It may only be March, but 2015 has already delivered some exciting developments in the world of costs. From budgets to offers, head of costs Paul Edwards provides an overview of some of what has happened so far…

Civil procedure rules – changes to Part 36

Part 36 will be amended on 6 April 2015 and the new provisions will apply to all offers made on or after that date. The aim behind the revision is to simplify and clarify some current ambiguity. The changes include:

  • Time limited offers

Under the current rules, an offer which limits the time it is available for acceptance cannot be a Part 36 offer. The new rule allows for an offer to be automatically withdrawn at a predetermined time after the expiry of the relevant period or specific event (36.9(4) (b)). This may encourage more strategic offers, but as with any Part 36 offer, once withdrawn, will no longer carry Part 36 costs consequences. Only time will tell whether there will be any practical consequences of this amendment.

  • Improved offers

In matters where an offer, or changes to the terms of an offer make it more advantageous to the ‘offeree’, it will be treated as a new offer. However, the original offer will still remain available for acceptance unless expressly withdrawn. The new Part 36 states that these offers ‘shall be treated, not as the withdrawal of the original offer; but as the making of a new Part 36 offer on the improved terms’. There is again some debate as to the practical difference that this change will have.

  • Split trials

The amended Part 36 allows offers relating only to the concluded issues to be revealed to the court after those preliminary issues have been heard.

  • Costs budgets

If a party fails to file a costs budget in time then, under the old rules, they are treated as having filed a budget limited to court fees. Under the new rule, the defaulting party’s recoverable costs for the purpose of Part 36 are 50% of the costs that would otherwise be recoverable but not limited to court fees. This provision only applies to costs from the expiry of the relevant period onwards. Where it is the claimant that is in default, and the offer is accepted within the relevant period, this new rule does not allow the claimant to avoid the limitation to court fees.

  • Genuine offers

The new rule distinguishes between genuine offers to settle and tactical offers made simply to secure a costs advantage, such as a claimant making an offer for the full value of the claim, or an otherwise unrealistically high amount. The idea behind this amendment is that only genuine attempts to settle the claim will afford the ‘offeror’ a cost benefit.

  • Additional claims

The new rule clarifies the current somewhat confused position, but confirms that Part 36 will apply to additional claims and counterclaims, to the extent that the counterclaimant making an offer will be able to rely on the consequences applicable to claimants’ offers, including the entitlement to costs if the offer is accepted.

These amendments to Part 36 attempt to clarify wording and codify existing case law, which is for the most part in effect already. There are also a number of broader changes to the wording of what constitutes a valid Part 36 offer.

Proportionality

It is clear that the concept of proportionality can and will be used to slash excessive claims for costs, as demonstrated in the case of Savoye and Savoye Limited -v- Spicers [2015]

The new rules in respect of proportionality in costs came into place on the 1 April 2013. However, until this case, there had been no authoritative decisions from the higher courts on how the court should approach the issue. Many judges have complained at the lack of guidance given to them.

However, in Savoye, Mr Justice Akenhead, sitting in the technology and construction court, found costs of £201,790 claimed in a dispute valued at £900,000 revolving around a relatively narrow issue to be disproportionate. Adopting the test of proportionality to assess what is reasonable and proportionate for a paying party to pay, the costs were reduced by 52% to £96,465. Work carried out by a partner was significantly reduced by 78% and fees claimed by counsel reduced by 32%.

The judge held that when assessing proportionality and the reasonableness of costs, courts should have regard to:

  • the relationship between the amount of costs claimed and the amount in issue;
  • the amount of time claimed in relation to the total length of the hearing;
  • the level of costs incurred before the proceedings in connection with the dispute; and
  • the importance of the case to the parties along with the importance of the case to the public generally such as test cases.

What is particularly interesting about this decision is that it is one where the damages were in excess of costs. Traditionally, the main concerns over proportionality have been regarding cases where the costs have outweighed damages.

Conditional fee agreements notice of the right to cancel

The recent Court of Appeal decision in Cox -v- Woodlands Manor Care Home Ltd [2014] has reaffirmed the need to comply with the Cancellation of Contracts made in a Consumer’s Home or Place of Work etc. Regulations 2008 (the Regulations).

The claimant’s solicitor had failed to provide a notice of right to cancel to the claimant with their conditional fee agreement (CFA). Failing to do so breached the Regulations. The claimant’s solicitor argued that the contract was not entered into at the claimant’s home, but at a later stage once their funding enquiries had been completed.

That argument was rejected and the CFA was deemed to have been entered into on the date that it was signed in the claimant’s home. The failure to include a notice of cancellation in accordance with the Regulations rendered the CFA unenforceable.

The decision reinforces an earlier decision in Hurley -v- Makuni, an unreported case in the Manchester County Court, which held that the Regulations apply to a CFA and that a failure to provide written notice of the claimant’s right to cancel made the CFA unenforceable as between the claimant and his solicitors. Accordingly, there could be no liability for the claimant’s costs to be met by the paying party.

This further decision highlights the significance of failing to comply with the Regulations. Its strict application will have a significant impact upon parties who fail to comply.

Historically, when this issue had been raised, claimant lawyers have dismissed it, arguing that the Regulations do not apply to them. This decision clarifies that this is not the case and defendants should make sure to clarify where the CFA was signed to verify whether it is enforceable.

Court fee increases

The Ministry of Justice (MOJ) is pressing ahead with its plans to increase court fees dramatically despite strong opposition from members of the judiciary and legal profession. Current reports indicate that the fee rises are likely to come into force as early as 9 March 2015. As costs commentator Dominic Regan has pointed out, the greatest increase is a staggering 622%.

When the changes come into effect, to issue a money claim will cost 5% of the value of the proceedings for claims worth £10,000 or more. The total issue fee will be capped at £10,000 (i.e. for claims worth £200,000), with a 10% discount if the claim is lodged electronically.

The revisions will clearly lead to a profound increase in litigation costs and commentators have voiced concern that access to justice for claimants will be significantly diminished in the post-1 April 2013 regime. Legal practitioners will undoubtedly be assessing their current case loads with a view to getting as many cases into the court system as soon as possible and avoid the hefty fees. It has been reported that The Law Society has taken initial steps to obtain a judicial review of the increases. Likewise, given the potential costs ramifications for paying parties, might we see a fresh round of satellite litigation in respect of premature issue, or interlocutory applications used as threats?

The MOJ also proposes to increase the cost of applications, without notice or by consent, to £100 and the cost of applications on notice which are contested to £255, however this is still subject to an ongoing consultation.

High Court provides guidance on costs budgeting

Finally, in the recent defamation case of Tim Yeo MP -v- Times Newspapers Limited [2015] the High Court has handed down some useful guidance on costs management, specifically in relation to contingencies in costs budgets.

If a party wishes to include contingencies in costs budgets, the work must be identifiable and should only be included if it is ‘more likely than not to be required’ and, furthermore, ‘if work that falls outside one of the main categories is not thought probable’. If a budget includes work that is only a slight possibility, then it should not be agreed. In the unlikely event that the contingent costs become a reality, the costs of an application to include them should be added onto the budget pursuant to Practice Direction 3E section 7.9.

In this case, as often happens, parties will incur significant costs pre-action. Even though incurred costs are not subject to the approval process, a budget may be reduced for reasons that also apply to or have a bearing on incurred costs. Therefore, recording those reasons at the same time as approving the budget, under PD3E 7.4, is likely to assist the parties to later agree costs without detailed assessment.