Legal update - costs: Recommended costs


Lord Justice Jackson recommended judges be given more powers to manage costs. Rob Williams examines the case of O'Beirne v Hudson to show how a more flexible approach is already being taken.

When Lord justice Jackson recommended judges be given greater case management powers to manage costs, he may not have expected to see such a positive reaction quite so soon.

O'Beirne v Hudson is a case in point. Heard in February this year, the case revolved around the extent of power of costs that judges have to vary a consent order. The original dispute arose following a minor road traffic accident in which the claimant was injured and pursued a claim for damages pleaded in excess of £1000. The action was settled in the sum of £1119.06 — £400 for general damages and hire charges of £719.06 — prior to the case being allocated to track. The consent order, which recorded the settlement, stated, 'the defendant do pay the claimant's reasonable costs and disbursements on the standard basis, to be subject to detailed assessment if not agreed'.

Detailed assessment
The defendant subsequently disputed the claimant's bill of costs, arguing that, notwithstanding the terms of the consent order, costs should be assessed with reference to the small claims limit. The claimant contended that the terms of the consent order precluded the application of Civil Procedure Rules 27 and 45, which set out the procedure for dealing with claims allocated to the small claims track and the amount allowed in respect of solicitors' charges respectively. However, both parties agreed that, had the matter been allocated to the small claims track, only fixed costs would have been recoverable and nothing would be allowed for the use of lawyers.

At detailed assessment, District Judge Harrison accepted that the wording of the consent order precluded the matter being limited to the small claims track and the effect of the wording of the order fettered her discretion. However, on appeal to His Honour Judge Stewart QC, this decision was reversed.

While he agreed that a costs judge had no power to vary a costs order that had already been made, he did question whether the district judge had been correct in concluding that the costs order precluded the court from assessing costs on the small claims basis.

He considered the wording of the order and the facts of the case and held that: "There is nothing... in the word 'reasonable' ...standard basis, or in the words 'detailed assessment', which takes away from the defendant their right to argue that costs should be assessed by reference to the small claims track."

The claimant made a further appeal, which was heard before Lord Justice Waller, Lord Justice Hooper and Lord Justice Etherton, sitting with Senior Costs Judge Hurst. The appeal court, in dismissing the appeal, held that a costs judge could not vary a costs order agreed between the parties. However, the fact that a claim would have been allocated to the small claims track was conceded to be material when it came to assessing what costs were payable.

It was accepted that CPR 44.5(1) allowed a judge to take all the circumstance of a case into account when assessing costs.

Lord Justice Waller, in delivering the lead judgment, argued that a costs judge was not free to rule that the costs would be assessed on the small claims track basis but was entitled to give regard to the fact that the case would almost certainly have proceeded on the small claims track if it had been allocated. The test applied was 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.

Flexible approach
The decision illustrates a more flexible approach towards the assessment of costs and departs from the guidelines set down in previous case law as to what may be taken into account on assessment. The fact that the value of the claim means that it is destined for the small claims track does not necessarily mean that costs will be assessed on the basis of that track if the matter is settled before allocation. However, a court will always maintain its discretion when assessing costs as provided to it by the CPR. Despite the specific wording used by the parties within the consent order — wording that is in many cases 'standard' — this will not assist the court when it assesses costs.

This judgment is positive for defendants and their insurers. An increasing number of claims are encouraged by claims management companies and many of these fall within the small claims track limit. The decision in O'Beirne may cause such claims management companies to reconsider pursuing these claims using solicitors as they may not be able to recover their costs. Claimants may now use the small claims procedure to provide access to justice without the need to instruct solicitors, which may reduce the time and expense incurred in defending such claims.

In addition, the decision provides ammunition to insurers when settling small claims as they can now use the judgment to contend whether solicitors' costs are in fact recoverable. Throughout litigation, insurers should revisit the costs position of the claimant party and ensure that costs incurred are both reasonable and proportionate. This tactic ensures that both parties are aware of which costs the insurer is agreeable to the recovery of at a later stage.

The decision will become more helpful to insurers if Lord Justice Jackson's proposals to amend the definition of proportionality are implemented but, as it currently stands, costs judges are already implementing some of his recommendations in their day-to-day practice.

Managing claims costs better
To what extent will the recommendations be implemented?

Rob Williams is head of costs at law firm Weightmans

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