High Court guidance on payments on account of costs
December 16, 2019
In an important judgment, Master Cook, one of the Queen’s Bench Masters assigned to deal with clinical negligence claims in the Royal Courts of Justice, has set out guidance relating to payments on account of costs in high value clinical negligence and personal injury claims.
RXK v Hampshire Hospitals
In RXK v Hampshire Hospitals NHS Foundation Trust  EWHC 2751 (QB), the Claimant (C) had suffered neurological injury (dyskinetic cerebral palsy) as a result of profound asphyxial insult due to negligence in the management of her delivery at the time of her birth in November 2013. Proceedings were issued 3 years later in November 2016, and judgment was entered in July 2017 for damages to be assessed. At the same time, the Claimant was awarded her liability costs to be subject to detailed assessment if not agreed, and interim payments of £100,000 on account of damages and £50,000 on account of costs were made. Directions for expert evidence were given in March 2019, the expectation being that it would not be possible to assess damages on the basis of a settled prognosis until C was between the ages of 12 and 22 years. C’s solicitors applied for a further interim payment on account of costs. Whilst criticising the evidence in support of the application as “no more than a cri de couer for more money”, Master Cook made clear that such applications have a sound legal basis under the CPR, and gave valuable guidance as to how they should be prepared.
The Court’s Discretion as to Costs
CPR 44.2 gives the Court a wide discretion as to whether costs are payable, and if so when they are to be paid, subject to the general rule that the unsuccessful party will be ordered to pay the costs of the successful party. Under CPR 44.2(8), where the Court orders a party to pay costs subject to detailed assessment, it will order that party to pay a reasonable sum on account of costs, unless there is good reason not to do so. The purpose of this rule, originally introduced in consequence of the Access to Justice Final Report, was to enable a receiving party to recover part of his expenditure on costs before the possibly protracted process of detailed assessment. The question which arose in RXK, however, was whether the rule could be utilised to obtain a payment on account of costs in relation to an aspect of the claim (quantum) which had yet to be determined.
Under CPR 44.2(6)(c), the Court has power to order payment of costs from or until a certain date. In X v Hull & East Yorkshire Hospitals NHS Trust (a county court decision, in which the CA subsequently refused leave to appeal), HHJ Robinson held that, following an admission of liability in a clinical negligence claim which resulted in an order for costs, the court had jurisdiction to make a costs order in respect of an aspect of the proceedings (quantum) which had yet to be determined. He reasoned that solicitors acting in heavy and protracted litigation were entitled to expect an adequate cash flow. If no adequate cash flow could be secured between the determination of liability and quantum, solicitors might be deterred from taking cases of this type at an early stage, to the detriment of access to justice.
Master Cook’s Decision
Recognising that there was no High Court authority as to whether applications for costs were well-founded in cases where there was likely to be a substantial delay before quantum could be determined, Master Cook in RXK gave a written judgment in the hope that such applications would be better prepared in the future. He accepted that “the need for solicitors engaged in heavy and protracted litigation to expect adequate cash flow is now well understood and enshrined in the rules.” Although costs orders were normally made at the end of the proceedings (or interlocutory proceedings), the Court’s discretion was wide enough to enable “prospective” or “anticipatory” costs orders to be made, based on assumptions as to the outcome of the proceedings. Master Cook noted that the Court’s power under CPR 44.2(8) to order a payment on account of costs only applied where it had made a costs order subject to detailed assessment. Since HHJ Robinson in X had made an order under CPR 44.2(6)(c) for costs to be paid down to the date of the interim payment application, he had power to order a payment on account of such costs.
The application which should therefore be made in circumstances where there was likely to be a delay before quantum could be determined is for a costs order down to a specific date (CPR 44.2(6)(c)) and for a payment on account of those costs (CPR 44.2(8)). There was no basis for suggesting that such orders were exceptional. The relevant factors engaged would be those under CPR 44.2(4) and (5), including the conduct of the parties, whether a party had succeeded on part of its case, and whether any admissible settlement offers had been made. A relevant consideration would be to preserve security for a Defendant by limiting the risk of costs having to be repaid. Other considerations might include:
- The type of funding agreement and any payments made under it;
- Details of any Part 36 or other admissible offer;
- Details of any payments on account of damages;
- A realistic valuation of the likely damages to be awarded at trial;
- A realistic estimate of the quantum costs incurred to the date of the application;
- Any other factor relevant to the final incidence of costs, such as the possibility of an issue-based costs order or relevant conduct;
- The likely date of trial.
Master Cook criticised the witness statement before him for failing adequately to address any of those issues, and expressed the hope that those making such applications in the future would ensure that all relevant material in support is put before the Court.
Interestingly, the claimant in RXK had the benefit of a public funding certificate, and had already received some payments on account from the Legal Services Commission. It is important to note, however, that the power to obtain a payment on account of costs also applies where solicitors are instructed under a CFA, even if the definition of “success” under the agreement has not yet been met. Thirlwall J (as she then was) so held in PIP Breast Implant Litigation  EWHC 1151 (QB), in ordering the defendants to make a payment on account of the claimants’ costs of and occasioned by adjournment of the trial, even though the ultimate prospects of success remained uncertain. She rejected a submission that this would involve a breach of the indemnity principle.
I would suggest that the following approach be adopted:
- If liability has been resolved in the claimant’s favour, whether by agreement or determination, any judgment incorporating the agreement or determination should contain provision for the defendant to pay the claimant’s costs of and incidental to the issue of liability, to be subject to detailed assessment if not agreed.
- The order should go on to provide for a payment on account of such costs, pursuant to CPR 44.2(8).
- Rather like its task when considering an interim payment under CPR 25.7, the determination of a “reasonable sum” on account of costs will involve the Court arriving at an estimate of the costs ultimately likely to be recovered on detailed assessment, but judges will be reluctant to be drawn into costly and time-consuming satellite litigation. There is no rule that the amount awarded should be the “irreducible minimum”. The Court should take account of all relevant factors, including the element of uncertainty as to what will ultimately be allowed, and any difficulty in recovering an overpayment. A reasonable sum will often be an estimate of the likely final figure subject to an appropriate margin for error, which might be done by taking the lowest figure in a likely range, or making a deduction from a single estimated figure (Excalibur Ventures v Texas Keystone  EWHC 566 (Comm), in which 80% of the sum claimed was considered reasonable).
- If the agreement or determination of liability has been reached after a prolonged dispute, liability costs may be substantial, justifying a large payment on account.
- Unless it is clear that there is a real dispute as to whether any damages will be payable by the defendant (for example, a case in which causation remains in dispute), there seems no good reason why the claimant should be restricted to recovering liability costs alone, particularly where there will be a lengthy delay before quantum can be determined. In such cases, it will clearly be appropriate to make an application under CPR 44.2(6)(c) for an order that quantum costs to date (or from and to a certain date) be payable.
- The quantification of payments on account will undoubtedly be easier if a costs management order has been made. If there has been a direction for a split trial, there should be separate budgets for liability and quantum (although costs management of the quantum stage may not yet have taken place). The agreed or approved budget will be the starting point for assessing the “reasonable sum” to be awarded (see Thomas Pink v Victoria’s Secrets  EWHC 3258 (Ch), in which 90% of the approved budget sum was award ed as a payment on account).
- It is essential that the application is properly supported by evidence. Bear in mind that the judge who deals with it may have limited understanding of the issues in the case. Costs incurred to date should be divided between liability costs and quantum costs, so the Court knows what proportion of each it is being asked to award on account. If, for example, there has been a costs management order for the liability phase, the Court might well be persuaded to award up to 90% of the approved budget, whilst adopting a more cautious approach in relation to estimated quantum costs for which no CMO has yet been made. The level of disbursements incurred in experts’ fees etc should be clearly set out. Details of funding arrangements, payments to date and any relevant offers will likewise need to be included.
Experience of dealing with numerous interim payment applications under CPR 25 tells me that the better prepared the application, the greater the prospects of a successful outcome.