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The application and limit of the fixed recoverable costs regime

In recent days, the Court of Appeal has given two judgments that concern the operation of the fixed recoverable costs (“FRC”) regime that are significant in their own right and of importance to insurers who deal with RTA, EL and PL claims. The first judgment came on the very day that it was announced that Lord Justice Jackson had been commissioned to undertake a review of FRCs and develop proposals to extend the FRC regime and to review the types of litigation that FRCs should apply to and the levels of costs that should be allowed.

In Bird v Acorn, the court concluded that claimants who settled after the court had already listed the case for disposal at any early stage in the litigation process are entitled to recover the same level of FRCs as if the case had been listed for trial including in the situation where the trial listing occurred much later in the process and only after case management directions had been complied with. The defendant in Bird had hoped to persuade the Court that the claimant should recover a level of FRCs at least £1,340 lower than the figure that the Court deemed appropriate.

In Qader v Esure, the court concluded that the FRC regime does not apply to cases started under the RTA Protocol where they were subsequently allocated to the multi-track and that the provisions in the CPR to the contrary had arisen out of a drafting mistake. This judgment will have application in various types of RTA, EL and PL claims which start off in the portal but later for various reasons get allocated to the multi-track including cases where fraud is pleaded, as that type of case is often allocated to the multi-track even where the value may be less than £25,000.

Bird v Acorn

The appeal in Bird v Acorn concerned the level of FRCs that a claimant could recover in a PL claim which has been listed for disposal, but where the case settled before the disposal hearing had taken place. As the case was a PL claim, Table 6D to CPR r.45.29E applied:

B. If proceedings are issued under Part 7, but the case settles before trial

Stage at which case is settled

On or after date of issue, but prior to the date of allocation under Part 26

On or after the date of allocation under Part 26, but prior to the date of listing

On or after the date of listing but prior the date of trial

Fixed Costs damages

The total of—
(a) £2,450; and
(b) 17.5% of the damages

The total of—
(a) £3,065; and
(b) 22.5% of the damages

The total of—
(a) 3,790; and
(b) 27.5% of the damages

As readers will be aware, it is usual for cases to be allocated to track by the court under the court’s case management powers, but it is now the practice of many courts where only quantum is in issue to enter judgment and list the case for a disposal hearing at an early stage of the litigation process, doing away with the need to allocate the case to track. The judge in Birkenhead County Court did just that in this case as is that court’s practice and the parties eventually went on to settle the case before the hearing took place.

In simple terms, the dispute between the parties on appeal was:

  • whether the claimant was entitled to recover the FRCs in the column on the right of the table above, on the basis that a disposal hearing constituted a trial; or

  • whether the claimant should only be entitled to recover the FRCs in the column on the left, on the basis that the case was never allocated to track and that a disposal hearing did not constitute a trial.

At first instance, District Judge Campbell had concluded that a disposal hearing constituted a trial, within the meaning of that phrase in Table 6D and awarded the claimant the costs in the right column. The defendant appealed that decision and in support of their appeal argued that:

  • Looking at the definition of a “final contested hearing” Part 45.29E (“(c) a reference to “trial” is a reference to the final contested hearing”), it could not be said at the date that the case was listed for disposal, whether the hearing would be either final, or contested as

    • The court may have used the hearing and the time available (10 minutes) to give directions rather than assess damages

    • Judgment having been entered by default, the hearing might well have been uncontested.

    • If directions had been given and the case allocated to the fast track, then that would mean that the claimant would return to the less generous centre column in the table above, so there would be a disincentive upon defendants to settle

    • When the Court of Appeal considered the case of Forcelux v Binnie (2009) (a possession claim under CPR Part 55), the Court concluded that a first possession hearing did not constitute a trial for the purpose of CPR r.39.3

  • Passages from Jackson LJ’s Provisional Report suggest that the intention was that a claimant would traverse the three columns sequentially, from left to right across the page. Paragraph 4 to Practice Direction 45 of the CPR, suggested that the Civil Procedure Rule Committee (“CPRC”) had in their minds that disposal hearings were not trials.

Giving the lead judgment, Briggs LJ found that a “..disposal means exactly what it says” and went on to dismiss the defendant’s appeal, stating that it was “neither here nor there” that a disposal may prove to be uncontested, as the approach as envisaged by the defendant would apply to all manner of final hearings as well.

Going on to conclude that the Forcelux case was of not assistance to it, the Court highlighted its judgment in the case of Lamont v Burton (2007), a case that concerned the correct level of a success fee recoverable after damages had been assessed at a disposal hearing. The Court of Appeal in Bird pointed out that it was:

“..taken for granted in this court (rather than determined after argument) that the disposal hearing had been a trial for the purposes of Part 45.15. I consider it very likely that, when it adopted the same definition of trial in 2013, for the purposes of fixed costs in EL/PL Protocol cases, the Rule Committee had the analysis in Lamont v Burton well in mind”.

Given that some cases do settle shortly before the disposal hearing takes place, the Court of Appeal felt that it was unlikely that the CPRC would have intended that a claimant in those cases would only be able to recover the lower level of FRCs in the left hand column, having incurred the costs of complying with the directions timetable and preparing for the hearing.

Whilst accepting that Jackson LJ’s Provisional Report did suggest that the columns were to be treated like “..steps in a ladder”, the Court of Appeal did not consider this inconsistent with its conclusion that a disposal hearing was a trial, so that effectively jumping from the left hand column straight to the right hand column was appropriate, meaning that the columns were not always triggered in succession. While directions might be given at a disposal, there would be no need to send the claimant back to the centre column, as by that time the claimant would have carried out all the work necessary to proceed at the final hearing and therefore the costs allowed under the right hand column would be proportionate.

The judgment in Bird v Acorn is available on BAILII

Qader v Esure

The judgment in this case was handed down by the Court of Appeal on Wednesday. As in Bird, Briggs LJ delivered the lead judgment of the Court. The appeal concerned the application of FRCs in a case that was started under the RTA Protocol, but was subsequently allocated to the multi-track, after the defendant had alleged fraud. Whilst ostensibly an appeal about the RTA Protocol, the decision is of equal importance to those dealing with EL and PL claims where a claim starting off in the portal was later allocated to the multi-track, for whatever reason.

In Qader, the case left the RTA Portal due to the defendant’s denial of liability and once proceedings were issued, a defence was filed alleging that Mr Qader had deliberately induced the collision by slamming on his brakes. At the case management conference, the district judge concluded that the FRC regime applied to the case and declined to make a costs management order, stating that the claimant might obtain relief from FRCs under Part 45.29J, but only at the end of the proceedings. Part 45.29J states that:

“(1)       If it considers that there are exceptional circumstances making it appropriate to do so, the court will consider a claim for an amount of costs (excluding disbursements) which is greater than the fixed recoverable costs referred to in rules 45.29B to 45.29H.

(2)        If the court considers such a claim to be appropriate, it may -

(a)        summarily assess the costs; or

(b)        make an order for the costs to be subject to detailed assessment”

The claimant appealed the district judge’s decision, but the appeal was dismissed by HHJ Grant who concluded that FRCs applied in all cases submitted via the Portal and that to conclude otherwise would go beyond a purposive interpretation of the rules. He also questioned whether the allegations of fraud really took the case out of the intended scope of the FRC regime.

Allowing the appeal, the Court of Appeal have now held that the FRC regime is automatically disapplied in those cases allocated to the multi-track, without the need for a claimant to demonstrate “exceptional circumstances” under r.45.29J above. Accepting that a detailed examination of the CPR lead clearly to the conclusion that fixed costs did in fact apply to all cases which had or should have started in the RTA Protocol, the Court held that section III A of Part 45 was never intended to apply to multi-track cases and that the conclusion that it should apply arose out of a “drafting mistake” by the CPRC who are responsible for the rules.

In support of this conclusion, the court looked back at Lord Justice Jackson’s Final Report, highlighting that the composite fixed costs tables at appendix 5 of his report are entitled “Fixed costs matrix for fast track personal injury claims”. The Court then also referred to the MoJ’s 2011 consultation paper “Solving disputes in the Court Courts: creating a simpler, quicker, and more proportionate system” and to the MoJ’s response to that consultation paper in February 2013 and in particular paragraph 87 of that response which states (our emphasis added):

“Respondents were unclear as to whether the proposals are intended to apply to multi-track, as well as fast track, cases between £10,001 and £25,000.  There was a clear view (whilst still arguing the proposed levels of FRCSs were too low in any event) that any proposals should only apply to fast track cases.  It has always been the Government’s intention that these proposals apply only to cases in the fast track and if a case falling out of the protocols is judicially determined to be suitable for multi-track, normal multi-track costs rules will apply”.

Pointing out that there was no change in government policy between the date of the response to its own consultation before the CPRC were tasked to draft the relevant sections of the CPR and the “tell-tale inclusion of £25,000 as the upper limit for damages”, all this meant that the CPRC were “..under the illusion that no claim above that limit could continue outside the Protocols”.

Setting out then the court’s jurisdiction to correct obvious drafting errors, as established in Inco Europe Ltd v First Choice Distribution (2000), the Court of Appeal held that the best way to give effect to the government’s intention would be to for Part 45.29B to be amended so that it now read (where the new inserted words are in bold):

“Subject to rules 45.29F, 45.29G, 45.29H and 45.29J and for so long as the claim is not allocated to the multi-track, if, in a claim started under the RTA Protocol, the Claim Notification Form is submitted on or after 31st July 2013, the only costs allowed are -

(a) the fixed costs in rule 45.29C;

(b) disbursements in accordance with rule 45.29I”

The Court invited the CPRC to consider devising an amendment to the CPR to address the concerns raised in the judgment.

The judgment in Qader v Esure is available on BAILII

The implications

Looking at the judgments in turn we see the implications for insurers as being these:

  • It has now become common place for most courts up and down the land to list cases for a final hearing at an early stage of the litigation process. This will be a disposal hearing (where there is no defence to the claim), or where there is a defence it will be a listing for trial after consideration of Direction Questionnaires. This listing for trial on a specific date will be instead of giving a trial window as was commonly done in the past. The effect of the decision in Bird is that now in all those situations, claimants will be entitled to recover the costs in column three, effectively rendering the centre column in the FRC tables redundant.

  • The limited use of the centre column can be assumed not to have been the intention of Lord Justice Jackson when putting forward the proposals in his Final Report which led to the system currently in use. It seems to us that his reappointment as the judge to lead the extension of FRCs presents an opportunity to review the current FRC processes upon which the extension will be built. Options would include redesigning the three stage process for assessing FRCs, or adjusting the level of FRCs to take account of current court processes.

  • There may be those cases where judgment is entered in default in error, but where  there is a defence to the claim, though there is also an intention to settle the case. If the judgment were allowed to stand, then the claimant could potentially go on and recover the FRCs in column 3. However, a successful application to set judgment aside and subsequent settlement could see the claimant go back to the first column and render a net saving after the costs of setting the judgment aside have been accounted for.

  • The decision in Qader now provides claimant’s solicitors with the clear incentive to try to secure allocation to the multi-track and the recovery of hourly rate costs. They may seek to do this by trying to ensure that the value of the claimant’s claim exceeds £25,000 or by relying on other aspects of the claim which they may argue justify allocation to the multi-track. This could drive a number of poor claimant behaviours, and the completion of the DQ and the approach to allocation hearings and case management conferences now take on even greater significance.

  • Lord Justice Briggs warned of these dangers in his judgment, to which reference should be made by insurers, in the following terms: “I consider that this is a risk best addressed by relying upon the good sense and vigour of case management judges in furthering the overriding objective, and in penalising those who seek to abuse the opportunity to which the allocation stage in such a claim gives rise.”

  • To counter those behaviours, a number of approaches need to adopted, such as:

    • Where possible, heads of loss need to be agreed or settled in advance of the court considering allocation to track, as when the court considers the financial value of the claim for the purpose of allocating to track, it will disregard “any amount not in dispute” (CPR r.26.8 (2)(a)).

    • Where there is allocation to multi-track, then the court should be invited to record that the case has been allocated on the basis of the claimant’s valuation. Additionally, when a case then develops in a way that has reduced either quantum or the issues raised then an application should be considered to re-allocate it to the fast track. Either at that time or on settlement of the claim, then that court record will prove useful when the court comes to consider conduct. If a defendant were to be successful in obtaining reallocation to the fast track then the claimant would only be entitled to hourly rate costs for the work done over the period that the case was allocated to the multi-track.

  • Defendants may need to be more circumspect when considering whether to plead fraud in those claim that are pleaded at less than £25,000, as to do so could see the claim allocated to the multi-track notwithstanding the financial value of the claim (as happened in Qader). This will be an additional factor to consider when preparing the case strategy in that type of claim.

  • There are also a number of potential difficulties where defendants attempt to use Part 36 to settle a claim, such as the examples below:

      • What would the costs position be where a claimant accepts a Part 36 offer of less than £25,000, where the case has already been allocated to the multi track? Could a defendant successfully argue that only FRCs should apply?

      • What would the costs position be where the defendant makes a pre-litigation Part 36 offer of less than £25,000, but the claimant only accepts it late after the court has allocated to the multi-track. Could a defendant successfully argue that FRCs should only apply in that case?

      • What costs would be recoverable in a case where a pre-litigation Part 36 offer of more than £25,000 were made in a case which started off in the portal, but the claimant only accepts it late and post allocation to the multi-track? It seems that hourly rate costs may be recoverable but should that be the case and could a challenge be made on the basis that FRCs should apply?

  • It appears from the judgment in cases that are valued over £25,000, but nevertheless allocated to the fast track, FRCs will apply.

Contact

For further information, please contact Will MackenzieStuart Poole or Simon Denyer.

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This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.

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