Woods v The Ministry of Defence

At the outset of the detailed assessment on 2 August 2010, I heard argument about the following preliminary issues relating to the costs of the Claimant (“Mr Woods”), which are payable by the Defendant (“the MOD”) …

“In view of the Deafness Compensation Scheme, it was wholly inappropriate and unreasonable for the Claimant to have pursued his claim under common law. The Scheme does not require, or envisage, such an approach. The Defendant is required to pay a reasonable sum representing what would be reasonable to comply with the Scheme, but no more. To incur costs of £6,139.20 plus VAT of £905.88, is wholly disproportionate when costs under the Scheme would have been far less. In addition, there is a success fee and “provision” for insurance policy claimed which would not have been either necessary or required under the Scheme. The additional liabilities, together with all work on preparing for and issuing formal proceedings should be disallowed, including Counsel’s fees for settling particulars of claim.”

Mr Woods’ entitlement to costs arises under the terms of a consent order dated 4 September 2009, in Part 8 “Costs only” proceedings under CPR 44, whereby the MOD agreed to pay his costs to be assessed on the standard basis if not agreed. At the hearing of the preliminary issue, Mr Michael Bacon represented the MOD and Mr Giles Eyre appeared for Mr Woods. Both had lodged skeleton arguments in advance, in addition to which Mr Woods’ solicitors’ files of papers were before the Court, together with a witness statement made by Mr John Hutchinson dated 30 September 2009 served on behalf of the MOD. I reserved judgment.

Although these are uncontroversial, I need to set out the facts in some detail.

Between 1980 and 1987 Mr Woods was employed by the MOD, initially as an electrical fitter, and from 1984 as a weapons systems engineer, commissioning missile tracking systems in the radar offices of HM warships in refit at Devonport Royal Dockyard. During his employment, work took place on the ships’ steel bulkheads below the radar compartments where Mr Woods worked, which involved hammering and chiselling with compressed air driven corking guns. Mr Woods was not initially provided with any hearing protection, and subsequently when this was made available, no guidance was given as to how to wear such protection, nor was its use mandatory.

In 2006, Mr Woods noticed a hearing problem which in his view arose from the exposure he had experienced to excessive and harmful noise when employed by the MOD. Through his trade union, Prospect, Mr Woods instructed Russell Jones and Walker, solicitors of Sheffield, to pursue a claim for compensation on his behalf. To that end, on 2 July 2008, Russell Jones and Walker wrote a letter of claim to the MOD, which said this:-

“We are instructed to act for the above [Mr Geoffrey James Woods] in relation to injuries suffered in the noise induced hearing loss and tinnitus as a result of employment with you between 1980 and 1987. Please note our client wishes to pursue an application for compensation on the Ministry of Defence (Civilian Employees) Deafness Compensation Scheme 1978 …

Allegations of fault:

It is alleged that you are at fault in four ways:

(1)

you exposed the Claimant to excessive and harmful noise

(2)

you failed to make any adequate noise assessment … etc

Our client suffered hearing loss and we propose to obtain a medical report from a consultant ENT surgeon and will provide him with a full report in due course …

Funding:

Please note that our client’s claim is funded under a Collective Conditional Fee Agreement dated 01/03/2002, between ourselves and Prospect, which is the Claimant’s membership organisation. This provides for a success fee within the meaning of Section 58(2) of the Courts and Legal Services Act 1990. The Agreement indemnifies our client for any liability to pay legal costs if the claim is unsuccessful and a costs order is made against the Claimant. Pursuant to Section 30 of the Access to Justice Act 1999, a notional insurance premium will be claimed as an additional liability at the successful conclusion of the claim.”

On 5 January 2009, Gallagher Bassett International Ltd responded on behalf of the MOD as follows:

“Your letter of 12 December [this was a reminder which contained the letter of claim] with enclosure sent to the Treasury Solicitor, has been passed to us as Claims Handlers for the MOD.

As the claim is being made under the Deafness Compensation Scheme, we can confirm that liability will not be an issue.

Once we have confirmation of his employment and evidence that he has noise induced deafness, we will make a payment under the Scheme.

Please let us know who you intend to instruct to prepare the medical report.”

On 6 January 2009, Russell Jones and Walker replied as follows:

“We refer to your letter of 5 January 2009 and note the admission of liability.

We rely on the admission.

We assume that the admission is made following a full and detailed investigation of the circumstances of the Claimant’s accident and that it remains notwithstanding any subsequent issue of Court proceedings …

In the light of the admission, we will take no further steps in relation to the following:-

(1)

Investigation into the issue of liability.

(2)

Investigation into the issue of contributory negligence.

(3)

Interviewing witnesses of fact in relation to liability.

(4)

Seeking to preserve any property or documents relating to liability.

(5)

Instructing an expert witness in respect of liability.

We are now concerned only with quantum issues …”

On 9 January 2009, Gallagher Bassett International replied as follows:

“We refer to your letter of 6 January and would advise you that we have not made any enquiries into liability. Your client is claiming under a compensation scheme where liability is not an issue.

Provided that your client meets the criteria under the scheme, a payment will be made.”

On 1 April 2009, Gallagher Bassett International wrote again to Russell Jones and Walker in the following terms:-

“Thank you for your letter of 30 March enclosing a copy of the medical report.

In view of the level of noise induced deafness, we put your client in Category 3 under the Scheme which equates to an award of £4,625. We confirm that we are prepared to offer this sum to your client.”

On 7 April 2009, Russell Jones and Walker replied in the following terms:-

“We refer to your letter of 1 April 2009, and confirm that our client is prepared to accept your offer of £4,625 in full and final settlement of his claim, provided that you are responsible for our client’s reasonable costs, details of which will be provided shortly …”

On 17 July 2009, Mr Woods issued “Costs Only” proceedings out of the Sheffield County Court. By order of that Court dated 4 September 2009, the MOD was ordered to pay Mr Woods’ costs to be assessed on the standard basis if not agreed. On 25 September 2009, Russell Jones and Walker served a Notice of Commencement of detailed assessment proceedings. Mr Woods’ bill sought the following:

On 13 October 2009, the MOD served Points of Dispute.

On 25 February 2010, Mr Woods served Points of Reply.

On 26 March 2010, District Judge Kirkham ordered that the detailed assessment be transferred to the Senior Courts Costs Office where the matter was balloted to me. As I have said, on 2 August 2010, I heard argument about the preliminary issue and reserved judgment.

The starting point is the overriding objective in CPR1(1) which says this:

“(2)

Dealing with the case justly includes so far as practicable –

(a)

Ensuring that the parties are on an equal footing;

(b)

Saving expense;

(c)

Dealing with the case in ways which are proportionate:

(i)

To the amount of money involved;

(ii)

To the importance of the case;

(iii)

To the complexity of the issues;

(iv)

To the financial position of each party.

(d)

Ensuring that it is dealt with expeditiously and fairly;

(e)

Allotting to it an appropriate share of the Court’s resources while taking into account the need to allot resources to other cases.”

Where, as here, the standard basis applies, CPR44.4 says this:

“(2)

… the Court will –

(a)

Only allow costs which are proportionate to the matters in issue; and

(b)

Resolve any doubt which it may have as to whether costs were reasonably incurred and/or reasonable and proportionate in amount in favour of the paying party.

(Factors which the Court may take into account are set out in Rule 44.5).”

CPR 44.5 says this:

“Factors to be taken into account in deciding the amount of costs –

(1)

The Court is to have regard to all the circumstances in deciding whether costs were –

(a)

If it is assessing costs on the standard basis -

(i)

Proportionately and reasonably incurred; or

(ii)

Were proportionate and reasonable in amount …

(b)

The Court must also have regard to –

(a)

The conduct of all the parties including, in particular –

(i)

Conduct before, as well as during the proceedings; and

(ii)

The efforts made, if any, before and during the proceedings in order to try to resolve the dispute.

(b)

The amount or value of any money or property involved;

(c)

The importance of the matter to all the parties;

(d)

The particular complexity of the matter or the difficulty or novelty of the questions raised;

(e)

The skill, effort, the specialised knowledge and responsibility involved;

(f)

The time spent on the case; and

(g)

The place where and the circumstances in which the work, or any part of it was done.”

In deciding whether the costs are, or appear to be disproportionate, guidance is to be found in Lownds v Home Office (2002) EWCA Civ 365. A two stage approach is required, the first, global and the second, item by item. The global approach is taken at the outset of the assessment and will indicate whether the total sum claimed is, or appears to be disproportionate having particular regard to the considerations which Part 44.5(3) states are relevant. If that be the case, upon the item by item assessment, the Court must be satisfied that costs payable on the standard basis were not only reasonably incurred, but also necessarily incurred. In this respect, the threshold required to meet “necessity” is higher than that of “reasonable”. In considering the correct approach to take, the Court will have regard (inter alia) to whether the appropriate level of fee earner has been deployed and to the other matters set out in CPR 44.5(3). (See generally CPR 44.4.2 which sets out in detail the guidance given in the judgment of Lord Woolf MR in Lownds).

This is the scheme referred to in the letter of claim dated 22 July 2008 and is described in the witness statement made by John Hutchinson, a senior claims controller employed by Gallagher Bassett, as follows:-

“The wording of the Scheme is exhibited to the statement as “JH1”. Its significant features include its wide scope – it is open to current and former employees of the Defendant. It is significantly also a no-fault scheme, which in effect excludes and obviates any submissions as to the issue of liability. All that is required is for the Claimant to show that he or she is or was an employee and that the employee is suffering from deafness arising out of employment with the Defendant. Once these factors have been established, there is a compensation tariff according to which payments would be made. There is also a provision for payment of reasonable legal costs under the scheme …

10.

… The Scheme provides a simple and uncomplicated method of providing compensation for employees who meet its criteria without the need for expensive litigation or indeed any litigation at all …”

The tariff mentioned by Mr Hutchinson refers to a compensation scale set out in the Scheme by reference to hearing loss in decibels, averaged over Hertz which gives, depending upon severity, minimum compensation of £2,000 rising to a maximum of £20,250 compensation. As I have said, the agreed damages for Mr Woods were £4,625, representing binaural assessment hearing loss in decibels of between 30 to 40.

Mr Woods’ claim was funded under a CCFA dated 1 March 2002 between Prospect and Russell Jones and Walker. This provided for a success fee which would become payable in the event of Mr Woods winning his claim payable as an uplift on Russell Jones and Walker’s base costs. The amount claimed in the CCFA is 70%, being the sum fixed by CPR 45. This provides that where, as here, the claim is a Type C Employees’ Industrial Disease claim, under CPR 45.23(3)(e) the uplift is 70% for solicitors. (For counsel, the figure is 62.5%, which is relevant in this case since Russell Jones & Walker had also entered into a Conditional Fee Agreement (“CFA”) with Mr Roger Hiorns of counsel). In addition, the CCFA claimed a notional insurance premium (“the provision”) payable under Section 30 AJA to cover any adverse costs orders made against Mr Woods should the claim fail. It follows that, if recoverable, the “additional liabilities” (the success fees and provision as defined in CPR 43.2-(1)(o)) will add £3,671.94 and £525.00 respectively to the base costs claimed in Mr Woods’ bill.

For the MOD, Mr Bacon submitted that not only were the base costs unreasonable and disproportionate but also that it was unreasonable and disproportionate to incur any additional liabilities (skeleton paragraph 6.1) and for those reasons, the costs payable under the consent order should be no more than those sums that would have been reasonably incurred had the claim been advanced under the Scheme. Instead of limiting his recovery to what Mr Bacon described as “Scheme costs”, Mr Woods had chosen to be represented under the CCFA which had added the two success fees and the provision to the bill, in circumstances where liability had been admitted immediately, and there had been no risk that the case would be lost. That had resulted in a bill that was wholly disproportionate to the sum recovered and it was unjust and in breach of the overriding objective in CPR 1(1) and (2), that Mr Woods should seek to visit upon the MOD, the additional costs of funding the case under the CCFA.

In stressing the virtues of the Scheme, Mr Bacon submitted that it provided a simple and economical alternative to claims under the common law. The Claimant did not need to show fault, but merely:

What was more, having regard to “all the circumstances” under CPR 44.5 required the Court not only to look at the figures, but also at the surrounding circumstances. Relying on O’Beirne v Hudson [2010] 2 Costs LR 204, Mr Bacon explained that the MOD’s case was not advanced on the basis that the costs should be limited at the outset of the assessment to those recoverable had resort been made to the Scheme, but, on the contrary, that they should be no more than would have been allowable had that course been followed.

So far as the additional liabilities were concerned, Mr Bacon submitted that none should be allowed. Under the Scheme, there would have been no risk as to liability, so there was no justification for a success fee, still less for a provision to cover a theoretical adverse costs order. Only if the claim had been rejected by the MOD would it have been reasonable for Mr Woods to have pursued the matter under the common law. That had not happened; on the contrary, as previously stated, liability had been admitted straightaway and all that Russell Jones and Walker had needed to do thereafter, was to provide evidence employment and proof of deafness. That had been done, so that when the matter had settled, there had been no reason for Russell Jones and Walker to have been preparing for the issue of formal proceedings, nor for the firm to have instructed Mr Hiorns to settle Particulars of Claim. All such costs should be disallowed.

For Mr Woods, Mr Eyre submitted that the absence of the requirement to prove fault, did not make the Scheme simple. On the contrary, there were a number of hurdles over which Mr Woods needed to jump. Under clause 5 of the Scheme, the MOD could refuse to make a payment at any time without being under any obligation to give reasons. There were other factors which could make the case problematic; issues of apportionment might have arisen as between possible tortfeasors, had Mr Woods been involved in work with a different employer which could have contributed to his deafness. Moreover, although the Scheme had a pre-determined scale, this was subject to agreement being reached on the medical evidence as to the appropriate category of deafness. In addition, the scale of payment had been fixed with effect from 1 November 1991, but had not been updated for inflation. Accordingly, any compensation paid to Mr Woods would not be as much as common law damages and in reality, the only simplifying factor under the Scheme was the absence of the requirement to prove negligence. It followed that an application under the Scheme could fail for many reasons or, indeed, for no reason, given the existence of clause 5. For these reasons, Mr Eyre submitted that the Scheme was by no means as simple and straightforward as Mr Bacon was attempting to portray.

So far as the CCFA was concerned, Mr Woods was entitled to pursue his claim under a conditional fee agreement (see Campbell v MGN Ltd [2005] UKHL 61). That being so, the success fees were recoverable under CPR 45.23 and the Court was not permitted to adjust them in Type C claims, where, as here, Mr Woods had entered into a relevant funding arrangement. Thus the fixed uplifts for Russell Jones & Walker and for counsel were 70% and 62.5% respectively. Moreover, as a membership organisation had undertaken to meet Mr Woods’ liabilities for legal costs, the provision was also recoverable (see CPR 45.24(2)(c)). When these additional liabilities were stripped out of the bill, base costs were only £6,139.20 against the recovery of £4,625. Accordingly, the costs were proportionate.

The first issue to decide is whether the costs claimed are what appear to be disproportionate, applying the global test in Lownds. This will enable the Court to decide whether the costs must not only have been reasonably incurred, but also necessarily incurred. In working this out, VAT, additional liabilities and the costs of the assessment (drafting and checking the bill) must be discounted, leaving only base costs. When this is done, the resulting figure is £4,280 profit costs and £1,290 disbursements, a total of £5,570 spent to recover £4,625. In my judgment, these costs are or appear to be disproportionate. First, it will be remembered that Russell Jones & Walker originally intimated in the letter of claim that the matter would be dealt with under the Scheme. This left the inference to be drawn that the economies of scale that the Scheme facilitates would be reflected in the overall level of costs. In fact, the costs over-top the recovery by £945 in circumstances where the claim did not advance beyond the service of a medical report and was resolved without proceedings. All that had been required was for Russell Jones and Walker to complete the application form and to supply the information requested by the MOD. If that cost £5,570 to do, in my opinion such a figure is disproportionate to the damages recovered. Second, liability was admitted straightaway. In these circumstances, I do not consider it was proportionate for a fee earner at Grade A (eight plus years qualification) to conduct the litigation, this being a factor which weighed with Lord Woolf in Lownds. Delegation to a lower grade fee earner would have brought the costs within more reasonable bounds. Third, instructing Counsel to prepare Particulars of Claim for a fee of £500, triggering a 62.5% success fee was not a proportionate step to take when liability had been admitted and it was envisaged by both sides that the damages would be calculated under the compensation scale in the Scheme. All these factors contribute to my conclusion that Mr Bacon is right in his submission that the costs are or appear to be disproportionate. It follows that the test of necessity and as well as reasonableness will apply to them.

The next point is that where, as here, the claim proceeded under the Scheme but the claim for costs has been made as if proceedings had been brought under the common law, is it reasonable for the MOD to pay more than the sum that Mr Bacon described as “Scheme costs”? In his submissions, Mr Bacon was careful to make clear that costs should not be limited (my emphasis) to Scheme costs. On the contrary, he submits that the Court should follow the guidance in O’Beirne. In that case, the litigation had been settled for £400 general damages, and £791.06 hire charges, plus costs. The issue before the Court of Appeal was whether the Costs Judge was entitled to take the view that the case, had it been issued, would have been allocated to the small claims track and thus that the paying party should pay only small claims track costs. At paragraph 19, Waller LJ said this:

“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 various 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.”

Hooper LJ, agreeing with Waller LJ, said this at paragraph 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 the approach and the test set out by Waller LJ in paragraph 19 with which I agree”.

It follows, in my judgment, that Mr Bacon’s submission is correct to the extent that I am not permitted to say at this point, in advance of the detailed assessment, that only those costs which would have been payable under the Scheme are to be allowed. On the contrary, I must first look at each item in the bill and only when that exercise has been carried out or, to adopt the words of Waller LJ, after “giving items on a bill very anxious scrutiny”, can I decide what sum it is reasonable for the MOD to pay.

I draw further support for this conclusion from the guidance given in Lahey v Pirelli [2007] 1 WLR 998, and referred to by Waller LJ in Drew v Whitbread [2010] EWCA Civ 53, which was heard at the same time as O’Beirne. In that case the Defendant had unsuccessfully sought to persuade the District Judge on detailed assessment that although the Claimant was entitled to 100% of his costs following acceptance of a Part 36 offer, only 25% should be awarded. At paragraph 20, Dyson LJ said this:-

“There is a real distinction between (a) carrying out an assessment and deciding as part of the assessment to reduce the bill by a percentage and (b) deciding in advance of the assessment that the receiving party will receive only a percentage of the assessed costs ... In deciding in advance of the assessment that the receiving party will only receive a percentage of the assessed costs, the costs judge is not giving effect to an order that the successful party is entitled to his costs, to be assessed if not agreed.”

It follows, in my opinion, that before any reduction to the level of “Scheme costs” can be considered, there must be a detailed assessment, applying the dual test of reasonableness and necessity. Only on completion of that stage will the Court be able to decide, as Mr Bacon in paragraph 7.3 of this skeleton argument urges on me should be the outcome, that “the costs should be limited to those that would have been payable under the … Scheme”. For that reason, I am not in a position to answer the preliminary issue by saying “only Scheme costs will be allowed”. On the contrary, I must carry out the assessment and in doing so take account of the level of costs that would have been incurred under the Scheme rather than under the CCFA and upon completion of that task, decide whether the resulting figure should be limited to “Scheme costs”.

Mr Bacon also urged on me that in carrying out the assessment, no additional liabilities should be allowed. I disagree. The replies to the Points of Dispute state that at page 4 that “the Claimant in this case have no alternative method of funding and therefore a CFA was entered into”. The inference I draw from that statement is that with legal aid no longer available for this type of claim, Mr Woods either did not have the means or an insurance policy to meet Russell Jones & Walker’s professional charges and so made use of the alternative funding available, namely Prospect’s CCFA.

Mr Eyre relies on the decision in Campbell as authority proposition that Mr Woods was entitled to pursue the claim under the CCFA. In this respect, it is appropriate to refer to the speech of Lord Hoffman at paragraph 25:-

“There is in my opinion nothing in the relevant legislation or practice directions which suggest that a solicitor, before entering into a CFA, must enquire into his client’s means and satisfy himself that he could not fund the litigation himself …

27.

Thus, notwithstanding the need to examine the balance on the facts of the individual case, I think that the impractically of requiring a means test and the number of individuals who could be said to have sufficient resources to provide them with access to legal services entitled Parliament to lay down a general rule, that CFAs are open to everyone.

28.

It follows that in my opinion, the success fee as such cannot be disallowed simply on the ground that MGN’s liability would be inconsistent with its rights under Article 8 [Convention on Human Rights]. The scheme under which such liability is imposed was a choice open to the legislator.”

In view of what Lord Hoffman said, it follows in my judgment, that there is nothing in principle which operates to prevent Mr Woods recovering the additional liabilities on the basis that it was permissible for him to conduct his claim through the (C)CFA regime authorised by Parliament. However, whether it would be just to permit such recoveries in the present case, will, as it seems to me, depend upon the outcome of the detailed assessment when the stages referred to in paragraph 31 of this judgment have been completed. It will only be at that point, when the Court is deciding whether it is reasonable for the MOD to pay more than “Scheme Costs”, that a decision can be taken whether or not the additional liabilities should be allowed.

Now suppose that on completion of the “anxious scrutiny” I must give to items in the bill, I am satisfied that it is just in principle for the MOD to meet the success fees claimed. Does the Court have power to reduce them below the levels sought? It is not clear to me that there was any difference in approach between Mr Bacon and Mr Eyre on this point, but if I am mistaken, for my part, I do not consider that the Court can alter the amount of the success fees given that their levels are provided for in the CPR (see CPR 45.23 ante). That that is so was reinforced by Simon J in Butt v Nizami [2006] EWCA 159 (QB). In refusing to reduce the success fee claimed on account of any problem with the indemnity principle, the Learned Judge at paragraph 23 said this:-

“It seems to me clear that the intention underlying CPR 45.7-14 was to provide an agreed scheme of recovery which was certain and easily calculated. This was done by providing fixed levels of remuneration which might over-reward in some cases and under-reward in others, but which were regarded as fair when taken as a whole ...

24....(iii) The whole idea underlying Part 45 section II is that it should be possible to ascertain the appropriate costs payable without the need for further recourse to the court.”

In view of this, I consider that the Court cannot alter the level of the success fees fixed under CPR 45. It follows that if, at the conclusion of the assessment and when the Court is considering whether it is reasonable for the MOD to pay more than Scheme costs, I conclude that the success fees are recoverable, then these will be allowed at 70% and 62.5% for the solicitors and counsel respectively, in line with CPR 45.23 and 24.

So far as the provision is concerned, this is intended to represent the amount that the receiving party would have paid had an ATE insurance policy been taken out (see CPR 43.2-(1)(l) and (o)). However it is not fixed under CPR 45 in the same way as the success fee and I consider that I am free to adjust it having regard to the relevant parts of the CPR which I have recited in paragraphs 15 to 17 of this judgment. In my view, Mr Woods was litigating in a risk free environment. He had intimated that his claim was being advanced under the Scheme. In view of this, there was no prospect of his losing either on liability because the former was conceded subject to proof of employment and deafness, or on quantum since this would be resolved using the compensation scale in the Scheme. Accordingly, there were no circumstances that could have arisen which made it necessary or reasonable for him to take out an ATE policy and in my judgment, the provision is irrecoverable as an item of cost for that reason and will be assessed at nil.

For the reasons I have given, my rulings on the preliminary issues are :

In order to save costs, I am not expecting either party to attend when this judgment is handed down. Instead, I suggest that when the parties are ready, the matter should be restored so that I can complete the detailed assessment in the light of the outcome of the preliminary issues and at that point, both sides can address the Court on the question of permission to appeal, if appropriate. Subject to the parties’ agreement on these points, I propose to extend time for applying for permission to appeal until the item by item assessment has been concluded. I further suggest that the costs of the preliminary issues be reserved and addressed at the conclusion of the detailed assessment.