COSTS & CASH FLOW: PAYMENT ON ACCOUNT PART WAY THROUGH AN ACTION: INTERIM PAYMENTS AND COST EFFECTIVE CONDUCT OF LITIGATION (ITS THE POST OFFICE CASE AGAIN)
The one certainty in litigation at the moment is that the Bates -v- Post Office case is going to keep providing plenty of material on evidence, procedure and costs. We see this in the judgment Bates & Ors v Post Office Ltd (No.5 : Common Issues Costs) [2019] EWHC 1373 (QB) where detailed consideration is given to issues of costs.
“…. regardless of who is funding litigation, a funder or an individual litigant, cash flow is a relevant consideration for most litigants.”
THE CASE
The claimants had succeeded on a number of issues at a trial of preliminary issues and obtained an order for costs. The court considered the correct approach to the amount to be awarded and whether there should be a detailed assessment at this stage.
THE JUDGMENT: COSTS TO BE AWARDED NOW
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This latter point about timing is an important one, in my judgment. The rationale for the Post Office seeking to have me reserve the costs is said to be that greater knowledge of who has in fact won (and by extension, by how much) will be much clearer after further trials. That is true in one sense, but applied rigidly it would mean that no costs orders would (or on the Post Office’s submissions, should) be made until the very end of the litigation, some time in the uncertain future. I do not consider that is the correct approach.
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The Common Issues that were resolved in Judgment No.3 go centrally to the first head of relief sought as a declaration in the Particulars of Claim. They also govern the entire basis of the contractual relationship between the different sub-postmasters and sub-postmistresses (“SPMs”), who are the claimants in the Group Litigation, and the Post Office. They were packaged as a separate and distinct group of issues at an early stage and the exact drafting and selection, though guided and assisted by the court, was effectively done by the parties themselves. They are the foundation of the parties’ contractual relationships.
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In my judgment, it would not be consistent with the principles included in CPR Part 44, CPR Part 46.6, or even the overriding objective in CPR Part 1.1 itself, to reserve the costs of the Common Issues. CPR Part 1.1(2)(a) requires the court, in order to deal with a case justly and at proportionate cost, to ensure that the parties are on an equal footing. The claimants would not be on an equal footing with the Post Office, a publicly funded body, if I reserved the costs of the Common Issues trial until the very end of the litigation.
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I take comfort from the dicta of Lightman J in de Jongh Weill v Mean Fiddler [2003] EWCA Civ 1058, at [29]. I refer to this case because both parties have addressed extensive submissions, both oral and written, on this authority. The issue on that appeal was identified in the following terms:
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“The issue raised on the Claimant’s appeal as to costs is whether the Judge’s exercise of discretion refusing to make an immediate order for costs in favour of the Claimant in respect of the trial of the issue of liability and postponing any order in respect of such costs until after the trial of remaining issue was clearly wrong or so flawed to be open to challenge.”
“Whilst in the exercise of his discretion the Judge could have made, and indeed might well have been expected to make, an immediate order for the payment to the Claimant of the costs of the trial of the issue of liability or at least a proportion of those costs (leaving the question of entitlement to the remainder over until later), with some hesitation I reach the conclusion that on this appeal it is not possible to say that the Judge’s decision was clearly one which he was not entitled to reach.”
(emphasis added)
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The reason for identifying that passage is that it makes it clear, not only that a judge’s discretion extends to the ability to make an immediate order for payment of costs to a successful claimant who has been successful on a package or raft of issues, but in some circumstances the judge might, as it is put in the emphasised passage, even be expected to make such an order.
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I certainly do not consider that it would be wrong in principle to make such an order for costs now, rather than reserving them as the Post Office seeks. I have a broad discretion, and in the exercise of that discretion I decline to reserve the costs and will go on to consider the next applications by the Claimants, which only arise in the event that I decided not to reserve the costs. I do not however consider that the presence of litigation funding should sway this decision one way or the other. I agree with Mr Cavender that the presence of such funding should not put a claimant in a better position vis-à-vis the correct stage in litigation at which costs should be addressed, compared to a non-funded party. However, regardless of who is funding litigation, a funder or an individual litigant, cash flow is a relevant consideration for most litigants. It is a consideration that might weigh less heavily upon publicly funded bodies such as the Post Office, but even such entities are likely to be concerned to some extent with cash flow.
THE AMOUNT TO BE PAID
The judge then considered the amount to be paid
Interim payment on account
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I turn therefore to the correct amount to be ordered to be paid by the Post Office on account to the Claimants.
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There was a Cost Management Order made in this case dealing with all the Common Issues costs from 13 April 2018, taking account of all the relevant modern principles, and this order was reached after a Costs Management Hearing which ended up taking three days in total.
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The principles concerning costs to be paid on account are in fact most usefully encapsulated in a decision, again of Coulson J (as he then was) in MacInnes v Gross (No. 2: Costs and Consequential Matters) [2017] EWHC 127 (QB). Between [19] and [18] the correct approach is identified when one is considering an interim payment on account of costs. These continue:
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“[23] There was no dispute between the parties that I should make an interim order on account of costs. However, there was a significant difference between the parties as to the amount of that order. The first defendant’s approved costs budget was in the sum of £570,000. He originally sought an interim payment of £605,000, being 95% of the approved costs budget (£540,000) together with an additional £65,000 to reflect the fluctuations in exchange rate and interest. During the oral submissions, the latter figure was reduced to £30,000 to reflect interest only, so that the first defendant asked for the sum of £570,000 as an interim payment on account of costs.
[24] The claimant proposed a payment on account of just £375,000. This was principally because the claimant argued that the first defendant would not necessarily recover the amount of his costs budget at the detailed assessment stage. At one point during his submissions, Mr Mansfield said that, when the costs are assessed by the costs judge, that assessment ‘will start from scratch’. He also said that in any event the first defendant had incurred considerably more than the figure in his approved costs budget. It appears that the first defendant’s costs are now said to be £956,279.06.
[25] I reject Mr Mansfield’s submission on the materiality of the costs budget figure. In my view, the first defendant’s approved costs budget is the appropriate starting point for the calculation of any interim payment on account of costs. CPR 3.18 makes plain that, where there is an approved or agreed costs budget, when costs are assessed on a standard basis at the end of the case, “the court will…not depart from such approved or agreed budget unless satisfied that there is good reason to do so.” The significance of this rule cannot be understated. It means that, when costs are assessed, the costs judge will start with the figure in the approved costs budget. If there is no good reason to depart from that figure, he or she is likely to conclude the assessment at the same figure: see Silvia Henry v News Group Newspapers Ltd [2013] EWCA Civ 19.
[26] One of the main benefits to be gained from the increased work for the parties (and the court) in undertaking the detailed costs management exercise at the outset of the case is the fact that, at its conclusion, there will be a large amount of certainty as to what the likely costs recovery will be. One consequence is that, for the purposes of calculating the interim payment on account of costs, the starting point will almost always be the payee’s approved costs budget.”
“[27] So when making an interim payment on account of costs in a case with an approved costs budget, the days of the educated guesswork identified by Jacob J in Mars UK Limited v TeKnowledge Limited [1999] 2 Costs LR 44 are now gone. Instead the court can be confident that there is a figure for costs which, because it has already been approved, is both reasonable and proportionate.”
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In this case the costs management order was not made until 13 April 2018. So the costs fall to be considered in two different tranches. One is the costs of the Common Issues trial from 13 April 2018 to date. The claimant has explained and provided information demonstrating in broad terms that the sum of £3.1 million has been incurred, that figure being exclusive of VAT.
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I have to take account of the fact that I have only ordered 90% of the costs of the Common Issues to be recoverable by the claimants. Therefore, using figures without VAT and without the 1% budgeting costs (though I will expect those arithmetic exercises to be agreed by the parties and included in the order) I award as a payment on account from the Post Office to the Claimants in respect of the Common Issues from 13 April 2018 a figure which is £3.1 million multiplied by 90%, which is £2.79 million. To that figure should be added VAT and the 1% figure that I have identified.
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I then come on to deal with incurred costs as at 13 April 2018 attributable to the Common Issues, in other words the incurred (as opposed to the future budgeted) costs as at that date. The total I am told by the Claimants is £3.284 million in approximate terms. The Claimants have sought an interim payment of 60% of that figure on the basis that on a standard assessment they would not expect to recover the full amount. I have in fact ordered only 90% of their costs to be recoverable and so a necessary reduction will have to be made to that.
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A point arose in the submissions lodged by the Post Office’s solicitors that Common Issues costs could only run from the date that the Common Issues were ordered, which was the date of the first CMC. The point is that there can be no allowance for any Common Issues costs prior to the making of that order. It is also said that a precise figure is required for the work on the Common Issues as at the date of the first CMC.
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Mr Cavender for the Post Office points out that no information has been provided from the Claimants in response to those submissions, which were lodged on 29 March 2019, and it is for the Claimants to demonstrate what the costs were as at that date. He submits that this is a strong point in the Post Office’s favour because what he described as a lacuna in information ought not to be held against the Post Office. He submits it could potentially lead to difficulties in the future if the payment on account to the Claimants is in excess of the amount to which upon detailed assessment the Claimants might be entitled.
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That submission has a little less force when the current position is that the Post Office is objecting to a detailed assessment commencing now. That timing point was in issue, but has rather gone away during the course of the hearing itself. But even taking the submission at face value, Mr Warwick for the Claimants explained that about £2 million worth of work was done between the date of the first CMC and 13 April 2018 and almost the entirety of that work, he says, must have been work on the Common Issues because the Horizon Issues had not at that point been identified.
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Taking all of that into account, these are the sorts of points I find that ought, can and no doubt will be taken on a detailed assessment. I have to decide the figure for an interim payment on account of costs for those incurred costs prior to 13 April 2018 attributable to the Common Issues. I am not fixing the amount with precision and finality.
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Taking 90% of the £3.284 million to reflect my costs order and then applying the 60% figure which Mr Warwick accepted should be applied, and performed at my request in court, one arrives a figure of £1.77 million. I round these up to the round tens of thousands of pounds for the purposes of these payments on account. I am confident that the 60% reduction that was originally proposed by the Claimants is more than sufficient to ensure that there is no overpayment likely in this case. The precise figure for the Claimants’ costs will be arrived at either by agreement, or upon a detailed assessment on the standard basis.
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I therefore order a payment on account to the Claimants for that period of £1.77 million. To that figure has to be added VAT and the 1% budgeted amount. Neither VAT nor the 1% should be rounded up to the nearest £10,000 because there will be arithmetically calculated figures to the nearest pound. Just to be clear, the amounts that I have ordered as payments by the Post Office to the Claimants on account of the Claimants’ costs of the Common Issues are £2.79 million on account for budgeted costs together with VAT and the 1%; and £1.77 million for incurred costs up to 13 April 2018, together with VAT and the 1%. The overall total, excluding VAT and the 1% figure to which I have referred, is £4.56 million. Those amounts do however have to be added, and the parties can agree the arithmetic between them.
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Detailed assessment of the Claimants’ costs of the Common Issues
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Although at one point the Claimants sought an order that detailed assessment of their costs be commenced immediately, that application was withdrawn during the hearing. Given the Claimants in any event are to obtain the benefit of the interim payments detailed above, whether a detailed assessment were to commence now, or later in the litigation, became a matter for the Post Office. Their counsel made it clear that they sought no particular order in this regard that detailed assessment commence immediately. Accordingly, this disappeared as an issue that required resolution by the court. If the parties were to agree, of their own volition, to commence the process of detailed assessment of the Claimants’ costs (which process has costs implications of its own) then the detailed assessment could commence whenever such agreement were reached. Even though this is Group Litigation, I am not minded to impose the process of detailed assessment upon the parties now, in the absence of either party requesting it.
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One point that did prove contentious however, after the hearing of 23 May 2019 and during preparation of this judgment containing detailed reasons for the orders made, was whether all of the Claimants’ costs should be subject to detailed assessment, or just those that were incurred prior to the making of the Costs Management Order on 13 April 2018. This only arose when the parties were seeking to agree the precise terms of the actual Order made by me on 23 May 2019. The Post Office maintained that detailed assessment should be included for all of the Claimants’ costs, because all of the Claimants’ costs were to be subject to detailed assessment. The Claimants argued that the order actually made did not require detailed assessment of its budgeted costs, and no detailed assessment should be ordered of those costs. Both sides lodged written explanation of their respective positions by e mail, explaining why an order in agreed terms had not been produced.
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I enquired whether either party wished to have a short further hearing for oral submissions on this point, which had not been argued before me on 23 May 2019. In so far as the point was raised at all, it was only implicitly and by reference to what budgeted costs represented, and how the budgeted figures could and should be used for payments on account. Neither party sought a further hearing and both sides were content for me to resolve the point based on their written submissions.
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The submission made by the Claimants that their budgeted costs should not be subject to detailed assessment is, in my judgment, a bold one. It arises, I consider, from a misunderstanding of what a “payment on account” is for, or means, or perhaps more accurately, upon what event costs are being paid “on account”. A certain lack of precision crept into the parties’ respective submissions on costs generally. I have dealt at [14] above with the Post Office’s submission (which I rejected) that there were no special rules concerning costs for group litigation; that submission was incorrect, and there are. This particular submission by the Claimants is also incorrect, and overlooks the provisions of CPR 44.6, which clearly states that “where the court orders a party to pay costs to another party (other than fixed costs) it may either (a) make a summary assessment of the costs or (b) order detailed assessment of the costs by a costs officer.” The effect of making an order in the terms sought by the Claimants would be that there would be neither summary, nor detailed, assessment of the Claimants’ budgeted costs at all.
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Neither party asked me to make a summary assessment of the Claimants’ costs of the Common Issues trial, and if one party had done so unilaterally, I would have rejected such a request for obvious reasons. The costs of a major trial that took many months to prepare, and several weeks in court, are wholly unsuitable for summary assessment. Had all the parties jointly asked me to do so, I would have taken some persuading, but a consensual request would have been considered in a different light.
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Further, seeking a payment “on account” implicitly (if not expressly, by the use of the term “on account”) seeks or includes within it the concept of a further, final order, in respect of what the costs definitively are. That would conventionally be reached at the end of a detailed assessment (absent agreement). That is performed by a costs officer or costs Judge. It is not the same as arriving at a figure for the payment upon account.
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The Claimants agree that at the hearing of 23 May 2019 an “order [was] made for an interim payment on account of both budgeted and pre-budgeted costs and the amounts in which that was ordered”. The phrase “on account” makes it clear what was being ordered. Without any assessment, the question could be posed “on account of what?”
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The Claimants also submitted, after the hearing when this disagreement was ventilated, that “while budgeted costs are ordinarily subject to detailed assessment, the costs Judge may only depart from the approved budget if there is good reason to do so: CPR r.3.18. Save to the extent the Claimants’ incurred costs were a little less than the approved budget (c.£300,000 – 10% under budget), no good reason was made apparent at the hearing.” Two points arise from that. Firstly, it is for the costs Judge to consider departures from the approved budget, and whether there is a good reason. Although I am sure that a trial Judge can indicate his or her views on costs incurred, budgeted costs, and any good reasons, I do not consider that either the presence or absence of good reasons in this case was argued before me, nor do I consider that I expressed any view on the matter on 23 May 2019. Budgeted costs are considered, for the purposes of detailed assessment, in different categories and different phases of the trial. The approach on 23 May 2019 was to consider the overall total of costs incurred for the budgeted period, and the budgeted amount only. No further argument, or consideration, was given to the matter.
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Finally, costs budgeting – and the dicta in the authorities make this clear – is not intended to replace entirely either detailed or summary assessment. In MacInnes v Gross [2017] EWHC 127 (QB) Coulson J (as he then was) stated, in a passage already quoted above:
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“[25] I reject Mr Mansfield’s submission on the materiality of the costs budget figure. In my view, the first defendant’s approved costs budget is the appropriate starting point for the calculation of any interim payment on account of costs. CPR 3.18 makes plain that, where there is an approved or agreed costs budget, when costs are assessed on a standard basis at the end of the case, “the court will…not depart from such approved or agreed budget unless satisfied that there is good reason to do so.” The significance of this rule cannot be understated. It means that, when costs are assessed, the costs judge will start with the figure in the approved costs budget. If there is no good reason to depart from that figure, he or she is likely to conclude the assessment at the same figure: see Silvia Henry v News Group Newspapers Ltd [2013] EWCA Civ 19.
[26] One of the main benefits to be gained from the increased work for the parties (and the court) in undertaking the detailed costs management exercise at the outset of the case is the fact that, at its conclusion, there will be a large amount of certainty as to what the likely costs recovery will be. One consequence is that, for the purposes of calculating the interim payment on account of costs, the starting point will almost always be the payee’s approved costs budget. Another consequence is that the court assessing the interim payment can ignore the fact that, as here, there may have been significant expenditure on costs by the payee above the budget figure: any increase is a matter for the costs judge and the relatively onerous burden of recovering more than the budget figure is on the payee: see Elvanite Full Circle Ltd v AMEC Earth & Environmental (UK) Ltd (No 2) [2013] EWHC 1643 (TCC).”
(emphasis added)
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In Excalibur Ventures LLC v Texas Keystone Inc and others [2015] EWHC 566 (Comm) at [15] to [22] Christopher Clarke J (as he then was) considered payments on account and the concept of the “irreducible minimum” for a payment on account, and stated at [23] the following:
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“What is a reasonable amount will depend on the circumstances, the chief of which is that there will, by definition, have been no detailed assessment and thus an element of uncertainty, the extent of which may differ widely from case to case as to what will be allowed on detailed assessment. Any sum will have to be an estimate.”
(emphasis added)
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The passages emphasised in the two authorities above only make sense if they are read, as in my judgment they must be, as dealing with a payment of costs on account of a detailed assessment. Costs budgeting did not create a “third way”, ignoring the requirements of CPR 44.6. Finally, the notes at CPR 3.18.1 makes this clear by stating:
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“This rule explains the effect which costs management should have when, on the conclusion of proceedings, one party is awarded costs against another and the amount of those costs cannot be agreed and so they fall for assessment by the court“.
That assessment must mean either summary, or detailed, assessment.
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I therefore consider that detailed assessment is required of the costs that the Claimants have been awarded, both before and after the date of the Costs Management Order. This should be included in the order itself reflecting what was ordered on 23 May 2019. However – and even this seemed to be controversial – separate paragraphs should be included in the order drawn up, one dealing with the payment on account of the costs incurred prior to the costs management order, and another dealing with the budgeted costs. This is because the costs Judge will only be assisted by having the different amounts of costs, one subject to the costs budgeting regime and the other before that, identified clearly. The exercise of detailed assessment will also be performed differently in respect of costs that were included in the Costs Management Order.
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The court is usually assisted by the parties themselves, particularly when represented by many counsel, drafting the order themselves in agreed wording. It should be rare that disputes over the actual wording occur. I would therefore be grateful for an order in agreed terms to be submitted for my approval.
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JUDGE’S OBSERVATIONS ON COST EFFECTIVE CONDUCT OF THE LITIGATION
Cost effective conduct of the litigation
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The parties were ordered, prior to my appointment as Managing Judge, to engage in costs reporting to the court whenever their costs increased by £250,000. I approved, in paragraph 14 of the 4th CMC Order dated 5 June 2018, a request by both the parties that this reporting threshold be increased to £500,000, as their costs were increasing at such a rate that the lower incremental required reporting to the court more often than they wished.
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I have expressed concerns on different occasions before about cost effective conduct of this litigation. Those concerns have simply increased during the course of 2019. The most recent notification from the Post Office’s solicitors to the court in respect of costs was on 13 May 2019. That notified the court that the Post Office’s own costs had, as at that date, exceeded £12,800,000. Since that date, the Post Office has agreed to pay the Claimants £300,000 in respect of the Claimant’s costs of the recusal application, although the figure of £212,000 in respect of the Post Office’s own costs of that failed application will (or should be) included within the £12,800,000. On any view, the Post Office’s own costs will now be in excess of £13 million. The Claimants’ costs are also high. In a letter dated 5 June 2019, therefore after the costs hearing but before the handing down of these reasons, the Claimants’ solicitors notified that the total of their costs now exceeded £12.6 million, although that will be ameliorated to the extent of the interim payments on account to the Claimants I have ordered of £4.56 million above plus VAT and 1%, which the Post Office has 21 days to pay. Both sides are therefore spending similar sums by way of costs, and both sides’ costs are of a high level.
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The Group Litigation is part of the way through the Horizon Issues trial, and even though that trial has been interrupted in circumstances that have been well canvassed, during a trial is not the time for a detailed discussion with the parties about the level of their expenditure on litigation costs, even though that trial started on 11 March 2019. However, once that trial is over, the parties should be prepared for a further and detailed costs management discussion with the court. Costs of this order cannot pass without comment.