The Appellants appeal from three decisions of Master Haworth made in the course of a detailed assessment of the costs Zumtobel Lighting Ltd (the Defendant) are to pay Light on Line Ltd and Project Management Lighting Ltd (the Claimants) following settlement of proceedings brought by the Claimants against the Defendant. The claim arose from the costs of remedial work alleged to have been carried out by the Claimants following the supply by the Defendant of lights, admitted to be defective, fitted by the Claimants in showrooms of their clients. The claim for £239,816.98 was settled by the Defendant agreeing to pay to the Claimants £120,000 and costs. On detailed assessment of the costs the Defendant was to be ordered to pay the Claimants, Master Haworth made the following decisions which are appealed.

The decision on 15^th December 2011 that a redacted After The Event (‘ATE’) insurance certificate provided by the Claimants did not comply with Costs Practice Direction (‘CPD’) 32.5(2)(c);

The decision on 16^th December 2011 to refuse relief under CPR 3.9 from the sanction of disallowing the claim for the insurance premium applied pursuant to CPR 44.3B(1)(e) in respect of the Claimant’s failure to comply with CPD 32.5(2)(c);

The decision on 15^th December 2011 to reduce the Claimants’ solicitors’ success fee to 40% and the Claimants’ counsel’s success fee to 20%.

At the hearing of this appeal I sat with and have been greatly assisted by the experience of Master Campbell, Costs Judge and Mr Graham Humby, a solicitor assessor. However the determinations made in this appeal and this judgment are mine alone.

CPR:

Other documents which the party must file when he requests detailed assessment.)

09.09.09 – Solicitors enter into a Conditional Fee Agreement (‘CFA’) with Claimants and obtain ATE insurance.

The Claimants claimed an ATE insurance premium of £60,375 at Item 62 in the Bill of Costs.

In their Points of Dispute of 10^th May 2011 the Defendant wrote in response to item 62:

The insurance certificate provided with the Points of Reply stated:

On 15^th December 2011 after Master Haworth found that the redacted certificate did not comply with CPD 32.5(2)(c), the Claimants’ solicitors provided the Defendant with the unredacted insurance certificate showing the amount of the premia specified under (a) and (b).

The Claimants applied for relief from the sanction of not being able to recover the insurance premium as an additional liability. By his judgment on 16^th December 2011, the Master refused the Claimants’ application for relief from sanctions.

The Conditional Fee Agreement (‘CFA’) entered into on 9^th September 2009 between the Claimants and their solicitors contains the following material provisions:

The risk assessment attached to the solicitors’ CFA of 9^th September 2009 included the following:

Counsel’s CFA of 17^th December 2009 included the following provisions:

In the original Particulars of Claim issued on 15^th January 2010 and the Amended Particulars of Claim, three causes of action were pleaded. First it was alleged that the Defendant was in breach of contract by supplying the Claimants with lighting which was not fit for the purpose of installing in their client’s showrooms. It was alleged that this breach of contract caused loss and damage particularised under nine heads of loss. The total sum claimed was £239,816.98. Second, in the alternative it was alleged that the Defendant engaged both Claimants to notify them of and rectify all the problems experienced by the client “and/or to manage and maintain its relationship” with the client. The items which were claimed as damages in the first cause of action were claimed as sums due under the separate agreement resulting from the facts alleged to support the second cause of action. Third, in the further alternative, the Claimants claimed a reasonable sum, that claimed in the Particulars of Loss and Damage for services they alleged were provided by them at the Defendant’s request.

In their Defence of 24^th February 2010 the Defendant admitted that the lighting they supplied was defective but denied that this caused the loss and damage alleged. Further they denied the facts alleged in support of the alternative second and third causes of action. Each head of loss was challenged. The Defendant asserted that they were not liable to pay the First and/or Second Defendant the sum of £239,816.98 claimed or any sum.

The papers for the appeal did not include the letter before action and the Defendant’s response.

In a without prejudice offer of 17^th November 2009 the Defendant’s solicitors ask the Claimants’ solicitors to confirm that there was no contractual relationship with the Second Claimant. Whilst the Defendant was willing to accept for the present purposes that it provided a defective product “what it is significantly less comfortable about accepting is that either of your clients have any actionable loss”. In addition to questioning any liability to the second Claimant, the Defendant’s solicitors questioned the causation and/or mitigation of loss in respect of the claim for rectifying problems with the light fittings. The Defendant’s solicitors concluded:

Mr Mireskandari, a partner in the Claimants’ solicitors, made a witness statement on 15^th December 2011 after the Master ruled that CPD 32.5(2)(c) had not been complied with and the sanction in CPR 44.3B(1)(c) would apply so that the claim for the insurance premium was disallowed subject to any successful application for relief. Mr Mireskandari addressed each of the factors set out in CPR 3.9(1). The statement included the following:

CPD 32.5(2)(c)

The Master held:

An application for relief from the sanction of the additional liability of the ATE premium of £60,375 not being allowed was made immediately after the Master had ruled that CPD 32.5(2) had not been complied with. A statement by Mr Mireskandari of the Claimants’ solicitors was made in support of the application.

The Master approached the question of relief from sanctions on the basis that the Claimants did not comply with CPD 32.5(2) until the unredacted ATE insurance certificate was provided. On any view no insurance certificate was supplied with the Bill of Costs. It was only supplied in a redacted form in November 2011 and to the court in an unredacted form a week before the costs hearing. The receiving party had been on notice since May 2011 that the failure to serve the certificate was an issue that would be raised at the detailed assessment, yet an application for relief had only been made during the hearing.

Of the factors to be taken into account in exercising discretion under CPR 3.9 to grant relief from sanctions, in considering the interests of the administration of justice, CPR 3.9(1)(a), the Master pointed out that whilst the Defendant knew that the ATE “premiums were staged and that the premiums increased at the identified stages” they were not aware what those premiums were. The Master held that:

The Master found that there had been prejudice to the Defendant. There was a serious breach of PD 32.5(2). At paragraph 16 he held:

At the time of entering into the CFA on 9^th September 2009 the solicitors assessed the risk of success at 55%. The stages of the success fee were 25% if the claim settled before proceedings were issued, 50% if it settled after issue but before 28 days after service of the defence and 100% thereafter.

Having regard to the definition of “win” in the solicitors’ CFA the Master held that any win:

The Master held that because proceedings were issued very soon after the CFA was entered into, the 25% success fee and the 50% success fee would “ratchet up very quickly to 100 per cent”.

The Master referred to the judgment of Sir Robert Nelson in Fortune v Roe [2011] EWHC 2953 (QB) 10^th November 2011 and stated at paragraph 15:

The Master held at paragraph 18 that the question he had to address was “what were the real risks of success on 9^th September 2009 when the agreement was entered into?” He observed that having looked at the documentation and a likely outcome of the case, that the defendant had already carried out some work “and the fact that the parties appear to have agreed that his case really related to the quantification of damages”, the Master held that the “risk that the claimants’ solicitors were not going to recover a penny in this case is, in my view, not anywhere the figure that they put on it of 55 per cent”.

The reasons the Master reduced the solicitors’ success fee to 40% are set out in paragraph 19 of his judgment in which he held:

Since counsel’s CFA was based on the same risks as the solicitors’, the Master approached the reasonableness of his success fee by considering the effect of what he held to be the only two differences between counsel’s and the solicitors’ claim to a success fee. He considered that the first stage of counsel’s success fee, 25% if the case settles within 14 days after service of pre-action protocol letter, “was never going to apply because the claimant had already issued, or was about to issue proceedings”. The other difference referred to in paragraph 22 by the Master was that:

Mr Farber for the Claimants submitted that the Master was wrong to decide that the redacted ATE insurance certificate did not amount to compliance with CPD 32.5(2)(c) but that in any event he was wrong to decide not to grant relief from the sanctions of disallowing the amount of the premium in the assessment of costs.

Mr Farber submitted that CPD 19.4(3)(c) is central to the appeal related to the ATE premium. CPD 19.4(3)(c) provides that where the funding arrangement is an insurance policy the party must:

In their Reply to the Defendant’s Points of Dispute commenting on the Claimants’ Bill of Costs which stated that the Claimants served no information whatsoever in support of the additional liability, they wrote:

Mr Farber recognised that the insurance certificate was served later than is required by CPD 32.5(2). However lateness was not the principal focus or reason for the Master’s decision that the CPD had not been complied with. Mr Farber contended that the Master erred in holding that the redacted certificate did not comply with CPD 32.5(2). CPD 32.5(2) requires information provided about the amount of premium paid or payable. Only one amount was paid, £60,000 payable at stage (c). That amount was disclosed.

Even if the redacted certificate did not comply with CPD 32.5(2) and a wrong view was taken that there had been compliance, Mr Farber submitted that this mistaken view was understandable and was a weighty factor to be taken into account in deciding whether to grant relief from sanctions. No doubt knowing the premium which would have been charged at stages (a) and (b) would assist the paying party in assessing the reasonableness of the (c) premium. The Master could have put the Claimants to their election in choosing whether to disclose the unredacted certificate or to prove its contents by other means, for example by a written statement. If necessary, the assessment hearing could have been adjourned to enable the Defendant to deal with the unredacted certificate. Mr Farber submitted that an argument based on comparison of the sizes of the premiums at different stages was “bread and butter stuff”.

Considering the factors to be taken into account in deciding under CPR 3.9, whether to grant relief from sanctions, Mr Farber contended that the interests of justice were not put in jeopardy by the service of the redacted certificate. He rightly acknowledged that even if the redacted certificate complied with CPD 32.5(2)(c) it was served late. However he contended that lateness in itself is not a reason to refuse relief from sanctions. The certificate was served on the Defendant one month before the detailed assessment hearing. If necessary there could have been an adjournment with costs awarded against the Claimants.

As for the promptness of the application for relief, Mr Farber contended that the focus of argument on non-compliance with CPD 32.5(2)(c) had been on the redaction and not the timing of service of the redacted certificate. While there was a dispute over the issue of whether the certificate provided complied with the CPD it was not necessary to apply for relief from sanctions for non-compliance.

It was said that the Master did not consider whether the failure to comply with the CPD as to timing of service of the certificate was intentional. The requirement to provide the certificate with the Bill was overlooked. If there were any prejudice caused by late service of the certificate it could be remedied by an adjournment.

Mr Farber contended that some breaches of the CPR or CPD are more serious than others. If the redacted certificate complies with CPD 32.5(2)(c) the delay in serving it was of a lesser order than the breach which the Master found established. Even if the redacted certificate did not comply with CPD 32.5(2)(c) Mr Farber contended that the Master erred in failing to grant relief from sanctions.

Mr Farber referred to the judgment of Spencer J in Manning v King’s College Hospital NHS Trust [2012] 1 Costs LR 105 in which at paragraph 42 the Judge referred to the need to concentrate “on the authoritative general guidance given by the Court of Appeal to the proper approach to application for relief from sanctions in CIBC Mellon Trust Co. v Stolzenberg [2004] EWCA Civ 827”. The guidance given was that after considering the nine factors in CPR 3.9 the court should stand back and see whether it is in accordance with the overriding objective in the CPR to lift the sanctions.

Mr Farber also referred to Scott v Duncan [2012] EWHC 1792 in which Spencer J observed at paragraph 43:

Mr Farber submitted that the Master misunderstood the risk element in the case. Three causes of action had been pleaded. There was a claim for damages and a claim for the cost of remedial work carried out by the Claimants. He contended that paragraphs 13 and 14 of the Defence show that liability was an issue between the parties. The dispute was not about quantum only. In the alternative to the damages claim for the admitted breach of contract by supplying faulty lighting units, the Claimants alleged that the Defendant engaged both Claimants to notify it of defects and to coordinate the rectification of all problems experienced by the client in whose showrooms the units were fitted. The Claimants alleged that these facts supported a new contract to the effect that for their services the Defendant was obliged to pay the claimants a reasonable charge by virtue of an implied term or because at their request the Defendant took the benefit of such services.

Mr Farber submitted that the Master failed to have regard to the fact that the Defendant maintained throughout that the Second Claimant’s claim was bound to fail as there was no direct contractual relationship between those parties. Further he submitted that the Master erred in rejecting the submission that the case would be factually challenging. The Defendant had alleged that they had carried out remedial work and thereby discharged all their obligations to the First Claimant, they put causation in issue and denied that the Defendant had engaged the Claimants to provide services organising remedial work and/or denied that services were provided for the Defendant, denied any liability to pay reasonable remuneration for this work and alleged a failure to mitigate.

Further, it was said there was a substantial dispute about quantum and mitigation of loss.

Mr Farber submitted that the Master placed undue weight on the low hurdle of the definition of “win” in the CFA which would trigger a success fee. The Master’s proposition that a payment of £1 would trigger an entitlement entitling solicitors and counsel to a success fee should not have affected his decision as to the degree of risk assumed in this case. On the facts of this case it was unrealistic to base any decision on a possibility that the case may settle for £1.

As for the basis upon which the Master approved a lower success fee for counsel than that for the solicitors, Mr Farber contended that he failed to have regard to Clause 20 of counsel’s CFA in which it was provided that if counsel advised rejection of a Part 36 offer and a court awarded a lesser amount, counsel was not entitled to a success fee for work after a Part 36 payment into court or offer unless the Part 36 offer or payment had no effect on the costs awarded by the court.

Mr Farber contended that the different stageings of levels of success fee between counsel and solicitors and the difference in the impact on them of a Part 36 offer should not have led to a difference in 20% in approved uplift for counsel. He initially submitted that at most it should have been 5% but in Reply he mentioned 10% but that these figures were not based on any mathematical calculation. What was to be done was to assess not the Part 36 risk specifically but the risk of recovery in the case overall.

Applying a rough cross check with the costs ready reckoner, on the basis of a 55% chance of winning Mr Farber contended that a success fee of 70-75% would have been reasonable for the solicitors. Applying the reckoner without the discounts to that in counsel’s case, the success fee for the solicitors applying the reckoner would be 82%.

Mr Marven for the Defendant contended that in respect of the ATE premium claimed, the Master was right to hold that the Claimants had failed to comply with the requirements of CPD 32.5(2) and accordingly, pursuant to CPR 44.3(1)(e), they were not entitled to recover the insurance premium.

Mr Marven contended that the Claimants were in breach of the requirement to provide the ATE insurance certificate with the Notice of Commencement of detailed assessment proceedings and the Bill of Costs on 13^th April 2011. By the Points of Dispute of 10^th May 2011, the Defendant notified the Claimants that they considered that CPD 32.5(2) had not been complied with. The redacted insurance certificate was provided on 18^th November 2011 but that did not comply with the Practice Direction. On any view, even if the redacted certificate gave the information required, it was provided late. The information was provided on 18^th November 2011 when it should have been provided on 13^th April 2011. The assertion in the Points of Reply that relief from sanctions was not required because the Defendant had been informed by letter of 6^th November 2009 that ATE insurance was in place was misconceived. That letter gave the information required by CPD 19 to be given during the course of proceedings when a party was not expected to disclose their assessment of prospects of success. CPD 32.5(2) required more information to be given following the conclusion of proceedings.

It seemed to have been accepted that knowing the level of the first and second stages of the insurance premium was relevant to the assessment of the reasonableness of the third stage premium which was claimed in this case. Mr Marven drew attention to Rogers v Merthyr Tydfil [2001] 1 WLR 808 in which Brooke LJ giving the judgment of the Court of Appeal held at paragraph 107:

Mr Marven submitted that as a matter of construction the requirement on the receiving party in CPD 32.5(2)(c) to disclose “the amount of the premium paid or payable” included all aspects and stages of the premium. The singular includes the plural. The amounts payable at earlier stages are aspects of the same premium. The earlier amounts, it was said, were subsumed in the premium payable at the later stage. It was submitted that such a construction would give effect to the purpose of CPD 32 which was to give the paying party information. They were entitled to this information to enable them to assess the reasonableness of the premium.

Mr Marven contended that the Master was right to hold that CPD 32.5(2) had not been complied with and to disallow the claim for the insurance premium.

Mr Marven contended that the Master did not err in refusing to give the Claimants relief from sanctions. They needed relief for both the lateness in serving information about the ATE insurance and for the inadequacy of the information supplied. The information was provided seven months late. The explanation for the redaction provided by the Claimants’ solicitors on the first day of the costs hearing, commercial sensitivity, was not given before that date. The reasoning of the Master for refusing relief from sanctions was not erroneous.

Mr Marven contended that the Master was right to consider that the assessment of risk at 55% was too high. He drew attention to C v W [2008] EWCA 1129 in which the principal ground on which the appellant challenged the calculation of a success fee was that the Defendant had already admitted liability at the time the CFA was entered into. “Winning” was defined in terms of the Claimant succeeding in recovering damages from his opponent. C v W was a high value personal injury claim. Taking all relevant matters into account Moore-Bick LJ assessed the risk in overall terms at 17% resulting in a success fee of 20%.

Mr Marven contended that the risk factors in this case were unconvincing. It was inconceivable that the Claimants would come away with nothing. Bearing in mind the definition of “win” which would trigger the success fee for solicitors and counsel, both would be likely to earn a success fee. The Master’s assessment of a 40% success fee for solicitors which in broad terms reflected a 71% prospect of success was reasonable. The size of the claim and the alleged complexity do not of themselves add to the risk of losing as observed by Moore Bick LJ in C v W at paragraph 15.

It was said on behalf of the Defendant that a lower success fee for counsel of 20% was justified. Counsel had a four stage success fee. By the time counsel’s CFA was entered into, Stage 1 had already past. The Master was right to differentiate between solicitors and counsel on the basis of the difference in consequences for them if a Part 36 offer was not beaten. Counsel would be paid normal fees after receipt of the notice of the Part 36 payment into Court unless the offer or payment had no effect on the costs awarded by the court, in which case counsel would also receive a success fee in respect of that work. However solicitors would not be paid their basic charges for the work done after receipt of notice of the offer.

Mr Marven submitted that the Master got the percentage success fees allowed for solicitors and counsel about right. The assessment was within his margin of discretion.

The only grounds in which an appeal from the Master would be allowed are those in CPR 52.11(3): that his decisions were (a) wrong or (b) unjust because of a serious procedural irregularity. The latter is not material to the appeal in this case. Accordingly the Claimants must establish that the Master made an error of law or of fact or that in exercising his discretion he took into account matters which should have been left out, omitted matters which should have been taken into account or reached a conclusion which was one which no reasonable Master properly applying the correct legal principles to the relevant facts could have reached.

The Master held that the Claimants had failed to comply with CPD 32.5(2)(c). The redacted insurance certificate served on the Defendant with their Reply to Points in Dispute did not comply with the requirements of the Practice Direction as the amounts of the premium for the two earlier stages before that for which the premium was claimed were not shown. In any event a certificate complying with the Practice Direction was not served at the time specified, with the Bill of Costs.

Whether the Master erred in deciding that the redacted insurance certificate did not comply with the Practice Direction turns on the proper construction of CPD 32.5(2)(c).

CPR 44.15 requires a party who seeks to recover an additional liability to provide information about the funding arrangement to the court and to other parties as required by a rule, practice direction or court order. CPD 19 provides that where a party has entered into a funding arrangement (the definition of which includes an insurance policy) before issuing proceedings must provide certain information about the arrangement with the Claim Form. There is no requirement at that stage to specify the amount of the additional liability separately nor to state how it is calculated. In their Reply to the Defendant’s Points of Dispute, the Claimants asserted that by letter dated 6^th November 2009 the Defendant was notified of the insurance premium, including the applicable stages for the increases in premium and that Notice of Funding for the premium was filed and served on 15^th January 2010. This information no doubt complied with CPD 19.4(3). However, information required to be provided about insurance before proceedings are concluded does not include the costs of cover. This could disclose the assessment of the prospects of success. The requirements for material to be provided for a detailed assessment of costs where an additional liability of the cost of an insurance premium is claimed are different when the court has finally determined the matters in issue.

CPR 47.6(1) provides:

Notice of commencement in the relevant practice form; and

A copy of the bill of costs.”

Did the redacted certificate which showed the amount of premium paid and payable at the stage at which the litigation was concluded comply with CPD 32.5(2)(c)? The policy summary served with the certificate provides:

The Master relied on a purposive construction of CPD 32.5(2)(c) to conclude that the Practice Direction required disclosure not only of the premium paid but of premiums which would have been payable had the proceedings concluded at an earlier stage. The purpose relied upon was to enable the receiving party:

In my judgment there is a distinction between the mandatory requirement on the receiving party claiming an additional liability of an insurance premium to provide a copy of the insurance certificate showing the amount of the premium paid or payable and evidence, which may include amounts payable if proceedings had been concluded at earlier stages, which would enable a paying party to assess the reasonableness of the premium claimed as an additional liability. The premiums which would have been payable to the particular insurer used by the Claimants had the case concluded at an earlier stage may well be just one, albeit an important, piece of evidence relevant to assessing the reasonableness of the premium claimed. CPD 40.14 provides:

It appears from paragraphs 7 and 8 of his judgment that the Master considered that the Claimants had not complied with CPD 32.5(2)(c) because the required information regarding the insurance premium had not been provided. At paragraph 8 he then referred to the possibility of an application for relief from sanctions. There was no mention by the Master at that stage of a breach of the CPR or CPD by reason of failure to serve the insurance certificate on time. That is unsurprising as in accordance with his ruling a certificate complying with CPD 32.5(2)(c) had not been served until the unredacted certificate was produced to him just before the hearing.

CPR 3.9 provides that on an application for relief from sanctions the court will consider all the circumstances including those specified in the rule. It is apparent from the judgment of the Master that his finding that the Claimants were obliged by CPD 32.5(2)(c) to disclose the amounts payable at each stage at which a higher premium was payable under the ATE policy played an important role in his decision not to grant relief. In considering the interests of the administration of justice, under CPR 3.9(1)(a) the Master observed that:

Although there was no breach of CPD 32.5(2)(c) in providing the redacted rather than the unredacted insurance certificate there was a clear breach of the requirement of CPR 47.6 read with CPD 32.4 and 32.5(2) to serve the insurance certificate with the Bill of Costs. The Notice of Commencement and Bill of Costs were served on 13^th April 2011. The redacted insurance certificate, which I have held complied with CPD 32.5(2)(c), was not served until six months later, 18^th November 2011.

The Master’s consideration of whether he should grant relief from the sanction of disallowing the claim for the insurance premium was based on two false premises. First, that there had been a breach of CPD 32.5(2)(c) by serving the insurance certificate in redacted form. Second, that a document complying with CPD 32.5(2) was supplied just before the hearing when the unredacted certificate was provided. In light of the finding that the decision of the Master that relief from sanctions should not be granted was based on two erroneous conclusions his decision not to grant relief cannot stand and is set aside.

However, on any view, the certificate of insurance was served late in breach of the CPR and CPD. The importance to be attached to compliance with the CPR and CPD is shown by the serious consequences which flow from breach absent relief from sanctions. In Supperstone v Hurst and Hurst [2008] Costs LR 572 Floyd J observed at paragraph 39:

Standing back and taking into account all the relevant circumstances including those in CPR 3.9 can it be said that a costs Judge, properly directing himself or herself, could only reach one conclusion on whether relief from sanctions should be granted in this case? The breach of the CPR and CPD in this case was to serve the redacted insurance certificate on 18^th November 2011, one month before the detailed assessment hearing rather than on 13^th April 2011, eight months before the hearing.

The Master considered all the matters required by CPR 3.9(1)(a) to (i) to be taken into account in deciding whether to grant relief from sanctions. His decision that the Claimants had not provided the insurance certificate required to enable them to claim the insurance premium as an additional liability until just before the hearing led him to conclusions adverse to them when considering CPR 3.9(1)(a), the interests of the administration of justice, whether the failure to comply was intentional, (c), (d) whether there is a good explanation for the failure, (h) the effect which the failure to comply had on each party and (i) the effect which the granting of relief would have on each party. In considering CPR 3.9(1)(b), the Master held that the application for relief was not made promptly as on any view the certificate was supplied late. The Master held that on the facts of this case nothing really turns on CPR 3.9(1)(e), the extent to which the party in default has complied with other rules, practice directions, court orders and any relevant pre-action protocol. As for CPR 3.9(1)(f), the failure to comply with the CPD was caused by the Claimants’ representative. The Master did not consider that this factor took “the matter a great deal further”. He held that the trial date, the consideration in CPR 3.9(1)(g), would have to go off.

The two important items listed in CPR 3.9 referred to by Floyd J in Supperstone, are the circumstances to be taken into account under CPR 3.9(1)(d) and (h). The explanation for the failure to serve the certificate with the Bill of Costs was that advanced in the Reply to the Defendant’s Points in Dispute: the Claimants’ solicitors thought that the requirement of CPD 32.5(2) had been complied with by the letter of 6^th November 2009 in which they notified the Defendant that ATE insurance was in place and that different premiums were payable at identified stages. Further, the premium paid had been listed in the Bill of Costs. The explanation for the default is therefore mistake.

The information apparently given in the Claimants’ letter of 6^th November 2009 was that ATE insurance was in place and that the premium was to increase at stages which were specified. The amount of the premium was included in the Bill of Costs. No complaint has been made that the Claimants failed to notify the Defendant of the maximum extent of the cover or what was covered by the policy. Accordingly, although it should have been given in a certificate, the substance of the required information appears to have been given to the Defendant in the letter of 6^th November 2009 and the Bill of Costs of 13^th April 2011. Whilst it is understandable that the Defendant may not have wished to encourage the Claimants to remedy their failure of compliance with CPD 32.5(2)(c) by asking for the insurance certificate, once it was served on 18^th November 2011 they could have asked for disclosure of the unredacted certificate. If it was refused the Master could have used the procedure in CPR 40.14 to obtain disclosure of or information about the level of premiums which would have been payable at earlier stages. Further, the Defendant had at least a month before the hearing to obtain evidence to challenge the reasonableness of the premium, the amount of which had been known since 13^th April 2011.

The prejudice suffered by the Defendant by the late disclosure of the certificate is likely to have been delay in knowing whether the Claimants would be in a position to pursue their claim for the additional liability of the insurance premium and therefore whether time and money should be expended on obtaining evidence to challenge its reasonableness. Such a stance is consistent with the Defendant’s Points of Dispute in respect to the Claimants’ Bill of Costs. However, once the redacted certificate was served there was nothing to prevent the Defendant from asking for disclosure of the unredacted certificate and from obtaining evidence to challenge the reasonableness of the premium. If needed the Defendant could have applied for an adjournment to obtain such information. Since the need for an adjournment would have been caused by the Claimants it is highly likely that they would have had to bear the costs.

The prejudice suffered by the Claimants if relief from sanctions were not granted is that they are unable to pursue their claim for the insurance premium of £60,375. This is not an insubstantial amount. Bearing in mind that any prejudice to the Defendant caused by late service of the certificate could be reduced or eliminated by case management measures, having regard to the overriding objective looking to see the relevant circumstances overall, in my judgment, properly directing himself or herself, on the law and the relevant facts, a costs Judge would conclude that relief from sanctions for failing to serve the insurance certificate on the due date, the default in this case, should be granted.

The basis for the Master reducing the Claimants’ solicitors’ success fee was that in his view the “chance of winning” was somewhere in the region of between 70% and 75% and not the 55% in their risk assessment. In reaching this conclusion in my judgment the Master erred in holding that the case “really related to the quantification of damages”. The claim for £239,816.98 was made on the three alternative bases set out earlier in this judgment. One was loss alleged to have been caused by the supply of admittedly defective goods. The Defendant denied causation of the loss claimed. The second was that the Defendant engaged the Claimants to co-ordinate rectification of all problems experienced by the end customer and that in pursuance of this engagement the Claimants provided services. It was alleged that it was an implied term of this contract that the Defendant would pay a reasonable charge for these services. Alternatively it was alleged that the Claimants provided services to the Defendant at their request and that the Claimants were entitled to a reasonable sum for those services. In all cases the total sum claimed was £239,816.98.

At the time of both the solicitors and counsel entering into their CFA the Defendant denied that they were liable to pay the Claimants the sum claimed or any sum. They denied any contractual relationship with the Second Claimant. By their Defence served after the CFAs were entered into the Defendant denied that any breach of contract by them caused the loss and damage claimed. Further the Defendant denied that they engaged the Claimants to rectify problems experienced by the client. They denied that they engaged the Claimants to carry out any remedial work or that there was any further contract between them. It was denied that the Claimants provided services to the Defendant at their request or at all. The Defendant denied that the Claimants were entitled to make a reasonable charge or any charge. They denied that the alleged loss and damage was caused by the matters complained of. Liability for the sums claimed and causation of loss were denied. In my judgment the Master erred in concluding at paragraph 18 that “the parties appear to have agreed that this case really related to the quantification of damages”.

In my judgment the mistaken view taken by the Master that the case was about the quantification of damages and not liability and causation led him to underestimate the risks of the Claimants losing. Although a settlement for an award of damages of £1 would have triggered the success fee, a realistic view of that happening has to be taken. There was nothing in the material before the Master to indicate that the Claimants would have settled their claim for £1 or that a court would have awarded that sum. The likelihood was that, as in fact occurred, settlement would only be achieved for a payment of a significant proportion of the sum claimed. At the time of entering into the CFA, the solicitors recorded in their Risk Assessment of 9^th September 2009 that:

In Motto and Others v Trafigura Ltd and Another [2012] IWLR 657 Lord Neuberger held at paragraph 127:

The Risk Assessment referred to “litigating a case of this size” and that “the subject matter of the dispute is technical, specialised and the trial is likely to involve lighting expert evidence.” As was explained by Moore-Bick LJ in C v W [2009] 4 AER 1129 at paragraph 15, it would be wrong to increase the percentage success fee to reflect the size or complexity of the claim.

The Master rightly approached the question of the reasonableness of the success fee on the basis that “the case did go a long way to trial”. He also took into account the starting figure for a success fee from the ready reckoner and factored in something for the late settlement and the fact that the CFA had staged success fees in reaching a figure based on the ready reckoner uplift for his assessment of success at between 70% and 75%. However, having regard to the failure of the Master to appreciate the basis of the claims made by the Claimants and the position of the Defendant before the issue of proceedings when the CFAs were entered into, in my judgment he erred in overestimating the prospects of success. Applying this approach to what in my judgment is the overall correct assessment of the chance of winning at 60%, the success fee would be 67% accordingly I set aside the Master’s award of 40% success fee for the solicitors and replace it with one of 67%.

Counsel’s CFA was based on the solicitors’ risk assessment. For the reasons given, in my judgment the Master erred in that he based his decision on risk on the premise that what was in issue in the case was quantum only. However he did not err in considering that some distinction should be made between solicitors’ and counsel’s success fee. Mr Farber fairly recognised that a reduction in counsel’s success fee should be made to reflect the fact that if a Part 36 offer were not beaten counsel would still receive his standard fee for work undertaken after payment in and a success fee if the Part 36 offer had no effect on the costs order, whereas the solicitors would receive nothing. Mr Farber agreed that this difference would properly be reflected by a lesser success fee. He gave the figures of at most 5% and 10% to illustrate the point. In my judgment the overall difference between the risks assumed by solicitors and counsel would properly be reflected by a lesser success fee of 7% for counsel.

The other difference relied upon by the Master was that the first Stage of counsel’s success fee was never going to apply because the Claimant had already issued or was about to issue proceedings when counsel entered into the CFA. Counsel’s CFA had four stages compared with the solicitors’ three. Having regard to the fact that the case settled just a few days before trial, in my judgment the stageing of counsel’s success fee does not support a reduction in its percentage at the final stage.

Accordingly the Master’s allowance of a success fee of 20% for counsel is set aside and is replaced with one of 60%.

The appeal is allowed.

The decision that the Claimants failed to comply with CPD 32.5(2)(c) by serving a redacted insurance certificate is set aside.

The decision not to grant relief from sanctions for failing to serve the insurance certificate in accordance with the CPR and the CPD is set aside and the Claimants’ application for relief from sanctions is granted.

The allowance of 40% and 20% success fees for solicitors and counsel respectively are set aside and replaced with success fees of 67% and 60%.

Anything remaining to be done in the detailed assessment of costs including the insurance premium claimed at Item 62 of the Bill of Costs and the assessment of the Claimants’ costs of the appeal which are ordered to be paid by the Defendant are remitted to Master Campbell or, if not practicable, to another Costs Judge. For the avoidance of doubt, Master Campbell is to have full discretion as regards the costs of the detailed assessment save that the Defendant is to pay the Claimants their costs of the appeal.