Update: costs

The latest update to the Civil Procedure Rules introduced new rules in relation to the recoverability of after the event (ATE) insurance premiums in publication proceedings. It also introduced new rules in relation to providing information concerning how a claim is funded in claims generally. The latter changes have received little attention but are crucial for practitioners to fully understand.

The old CPR 44.3B read:

'(1) A party may not recover as an additional liability '“

(c) any additional liability for any period in the proceedings during which he failed to provide information about a funding arrangement in accordance with a rule, practice direction or court order.'

The new wording of CPR 44.3B is:

'(1) Unless the court orders otherwise, a party may not recover as an additional liability '“

(c) any additional liability for any period during which that party failed to provide information about a funding arrangement in accordance with a rule, practice direction or court order;

(e) any insurance premium where that party has failed to provide information about the insurance policy in question by the time required by a rule, practice direction or court order.'

Paragraph 9.3 of the Practice Direction (Pre-action Conduct) provides that a party must inform any other party as soon as possible about a funding arrangement entered into before the start of proceedings.

There are three key changes:

1. The wording 'in the proceedings' is deleted from subparagraph (c) and the reference to the new wording of the Practice Direction (Pre-action Conduct) makes it clear that notice must now be given pre-proceedings.

2. The insurance premium provision at subparagraph (e) deals with the consequence of not giving the information discussed below.

3. The addition of the new wording 'unless the court orders otherwise' is strange. It was previously clear that failure to comply with the notification provision produced an automatic sanction in that the additional liability was not recoverable (in the absence of a successful application for relief from sanctions). The new wording suggests that there is now a general discretion of the court as to whether to allow the additional liability despite the breach, although the starting point is obviously non-recoverability. What makes the position uncertain is that the new wording is followed by the same note that previously appeared: 'Rule 3.9 sets out the circumstances the court will consider on an application for relief from a sanction for failure to comply with any rule, practice direction or court order.' If the court now has a general discretion there would be no need to formally make an application for relief from sanctions. Or, is the wording 'unless the court orders otherwise' meant to refer to the situation where a successful application has indeed been made, but not otherwise?

Paragraph 9.3 of the Practice Direction (Pre-action Conduct) now reads (amendments in italics):

'Where a party enters into a funding arrangement within the meaning of rule 43.2(1)(k), that party must inform the other parties about this arrangement as soon as possible and in any event either within seven days of entering into the funding arrangement concerned or, where a claimant enters into a funding arrangement before sending a letter before claim, in the letter before claim.'

The word 'must' replaces the word 'should' that appeared in the previous wording. Difficulty had been caused by the word 'should' as to whether it was meant to be mandatory or directory (see, for example, Metcalfe v Clipston [2004] EWHC 9005 (Costs)). Whether this is therefore meant to be a change of substance to the rule, so far as pre-proceedings matters are concerned, or is simply 'clarification' of what the rule always meant, is unclear.

Staged ATE premiums

An important change has been made to the Costs Practice Direction in respect of staged ATE premiums. CPD 19.4(3) now reads:

'Where the funding arrangement is an insurance policy, the party must '“

(a) state the name and address of the insurer, the policy number and the date of the policy and identify the claim or claims to which it relates (including part 20 claims if any);

(b) state the level of cover provided by the insurance; and

(c) state whether the insurance premiums are staged and, if so, the points at which an increased premium is payable.'

The last of these requirements finally formalises the guidance given by the Court of Appeal in Rogers v Merthyr Tydfil CBC [2006] EWCA Civ 1134.

Not that none of these changes affect those acting under discounted CFAs/CCFAs without a success fee (usually defendants) and without an ATE policy. There is no need to provide notice of funding in this situation because the full hourly rate payable in the event of a win is not treated as being an additional liability (see Gloucestershire CC v Evans [2008] EWCA Civ 21).

Statement of reasons

On a related issue, 32.5(3) of the Costs Practice Direction requires a statement of reasons in respect of any success fee to be served on the paying party where the, now revoked, Conditional Fee Agreement Regulations 2000 or Collective Conditional Fee Agreement Regulations 2000 apply. The success fee will not be recoverable if this is not done (CPR 44.3B(1)(d)(i)). What should this statement consist of and when should it be served?

These issues were considered in Middleton v Vosper Thornecroft (UK) Ltd & Others, CC (Winchester) 2/6/09. The claim was funded under a CFA that pre-dated the revocation of the CFA Regulations 2000. No statement of reasons was served with the bill but some reasons were subsequently provided in the claimant's replies. Judge Iain Huges QC, sitting with Regional Costs Judge James, made two key findings:

1. The 'statement of reasons' to be served must be 'the statement of reasons as included in the CFA. The paying party is entitled to the whole of that statement and not an abbreviated version. Further, he is entitled to know that that is what he is being given.' He concluded: 'The statement of reasons set out in the reply did not amount to a compliant statement. First, because it was neither provided nor identified as being the statement of reasons given in the CFA.

Second, it did not have the appearance of being such a statement. Third, even if it had been identified as the statement of reasons in accordance with the rules, in fact it was not.'

2. The 'CPR require the receiving party to serve the statement of reasons and the other documents specified in section 32 at the same time of serving the notice of commencement and that the claimant in this case failed to do that. That triggers the sanction imposed by CPR 44.3B(1)(d) which denies recovery of his success fee.'

This decision provides important guidance on the timing of service of the statement and the fact that the statement must mirror what appeared in the actual statement prepared when the CFA was entered into rather than being a summary or edited version.

Court's discretion

The addition of the new words 'unless the court orders otherwise' at the beginning of CPR 44.3B(1) creates a further problem beyond that relating to whether it gives the courts a general discretion in relation to a breach of the rules relating to notification of funding arrangements. That is because it also catches the following two subsections where it was clear that these elements were previously never recoverable:

(a) any proportion of the percentage increase relating to the cost to the legal representative of the postponement of the payment of his fees and expenses;

(b) any provision made by a membership organisation which exceeds the likely cost to that party of the premium of an insurance policy against the risk of incurring a liability to pay the costs of other parties to the proceedings.

Is it really intended that funding costs may now be recoverable or that membership organisations should be able to recover amounts in excess of what the market would charge? If so, in what circumstances would the courts exercise their discretion in this way? It has been suggested, persuasively, that this is a drafting error. If so, it is an unfortunate one as it is likely to generate further satellite litigation on costs.

Cases coming up

Recent months have been somewhat quiet in terms of legal costs decisions from the higher courts. However, at the time of writing, the Court of Appeal has heard or is about to hear several costs matters and judgments will hopefully be handed down shortly. The case of O'Beirne v Hudson is concerned with whether a standard basis order for costs precludes a judge on detailed assessment from limiting the costs by reference to the costs that would have been recoverable had the matter been allocated to the small claims track. The case of Drew v Whitbread is concerned with similar issues to those raised in Aaron v Shelton [2004] 3 All ER 561 (see Solicitors Journal 149/42, 4 November 2005) concerning the courts' powers in relation to conduct issues. Then there is the case of Mastercigars Direct Ltd v Withers LLP [2007] EWHC 2733 (Ch) and the never ending litigation over costs estimates (see Solicitors Journal 153/14, 14 April 2009 and 153/17, 5 May 2009). If that wasn't enough excitement, we then have Lord Justice Jackson's final report on his civil litigation costs review due for publication in mid-January.