MISCONDUCT ON ASSESSMENT LEADS TO REDUCTION OF COSTS BY 50%: KERINS -V- HEART OF ENGLAND NHS FOUNDATION TRUST
There is a report on Lawtel today of the decision of District Judge Griffith in Kerins -v- Heart of England NHS Foundation Trust (Birmingham, 31st July 2015). The claimant’s costs were reduced by 50% because of misconduct in the assessment process.
“Misrepresenting the position in a bill of costs intended for consideration by an opponent in litigation and use at a court hearing in order to gain practical advantage, can be regarded as improper conduct. It is, in any event, likely to be so regarded by a consensus of solicitors or judges, in my view.”
“The court very much disproves of conduct of this type in these days of openness between the parties. There is an obligation on legal representatives to assist the court and present the if clients case fairly and without misrepresentation”
- The Court concluded that a solicitor had deliberately hidden the existence of a second conditional fee agreement.
- The appropriate penalty for the solicitor’s failures was to reduce recoverable costs by 50%.
The claimant settled a clinical negligence case with the defendant on the basis that costs were to be paid.
- The claimant had the benefit of a before the event (BTE) policy. However his solicitors entered into a conditional fee agreement.
- The BTE policy was brought into play on the issue of proceedings. The claimant then entered into a second CFA with his solicitors which was in line with the requirements of the BTE insurers.
- However the Notice of Funding served with the proceedings only referred to the first policy. Despite the fact that the second CFA was now in place.
- The case settled shortly after proceedings were issued.
THE BILL OF COSTS
The bill of costs as originally drafted came to £127,855 as a result of unofficial responses by the defendant that bill was reduced to £49,369. Both bills contained a signed statement that the bills did not exceed the sums due from the claimant. Neither bill referred to the existence of the second CFA.
In reply to the points of dispute
“…the Claimant’s solicitors included a statement that: “The Claimant can confirm that the reasonable investigation undertaken concluded that the Claimant did not have suitable BTE cover for funding a clinical negligence claim prior to the issue of court proceedings and as such a success fee should be applicable.”
The existence of the second CFA and BTE cover was not disclosed until some four days before the assessment hearing.
“HIDING THE SECOND CFA”
The judge noted that there was an earlier decision which
“It is clear from that sequence that the description I have given in this case was normal practice in terms of using two CFAs, the first covering work up to the point of proceedings and without reference to the BTE insurance.”
THE JUDGE’S VIEW THAT THE CLAIMANT’S CONDUCT WAS DELIBERATE
“18. The Claimant s solicitors acknowledge that they erroneously failed to mention the second CFA in both bills and I have not been given any explanation for this. I find it hard to understand how such an important matter could have escaped their attention in the light of the sequence of events that I have described and the opportunities they had to put it right.
19. I note also that the explanation given by the Claimant’s solicitors in it’s Reply to point 3 of the Points of Dispute, immediately prior to the extract referred to in paragraph 7 of this judgment, gives the clear impression that the references to investigating alternative funding were being pursued after the first CFA was entered into. However, it is clear that the existence of such was known prior to entering the first CFA. 20.
20.Taking in account the points I have set out, it is a reasonable inference that the omission was deliberate.”
THE JUDGE’S DECISION ON THE INDEMNITY PRINCIPLE
The judge held that:
- The hourly rate initially claimed was in excess of anything allowed in the CFAS.
- However the fact that the rate claimed was reduced was irrelevant to the issue of the indemnity principle.
- A similar point applied to the success fee which was reduced from 100% to 25% in the revised bill of costs.
- The indemnity principle had not been breached.
- A Notice of Change of CFA should have been given at the time the second CFA was entered into.
- The claimant had conceded that the success fee was not recoverable.
- There was a valid retainer in relation to both CFAS.
MISCONDUCT AND THE REDUCTION OF COSTS
“35. I am left therefore with what I regard as the real (in the sense of being the most arguable) point in dispute, namely whether there has been misconduct pursuant to CPR 44.1 1 and, if so, whether all or part of the costs should be disallowed.
36. CPR 44.1 1 states:
“(1) The court may make an order under this rule where –
(a) (b) it appears to the court that the conduct of a party or that party’s legal representative, before or during the proceedings or in the assessment proceedings, was unreasonable or improper.
(2) Where paragraph (1) applies, the court may – (a) disallow all or part of the costs which are being assessed; . . . …..”
37. Leaving aside for the moment any technical definition of ‘misconduct’, I am of the firm view that the Claimant and/or his solicitors can be criticised with regard to the way that the existence of the second CFA and the available BTE funding was intentionally kept secret from the Defendant. They had ample opportunity to put right the position they had misrepresented but failed to do so. One can only speculate as to the reason for this but the obvious point is that this inaccurate portrayal of the funding position would serve to strengthen the Claimant’s arguments in justifying the success fee and so, conversely, weaken the Defendant’s argument.
38. The question then is whether this misconduct is sufficient to fall within any authoritative guidance as to what constitutes misconduct for the purpose of the rule. The Claimant’s position is that it does not.
39. I was referred in the first instance to the Court of Appeal decision Lahey -v- Pirelli Tyres Ltd  EWCA Civ 91. The issue on appeal in that case was whether a Costs Judge had jurisdiction within a detailed assessment to reduce the costs in percentage terms before commencement of the assessment. I was referred to the judgment of Dyson LJ at paragraph 30: “The powers given to the court by rule 44.14 include powers that are similar to those available to a judge making a wasted costs order … .. It is unlikely that the draftsman intended that a legal representative could be ordered to pay costs under rule 44.14 in circumstances where wasted costs order could not be made under section 51(6) of the 1981 Act, as substituted, in respect of costs incurred as a result of “any improper, unreasonable or negligent act or omission on the part of [the] legal representative”. .. The word “unreasonable” in section 51(7) of the 1981 Act has been construed quite narrowly. I n our view, it should be given a similar narrow meaning in rule 44.14(1)(b). … … ..”
40. Rule 44.14 referred to, is the predecessor to CPR 44.11 . Indeed the apply to either the party or his legal representative and there should be no difference between them in terms of the test to be applied. It \s thought that the test to be applied to the solicitor would be that under Section 51(6) of the Supreme Court Act 1981 and therefore that test should apply to 44.14 regardless of whether the order was against the party at fault of the legal representative.
41 . This appeal did not turn on the meaning of “u reasonable” and therefore the above comment was obiter but nevertheless persuasive as it has been given by the Court of Appeal after hearing reasoned argument on the point.
42. I was then invited to consider the case of Ridehalqh -v- Horsefield and another  Ch 205, another Court of Appeal decision, regarded as an established authority in respect of the ‘wasted costs’ regime. I was referred to the judgment of Sir Thomas Bingham MR at page 232C which deals with the meaning of “improper, unreasonable or negligent” under the 1981 Act and which states: “‘Improper’ means … .. . but is not confined to, conduct which would ordinarily be held to justify disbarment, striking off, suspension from practice or other serious professional penalty. It covers any significant breach of a substantial duty imposed by a relevant code of professional conduct. But it is not in our judgment limited to that. Conduct which could be regarded as improper according to the consensus of professional (including judicial) opinion can be fairly stigmatised as such whether or not it violates the letter of a professional code. “Unreasonable”… … aptly describes conduct which is vexatious, designed to harass the other side rather than advance the resolution of the case, and it makes no difference whether the conduct is the product of excessive zeal and not improper motive. But conduct cannot be described as unreasonable simply because it leads in the event to an unsuccessful result or because other more cautious legal representatives would have acted differently. The acid test is whether the conduct permits of a reasonable explanation. If so, the course adopted may be regarded as optimistic and as reflecting on the practitioner’s judgment, but it is not unreasonable”.
43. Mr Marven for the Claimant, argues that this imposes a rather high hurdle in terms of establishing misconduct and that the conduct complained of in this case falls short of it. I disagree. The word “improper” is not limited to situations where there would be a significant breach of professional conduct but encompasses conduct which can be regarded as improper according to a consensus of professional or judicial opinion. Although I have not been referred to a professional code 0f conduct, wouId be surprised if the conduct of the Claimant’s solicitors which I Lave described, has not fallen foul of some provision of the rules which govern solicitors. Misrepresenting the position in a bill of costs intended for consideration by an opponent in litigation and use at a court hearing in order to gain practical advantage, can be regarded as improper conduct. It is, in any event, likely to be so regarded by a consensus of solicitors or judges, in my view.
44. The position is more certain . when considering the meaning of ’unreasonable’. If anyone looks at the acid test, as referred to in \he Ridehalgh judgment and considers the degree of criticism that can be levelled against the Claimant and/or his solicitors which does not permit of a reasonable explanation, it is clear to me that conduct falls within the meaning of unreasonableness for the purpose of CPR 44.1 1.
45. I n any event, some guidance is given within the Practice Direction CPR PD 44.1 J .2 which slates “Conduct which is unreasonable or improper includes steps which are calculated to prevent or inhibit the court from furthering the to deal with a case justly which encompasses concept of dealing with the case fairly and ensuring that the parties are on an equal footing. In a situation where one party has deliberately misrepresented their position thus ensuring tactical advantage, it cannot be said that this would lead to the court dealing with the case fairly or the parties being on an equal footing I am satisfied therefore that the conduct of the Claimant and/or his solicitors was unreasonable and improper for the purpose of OPR 44. 11.
46. The next question is whether I should exercise my discretion, \he appropriate word being “may”, and disallow all or part of the costs which are being assessed.
47. Mr Mafeen argues that there has been sufficient penalty already in the sense that the Claimant has conceded the success fee in full. I disagree. It seems to me that the Claimant has only conceded what he was likely to lose in any event, once the true facts were known. The court very much disproves of conduct of this type in these days of openness between the parties. There is an obligation on legal representatives to assist the court and present the if clients case fairly and without misrepresentation. In my view therefore il is appropriate for me to exercise my discretion and make an order. However, I am of the view that disallowing all of the costs would be a disproportionate response to the misconduct. I will however disallow 50% of the claimant’s costs as assessed.