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The limitations of costs inclusive offers

A claimant awarded £5,000 in damages was entitled to recover his costs on the standard basis (budgeted at almost £129,000) following a defendant’s “inadequate” capped costs offer, a High Court judge has decided.

Burrell v Clifford [2016] EWHC 578 (Ch) (03 March 2016)

This costs dispute arose out of a claim for breach of confidence and misuse of private information bought by the claimant Paul Burrell, the former butler to the late Diana, Princess of Wales, against the defendant, the publicist Max Clifford. The background to the dispute, which resulted in Mr Burrell ultimately being awarded £5,000 in compensation, can be found in the judgment of Richard Spearman QC in Burrell v Clifford [2016] EWHC 294 (Ch) (19 February 2016).

This dispute focused on which party should pay either, or both, side’s legal costs arising out of the substantive litigation. Although damages awarded to the claimant were worth just £5,000, their budgeted costs had been approved at £128,695.41 excluding VAT. The defendants’ budgeted costs had been approved at £90,295 excluding VAT – although their costs incurred had latterly reached £97,758 excluding VAT (paragraph 1).

The claimant argued that costs should be awarded in his favour, on the basis that he had succeeded in his claim at trial (paragraph 2). By contrast, the defendant argued that the court should exercise its wide discretion under CPR 44.2, and depart from the general rule regarding costs, notwithstanding their admission that they had lost the case. A variety of alternative costs outcomes were proposed by the defendant, including that the claimant should pay some or all of the defendant’s costs, that the defendant should not have to pay any of the claimant’s costs, and also that each side should bear their own costs (para 3).

The basis of the defendant’s costs proposal was a letter dated 30 January 2015, which contained an offer made by the defendant without prejudice save as to costs. The offer made in relation to the claimant’s damages was £5,000 – the same figure as the claimant ultimately received. Additionally, and importantly, the offer made in relation to the claimant’s “reasonably incurred legal costs and disbursements” was capped at £5,000, inclusive of VAT. The defendant’s letter concluded by stating that, if their offer was not accepted, the defendant reserved the right to bring the letter’s contents to the attention of the court on the issue of costs. The letter then further asserted that: "If your client fails to do better than the settlement offer at trial, we intend to seek an order requiring your client to pay our client's costs from the expiry of the deadline together with the interest on those costs from that date until payment" (paragraph 4).

At trial, the claimant’s legal representative noted that a costs offer of £5,000 inclusive of VAT translated to a figure of £4,167 net of VAT. Further, if one deducted the cost of the claim form – for which a fee of £1,090 was payable – this would amount to a total figure of just £3,077 (paragraph 5). However, at the time the defendant’s Calderbank offer was made, the claimant’s law firm stated that it had incurred base costs of £9,815 (excluding VAT) and counsel’s fees of £12,340. Furthermore, the cost of issuing a claim form had been incurred, as had a staged ATE premium liability of £13,515. Additionally, it was stated that the claim was being pursued using a conditional fee agreement (CFA). Consequently, a successful claim would result in an uplift in the claimant’s costs, so long as the CFA was found to be enforceable, and the claimed uplift deemed reasonable (paragraph 7).

Delivering his High Court judgment, Deputy Judge Richard Spearman QC concluded that the claimant had done better than the defendant’s settlement offer at trial. Consequently, addressing the contents of the defendant’s letter specifically, he concluded that the defendant’s offer was “inadequate”, and did not give him protection. An appropriate remedy for the defendant, Judge Spearman added, would have been to offer £5,000 in respect of damages – which they had done - and in relation to costs, “the costs incurred down to that date subject to detailed assessment in the usual way” (paragraph 8).

In relation to the high costs incurred in relation to a claim of modest financial value, Deputy Judge Spearman accepted that this was a “concern” (paragraph 12). However, he also noted that the claim itself was “well-founded”, and one that the claimant was entitled to bring. Moreover, the question of reasonableness and proportionality of costs was one that was dealt with by the costs budgeting and costs assessment exercises (paragraph 13). Additionally, notwithstanding the high value of the claimant’s incurred costs, “it could have been met by protection by [the defendant] by an appropriate Part 36 offer” [paragraph 14].

Ultimately, the claimant’s behaviour did not persuade Deputy Judge Spearman to exercise his discretion under CPR 44.2, and depart from the general rule regarding costs. Accordingly, he decided that the claimant was entitled to recover the costs of bringing his proceedings, notwithstanding the modesty of his claim, in spite of its relationship to the level of costs incurred, and in spite of the Calderbank offers previously made [paragraphs 20 - 22].

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