INTERIM PAYMENTS ON ACCOUNT OF COSTS IN HIGH VALUE CASES: THE IMPORTANCE OF CASHFLOW RECOGNISED IN SHEFFIELD
I am grateful to Jim Gladman from Switalskis, solicitors for sending me a copy of the approved judgment of HHJ Robinson in I -v- Hull & East Yorkshire NHS Trust (25th February 2019). A copy of that judgment is available here*. I – interim payment of costs. It contains important observations about the ability, and willingness, of the courts to order interim payments on account of costs in cases where (through no fault of the parties) the litigation is protracted.
“Failure to ensure adequate cash flow during the period of inevitable delay may lead to the perverse and undesirable consequence that solicitors are unwilling to take on case such as this at an early stage. It is everyone’s interests to determine liability as early as possible. But if the consequence is that solicitors must then fund the quantum investigation for 10 years or more, they may not be anxious to take the case on early”
The claimant was catastrophically injured at birth. He is now aged 11. There was judgment, after an approval hearing, for 90% of the claim.
THE EARLIER ORDER FOR AN INTERIM PAYMENT ON COSTS
When the agreement on liability had been approved there had also been an order for an interim payment on account of costs.
“6. On 10 December 2012 Griffiths-Williams J approved a liability settlement giving judgment on liability for 90% of the value of the claim. He also made an order for costs:
“The Defendant shall pay the Claimant’s reasonable costs to date, to be subject to detailed assessment in default of agreement and such costs to be paid within 28 days of the agreement or assessment.”
There was permission to dispense with Legal Aid assessment in the event of agreement as to costs on condition that the Claimant’s solicitors waived any right to further costs. An interim payment on account of costs was made in the sum of £100,000
THE SECOND APPLICATION FOR AN ORDER ON ACCOUNT OF COSTS
In September 2017 the claimant made an application for an interim payment and a further interim payment for costs in the sum of £150,000. The District judge approved the further interim payment for damages. The District Judge refused the application for a further interim order in relation to costs.
““There have been interim payments on account of costs already in the sum of £215,000. The Claimant has the benefit of an order dated 10.12.12 made on the determination of liability in his favour which entitles him to liability costs to be assessed if not agreed. He has chosen not to pursue that Detailed Assessment procedure in respect of those costs. Claimant now seeks a further £150,000 on account of costs. I am not satisfied that would not exceed a reasonable proportion of the costs to which the Claimant is entitled. I expressed the view the proper course is for the Claimant to follow Detailed Assessment of his liability costs in line with the order already made. I refused to exercise my discretion to make an order allowing the Claimant’s quantum costs in the absence of any order determining quantum.””
THE CLAIMANT’S SUCCESSFUL APPEAL
HHJ Robinson allowed the claimant’s appeal against the refusal for an interim payment on account of costs.
DOES THE COURT HAVE JURISDICTION TO MAKE AN INTERIM ORDER ON ACCOUNT OF COSTS
23.However, what is sought here is a costs order in respect of costs to date in respect of an on-going dispute which will not be determined for many years.
24. Mr Stacey submitted forcefully that such an approach is novel and not supported by any case law. He referred to McDonald v Horn  1 All ER 961 (CA) as an example of a rare instance where costs were ordered in advance. In that case, as the head note explains, the Plaintiffs were members of an occupational pension scheme. They sought a pre-emptive costs order requiring that their costs, and any costs which they might be ordered to pay to the Defendants should, win or lose, be paid on an indemnity basis out of the pension fund. The Judge made such an order. The Court of Appeal held that he had power to make such an order and that he had been right to do so. Mr Stacey also relied upon a dictum of Hoffman LJ (as he then was) which was applied in the later cases of R v Lord Chancellor, Ex P Child poverty Action Group and R v DPP Ex P Bull  I WLR 347. In those cases, Dyson J (as he then was) declined to make interlocutory orders in Judicial Review proceedings that, whatever the outcome of the proceedings, no order for costs should be made against the applicants. The dictum of Hoffman LJ relied upon was cited early in the Judgment of Dyson J at page 349F. Having stated that the general rule was that costs follow the event, he continued that this was:
“… a formidable obstacle to any pre-emptive costs order as between adverse parties in ordinary litigation. It is difficult to imagine a case falling within the general principle in which it would be possible for a court properly to exercise its discretion in advance of the substantive decision.”
25. I have no difficulty in accepting that proposition. But the order sought by the Claimant is very different from the orders sought in those cases. The Claimant’s argument is that the Claimant is virtually certain to recover costs to date. However, the date of a final costs order is still some three or so years away, and that will be 10 years after liability has been conceded. The estimate of costs expended so far by Switalskis alone exceeds £500,000. An additional £150,000, on top of the £50,000 already paid, is only a very modest payment on account of costs which are almost certain to be recovered. To that extent it seems to me that the Judge plainly fell into error in stating within Form 460 that she was not satisfied that an additional £150,000 “would not exceed a reasonable proportion of the costs to which the Claimant is entitled”, but that does not seem to me to have been the main reason for her refusal to make the order sought.
26. In support of the proposition that the court has power to make an order for the payment of a sum on account of costs, Mr Mylonas relies upon the group litigation case of Giambrone v JMC Holidays Ltd (unreported, 20 December 2002). In that case, numerous Claimants had fallen ill on holiday. Liability was admitted by the Defendant. In April 2000 there was a consent order for interlocutory Judgement with damages to be assessed together with “costs incurred up to the date of this Order be forthwith subject to detailed assessment if not agreed.” In February 2000 there had been a voluntary payment on account of costs in the sum of £200,000. The matter came before Moreland J (as he then was) in relation to issues arising out of the detailed assessment proceedings. By the time it came before Morland J, it was nearly three years since the original order for costs yet there still had been no detailed assessment of what was described as the Claimant’s first tranche of costs. As Morland J observed in paragraph 9 of his judgment;
“It had been envisaged that the claimants would be seeking second and third interim tranches of costs and then a final assessment of costs at the conclusion of the group litigation.”
27. He said this at paragraphs 10 to 12:
“10. In my judgment in almost all group litigation cases there should be no need for any detailed assessment of costs until the conclusion of the group litigation. Solicitors engaged in group litigation will be specialists and experienced in the field. Solicitors for claimants are fully entitled to an adequate cash flow from the defendants once the general issue of liability has been admitted or determined in the claimants’ favour, similarly on determination of generic issues in the claimants’ favour and on the assessment or settlement of awards of damages to individual or batches of claimants.
It is to be hoped that in most cases defendants’ Solicitors would agree to pay at various stages in the group litigation a realistic interim amount on account of a final detailed assessment of costs if necessary.
If agreement cannot be reached as to an interim payment of costs, it should be dealt with cheaply and shortly by the nominated trial Judge who will be familiar with the general issues in the case and the realistic overall size of the claim under his powers under CPR 44.3(8). The Costs Judge’s or District Judge’s powers are more limited although he may issue an interim costs certificate pending a detailed assessment (See CPR 47. 15).”
28. As I understand those passages, Morland J recognised that solicitors engaged in heavy and protracted litigation are entitled to expect “an adequate cash flow”. It is clear from paragraph 11 of his Judgment that voluntary interim payments are anticipated. However, in default of agreement, Moreland J anticipated that the Judge could exercise his powers under what was then CPR 44.3(8), which is the forerunner of what is now CPR 44.2 (8). The old rule read:
“Where the court has ordered a party to pay costs, it may order an amount to be paid on account before the costs are assessed.”
It is thus very similar to the current rule; the reference is to assessment rather than detailed assessment.
29. It is also clear that Morland J anticipated there being various costs tranches. The examples he gave concentrated on determination of generic issues and upon assessment or settlement of awards of damages to individual or batches of Claimants.
30. In my judgment, rules 44.2(1) and 44.2(2) are wide enough to allow the Court to make an order for costs of the kind sought by the Claimant:
The discretion conferred by rule 44.2(1) relates to the questions whether costs are payable, the amount and when the costs are to be paid.
Rule 44.2(2) sets out the general rule that the unsuccessful party pays the costs of the successful party.
Rule 44.6(c) gives the court power to order payment of costs “from or until a certain date only”.
THE EXERCISE OF THE DISCRETION IN THIS CASE
The judge considered the facts of this case, in particular the value of the case with a 90% finding was likely to lead to a lump sum in excess of £3 million and a PPO in excess of £150,000.
33. Since there is not yet any Part 36 offer from the Defendant, it is a virtual certainty that the Claimant will be entitled to his costs to date. It seems to me that the orders for interim payments in respect of damages represent an example of the sort of triggering events anticipated by Moreland J to give rise to a right to receive a tranche of costs.
The District Judge had been required to consider this issue amongst one of a large number of issues in a telephone application. She did not have the opportunity to consider all the relevant factors.
32. In addition, another very significant fact is the likely delay between determination of liability and determination of quantum. Failure to ensure adequate cash flow during the period of inevitable delay may lead to the perverse and undesirable consequence that solicitors are unwilling to take on case such as this at an early stage. It is everyone’s interests to determine liability as early as possible. But if the consequence is that solicitors must then fund the quantum investigation for 10 years or more, they may not be anxious to take the case on early. The delay is also an answer to the otherwise superficially attractive point made by Mr Stacey at paragraph 32 of his skeleton argument. He submits that Switalskis must have willingly undertaken the delay in payment until quantum and quantum costs were determined. There is some force in that point on the basis that quantum was expected to be determined in 2017, a delay of five years. But in 2012, no-one anticipated a delay of double that, namely 10 years.
THE RISKS OF OVERPAYMENT
The judge considered, and rejected, an argument that there was a risk of overpayment.
38. What of the point that a payment of £150,000 on account of costs, in addition to the £50,000 already paid, risks overpaying the Claimant’s solicitors? In my judgment there is absolutely nothing in that point. Litigation such as this is expensive to conduct. In my judgment there is no danger that the costs incurred by Switalskis down to September 2017 will be assessed at less than £200,000 inclusive of VAT. The worst-case scenario is that there will, in due course, be a Part 36 offer which the Claimant fails to beat following a contested trial. In such a case there is a risk that, following a costs set off exercise, the Claimant will still end up owing costs to the Defendant.
39. There are two answers to that point. The first is that it will never happen. A degree of caution is essential in cases such as these. There must always be sensible give and take. Cases at this level are conducted by extremely experienced Solicitors and Counsel. Undue risks are not taken. On the contrary, there is a danger of being too risk averse, but if the Claimant’s advisors are too cautious and seek to under-settle the case, the Judicial approval process acts as a check.
40. The second answer is that the primary remedy of the Defendant who has overpaid costs to the Claimant’s Solicitors is to deduct such overpayment from the Claimant’s damages. That is unattractive from the Claimant’s point of view, but provides the required protection in favour of the Defendant.
The judge allowed the appeal.
41. I must stress again the point that the hearing before me has been conducted very differently from the telephone hearing in the court below. Had District Judge Batchelor had the benefit of the arguments and analysis deployed before me, I have no doubt that she would have appreciated the point that detailed assessment of the liability costs was no answer to this application.
42. In the event I am satisfied that the Judge fell into error. I allow the appeal.
43. I will hear any submission as to the form of order. At present, and without the benefit of argument, I envisage making an order that the Defendant pay the Claimant’s costs to 22 September 2017 to be assessed on a basis to be determined at the conclusion of these proceedings or further order, with an order that £150,000 be paid on account of such costs.
*I have removed the name of the claimant. Permission has been obtained from the litigation friend to report the judgment.