Costs law


By Jeremy Morgan QC, 39 Essex Street, London



Cost delays

If proceedings for the detailed assessment of costs are commenced late - even as much as four or five years late - what sanction should be imposed?



This was the question confronting the Court of Appeal in Haji-Ioannou v Frangos [2006] EWCA Civ 1663. In particular, it had to consider whether the pre-CPR cases, which tended to disallow at least some of the costs claimed in this situation, should continue to apply.



The facts were relatively straightforward. The individuals on either side of this costs dispute were Greek shipping millionaires who had fallen out after a family row. The claimant brought proceedings in England alleging a substantial debt, and arrested a number of the defendant's vessels. The proceedings were stayed on the defendant's application and the vessels ordered to be released.



Appeals to the Court of Appeal and the House of Lords were unsuccessful. On 31 March 1999 the costs in question were ordered by the Court of Appeal to be paid by the claimant to the defendant.



Detailed assessment proceedings should have been commenced by 30 June 1999. Correspondence at the time pointed to at least a tacit agreement that costs should not be assessed until the result of the claimant's petition to the House of Lords was known.



Leave to appeal was refused by the Lords on 23 February 2000 and, in reply to a request for their proposals for the payment of costs, the claimant's solicitors wrote that, 'the hearing had been transferred to Greece'. No further steps were taken for the assessment of costs until 1 July 2004 when notice of commencement was served. However, the Greek proceedings continued and at the date of the Appeal Court hearing, they were still not concluded.



The claimant issued an application under 44.14 of the Civil Procedure Rules (CPR) seeking a disallowance of part of the defendant's costs and the costs of the detailed assessment on the grounds of delay. The defendant conceded that, under rule 47.8, interest for the period of delay should be disallowed, but disputed any further penalty. The costs judge upheld the defendant's stance, as did the judge on appeal and the Court of Appeal on further appeal.



The appeal judgments are important as they resolve a difficulty created by the wording of the CPR, and provide a useful indication as to the correct approach to delay cases in future. This is helpful as, although all the post-CPR High Court decisions (with one distinguishable exception) came to a similar conclusion, they did so using rather different language, and the Court of Appeal has now resolved what should be the correct approach.



The problem arises in this way. Rule 47.8 provides that if the receiving party does not commence assessment proceedings in time, the paying party may apply to the court for an order that he do so, and, in default, that all or part of the costs to which the receiving party would otherwise be entitled be disallowed. It goes on to say that if no such application is made by the paying party, the court may disallow interest 'but must not impose any other sanction except in accordance with rule 44.14 (powers in relation to misconduct)'.



Rule 44.14 provides that all or part of the costs may be disallowed where a party 'fails to comply with a rule, practice direction or court order'. Since a receiving party who fails to start assessment proceedings in time so as to fall within rule 47.8 will also have failed to comply with a rule within 44.14, there is what Lord Justice Longmore described as 'a certain tension between' the two rules.



The court held that the clue to resolving the tension is in the word 'misconduct', which appears in the heading to rule 44.14. 'Some breaches of the rules can be more readily described as misconduct than others and the rules trust the costs judges, in the course of exercising their discretion, to recognise such misconduct when it occurs,' ruled the Appeal Court judges.



An inordinate and inexcusable delay that has prejudiced the paying party may well be misconduct, but excusable, though inordinate, delay may not, especially if it has caused no prejudice. While any non-compliance with a rule gave jurisdiction for the exercise of rule 44.14, it will usually be appropriate as a matter of discretion to consider the extent of any misconduct.



The Appeal Court was reinforced in this view by wider considerations. Of course delay was to be deprecated, but where the relevant rule not only gave the paying party the option of preventing further delay himself by making an application under rule 47.8 but also spelled out the normal sanction for delay, the court should be hesitant to exercise further powers.



There was a real danger of encouraging satellite litigation. The interest sanction was likely to be both comparatively uncontroversial and also calculable without unnecessary dispute. However, further sanctions were likely to be controversial and therefore worth engaging in satellite litigation.



The senior costs judge, sitting as an assessor, advised the court that there were distinctly fewer delay arguments under CPR than before, from which the court inferred that the new procedures were working comparatively well and that the CPR had in this respect had the beneficial effect of reducing unnecessary contentiousness.



The claimant has petitioned the House of Lords for leave to appeal.



Two important observations arise from this judgment. The first is that the considerations that apply to delay in commencing detailed assessment apply equally to delay in setting down a case for detailed assessment - rule 47.14, which governs the latter, has provisions identical to those in rule 47.8.



The second is that, while the judgment's reliance on 'misconduct' as the key to the application of rule 44.14 deals admirably with the situation confronting the court in this case &150; namely, where there has been a long delay but no prejudice to the paying party &150; it is less useful in a case where the delay has been short, possibly neither inexcusable nor inordinate, but has caused serious prejudice. How the courts deal with that permutation of events remains to be seen.



Jeremy Morgan QC appeared for the defendant in this case.