Costs law update
Date: 05 September 2008
Issue: Vol 158, Issue 7335
Categories: Features, Procedure & practice
The Court of Appeal in R (on the application of Compton) v Wiltshire Primary Care Trust [2008] EWCA Civ 749, [2008] All ER (D) 12 (Jul) has recently refined the principles concerning protective costs orders. Protective costs orders (PCOs) are a type of pre-emptive costs order which (generally speaking) are only available in public law claims. Unlike other pre-emptive costs orders (such as costs capping orders), their aim is not solely to control extravagant expenditure; instead, their aim is to protect litigants who reasonably bring public law proceedings in the public interest from the liability of an adverse costs order in the event that they lose. That said, PCOs can, and often do, impose a cap on the recoverable costs.
Principles matter
The principles guiding these types of orders were established by Mr Justice Dyson (as he then was) in the pre-CPR case of R v Lord Chancellor ex parte Child Poverty Action Group [1998] 2 All ER 755. Following the advent of the CPR those principles were affirmed and summarised by Mr Justice Richards in R v London Borough of Hammersmith and Fulham, ex parte CPRE London Branch (No 2) (2000) Env LR 544.
In 2005 those principles were restated (with only minor revisions) by the Court of Appeal in R (on the application of Corner House Research) v Secretary of State for Trade and Industry [2005] EWCA Civ 192, [2005] All ER (D) 07 (Mar). Those principles are:
● A PCO may be made at any stage of the proceedings, on such conditions as the court thinks fit, provided that the court is satisfied that:
● the issues raised are of general public importance;
● the public interest requires that those issues should be resolved;
● the applicant has no private interest in the outcome of the case;
● having regard to the financial resources of the applicant and the respondent(s) and to the amount of costs that are likely to be involved it is fair and just to make the order;
● if the order is not made the applicant will probably discontinue the proceedings and will be acting reasonably in so doing;
● if those acting for the applicant are doing so pro bono this will be likely to enhance the merits of the application for a PCO.
It is for the court, in its discretion, to decide whether it is fair and just to make the order in the light of the considerations set out above.
Thus, there are five requirements that must be met if the court is to make a PCO.
No need to be exceptional
After having set out these five requirements, the Court of Appeal in Corner House went on say that such orders were exceptional. It has been argued that part of the test to be applied imposes an additional need to show that the case is “exceptional”.
The Court of Appeal dealt with this in R (on the application of Compton) v Wiltshire Primary Care Trust [2008] EWCA Civ 749, [2008] All ER (D) 12 (Jul). Lord Justice Waller found that the supposed need for “exceptionality” (as he called it) should not be seen as an additional criterion to the five requirements, but merely a prediction as to the effect of applying them. Thus, while an applicant seeking a PCO will not need to show that the case is exceptional, if his application is successful, the case will be exceptional by virtue of the five requirements being satisfied.
The five requirements
The Court of Appeal in Compton also gave guidance as to how those five requirements (or, more accurately, the first of those five requirements) are to be interpreted. That guidance was a majority decision with which Lord Justice Buxton did not agree. Buxton LJ expressed his concern about the potential impact of the decision in the following way: “The effect of the decision in this case is very greatly to extend the types of cases in which, if other requirements are fulfilled, a PCO can be made. And although judges retain a discretion to refuse nonetheless to make PCOs, it is difficult to see how a judge could use that discretion to refuse a PCO in the type of case in which the making of a PCO has been upheld by this court and there were no policy factors (for instance, collusion or the creation of an artificial case) that militated against it.”
Buxton LJ was concerned about the interpretation of the requirement that a claim be of “general public importance”. The other members of the Court of Appeal found that that phrase should be given a wide and purposive interpretation. That guidance seemed consistent with a tendency, which has been apparent for the past 12 months or so, for judges at first instance not to read Corner House restrictively. For example, in a decision of which the Court of Appeal approved, Sir Mark Potter P found that the requirement that there be no private interest should be read widely in that it was a requirement that was a “flexible element in the court's consideration” (see Wilkinson v Kitzinger [2006] EWHC 835 (Fam)).
Two stage tests
Waller LJ found that the two stage tests of general public importance and the public interest in the issue being resolved are difficult to separate (Compton, para 21). He went on to find that the requirements were not to be read as statutory provisions, nor were they to be read in an over-restrictive way (Compton, para 23). He commented upon and impliedly approved the “non-rigorous approach” which had been adopted over the past year or so.
Waller LJ commented on the supposed need for issues to be important in the national context. In this regard, he had the following to say (at para 24): “…I do not read the word 'general' as meaning that it must be of interest to all the public nationally. On the other hand I would accept that a local group may be so small that issues in which they alone might be interested would not be issues of 'general public importance'. It is a question of degree and a question which Corner House would expect judges to be able to resolve.”
In the light of the “non-rigorous approach” expounded by Waller LJ, Lady Jusitce Smith went on to explain that those issues that might be sufficiently important to merit a PCO falling within a range; in this regard, she made the following three observations (at para 75): “First, there is no absolute standard by which to define what amounts to an issue of general public importance. Second, there are degrees to which the requirement may be satisfied; some issues may be of the first rank of general public importance, others of lesser rank although still of general public importance. Third, making the judgment is an exercise in which two judges might legitimately reach a different view without either being wrong.”
As if to complement the fact that such issues will occupy a range, Smith LJ elaborated upon the range of orders that might be available to a judge making a PCO (para 86): “At one end of the scale, the judge may make a PCO which imposes on a defendant the burden of bearing its own costs even though it wins on the merits and does not relieve it of the prospective burden of paying the applicant's costs in the event that the applicant succeeds…That is the “strongest” form of order which will usually be made. It puts the defendant at a major disadvantage; on costs it is in a “heads you win tails I lose” position. At the other end of the scale, the court can make a much more modest order, whereby the claimant's liability to pay the defendant's costs is capped not at nil but at a specified level and where the defendant is given a guarantee that it will not be required to pay any of the claimant's costs….If the claimant were to win, the defendant would not have to pay any of the claimant's costs…Under that order, the defendant has the comfort of knowing that it cannot be required to meet any bill of costs other than its own and, over that, it has a large measure of control.”
No absolute release from risk
The Court of Appeal also dealt with the perceived concern that if claimants were absolved from all responsibility for bearing the consequences of an adverse costs order, there would be little incentive to exercise restraint.
The Court of Appeal explained that claimants would not be protected entirely from risk. The court explained that it may often be right to expose a claimant (and those the claimant represents) to a specified degree of risk, ie a PCO, in which the costs were quantified) so that all can see what the risk is (para 27). The court also reiterated that the claimant would be at risk of costs if the defendant successfully resists an application for a PCO (para 11, quoting Corner House at para 78).
Finally, Waller LJ confirmed that when assessing the quantum of a cap, it is legitimate to take into account the means of those who are supporting the application (para 27).
Procedure
The Court of Appeal then dealt with procedure. The decision will often be made on paper. Such orders may be reviewed on oral application, but (as per Corner House and by analogy with CPR 52.9(2)) the PCO will be set aside only if the defendant is able to show “compelling reasons”. Accordingly, a claimant who is refused a PCO may renew the application at an oral hearing without constraint, but a defendant who has a PCO made against him has to establish “compelling reasons” to have it set aside.
The defendant in Compton argued that this favoured the claimant and was unfair. The Court of Appeal disagreed. Waller LJ explained that a claimant should have a little more latitude than a defendant because without a PCO no proceedings would be brought at all. He contrasted this with the position of a defendant, who he said would not be prevented from defending the merits of the case (para 42). Smith LJ agreed there is a need for a procedure that avoids drawn out preliminary skirmishes (para 90).
By way of illustration, Smith LJ went on to explain that a complete failure to provide any reasons for a decision ought to amount to a compelling reason why the decision should be reviewed on the merits.
While obiter, the Court of Appeal also dealt with the situation in which an application is made for a PCO in the case of an appeal before the Court of Appeal. The court determined that it should be for that Court of Appeal to determine whether such an order should be made and, if so, the level of the cap (apparent from para 28).
Where an application is made by the appellant the issue of a PCO should be considered afresh by the Court of Appeal upon its merits, but where the beneficiary of a PCO has succeeded in the court below, it will usually be the case that a PCO will also apply in the Court of Appeal (para 47).
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