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From third-party costs orders to hourly rates: this month’s costs cases summary


Royal Courts of Justice: decision time

Litigation Futures is now publishing a monthly summary of key costs-related court decisions. These are provided by CaseCheck [2]

Centrehigh Ltd v Kare Amen & Ors [2013] EWHC 625 (Ch)

In an application for a third-party costs order, where liability was conceded and there was no trial as to quantum, the claimant sought permission to cross-examine the defendants’ witnesses for the purposes of a section 51, Senior Courts Act 1981 application.

Held: The general rule is that section 51 applications are dealt with on a summary basis. The court has wide administrative powers to ensure the application is dealt with speedily, inexpensively and fairly. Any departure from basic principles is only justified if the justice of the case requires it.

Permission to cross-examine refused. There was no feature of the case which required a full trial of the whole range of the disputed matters of fact.

Full ruling here [3].

Chemistree Homecare Ltd v Abbvie Ltd [2013] EWHC 264 (Ch)

In an unsuccessful application for an interim injunction relating to supplies of patented medicine, the defendant sought costs on an indemnity basis.

Held: There has to be something wholly unreasonable and conduct far outside the norm to justify awarding costs against an unsuccessful party on an indemnity basis.

The advancing of allegations communicated in terms that proceedings would be issued, which were not raised in the eventual application as they were evidently considered hopeless, was conduct that was unreasonable and far outside the norm justifying costs on an indemnity basis up to when that conduct ceased.

Detailed assessment ordered on the ground that the defendant’s statement of costs was wholly disproportionate.

Full ruling here [4].

Flatman v Germany [2013] EWCA Civ 278

Appeals against orders for disclosure of funding arrangements of unsuccessful personal injury claimants raising the issue of the appropriate circumstances for making a third-party costs order against instructed solicitors. Disclosure was sought to determine whether a costs order application was justified on the grounds that the solicitors were a real party due to their funding of the litigation while acting under a conditional fee agreement (CFA) in the absence of after-the-event (ATE) insurance cover.

Held: Costs may have to be the subject of an account to the client as a disbursement but the credit afforded to the client in respect of that cost is part of the service provided by the solicitor. As such, payment of disbursements, without more, does not incur any potential liability to an adverse costs order.

In the present case, it was arguable that the solicitors continued with the litigation without ATE insurance contrary to their client’s express instructions and in circumstances where potential costs were not insubstantial, justifying disclosure. That possibility was sufficient to equally justify disclosure in cases conducted at the same time by the same solicitor on a CFA without ATE insurance. Appeals dismissed.

Full ruling here [5] and Litigation Futures news story here [6].

Magical Marking Ltd & Anor v Ware & Kay LLP & Anor [2013] EWHC 636 (Ch)

A claim to interest on damages, with costs, following modest success in a late claim for negligence in which the claimant recovered less than 1%.

Held: The proposition that a defendant cannot contest costs due to a failure to make a sufficient part 36 offer in Fox v Foundation Piling Ltd [2011] EWCA Civ 790 [7] had no impact on the correct approach to who is the successful party, as laid down in the Roache line of authorities and most recently reaffirmed in Medway Primary Care Trust & Anor v Marcus [2011] EWCA Civ 750 [8].

Nor does the recovery of a trivial sum on account of a much larger claim make the claimant the successful party. Where a late amendment proves to be the sine qua non for the claimant’s eventual success, the defendant is generally entitled to its costs incurred up until the making of that amendment (per Beoco Limited v Alfa Laval Co Ltd [1995] QB 137).

The defendant was the successful party. Claimant ordered to pay 85%. The reduction in costs payable was justified as the defendant refused to admit negligence. It was not significant that the claimant made a small recovery on account of a last-minute amendment.

Full ruling here [9].

Nelson’s Yard Management Company & Ors v Eziefula [2013] EWCA Civ 235

Appeal against an order for costs where the claimant had discontinued proceedings on the ground that the defendant’s failure to respond to pre-action correspondence justified departing from the default rule in CPR 38.6(1).

Held: The example of disapplying CPR 38.6(1) where there is non-compliance with the spirit of the pre-action protocol provided in the White Book (vol 1, p2567) analogous to unreasonable conduct under the costs on discontinuance principles set out in Teasdale v HSBC Bank [2010] EWHC 612 (QB) [10] and Brookes v HSBC Bank [2011] EWCA Civ 354 [11].

Appeal allowed. Although the Recorder referred to the failure to respond to the pre-action correspondence, he erred in principle in concluding that this would involve a consideration of the merits. Failure to respond was unreasonable conduct justifying that the default rule be disapplied. Defendant ordered to pay claimants’ costs up to the date when the defendant’s defence was served and no order for costs thereafter.

Full ruling here [12].

Omnipharm Ltd v Merial [2013] EWCA Civ 2

Appeal against, among other things, an order requiring the appellant to pay 40% of the respondent’s costs in a case relating to patent invalidity. The appellant also sought the costs of applications to preserve the security of costs pending the determination of the appeal.

Held: The modern approach to the exercise of the court’s discretion as to costs requires the court to ask: who has won; whether the winning party lost on an issue suitably circumscribed to deprive that party of costs of that issue; and, whether the circumstances are suitably exceptional to justify making a costs order on that issue against the party who has won overall (per Roache v News Group Newspapers [1998] EMLR 161). As the judge had followed that approach, the appeal against the costs order was dismissed.

Respondent ordered to pay the appellant’s costs for applications for security orders pending the determination of the appeal on the ground that those costs could have been avoided had it responded positively and promptly.

Full ruling here [13].

Pannone LLP v Aardvark Digital Ltd [2013] EWHC 686 (Ch)

Appeal against an order for security for the claimant’s costs in relation to the defendant’s counterclaim for damages for professional negligence in a dispute as to outstanding fees.

Held: Whether it is just to make an order for security is determined according to the circumstances of the case. Relevant considerations include the degree of overlap of issues between the claim and the counterclaim; the amounts claimed and counterclaimed respectively; and whether a counterclaim is in substance a defence or an independent claim. Such an order will not be made if it disproportionately stifles a valid claim.

Order set aside. Although the counterclaim crossed the boundary which divides an aggressive defence from an independent claim, it was not just to order security. Evidence was sufficient to show an absence of, and inability to obtain, funding which would enable the defendant to comply with the order, therefore stifling the counterclaim contrary to article 6.

Full ruling here [14].

Royal Devon and Exeter NHS Foundation Trust v Acres [2013] EWHC 652 (QB)

An appeal against the hourly rate allowed to a personal injury claimant’s solicitors for the costs of the action. The issue was whether it was reasonable for the claimant to instruct central London solicitors when the case was closely tied to the south west of England.

Held: The test is whether it was objectively reasonable, at the time the decision was made, for a party to instruct particular solicitors in the context of the particular circumstances. Where the decision was reasonable, hourly rates are assessed on the basis of the broad costs of the kind of litigation at issue. Where the decision was unreasonable, the rates are assessed on the basis of the type of class of solicitor who ought to have been retained (per Wraith v Sheffield Forgemasters Ltd [1997] EWCA Civ 2285 [15]).

By taking into account an irrelevant consideration and failing to assess reasonableness at the time the decision was made, the Master erred in finding that the decision to instruct was unreasonable, although there was no error in law in his approach to the reasonable hourly rate.

Full ruling here [16] and Litigation Futures story here [17].

Sycamore Bidco Ltd v Breslin & Anor [2013] EWHC 583 (Ch)

Judgment on substantial costs in which the claimant, accepted as the successfully party overall, was awarded over £6m damages and had beaten its two part 36 offers of £5.5m and £4m respectively.

Held: It is in accordance with principle to deal with a disallowance of costs before turning to the effect of part 36 offers, so that the consequences of the offers only affects the costs the claimant is entitled to. A deduction will be made for conduct if it is sufficiently bad to justify an expression of the court’s disapproval.

Defendants will not be distinguished in terms of the costs order when they have conducted themselves as joint defendants, despite incurring different liabilities. Any issue as to disproportionality in that regard operates between the defendants.

Interest on costs is granted at the same rate applicable to damages, unless there is reason to take account of related-party lending. The court should not routinely exercise its jurisdiction to postpone the Judgments Act interest rate.

In the present case, the conceptually significant matters on which the claimant lost were costly enough and significantly severable to justify an issue-based deduction and therefore the making of a proportionate order. On a broad brush approach, the claimant was entitled to 60% of its costs incurred both before and after the part 36 offer. The imposition of part 36 sanctions on the defendant whose liability exceeded the offer to settle was not unjust.

There were sufficiently serious questions of proportionality and reasonableness to justify the postponement of the Judgement Acts rate on the costs, save for an interim payment of £1.5m, for four months. Permission to appeal allowed. Stay of enforcement pending appeal granted.

Full ruling here [18].

The Manchester College v Hazel & Anor [2013] EWCA Civ 281

Application by an employer to set aside an order giving costs protection to employees who were responding to an appeal from the Employment Appeal Tribunal to the Court of Appeal.

Held: There were compelling reasons for upholding the order as required under CPR 52.9. Further, no useful purpose would be achieved by setting it aside. The claimants would be able to make a fresh application under the new CPR 52.9A (in force from 1 April) which was bound to succeed.

Application refused. The claimants were entitled to costs protection.

Full ruling here [19].