COST BITES 21: RECEIVING PARTY NOT CONFINED TO PROVISIONAL ASSESSMENT COSTS WHEN THE BILL SETTLES FOR LESS THAN £75,000: “IT WAS WITHIN THE DEFENDANT’S GIFT TO MAKE A REALISTIC PART 36 OFFER”

In  UK Sovereign Investments Ltd v Hussain [2022] EWHC 2390 (SCCO)Deputy Costs Judge Campbell rejected an argument that a receiving party’s costs should be confined to provisional assessment costs when the parties had agreed those costs at £59,000. The case is a reminder that the best way for a paying party to protect themselves is to make a realistic, and early, Part 36 offer.

“it was within the Defendant’s gift to make a realistic Part 36 offer at an early stage which would have put the Claimant at risk at to costs going forward, were the sum allowed at detailed assessment to be less the offer.  As it seems to me, what the Defendant is trying to do now is to have a second bite of the cherry, having failed to make an offer under Part 36 which could have achieved exactly what he is asking the court to do now, namely to make a different order to the default order to be found in CPR 47.20.”

THE CASE

The claimant obtained an order for damages of £103,816.62 plus costs.  Detailed assessment proceedings were commenced, the claimant seeking £83,425.18 in costs. Those costs proceedings were resolved by the parties agreeing a sum of £59,000.

THE ISSUE RELATING TO COSTS OF THE ASSESSMENT

The parties could not agree the costs of the assessment process. The defendant’s case was that, since costs had settled at less than £75,000, this indicated that the bill should always have been subject to detailed assessment and costs should be confined to £1,500 plus VAT and the court fee.

THE SUBMISSIONS OF EACH PARTY

The defendant argued that there should be a departure from the principle that the receiving party pay the claimant’s costs.

4.                  In the Defendant’s submission, there should be a departure under CPR 47.20(1)(b).  The case is put on the following basis.

i)                   Bills up to £75,000 are dealt with as provisional assessments: see CPR 47.15(1) and PD 14.1 to CPR 47.15.

ii)                 In proceedings which do not go beyond provisional assessment, the maximum amount which the court will award to any party as costs of assessment is £1,500 plus VAT and any court fees paid.

iii)               The Claimant’s bill exceeded £75,000 only because it had been “grossly exaggerated” with “unreasonable conduct” which had removed the assessment from the “provisional regime” in CPR 47.15, and into the “detailed regime” in CPR 47.14 (for want of better descriptions).  Within the latter, no such costs cap exists, and the receiving party can recover whatever sum it is reasonable, necessary and proportionate for the paying party to pay.

iv)               The eventual recovery of £59,000 of which £4,023.04 was accrued interest, is indicative that the original claim in the bill was grossly excessive and disproportionate

v)                  Taking all these factors into account under CPR 47.20, it would be unreasonable for detailed assessment costs rather than provisional assessment costs to be visited on the paying party, where, but for the exaggeration and the unreasonable conduct, this would have been a bill for under £75,000.  In that eventuality, the bill would have been subject to provisional assessment, thereby limiting the defendant’s liability to £1,500, plus VAT, plus the court fee.  In these circumstances, the claimant should not be permitted to recover costs in excess of that figure.

5.                  The Claimant disagrees.  Its case is that the settlement reflected the following:

i)                   The wish to achieve finality through a result which was not susceptible to appeal.

ii)                 To avoid the expense and inconvenience of attending a hearing since the Claimant’s costs lawyer was based in Manchester.

iii)               To reflect the risk that a point (or points) of principle might go against it at the hearing, for example, that the Defendant’s argument that the costs associated with interim applications were not recoverable: an adverse finding on that point would have significantly reduced the recoverable costs.

iv)               That the provisional assessment scheme is self-contained.  The Rules governing the scheme interact with and complement each other.  The costs cap reflects that the provisional assessment process includes no oral hearing, and that only limited papers need to be filed in advance of the unattended hearing.

v)                  Without assessing the bill, the court was not and cannot have been in a position to make any ruling about exaggeration.

THE MASTER’S CONCLUSION IN FAVOUR OF THE CLAIMANT

The Deputy Master accepted the claimant’s submissions on this point.

6.                  I do not accept the defendant’s submissions for the following reasons:

i)                   Without having carried out a detailed assessment of the bill, after hearing full argument, I am not in a position to make a finding that the figure advanced in the bill was one that was exaggerated, and that the Claimant’s conduct had been “unreasonable conduct”.

ii)                 In this context, I do not regard the fact that the bill was claimed £83,000 odd, but the matter settled for £59,000 leads to an irrebuttable inference that the costs claimed must, accordingly, have been exaggerated.  There may have been many reasons why the Claimant was willing to discount the bill about which the court does not know and will never be told.  However, it is reasonable to surmise that this would be for one or more of the following reasons:

a)                  to reflect a discount for risk, since a receiving party rarely, if ever, recovers every pound claimed;

b)                 that the Claimant wanted accelerated receipt of the money to be able to use it now, for example, to pay down a debt or loan;

c)                  that the Claimant merely wanted finality;

d)                 or simply, that the solicitors had advised that the points of dispute were arguable and if things went the Defendant’s way on the day, an offer of £42,500 inclusive of interest and costs of assessment made on 27 July 2021, might not be beaten, thereby putting the claimant at risk as to costs.

Taking these factors into account, I am not persuaded that the Claimant’s costs should be limited to £1,500, plus VAT, based upon an allegation of exaggeration and misconduct about which the court can make no finding because the matter settled.

iii)               I regard it as a factor in favour of the Claimant and against the Defendant that the former accepted in settlement, a figure much closer to its own Part 36 offer of £60,000 made on 25 July 2022, than the sum of £42,500 inclusive of interest and costs advanced by the Defendant.  Put another way, it was within the Defendant’s gift to make a realistic Part 36 offer at an early stage which would have put the Claimant at risk at to costs going forward, were the sum allowed at detailed assessment to be less the offer.  As it seems to me, what the Defendant is trying to do now is to have a second bite of the cherry, having failed to make an offer under Part 36 which could have achieved exactly what he is asking the court to do now, namely to make a different order to the default order to be found in CPR 47.20.

iv)               I agree with the Claimant that rule 47.15 is self-contained in the sense it does not say what the Defendant wants it to say, namely that if a bill is brought in for assessment at over £75,000 but is allowed at less than that figure, it means that it was obviously exaggerated, so provisional assessment costs must apply.  On the contrary, the rule says no such thing, in circumstances where it would have been open to the rule makers to provide that where a bill was reduced under £75,000, the receiving party would only be entitled to provisional assessment costs rather than, as here, to detailed assessment costs. 

7.                  For all these reasons, I prefer the Claimant’s submissions, so that its costs are not limited or capped in the manner contended for by the defendant.

TAKING INTO ACCOUNT PART 36 OFFERS WHICH WERE NOT “BEATEN”

Kerry Underwood has already commented that the judgment taking into account Part 36 offers which were not beaten may be a surprising aspect of the case.   There may be a risk of resurrecting “near miss” arguments and the like.

There is an argument that CPR 44.4, which deals with the factors in deciding the amount of costs, includes:

(3) The court will also have regard to –

(a) the conduct of all the parties, including in particular –

(i) conduct before, as well as during, the proceedings; and

(ii) the efforts made, if any, before and during the proceedings in order to try to resolve the dispute;

Arguably offers made, including Part 36 offers, are part of the “conduct of the parties”.

More significantly, however, the judgment emphasises the point that the best way for a paying party to protect themselves is to make a realistic Part 36 offer which puts the receiving party at risk.