Unit 7 - Aspects of Costs and Enforcement Flashcards
A claimant is considering issuing proceedings in the County Court against the defendant for loss of profits estimated at £100,000. Before taking the matter further, the claimant wants advice from their solicitor about the costs implications and how these will be dealt with by the court. The solicitor writes to the claimant explaining these.
Which of the following statements contained in the letter of advice is correct?
A) If the case proceeds on the multi-track most of the costs are fixed by the CPR.
B) If the case proceeds on the multi-track costs are usually subject to summary assessment.
C) Each party will generally bear their own costs in making or responding to interim applications on the way to trial.
D) If the case is allocated to the intermediate track, costs will be ordered on the standard basis so that they must be reasonable to the matters in issue.
E) If costs are ordered on an indemnity basis any doubt is resolved in favour of the receiving party.
CORRECT ANSWER E - Option A is wrong as although the fast and intermediate tracks are subject to the fixed costs regime, the multi-track is not. Option B is wrong because the costs of multi-track litigation are generally subject to detailed assessment. However, the costs associated with interim applications are often addressed on a summary basis by reference to the usual principle that the unsuccessful party is responsible for the successful party’s costs –
option C accordingly is wrong.
Option D is wrong. Costs on the standard basis are recoverable if they are proportionate to the matters in issue – not ‘reasonable’. Also, if the case is allocated to the intermediate track, it will be subject to the fixed recoverable costs regime.
A company’s business is dependent upon a few major contracts, including one with the local Council. As a result of a disagreement, the Council breaks off the relationship. The company sues, alleging that the Council was not entitled to terminate the contract. The Council applies for a security for costs order on the basis that the company will be unable to pay its costs if the Council wins at trial after the company admits it is in financial difficulties.
Which of the following statements best describes what might happen during the security for costs application?
A) The court cannot take into account the strength of the claim or the defence. Such matters must be left for determination at trial.
B) The Council should provide evidence in support of its application, such as the company’s accounts and poor credit ratings.
C) The court cannot take into account any argument that it would not be just to make an order because the company’s financial difficulties are as a result of the Council’s wrongful termination.
D) If the court is satisfied that one of the required conditions applies and that it is just to do so, it must make an order for security for costs.
E) Even if the application is successful, the Council will have to bear its own costs in making that application. The purpose of the application is to provide security for future costs, not to quantify past costs.
CORRECT ANSWER B - The application is likely to be made on the grounds that the claimant
is an impecunious company. In such cases, the defendant should produce evidence of the company’s poor financial standing (such as the company’s accounts and poor credit ratings).
Option A is wrong. The strength of the claim and the defence are matters that the court may take into account (although it is true that the court will want to avoid a situation in which the merits have to be considered in any detail).
Option C is wrong. An application for security for costs may fail where the claimant is able
to persuade the court that its shortage of money has been caused by or contributed to by the defendant’s behaviour (for example, in terminating a contract and not paying the agreed contract price when there was no legal basis for doing so).
Option D is wrong because the court’s power to make an order for security for costs is discretionary rather than mandatory. Option E is also wrong. The usual costs position on any interim application is still relevant when making or opposing an application for security for costs, namely the loser pays the winner’s costs.
A claimant makes a Part 36 offer of £40,000 on 1 March to the defendant to settle their dispute. The offer expires on 22 March (Day 21). The defendant rejects the offer and the matter proceeds to trial. After considering the evidence, the judge finds in the claimant’s favour and damages are awarded against the defendant in the sum of £45,000.
Which of the following is a consequence that will apply under Part 36?
A) Unless it is unjust to do so, interest will be payable on the claimant’s costs from 23 March onwards at a rate of 1% above base rate.
B) Unless it is unjust to do so, interest will be payable by the defendant on the damages awarded at a rate of up to 10% above base rate from the date of cause of action.
C) Unless it is unjust to do so, a split costs order will be made so the defendant is ordered to pay the costs up to 22 March and the claimant pays the costs from 23 March up to and including the trial.
D) Unless it is unjust to do so, the defendant will pay the claimant’s fixed costs up to 22 March; and also from 23 March, but these fixed costs will be subject to a 35% uplift.
E) Unless it is unjust to do so, an additional amount of £2250 will be payable by the defendant to the claimant.
CORRECT ANSWER D - Where the claimant secures a judgment which is at least as advantageous as the claimant’s own Part 36 offer (as here), one of the consequences of the defendant not accepting the offer on the intermediate track is that it will become liable to pay the claimant’s fixed costs with a 35% uplift from Day 22 onwards, unless it is unjust to do so.
Option A is wrong. Although it is correct to state that one consequence of the claimant securing a more advantageous judgment is that the defendant will be liable to pay interest on the claimant’s costs from Day 22 onwards, that interest is payable at a rate of up to 10% above base rate.
Option B is also wrong because the penalty interest of up to 10% above base rate does not run from the date of cause of action, but from Day 22. Option C does not apply to this scenario. A split costs order would be relevant if the defendant had made a Part 36 offer which the claimant failed to beat. Furthermore, the additional amount payable on the damages is 10% for the first £500,000 awarded, and so the correct figure is £4500 and not £2250 as stated in Option E. This is only equivalent to an additional amount of 5% of the damages.
The claimant has obtained judgment for £147,000 against the defendant. The defendant disputes that he has the means to pay the judgment debt and points out that he lives in rented accommodation and has no regular income. The claimant has received information from a friend that the defendant has significant assets including properties, which he owns in a nearby town.
Which of the following best describes the action that the claimant should take?
A) The claimant should write to the defendant requesting that he provide details of his income, expenses, assets and liabilities.
B) The claimant should instruct an enquiry agent to seek further details about the defendant’s finances.
C) The claimant should apply for an order to obtain information from the defendant relying upon the court officer to ask standard questions.
D) The claimant should apply for an order to obtain information from the defendant and submit additional questions.
E) The claimant should instruct an enquiry agent to seek further details about the defendant’s finances and then apply to the court for an order to obtain information, including additional questions.
CORRECT ANSWER E - Although the claimant could write to the defendant asking for details of his finances, given the debtor has already stated he does not have the means to pay, it is unlikely he will respond properly – hence, option A is wrong. The claimant should consider applying
to the court for an order to obtain information as there are sanctions if the defendant fails
to comply. However, as the defendant appears to be hiding assets, he may not answer the questions fully or truthfully; thus, although options C and D are correct, they may not be the most effective approach.
The best way forward is option E because the claimant will be able to find out specific details about the defendant’s finances, enabling them to tailor questions appropriately when they apply for an order to obtain information. As the judgment is for a significant sum of money, it would be worth the claimant taking both steps before proceeding to enforcement. Option B is not wrong, but is not as complete as option E.
A creditor wishes to enforce their judgment against the debtor (a limited company). After carrying out enquiries, the creditor establishes that the debtor has a number of assets. They own a factory premises and the plant and machinery, but rent offices nearby. The debtor has a bank account that is overdrawn, but a significant amount of money is owed by a customer for a trade debt. An expensive motor car driven by the managing director was recently purchased by her for her own personal use.
Which of the assets could the creditor enforce against?
A) The creditor could enforce against the factory premises, the plant and machinery and the trade debt.
B) The creditor could enforce against the factory premises, the trade debt and the motor car.
C) The creditor could enforce against the plant and machinery, the rented offices and the overdrawn bank account.
D) The creditor could enforce against the plant and machinery, the trade debt and the motor car.
E) The creditor could enforce against the factory premises, the plant and machinery, the trade debt and the motor car.
CORRECT ANSWER A - The debtor owns the factory premises and the plant and machinery
so both of these assets are available for enforcement, as is the trade debt because
these monies are owed to the debtor. However, the debtor only rents the offices, so these cannot be enforced against and nor can the motor car as it is owned by the managing director personally. There are no monies in the overdrawn bank account so this asset is not available to pay the debt either. All of the other answers either include assets that cannot be enforced against or miss those that can.
The judgment debtor, who is self-employed, has the following assets: a house, which she owns but which is subject to a mortgage equivalent to the value, a warehouse, which she rents and where she stores valuable stock that she purchased for her business, and a building society account in which she has £100.
Which asset is likely to prove the most effective for the creditor to enforce against?
A) The creditor should apply for a charging order against the house.
B) The creditor should apply for a taking control of goods order for the warehouse.
C) The creditor should apply for an attachment of earnings order.
D) The creditor should apply for a taking control of goods order for the stock.
E) The creditor should apply for a third party debt order over the building society account.
CORRECT ANSWER D - the stock is described as ‘valuable’. Although the creditor could apply for a charging order over the house, the facts state that there is no equity in the property (option A, therefore, is not the best answer). The warehouse is rented so cannot be enforced against – hence, option B is wrong.
Option C is wrong because the creditor is self-employed and attachment of earnings orders only apply to those who are employed. Option E is not the best answer as, while a third party debt order could be obtained over the building society account, the small amount of money means that it is not the most effective asset to enforce against.
TRUE OR FALSE:
a non-party costs order will not be made against ‘pure funders’ of unsuccessful litigation, that is, those with no personal interest in the litigation, who do not stand to benefit from it, are not funding it as a matter of business and in no way seek to control its course?
TRUE - By way of additional information, note that the principle is based on the public policy of assisting access to justice. However, if the non-party, in addition to funding the unsuccessful litigation, also substantially controls it and/or benefits from it, they will usually be ordered to pay the costs. Why? Because the non-party is the ‘real party’ to the litigation, gaining access to justice for their own purposes
TRUE OR FALSE:
the only way that an offer of settlement can be made on a ‘without prejudice save as to costs’ basis is to make it under CPR Part 36?
FALSE - By way of information, CPR r 36.16 provides that a Part 36 offer will be treated as ‘without prejudice except as to costs.’ This means the fact that a Part 36 offer has been made and the terms of such offer must not be communicated to the trial judge until all issues in the case (normally liability and quantum) have been decided. The Part 36 offer can then be made known to the trial judge when costs are determined. However, a party may choose to make a ‘without prejudice except as to costs’ offer outside of Part 36. A party will do so when the terms of the offer do not meet the rather prescriptive Part 36 requirements, for example, payment of damages is proposed by way of instalments and/or each side is to pay its own costs. You looked at Tomlin Orders in Unit 2. Very often, the offer of settlement that leads to a Tomlin Order is made ‘without prejudice except / save as to costs.’ This is sometimes known as a Calderbank offer. Finally, note that whilst an offer made outside of Part 36 cannot automatically attract any of the Part 36 financial consequences, CPR r 44.2(4)(c) provides that “when deciding what order (if any) to make about costs, the court will have regard to all the circumstances, including any admissible offer to settle made by a party which is drawn to the court’s attention, and which is not an offer to which costs consequences under Part 36 apply.”
Which of the following concerning the making of a Part 36 offer is correct?
A) A Part 36 offer can only be made in respect of the whole of a claim.
B) A Part 36 offer cannot be made orally.
C) A Part 36 offer can only be made after proceedings have started.
D) A Part 36 offer is made when it is received by the offeree.
E) A Part 36 offer must specify a period to accept or reject it of not less than 21 days.
CORRECT ANSWER B - A Part 36 offer must be made in writing. By way of information, this is provided for in CPR r 36.5(1)(a). A form may be used, Form N242A or a suitable letter written.
Option A is wrong. By way of information, CPR r 36.2(3) provides that a Part 36 offer may be made in respect of the whole, or part of, or any issue that arises in a claim, counterclaim or other additional claim; or an appeal or cross-appeal from a decision made at a trial.
Option C is wrong. A Part 36 offer may be made at any time, including before the commencement of proceedings. By way of information this is provided for in CPR r 36.7(1).
Option D is wrong. A Part 36 offer is made when it is served on the offeree (see CPR r 36.7(2)). The rules for deemed service of a document other than the claim form apply (see CPR r 6.26 in Unit 2).
Option E is wrong. By way of information, CPR r 36.5(1)(c) provides that a Part 36 offer must specify a period of not less than 21 days within which the defendant will be liable for the claimant’s costs in accordance with CPR r 36.13 if the offer is accepted. This is known as the relevant period. So, when a claimant or a defendant makes a Part 36 offer, if that is accepted within the relevant period, the defendant will always be automatically liable to pay the claimant’s standard basis multi-track costs or fixed recoverable costs in fast track and intermediate track cases. Can the offer be accepted after the relevant period has expired? Yes, provided it has not been withdrawn. However, acceptance by a claimant of a defendant’s Part 36 offer after the relevant period has expired is likely to see the claimant having to pay the defendant’s standard basis multi-track costs or fixed recoverable costs in fast track and intermediate track cases that have been incurred by the defendant after the relevant period expired.
Which of the following concerning the costs consequences of a defendant’s Part 36 offer at a multi-track trial is correct?
A) A claimant who fails to obtain a judgment more advantageous than a defendant’s Part 36 offer will, unless it is unjust to do so, be ordered to pay the defendant’s costs of the proceedings on the standard basis.
B) A claimant who fails to obtain a judgment more advantageous than a defendant’s Part 36 offer will, unless it is unjust to do so, be ordered to pay the defendant’s costs of the proceedings on the standard basis plus interest on those costs at a rate not exceeding 10% per annum above base rate.
C) A claimant who fails to obtain a judgment more advantageous than a defendant’s Part 36 offer will, unless it is unjust to do so, be ordered to pay the defendant’s costs incurred from when the relevant period of that offer expired to judgment on the standard basis plus interest on those costs.
D) A claimant who fails to obtain a judgment more advantageous than a defendant’s Part 36 offer will, unless it is unjust to do so, be ordered to pay the defendant’s costs incurred from when the relevant period of that offer expired to judgment on the indemnity basis plus interest on those costs.
E) A claimant who fails to obtain a judgment more advantageous than a defendant’s Part 36 offer will, unless it is unjust to do so, be ordered to pay the defendant’s costs of the proceedings on the indemnity basis.
CORRECT ANSWER C - making all the other options wrong.
By way of information, the starting point is CPR r 36.17(1)(a) which provides that the rule applies “where upon judgment being entered a claimant fails to obtain a judgment more advantageous than a defendant’s Part 36 offer”. What does more advantageous mean? This is provided for in CPR r 36.17(2) as meaning “better in money terms by any amount, however small.” So, what is the effect? CPR r 36.17(3) provides that “the court must, unless it considers it unjust to do so, order that the defendant is entitled to (a) costs (including any recoverable pre-action costs) from the date on which the relevant period expired; and (b) interest on those costs.”
Note that although CPR r 36.17(3)(a) does not state the basis on which the claimant will pay the defendant’s costs, case law has established that it is the standard basis.
Also note that although CPR r 36.17(3)(b) does not state the rate of interest to be awarded, case law has established that it is the normal commercial rate (currently 1% or 2% per annum over base rate).
The effect of CPR r 36.17(3) is to impose on the parties a ‘split costs’ order, namely:
The defendant will pay the claimant’s costs on the standard basis, and without interest, from when the claimant first incurred costs up to the day the relevant period of the defendant’s Part 36 offer expired: and
The claimant will pay on the standard basis the defendant’s costs incurred from when the relevant period expired up to judgment being given with interest on those costs at the current commercial rate.
Which of the following concerning the financial consequences of a claimant’s Part 36 offer at a multi-track trial is correct?
A) If the judgment against the defendant is at least as advantageous to the claimant as the proposals contained in a claimant’s Part 36 offer, then unless it is unjust to do so, the defendant will be ordered to pay, amongst other matters, interest on the damages awarded from when the cause of action accrued until judgment at a rate not exceeding 10% per annum above base rate.
B) If the judgment against the defendant is at least as advantageous to the claimant as the proposals contained in a claimant’s Part 36 offer, then unless it is unjust to do so, the defendant will be ordered to pay, amongst other matters, the claimant’s costs of the proceedings on the standard basis.
C) If the judgment against the defendant is at least as advantageous to the claimant as the proposals contained in a claimant’s Part 36 offer, then unless it is unjust to do so, the defendant will be ordered to pay, amongst other matters, the claimant’s costs of the proceedings on the indemnity basis.
D) If the judgment against the defendant is at least as advantageous to the claimant as the proposals contained in a claimant’s Part 36 offer, then unless it is unjust to do so, the defendant will be ordered to pay, amongst other matters, the claimant’s costs from the date on which the relevant period expired until judgment on the indemnity basis plus interest on those costs at a rate not exceeding 10% per annum above base rate.
E) If the judgment against the defendant is at least as advantageous to the claimant as the proposals contained in a claimant’s Part 36 offer, then unless it is unjust to do so, the defendant will be ordered to pay, amongst other matters, an additional sum of £75,000.
CORRECT ANSWER D - making all the other options wrong.
By way of information, the starting point is CPR r 36.17(1)(b) which provides that the rule applies where the “judgment against the defendant is at least as advantageous to the claimant as the proposals contained in a claimant’s Part 36 offer”. So, what is the effect? CPR r 36.17(4) provides that “the court must, unless it considers it unjust to do so, order that the claimant is entitled to:
(a) interest on the whole or part of any sum of money (excluding interest) awarded, at a rate not exceeding 10% per annum above base rate for some or all of the period starting with the date on which the relevant period expired.
So, option A is wrong. The award of ‘enhanced interest’ only starts to run from the expiry of the relevant period of the claimant’s Part 36 offer. Note that CPR r 36.17(6) provides that where the court awards interest under this rule and also awards interest on the same sum and for the same period under any other power, the total rate of interest must not exceed 10% per annum above base rate.
(b) costs (including any recoverable pre-action costs) on the indemnity basis from the date on which the relevant period expired.
Therefore, options B and C are wrong. The defendant pays the claimant’s costs from when they were first incurred by the claimant to when the relevant period of the claimant’s Part 36 offer expired on the standard basis. The defendant then pays the claimant’s costs on the indemnity basis for those costs incurred from when the relevant period expired up until judgment.
(c) interest on those [meaning (b) above] costs at a rate not exceeding 10% per annum above base rate.
Therefore, option D is correct. Note that the starting point is not 10% per annum above base rate. Case law has established that unreasonable and improper conduct of the defendant during the proceedings will increase the amount of interest awarded towards the maximum.
(d) provided that the case has been decided and there has not been a previous order under this sub-paragraph, an additional amount, which shall not exceed £75,000, calculated by applying the prescribed percentage set out below to an amount which is—
(i) the sum awarded to the claimant by the court; or
(ii) where there is no monetary award, the sum awarded to the claimant by the court in respect of costs—
Amount awarded by the court: Prescribed percentage
Up to £500,000: 10% of the amount awarded.
Above £500,000: 10% of the first £500,000 and (subject to the limit of £75,000) 5% of any amount above that figure.”
Therefore, option E is wrong. £75,000 is the maximum additional sum that the court can award.
TRUE OR FALSE:
Assume that in a fast track or intermediate track case, the Claimant is awarded damages.
The judgment against the Defendant is at least as advantageous to the Claimant as its Part 36 offer made earlier in the proceedings.
On this basis the Claimant will be entitled to:
(a) interest on the whole or part of the damages awarded (excluding interest) at a rate not exceeding 10% above base rate for some or all of the period starting with the date on which the relevant period expired;
(b) their fixed costs recoverable under CPR PD 45 for the stage applicable when the relevant period expired; and
(c) instead of indemnity costs, ‘additional costs’ being 35% of the difference between the fixed costs for the stage applicable when the relevant period expired and the stage applicable at the date of judgment; and
(d) interest on those ‘additional costs’ at a rate not exceeding 10% above base rate; and
(e) an additional amount not exceeding £75,000.
TRUE - Had the case been in the multi-track, you would have expected the usual costs order of Defendant to pay the Claimant’s costs on the standard basis but varied by CPR r 36.17(4)(a) to (d) to the Claimant being entitled to:
(a) interest on the whole or part of the damages awarded (excluding interest) at a rate not exceeding 10% above base rate for some or all of the period starting with the date on which the relevant period expired;
(b) their costs on the standard basis to when the relevant period expired;
(c) indemnity costs from when the relevant period expired to judgment;
(d) interest on those indemnity costs at a rate not exceeding 10% above base rate; and
(e) an additional amount not exceeding £75,000.
As fixed recoverable costs under CPR PD 45 apply to fast track and intermediate track cases, r 36.17(4) still applies but the costs elements in (b), (c) and (d) above are adjusted accordingly.
You may find it useful to read CPR r 36.17(1)(a) and (4)(a) to (d) followed by r 36.24(1), (3), (4) and (5).
You may wish to look at the relevant Tables in CPR PD 45 so you have an idea of how fixed recoverable costs apply in these circumstances, as well as generally.
TRUE OR FALSE: Assume that in a fast track or intermediate track case, the Claimant is awarded damages.
The Claimant fails to obtain a judgment more advantageous than a Defendant’s Part 36 offer made earlier in the proceedings.
There will be a ‘split fixed costs’ order, namely the Defendant will pay the Claimant’s fixed recoverable costs under PD 45 for the stage applicable at the date on which the relevant period expired and the Claimant will pay (a) the Defendant’s fixed recoverable costs thereafter to judgment and (b) interest on those costs.
TRUE - Had the case been in the multi-track, you would have expected the usual ‘split costs’ order of
(i) the Defendant will pay the Claimant’s standard basis costs up to the date on which the relevant period expired and
(ii) the Claimant will pay (a) the Defendant’s standard basis costs thereafter to judgment and (b) interest on those costs. This is provided for in CPR r 36.17(3)(a)(b).
As fixed recoverable costs under CPR PD 45 apply to fast track and intermediate track cases, r 36.17(3) still applies but the costs elements in (ii) above are adjusted accordingly.
You may find it useful to read CPR r 36.17(1)(b) and (3)(a)(b) followed by r 36.24(1), (2), and (9).
You may wish to look at the relevant Tables in CPR PD 45 so you have an idea of how fixed recoverable costs apply in these circumstances, as well as generally.
TRUE OR FALSE:
it is usual to make a written request for security for costs before making an application to the court?
TRUE - It will serve the overriding objective in CPR r 1.1(1) of enabling the court to deal with the case justly and at proportionate cost, which by CPR r 1.1(2) includes (b) saving expense and (e) allotting to [each case] an appropriate share of the court’s resources, while taking into account the need to allot resources to other cases. Moreover, by CPR r 1.3 the parties are required to help the court to further the overriding objective. If the security is provided voluntarily, the parties will save the time and cost of a contested interim application and the court’s limited resources will not be used.
TRUE OR FALSE: it is not possible to hold an information hearing (oral examination) when the judgment debtor is a company?
FALSE - If the judgment debtor is a body corporate, the order can be made for an information hearing (oral examination) to be attended by an officer of the company.
