Cash Flow is (at least in some cases) King

Christopher McClure considers the implications of the judgment in I v Hull & East Yorkshire Hospitals NHS Trust (Sheffield County Court, 25 February 2019) on payments on account of costs for both claimant and defendant firms.

The appeal before His Honour Judge Robinson from District Judge Batchelor dealt with two issues which were stated in the following terms:

• Whether there is power to make an interim order as to costs in the circumstances of this case; and

• If the court does have such power, whether the court should exercise that power

The “circumstances of this case” made it a particularly unusual case.

Factually, the claim was made on behalf of a child who suffered catastrophic injuries at birth and, as such, the damages sought (although unquantifiable at present) are significant.

Legally, the case was highly unusual in that the payment on account of costs sought by the claimant related to the issue of quantum which, as of yet, has not been the subject of judicial determination. In other words, the claimant sought a payment on account of costs in respect of a head of claim yet to be resolved by the court.

In 2012 the court had approved a liability settlement 90/10 in favour of the claimant. In approving the settlement, the court ordered the defendant to pay the claimant’s costs of the liability aspect of the claim with such costs to be subject to detailed assessment if not agreed. The court further ordered a payment on account of costs of £100,000.

The matter came before DDJ Batchelor in 2017, by which point there had been a further voluntary payment on account of costs of £115,000, making a total of £215,000 of which only £50,000 been paid to the solicitor currently on record (and who had been on record since March 2013).

As of August 2017, the current solicitor’s costs were said to be in excess of £500,000 inclusive of VAT and the claimant sought a further £150,000 on account of costs.

The claimant’s application for a further interim payment was dismissed the by DDJ Batchelor for essentially two reasons –

• Firstly, the claimant had not taken advantage of the 2012 Order to seek a detailed assessment of its liability-only costs; and

• Secondly, the Judge was not satisfied that that the further £150,000 sought on account of costs “would not exceed a reasonable proportion of the costs to which the claimant is entitled”

The claimant’s appeal was resisted by the defendant on the basis that a court has no power to make an interim payment on account of costs in respect of any aspect of a case which has yet to be determined – and in this case will not be determined for many years (the parties estimate it will be 2022 before quantum can finally be agreed).

In disagreeing with the defendant, HHJ Robinson held that “rules 44.2(1) and 44.2(2) are wide enough to allow the court to make an order for costs of the kind sought by the claimant".

CPR r. 44.2(2)(a) states that ‘the general rule is that the unsuccessful party will be ordered to pay the costs of the successful party’ and, in that context, HHJ Robinson held that in relation to quantum the claimant had ‘been successful to the extent of securing payment of account of damages in the sum of £1.2m’.

Having determined that the rules grant the court power to make such an award, the Judge turned to the question of whether the court should exercise its discretion in the circumstances of this case.

In choosing to exercise its discretion in favour of the claimant the court gave weight to principally two factors.

HHJ Robinson held that DDJ Batchelor was “plainly wrong to rule that a total of £200,000 by way of an interim payment on account of costs to date might exceed a reasonable proportionate of the costs to which the claimant’s solicitors would be entitled” (it will be recalled that costs in the region of £500,000 were cited as being incurred by the claimant’s current solicitor as of August 2017).

He further held that that another “very significant” factor in his determination was the period of delay between the liability settlement and the determination of quantum, i.e. c. 10 years. HHJ Robinson recognised the need to ensure adequate cash flow and emphasised that a failure to facilitate cash flow during a period of inevitable delay “may lead to the perverse and undesirable consequence that solicitors are unwilling to take on cases such as this at an early stage”.

This judgment represents a sensible and, no doubt, welcome decision for claimant firms engaged in high-value litigation where liability is agreed at an early stage but the issue of quantum remains outstanding for reasons beyond the parties’ control. Practitioners should, however, guard against any over-eagerness to make applications for payments on account of costs as a result of this decision.

Not only is the decision readily distinguishable on the facts (e.g. high value and high costs) but HHJ Robinson was expressly influenced by the factors present in this particular case.

Firstly, in reality the claimant had been successful (albeit partially) on that aspect of the case in respect of which an interim payment of account of costs was sought, i.e. payments on account of damages despite quantum have not yet been determined.

Secondly, there was no danger that the costs to the date of the original application hearing incurred by the firm currently on record would be assessed at less than the amount sought on account of those costs. Thus solicitors who wish to hang an application for a payment on account of costs on this case would do well to support their application with a comprehensive breakdown of costs incurred over the period in question.

And thirdly, whilst the court grappled with the issue of a Part 36 offer possibly being made by the defendant “in due course”, the fact was that no Part 36 offer on behalf of the defendant had expired (or even been made) at the point the claimant made his application. As such, there was no possibility of the defendant being entitled to post-expiry costs for the period in respect of which the application for payment on account of costs was made.

Had, for example, the defendant made a Part 36 offer soon after the liability settlement, it must follow that the immediately foregoing logic (i.e. that there was no danger that costs awarded on account would be greater than those assessed for the same period) would fall away and the defendant find itself in a far stronger position to resist such an application accordingly.

To that extent the judgment is as important to defendant firms as it is encouraging to claimant solicitors.

Please contact Christopher McClure to discuss any query relating to this article. Christopher is based at our Manchester office and can be contacted on 0161 835 4087.