back where we started, with the resurrection of LOWNDS V HOME OFFICE (2002) EWCA Civ 365; necessary steps are proportionate.

“We are anxious not to restrict judges or force them, when assessing a bill of costs, to follow inflexible or overly-complex rules. One of the matters, however, which is apparent from the many cases cited to us, and from the submissions of counsel on the hearing of these appeals, is that there is an absence of consistency in the way in which costs bills are assessed. Taking the various points made above and drawing them together, we give the following guidance on an appropriate approach First the judge should go through the bill line-by-line, assessing the reasonableness of each item of cost. If the judge considers it possible, appropriate and convenient when undertaking that exercise, he or she may also address the proportionality of any particular item at the same time.  

That is because, although reasonableness and proportionality are conceptually distinct, there can be an overlap between them, not least because reasonableness may be a necessary condition of proportionality: see Rogers at paragraph 104. This will be a matter for the judge. It will apply, for example, when the judge considers an item to be clearly disproportionate, irrespective of the final figure.

At the conclusion of the line-by-line exercise, there will be a total figure which the judge considers to be reasonable (and which may, as indicated, also take into account at least some aspects of proportionality). That total figure will have involved an assessment of every item of cost, including court fees, the ATE premium and the like.

 The proportionality of that total figure must be assessed by reference to both r.44.3(5) and r.44.4(1). If that total figure is found to be proportionate, then no further assessment is required. If the judge regards the overall figure as disproportionate, then a further assessment is required. That should not be line-by-line, but should instead consider various categories of cost, such as disclosure or expert’s reports, or specific periods where particular costs were incurred, or particular parts of the profit costs.

 At that stage, however, any reductions for proportionality should exclude those elements of costs which are properly regarded as unavoidable, such as court fees, the reasonable element of the ATE premium in clinical negligence cases, and the like. Specifically, therefore, if the ATE premium is assessed as reasonable, it will not fall to be reduced by any further assessment of proportionality.

 The judge will undertake the proportionality assessment by looking at the different categories of costs (excluding the unavoidable items noted above) and considering, in respect of each such category, whether the costs incurred were disproportionate. If yes, then the judge will make such reduction as is appropriate. In that way, reductions for proportionality will be clear and transparent for both sides.

Once any further reductions have been made, the resulting figure will be the final amount of the costs assessment. There would be no further stage of standing back and, if necessary, undertaking a yet further review by reference to proportionality. That would introduce the risk of double-counting.”

The High Court in EVERWARM LIMITED V BN RENDERING LIMITED (2019) EWHC 2078 TCC has usefully summarised the fundamental differences between an application to extend time to comply with an Order and an application for relief where time has expired.

  1. An application for an extension of time allowed to take a particular step in litigation is not an application for relief from sanctions provided that the applicant merely files his application notice before the expiry of the permitted period: ROBERT V MOMENTUM (2003) EWCA Civ 299;

    (b) This is the case even if the court actually deals with the application after the expiry of the relevant period: HALLAM ESTATES V BAKER (2014) EWCA Civ 661. The applicant issued an application for an extension of time just 9 hours before the deadline for filing points of dispute expired.(c) Although there may be little practical difference between an application made just before the expiry of the permitted period and one made just after it had expired, the law has sound practical and policy reasons for distinguishing between the two: in the latter scenario the party concerned has slipped into default, thereby breaching the overriding objective.

    (d) An in-time application for an extension of time is neither an application for relief from sanctions nor is it even closely analogous to one: HALLAM.

    (e) An “unless” order is an order of last resort. There is a powerful public interest in ensuring that parties recognise the importance of complying with “unless” orders: OAK TRADING V BRITISH GAS LIMITED (2016) EWCA Civ 153.

    (f) However, the power to extend time for compliance with a court order pursuant to Rule 3.1(2)(a) does not distinguish between routine court orders on the one hand and “unless” orders on the other.

    (g) Accordingly, when determining an in-time application for an extension of time for compliance with both routine court orders and “unless” orders, the Court applies the overriding objective.

 

PART 36 DEVELOPMENTS IN 2019

The most important development on Part 36 of the year is the Court of Appeal decision in CALONNE CONSTRUCTION LIMITED V DAWNUS SOUTHERN LIMITED (2019) EWCA Civ 754. Two important issues were resolved. The first was whether an offer made by a defendant in respect of both a claim and an as yet unpleaded counterclaim was valid. Full details of the intended counterclaim had been given to the claimant. It was held that the offer was valid.

A Part 36 offer can be made at any time and indeed when there are no proceedings at all. To require D to go to the expense of pleading the counterclaim would plainly run contrary to the overriding objective too.

The second issue concerned interest. The offer included a term stating “The settlement sum is inclusive of interest until the relevant period has expired. Thereafter, interest at a rate of 8% per annum will be added”. At paragraph 43 of the judgment it was declared valid to add such a provision, not least because otherwise the offeror “would not be compensated with interest “ where acceptance was belated (paragraph 45).

Everyone should note the advice of the excellent Lambert J in CAMPBELL V MOD (2019) EWHC 2121 (QB) about what to do when confronted by a Part 36 offer when evidence was incomplete; seek a stay so as to stop costs running on! She said that everyone must “keep in mind the salutary purpose of the Part 36 regime which is to promote compromise and avoid unnecessary expenditure of costs and court time”, echoing what was said by Briggs J (now Lord Briggs) in SMITH V TRAFFORD HOUSING TRUST (2012) EWHC 3320 (Ch) at paragraph 13.

Further, the burden is on the offeree to show that it would be unjust to make them pay costs because of late acceptance. Specifically, “uncertainties in the litigation and the usual contingencies of litigation do not render it unjust for the normal costs rule to operate”.

Incidentally, it was Lambert J who upheld a budgeting decision made after 20 minutes of a “discursive” hearing which saw the claimant allowed less than 50% of the amount sought.

In MR V COMMISSIONER FOR POLICE [2019] EWHC 1970 (QB) Mrs Justice McGowan on appeal held that an offer was effective under Part 36 where the claimant indicated that they would relinquish any damages and would accept an apology (in the context of an alleged unlawful arrest). At trial the claimant recovered damages, but the Judge declined to grant conventional Part 36 rewards. She was wrong; to forego damages was a significant concession and the claimant had secured a better outcome at trial. The claimant was awarded full benefits. It is not open to the Court to compel a party to apologise although it could form the basis of a settlement through mediation.

In CORR V IBC (2006) EWCA Civ 331 Ward LJ said “I do wish the word “Sorry” was a word which more frequently found its place in a defendant’s (and more particularly their insurer’s) lexicon since in human relations it can mean much and should not be thought to cost much.”

It should be remembered that Section 2 of the COMPENSATION ACT 2006 stipulates that an apology, an offer of treatment or other redress never in itself can amount to an admission of negligence or breach of statutory duty.

CASHMAN V MID- ESSEX NHS TRUST (2015) 3 Costs LO 829 was the first reported appeal about what transpired to be a good offer that went unaccepted. Having presented a bill for £262,000 the claimant made a formal Part 36 offer to accept significantly less, £152,500. The Senior Costs Judge determined that C was entitled to £173,000 odd. Despite the fact that C had plainly secured a more advantageous outcome, Master Gordon Saker declined to award the uplift which would have been over £17,000. He did say that he would have been content to award 10% of the margin by which the offer was bettered (a little over £2,000).

On appeal, Mrs Justice Slade aided by Master Campbell gave the claimant the full uplift. The new regime was intentionally tough. It was designed to compel acceptance of offers that were anywhere near the mark. The fact that the Defendant was a health authority was neither here nor there. Any offeree who elected to proceed to assessment in the face of a Part 36 offer was running the risk of paying out significantly more.

This year Stewart J in JLE V WARRINGTON HALTON HOSPITALS (2019) Costs LR 829 carefully scrutinised the reward regime. After presenting a bill of around £615,000 the claimant made a Part 36 offer to accept £425,000. Incidentally, the offer was made less than a month before the assessment hearing. Master McCloud awarded some £7,000 more than C had intimated it would accept. She decided that it would be unjust to give the claimant a ‘bonus’ of £43,000 given the disparity between the ‘windfall ‘and the modest margin by which the claimant had exceeded the offer made.

On appeal, it was accepted that the injustice test could properly be applied individually to each of the available benefits that should flow but the Judge thought it challenging to conceive of circumstances where it would be just to award, say, enhanced interest but then unjust to withhold another benefit. The key finding was that the margin of success was irrelevant.

Some will remember the nightmare that was CARVER V BAA (2008) 5 Costs LR 779. The short-lived ‘was it worth it?’ test caused grave uncertainty and it was reversed by a 2011 amendment which Sir Rupert Jackson drafted. JLE was therefore entitled to the windfall which was not a bonus anyway but a penalty. In 2017 the Court of Appeal declared that Part 36 could be used to punish the unreasonable; see PETROM V GLENCORE (2017) 2 Costs LR 287.

 HOCHTIEF V ATKINS (2019) EWHC 3028 (TCC) saw a claimant who bettered their Part 36 quantum offer by £4,500 reap an uplift of £65,000 and interest at 6% above base plus indemnity costs.

On January 15 or 16 next year the Court of Appeal is going to consider a novel point raised by Coulson LJ. In BURGESS V LEJONVARN D made a Part 36 offer of £25,000.C lost at trial. D, who was only awarded standard costs, has appealed. Granting permission to appeal, the Judge noted the imbalance in the way that parties making good offers are treated. He then added his own additional issue. D had significantly exceeded her budget. Does the indemnity costs principle permit her to do so?

 

CONSULTATIONS AND ONGOING REFORMS

A fixed costs consultation ended on June 6th with a Government response promised, but not delivered, within 3 months. It is intended to impose fixed costs across the existing fast track. The fast- track would also be extended to capture cases worth from £25,000 up to £100,000 (but not any clinical negligence). The Ministry is looking at 3 bands of case, with costs ascending as one moves up through them. This will have intriguing consequences. No budgeting at the outset nor detailed assessment at the end. The indemnity principle will not apply, and a good Part 36 offer will warrant bumping up the fixed costs entitlement by 35%. A large volume of claims would fall within the extended track. Cases where more than 2 experts a side are necessary or where Trial would exceed 3 days would continue to be multi-track. Expect reforms to be implemented in 2021.

On Thursday October 17th proposals to reform damages-based agreements were released. Hybrid arrangements would be allowed, and, for the first time, a defendant would be able to act under a DBA. Do note that this is not an MOJ initiative and so there is no certainty that reforms will be implemented.

Silly proposals to amend the witness statement rules appear to have been discarded.

2020 already looks to be another busy year!

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