Litigation costs update – Guideline Hourly Rate, Part 36……again and discontinuance

In this month’s edition, we look at two of the more important areas that litigators face on a daily basis: Guideline hourly rates and the notorious Part 36, both of which have come in to prominence again recently.

We also look at issues relating to discontinuance and where it may be viable for the Claimant to avoid the costs liability after discontinuing a claim.

Guideline Hourly Rates

Master of the Rolls, Lord Dyson, has confirmed that there will be no increase in the guideline hourly rates, which have been at the same level since 2010, for the “foreseeable future”. This is a change in stance from less than 12 months ago when he intimated that a review of the guideline rates was “urgent”.

The reasoning for the decision is that the Civil Justice Council’s data was not sufficient to enable a comprehensive review of the rates and the cost of obtaining such data was prohibitive.

‘These discussions and this correspondence have not made any material change to the position I was placed in last July – there is no funding available from any source for undertaking the sort of in-depth survey which the Civil Justice Council’s Costs Committee and its expert advisers consider is required to produce an adequate evidence base,’ Dyson said.

The advent of costs budgeting and the proposal for fixed costs across the fast-track have both made hourly rates less relevant but Lord Dyson conceded that they are still of use.

‘They remain an integral part of the process of judges making summary assessments of costs in proceedings. They also form a part, even if only a starting reference point, in the preparation of detailed assessments. They also provide a yardstick for comparison purposes in costs budgeting. I know that for some smaller practices, GHR also offer a rate to base practice charges on, and to demonstrate to clients a national benchmark’

Whilst Defendants will no doubt welcome confirmation that there will be no increase in these rates, Claimant practices are likely to feel further squeezed given rising overheads and the inevitable effect of inflation.

Part 36

It is perhaps not surprising that the latest update to the Civil Procedure Rules, effective from 6 April 2015, has introduced further amendments to Part 36. The relevant changes have sought to codify recent case law and the key changes are as follows:

Costs Budgets

If a party has failed to file a costs budget, under CPR 3.14, that party will be limited to court fees only. In such a situation, if the defaulting party has made a Part 36 offer, there is little incentive for the other side to accept the same as the potential costs exposure is minimal.

CPR 36.23 now states that the “costs” for the purposes of Part 36 are not limited to court fees only but will be 50% of the costs assessed.

However, this only applies to costs from the expiry of the relevant period and if the Claimant is in default, and the offer is accepted within the relevant period, the new rule does not allow the Claimant to avoid the limitation of court fees.

Later Acceptance of Offers

Under the new 36.13(5), if a Part 36 offer is accepted out of time then the Court must, unless it considers it unjust to do so, make the usual order.

The previous wording provided a broader discretion by simply stating “if the court orders otherwise”.

Time-limited Offers

Under the old rules, a Part 36 offer could only be withdrawn when a separate written notice was served. However, under 36.9(4)(b), the terms of a Part 36 offer can now also include an automatic withdrawal after the expiry of the relevant period. However, given that costs consequences do not apply to withdrawn offers under 36.17(7), it seems unlikely that this provision is going to be used as a matter of course.

Counterclaims

In claims where the Defendant has a counter claim, which could actually exceed the value of the Claimant’s claim, that Defendant is now able to make a Claimant’s Part 36 offer courtesy of 36.2(3). This enables the Defendant bringing a counter claim to benefit from the advantageous costs consequences of making a Claimants’ Part 36 offer.

This was previously recognised by the Court of Appeal in AF v BG [2009] EWCA Civ 95but was surprisingly not always upheld in subsequent cases.

Discontinuance

As CPR 38.6 states, if a Claimant discontinues, he will be liable for the Defendant costs “unless the Court orders otherwise.” This was the issue considered by the High Court in Cockell (t/a Cockell Building Services) v Holton [2015] EWHC 459 (TCC) (06 March 2015).

The Defendant issued a Part 20 claim in respect of defective building works that had been undertaken by the Claimant. It was alleged that the Part 20 Defendant, who was the Claimant’s father, was a partner in the Claimant’s business and was therefore also liable for the defective works. In an attempt to prove his claim, the Part 20 Claimant applied for specific disclosure in respect of the business affairs of both the Claimant and Part 20 Defendant. However, this disclosure exercise was not successful and no evidence of a partnership was ever found.

The Part 20 Claimant therefore discontinued his claim against the Part 20 Defendant but made an application under CPR 38.6(1) that the usual costs consequences of discontinuance should not apply. This was because bringing the Part 20 claim in the first instance was fully justified and it was not until the application for specific disclosure had been complied with did the true position become clear.

However, Mr Justice Edwards-Stuart held that the application for disclosure was doomed to fail given that the Part 20 Defendant had fully explained the relationship with the Claimant in his Defence.

Indeed, it was held that the counter claim as a whole had no merit and as such the Part 20 Claiman

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t was ordered to pay the Part 20 Defendant’s claim on the indemnity basis.

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