Mid-year review 2016—costs and Part 36

47708393_xlStephen Innes, barrister at 4 New Square, looks back over the past six months of dispute resolution in the UK and considers the key developments in costs and Part 36.

What have been the most significant case law developments during the first half of 2016?

Most significant of all has been the case law on the ‘new’ proportionality test in force from 1 April 2013:

  • BNM v MGN Limited [2016] Lexis Citation 62, Master Gordon-Saker 3 June 2016—in which the costs after a line-by-line assessment were reduced by almost exactly 50%
  • May v Wavell Group PLC [2016] Lexis Citation 72, Master Rowley 16 June 2016—where costs were reduced by 65%
  • in the Competition Appeal Tribunal, Roth J in Socrates Training Ltd v The Law Society [2016] CAT 5 applied the proportionality test to budgeting to cap the Law Society’s budgeted costs at £350,000 against the costs claimed in its budget of £637,000

Although these cases are too recent for their effect to have been measured, they indicate a stark new reality whereby a receiving party’s bill could be drastically cut even where the costs have been reasonably incurred. Significantly, this can also apply to disbursements prior to the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO 2012) such as after-the-event insurance premiums.

Just when litigants thought they were getting used to the costs management process, the Court of Appeal has lobbed in a hand grenade in SARPD Oil International v Addax Energy SA [2016] EWCA Civ 120, [2016] All ER (D) 56 (Mar)—while the court can only approve estimated costs, not incurred costs, the court can comment on incurred costs. It follows, said the Court of Appeal, that if a budget is simply agreed, the opportunity to seek court comments on incurred costs has not been taken and the effect is the same as if those incurred costs have been agreed.

In Broadhurst v Tan [2016] EWCA Civ 94, [2016] All ER (D) 219 (Feb), the Court of Appeal settled the question that had been dividing practitioners—does a Part 36 offer have effect in fixed costs personal injury claims governed by CPR 45? The answer is yes and therefore indemnity costs can be payable under CPR 36.17. Clearly that is a potentially significant development, encouraging parties to seek to escape the limitations on fixed costs in such litigation. However, of equally or perhaps greater significance is the decision of Elisabeth Laing J in Lowin v W Portsmouth & Co Limited (unreported), which applied the reasoning in Broadhurst to find that Part 36 also applies to provisional assessments, so that there too indemnity costs may be sought.

In Surrey v Barnet & Chase Farm Hospitals NHS Trust Limited [2016] EWHC 1598 (QB) Foskett J has just handed down judgment in three appeals concerning cases where solicitors in clinical negligence claims switched from legal aid funding to pre-LASPO 2012 conditional fee agreements (CFAs). Foskett J held that an objective test applied to the question of whether that switch was reasonable, and found that in the three cases the switch was reasonable despite the client not having been advised of the loss of the Simmons v Castle [2012] EWCA Civ 1039, [2013] 1 All ER 334 uplift on damages.

What have been the most notable procedural developments during the first half of 2016?

Changes to Part 36 were introduced in 2015 and their effects are perhaps starting to be felt now. An example is Jockey Club Racecourse Ltd v Willmott Dixon Construction Ltd [2016] EWHC 167 (TCC), [2016] 4 WLR 43, which held that an offer to accept 95% of the value of the claim could be a ‘genuine attempt to settle’ within the meaning of the new CPR 36.17(5)(e). Edwards-Stuart J held that there had to be some genuine element of concession. I anticipate this point will be litigated further—for example, I would argue that a defendant’s Part 36 offer to pay £1 could be considered a genuine concession since it entails acceptance of liability to pay costs.

Otherwise, I would say that the main procedural developments have been proposed rather than actual ones. There was Jackson LJ’s proposal to introduce fixed costs for claims up to £250,000. While at first it seemed that the introduction of such a regime looked inevitable, the hostile reaction from practitioners seems to have given pause for thought. In his lecture to the Law Society on 21 April 2016, Jackson LJ stated that ‘in view of the vociferous opposition to fixed costs, it is uncertain when and up to what level fixed costs will be introduced’.

There has been a similar level of uncertainty in relation to the new form bill of costs, designed to reflect the budget phases. It seems that J-Codes are not yet going to be compulsory, but mandatory use of a new form of bill looks inevitable. For information and discussion about the new bill, see Jackson LJ’s address of 21 April 2016 and the voluntary pilot scheme in Practice Direction 51L.

What developments are you expecting during the rest of 2016?

The grapevine seems to be suggesting that there will be a rule change in the autumn to avoid the effect of SARPD discussed above.

The hot topic will probably be assignment of CFAs, as a Court of Appeal decision is badly needed to consider the correctness or otherwise of Jenkins v Young Brothers Transport Limited [2006] EWHC 151 (QB), [2006] All ER (D) 270 (Feb). The most recent decision is that of Judge Graham Wood QC in the Liverpool County Court in Denise Jones v Spire Healthcare Ltd [2016] Lexis Citation 52, which applied Jenkins.

An appeal that is eagerly awaited because of the number of cases it affects, and because of the time that has been taken for the appeal to be heard, is Bird v Acorn Group (unreported) in the Court of Appeal on 19 and 20 October 2016. This concerns what costs are to be allowed under the fixed costs regime in CPR Part 45 in circumstances where the court has dispensed with allocation but listed a disposal hearing. Has the case been ‘listed for trial’?

This last is a plea rather than a realistic expectation of a development. At the beginning of 2015, Dyson MR rejected the recommendations as to revised guideline hourly rates. Whatever the merits of that decision, the 2010 guideline rates are becoming increasingly out of date and really could do with updating, not least because, in my view, if they could be said to reflect current rates they could potentially be a useful tool at costs management conferences.

What have been the most notable features of your practice so far in 2016?

This has really felt like a period of uncertainty and flux—uncertainty because of the possible changes in relation to fixed costs and the new form of budget, and flux because cases affected by the changes in the rules introduced at the time of LASPO 2012 seem now to be working their way through the system. Costs management conferences have become more disputatious again following the SARPD decision, and both the courts and the parties are still feeling their way in relation to proportionality and as to how bills and points of dispute should be addressed in cases where a budget has been approved or agreed.

Interviewed by Jenny Rayner. The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

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