The end of Mullaraj: High Court guidance on costs of assessment when significant reductions are made

The end of Mullaraj: High Court guidance on costs of assessment when significant reductions are made

The High Court has now handed down a costs judgment in an appeal by the claimant in TRX which has found that where significant savings are made to bills of costs, a reduction of detailed assessment costs would be “unexceptional”.

This is an extremely important, and helpful, decision to costs practitioners. Had the claimant’s appeal succeeded then, save for circumstances such as fraud or “skulduggery”, the primary factor in dealing with the award of assessment costs would have been the status of Part 36 offers. Paying parties would have been left in the position where even if substantial savings were secured the claimant would still get all their assessment costs because a successful offer had not been made. This would have been very damaging in cases where a claimant’s solicitor’s bills are so unreasonable in amount that assessing quantum is problematic.

Summary

TRX [2022] EWHC 3392 (KB) was an appeal from a long-running detailed assessment in the SCCO before Costs Judge Brown. The claimant’s solicitors were Bolt Burdon Kemp and part of the appeal related to retainers and was case specific.  However, the judge agreed to consider “whether the Costs Judge erred in principle in his approach to the awarding of costs in the detailed assessment” and to provide “clarity at appellate level for future cases in light of the tension between Mullaraj and Millbrooke” on when the presumption that the paying party pays is rebutted.

Mrs Justice Stacey has now provided helpful guidance and confirmed that Mullaraj was wrongly decided and that the starting point for deciding what order to make on the costs of assessment is the “comprehensive” code set out in CPR 47.20.

CPR 47.20 states that the presumption is that a receiving party will receive its costs of assessment, but that:

 (3) In deciding whether to make some other order, the court must have regard to all the circumstances, including:

            (a) the conduct of the parties;

            (b) the amount, if any, by which the bill of costs has been reduced; and

            (c) whether it was reasonable for a party to claim the costs of a particular item or to dispute that item.”

The Detailed Assessment

The claimant’s bill of costs was £65,523.36.  At the end of the detailed assessment it was noted that the claimant’s Part 36 offer was £33,500, almost a 50% reduction. The defendant had made an offer of £15,000 in the first instance and then £35,000 in full and final settlement partway through the assessment process (which ran to several days, spread across a six-month period).

The bill was eventually reduced in the assessment to £23,008.15, a reduction of 65%.

In the SCCO before Costs Judge Brown the defendant argued that the general rule that the receiving party receives its costs of the detailed assessment be disapplied and the court makes some other order. The claimant’s argued that the presumption in 47.20 had not been rebutted, and that the defendant’s failure to make a suitable Part 36 offer was to be given the greatest weight, meaning the claimant should receive all of its costs of assessment.

Judge Brown agreed with the defendant’s arguments and commented:

“32. I am satisfied that there is a substantial basis for departing from the presumed rule, the presumptive rule in 47.20(1) and that it would be unjust not to do so in this case when considering not just the costs of the funding issues, but also matters generally. Indeed it seems to me to be clear that some other order is appropriate: if not in this case, it might be asked, when would it be? Plainly, in most cases a Part 36 offer, or the absence of an effective one, will be determinative. But the question might reasonably be asked, what is the point of r.47.20(3) if the making of a Part 36 offer is the only consideration and that this matter assumes such pre-eminence that no or no substantial weight can be attached to the other factors?”

In making his decision that there be no order for costs, Judge Brown found that the level of costs claimed by the claimant’s solicitors was unreasonable in amount and that they would have known it was substantially unreasonable.

The Claimant appealed.

The Appeal

The appeal was heard before Stacey J who noted on the appeal that Judge Brown “…concluded that the total reduction in bill for the amount claimed was exceptional and dramatic. He was also concerned about the miscertification point which he found to be serious and substantial, although it fell short of misconduct.”

During lengthy legal argument around the relevant case law, the claimant sought to rely on the Fox and Global Energy cases, in that it is important for parties to be encouraged to make Part 36 offers.

However, the judge rejected the claimant’s analysis and found that “the lodestar is the wording of CPR 47.20” and that when deciding whether to make some other order must take into account the factors set out in 47.20(3) as well as “all the circumstances” which would include principles from CPR 44.20 and Part 36.

She confirmed that, saying: “Furthermore, the cases are fact and circumstance sensitive, and it would be wrong to try to lay down any hard and fast rules when the facts and the circumstances can vary so much from case to case.” It was noted that where relevant Part 36 offers are beaten, the usual cost consequences would likely follow; however, difficulties arise where there are no such offers.

At paragraph 106 of the judgment she confirmed: “I cannot accept the claimant’s argument that, in those situations, as a matter of principle, it would be wrong for a costs judge to make no order for the paying party to pay any of the costs of the receiving party.”

The existence of such offers would be a “relevant factor, but will not necessarily be the most important or only relevant factor. Fox and Global are directed to Part 36 offers in main proceedings for damages. They have some relevance and application to the costs of a detailed assessment, but they must be considered through the prism of Rule 47.20, which is its own comprehensive code.”

While making no order for costs in circumstances where there is no successful Part 36 offer might be unusual, such a decision would need to consider all the relevant factors, including conduct, the amount of reduction applied, and the reasonableness of claiming certain items.

The judge declined to interfere with the cost judge’s discretion, concluding that a “reduction of less than 100% would have been unexceptional in all the circumstances of the case. It is almost common sense that where there has been a very significant reduction in the assessed costs from the costs claimed, it may well sound in a percentage reduction to the receiving party's costs.”

Paying parties can be encouraged at confirmation that where large savings are achieved, or where costs are claimed unreasonably, the courts must consider these factors when deciding what order to make at the end of a detailed assessment and that, particularly absent any successful offers, reductions would not be regarded as unexceptional.