John M Hayes are always thorough and meticulous in the preparation of bills but more importantly than that they are very approachable and willing to help. Dealing with them is a pleasure.
Brendan McNeany, Partner, Samuel Phillips
The Costs of Provisional Assessment
CPR 47.15 sets out the provisional assessment procedure under which the courts will henceforth assess all Bills of Costs of up to £75,000.00 on the papers only. To say that the mechanics of this new procedure cause concern to costs practitioners would probably be something of an understatement however there is one particular aspect of the new rules which particularly raises eyebrows and that is the costs of the provisional assessment itself.
CPR 47.15(5) states that ‘The court will not award more than £1,500 to any party in respect of the costs of the provisional assessment’. This is crystal clear. The language is mandatory. There does not even appear to be any room for this to be exceeded if, for example, the court would have been minded to allow indemnity basis costs rather than standard basis costs.
In practice this is shockingly draconian, particularly to receiving parties. As written, the rule appears to allow no discretion to the court to allow the Court Fee in addition to the stated £1,500.00. For Bills exceeding £50,000.00, the Court Fee on assessment presently stands at £980.00. That’s slightly over 65% of your assessment costs spent on the Court Fee alone. It gets worse though. Because you have yet to factor out VAT. This leaves you with £433.33 by way of costs. If the case is one of the pre-1st April CFA cases still in the system (of which there will be many for years to come) and has, by way of example, a success fee of 100%, then you are actually looking at base costs of just £216.67 to cover serving the Notice of Commencement, preparation of Replies to the Points of Dispute, preparing the papers for provisional assessment and all negotiations between the parties. That’s less than 2 hours of even a Grade D fee earner’s time.
Compare this to a paying party who has not had to foot any court fee, may well be VAT registered and may very well not be on a CFA at all. This paying party recovers the full £1,500.00 by way of base profit costs, a mere 692% of the base profit costs recovered by the above hypothetical receiving party. All else being equal (and it is probably no burning concern of the Rules Committee whether parties are CFA funded or VAT registered) there is simply no logical reason why the stated £1,500.00 shouldn’t have been made exclusive of Court Fees given that this is an expense which falls solely on the paying party.
To a great extent, this rule seems to work contrary to every stated intention of the Jackson reforms as it largely removes the onus on either party to make any determined effort to actually settle. Hitherto practitioners have tended to ‘pick and choose’ their fights, only taking matters to detailed assessment where the parties’ respective valuations of costs were at a significant variance or where there was a real point of principle worth arguing. Of course there were always the cases where one party simply wouldn’t engage sensibly with the detailed assessment process but, by and large, such cases would settle shortly before any hearing (as, indeed, would a good proportion of the cases that fell into the first category above). One of the main reasons for these ‘eleventh hour’ settlements was that both parties knew that the costs of the detailed assessment process were invariably going to be substantial if they lost and those costs were going to increase significantly if a hearing was actually attended. The Damoclean sword of the detailed assessment costs tended to test each party’s mettle and, more often than not, both were found wanting, a conciliatory phone call took the place of bullish correspondence and hey presto a settlement was agreed.
Incentive to settle?
Putting ourselves into the mindsets of a fictional paying and receiving party we now find that things are quite different. Our fictional paying party makes their best offer as before but now there is no incentive to ‘buy the case off’ and settle rather than run it to assessment. If they lose, they pay the amount the court assesses (which they are assuming is unlikely to be significantly greater than their valuation) plus an extra £1,500.00. Worth the risk on a Bill of, say, £70,000.00, right?
And the same is true, in reverse, for the receiving party. It might be the case that the Costs Judge knocks the costs down slightly below the amount offered by the paying party. But if so, they only take a further knock of £1,500.00 (more than likely by way of set-off) rather than a possible £5,000.00 or even £10,000.00. That’s a gamble worth taking. Indeed, given the net base costs recovered by a receiving party after allowing for the Court Fee, VAT, etc it must be tempting to simply send the Bill for a provisional assessment at the earliest juncture rather than waste time incurring negotiation costs which you will simply never get paid for. This is all before we even start to tackle the question of whether a Claimant receiving party in a Personal Injury case can avail themselves of the benefit of QOCS such that there is no gamble on adverse costs at all!
Court Workload Significantly Increased?
This is surely going to swamp the courts with a significantly increased load of assessments. Of course, they won’t take as long as a detailed assessment with oral submissions but the question has to be asked as to how much of an increase will it take before the courts are actually faced with a greater net workload. If provisional assessment is envisaged as taking 45 minutes (this was the sort of time estimate bandied about when the ceiling was envisaged as £25,000.00 and undoubtedly it will take longer for Bills of £50,000.00 and up), even a trebling of the workload is going to edge the court towards the position where there is actually more work to be done under the new system than there was under the old one (and that is before we take into account the fact that some cases will still proceed to an oral hearing).
Already, we hear anecdotal stories of firms who have stockpiled Bills of Costs waiting for the new provisional assessment scheme to come into force so that they can deluge the court with assessments (mistakenly on their part it should be stressed as the new system only applies to Bills where the Notice of Commencement was served on or after 1st April 2013).
Remedy and Part 36
The remedy to this would appear to be the fact that, under CPR 47.20, Part 36 offers now apply to detailed assessments so that Part 36 sanctions will act as the carrot/stick to urge the parties towards settlement. Certainly a receiving party can put real pressure on a paying party with a robust Part 36 offer which, if beaten, will entitle the receiving party to an additional 10% on their substantive costs (which may well exceed what would have been allowed as detailed assessment costs) as well as a higher rate of interest on both the substantive costs and the costs of the assessment. The fact that the receiving party is also ostensibly entitled to their assessment costs on the indemnity basis is probably, as mentioned above, of little benefit to them but it is likely that somebody will come up with some ingenious argument to the contrary, sooner or later and we will ultimately have authority on the point.
Part 36 sanctions work rather less well on the paying party side of things. Sure, you may, if you beat your own offer, be entitled to your assessment costs as of the date of the expiration of the ‘relevant period’ but they will be limited to £1,500.00. Presumably, given that both parties’ actual costs are likely to exceed £1,500.00, what will happen in practice is that the paying party’s £1,500.00 will be set-off against the receiving party’s £1,500.00. All well and good but hardly a massive concern to a receiving party who is probably reconciled to the fact that he is going to be recovering next to nothing by way of his assessment costs in any event.
In the fullness of time we may find that provisional assessment has the unwanted side effect of overburdening the courts to the extent that the system is re-thought again. Of course there is the possibility that some of the district bench realise that a lot of work can be circumvented by simply assessing costs at around 80% irrespective of the level claimed and the disputes raised, but any District Judge who takes the matter seriously is likely to find himself swamped with assessments which would, under the old system, have resolved by negotiation between the parties.
Clearly the idea behind the rule is that the cost of the provisional assessment should be relatively modest and are therefore capable of being capped. But one should never underestimate the rule of unintended consequences. The courts should be wary indeed of any system which makes recourse to law more attractive than bartering a settlement.