With the extension of Fixed Recoverable Costs on the horizon it is highly likely that law firms will need to consider seeking the shortfall from their client due to the limited amount of costs that they are able to recover from the paying party. As such, the decision in EVX v Smith could not have arrived at a more opportune time and could potentially help receiving parties to avoid some of the initial pitfalls and satellite litigation that will surely arise following the extension of FRCs.
EVX dealt with the issue of the assessment of hourly rates when a shortfall was being assessed. Damages had been agreed and the costs had been agreed on an inter partes basis. The inter partes agreement was for a reduced amount in comparison to the Bill of Costs and therefore had created a shortfall that was being sought out of the Claimant’s damages. The Claimant was a child and the claim was bought by a litigation friend. The receiving party asserted that the litigation friend had previously agreed the hourly rates in the form of a CFA and therefore the consent should hold and that any assessment of the shortfall should not affect the hourly rates claimed. However, the receiving party had failed to provide informed consent in advising that the shortfall may be a result of ‘unusual’ hourly rates which are not recovered on an inter partes basis, namely that the hourly rates for Grade C fee earners were significantly enhanced and close to Grade B rates. This basis ultimately opened up the assessment to include the hourly rates and, whilst some hourly rates remained as claimed, some lower grade fee earners who had not demonstrated ‘equivalent experience’ had their hourly rates reduced when the shortfall was assessed.
This case did not involve FRCs but clearly demonstrates how ‘informed consent’ and shortfalls are going to be the next costs battlefield and could easily be the difference between a case being profitable or not to run.
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