Costs Cap - Saviours or Scourge of Our Time
21/07/2003
Thank you very much for the brilliant service, professionalism and caring attitude whilst handling my recent claim.
Vicki, Sheffield
Time alone will tell whether the Judgment in A B & Others v
Leeds Teaching Hospital NHS Trust ¹ will be viewed as a landmark
decision in Costs Law or whether it will merely be viewed as part of
the evolving process pursuant to CPR Parts 43 to 48.
The Facts
The application for a Costs Cap arose within the course of the
Nationwide Organ Group Litigation. This is one of two group
litigations arising out of the unlawful retention of organs, the other
being the Alder Hey litigation - this latter litigation having settled
at a mediation conference in September 2002. Whilst the Alder Hey
litigation settled the Nationwide Group Litigation did not and as a
result that litigation, which potentially involves about 1500 claimants
was returned to the Court system and was expeditiously progressed
through a directions stage by the Judge at the Case Management
Conference. The claimants sought a substantial Costs Cap (somewhere
in the region of £900,000). The defendants sought to impose a much
lower figure (around £300,000) and ultimately the Judge ordered that a
Costs Cap in the sum of £506,500 should be imposed. The "Cap" it was
agreed should be limited to Solicitors Generic Costs, (post 7th
February 2003), Counsel's fees and disbursements alone and excluded
individual file costs, generic costs before 8th February 2003 and
VAT.
The figures are unimportant. It is the principles, and what flows
from those principles, that may well cause shock waves to reverberate
through litigators, not only in group litigation but also in
multi-track cases.
The Costs Cap - The Power of the Court to Impose.
A fallacy has arisen as a result of this decision, namely that the
Court can and will, as of right, impose a Costs Cap if an application
is made. It should be noted within this matter that the claimants
Solicitors expressly consented to two out of the three factors that
would constitute a Cap.
(i) They consented that for the purpose of this litigation - and
this litigation alone - that a Costs Cap could be imposed. It was
specifically stated that this was not to be treated as a precedent for
other cases. Ironically at almost the same time as Gage J was hearing
A B & Others District Judge Lethem in Tunbridge Wells was imposing
a Cap on both claimants and defendants costs in Laybourne v Mills.
Whilst of course the District Judges decision is not binding, it shows
that the Judiciary are becoming extremely conscious of disproportionate
costs and are flexing their muscle in imposing strong case management
terms. The extent of any challenge to the Courts power to impose a Cap
remains a matter of debate. However, the likelihood is that the Courts
will, using their case management powers, conclude that such a power
does exist and it is unlikely that an application to oppose the very
principle that a Costs Cap should be imposed would succeed.
The power to impose the Cap is found in Practice Direction 2001,
which supplements Parts 43 to 48 of the Civil Procedural Rules section
6 (at 6.1.1). This section sets out the steps which the parties and
their legal representatives must take in order to keep each and every
other party informed about their potential liability in respect of
costs and in order to assist the Court to decide what, if any, orders
to make about costs and case management.
6.2.2 (i) defines "estimate of cost" to mean: -
"An estimate of base cost (including disbursements) to be incurred
which a party intends to seek to recover from any other party under an
Order for Costs if he is successful".
These base costs are defined by para 2.2 of the Practice Direction
to include the funding arrangements and a percentage increase.
Further, support is given to the power of the Court in Griffiths v
Solutia U.K. Limited ² where in the Court of Appeal Sir Christopher
Staughton stated: -
"So surely, case management powers will allow a Judge in the future
to exercise the power of limiting costs whether indirectly or even
directly so that they are proportionate to the amount involved".
The writing has consequently been on the wall for some considerable
time for those who sought to oppose the power of the Court to make such
an Order. Indeed during the course of the hearing the parties were
advised by Master Hurst (who was sitting with the Judge) that this was
the very sort of application that had been envisaged by the Woolf
Report and that the parties could expect this sort of application and
control of the Court to become more frequent, if not the norm.
ii) The level of the Cap
The initial guidance arose out of Griffiths v Solutia U.K. Limited, a
case of group litigation. Group litigation is inherently expensive and
an area where understandably the Court feels a need to get a grip on
costs at an early stage. Areas in which the Court can exert control
are: -
(a) The hourly rate for the fee earners concerned.
(b) A level of experts' fees and disbursements.
(c) Counsel's fees
In A B & Others v Leeds Teaching Hospital NHS Trust the
important issue of hourly rate did not come before the Court as
agreement was reached between the parties as to the hourly rate of that
Costs Cap. £155 per hour was agreed this being the mean figure for
the various levels of fee earners that would have conduct of the
litigation through to trial. However, in future actions the
appropriate rate may well be a subject of contention and a major factor
in assessing a final figure. There is no apparent reason why a "mid
point" figure should be chosen and Cost Caps may well have many
component rates. However, prospectively assessing enhancements may be
very difficult.
iii) Time Spent
The only issue therefore that remained in dispute so far as the
Solicitors costs were concerned, related to the number of hours to be
spent. The Solicitors relied on existing case plans with the Legal
Services Commission for past work and upon a prospective case plan
through to trial with an estimated length of trial of six weeks.
Like all case plans, it was set out to be all embracing and emphasis
was made to the Judge that the figure sought was not a figure that the
claimants would necessarily expect to recover as a matter of course on
detailed assessment, but represented a figure that took into account
most eventualities. This approach was criticised by the Judge.
It is a salutary lesson for all future Costs Cap applications that
the figure sought by the claimants should be the actual figure that
they believe is necessary to run the case through to trial or at least
until the conclusion of the Costs Cap. The claimants worked on the
principle that their costs irrespective of the Cap would ultimately be
subject to scrutiny of the Court by way of detailed assessment.
Ironically the Defendants took a similar view.
During the course of the hearing Master Hurst made it very clear
that the purpose of a Costs Cap was to fix a maximum sum that a party
could recover at the conclusion of a case and commented at the same
time this would obviate the need for detailed assessment. Ultimately
the Judgment therefore potentially signs the death knoll for detailed
assessment. The Court did not go that far in Laybourne v Mills,
commenting that if the costs limit set contained no mechanism which
allowed for it to be altered as the case unfolds or to take into
account matters such as conduct or an attempt to settle, then it became
a restriction on the Costs Officers or Judges assessment of the
costs. It would appear in Laybourne that the District Judge took a
far more flexible approach to returning to the Court for variation of
the Cap than that contemplated by Gage J in A B & Others.
Both parties before the Court in A B & Others were substantially
taken aback by the aforementioned approach. Up till then, it had been
the view expressed of both parties that the Costs Cap would provide
certainty so far as a maximum figure that the paying party could expect
to have to pay, but it was never considered that it would represent
automatically the figure to be recovered. The Defendants
understandably chose to raise the issue with the Court. The Direction
that comes out of the decision and from the evidence is interesting: -
i. If a party exceeds a Costs Cap then the paying party cannot be expected to pay over and above it.
ii. If within the scope of that Costs Cap a specific piece of work
is envisaged then it will be open to the parties if that work is not
undertaken, to go back to the Court to seek variation. For example,
if a trial is envisaged within the Costs Cap and the litigation settles
prior to the trial, it clearly cannot be appropriate for the costs of
that trial to be recoverable within the Costs Cap. However, it was
made very clear during the course of the hearing that that analogy
would not apply to specifically defined work under the scope of the
Costs Cap which whilst carried out does not exceed the estimate in the
Cap for that specific work. Consequently if under the scope of a
Costs Cap a specific task is assigned say 10 hours work, and is done in
half that time, then the receiving party will be entitled to be paid
for the work allowed within the Costs Cap even though that work has not
been undertaken. This is the quid pro quo for the risk that the
receiving party takes by way of penalty if he exceeds the Costs Cap.
iii. If exceptional circumstances arise not contemplated within the
Cap then application can be made to court for a variation. However
such application would not be entertained lightly.
Proportionality
It is clear that within the Costs Cap a case has to be proportionate.
Proportionality is to be found in the overriding objective of the Civil
Procedure Rules. The definition of CPR 1.1 (2) para (a) to (e) are all
aspects, which the Court has to balance. The hardest of these would
appear to be that of putting the parties on an equal footing. Group
litigation tends to be funded under a Legal Services Commission
contract, where contract rates paid to the contracted Solicitors are at
a rate of £70 per hour, and for Counsel at a similarly very low
level. It is not the legal aid rates that will subsequently be
recovered if the claims succeed but the inter partes rate and it is
difficult to place a publicly funded claimant in a similar position to
that of a non-legally aided.
Two important decisions were referred to during the course of the
Judgment. Firstly, Lownds v The Home Office ³. This establishes
that proportionality is to be judged by a twofold test, namely
initially whether the global sum is proportionate to the amount at
stake. Secondly, if the global sum is disproportionate the Court
should look at the component parts in order to determine they are
proportionate. Thus, if the costs as a whole are not
disproportionate according to the considerations set out in CPR 44.5
(3) it is still necessary that each item should have been reasonably
incurred and the costs for that item should be reasonable. Consequently
it will be a key for future assessments of Costs Caps to see firstly
that those costs incurred are proportionate. If they are not
proportionate then it is a matter of looking at the component parts to
see if each and every one of them is in itself proportionate and thus
there is the risk that can arise that effectively what the Courts are
trying to prevent, namely a prospective detailed assessment takes
place. In A B & Others the Judge expressly commented that he did
not intend to go down the line of carrying out a prospective assessment
but the risk does arise that if these matters are challenged in the
future, that that is the course that will be open to the Court and that
unless the cases are very carefully case managed, the courts will
unwittingly find themselves clogged up with prospective detailed
assessments hidden behind the veil of a Costs Cap application.
The second authority, to which reference was made, was Giambrone and
Others v JMC Holidays Limited 4, which further applied and extended the
concepts of proportionality within complex group litigation.
The Trend
What however appears to be clear from the trend that is evolving, is
that it is not group litigation alone that is subject to such controls,
but to all cases of multi track litigation, be they a complex clinical
negligence matter or a detailed piece of commercial litigation.
Further, whilst in A B & Others it was only the claimants costs
that were capped (the claimants not having applied to Cap the costs of
the Defendant) it is clear that the principles apply to both parties
and therefore applications can be made by both claimants and
defendants.
Where To From Here?
A B & Others is the tip of the iceberg. It dealt with the issue
of proportionality and the Courts control over future costs. By
agreement VAT was excluded from the level of the Cap, a minor issue
which at least clarifies the law and appears to endorse the view
expressed by Morland J in Giambrone. Further, it only covered the
issues in the group litigation from a fixed date. It was not - and
indeed could not - be retrospective, nor did it address the cost on
individual files. However, that is not likely to be the case in the
future. Claimants and Defendants alike may be looking at litigation
be it group litigation or multi track cases from their onset with a
view to ensuring that the costs incurred are proportionate.
Amongst the questions that will remain to be determined when such matters come before the Court are: -
(a) The ability of the Court within a Costs Cap to prospectively determine the rate of return on an inter partes basis
(b) To assess within such figure a level of up lift pursuant to a Conditional Fee Agreement.
(c) To make similar conclusions within each and every item of the Cap as to experts and Counsel's fees.
Tips for the Future
a) It is important for claimants and defendants alike when drawing
their case plan to accurately reflect the time that they intend, and
expect, to take.
b) They must be prepared to argue before the Court that the time
spent not only overall on the litigation, but on specific items is
proportionate.
c) Counsel is drawn even closer in to the Costs Debate in that their
hourly rates and the work they will undertake becomes subject to
similar scrutiny.
d) Experts fees and their rates will again also become subject to
prospective scrutiny rather than being subject as they have in the past
to detailed assessment.
e) If taken to its extreme, there could be two major changes which
perhaps today are abhorrent to each and every claimant and defendant
who conduct civil litigation. Firstly the age old safe guard of
costs being subject to detailed assessment may ultimately be abolished
and secondly, we may all ask if one day we are going down the start of
the path that will lead to a party, whether they are claimant or
defendant, when first consulted on a case being able to refer to a
fixed cost limit for that particular case - subject of course to the
ultimate discretion of the Court in any event to extend or vary the
terms of such fixed costs.
f) Other interesting questions are left unanswered. Can a
Defendant get round the Cap by saying that they will spend what they
like irrespective of it being recoverable? If so, where is the level
playing field? Can a corporate entity get round a cap by doing the
work in house? This issue is a long way from running its course.
There are interesting days ahead.
David Harris
The author is Senior Partner of Alexander Harris and represented the
claimants in A B & Others and Leeds Teaching Hospital NHS Trust.
¹(2003) EWHC 1034 (QB)
² (2001 EWCA CIV 736)
³ (2002 EWCA CIV 365)
4 (2002) EWHC 2923 (QB)
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