11 January 2023
No entry: Pay costs on account or face being debarred from the detailed assessment
What can a receiving party do when an order requiring a payment on account of costs is not complied with? Days Healthcare UK Ltd v Pihsiang Machinery Manufacturing Co Ltd [2006] EWHC 1444 (QB), [2006] 4 All ER 233 is authority for the proposition that an order may be made debarring the defaulting party from participating in the detailed assessment unless the payment on account is made.
But is that the extent of the court’s powers in those circumstances? Can the court strike out the paying party’s points of dispute and award the receiving party’s costs in the amount claimed without further assessment?
This issue was recently considered in an application for an unless order in (1) Fitzroy Street Capital Inc (2) BMB Avenue Road Limited v (1) Lee Antony Manning (2) Matthew David Smith (3) Barclays Bank Plc (SCCO 14 December 2022).
The trial judge in the underlying dispute had ordered that the claimants pay 80% of the defendants’ costs and make a payment on account of costs. That order was not complied with.
Following an application by the defendants, the SCCO reiterated the order that the payment on account be made. That was also not complied with. However, the claimants had engaged in the detailed assessment and had filed points of dispute which made a number of serious points about the costs claimed by the defendants.
Jurisdiction debate
The first and second defendants applied for an unless order that, unless the claimants made the payment on account ordered by the trial judge, the claimant’s points of dispute would be struck out and the defendants’ costs would be payable in the total amount sought by the receiving party (approx. £2m). In effect, a default costs certificate would be the sanction for non-compliance.
It was clarified at the hearing that the application was made pursuant to CPR 3.1(1)(m). This relevantly provides that the court may, unless the rules provide otherwise, “take any other step or make any other order for the purpose of managing the case and furthering the overriding objective”.
The claimants resisted the application on the basis that the court had no jurisdiction to make such an order under CPR part 3, relying on the comments of Langley J in Days Healthcare. The issue in Days Healthcare was whether the court had the power to make a debarring order preventing the paying party from participating in a detailed assessment and/or the power to make a final costs order in the sum sought by the receiving party as a sanction for failure to make a payment on account.
Langley J held that the court did have the power to make a debarring order in those circumstances. But the judge did not appear to decide whether the court has the power to order that the receiving party’s costs be paid in the total amount claimed without assessment as a sanction for failure to make the payment on account.
However, he concluded that such an order would be wrong given that points of dispute had been filed by the paying party: “[30]… [I do not] think, at least on the present hearing, it would be right, even if there is jurisdiction to do so (which [counsel for the paying party] submits there is not) simply to permit [the receiving party] to have the costs in effect rubber-stamped in the amount claimed. There should be an assessment. But the [paying party] must not be permitted to participate further in that assessment unless they make payment to [the receiving party] of the interim payment.”
Therefore, while Days did not rule out that such a jurisdiction existed, it was not conclusive to its existence.
Unless order
The claimants also relied on Porter Capital Corporation v Masters [2014] 3 Costs LR 528. The claimants argued that this case pointed to the conclusion that such a jurisdiction did not exist. In that case, the High Court considered whether, in ordering a party to make a payment on account of costs, it had jurisdiction to make an order that, in the event of a default in payment, the receiving party should be allowed to enter judgment for the total amount of costs claimed.
The judge questioned whether he had jurisdiction to impose such a sanction for non-compliance. Counsel referred him to Day’s Healthcare. The judge considered that Days Healthcare did not establish that he had jurisdiction to make the order sought.
The judge said: “What Langley J said in that case at para 30 reinforces my doubts as to the jurisdiction to order that the claimant should have judgment for the amount claimed without an assessment, but he did decide that the court had jurisdiction to debar the defendant from participating in the assessment..”
By contrast, the defendants relied on changes to the overriding objective in 2014, which made enforcing compliance with rules, practice directions and orders part of dealing with a case justly and at proportionate cost. The defendants submitted that, as a result, Days Healthcare would be decided differently today, and the court would have accepted that it had jurisdiction to make the order sought by the defendants.
Senior Costs Judge Gordon-Saker accepted that, in principle, the jurisdiction to make the order sought by the defendants existed. But the judge noted that, in practice, there should be a distinction between a case where a party has served points of dispute and where they have not. In the former case, per Langley J’s comments in Days Healthcare, the points of dispute should generally not be ignored. Rather, the appropriate order in those circumstances is a debarring order.
The judge considered that this was precisely the position in the present case. The defendants were therefore unsuccessful in obtaining the order they sought. The Senior Costs Judge instead made an unless order that the claimants be debarred from participating further in the detailed assessment unless the payment on account was made.
Implications
The case has resolved an uncertainty as to the jurisdiction of the court where a paying party has not complied with an order requiring a payment on account: the decision confirms that there is jurisdiction to make an unless order that if the payment is not made the paying party must pay the receiving party’s costs in the total amount claimed without further assessment.
Practitioners should therefore be aware of this important and potent tool which is available to the court when dealing with a paying party who fails to make a payment on account.
But the judge’s observations should also be noted: where points of dispute have been filed, per Days Healthcare, they should generally not be ignored and struck out. A debarring order is likely to be more appropriate and proportionate in most cases.
However, those comments notwithstanding, given that it has been confirmed that the jurisdiction exists, there is no reason why an unless order as sought by the defendants in this case would not be appropriate in certain circumstances, such as the most egregious cases of non-compliance with orders requiring payment on account.
Andrew McAuley is a Costs Lawyer and head of the costs and litigation funding team at Clarion Solicitors in Leeds.
Harley Ronan is a barrister at Landmark Chambers.
They were instructed by the claimants in Fitzroy.