The Court of Appeal’s decision in O’Beirne -v- Hudson was welcome guidance and clarity in February 2010 in respect of costs in cases settled before or without allocation to track in circumstances where if such a case had been allocated, it would have been allocated to the small claims track.
On the first appeal, HHJ Stewart summed up the issue as follows:
“19. … The question is whether the District Judge was right in saying that [the order for costs to be assessed on a standard basis – made without the case having been allocated to track] precluded the Court in its discretion on assessment in assessing costs by reference to the small claims track.
He further held:
“22. In my judgment she was wrong. The wording is open and it entitles the Court, at the assessment stage, to decide whether it should or should not accede to the defendant’s argument that the costs should be assessed by reference to the small claims track regime, but they were certainly not precluded by anything in those words. There is nothing, therefore, within those words, whether in the word ‘reasonable’, whether in the words ‘standard basis’, or in the words ‘detailed assessment’, which takes away from the defendant their right to argue that costs should be assessed by reference to the small claims track.
“23. It does not require that they be so; it is merely a matter which remains within the discretion of the Court when the question of costs comes to the court for assessment. To that extent and for that reason I find the District Judge’s judgment was wrong. I have not been addressed, having reached that conclusion only, on whether they should in fact be assessed by reference to the small claims track or not and I will let the parties think about what they want to say about that and tell me at two o’clock.”
That part of HHJ Stewart’s judgment drew the following from Waller LJ:
“12. The judge could be understood to be saying that the costs judge would have been entitled simply to accede to an argument that costs should be assessed by reference to the small claims track regime.”
“16. … It certainly follows from [the consent order] that the costs judge was not free to rule that the costs would be assessed on the small claims track basis and if and in so far as Judge Stewart might be understood to be saying that he was in my view wrong“.
But Waller LJ’s summation of the burning question was slightly different to HHJ Stewart’s:
“1. In this appeal the question is whether, where a case has been settled before any allocation by a consent order ordering costs to be paid on the standard basis, the costs judge is entitled to take the view that the case would have been allocated to the small claims track and thus that the paying party should only pay costs on the small claims track basis.”
In answer to that question, the following test was established:
“19. … I also accept that as Judge Stewart noted, a costs judge has no power to alter the order for costs made by the a judge, and thus make a direction from the outset where costs have been awarded on the standard basis that costs will be assessed on a small track basis. But what lay behind what Judge LJ said reflects what Lord Woolf was saying in Lownds and provided the Costs Judge does not purport to vary the original order or tie himself to assessing by reference to the small claims track it is quite legitimate to give effect as far as possible to the philosophy which lies behind the above statements. There is a real distinction between directing at the outset that nothing but small claims costs will be awarded and giving items on a bill very anxious scrutiny to see whether costs were necessarily or reasonably incurred, and thus whether it is reasonable for the paying party to pay more than would have been recoverable in a case that should have been allocated to the small claims track. Was it for example necessary to have had lawyers and is it reasonable for the paying party to have to pay for lawyers are questions that should arise where a claim should have been allocated to the small claims track.
“20. It seems to me that Judge Stewart was right to reverse the decision of the District Judge and the appeal should be dismissed although, as will have appeared from what I have said, I would put the way in which the Costs Judge should take account of the fact that the case should have been allocated to the small claims track slightly differently.”
Hooper LJ added the following:
“21. I agree and have only this to add. District Judge Harrison was right, in my view, to hold that the terms of the order precluded her from fixing the costs solely by reference to the small track regime. Where therefore HHJ Stewart QC said, in paragraph 22 of his judgment, that “she was wrong” in this respect, I disagree with him.
“22. In my view Waller LJ correctly sets out the test in paragraph 19 of his judgment: “whether it is reasonable for the paying party to pay more than would have been recoverable in a case that should have been allocated to the small claims track”. The District Judge did not, so it appears, apply that test. HHJ Stewart, in paragraphs 22 and 23 of his judgment, said that the Costs Judge has the power to decide that the costs are to be assessed by reference to the small claims track although not obliged to do so. As I read his judgment he is saying that the Costs Judge could fix the costs solely by reference to the small track regime without consideration of each item separately but is not obliged to do so. If he is saying that, then, in my view, there is an important difference between that approach and the test set out by Waller LJ in paragraph 19 with which I agree.”
Etherton LJ agreed with both judgments.
So, in simple terms, it was held that it was not permissible for the Court, at the assessment stage, to
“direct at the outset that nothing but small claims costs will be awarded”
“accede to an argument that costs should be assessed by reference to the small claims track regime”
“make a direction from the outset where costs have been awarded on the standard basis that costs will be assessed on a small track basis“.
Imagine my surprise then to stumble upon CPR 46.13(3), ushered in without fanfare (Google turns up nothing!) with the 60th Update of the CPR:
Where the court is assessing costs on the standard basis of a claim which concluded without being allocated to a track, it may restrict those costs to costs that would have been allowed on the track to which the claim would have been allocated if allocation had taken place.
And PD 8.2 CPR 46.13:
Where a settlement is reached or a Part 36 offer accepted in a case which has not been allocated but would, if allocated, have been suitable for allocation to the small claims track, rule 46.13 enables the court to allow only small claims track costs in accordance with rule 27.14. This power is not exercisable if the costs are to be paid on the indemnity basis.
The Court now appears to be expressly empowered to do what the Court of Appeal said it was previously not.
Quite how such an issue/argument will fare in a provisional assessment however is anyone’s guess.