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Happiness is…"A positive Cash Flow”

With regulatory changes continuing to eat into claimant law firm’s profit and cash flow the recent Court of Appeal Judgment in I v Hull & East Yorkshire Hospitals NHS Trust provides some clarity for both claimant and defendant firms when it comes to payments on account of costs.

This claim was brought on behalf of a child who suffered catastrophic injuries at birth and therefore the claimant’s damages claim was expected to be significant.

Unusually, this case involved a request by the claimant for a payment on account of costs, even though at that stage quantum had not been determined or resolved by the Court.

It is of note that the Court had previously approved a settlement on liability on a 90/10 split in favour of the claimant back in 2012 and ordered the defendant to pay the claimant’s costs of the liability part of the claim, subject to detailed assessment if not agreed.  The Court ordered a payment on account of costs of £100,000.

When the matter later came before DDJ Batchelor in 2017 it was by way of a telephone hearing to determine applications by the Claimant’s current solicitors, Switalskis for an interim payment on account of damages of £200,000.00 and an interim payment on account of costs in the sum of £150,000.00.   On 20th September 2017 the application for a further interim payment on account of damages was agreed in the sum of £200,000.00, subject to approval which was given.  The Judge then dealt with the application for an interim payment on account of costs.   At that time the Judge was made aware that in addition to the £100,000.00 on account of costs ordered to be paid under the 2012 order, there had been a further voluntary payment of £115,000.00, making a total of £215,000.00.  Of that sum £165,000.00 had been paid to the previous solicitors, Irwin Mitchell and £50,000.00 to current solicitors, Switalskis.

By August 2017, the costs of Irwin Mitchell were said with VAT to total just over £200,000.00.  Switalskis’ profit costs were said to be just short of £400,000.00 before VAT.  The VAT inclusive total of costs said to be incurred in total exceeded £500,000.00.

In essence, DDJ Batchelor dismissed the claimant’s application for a further interim payment on the basis that:-

  • The claimant had not taken advantage of the Order made in 2012 to seek a detailed assessment of its costs on a liability only basis;

  • He did not accept the Claimant’s argument that the further £150,000.00 sought "would not exceed a reasonable proportion of the costs to which the Claimant was entitled”.

On hearing the appeal brought by the Claimant, HHJ Robinson overturned the previous decision and held that it "was plainly wrong to rule that a total of £200,00.00 by way of an interim payment on account of costs to date might exceed a reasonable proportionate of the costs to which the Claimant’s solicitors would be entitled”.    It was clear that by 2017, the Claimants current solicitor’s costs already incurred were said to be in excess of £500,000.00.

Another important point recognised by HHJ Robinson was the delay between the liability settlement and the determination of quantum.

It is not unusual for those claimant law firms running high value, complex and long running cases to incur significant disbursements and costs over a number of years before reaching trial.  This can have a detrimental effect on the business’s cash flow and may cause even the most profitable company to run into problems.

The Court of Appeal has now firmly rejected an application by the Defendant Trust, for permission to appeal the judgement of HHJ Robinson.

Being able to apply for an Order for interim costs on account prior to the issue of quantum being determined will be an invaluable tool for Claimant Law firms to ensure adequate cash flow, especially in these ever changing and challenging times.

With that said, in light of this decision, it would be foolish to make any application for a payment on accounts of costs in the absence of a detailed breakdown of costs incurred in support.

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