PROPORTIONALITY AND COSTS: A JUDGMENT ON APPEAL
In the judgment today in Tui UK Ltd -v- Tickell & Others  EWHC 2741 (QB) Mrs Justice Elisabeth Laing DBE (sitting with Master Leonard as an assessor) dismissed an appeal by the defendants on an argument that the costs allowed were disproportionate.
“These authorities do not support the Defendant’s proposition that one can identify a ‘benchmark’ of appropriate overall reduction, on the basis of necessity, by a given percentage of the costs claimed. The extent to which claimed base costs will be reduced will depend upon the facts of the particular case.”
- The court dismissed the defendant’s appeal that, in assessing costs, a Master had failed to apply his earlier finding that the costs were disproportional.
- A court should only allow an appeal in relation to assessments if the initial decision is found to be wholly wrong and outside the ambit of any reasonable discretion.
- If a party wants to rely on a failure to use ADR and use a scheme for arbitration then that possibility should be raised during the Pre-Action Protocol and not on assessment of costs.
- The Master had not erred by allowing unnecessary costs.
The 205 claimants were all involved in actions against the defendant in cases where they were on holiday and were ill or had inadequate holidays. The cases settled shortly before trial. The average payment for those with injuries was £1,500 and those who were not was £500.
The parties agreed that assessment should take place by selecting “representative sample” claimants with an assessment of two bills from each group.
“This was a rough and ready approach, but the parties agreed that it was a sensible and proportionate alternative to an assessment, by reference to the points of dispute, of each of the 205 individual bills of costs. It was an approach which inevitably created a risk of distortion, because if one of the bills for a sample claimant contained an item which was untypical for the group of claimants of represented by that sample claimant, and the Master allowed that item, that untypical item would inevitably feed through to the figure for the total costs, as it would be part of total which fed into the calculations. The same is true, mutatis mutandis, of a typical item disallowed by the Master. But this was a risk which, by agreeing this sampling method, the parties had agreed to run.”
THE DEFENDANT’S APPEAL
The total bills claimed were £1,768.011.25. The Master allowed costs of £999,121.36. The defendant appealed contending that the base costs allowed – £630,456 were too high.
THE APPROPRIATE APPROACH WHERE COSTS WERE FOUND TO BE DISPROPORTIONATE
Where there is a finding that costs are disproportionate
The pre-1 April 2013 test of proportionality which Lord Woolf MR set out in Lownds v Home Office  EWCA Civ 365 applies in this case. He said:
“…There has to be a global approach and an item by item approach. The global approach will indicate whether the total sum claimed is or appears to be disproportionate having particular regard to the considerations which CPR r 44.5(3) states are relevant. If the costs as a whole are not disproportionate according to that test then all that is normally required is that each item should have been reasonably incurred and the cost for that item should be reasonable. If on the other hand the costs as a whole appear disproportionate then the court will want to be satisfied that the work in relation to each item was necessary….”
In this case the Master made a global finding that the Claimants’ costs were disproportionate. Then, in accordance with Lownds, he then applied a test of necessity to the items of costs challenged by the Defendant (see also paragraph 52 of Motto v Trafigura  EWCA Civ 1150, per Lord Neuberger MR). One of the Defendant’s key contentions appears to be that the Master did not apply the necessity test with sufficient rigour. I should therefore consider what Lord Woolf MR said about necessity in Lownds:
“… a sensible standard of necessity has to be adopted. This is a standard which takes fully into account the need to make allowances for the different judgments which those responsible for litigation can sensibly come to as to what is required. While the threshold required to meet necessity is higher than that of reasonableness, it is still a standard that a competent practitioner should be able to achieve without undue difficulty.”
“It does not seem to us to be a profitable or useful exercise for this court to describe in abstract the difference between assessing whether an item has been necessarily incurred and assessing whether an item has been reasonably incurred, save to confirm that the former hurdle is higher, but it does not carry with it the strictest sense of necessity.”
These authorities do not support the Defendant’s proposition that one can identify a ‘benchmark’ of appropriate overall reduction, on the basis of necessity, by a given percentage of the costs claimed. The extent to which claimed base costs will be reduced will depend upon the facts of the particular case.
The approach to appeals on costs
I have reminded myself of the test I should apply by referring to a summary of the principles governing appeals on amounts of costs in Friston on Costs (2nd edition paragraphs 23.16 and 23.17): “…appeals concerning the amount of costs are… notoriously challenging from the appellant’s point of view”. The learned author refers to the observations of Lord Fraser in G v G (Minors: custody appeal)  1WLR 647 at 652. He distinguishes between “blatant error”, which may be corrected on appeal, and the task of preferring one imperfect solution to an alternative imperfect solution preferred by the appellant; and to Buckley J’s distinction in Mealing-McLeod v Common Professional Examination Board  2 Costs LR 223 at 224 between matters of principle and matters of judgment. I consider that I should only interfere with the Master’s decision on points of detail if the Defendant persuades me that a given decision of the Master was plainly wrong and outside the wide ambit of his discretion. It would be outside that ambit if, for example, the Master took into account something which was irrelevant, or if he failed to take into account something which was relevant.
THE DEFENDANT’S GROUNDS OF APPEAL
Ground 1 contends that the Master was wrong to allow 144 hours of inter-fee earner discussions, overall, on the individual bills. These were wrongly allowed because they did not relate to any individual case. Times had already been allowed in the generic bill. The discussions were unnecessary and probably did not even occur. The Master was wrong not to check the attendance notes about those discussions (transcript, page 491). He was wrong also to say (pages 492, 223, 224), that work was pushed down to the lowest grade of fee earner.
i) the quality only claims settled for low figures,
ii) their quantum was agreed in principle on 23 May 2012,
iii) the quantum of 173 of the claims was agreed from the start on the basis of a set tariff,
iv) 173 of the claims settled for less than £1500,
v) there were available ADR processes, but the solicitors, in breach of their duties to their clients, did not advise the Claimants about them,
vi) all the cases except the lead cases were parked by the order of 23 May 2012 so
vii) there was no need for any substantial costs or any such costs post-23 May 2012 in respect of individual bills for non-lead Claimants with quality only or upset stomach claims.
I can deal with most of ground 3 immediately. It seems to me that, with one exception, ground 3 is another way of expressing ground 1. That impression is reinforced by the fact that Mr Munro, for the Defendant, did not press it in oral argument. It seems to me, therefore, that ground 3 adds nothing to ground 1 and that I can consider them together. The exception to this is ground 3.e, which I will consider after ground 1.
INTER FEE EARNER DISCUSSIONS
The Judge held that the Master had applied the correct test in allowing inter fee earner discussions.
I agree with the Master that, in principle, if, as here, much of the work on files was being done by paralegals under the supervision of legal executives, it was necessary, from time to time, to have discussions between fee earners, specifically supervising solicitors, including partners. In the course of this short ruling the Master referred twice, correctly, to the test he had to apply.
USE OF THE ABTA SCHEME
The Defendant relied in the points of dispute on the fact that it was an ABTA bonded company. The Defendant contended that no costs or disbursements should be allowed on ‘the claims which settled for damages for personal injuries below £1000 and for breach of contract claims that settled below £5000.00’ as those Claimants could have used the ABTA mediation process. The Claimants’ response was that the Defendant had never invited the Claimants to do this. The fact that the Defendant denied liability throughout showed that mediation would have failed, and more costs would have been incurred. Moreover, the Defendant did not provide a decision on liability in the pre-action protocol period; the Claimants had offered to mediate in a letter dated 22 February 2011; and the Defendant had not responded to that suggestion.
There is one sample contract in the bundle. It occupies just over 7 pages of smallish print. Clause 5 is headed, ‘What happens to holiday complaints’. It says that the Defendant can usually sort out complaints but that if a passenger disagrees, he can take up the complaint with an arbitrator. The clause refers to the limits on the arbitrator’s jurisdiction. It says that there are ‘limits on the costs you might have to pay…’. It finishes, ‘If you prefer, you can take your complaint to the County Court or another suitable court’. So the contract does not impose an obligation to use the ABTA scheme. It leaves it up to the passenger to decide whether to use the scheme or to litigate in court.
I do not have a transcript of the January hearing. The Master decided then in principle that the costs were disproportionate. In the December hearing Mr Munro opened the ABTA topic. The Master asked whether they had not dealt with this topic in January. The parties then referred to their skeleton arguments. He said that he had a note that Mr Munro had referred to it on proportionality. Mr Mallalieu submitted that this point had been argued as relevant to proportionality but that it had been disavowed as freestanding point. The Master said it had been raised in the context of proportionality and it might have been one the factors which he had taken into account in deciding that the costs were disproportionate.
Mr Munro said that the point had not been abandoned and that it was a good point in relation to the quality only bills. The Master said it was a point which could be raised in relation to the reasonableness of any of the individual bills. Mr Munro said that that was the same point. The Master then said that he was not sure that he could deal with the issue as ‘a blanket approach’ such that he could say he would not award a penny for any of the claims, because ‘I was obviously against you when you raised that point in January, and what you are doing is raising exactly the same point again’. Mr Munro said he did not understand that a specific ruling had been made on the point, and, in any event, it did not have to be so stark, as there was a variety of options open to the Master. The Master said that as some of the claims were disputed, he was not sure the scheme would have helped. There was then an argument about whether or not the Defendant had agreed to settle the quality only claims at the first CMC in May 2102. Mr Mallalieu contended that the Defendant had offered to settle the quality only claims for £70,000, and that the Claimants had rejected that offer. The Master interjected that this dispute was only taking up court time. Mr Munro said ‘Well, if I cannot persuade you to make a ruling….’. The Master replied that he had already made a ruling. He had decided that the costs were disproportionate and that he was not going to be ‘bounced’ into deciding, either, that the Claimants should get no costs, or that their costs should be restricted to an arbitrary amount.
Mr Munro then withdrew from the hearing; Mr Robbins replaced him. Just before Mr Munro withdrew, Mr Mallalieu summarised, ‘for the benefit of the tape’, the Claimants’ answer to Mr Munro’s argument. The ABTA scheme was not remotely suitable, the Defendant never proposed it, the Claimants had proposed ADR and the Defendant did not take up that offer.
Mr Munro submitted to me that the Master was wrong to rule out his argument about ADR. It is difficult for me to evaluate this submission without the skeleton arguments for the January hearing, and without seeing the transcript of that hearing, because I do not know, either, exactly what Mr Munro argued, or what the Master decided in January. It is clear from the December transcript that Mr Mallalieu was submitting that Mr Munro had disavowed this argument in January and should not be allowed to raise it later, in December.
If I assume in Mr Munro’s favour that he was not precluded by his conduct during the January hearing from making this argument, I can see some force in his contention that the Master was wrong to rule out the argument Mr Munro attempted to raise in January. It seems to me that it could, on appropriate facts, be a distinct argument from the general argument that a failure to use ADR makes the costs as a whole disproportionate. It may be important, where there is more than one reason for a holding that the costs as a whole are disproportionate, for such an argument to be distinctly ruled on in a detailed assessment. I have been referred by Mr Munro to the decision of Master James in Briggs v First Choice Holidays and Flights Limited (case no: HQ11X02646). She held that 152 of the claimants in that case who had not used the ABTA scheme should be restricted to the costs of using the ABTA scheme and should not recover their base costs (some £456,000). I have not seen the skeleton arguments in that case, and know nothing about the underlying facts, other than that the ABTA scheme was referred to in those claimants’ contracts.
However, on the facts of this case, I consider that it would not have been open to the Master to hold (had he entertained the argument) that the quality only Claimants should, either, recover no costs at all, or be restricted to the costs of using the ABTA scheme. I consider that if a Defendant wishes to rely, at the stage of a detailed assessment, on the availability of an industry-specific ADR scheme, which is referred to in the relevant contract, but it is not binding, and is not expressed to oust the jurisdiction of the courts, the Defendant must make that clear in its pre-action protocol response. The Defendant did not do so here. The Defendant did not admit liability. The claims were robustly contested. Moreover, the Defendant did not respond to the Claimants’ offer of ADR. Had the Master concluded in this case that the Claimants should get no costs, or only recover the costs of using the ABTA scheme, such a conclusion, on these facts, would have been plainly wrong.
There was some dispute in the hearing before us whether Mr Mallalieu needed leave to put in a respondent’s notice to raise, before, us, the answer on the merits to Mr Munro’s argument based on ADR which I have considered in the above paragraph. I do not consider that I need to resolve this dispute, because I do not decide this ground of appeal on the basis of this reasoning. I decide it, instead, on the basis of the arguments set out in the amended grounds of appeal. The amended grounds of appeal represent the Defendant’s second attempt to define the issues for this appeal. They make no complaint that the Master erred by ruling out arguments on ADR which he should have considered. Rather, it complains that the Master ‘…failed to take into account properly or at all’ various factors, including that ‘…there were available ADR processes that should have been used, but the claimants were not advised about them, in breach of the solicitors’ duties to them’. It is clear to me from the transcript that the Master did take into account the availability of ADR both in making the finding of disproportionality and by indicating, in the course of the discussions to which I have referred, that he would bear it in mind in assessing the individual bills.
I make clear, nonetheless, that had it been necessary for me to consider the merits of the arguments on ADR, I would have had no hesitation in giving Mr Mallalieu leave to serve a respondent’s notice out of time in order to enable him to run those arguments. There would have been no injustice to the Defendant, as the outline of the arguments which I have accepted was described by Mr Mallalieu to the Master in the hearing (see above). The Defendant could not argue that it had been in any way taken by surprise by those points. It would have been, in my judgment, both futile and disproportionate to have acceded to Mr Munro’s invitation to remit these issues to the Master for him to consider them. I therefore dismiss this ground of appeal.
The judge rejected an argument that the Master had erred and allowed unnecessary costs.
The judge rejected an argument that the Master had erred in allowing two hours for a witness statement.
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