Proportionality has no role in assessing the recoverability of success fees and after the event insurance premiums under the regime introduced in 1999. This certainty has been put into question by the challenge to the pre-April 2013 costs regime before the Supreme Court in Coventry v Lawrence. While we wait to find out what that challenge will lead to, we review some other arguments open to parties on the receiving end of claims for success fees and premiums at detailed assessment.
Putting an end to recoverability was a key part of the Jackson reforms, but these additional liabilities can still be recovered from the losing party in cases where the conditional fee agreement and/or insurance policy were entered into before 1 April 2013. They can also be recovered where the CFA and/or policy were entered into on or after that date in three types of case exempted, for the time being, from this change to the regime – insolvency, mesothelioma, and publicity and privacy claims.
So, given that arguments about proportionality cannot be raised at the moment in relation to success fees and premiums, what other arguments are available to the paying party? Here are a few suggestions.
Be alert to issues affecting recovery resulting from the transitional provisions. The first step is to check whether the CFA or policy was entered into before April 2013. In many cases one was but the other wasn’t.
The Bar Council’s report to the Civil Justice Council calls for the relevant legislation to be amended to avert anticipated mass satellite litigation on transitional CFAs. They mention the following issues:
- Whether a success fee payable to counsel can be recovered where the solicitor entered into the CFA with the client before 1 April 2013, but counsel entered into a CFA with the solicitor after 1 April 2013.
- Whether a pre-1 April 2013 CFA is enforceable if it is assigned to another barrister after 1 April 2013 under terms of original CFA.
Similar issues arise where the client instructs a new firm of solicitors after April 2013 or the original firm ceases to do that type of work or ceases to exist.
Validity of the CFA
It is difficult to challenge the validity of a CFA but there are ways in which it may be fallible. For example, the courts do not tend to look kindly on backdated CFAs but it is possible for a CFA to be retrospective (Forde v Birmingham City Council). In M Dairies Limited v Johal Dairies Limited the court accepted the validity of a CFA covering work done before it was entered into but ruled that the claimant was not entitled to recover a success fee relating to a period during which the defendant had not been aware of the CFA.
It is important to check whether the success fee has been applied to costs incorrectly, for example to those incurred before the CFA was signed if it is not retrospective. Check also whether a claim is being made improperly for costs incurred in setting up the CFAs and ATE insurance (Motto v Trafigura Ltd).
Breach of notification requirements
Notification of the details of pre-April 2013 CFAs and ATE insurance was required by CPR 44.15 and para 19.4 of the Costs Practice Direction. Where relevant, failure to notify pre-action was a breach of Practice Direction (Pre- Action Conduct). Under CPR 44.3B a success fee and/or premium may be disallowed for the period during which there has been a failure to notify.
There have been various cases considering whether relief from sanctions should be granted for a failure to notify (such as Ibbertson v Black Horse Ltd and Harrison v Black Horse Ltd) but these should now be viewed with circumspection following the Court of Appeal’s guidance in Denton v TH White Ltd. The more balanced approach to failures to notify in this context was demonstrated recently in Ultimate Products Ltd v Woolley. Relief is likely to be granted where no prejudice has been caused by the failure to notify.
Breach of other rules
A party wishing to recover a success fee or premium at detailed assessment must serve the relevant documents with the notice of commencement (Costs Practice Direction para 32) and can be penalised under CPR 44.3B for any failure to comply with the rules. In a pre-Denton decision, Long v Value Properties Ltd, Master Rowley felt obliged by Mitchell to refuse to grant relief from sanctions and to disallow the success fee where the claimant had failed to serve the required documents on time. A more balanced approach was taken to the same issue in Warner v Merrett and Denton will make windfalls of this type hard to come by in future.
Remember that the court has a general discretion to take the claimant’s conduct into account, and this could involve limiting the recovery of a success fee or premium where the conduct has increased costs unnecessarily and prejudiced the defendant. In Buildability Ltd v O'Donnell Developments Limited the claimant had failed to follow the pre-action protocol for construction and engineering disputes which could have led to an early settlement. Taking the claimant’s aggressive stance and other factors into account, the court disallowed the success fee in its entirety.
Reasonableness of the success fee or premium
Given the general acknowledgement that the regime permitting recovery of additional liabilities was a bad thing, costs judges are likely to be predisposed towards limiting recovery. Alastair Kirkland Lines v The Co-operative Bank Plc is a recent tough example concerning recovery of a success fee. Kelly v Black Horse Ltd is one concerning recovery of a premium. Both illustrate the difficulties facing claimants seeking to recover success fees and premiums fixed in an earlier less critical climate.
Proportionality of base costs
We have previously commented on the significance of the decision in Finglands Coachways Ltd v O'Hare so only a brief mention is needed here (see below). Cranston J reinterpreted (rewrote might be more accurate) the Lowndes proportionality test, holding that the court can consider on an item by item basis whether a particular item is proportionate and necessary, even if the costs are proportionate on a global basis. This more stringent version of the Lowndes test could be applied to base costs incurred before April 2013, even where the proceedings were begun on or after 1 April 2013 and are otherwise subject to the new, potentially brutal, Jackson proportionality test. Reducing recoverable base costs will usually be the best way to limit the effect of a success fee.
The points above are only a taster of those available to paying parties but as can be seen, there is great potential for reducing a costs bill where additional liabilities are involved. There is more scope for limiting recovery of a success fee than a premium but Kelly v Black Horse Ltd indicates that costs judges may no longer be taking a hands-off approach when it comes to premiums.
Where costs are grossly disproportionate to the claim, it may be worth considering applying for detailed assessment to be stayed pending some sort of outcome from Coventry v Lawrence. In most cases, however, the best course for paying parties will be to take advantage of the universal disapproval of high costs bills and to seek to settle costs at a favourable level or, failing agreement, to raise the relevant points outlined above at detailed assessment.
Click here to read the briefing about Finglands Coachways Ltd v O'Hare.