On 12 October 2011 the Court of Appeal handed down judgment on the appeals of nine preliminary issues from the Senior Cost Judge’s original determinations in the above inter partes detailed assessment. What follows is a summary of the Court of Appeal’s decisions:
Proportionality - A court’s decision that costs are globally disproportionate (the Lowndes test) requires each and every item in the bill of costs to pass the test of necessity. Even if the total sum of the costs is proportionate, the test of necessity may still be applied to an item that may seem disproportionate.
Vetting costs – The Senior Costs Judge had determined that the Claimants were entitled to the reasonable and proportionate costs associated with collection, assessment and management of each of the claims. The date from when such work could be recovered depended on the wording of the CFA. The Court of Appeal agreed with the Judge’s conclusions, save that the necessity test must be satisfied before any item of such work is recovered and any specific (as opposed to generic) item can only be recovered if it falls within the grasp of the relevant CFA; ie no work done before the CFA is entered can be charged unless the CFA specifically allows it.
Pre-Action Protocols - Although the Claimants had failed to comply with Practice Direction – Pre-Action Conduct Protocol, it was decided that no extra costs had been incurred and where any unnecessary costs were incurred the paying party was free to argue on detailed assessment that those items are disproportionate.
Medical Reports – The Senior Costs Judge had been asked to determine what was recoverable in respect of the medical reports obtained on behalf of the Claimants. The Court of Appeal upheld the decision that the Claimants were entitled to recover the reasonable and proportionate fees and associated costs subject to the medical reports passing the test of necessity.
Abandoned claims - As the test of necessity is to be applied to each item in a bill of costs the issue is whether the costs of an abandoned claim were reasonably and necessarily incurred. The Claimants can recover costs of “abandoned claims” if it was reasonable and proportionate to plead, investigate and pursue them.
Settlement and Distribution - Two issues were considered. The first issue was whether the Claimants’ solicitors should be entitled to recover costs after the date of the Settlement Agreement associated with the distribution of the damages. The Court of Appeal upheld the Senior Costs Judge’s decision that the terms of the Settlement Agreement did not change the normal rule that such work is a recoverable cost of the action, subject to it being reasonable and proportionate. On the second issue, it was held that a cut-off date of 26 October 2009 to recover such costs should not be applied as it could unfairly penalise the Claimants and the use of a cut-off date had not been argued by either party.
Cost of Funding - The Senior Costs Judge had originally held that the costs of and in connection with establishing and setting up the CFA and/or the ATE insurance policy were recoverable. The Court of Appeal disagreed with that decision and held that costs incurred in connection with a CFA and ATE insurance are ultimately attributable to the need of a litigant to fund the litigation as opposed to the actual funding of the litigation itself and therefore cannot be a cost of the litigation. In respect of correspondence with ATE insurers, this should be treated not as a cost of the litigation but as a cost which was collateral to the litigation as it was incurred to ensure that the Claimants were not at risk on costs.
Success fee - It was held that the Senior Costs Judge made no error in determining the recoverable success fee uplifts of 58% for both solicitor and counsel.
ATE premium - The decision to allow a premium of £9,677,554 was upheld as the 65% prospect of success that was used to calculate the premium was justified.