FREE CHAPTER from 'A Practical Guide to the Compensation Recovery Unit and NHS Charges in Personal Injury Claims in England & Wales' by Andrew Cousins

11/10/20. The Compensation Recovery Unit provides a system whereby the Department for Work and Pensions may clawback a proportion of some of the damages awarded or agreed to be paid to a person in respect of certain state benefits obtained by that person in consequence of an accident, injury or disease. Parties to a claim need to be able to advise their clients as to approach the CRU liability and Compensators need to be able to advise how to offset their CRU liabilities against the claim presented, and if necessary seek to appeal the liabilities and recover them from the Department for Work and Pensions.

This area of law affects a number of aspects of the case and can sometimes be neglected by parties as the substantive claim is dealt with. This can cause difficulties when settlement is negotiated as it can prove difficult to finalise the settlement figures. The aim of this book is to provide a practical guide to all stages of the CRU and NHS process, from inception of the claim right through to the appellate process for recovery of benefits paid to the CRU.

CHAPTER ONE – BACKGROUND TO THE COMPENSATION RECOVERY
UNIT

In  Parry v Cleaver [1970] A.C. 1 , Lord Reid identified two salient questions about how a Plaintiff (now Claimant) should be compensated:

“First, what did the plaintiff lose as a result of the accident? What are the sums which he would have received but for the accident but which by reason of the accident he can no longer get? And, secondly, what are the sums which he did in fact receive as a result of the accident but which he would not have received if there had been no accident? And then the question arises whether the latter sums must be deducted from the former in assessing the damages.”

In England and Wales, an Injured Person may well be in receipt of state benefits after being involved in an accident or developing a disease. The question that arises is how those benefits should be taken into account, if at all, when damages come to be assessed. Lord Reid’s judgment is often cited as the foundation principle that the state paid benefit monies must be deducted from the Injured Person’s damages when assessing compensation, in order to prevent the Injured Person being over-compensated.

Since 6 October 1997, all compensation payments made as a result of an accident, injury or disease, and paid on behalf of a person compensating an Injured Person in respect of that accident, injury or disease, are subject to deductions of applicable state benefits. The current scheme came into existence on that date, and whilst there were rules in place before 1997, there is little point in  discussing those in detail as they are no longer of any real use to practitioners.  Those who practised in the field of personal injury claims prior to the introduction of the Social Security (Recovery of Benefits) Act (1997) will recall that the offsetting of benefits was treated very differently.  For  a  time,  the  state  recouped benefits payments from any head of loss claimed, including damages for  pain, suffering and loss of amenity, once the damages awarded exceeded £2,500. This position was considered unfair, as damages awarded for pain suffering and loss of amenity were not associated with the payment of state benefits, and Injured Persons were unfairly deprived of a portion of their compensation.

The  rationale behind the current recovery of benefits scheme is that it operates as a  clawback  by the Department for Work and Pensions. It allows the government to recover benefit monies from a Compensator who has admitted causing, or been found by a civil court to have caused, injury, disease or loss to a Claimant and who is paying compensation which reflects, or touches upon, the types of benefit which have been received. The  introduction of the  Social Security (Recovery of Benefits) Act (1997) changed the legislative landscape, in that  there  is no longer any right to recoup benefit payments  from  damages for pain, suffering and loss of amenity. Such damages are now ‘ring fenced’ and cannot be affected by payments of state benefits, although there are some exceptions that are discussed in chapter five.

The current rules require a like for like deduction from damages of the amounts of certain listed state benefits paid to the Injured Person by the Department for Work and Pensions between the date of injury and the resolution of the claim, with a cap of five years from the date of injury. The scheme derives from the general rule set out by the House of Lords in Hodgson v Trapp [1989] A.C. 807, that a Claimant must give credit for benefits which have accrued as a result of an accident which is the substance of the litigation.

The key pieces of legislation enacted in relation to the Compensation Recovery Unit (‘CRU’) are the Social Security (Recovery of Benefits) Act (1997), (‘Recovery of Benefits Act’), the Health and Social Care (Community Health and Standards) Act (2003), (‘Health and Social Care Act’), and the Welfare Reform Act (2012), (‘Welfare Reform Act’). Whilst there is a significant amount of legislation and statutory instruments in this field, these Acts underpin this area of law.

The Recovery of Benefits Act established the current legislative framework for imposing liabilities on Compensators to repay state benefits, and also set out the ways by which benefits could be offset against heads of damage claimed by the Injured Person. The Health and Social Care Act established the framework for the recovery of NHS charges, and the Welfare Reform Act made amendments to the types of applicable benefits which could be offset and paid.

Imposition of liability

Since the enactment of the Recovery of Benefits Act, a person who makes a payment in respect of an accident, injury or disease suffered by another, has been required to repay recoverable benefits to the Secretary of State. As set out in Goff & Jones The Law of Unjust Enrichment 9th Ed. 19-44 the legislation:

effectively give the NHS and the (renamed) Department for Work and Pensions a right to reimbursement from tortfeasors who would otherwise be unjustly enriched at their expense if the damages that they were liable to pay were reduced by the amount of benefit or care received by their victims.

The right of the Secretary of State to recover the benefits from the Compensator is set out at s6(1) Recovery of Benefits Act:

A person who makes a compensation payment in any case is liable to pay to the Secretary of State an amount equal to the total amount of the recoverable benefits.

This statutory provision imposes a liability on the Compensator to repay to the Secretary of State, benefits listed on the Certificate of Recoverable Benefits (‘CRB’). The CRU administers the scheme for the recovery of these monies on behalf of the Secretary of State. The CRU works with insurance companies, solicitors and Injured Persons, to recover social security benefits and NHS charges. The issue of NHS charges will be addressed in a separate chapter later in this book.

The CRU’s website (https://www.gov.uk/government/collections/cru), sets out that it has two stated aims, these are:

• to recover amounts of social security benefits paid as a result of an accident, injury or disease, if a compensation payment has been made; and

• to recover costs incurred by NHS hospitals and Ambulance Trusts for treatment from injuries from road traffic accidents and personal injury claims.

Accrual and cessation of liability

The liability on the Compensator can arise at different times depending upon the type of case that is being brought against the Compensator. The date from which the CRU can recover benefits from is:

1. the day following an accident or injury or

2. in disease cases the date that an applicable benefit is first claimed as a result of the disease

As can be seen in, for example, a case concerning a road traffic accident, the date from which benefits can start to accrue is often very clear and causes little difficulty. In cases concerning for example, injuries attributable to asbestos where there may be no definitive date of exposure, the date can be less clearly assigned as it is not always certain when the medical condition first developed. A Compensator may be well advised to carefully examine the CRB upon receipt and consider whether the benefits listed have been paid as a consequence of the injury or disease, or because of other causes not associated with the substantive claim brought against the Compensator.

A Compensator is not liable to repay benefits paid otherwise than in relation to the accident, injury or disease, and may wish to challenge any benefits listed on the CRB that are not linked to the substantive claim. The Review and Appeals process, by which a Compensator takes such action, is covered in a later chapter in this book.

The date on which the Compensator’s liability for state benefits ceases is:

1. the day a compensation payment is made in final discharge of a claim or

2. the date an agreement is made between the Compensator and injured person under which an earlier compensation payment is treated as having been made in final discharge of any claim or

3. the date five years after the relevant recovery period begins, whichever comes first

As readers will note, point three above outlines the term ‘relevant recovery period’, this is a term defined in s3 Recovery of Benefits Act which provides:

(1) In relation to a person (“the claimant”) who has suffered any accident, injury or disease, “the relevant period” has the meaning given by the following subsections.

(2) Subject to subsection (4), if it is a case of accident or injury, the relevant period is the period of five years immediately following the day on which the accident or injury in question occurred.

(3) Subject to subsection (4), if it is a case of disease, the relevant period is the period of five years beginning with the date on which the claimant first claims a listed benefit in consequence of the disease.

(4) If at any time before the end of the period referred to in subsection (2) or (3)—

(a) a person makes a compensation payment in final discharge of any claim made by or in respect of the claimant and arising out of the accident, injury or disease, or

(b) an agreement is made under which an earlier compensation payment is treated as having been made in final discharge of any such claim, the relevant period ends at that time.

The date on which a Compensator ceases to be liable for state benefits does not cause a difficulty in the majority of cases. The claim for damages is settled at the stage the Compensator repays the benefits, the claim does not succeed (in which case of course no liability to repay the benefits falls on the Compensator), or the five-year point is reached. At any of these points, the Compensator’s liability to repay the applicable benefits ceases.

The position is more complicated though if an appeal in the substantive claim is launched after a trial. In such a situation, the parties should take note of the position expounded by Professor Lewis in his book Deducting Benefits from Damages for Personal Injury Claims. At s13.14, it is noted that, pursuant to the rule in Mitchell v Laing (1998) The Times, January 28, where a case is concluded by way of a Court order and not by way of a settlement, the ‘cutoff date’ is not the date of the Court order, but the date of the payment of the sum awarded. This means that if the judgment is appealed, the recovery period of applicable benefits can continue until the payment of any damages awarded. Therefore, during the life of the appeal, benefits may still accrue, and thus the Compensator’s liability increases.

Non-personal injury claims

This book is aimed at addressing personal injury claims, so I will not dwell on the recovery of benefits in non-personal injury claims, but there are two instances that are worth noting. The CRU’s website contains a very helpful Technical Note. This Technical Note is referred to in a number of sections in this book, it can be found at  https://www.gov.uk/government/publications/recovery-of-benefits-and
-or-lump-sum-payments-and-nhs-charges-technical-guidance/recovery-of-benefits-and-lump-sum-payments-and-nhs-charges-technical-guidance. This Technical Note also addresses the applicability of the scheme in relation to property damage claims, professional negligence claims and goodwill payments. Even though they are not claims arising from personal injury or disease matters, in certain circumstances the scheme can apply to such claims. In relation to property damage claims, the CRU Technical Note asserts:

You must notify CRU on form CRU1 if a claim for property damage includes:

• a claim for loss of earnings

• a loss of mobility

• cost of care

• any other element of compensation

In relation to professional negligence claims, the CRU Technical Note asserts:

Where a claim is made for professional negligence and the particulars of claim, statement of claim or letter before action includes a claim for compensation as a result of the original accident, injury or disease, form CRU1 must be submitted and any listed benefits and lump sum payment paid in consequence of the original accident, injury or disease will be recoverable.

Finally, in relation to goodwill payments, the CRU Technical Note asserts:

A goodwill payment, usually in the form of gift vouchers or the like, is sometimes made in response to a complaint about a product or incident. For example, if someone slips in a retailer’s premises and only suffers a minor injury, inconvenience or embarrassment or if the consumption of foodstuffs is alleged to have caused a stomach complaint.

If such a payment is made at the time of the complaint or incident, CRU does not need to be informed.

However, if such a payment is made at a later date, benefits or NHS treatment may have been received. In these cases, a form CRU1 must be submitted, especially compensation is being sought in respect of:

• loss of earnings

• cost of care

• loss of mobility

As such, a Compensator can be liable to repay applicable benefits in certain non-personal injury claims, where the nature of the claim includes a claim for damages where the Claimant may already have received state benefits. These situations can arise where litigants in person advance their own claims but seek to, for example, only claim for lost earnings caused by the Compensator’s negligence. The Compensator has to be alive to the fact that such a payment may render them liable to also repay any applicable benefits.

Exempt Payments

Whilst the above legislation imposes a liability on Compensators to repay recoverable benefits to the Secretary of State, there are certain situations where the Compensator does not have to repay the recoverable benefits. Schedule 1 Recovery of Benefits Act makes provision for certain compensation payments to be classified as ‘exempt payments’ and thus a liability to repay benefits to the Secretary of State does not arise. Schedule 1 provides that recovery will not be made from the following types of payments:

1. Any small payment (defined in Part II of this Schedule).

2. Any payment made to or for the injured person under section 130 of the Powers of Criminal Courts (Sentencing) Act] 2000, section 8 of the Modern Slavery Act 2015, section 175 of the Armed Forces Act 2006 or section 249 of the Criminal Procedure (Scotland) Act 1995 (compensation orders against convicted persons).

3. Any payment made in the exercise of a discretion out of property held subject to a trust in a case where no more than 50 per cent. by value of the capital contributed to the trust was directly or indirectly provided by persons who are, or are alleged to be, liable in respect of—

(a) the accident, injury or disease suffered by the injured person, or

(b) the same or any connected accident, injury or disease suffered by another.

4. Any payment made out of property held for the purposes of any prescribed trust (whether the payment also falls within paragraph 3 or not).

5. (1) Any payment made to the injured person by an insurer] under the terms of any contract of insurance entered into between the injured person and the insurer] before—

(a) the date on which the injured person first claims a listed benefit in consequence of the disease in question, or

(b) the occurrence of the accident or injury in question.

(2)“Insurer” means—

(a) a person who has permission under Part 4, Part 4A of the Financial Services and Markets Act 2000 to effect or carry out contracts of insurance; or

(b) an EEA firm of the kind mentioned in paragraph 5(d) of Schedule 3 to that Act which has permission under paragraph 15 of that Schedule (as a result of qualifying for authorisation under paragraph 12 of that Schedule) to effect or carry out contracts of insurance.

(3)Sub-paragraph (2) must be read with—

(a) section 22 of the Financial Services and Markets Act 2000;

(b) any relevant order under that section; and

(c) Schedule 2 to that Act.

6. Any redundancy payment falling to be taken into account in the assessment of damages in respect of an accident, injury or disease.

7. So much of any payment as is referable to costs.

8. Any prescribed payment.

Many of these sections require secondary legislation to be brought forwards before they are implemented. As a consequence they are rarely seen in practice, and Compensators are best reminded that they have a statutory obligation to repay applicable benefits unless otherwise relieved of that obligation.

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Swift v Carpenter and the Cost of Special Accommodation - Carin Hunt, Outer Temple Chambers

20/10/20. The case of Swift v Carpenter was heard by the Court of Appeal on 23 -25 June 2020 and judgment is eagerly awaited by catastrophic injury practitioners. This article gives a quick overview of what is in dispute.

What are special accommodation damages?

Consider a Claimant whose injuries have resulted in him requiring a wheelchair to mobilise; he will need to move into specialised and more expensive accommodation than he previously occupied, likely a bungalow fitted to meet his particular needs. This is described by the courts as the claimant’s need for special accommodation.

How have special accommodation damages been calculated in the past?

The amount of damages to be awarded under the head of special accommodation has traditionally been assessed using a formula first relied upon by the Court of Appeal in the case of Roberts v Johnstone [1989] Q.B 878 (‘R v J’).

In R v J, the Court found that it would not be appropriate to simply award the Claimant the full capital cost of the new accommodation she required as a result of injuries caused to her by the Defendant, because that would leave her estate with a windfall upon her death.

Therefore, to avoid the ‘windfall problem’, the Court relied on a formula that, in the circumstances of the case, awarded the Claimant a significant proportion, but not the full amount of, the capital cost of the accommodation she required.

Why the appeal?

The R v J formula relies on the discount rate as one of its components and since the introduction of a negative discount rate (currently set at -0.25%), it has produced a negative figure. In JR v Sheffield Teaching Hospital [2017] EWHC 1245 QB, this was interpreted as giving rise to a nil award to claimants for the cost of their special accommodation.

In Swift v Carpenter the Court heard submissions on the following issues:

1. Whether it had jurisdiction to depart from R v J;

2. If so, should it do so; and

3. If so, going forward, what approach should be used to calculate damages for special accommodation?

Issues 1 and 2

For the Claimant, it was submitted that the Court has the power to revisit R v J and should do so, as the primary objective of the Court should be to compensate Claimants and to enable them to acquire the special accommodation that the Court has determined they reasonably need. The principle of full compensation must outweigh the desire to avoid a windfall to the Claimant or their estate.

In contrast,the Defendant submitted that the Court was boundto follow R v J because it had been followed by the House of Lords in Thomas v Brighton Health Authority [1999] 1 AC 345. Even if it was not so bound, the Defendant submitted that nonetheless the Court should follow R v J because the Claimant could prove no net loss was caused to her by its application.

Issue 3

Both parties also addressed the issue of appropriate alternatives to the R v J formula should the Court be inclined to abandon it.

The Claimant’s primary position was that the full capital value of the special accommodation should be awarded. This approach, it was submitted, would fully compensate victims and enable special accommodation to be purchased in all cases. Further, it avoids expensive inquiry into matters such as reversionary interests, rental yields and other variables - and will therefore be easy to understand both at negotiation stage and trial.

In the alternative, the Claimant submitted that the full capital value less the market value of a reversionary interest in the property should be awarded. The Claimant relied on the expert report of Mr Watson, an actuary, who calculated the value of the reversion based on its ‘market value’. The Defendant objected to this methodology on the basis that there is no real market for reversionary interests and certainly not in respect of residential properties occupied by a life tenant. The Claimant met this objection with a hybrid proposal: if the Defendant is to benefit from a deduction from the capital value of the special accommodation when damages are calculated, then it should do so on the basis that it is prepared to purchase the reversionary interest, thus creating a market for it. The Defendant objected to this proposal inter alia on the basis that Claimants will most often be reluctant to maintain an ongoing relationship with their tortfeasor’s insurer.

The Defendant’s proposed alternative to the R v J formula was based on the expert evidence of its actuary, Mr Robinson, and also involved valuing the Claimant’s loss by considering the value of the reversionary interest. However, the Defendant stipulated that, using such an approach, an appropriate yield or discount rate had to be adopted to reflect the balance of interests between the Claimant and the Defendant and the windfall that would accrue to the Claimant in the circumstances. Accordingly, this discount rate could replace the discount rate set by the Lord Chancellor in the operation of the R v J formula.

Carin Hunt, Outer Temple Chambers

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Summary of Recent Cases, October 2020

15/10/20. Here is a summary of the recent notable court cases over the past month. You can also receive these for free by registering for our PI Brief Update newsletter. Just select "Free Newsletter" from the menu at the top of this page and fill in your email address.

Summary of Recent Cases - Substantive Law

Andrew Chell v Tarmac Cement and Lime Limited [2020] EWHC 2613 (QB)

Facts

The Claimant was employed by Roltech Engineering Ltd as a site fitter. From December 2013, his services (and those of his brother) were contracted out to the Defendant. Tensions subsequently arose between the Roltech fitters and the Defendant's own fitters. On 4 September 2014, as the Claimant bent down to pick up a length of cut steel, Anthony Heath - a fitter employed by the Defendant - put two pellet targets on a bench close to the Claimant's right ear and struck them with a hammer, causing a loud explosion. The Claimant suffered a perforated right eardrum, noise-induced hearing loss measured at 9-10 decibels, and tinnitus. The Claimant brought proceedings alleging negligence directly against the Defendant and alleging vicarious liability.

Findings and Judgment of HHJ Rawlings, 14 October 2019

The Judge below found that the incident was connected with tensions that had arisen between the Roltech fitters and the Defendant fitters, giving rise to a desire on the part of the latter to play a practical joke on the Claimant. The tensions did not include threats of violence and, though reported by the Claimant to representatives of his employer and the Defendant, Anthony Heath was not specifically referred to. The Judge applied the two-stage test of Lister v Hesley Hall Limited [2001] UKHL 22, finding firstly that there was a close relationship between the Defendant and Anthony Heath. The Judge then asked whether, following Mohamud v William Morris Supermarkets PLC [2016] UKSC11, there was a sufficient connection between the close relationship and the act in question, such that it would be just to hold the Defendant responsible.

The Judge held that the act was not within the field of activities assigned to him. The pellet target was not work equipment nor formed part of the work, the act was unconnected to any work instruction, and the act did not advance the purposes of the Defendant. Further, the previous tensions did not create a sufficiently close connection: the Claimant had only felt 'uncomfortable' but not threatened, Anthony Heath had not intended to cause harm, and the tensions were not serious enough to suggest a risk of physical confrontation.

The Judge further found there was no direct duty owed by the Defendant to the Claimant. There was no threat of violence or suggestion that violence was likely. Even if a duty had been owed, it was not breached: horseplay cannot be expected to be included in a risk assessment. In any case, the risk assessment had included a section on general conduct, such that workers were not to intentionally or recklessly misuse work equipment.

The Claimant's Arguments

The Claimant submitted that the Judge should have found the Defendant negligent in failing to design a system to maintain discipline and in failing to react to the tensions. He submitted that the Judge should have found there was a foreseeable risk of injury through horseplay due to the tensions, that there should be a substantial policy on ill-discipline, that the Defendant failed to investigate the tensions, failed to provide Anthony Heath with suitable training and failed to supervise him at the material time.

The Claimant further submitted that the Judge should have given consideration to the close connection test as applied in sexual abuse cases, and that a finding of vicarious liability should have been made for the following reasons. The act happened likely immediately after a course of employment, creating a close link; the act was due to an employment issue which should have been managed by the Defendant; the Claimant was placed in a vulnerable position by the Defendant given the former was a temporary worker; the employment created the opportunity for the act; and the act involved work equipment.

The Defendant's Arguments

The Defendant sought to defend the court below's findings of fact and submitted that a risk assessment or greater supervision would not have prevented the accident. The Defendant further submitted that the Judge had carefully weighed the sufficiency of a connection between the relationship (between the Defendant and Anthony Heath) and the act.

Findings on Vicarious Liability

The Judge described the below Judgment as exemplary in its treatment of the leading cases on vicarious liability. The two-stage test of Lister was appropriately adopted.

Morrisons v Various [2020] UKSC 12 was not available to the Court below. In that case it was held that the act had to be so closely connected with acts the employee was authorised to do that it might fairly and properly be regarded as done by the employee while acting in the ordinary course of their employment. Had the Judge below had this judgment, it was held, he would only have been fortified. This was a case of an employee being on a 'frolic of his own': the work equipment was incidental to the act, and the temporal connection is of even less significance given the Supreme Court decision (and in any event should not be a significant factor, it was held).

Findings on Breach of Duty

The Judge was correct to find that horseplay need not be included in a risk assessment. Where a site is dangerous, 't is expecting too much of an employer to devise and implement a policy or site rules which descend to the level of horseplay or the playing of practical jokes'. The general conduct section of the risk assessment was sufficient, and increased supervision to prevent horseplay was not a reasonable step to expect the Defendant to have identified and taken. The Judge was further entitled to find that the situation as presented to the Defendant prior to the incident did not merit specific action in relation to Anthony Heath where there was no reasonably foreseeable risk of injury to the Claimant at the hands of Anthony Heath. It is difficult to argue that a Defendant should have taken steps to avoid such behaviour if the employee is on a frolic of his own.

Conclusion

The Judge had been right in both law and in fact and the appeal was therefore dismissed.

Summary of Recent Cases - Costs

Dr Andre Oberholster v Ms Jayne Little and Optical ExpressLtd [2020] EWHC 2635 (QB)

Facts

The Claimant contracted with the Second Defendant ("D2") for surgery. The surgery was carried out by the Eighth Defendant ("D8") as engaged by D2. The Claimant sued on the basis that the risks of the surgery were not properly explained, making claims against various companies related to D2 as well as against D2 and D8. The Claimant made a Part 36 offer of £105,000 to all Defendants on 20 June 2019, which was accepted on 1 July 2019 by D2. By agreement, the claims against the other companies were discontinued with no order as to costs. The Claimant then applied for costs between themselves and D8 to be determined by the court, while D8 applied for their costs to be paid by the Claimant or D2. D8 applied to strike out the claim against them.

The Decision Below

D8 was ordered to pay the Claimant's costs of proceeding against them. It was held that the claim could not succeed against D2 unless it succeeded against D8, given the latter was responsible for the consent process. D8 could still pursue proceedings against D2. The parties had agreed to summary assessment of costs, thus there was no need for a trial.

D8 appealed, seeking an order that the Claimant pay D8 their costs of defending the action and then seeks to recover them from D2 as part of the Claimant's costs (a Bullock Order); alternatively, an order requiring D2 to pay D8's costs (a Sanderson order); alternatively, no order as to costs between the Claimant and D8.

D8's Arguments

The Case that D8 was the Successful Party

D8 submitted that they were deprived of being vindicated at trial by virtue of D2's acceptance of the Part 36 offer. Had they had a trial, they would have vindicated their position.

Held: there was no finding of success in this case. It was reasonable to bring a claim against D8 and no conclusion of this claim was brought about by D2's acceptance of an offer, given the remaining issue of costs. Bullock and Sanderson orders would not be appropriate where D2 was not clearly unsuccessful vis-a-vis D8, as no findings had been made even between D2 and C, let alone D2 and D8.

Summary Process

D8 submitted that the summary process was unjust because the Judge made findings of fact as to which party would be liable. This submission was rejected: agreed medical evidence was sufficient to support the conclusion that ultimate responsibility for consent lies with D8. Further, the court did not adjudicate on which party had won, but was merely taking a broad-brush approach: there were sufficient difficulties in D8's case that justice was done by making a costs order adverse to D8. The summary process was agreed between the parties and thus the broad-brush approach could not be argued against.

Judge did not evaluate what a just order would be where D8 had no involvement in the settlement

D8 submitted that they suffered prejudice in being ordered to pay costs where they had been willing to go to trial. This submission was rejected. It was held that while this might be a tenable way of analysing the matter, the Judge below had not erred simply by not taking this route. Further, the depravation of a trial was caused proximately by D8 agreeing to a summary process. The cases of D2 and D8 were inextricably linked and it was likely, given D2's settlement, that D8's case faced serious difficulties.

No consideration as to who was the successful party, nor reasons given as to why D8 was not the successful party

This is principally covered in the above findings on why D8 was not a successful party. The Judge below was correct to find that D8 could not be held to be a successful party - the position remained unknown. The strike out application had failed and the outcome not appealed. The view the Judge took was 'well available' to them.

D8 had a remedy in contribution proceedings which was contrary to the Overriding Objective because it would lead to more cost, delay and court time

D8 submitted that the decision took into account the possibility of contribution of D2, and that this would require a trial which would be contrary to the overriding objective. This submission was rejected: there was already a potential for contribution proceedings regardless of the Judgment below. The Judge was entitled to consider the possibility of contribution proceedings given the likelihood of their taking place, and in any case such consideration did not form the primary basis for finding that the costs order should be made. Such consideration did not render wrong the exercise of the Judge's broad discretion.

No consideration or reasons given for rejecting Bullock/Sanderson order

It was held that the Claimant was correct to say that this ground must rely on D8's assertion that it was the successful party. There cannot be an error in the Judge's failure to make such an order where there is no 'successful' defendant. In any case, D8 accepted that Bullock/Sanderson orders are a matter of discretion under CPR r.44.2, and therefore there was no error of principle in the Judge's failure to make one.

'No order as to costs' - no reasons given as to why this was not the outcome

As above, while no order as to costs was open to the Judge, the Judge did not err in exercising their discretion in another (justifiable) manner. There was no failure to give reasons - the reasons given for the order actually made also amount to reasons as to why no other particular order (of those open to the Judge in their discretion in the circumstances) was made.

Conclusion

There may be many alternative ways of looking at a matter which were available to the judge, but this is not sufficient basis to overturn or vary decisions below, particularly where - as in summarily-assessed costs - the court below has a generous discretion. D8 had agreed to their costs being summarily assessed, which inevitably gives rise to a broad-brush approach. That approach gave the Judge an entitlement to assess, on the basis of agreed facts, the likelihood of D8's being successful at trial, one such relevant fact being the acceptance of a significant offer by D2 (on whose case the case of D8 in part relied). Given D8 was unlikely to succeed at trial (taking the broad-brush approach), there was no error of law in the Judge ordering that they pay the Claimant's costs. IT was well within the broad discretion available in costs, particularly so where the parties have entrusted the court to take a broad-brush approach without resolving the issues via a trial. Appeal dismissed.

Summary of Recent Cases - Costs (continued)

Terracorp Ltd v Mistry & Ors (Rev 1) [2020] EWHC 2623 (Ch)

Introduction

This case was an appeal of an issue-based costs order. It does not break new ground in terms of the law to be applied. However, it represents a helpful reminder of the relevant principles, and it emphasises the difficulty of appealing against a costs order made by a first instance judge. You will notice in this issue there are two costs cases and none under the heading of civil procedure. The reason is that both costs cases are recent and relatively interesting, while this month has been comparatively bare on major cases relevant to civil procedure.

Facts

This was a commercial case which the Defendants won at first instance, by demonstrating that they were not contractually required to pay certain charges in covenants relating to purchased parcels of land. However, the Defendants had wasted considerable time, both of the Claimant and of the court, by running defences "including fraudulent misrepresentation, conspiracy, estoppel, title to sue, and allegations that the original sales had been part of an unauthorised collective investment scheme". All of these had failed.
The court at first instance was faced with conflicting submissions on costs, with the Defendants asking for their costs as the winners, and the Claimant asking for an issues-based costs order whereby it would pay only 10% of the Defendant's costs. The judge took the view that the appropriate costs order would be for the Claimant to pay 50% of the Defendants' costs on a broad-brush basis.

The relevant legal principles

As a reminder to practitioners, the relevant legal principles are set out in the judgment of Jackson J(as he then was) in Multiplex v Cleveland Bridge [2009] Costs LR 55. They were not disputed and I set them out as relevant:

"(ii) In considering how to exercise its discretion the court should take as its starting point the general rule that the successful party is entitled to an order for costs.
(iii) The judge must then consider what departures are required from that starting point, having regard to all the circumstances of the case...
(v) In many cases the judge can and should reflect the relative success of the parties on different issues by making a proportionate costs order.
...
(viii) In assessing a proportionate costs order the judge should consider what costs are referable to each issue and what costs are common to several issues. It will often be reasonable for the overall winner to recover not only the costs specific to the issues which he has won but also the common costs."
[12] In addition:
(i) The fact that a party has not won on every issue is not, of itself, a reason for depriving that party of part of its costs.
"There is no automatic rule requiring reduction of a successful party's costs if he loses on one or more issues. In any litigation, especially complex litigation such as the present case, any winning party is likely to fail on one or more issues in the case. As Simon Brown LJ said in Budgen v Andrew Gardner Partnership [2002] EWCA Civ 1125 at paragraph 35: "the court can properly have regard to the fact that in almost every case even the winner is likely to fail on some issues" ... (Gloster J in Kidsons v Lloyds Underwriters [2007] EWHC 2699 (Comm)).
(ii) The reasonableness of taking a failed point can be taken into account (Antonelli v Allen The Times 8th December 2000 per Neuberger J).
(iii) The extra costs associated with the failed points should be considered (Antonelli).
(iv) One still has to stand back and look at the matter globally, and consider the extent, if any, to which it is just to deprive the successful party of costs (Antonelli).
(v) The conduct of the parties, both before and during the proceedings, is capable of being relevant (CPR 44.3(5))."


The first instance judge's reasoning

The judge at first instance considered that weight should be given to the general rule that the winners should get their costs. However, while the other defences were reasonable, they accounted for a large part of the trial, both as to evidence and argument, and they failed. This took the case beyond those where a successful party loses on one or more issues but should not be deprived of costs.

The decision of the High Court

The Claimant appealed the decision of the judge on costs to the High Court. They criticised the first instance judge for not making an issues-based costs order, and submitted that the 50% award was not just, fair or proportionate.

Miles J referred to the Court of Appeal decision in English v Emery Reimbold [2002] EWCA Civ 605, in which the Court emphasised: (1) that it is in the interests of justice that a Judge should be free to dispose of applications as to costs in a speedy and uncomplicated way; (2) appellate courts will usually be in a worse place than the trial judge to exercise discretion in relation to costs; and (3) that where no express explanation is given for a costs order, an appellate court will approach the material facts on the assumption that the Judge will have had good reason for the award made.

Miles J did criticise the first instance judge, suggesting that he could have set out his reasons more fully than he did. However, he set out the judge's logic, and having done so, he felt unable to conclude that the judge's decision was not rationally open to him. Importantly, Miles J concluded that the first instance judge took into account all the relevant factors, and he was well aware that the lost defences had taken up significant time and cost.

Note for Practitioners

This case is another illustration of the difficulties which arise when appealing the discretionary costs decision of a first instance judge. When the appeal is on a legal point, then all it takes for the decision to be overturned is for the judge to be 'wrong'. However, when matters of discretion are involved, the relevant test is that the first instance judge must have "exceeded the generous ambit within which a reasonable disagreement is possible":G. v G. (Minors: Custody Appeal) [1985] 1 W.L.R. 647, HL, at 652.
Courts will be especially reluctant to overturn a discretionary decision of a first instance judge where that judge is in a better position than the appellate court to weigh up the relevant factors: which is precisely the case when the trial judge makes a discretionary costs order. Care therefore must be taken when advising a client whether to appeal a costs decision: in circumstances similar to this case, appealing will often result in throwing good money after bad.

Paul Erdunast & Harry Peto
Temple Garden Chambers

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