Assessing costs can be expensive for the loser, even if they are on the receiving end. However, if a hearing is held solely to assess costs, the aftermath can lead to additional expenses.
Following the implementation of the Jackson reforms in July 2013 and the introduction of a more robust fixed cost regime, it was assumed that disputes over costs would become rare and, if they did occur, would be resolved efficiently. However, as with any new system, technical issues and oversights led to unforeseen consequences.
This post compares how fixed recoverable costs disputes are resolved, distinguishing between the regimes before and after 1st October 2023.
Pre-1st October 2023 regime
Imagine a fixed-cost personal injury case settles by way of Part 36. The accident predates the 1st October 2023 regime. CPR 36.20 says that the Claimant becomes entitled to:-
- The applicable fixed recoverable costs under Part 45; and
- The recoverable disbursements allowed by CPR 45.29I
The parties attempt to agree on the amount of fixed costs, which is usually straightforward, and any disputed disbursements. If they cannot agree on costs, CPR 36.20(11) allows the Court to determine the issue. This is a determination by application rather than through a form bill of costs for a detailed assessment.
The Court of Appeal in Doyle v M&D Foundations & Building Services Limited [2022] EWCA Civ 927 held the obiter view that the Part 45 fixed costs regime is a self-contained code and is distinct from the summary and detailed assessment procedures in CPR 44.6. Phillips LJ expressly stated that detailed assessment is not the mechanism for determining costs and disbursements under the Part 45 FRC regime.
The practical consequences are:-
- No bill of costs is required.
- No Points of Dispute and Replies procedure.
- No line-by-line assessment.
- The court simply determines entitlement under Part 45.
The matter goes to an application hearing where any remaining issues are resolved. The question that follows is: How are the costs of that determination hearing calculated?
Parsa v DS Smith plc and Another [2019] Costs LR 331 shows that, when adopting the position of Sharp v Leeds City Council [2017] EWCA Civ 33, the ‘main proceedings’ commence once the CNF is sent and end upon conclusion of the main action, i.e. trial or settlement. In respect of settlement, if a determination hearing is needed then it takes place outside the fixed costs regime.
On this basis, the costs of a fixed costs determination hearing are, ironically, subject to cost being assessed on the standard basis.
Post-1st October 2023 regime
The new regime has now dealt with the laguna which is the absence of a fixed cost regime for dealing with the determination of fixed costs of the main action.
CPR 45.64 now provides a streamlined procedure for resolving disputes about costs and disbursements only where the parties have already reached a written agreement on all other issues in a claim governed by this Part. If liability and all substantive matters have been settled, but the parties cannot agree on the amount of recoverable costs or disbursements, the receiving party may ask the court to determine that outstanding amount.
Where proceedings are already in hand, the receiving party must make the application within those proceedings under Part 23, subject to the modifications contained in this rule. If proceedings have not yet been started, the receiving party must commence costs-only proceedings under rule 46.14 and seek determination through that process.
Unless the court orders otherwise, the application must be supported by evidence served at the same time as the application. That evidence must include the written settlement agreement (or written confirmation of it) and a completed Precedent U, setting out the costs and disbursements claimed and any additional claims under rules 45.9, 45.10 or 45.13 where relevant.
The paying party must then file and serve any evidence in response, together with a completed response to Precedent U, within 21 days. The 21-day period runs from service of the application where proceedings have already been commenced, or from filing an acknowledgement of service where proceedings have not yet been started.
The court will ordinarily determine the application without a hearing. The only costs recoverable in relation to the application are those prescribed by Table 17 of Practice Direction 45, together with any applicable court fee.
After considering the papers, the court records its decision by annotating Precedent U, noting its determination against each item claimed. The annotated Precedent U is then served on the parties with a notice explaining that any party wishing to challenge any aspect of the determination must request a hearing.
A party seeking reconsideration must file and serve a written request for a hearing within 21 days of service of the notice. The request must specify which parts of the determination are challenged and provide a time estimate for the hearing. If no request is made within that period, the court’s determination becomes binding on the parties.
Where a hearing is requested, the court will list it and give at least 14 days’ notice. The hearing is not intended to provide a cost-free second opportunity to argue the case. The general rule is that the party requesting the hearing must pay the costs of and incidental to that hearing unless they obtain an improvement in their own favour of at least 20% of the amount originally determined by the court.
For the purpose of any costs order arising from the hearing, the matter is treated as an interim application under rule 45.8. The costs payable in respect of the hearing are assessed summarily by the court at the hearing itself.
Comparison
The pre-1 October 2023 fixed recoverable costs regime had the advantage of procedural simplicity when determining entitlement to fixed costs and disbursements because disputes were resolved by application rather than through the detailed assessment process, avoiding bills of costs, Points of Dispute and line-by-line scrutiny. However, the regime contained a significant anomaly. Where the parties required a hearing to determine fixed costs, the costs of that determination hearing fell outside the fixed costs regime and were themselves recoverable on the standard basis. This created the potential for disproportionate satellite litigation concerning relatively modest costs disputes.
By contrast, the post-1 October 2023 regime introduced CPR 45.64, which provides a dedicated and streamlined procedure for resolving costs-only disputes under the fixed recoverable costs scheme. Determinations are ordinarily made on paper using Precedent U, with tightly controlled recoverable costs and a deterrent costs consequence for parties who unsuccessfully seek reconsideration at a hearing. The principal advantage is greater certainty, proportionality and cost control. A potential disadvantage, however, is that parties have less procedural flexibility and may perceive a reduced opportunity to fully contest disputed items, particularly given the default paper-based determination process and the risk of adverse costs consequences when requesting a hearing. It also means that the cost of undertaking a fixed-cost determination hearing is not proportionate to the sums of money recoverable to warrant appropriate challenges, even when the party believes they are correct in terms of position.
Conclusion
The fixed recoverable costs regime remains a somewhat strange creature. It was never designed to achieve perfect justice in every case, but rather to provide a rough-and-ready framework which delivers certainty, proportionality and predictability across the board. As with any system based upon fixed figures, there will inevitably be winners and losers. The underlying philosophy is one of swings and roundabouts: parties may recover more than would be justified on a detailed assessment in some cases and less in others, but the overall benefit is the reduction of costs litigation and the promotion of proportionality. In the vast majority of cases, no determination is required because the recoverable costs are apparent from the rules themselves. However, disputes will occasionally arise, whether over the recoverability of a particular disbursement or over the proper interpretation of the rules. In that respect, fixed costs disputes are no different in principle from arguments which arise on summary or detailed assessment.
Prior to 1 October 2023, the absence of a bespoke procedure for determining such disputes created the potential for costly satellite litigation which was often disproportionate to the sums in issue. The introduction of CPR 45.64 has sought to cure that defect by providing a streamlined paper-based process, with any oral hearing carrying cost consequences for a party who fails to improve upon the court’s provisional determination by at least 20%. Whether there will in practice be many reconsideration hearings remains to be seen. The combination of a paper determination process and the risks associated with seeking an oral hearing may discourage challenges. Equally, the relatively modest costs at stake may mean that the regime does not always provide a sufficiently strong incentive or deterrent. What is clear, however, is that practitioners must remain alive to the new procedural framework and its consequences. If the reforms achieve anything, it is hoped that parties will adopt more careful and realistic positions on costs disputes from the outset, thereby avoiding the very satellite litigation which the fixed costs regime was intended to eliminate.
Information
Alec Hancock is a practising Barrister at Magdalen Chambers in Exeter. For instructions on matters, please contact Magdalen Chambers via clerks@magdalenchambers.co.uk or by telephone on 01392 285 200.
