Costs News

25 November 2015
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Court of Appeal decision gives costs judges wide discretion over one-fifth rule

Costs judges have a broad discretion when considering what amounts to “special circumstances” that allow them to depart from the ‘one-fifth’ rule on the costs of a Solicitors Act assessment, the Court of Appeal has decided.

It also overturned a High Court ruling that costs which are disallowed for want of retainer should not form part of a costs judge’s calculations in applying the one-fifth rule. In both matters, Master O’Hare was the costs judge and his rulings were upheld by the Court of Appeal.

Wilsons Solicitors LLP v Bentine & Anor [2015] EWCA Civ 1168 – which involved two conjoined cases – is said to be the appeal court’s first decision on section 70(10) of the Solicitors Act 1974. This provides that the one-fifth rule set out in section 70(9) can be overridden if there are “any special circumstances relating to a bill or to the assessment of a bill”. The Senior Costs Judge, Master Gordon-Saker (pictured), sat with the court as assessor.

In Bentine, Master O’Hare reduced Wilsons’ bill of £144,838 to £94,934 but found that the way the client’s case had been presented had had the effect of increasing the costs of the assessment. This constituted special circumstances and he ordered Wilsons to pay 60% of the client’s costs of the assessment.

The £144,838 figure included nearly £32,000 the master had disallowed for want of retainer. On appeal, Mrs Justice Proudman found that this should not have been included in the one-fifth calculation, meaning that the threshold was not passed. However, she considered that special circumstances existed, which meant she upheld Master O’Hare’s order.

The other case, Just Costs v Stone Rowe Brewer, involved an assessment of 15 bills from Just Costs totalling approximately £33,000. The south London law firm argued that it was not liable to pay five of the bills – amounting to £20,000 – because Just Costs was in repudiatory breach of the retainer. At the doors of the court, however, a settlement for all the bills of £23,700 was agreed – a 30% reduction.

Master O’Hare found that special circumstances existed because those five bills were the main cause of the costs of the assessment and Just Costs had been the overall victor in the dispute over them. He ordered Stone Rowe Brewer to pay 70% of the costs of the assessment.

On appeal, Mrs Justice Andrews overturned this ruling, taking a narrower approach to special circumstances. She said the question was whether or not something had happened which, exceptionally, made it unfair to apply the one-fifth rule.

Giving the lead judgment, Lord Justice Sales said in relation to the Bentine case: “There is no good reason to divide up different elements within the bill for the purposes of application of the one-fifth rule.”

On the Just Costs case, he said: “The sort of value judgment which is called for in the context of section 70(10) is one which a costs judge as experienced as Master O’Hare is well-placed to make. When deciding whether ‘special circumstances’ existed, I can see no reason in principle why he should not have had regard to the way in which particular issues arose in the proceedings and the outcome achieved in relation to them… The High Court erred in criticising and displacing the evaluative judgment which he made.”

There was disagreement between the judges over the extent to which a costs judge, in exercising this discretion, should take account of the fact that the client had nonetheless achieved a one-fifth reduction.

Also in relation to the Just Costs case, Sir Bernard Rix said: “I do not say that Master O’Hare had immediately forgotten that the client had won on the 20% test, but that he had considered himself entitled to put it out of his mind once he had found special circumstances. It seems to me that that is an error of law and/or principle.” While allowing the appeal, he said: “I would not go further than to deprive the client of its costs and to say no order as to costs”.

Lady Justice Arden responded: “We all agree that a costs judge, determining costs under section 70(10) of the 1974 Act, should not lose sight of, or forget, who was the winner under the 20% rule in section 70(9). It follows that he should give such weight to that factor as he thinks fit having regard to all the circumstances of the case.

“In my judgment, Master O’Hare would not have forgotten that the claimants were the winners under section 70(9) when he made his order under section 70(10). Given the limitations of appellate review in relation to the exercise of discretion, I conclude that this court cannot set aside order of Master O’Hare. It would not be enough for the court to conclude that it would have made some other order.”

Agreeing with Sales LJ, she said: “My approach to section 70(10) is as follows. I accept that the statutory policy expressed in section 70(9) is not necessarily made irrelevant by a finding that there are special circumstances under section 70(10). It may be that, in deciding what order to make under section 70(10), the court will consider it appropriate to take into account the fact that Parliament intended that claimants under section 70 should have some protection.

“But I do not consider that it has to be given weight in every case where there are special circumstances. The wide words used by Parliament in section 70(10) make it clear that the court may, dependent on the circumstances, decide to give the section 70(9) outcome no substantial weight. It is, as I see it, a factor to which the costs judge may give weight according to the circumstances of the case… The simple fact is that that provision is not a requirement under section 70(10).”

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