COST BITES 44: THE COSTS OF ASSESSMENT: THE RELEVANCE OF CONDUCT, ARE PART 36 OFFERS SIGNIFICANT?

We are returning to the judgment of Mrs Justice Stacey in TRX v Southampton Football Club [2022] EWHC 3392 (KB).  The judge made some observations in relation to the costs of the assessment process.  In particular the interplay of CPR 47.20 and Part 36 offers.

” I am willing to say that there will usually be no difficulty where a Part 36 offer is made in detailed assessment proceedings by either party which beats, or is beaten, by the amount allowed by the Costs Judge conducting the detailed assessment. The difficulties emerge, as demonstrated by Mullaraj and Millbrooke, with near, or even not so near, Part 36 misses or where no Part 36 offers have been made by a paying party, or where offers that do not comply with the Part 36 formalities are made. But I cannot accept the Claimant’s argument that, in those situations, as a matter of principle, it would be wrong for a Costs Judge to make no order for the paying party to pay any of the costs of the receiving party. It will be a relevant factor, but will not necessarily be the most important or only relevant factor. Fox and Global are directed to Part 36 offers in main proceedings for damages. They have some relevance and application to the costs of a detailed assessment, but they must be considered through the prism of Rule 47.20, which is its own comprehensive code.”

THE CASE

The claimant had been represented by solicitors in a personal injury case for sexual and emotional abuse.  He accepted an offer of £4,000.  The claimant’s costs went to assessment.  The costs were reduced substantially in that assessment.  The costs judge decided to make no order for the costs of the assessment. That order was appealed. The matter was remitted back to the costs judge on another issue. The question of whether it was appropriate for the judge to have made no order for costs was considered.

THE JUDGMENT ON THE COSTS OF ASSESSMENT ISSUE

Consideration of the arguments

1. 1. The third decision under appeal is that of 29th October concerning the costs of the detailed assessment. CPR 47.20 provides as follows:

(1) the receiving party is entitled to the costs of the detailed assessment proceedings except where:

(a) the provisions of any Act, any of these rules or any relevant practice direction provide otherwise; or

(b) the Court makes some other order in relation to all or part of the costs of the detailed assessment proceedings.

(2) [not relevant]…….

(3) In deciding whether to make some other order, the Court must have regard to all the circumstances, including:

(a) the conduct of the parties;

(b) the amount, if any, by which the bill of costs has been reduced; and

(c) whether it was reasonable for a party to claim the costs of a particular item or to dispute that item.

1. 1. Subparagraph (4) provides that the provisions of Part 36 apply to the costs of detailed assessment proceedings with a number of modifications.

1. 1. The Defendant raised four points in support of the argument that the general rule that the receiving party receive its costs of the detailed assessment be disapplied pursuant to Rule 47.20(1)(b) and the Court make some other order. The order sought was that for the retainer point, the paying party’s costs be paid by the receiving party and that there be no order for costs as regards the rest.

1. 1. The first point was specific to the costs of the retainer point that the Defendant had won and not relevant to the appeal. The other three points in support of the Defendant’s argument that there should be no order for costs were that there had been a dramatic and exceptional reduction in the bill assessed; the conduct of the receiving party (the Claimant), which was not asserted to be misconduct but merely relevant conduct including the mis-certification point; and, finally, that the Claimant’s solicitors had unreasonably claimed for costs in a number of categories (paragraph [19] on page 163 of the bundle).

1. 1. In reply the Claimant relied on the wording of CPR 47.20 to argue that the presumption had not been rebutted and referred to the well-known case of Fox v Foundation Piling Ltd [2011] EWCA Civ 790 in which Jackson LJ ruled on the effect of Part 36 offers on orders for costs. It was submitted that the Defendant’s failure to make an effective Part 36 offer was a factor to be given preeminent, if not exclusive, weight, which would mean the receiving party should receive all its costs of the detailed assessment.

1. 1. Costs Judge Brown considered that Fox v Foundation Piling Ltd was not necessarily analogous and relied on his own case of Milbrooke Construction Limited v Jones [2021] EWHC B20 (Costs). He also considered that this case could be distinguished from the case of Mullaraj v Secretary of State for the Home Department [2021] EWHC B5 (Costs), a decision from another costs judge which, in any event, was not binding on him. He noted the time and work involved by the Defendant in drafting points of dispute and the costs of the detailed costs assessment hearings. He found that the level of costs claimed by BBK was unreasonable in amount and BBK would have known it was substantially unreasonable.

1. 1. He concluded that the total reduction in bill for the amount claimed was exceptional and dramatic. He was also concerned about the mis-certification point which he found to be serious and substantial, although it fell short of misconduct by the solicitors. The bill of costs covered the work of the three firms of solicitors over the period 14 February 2017 to 24 March 2020 and the point in question was what was said to be a lacuna in the period between 17th June and 3^rd or 17th October 2019 when the Costs Judge had found that there was no CFA in place and the solicitors, BBK, would have known there was no CFA in place (they were not arguing that there was), which the Costs Judge felt amounted to a serious and substantial mis-certification in the bill of costs when they had stated that “the Claimant’s claim was funded by way of CFAs”.

1. 1. He did, however, row back a little from his earlier trenchant concern about this point in paragraph 39 when he stated that:

“The difficulties with certification or scarification had somewhat faded into the background by the time we got to the hearing on the indemnity point because of the way that the case was put, so the issue before me was not mis-certification so much as an issue as to the contractual arrangements between the Claimant and his solicitors, the indemnity principle.”

1. 1. The ratio of the decision is set out in paragraphs 32 to 34 of the judgment:

“32. I am satisfied that there is a substantial basis for departing from the presumed rule, the presumptive rule in 47.20(1) and that it would be unjust not to do so in this case when considering not just the costs of the funding issues but also matters generally. Indeed it seems to me to be clear that some other order is appropriate: if not in this case, it might be asked, when would it be? Plainly, in most cases a Part 36 offer, or the absence of an effective one, will be determinative. But the question might reasonably be asked, what is the point of r.47.20(3) if the making of a Part 36 offer is the only consideration and that this matter assumes such pre-eminence that no or no substantial weight can be attached to the other factors?

33. I do accept Mr Mallalieu’s point nonetheless that the ability to make a Part 36 offer – and I am not making any finding that the Defendants could not have made a Part 36 offer – should be given very substantial weight in determining the issue as to costs. As I think I indicated in the Milbrooke decision it is, in my view, right that I should give substantial weight to the failure on the part of a defendant to make an effective offer.

34. I have difficulty in describing the Claimant as having been successful in this assessment, given the extent of the reduction, the findings that I made and the agreements that have been reached. This is notwithstanding that the offer of the Defendant of £15,000 has been beaten.”

1. The Costs Judge found that the solicitors were well aware that they were not going to get anything near what they were claiming since they had offered to accept almost exactly half of their total bill of costs at around the same time as they submitted their bill of costs. He considered no order for costs should be available in exceptional cases and this was one such.

THE JUDGMENT ON APPEAL

The judgment on this appeal was, arguably, academic, since the bill was going to be reconsidered.  However the judge did make some observations on this issue.

1. 1. The consequence of my conclusion on issue one is that the assessment of the costs of the main claim proceeded on an incorrect basis and will have to be reconsidered. It was tempting to say that issue three is wholly academic since the application of Rule 47.20 must be considered after the costs have been assessed, the landscape has changed, and it is no longer the case that the bill has been reduced by 65%. However, in the course of argument, both parties have specifically sought a ruling on whether the Costs Judge erred in principle in his approach to the awarding of costs in the detailed assessment proceedings regardless of which way I might find on issues one and two. They seek clarity at appellate level for future cases in light of the tension between Mullaraj and Millbrooke, and I will oblige.

1. 1. The central issue of principle in dispute is whether, and if so to what extent, Rule 44.2 (general provisions about courts’ discretion as to costs) and Rule 36, (the payment-in regime), and the authorities under those provisions concerning costs in main proceedings, should apply to Rule 47.20.

1. 1. To recap, the Claimant submitted that the principles in Fox and Global Energy are equally applicable to the costs of a detailed assessment of costs. The way in which a paying party could protect itself from adverse costs consequences in a challenge to a bill of costs that was found to be unreasonable, or excessive for whatever reason, lay in Part 36. If a paying party failed to avail itself of the Part 36 procedure, then it must then bear the consequences and be ordered to pay all the receiving party’s reasonable costs. There should be no percentage reduction or other order, absent only skulduggery or some other factor that could not be anticipated or known of as per Mullaraj.

1. 1. Mr Mallalieu submitted that for all the reasons identified by Jackson LJ in Fox, it is important to encourage realistic offers at an early opportunity, and the Part 36 regime is designed exactly for that purpose. It is fit for purpose and equally applicable to costs of the costs assessment. In this case, the Defendant did not have the protection of Part 36 since they had failed to make a Part 36 offer that had not been beaten. In relation to the all-inclusive offer on 6th October, it was not possible to identify whether the sum awarded was more or less than the offer because of the way the offer had been structured. It was in the gift of the Defendant to structure their offer differently so that it had been transparent. They had chosen not to do so. The Costs Judge had therefore been wrong in principle to make no order for costs.

1. 1. For the Defendant, Mr Dunne submitted that Rule 47.20 is stand-alone and comprehensive, and it would be wrong in principle to apply Fox and Global Energy which would create an additional hurdle for a paying party. He submitted that no order for costs is perfectly appropriate. Indeed there could be no principled objection even if the Judge had required the receiving party to pay some of the paying party’s costs of the costs assessment.

1. 1. The Judge had had regard to the factors listed in 47.20 and taken account of all the relevant circumstances as required by the rule, and his decision was unimpeachable for the reasons the Judge gave and fell well within the exercise of his discretion.

1. 1. It was also suggested that I could provide some guidance and set out applicable principles as to when and in what circumstances some order other than that the receiving party be entitled to the costs of the detailed assessment, particularly as I had had the benefit of having the very experienced Costs Judge Rowley with me. Should there be a sliding scale depending on the percentage reduction to the bill perhaps? What conduct is to be taken into account in Rule 47.20(3)? How important is a Part 36 offer? What about Calderbank and other offers? What other factors might be relevant?

Conclusions on issue three

1. 1. The lodestar is the wording of CPR 47.20 and, in particular, 47.20(3). The starting point is the principle that the receiving party is entitled to the costs of the detailed assessment analogous to a successful party in Rule 44.2 unless either 47.20(1) (a) or (b) applies. In this case, it is (b) which is relevant:

“Where the Court makes some other order in relation it all or part of the costs of the detailed assessment proceedings.”

1. 1. 47.20(3) identifies three factors that the Court must take into account in deciding whether to make some other order, but it is not an exhaustive list since the Court must have regard to “all the circumstances” of which the matters listed are just three examples. To describe it as a self-contained regime is, thus, perhaps a little misleading when it is so open-textured and porous. But it is accurate to say that it is the specific provision that applies to the costs of detailed assessment proceedings, although it draws from principles in Rules 44.2 and also Part 36 which is incorporated with relevant modifications by 47.20(4). Nothing much turns on the fact that Part 36 is not expressly referenced in 47.20(3) since there is no dispute that any Part 36 offer would be a relevant circumstance to be taken into account in the generality of 47.20(3).

1. 1. Against that background, I am most reluctant to lay down guidance that fetters the discretion of costs judges, who are specialist judges, in matters of costs (the clue is in their title). There is a clear and comprehensive code in 47.20 and it is the code that is to be dealt with, and it would not be right for me to try to formulate a gloss to be applied to the carefully worded code produced by the Rules Committee after much consideration and deliberation no doubt.

1. 1. Furthermore, the cases are fact and circumstance sensitive, and it would be wrong to try to lay down any hard and fast rules when the facts and the circumstances can vary so much from case to case.

1. 1. With that note of caution in mind, I am willing to say that there will usually be no difficulty where a Part 36 offer is made in detailed assessment proceedings by either party which beats, or is beaten, by the amount allowed by the Costs Judge conducting the detailed assessment. The difficulties emerge, as demonstrated by Mullaraj and Millbrooke, with near, or even not so near, Part 36 misses or where no Part 36 offers have been made by a paying party, or where offers that do not comply with the Part 36 formalities are made. But I cannot accept the Claimant’s argument that, in those situations, as a matter of principle, it would be wrong for a Costs Judge to make no order for the paying party to pay any of the costs of the receiving party. It will be a relevant factor, but will not necessarily be the most important or only relevant factor. Fox and Global are directed to Part 36 offers in main proceedings for damages. They have some relevance and application to the costs of a detailed assessment, but they must be considered through the prism of Rule 47.20, which is its own comprehensive code.

1. 1. I am also willing to say that, depending on all the circumstances, it may be unusual to make no order for costs where no successful Part 36 offer has been made by the paying party, especially where, as here, both sides are very experienced and specialist personal injury litigators, sophisticated in costs matters. But as set out in the rule, to make a different order will depend on all the other relevant circumstances in the case, including, as per the rule, the conduct of the parties, the amount, if any, by which the bill of costs has been reduced, and whether it was reasonable for a party to claim the costs of a particular item or to dispute that item in question.

1. 1. I, therefore, do not accept the Claimant’s argument that Cost Judge Brown’s order was wrong in principle when it is such a fact and circumstance specific assessment. Part 36 can be a rather cumbersome procedure that does not always assist the speed and flexibility that may be required in detailed costs negotiation which may just as well be conducted in Calderbank offers in less formal steps in a negotiation. The Claimant’s argument also fails to address the difficulties for litigants in person who may have difficulty navigating the Part 36 regime.

1. 1. Since the basis on which the Costs Judge assessed costs has changed in light of my conclusions on issue one, it would be inappropriate for me to embark on a line-by-line analysis of the Judge’s reasoning which is now academic. But in order to assist the parties I can say that the Judge had identified a number of relevant circumstances, including the very substantial reduction in the bill in almost all areas. It is also relevant that BBK seemingly realised at an early stage that much of the costs claimed might not be awarded when they made a Part 36 offer on 4 May 2020 of approximately 50% of the costs claimed. But even in the absence of a successful Part 36 or other meaningful offer, to make no order for the receiving party costs, which could, of course, also be described as a 100% reduction in their costs, seems a little harsh and would, perhaps, have strayed towards the limit of the wide ambit of discretion accorded to judges in matters of costs.

1. A reduction of less than 100% would have been unexceptional in all the circumstances of the case. It is almost common sense that where there has been a very significant reduction in the assessed costs from the costs claimed, it may well sound in a percentage reduction to the receiving party’s costs. Any Part 36 offers must be taken into account and are likely to be relevant to the amount of any percentage reduction, but there can be no hard and fast rules, and I shall not suggest what would have been the appropriate costs reduction in this case in what is now a counter-factual situation. It would not be appropriate for this Court to fetter the discretion of Costs Judges beyond the provisions of Rule 47.20 itself. I therefore decline to offer further guidance. The answers to the question of how to approach the costs are in Rule 47.20 and the parties will have to agree the appropriate order between them or return for a ruling from a Costs Judge if they are unable to agree between themselves.