COSTS, FATAL ACCIDENTS: THE DUTY TO INFORM THE CLIENT OF “UNUSUAL COSTS” AND WHEN THE BUDGET IS BEING EXCEEDED

February 21, 2022 · by · in Assessment of Costs, Costs, Fatal Accidents

The judgment of Senior Costs Judge Gordon-Saker in ST v ZY [2022] EWHC B5 (Costs) highlights many problem areas in relation to fatal accident litigation and the assessment of costs.  In particular it is prudent to take early steps to consider whether clients are entitled to bring a claim under the Fatal Accidents Act 1976. Further it is essential that clients are informed of “unusual” developments in relation to costs in litigation, in particular when the costs budget is being exceeded.

(The judgment also contains a passing reference to my book the Guide to Fatal Accidents – albeit by way of expression of the judge’s surprise that it was necessary for a fee earner to spend 48 minutes reading it…)

 

“I think it very surprising that a solicitor would not tell their client that the budget had been exceeded and that the costs in excess of the budget would not be recoverable. At that point the client is moving from pursuing a claim in which reasonable and proportionate costs will be recoverable to a claim where no further costs will be recoverable in respect of some or all of the phases.”

 

WEBINAR ON RECENT DEVELOPMENTS IN FATAL ACCIDENT

This case will be one of many looked at in a webinar on the 8th June 2022.” Recent Developments in Fatal Accident Cases”, booking details are available here.

THE CASE

C’s father was killed in a road traffic accident.  C’s mother instructed solicitors to act on behalf of her and her four children in relation to a claim under the Fatal Accidents Act, C was the only child of the four who was the child of the deceased father.  Separate proceedings had been issued by the former wife and children of the deceased father.  The two actions were consolidated.

The dependency claim of C’s mother and the other three children were discontinued. The action later settled, with damages being paid to the former wife and children and the C. No damages were paid to the estate.

THE REASON FOR THE DISCONTINUANCE

The judgment does not discuss the reason why the claim by C’s mother and the other children were discontinued.  However the likelihood is that these claimants did not come within the statutory definition of dependent.

  1. The mother would have to establish that she had been living in the same household with the deceased father as man and wife for at least two years prior to the death.
  2. Even if the couple had been cohabiting the children of cohabitees do not come within the statutory definition of “dependent”.  C’s brothers and sisters could not bring a claim under the Act.

THE ISSUES RELATING TO COSTS

“HH Judge Coe QC, sitting as a Judge of the High Court, ordered that the Defendant should pay ST’s costs of the claim “advanced only on behalf of [C] as a dependant and as an Administratrix of the Deceased’s Estate” and directed that the costs payable by ST to her solicitors “shall be assessed pursuant to CPR 46.4 and shall take place following the conclusion of the assessment or agreement of the Defendant’s liability for ST’s legal costs”.”

Inter partes costs had been agreed.  C’s solicitors were asking the court to assess solicitor and own client costs.  This would represent a major part of the damages paid to C.

WAS THERE AN ENFORCABLE RETAINER?

The judge held that there was an enforceable retainer between the solicitors and C.

  1. Anticipating the court’s concern, it was Mr Waszak who raised this potential issue in his helpful skeleton argument.
  2. The conditional fee agreement was dated 10th November 2016 and recorded that it was entered into between IM and ST “for and on behalf of the dependants of” the deceased. However the agreement was expressed to cover:
Your claim for damages arising from the death of [the deceased] caused by an accident on or around [date] which is made by you as a Dependant of the Deceased under the Fatal Accidents Act 1976.
  1. Mr Waszak accepted that this was poor drafting. While, on the one hand, the agreement was made with ST on behalf of the dependants of the deceased, the work covered by the agreement was, arguably, limited to the personal claim of ST.
  2. At paragraph 35 of his skeleton argument Mr Waszak set out the relevant principles applicable to the construction of contracts and, at paragraph 36, submitted that the court should prefer the interpretation which was consistent with business common sense. I accept that and, if necessary, I would conclude that the obvious intention of ST and IM was that the agreement would cover work done on a claim on behalf of ST and her dependant children.
  3. While Mr Waszak was concerned about the absence of a witness statement setting out the context in which the agreement was made, in my judgment there is sufficient evidence in IM’s file of papers to explain that context. The file notes and attendance notes prepared before the conditional fee agreement was entered into make it clear that the claim to be brought was for ST and her children.
  4. However I do not think that there is in fact an ambiguity which needs to be cured. It seems to me that “your claim” referred to the claim of “you” and “You, the client” was ST “for and on behalf of the dependants of” the deceased. There can be no issue that ST was able to enter into the contract on behalf of her children. “Your claim for damages” was therefore the claim of each of the dependants for whom ST was bringing a claim, including C.
  5. In my judgment there was therefore an enforceable retainer in respect of C’s claim for loss of dependency.
  6. Although not relevant to this issue, it seems to me that the conditional fee agreement did not cover work on behalf of the estate. [1]

DID THE BILL CONTAIN COSTS WHICH DID NOT FALL WITHIN THE SCOPE OF THE RETAINER

The next issue that had to be determined was whether the work being claimed for fell outside the scope of the retainer.

28.              A similar issue, whether costs were claimed which did not fall within the scope of the costs order, was raised in the Defendant’s points of dispute at general point 2. It was submitted that the bill had not been drawn so as to exclude the costs of the discontinued claims, that only 2 items in the bill had been divided to exclude discontinued elements and that, by way of example, all of the costs of drafting the particulars of claim, schedule of loss and list of documents were still being claimed.
29.              The reply to the points of dispute referred to the difference between common costs which are non-specific and which would have been incurred in any event and common costs which are specific and which are capable of identification and division. It was said that the bill did “not contain any specific costs relating to the discontinued claimed [sic]” and suggested that “these points are best addressed by the Court on a line by line basis”.
30.              During the hearing I told Mr Waszak that my view was that items were being claimed in the bill which related to the discontinued claims and for which C is not liable. Mr Waszak accepted that C is not liable to pay the costs of the claims of the other dependants. However, his instructions were that the costs claimed in the bill related to C’s claim only. Not having a complete copy of IM’s file, he was unable to address particular items.
31.              Because it is not in issue that the costs of the discontinued claims are not payable out of C’s damages, it is perhaps not necessary for me to attempt a detailed analysis of the relationship between C and IM. However, in the absence of anything in the conditional fee agreement which imposes a direct liability on C to pay IM’s costs, it seems to me that the correct analysis is that only ST is liable to pay IM’s costs. Although ST was not, I think, appointed as C’s litigation friend she should be entitled to recover the expenses that she incurred on C’s behalf. For the purposes of this assessment, only those costs which were incurred on C’s behalf would be payable out of the money belonging to C. That would include costs which, although incurred for a number of dependants, would have been incurred in any event. However it would not include costs which could be divided between the individual dependants and which related to the claims of the other dependants.
32.              The claims of ST and her other children for loss of dependency were discontinued on 15th November 2019. That was three years after IM were first instructed and six months before the claims were settled. Of the 1,529 items in the bill, 1,206 were incurred before 15th November 2019.
33.              There are obvious examples in the bill of work that is claimed which did not relate to C’s claim. For example in taking instructions from ST, time was spent in investigating her claims for loss of dependency and bereavement and the loss of dependency of her other children. Items 7 and 8 are an early example. Quite why it would be reasonable to charge for even a junior fee earner to spend 48 minutes researching the APIL Guide to Fatal Accidents to see who can bring a claim for loss of dependency and then spend 30 minutes considering an internal guidance note on fatal claims by the costs management team is unclear. Although all of this time should be disallowed anyway as unreasonable, much of it related solely to the separate claims of ST and the time should have been divided.
34.              As the Defendant points out, part of the time spent on the Particulars of Claim, schedule of loss and list of documents related to the separate claims of ST and her other children. The same can also be said of ST’s witness statement. Work was done on disclosure in relation to the discontinued claims; and also for the costs and case management conference when the claims were discontinued. Most of the instructions to counsel relate to the reasons for the discontinuance. I appreciate that in order to calculate the loss of dependency it would have been necessary to calculate the losses to the whole family and then apportion the relevant part to C. However there was clearly work done in relation to ST and the other children which would not have been needed had a claim been brought by C alone.
35.              No particular thought would appear to have been taken to separate out the costs for which C is not liable.

 

WAS WORK DONE UNREASONABLY?

The judge noted that work had been done outside the budget.
  1. It is not in issue in the assessment proceedings between the parties that the costs claimed exceed the amounts approved by the court in three phases of the budget:
  2. i)Issue/statements of case: the figure approved was £4,792.46, but £10,771.50 is claimed, an excess of £5,979.04.
  3. ii)Witness statements: the figure approved was £1,391.51, but £7,643.50 is claimed, an excess of £6,251.99.
iii)               ADR/Settlement: the figure approved was £12,452.85, but £31,526.50 is claimed, an excess of £19,073.65.
  1. The total claimed in excess of the budget is £31,304.68.
  2. Not surprisingly, in her points of dispute, the Defendant relied on CPR 3.18(b) which provides that on detailed assessment the court will not depart from the approved budgeted costs unless satisfied that there is good reason to do so.
  3. In their reply, filed on ST’s behalf, IM advanced no argument that there was a good reason to depart from the budget in relation to the issue/statements of case and ADR/settlement phases and offered to accept the approved figures. In doing so they conceded £25,052.69 which they now seek to recover out of C’s damages.
  4. In respect of the witness statements phase, a good reason was advanced. It was said in the reply that IM had to consider the witness evidence served on behalf of the Second Claimant and served two additional, but unexpected, witness statements. In fact, it is clear from the bill that little time was, or should have been, spent on this work. A total of 1.9 hours was spent reviewing the statements of the Second Claimant. The last two witness statements to be served, those of C’s grandparents, were 5 and 3 pages long. It is difficult to see how over £6,000 could be justified for this work. It is difficult to conclude that there is any realistic possibility that the court would have found a good reason to depart from the budget. Indeed, as Mr Waszak accepted in his skeleton argument [2] “it was largely assumed that the budget overspend would not be recovered from the Defendant”.
  5. CPR 3.15(5) provides that, save in exceptional circumstances, the recoverable costs of initially completing the costs budget should not exceed the higher of £1,000 or 1 per cent of the total of the incurred and budgeted costs and that the other recoverable costs of the budgeting and costs management process should not exceed 2 per cent of that total.
  6. In her points of dispute the Defendant complained that ST was claiming £11,038 in excess of these caps. Given that the total of the caps was £4,800, the total sum claimed in the bill for this work was nearly four times the caps. No exceptional circumstances were advanced in the reply. IM conceded the £11,038 which they now seek to recover out of C’s damages.
  7. I have seen nothing to suggest that any of this was explained to ST. In his skeleton argument Mr Waszak set out very carefully the costs information that was provided to her. [3] She was told that there would be a shortfall and the letters estimated what the shortfall would be. In March 2020, the month before the claim was settled, the shortfall was estimated at £43,500 plus value added tax.
  8. CPR 46.9(3) provides:
Subject to paragraph (2), costs are to be assessed on the indemnity basis but are to be presumed –
(a) to have been reasonably incurred if they were incurred with the express or implied approval of the client;
(b) to be reasonable in amount if their amount was expressly or impliedly approved by the client;
(c) to have been unreasonably incurred if –
(i) they are of an unusual nature or amount; and
(ii) the solicitor did not tell the client that as a result the costs might not be recovered from the other party.
  1. Mr Waszak submitted that the excess costs (over both the budget and the caps) were neither of an unusual nature nor of an unusual amount. I agree that they were not of an unusual nature. The excess costs were incurred in respect of the sort of work that would usually be done.
  2. Mr Waszak submitted that “unusual amount” should be read in the context of “unusual nature”. I can see no reason for that construction. It seems to me that the purpose of the rule is to apply the presumption that the costs were unreasonably incurred if they were unusual and the client was not told that they might not be recovered from the other party by reason of being unusual. Costs can be unusual either because of their nature (not of a type usually incurred) or because of their amount. Paying a brief fee of £50,000 when the usual fee would be £5,000 would be unusual and one can easily see that the solicitor should be at risk if the client is not informed that the fee might not be recovered because of that. The amount can be unusual without the nature being unusual.
  3. Mr Waszak also submitted that “unusual” should be read as being between solicitor and client. However that seems to me to ignore the purpose of the rule. To avoid the presumption the solicitor is required to explain to the client that the costs may not be recovered because they were unusual. “Unusual” must therefore be read in the context of a between the parties assessment. Of course we are not here concerned with costs which are merely “unreasonable”. A solicitor is not required to inform the client that particular costs may not be recovered because a court may conclude that they were not reasonably incurred or reasonable in amount.
  4. Finally Mr Waszak submitted that the costs overall were not unusual. That, it seems to me, is not the test. The question is whether particular costs were unusual in nature or amount. There is unlikely to be a case where all of the costs are unusual in nature or amount.
  5. Were the excess costs unusual in amount? In my judgment they were. In approving the budget at £53,401.72, rather than at £147,981.50, [4] the court arrived at the figures which it considered would be reasonable and proportionate to take the case to trial. In respect of issue/statement of case, that reasonable and proportionate figure was exceeded by over 100 per cent. In respect of witness statements, the reasonable and proportionate figure was exceeded by over 400 per cent. In respect of ADR/settlement, the reasonable and proportionate figure was exceeded by over 150 per cent. These figures are so far over what they should be, and what the court has already decided that they should be, that they must be unusual in amount.
  6. I accept that IM did tell ST throughout that there would be costs which would not be recovered from the Defendant and which would be deducted from the damages. At the initial discussion about funding [5] ST was told that:
“we would hope to conclude this case without incurring any significant amount of costs and so hopefully any shortfall will not equate to much in relation to the compensation”.
  1. In the costs update letter dated 12th July 2019 IM wrote:
“Now that your case has been issued in Court, it is possible that the Court will set a budget which limits the amount of costs that the parties would have to pay to each other.  We will advise you of this further if and when it arises.”
  1. In the costs updates ST was given specific estimates of what the shortfall would be. In March 2020 the estimate was £43,500 plus value added tax. The shortfall claimed is £53,719.16 including value added tax, so the final estimate before settlement was very close. I have found nothing to suggest that ST was told about the budget or about the effect of the budget.
  2. To avoid the presumption applied by CPR 46.9(3)(c), the solicitor must tell the client that as a result the costs might not be recovered from the other party. That must mean as a result of their unusual nature or amount. Telling the client that some costs might not be recovered from the other side is not sufficient. ST should have been told that the budget was being exceeded by a wide margin and that, as a result, those costs might not (and, indeed, almost certainly would not) be recovered from the other side.
  3. Accordingly, in my judgment, the costs in excess of the budget and in excess of the caps imposed by CPR 3.15(5) are to be presumed to have been unreasonably incurred.
  4. I should add that I think it very surprising that a solicitor would not tell their client that the budget had been exceeded and that the costs in excess of the budget would not be recoverable. At that point the client is moving from pursuing a claim in which reasonable and proportionate costs will be recoverable to a claim where no further costs will be recoverable in respect of some or all of the phases.
  5. Instead IM appear to have been happy simply to ignore the budget and incur costs which they would or should have known would not be recovered from the Defendant.
Approval of the between the parties settlement
  1. Settlement at £132,000 (including interest and the costs of detailed assessment) of a bill of £187,506.24, represents a substantial reduction. However the budget and capped excesses alone amounted to £42,342 which would not have been recoverable and there clearly would have been substantial reductions in respect of the hourly rates and time claimed. The figure that has been agreed is, from C’s perspective, reasonable.
  2. As I have concluded that there is an enforceable retainer, there is no impediment to approving the settlement of the costs between the parties.
The way forward
  1. The bill still needs to be the subject of a detailed assessment between IM and C, at which, inter alia, I will need to make a decision as to which costs should be disallowed because they do not fall within the scope of the retainer. IM may consider it helpful to redraft the bill to exclude those costs.
  2. In the meantime IM should consider seeking directions as to the investment of the damages payable to C.
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