At he beginning of February this year the Court of Appeal handed down judgment in two costs appeals that had been heard consecutively in December 2009 and which shared common issues. 

The first of these, O’Beirne v Hudson [2010] EWCA Civ 52, involved facts that will be very familiar to all practitioners running high volume low value personal injury cases.  The claimant was the driver of a car and  the victim of a rear-end shunt at a roundabout.  Proceedings were issued claiming general damages exceeding £1,000.

Before the case had been allocated to any track, the parties negotiated settlement at £400 general damages plus hire charges of £719.06 together with “the claimant’s reasonable costs and disbursements on the standard basis, to be subject to detailed assessment if not agreed.”

In the second case, Drew v Whitbread [2010] EWCA Civ 53, the claimant fell from a ladder in the course of his employment and suffered lower spinal injuries with on-going symptoms.  Proceedings were issued claiming damages exceeding £1,000.  The matter was allocated by consent to the multi-track, albeit the defendant had suggested the value of the claim was fast track.  The claim for special damage climbed to over  £30,000 and the claimant also sought a Smith v Manchester award.

Unlike in O’Beirne, the parties in Drew were unable to settle the case and the matter went to trial over two days.  The claimant succeeded on liability but with 25% responsibility for his own injuries.  Total damages were £9,291.56 which included an award under Smith v Manchester but, on the basis of the joint experts’ reports, no award was made for future losses for care.

The defendant had made a Part 36 payment into court of £6,000 which fell short of the sum awarded but made conduct points within  costs submissions under CPR 44.3, alleging failure to negotiate on the part of the claimant,  exaggeration of the claim, and unreasonable conduct over agreement of the joint experts’ reports.  The Recorder refused to make a special costs order on grounds that  it had been open to the defendant to protect its position on liability by making a Part 36 offer and found that alleged exaggeration was no more than “just the cut and thrust of litigation”.  In the otherwise normal order for the claimant’s costs of the action  to be assessed on the standard basis if not agreed, the Recorder gave express permission to the defendant “to raise on detailed assessment all issues relating to the costs incurred in relation to quantum including in particular all costs relating to correspondence with and of the medical experts since the 4 August 2006″.

On detailed assessment and the subsequent appeals the principal issue in O’Beirne was whether the costs could be assessed by reference to the small claims track regime (ie effectively fixed costs) notwithstanding the agreement of the parties that the claimant should be paid reasonable costs on the standard basis.  In Drew, the two related issues under appeal were whether and to what extent the costs judge had the power to revisit conduct issues on the detailed assessment, and assuming she could, whether trial costs could be assessed as if the matter had  been pursued  as a fast track trial (the defendant’s point being that but for the claimant’s unreasonable conduct, the trial would  have concluded in one day and not two).

The Court of Appeal’s decision in O’Beirne was that it was not open to the court to rule that the costs would be assessed on the small claims basis, because the consent order provided that they be assessed on the standard basis.  The sting in the tail of that decision is then found in paragraphs 16 and 17 of the judgment of Waller LJ where he says “… in making an assessment  the Costs Judge is entitled to take account of all the circumstances (see CPR 44.5(1)), including the fact that the case would have almost certainly have been allocated to a small claims track if it had been allocated.  In doing so he would have regard to what could or could not be recovered if the case had been so allocated.”.

Later in paragraph 19 the judgment in O’Beirne continues “There is a real distinction between directing at the outset [of a detailed assessment]  that nothing but small claims costs will be awarded and giving items on a bill very anxious scrutiny to see whether costs were necessarily or reasonably incurred, and thus whether it was reasonable for the paying party to pay more than would have been recoverable in a case that should have been allocated to the small claims track.”

Hence it is now possible to allow costs no greater than a small claims track award in cases where the parties have agreed that costs be assessed on the standard basis, provided that the allowance is made following an assessment of what costs were  reasonably incurred.  One may assume that one of the considerations on assessment will be to determine whether  the case would inevitably have been allocated to the small claims track.

The test in determining that issue  should, I venture to suggest, be the same as was applied in the pre-CPR cluster of 22 costs appeals arising  from accidents in the workplace and gathered under the title Afzal and others v Ford Motor Co Ltd and other appeals [1994] 4 All ER 720.

The costs regime at that time  in the county court was, as many will recall, to refer claims under £1,000 automatically to arbitration for summary resolution.  No costs could be recovered in such cases.  Hence, unsurprisingly, many claimant lawyers would employ the tactic of valuing even small claims at over £1,000 in order to avoid the automatic reference.  In some of these cases defendants would pay sums into court below £1,000 and then, when offers were accepted, argue on taxation (as it then was) that despite the deemed costs order (notice of acceptance) , no costs were reasonably payable.

In the Afzal cases the Court of Appeal found that if the plaintiff could not reasonably expect to be awarded more than £1,000, it was a misuse of process to claim damages limited to £3,000.  This meant that in cases where a low payment in had been accepted (even in  Green v British Gas where the figure was £875) it was permissible to deem that the case did not “involve” more than £1,000 and deem it automatically refereed to arbitration  - with no costs recoverable.

In future detailed assessments for personal injury cases that settle before any allocation and  below £1,000 general damages  I anticipate that defendants will advocate through points of dispute that the costs officer should review expert evidence and reach a finding that the claimant could not reasonably have expected to be awarded more than £1,000, that the only sustainable allocation would have been small claims track, and that in all the circumstances it would not be reasonable for the claimant to recover more than a sum equivalent to fixed costs. 

Back to Drew.  The Court of Appeal took the opportunity to clarify  and confirm the wide powers of the court on detailed assessment.   The defendant argued on detailed assessment and through the appeals  that costs should be assessed by reference to the fast track.  The claimant maintained that by virtue of Aaron v Shelton, not only should the defendant be precluded from arguing a point on assessment that had not been raised when the costs order was being made, but also that the failure to obtain a special order for costs prevented the defendant from having a second bite at those conduct arguments before the costs judge.

The Court of Appeal recognised that there may be rulings made by the trial judge that bind the costs judge but (at paragraph 26) Waller LJ went on to state  “more often than not the costs judge has material which the trial judge did not have, and thus will not be bound .”  At paragraph 31 the judgment continues “In my view it would not be consistent with the express provisions of 44.3 and 44.5 and with the court’s duty to see that costs are proportionate and reasonable to preclude a party raising a point highly material to that question because it had not been raised before a judge under 44.3.”

The fact that exaggeration was raised in Drew before the trial judge did not, it was decided,  prevent  the costs judge from considering conduct assessing whether particular items should be allowed , including (at paragraph 39) “the question whether the case in reality was a fast track case.”

Aligning Drew with the decision in O’Beirne, Waller LJ determined that it was not permissible simply to rule that the costs should be on the fast track basis.  However, had the costs judge  given separate consideration whether the trial would always have been likely to run into a second day, it would have been open to her to conclude that but for the claimant’s conduct the trial would have finished in one day.  Had that been the decision-making process then the equivalent of the O’Beirne approach may have produced a recovery no greater than fast track trial costs.

The implications for future assessments are that they are likely to be harder fought on conduct issues.  The decisions open to costs judges to limit costs in dramatic fashion (provided they do so at the end of an assessment and not at the outset) could go some way to achieving Lord Justice Jackson’s proposed tougher line on proportionality without a rule change.

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