Costs Horror Stories
In the spirit of Halloween, and to help you avoid your own costs nightmare, I’ve prepared a special edition of my costs blog recounting some horror stories from the world of costs. Beware, these are not for the faint-hearted!
When DIY Goes Wrong: Improper Conduct and a Faulty Bill of Costs
Jago v Whitbread Goup PLC (5 October 2016, SCCO, Unreported) shows the seriousness of the problems which can arise when fee earners take on the role of a Costs Lawyer. Following settlement of the Claimant’s personal injury claim in the sum of £41,035.37 net of CRU, an informal Statement of Costs, totalling £101,677.21 and signed by a Partner, was served by the Claimant’s solicitor on 12 March 2015. That Statement included a claim for a 20% success fee, notwithstanding that, as the Claimant’s solicitors admitted in subsequent correspondence, the case had not proceeded under a CFA.
The Defendant’s representatives raised queries in respect of this evident error, but rather than making the necessary concession in respect of the success fee, the Claimant’s solicitors proceeded to prepare and serve on 19 November 2015 a formal Bill of Costs which, rather than omitting the success fee, claimed an increased success fee of 25%. The profit costs and disbursements were, however, reduced, such that the total of the Bill of Costs was £91,474.41. Three and a half hours’ work was claimed for drafting the Bill of Costs, one hour was claimed for checking it and the certificates were signed by the same Partner who had signed the Statement.
The Defendant served Points of Dispute and requested that the Bill of Costs be amended. The Claimant then proceeded to serve a fresh Bill of Costs on 15 January 2016, again signed by the same Partner, with the success fee now omitted and a very significantly reduced total of £56,719.00. It was noted, however, that the omission of the success fee did not explain the entirety of the reduction: profit costs had reduced by almost £14,000.00 from the 19 November 2015 Bill of Costs and disbursements had also reduced. The Claimant solicitor then served on 8 April 2016 a fourth costs document, an amended Bill of Costs, in which the costs were again reduced, this time to £55,393.19.
The Costs Judge found that the Bills served by the Claimant were inaccurate and mis-certified. The claim for the 25% success fee in the 19 November 2015 Bill of Costs was “inexplicable to the point of bizarre” given the admission that there was no CFA (paragraph 26). The Bills “exhibited repeated errors in claim and calculation” (paragraph 27).
The Claimant’s solicitors sought to explain the errors by reference to the fact that they were “a comparatively small high street firm who do not have the financial resources to engage either experienced or competent costs lawyers or costs draftsmen” (paragraph 24). The Costs Judge, however, was “neither impressed nor persuaded by those explanations” (paragraph 28). While it was noted that the Bills had been prepared by a “trainee legal executive” who had “attempted to do his best” (paragraph 29), Master Whalan pointed out that pursuant to CPR 47.20, the costs of preparing and checking the Bill of Costs are ordinarily recovered from the paying party. There was no appreciable difference between the trainee undertaking the work at £110 per hour and the work being undertaken by an experienced and competent cost draftsman, and the costs had been claimed from the Defendant in the Bills nonetheless.
With regard to the responsibility placed on the Partner by Bailey v IBC Vehicles Limited [1998] All ER D 113, in certifying the Bills of Costs in the form in which they were served, her conduct was “improper” and “unreasonable” (paragraph 33). The appropriate sanction was that 50% of the Claimant’s costs as assessed would be disallowed and additionally the time claimed for preparing and checking the Bill of Costs was disallowed. Following the judgment, the Claimant’s costs were agreed in the sum of £18,000.00 net of the 50% reduction. When this sum was offset against the Defendant’s assessment and application costs for which the Claimant was liable, the Claimant recovered just £2,515.60.
Comment
This case represents a truly horrifying scenario: having invested time and resources in securing a positive result in the client’s claim, the successful solicitors ultimately went virtually unpaid. Among many hair-raising aspects to the costs proceedings was the fact that just 3.5 hours was spent in drafting a Bill of Costs totalling £91,474.41, which perhaps goes some way to explaining why it was characterised by grievous and ultimately very costly errors, including the claiming of a success fee where there was no CFA.
As Master Whalan’s judgment highlights, the fees of Costs Lawyers (or costs draftsmen) will be recoverable from the paying party, such that their work and expertise is ultimately provided at no cost to the solicitor or the client. The assessing judge is unlikely to look kindly upon mistakes arising from failure by solicitors to avail themselves of this free service. While some practitioners may consider that they cannot afford to engage Costs Lawyers, this judgment shows that on the contrary, they cannot afford not to.
Another important point arising from this case is that it is the signatory to the Bill of Costs who will be held accountable for any mistakes in it. It is advisable therefore to instruct a suitably skilled Costs Lawyer to draft a Bill of Costs which is accurate, comprehensive and persuasive, thereby ensuring that the costs claim proceeds smoothly.
Dead on Arrival: the Late Costs Budget
The case of Mitchell v News Group Newspapers [2013] EWCA Civ 1537, in which the Claimant’s late Costs Budget was limited to applicable court fees only, was responsible for many sleepless nights on the part of litigators when it appeared hot on the heels of the Jackson reforms back in 2013. While the position on relief from sanction was subsequently restated by the Court of Appeal in Denton v White [2014] EWCA Civ 906 (such that a three-stage test, considering, inter alia, whether the breach is serious or significant, was set out for whether it is appropriate to grant relief) failure to file Costs Budgets on time can still prove hazardous and relief cannot be taken for granted.
In Jamadar v Bradford Teaching Hospitals Foundation Trust [2016] EWCA Civ 1001, Notice of Proposed Allocation to the Multi-Track (Form N149C) was sent to the parties on 30 January 2014, directing the filing of Directions Questionnaires and proposed directions. Following an admission of liability by the Defendant, however, judgment was entered in an order dated 10 February 2014 which also provided that “the N149C be revoked”. Subsequently by order dated 28 February 2014 the matter was listed for a Case Management Conference on 27 May 2014.
Despite the Defendant serving and filing a Costs Budget, and prompting the Claimant to do so, no Costs Budget was served by the Claimant. An unsigned Cost Budget was produced by the Claimant at the CMC, but the District Judge considered that the Claimant was in breach of the requirement to file and exchange a Costs Budget set out in CPR 3.13 and ordered that the Claimant be treated as having filed a Costs Budget limited to court fees only, pursuant to CPR 3.14. An application for relief from sanction was heard and dismissed by the District Judge on 29 July 2014. A subsequent appeal to the Circuit Judge was dismissed and the Claimant appealed to the Court of Appeal.
The Lord Justices considered that the case, which was pleaded for some £3 million, was certain to be allocated to the multi-track, and the revocation of the N149C did not effect that status. CPR 3.13 therefore applied and the sanction in CPR 3.14 came into operation due to the failure to file the Cost Budget. On the question of whether relief was appropriate, it was found that the Circuit Judge had properly applied the threefold test set out in Denton: the breach was clearly serious or significant, there was no good reason for it, and the judge had considered all the circumstances in accordance with the guidance set out by the Court of Appeal. The sanction therefore stood.
Comment
In this case the conducting solicitor had two main reasons for considering that a Costs Budget need not be filed: firstly, that liability had been admitted, and secondly, that the N149C had been revoked. Although the Court of Appeal’s judgment explains why those issues did not effect the requirement to file a Costs Budget, clearly the procedural position was not as straightforward as it could have been. The golden rule is always that in case of any doubt, a Costs Budget should be filed and served in accordance with CPR 3.13.
Dismemberment: the Partial Costs Budget
The Claimant in Page v PGC Restaurants Ltd [2018] EWHC 2688 (QB) had a severe nut allergy and was wrongly advised by the Defendant that a milkshake at its restaurant was safe to drink. The resulting anaphylactic shock caused, on the Claimant’s case, a hypoxic brain injury. Following summary judgment having been entered, the Claimant wrote to the Defendant to suggest that neurology and psychiatry evidence should be obtained before the parties could determine what further expert disciplines would be appropriate. The Claimant’s representatives filed and served what was described as an “interim” Costs Budget which contained no costs for Trial Preparation or Trial and stated that “A second CMC will take place in approx. six months… It is too soon to budget to trial”. The parties agreed directions to this effect and agreed figures for the budget phases, with no allowances agreed for Trial Preparation and Trial.
The approach taken did not, however, meet with the Master’s approval and he found that directions should be given to trial. The partial Costs Budget filed and served by the Claimant was in breach of the rules and the sanction set out at CPR 3.14 applied, such that the Claimant’s Costs Budget was limited to court fees only.
The Claimant appealed from the Master’s decision and applied for relief from sanction. Walker J found that the Claimant’s “materially incomplete” budget was not a “budget” for the purposes of CPR 3.14, (paragraphs 119 and 120) and moreover, the parties’ agreement did not displace that provision. The sanction was therefore engaged, although an interesting obiter comment was made at paragraph 128, to the effect that at detailed assessment an agreement that the CPR 3.14 sanction should not apply might supersede the sanction pursuant to CPR 3.18.
On application of the Denton principles and consideration of whether the Court ought to make some other order, the judge considered that the default was moderately serious and significant, that the Claimant’s advisors, while culpable, had not adopted an approach which was deliberately wrong, and that it would be unjust to apply the sanction to the phases other than Trial Preparation and Trial. Accordingly the sanction was disapplied in respect of the other phases but remained in force for Trial Preparation and Trial, such that those phases were limited to court fees only.
Comment
The decisions in this case may seem counter-intuitive to solicitors concerned to conduct litigation at proportionate cost: part of the justification given by the Claimant’s solicitors for preparing the partial Costs Budget was that it reduced the costs required to be incurred at that stage. As this case shows, however, it is dangerous to assume the Court’s assent to a particular course of action in respect of costs management, even if that course is agreed with the other side. Absent directions to the contrary, a complete Costs Budget should always be filed and served.
A Slashing: Hourly Rates, Costs Budgets and Breach of the Indemnity Principle
The Claimant in Tucker v Griffiths & Hampshire Hospitals NHS Trust (19 May 2017, SCCO, Unreported) pursued a clinical negligence claim against his GP and local hospital for failure to properly treat a stroke he had suffered in late 2010. He entered into a retainer and subsequently a CFA with Irwin Mitchell which provided for Irwin Mitchell’s hourly rates to be altered annually in May. The initial Grade A rate was £260.
The Claimant’s first Costs Budget, dated 20 October 2014, stated a rate of £265 for Grade A throughout and that Pre-Action costs totalled £6,030.00. Subsequently, by letter dated 22 January 2015, the hourly rates were purportedly increased with effect from 1 May 2014 such that the Grade A rate increased from £260 to £340. An updated Costs Budget dated 24 February 2015 stated a Grade A hourly rate of £340 throughout with total Pre-Action costs of £7,216.50, an increase to these already-incurred costs of £1,186.50.
When the case concluded and a Bill of Costs came to be served, the Second Defendant argued that due to its inaccuracy, the Costs Budget had been mis-certified and a sanction, such as striking out a portion of the Bill of Costs, was appropriate.
The Claimant stated that a “blended” hourly rate had been applied, taking account of the past, present, and future hourly rates charged and to be charged for given fee earners. This was to get around the difficulty that the Precedent H form did not, it was said in a witness statement of Irwin Mitchell’s Head of Costs, provide the opportunity to input different hourly rates for the same grade of fee earner.
Master Leonard found that it was “an approach to be deprecated” (paragraph 35) for differing figures to appear for the Pre-Action costs, which had already been incurred before the Cost Budget was drafted. The appropriate Pre-Action costs should simply have been inputted into the Costs Budget, and the provision of incorrect figures was “to all intents and purposes a breach of the indemnity principle” (paragraph 35). While it may be appropriate to use a “blended” hourly rate for estimated costs, that was not a justified approach for incurred costs.
The approach taken by the Claimant satisfied the threshold of improper conduct set out in Ridehalgh v Horsfield [1994] Ch. 205, CA. The appropriate sanction was to disallow all the Claimant’s costs relating to costs management.
Comment
The Claimant’s representative’s complaint that the Precedent H form did not allow for differing hourly rates to be applied for different time periods highlights an alarming lack of technical IT proficiency among those tasked to deal with costs. Precedent H can, and should, be adapted to accurately reflect the hourly rates payable over different time periods. Although it is permissible to apply a blended rate for future costs, best practice dictates that the hourly rates that will be payable at each stage be set out. Additionally, any hourly rate changes should be notified to the client promptly.
