COST BITES 37: DRAFTING THE SCHEDULE FOR SUMMARY ASSESSMENT: DEFECTS, DEFAULTS AND REMEDIES
The judgment of Tribunal Judge Amanda Brown KC in Harris v Revenue and Customs (COSTS – complex track application for idemnity costs on the basis of unreasonable behaviour – application in response to strike out for failure to meet terms of rule 10(3)(b) (schedule of costs)) [2022] UKFTT 447 (TC) relates to a specific construction of the Tax Chamber rules. However it also contains much of general interest in relation to the summary assessment of costs and the consequences of failing to file a compliant schedule. The relevant case law, under the Civil Procedure Rules, is considered in detail.
“… summary assessment is the procedure by which a court may, having made an order for a party to pay costs of a case, determine the amount of such costs. It is usually carried out by the judge hearing the matter. It is not intended to involve a lengthy consideration of each item of costs claimed but, rather, represents a proportionate means of justly, fairly and swiftly resolving the question of costs without the need for further costly proceedings regarding the costs themselves. In colloquial terms it is a somewhat rough and ready means of dealing with costs; its roughness is justified on the grounds of proportionality.”
THE CASE
The taxpayer was entitled to costs following a successful appeal (HM Revenue conceding the appeal should be allowed). A schedule of costs was served in support of the application for costs. However that schedule was not in standard form. HM Revenue applied to strike out the application for costs on the grounds of a defective Schedule. That application was not allowed. The judge found that the schedule was highly defective. However that did not constitute a good ground for the striking out of costs to which the applicant was entitled. These costs were always going to be subject to a detailed assessment and the appropriate step was to order a detailed assessment, with the costs of preparing the defective schedule of costs being disallowed.
THE SCHEDULE OF COSTS
The judge considered the way in which the Schedule of Costs had been prepared and the fact that it failed to follow the usual format.
The Schedule of Costs
15. The Costs Application was accompanied by the Schedule of Costs, a detailed chronology of the dispute and a draft order providing either for the payment of a summarily assessed sum or to be assessed if not agreed.
16. The Costs Application is a document of 10 pages. It states that the Schedule of Costs is provided in accordance with rule 10(3)(b) FTT Rules and “should the Tribunal decide to undertake a summary assessment of such costs.”
17. The Schedule of Costs listed each fee earner at Ernst Young, provided a description of their grade and their hourly rate which was stated to be a 30% discounted rate from the standard scale rates. The Schedule stated:
“All work described below includes letters, emails and calls with the Appellant, Respondents, Counsel and the Tribunal throughout” (original emphasis.
18. It then set out four detailed narratives of tasks ie. the first list provided:
“Considering partial closure notice. Work on appeal of partial closure notice and grounds. Dealing with allocation of the appeal and consequential actions. Dealing with the Respondents’ request for an extension of time to file their Statement of Case and subsequent application for a stay of proceedings, including preparing objections. Dealing with outcome of Respondents’ failed application. Considering Respondents’ (late) Statement of Case. Dealing with Respondents’ request and application for an extension of time in relation to a stay. Dealing with Respondents’ request for “further and better particulars” and further information. Dealing with Respondents’ application for “further and better particulars” and further information. Work on “further and better particulars” requested. Dealing with other Case Management directions. Liaising with the Appellant, Respondents, Counsel and the Tribunal, including multiple correspondence on the merits of the Respondents’ application, the means of resolving it, and arrangements for a case management hearing. Dealing with outcome of Respondents’ failed application, and Respondents’ subsequent failed application for the reasons given in Judge Bowler’s order to be amended. Liaising with the Appellant, the Respondents, Counsel and the Tribunal re listing of final hearing.”
19. Following each such narrative is then a list of the name of each fee earner, their description, total hours for all work carried out in in relation to the listed work, the discounted hourly rate, total fee (hours x rate) and any Counsel’s fees/disbursements. Each section provides the total hours and total fees. At the end of the Schedule of Costs the “Grand Total” shows £423,650.70 as the total solicitor fees incurred “but discounted to: £279,502.90”. Counsel’s fees of £10,000 and expenses of £6,000 (representing the Cost Lawyer’s fee) are claimed plus VAT (in the sum of £59,100.58 representing 20% of the discounted solicitor fees, Counsel’s fee and Cost Lawyer fee).
20. The Schedule of Costs does not use form N260 (the standard form for summary assessment under the Civil Procedure Rules (CPR).
21. The Costs Application notes certain points relevant to any summary assessment that the Tribunal might be “inclined” to make. These concerned: (1) that there had been an initial discount to scale rates and the further discount given by reference to the fees “actually charged” to the Appellant; (2) that the hours spent by Ernst Young had been occasioned by HMRC’s conduct and that use of Counsel had been limited; and (3) by reference to the factors identified in rule 44.4 CPR the claim for costs was justified.
22. The Costs Application and Draft Order clearly invited a summary assessment of the full claim to costs with detailed assessment as an alternative.
23. HMRC’s application (which the Tribunal is treating as an application for the Appellant’s claim to be refused) is made on the basis that the condition to provide a schedule of costs is mandatory. The purpose of the schedule is said to be so as to permit the Tribunal to make a summary assessment and to provide the paying party with adequate detail of the costs being claimed so that such party can make appropriate submissions in response and/or agree the quantum. HMRC note that no application to waive the requirement to provide a schedule was made and that summary assessment was sought. Whilst HMRC do not object to the use of a non-standard form of schedule they contend that it should, nevertheless, include all the same information as would be provided on the N260. They also object to the four groupings which they note are not chronological. As noted in paragraph [18] the first group of identified tasks includes work on the application for the closure notice and preparation for final hearing of the substantive issue. HMRC claim that the way the schedule has been presented makes it “impossible” to understand why significant costs have been incurred at particular stages.
24. Whilst reserving their position to make submissions as to the reasonableness or proportionality of the claim if the application is not struck out HMRC make a number of observations including that £176,162.10 is claimed for drafting two witness statements of 5 and 10 pages respectively and that time valued at £29,871.80 was purportedly incurred post the communication by HMRC that the closure notice was to be withdrawn. The usual comments seen by this Tribunal in all costs claims against HMRC vis a vis time spent and hourly rates are also made. Culminating in a submission that the overall amount of the costs claimed is “absurd”. Further allegations are made against Ernst Young, HMRC asserting that “a failure to provide sufficient particularisation of the costs claimed is a deliberate strategy intended to pressure the other party into making an offer in relation to the costs on the basis that it is impossible to identify which costs have been reasonably incurred in relation to the proceedings. Such conduct is highly prejudicial to the responding party and certainly should not be condoned”.
WHAT IS SUMMARY ASSESSMENT?
The judge considered the appropriate response to the points argued by posing the initial question “what is summary assessment”.
What is summary assessment?
35. In order to assess whether the defects identified should carry the consequence claimed by HMRC the Tribunal considers it appropriate to consider the nature of summary assessment under the CPR.
36. By reference to rule 44.1(1) CPR, summary assessment is the procedure by which a court may, having made an order for a party to pay costs of a case, determine the amount of such costs. It is usually carried out by the judge hearing the matter. It is not intended to involve a lengthy consideration of each item of costs claimed but, rather, represents a proportionate means of justly, fairly and swiftly resolving the question of costs without the need for further costly proceedings regarding the costs themselves. In colloquial terms it is a somewhat rough and ready means of dealing with costs; its roughness is justified on the grounds of proportionality.
37. It is significant to note that entitlement to costs (which will usually follow the event) is a distinct exercise from the quantification of those costs.
38. As a general rule (which will apply unless there is a good reason not to do so) a judge will summarily assess costs in fast-track cases or at the end of any other hearing which has not lasted more than one day (see Practice Direction 44.9.2). As is also apparent from the obiter comment of the judge in Coward v Harraden [2011] EWHC 3092 (QB) summary assessment may also be appropriate in relation to a matter determined on the papers where the court time taken was of the order of one day – in such a case however, the preparation of statements of costs would need to be directed.
39. It is, however, relevant to note that PD 44.9.4 provides: “Where an application has been made and the parties to the application agree an order by consent without any party attending, the parties should seek to agree a figure for costs to be inserted in the consent order or agree that there should be no order for costs.” This provision appears to place the obligation on the parties to determine costs as part of the consent order.
40. The Tribunal considers that it is therefore apparent that the CPR essentially assumes that summary assessment is an exercise which will be carried out only where there is a judge with a sufficient familiarity with the proceedings to undertake the task.
41. Good reason to refuse summary assessment may include, inter alia, the paying party showing substantial grounds for disputing the sum claimed. This may include a challenge to charge out rates, the proportionality of the claim, uncertainty as to whether VAT was included and/or whether the recipient was VAT registered, and a claim to 100% of costs paid (see TMO Renewables Ltd v Reeves and another [2020] EWHC 789 (Ch)).
42. Such “good reasons” are at least indicative that the defects which underly them are, under the CPR at least, no justification for no order as to costs being made.
43. Practice Direction 44.9.5 provides that it is the duty of the parties to assist the judge in making a summary assessment in any case to which PD 44.9.2 applies. 44.9.5(2) requires the written statement show separately: 1) the hours claimed, 2) the hourly rate to be claimed, 3) the grade of the fee earner, 4) the amount and nature of the disbursements (other than counsel’s fees for appearing at the hearing), 5) the amount of the legal representatives’ costs for attending the hearing, 6) counsel’s fees and 7) any VAT to be claimed on those amounts. 44.9.5(3) then provides that the written statement of the costs “follows as closely as possible” Form N260.
44. Form N260 provides for a description of each fee earner by name, grade and hourly rate claimed. It then provides for a breakdown of the time for each fee earner in respect of: attendance on the party (by reference to a further breakdown of personal attendances, letters/emails out, telephone attendances), attendance on the opponent (by reference to the same further breakdown) and similarly for attendance on others; site inspection and attendance at hearing. There is then a schedule of work done on documents which provides for a description of the work and hours per fee earner. N260 also requires the person signing it to certify that the costs set out do not exceed the costs which the party is liable to pay in respect of the work which the statement covers. This statement gives an assurance to the court that the indemnity principle has not been breached.
45. Summary assessment, by its very nature, does not permit of a detailed consideration of the application of the indemnity principle and where there is a genuine argument as to breach of the principle detailed assessment will be required (Bailey v IBC Vehicles Ltd [1998] EWCA 566 Civ).
46. PD 44.9.6 provides that failure by a party, without reasonable excuse, to appropriately prepare, file and serve a statement of costs will be taken into account by the court in deciding what order to make both as regards the costs claim itself and the costs of any further hearing or detailed assessment hearing that may be necessary.
47. In Macdonald v Taree Holdings Ltd [2001] EWCA Civ 312 (Taree) (subsequently confirmed and approved post the Jackson reforms in Kingsley v Orban [2014] EWHC 2991 (Ch)) the Court of Appeal determined that the court had a wide discretion where there has been a failure to file the statement of costs with the option of:
(1) Deciding that the party who did not prepare a statement of costs could be taken to be conceding costs and to make no order in their favour;
(2) Ordering an adjournment of summary assessment with an order for the costs of the adjournment to be paid by the party in default;
(3) Proceeding with summary assessment without the statement of costs (carrying with it the likelihood of a reduced costs order);
(4) Ordering a detailed assessment carrying the consequence of the associated costs of preparing for such detailed assessment and the necessary delay whilst such assessment takes place.
48. This position has also been adopted in The Guide to Summary Assessment of Costs (published on 1 October 2021) which explicitly provides that any failure to comply with the time limit for service of the statement of costs will be taken into account when deciding what order to make and any further hearing that may be necessary but that “any sanction should be proportionate”. The Guide proceeds to then set out the various options as identified in Taree.
49. In Tribe v Elbourne Mitchell LLP (Costs) [2011] EWHC 1252 (Ch) the Court of Appeal held that in determining which of the various options to adopt the court should adopt a proportionate approach and consider “what, if any, prejudice has [the] failure to comply caused the other party? If no prejudice, then the court should go on and assess the costs in the normal way. If satisfied it has caused prejudice, the next question is: how should that prejudice best be dealt with?”.
50. In Group M UK Ltd v Cabinet Office [2014] EWHC 3863 (TCC) Akenhead J applied the three-stage test set out in Denton v TH White [2014] EWCA Civ 906 for relief from sanction for breaches and concluded, in the facts of that case, that it would be wholly disproportionate to allow no costs.
51. In Maersk A/S v Mercuria Energy Trading SA [2021] EWHC 2856 (Comm) (Maersk) the successful party had submitted a defective statement of costs. The defects were identified at paragraphs 45 – 46 as that it did not provide a description of the fee earners, their grade or explain why rates used were in excess of guideline rates, and that the schedule had been broken down in broad general headings between two dates. The Court notes “… The consequences are that very large numbers of chargeable hours have been claimed by reference to rates which have been identified without any breakdown as to the work on documents that have been carried out and which are alleged, reasonable and proportionately, to support the sums claimed”.
52. The Court determined that to undertake summary assessment by reference to the statement was impossible and that any attempt to summarily assess would represent a guess. In the circumstances a detailed assessment of costs was appropriate.
53. The Court also noted that had the statement been in a compliant form it would have been appropriate to undertake a summary assessment despite the size of the claim exceeding £100,000 but noting that “sums claimed for even relatively straightforward applications routinely exceed that sum and the fact that the sums exceeded £100,000 is not a good reason of itself for refusing to carry out summary assessment.”
54. By reference to the above analysis it appears reasonable to conclude:
(1) The nature and purpose of summary assessment is that it is a task performed by a judge familiar with the case, it is an exercise which proportionately deals with an ancillary matter in the case where there is little controversy as to the determination of the extent (or quantum) of the claimant’s claim.
(2) A failure to submit a statement of costs is a breach of the CPR but not one which automatically results in a refusal of the costs claim, even in such a situation the court must exercise its discretion in accordance with the overriding objective.
(3) Defects in the schedule of costs will be a matter taken into account when determining whether to summarily assess; the real consequence of such defects however will be that the claimant will incur the costs and delay associated with detailed assessment.
THE DEFICIENT SCHEDULE
The judge found that the applicant’s schedule was deficient in a number of respects.