Appeal against Bexley Magistrates' Court liability costs orders of 12.10.2015

Bexley LBC v XXX

2016 WL 00692426

CO/5800/2015

Neutral Citation Number: [2016] EWHC 711 (Admin)

IN THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

DIVISIONAL COURT

Royal Courts of Justice

Strand

London WC2A 2LL

Wednesday, 24 February 2016

B e f o r e:

LORD JUSTICE HAMBLEN

MR JUSTICE JEREMY BAKER

Between:

LONDON BOROUGH OF BEXLEY

Claimant

v

XXX

Defendant

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Mr D Edwards (instructed by London Borough of Bexley) appeared on behalf of the Claimant

The Defendant did not appear and was not represented

Mr Z Simons (instructed by the Government Legal Department) appeared as Advocate to the Court

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LORD JUSTICE HAMBLEN:

Introduction

1. 1. The London Borough of Bexley ("the Council") appeals by way of case stated against the decision given on 12 October 2015 by District Judge Lynch sitting as a Magistrates' Court whereby he decided not to award the Council their full requested costs in respect of their applications for liability orders in relation to outstanding council tax.

1. 2. The court had a large number of liability order applications made by the Council before it. The costs requested by the Council were £115 in respect of each liability order. The District Judge only granted £115 in costs on the individual cases where the council tax outstanding was above £200. Lesser orders for costs ranging from £3 to £100 were granted in cases where the council tax owed fell at or below £200. There were some 97 liability order applications affected.

1. 3. The Council contends that the District Judge erred in awarding costs on the basis of a sliding scale and in so doing did not award costs of "an amount equal to the costs reasonably incurred" by the Council in respect of the liability order applications as he was required to do.

1. 4. The issue for the court turns on the proper construction of the Council Tax (Administration and Enforcement) Regulations 1992 ("the Regulations"), and particularly Regulation 34(7).

   The Regulations

    

1. 5. Regulation 34 of the Regulations states that:

   "Application for liability order

    

   34.—(1) If an amount which has fallen due under regulation 23(3) or (4) is wholly or partly unpaid, or (in a case where a final notice is required under regulation 33) the amount stated in the final notice is wholly or partly unpaid at the expiry of the period of 7 days beginning with the day on which the notice was issued, the billing authority may, in accordance with paragraph (2), apply to a magistrates' court for an order against the person by whom it is payable.

    

   (2) The application is to be instituted by making complaint to a justice of the peace, and requesting the issue of a summons directed to that person to appear before the court to show why he has not paid the sum which is outstanding.

    

   (3) Section 127(1) of the Magistrates' Courts Act 1980(1) does not apply to such an application; but no application may be instituted in respect of a sum after the period of six years beginning with the day on which it became due under Part V.

    

   (4) A warrant shall not be issued under section 55(2) of theMagistrates' Courts Act 1980 in any proceedings under this regulation.

    

   (5) If, after a summons has been issued in accordance with paragraph (2) but before the application is heard, there is paid or tendered to the authority an amount equal to the aggregate of—

    

   (a)the sum specified in the summons as the sum outstanding or so much of it as remains outstanding (as the case may be); and

    

   (b)a sum of an amount equal to the costs reasonably incurred by the authority in connection with the application up to the time of the payment or tender

    

   The authority shall accept the amount and the application shall not be proceeded with.

    

   (6) The court shall make the order if it is satisfied that the sum has become payable by the defendant and has not been paid.

    

   (7) An order made pursuant to paragraph (6) shall be made in respect of an amount equal to the aggregate of—

    

   (a)the sum payable, and

    

   (b)a sum of an amount equal to the costs reasonably incurred by the applicant in obtaining the order

    

   (8) Where the sum payable is paid after a liability order has been applied for under paragraph (2) but before it is made, the court shall nonetheless (if so requested by the billing authority) make the order in respect of a sum of an amount equal to the costs reasonably incurred by the authority in making the application."

   6. Pursuant to Regulation 34(7), in obtaining a liability order the Council is entitled to recover "an amount equal to the costs reasonably incurred by the applicant in obtaining the order". Where there is payment after the application is made but before an order is made then the Council is entitled to an order for "an amount equal to the costs reasonably incurred by the authority in making the application" under Regulation 35(8). In each case the Council is entitled to the amount referred to if it chooses to recover it. It is not a matter of discretion.

   7. Some obiter "general guidance" as to the interpretation of Regulation 34 is provided in Andrews J's judgment in Nicolson, R (on the application of) v Tottenham Magistrates & Anor [2015] PTSR 1045 . Of particular relevance to the present appeal are paragraphs 51 to 52, in which it was stated as follows:

    

   "51. If the necessary causal link is established to the satisfaction of the court then the next question is whether the costs claimed have been 'reasonably' incurred. It may be that the method by which the costs are calculated demonstrates this without the need for further evidence; but there may be individual cases in which it would be open to the respondent to argue that the costs were not reasonably incurred, for example, if it was not reasonable for the local authority to take steps to enforce payment, or if the costs which were incurred were excessive – e.g. if the local authority sent a QC along to argue a simple point of law in the Magistrates' Court.

    

   52. Establishing that the costs were reasonably incurred is not the same thing as establishing that the costs were reasonable in amount . Of course, the latter may have a bearing on the former, since if the costs appear to be excessive, or disproportionate, there may be legitimate grounds for querying whether it was reasonable of the local authority to incur costs in that amount. However so far as proportionality is concerned, one has to bear in mind that in the present context where the recoverable sums are relatively small (though by no means insignificant to many of those who have to pay them) it is inherently likely that there will be a disparity between those sums and the costs of recovering them. On the other hand, the practice of processing applications in bulk could drive the average costs of obtaining liability orders down rather than up."

    

   The case stated

   8. The case stated records that the District Judge was presented with a bundle of applications for liability orders on behalf of the Council and that on glancing through them he noted that some of the orders were for principal amounts well below £200. He decided "to mark the costs to be awarded according to the following scale:

   • costs for sums £0.00 £50.00 = £3,00 (which is the issue fee for each application)

   • costs for sums £50.00 £100.00 = £25.00

   • costs for sums £100.00 £150.00 = £75.00

   • costs for sums £150.00 £200.00 = £100.00

   • costs for sums £200.00 and above = £115.00."

   9. The following questions were then stated for the opinion of the High Court:

   (1) Whether the District Judge was correct to view the question of whether costs were "reasonably incurred" by the local authority objectively and in the context of the overall indebtedness of each individual person against whom orders were sought. Effectively, should there be proportionality between the level of costs claimed by the local authority and the level of debt of a liable person.

   (2) Should the reasonable costs relate solely to the amount of effort and expense incurred by a local authority in preparing and applying for the liability orders made by the court with no reference to the amount of indebtedness.

    

   Consideration of the questions stated

   10. On behalf of the Council the following submissions are made in particular:

   (1) There are no explicit findings of fact in regards to the reasonableness of the costs incurred but the wording of the stated questions referring to the effort and expense incurred by the local authority and the award of £115 where sums payable were in excess of £200 implies that the court accepted as a general proposition that those cost were incurred and it was reasonable so do to.

   (2) The sole reason provided for the failure to award the full amount of costs sought on 97 of the applications was the quantum of the sum payable and a perceived lack of proportionality rather than the specific test under the Regulations.

   (3) In reaching its decision the court failed to make any inquiry as to how these sums claimed for costs were calculated despite such information being available.

   (4) The costs of applying for liability orders did not always, or even usually, vary significantly depending upon the size of the debt. All else being equal, the same procedures were followed and the same work done. Whether pursuing £200 or £2,000 the costs involved are mostly fixed.

   (5)By virtue of Regulation 34(8) there is specific provision within the Regulations for costs even when no sums are otherwise owed. It must follow when interpreting Regulation 34(7) that the size of the sum payable at the hearing of an application cannot be directly linked to the sum awarded as costs reasonably incurred.

   (6) No reasonable explanation was given for the terms or extent of the "sliding scale" instituted by the learned judge either at the time or within the stated case. The suggested scale is arbitrary, there being no logical basis for the differentiation between the debts of a value of up to £50, £100, £150 and £200 and the costs consequently awarded.

   (7) If such a sliding scale was generally applied it would make it entirely uneconomic to pursue many debts, which would have to be written off, costing the local authority and the ratepayers of the boroughs tens of thousands of pounds every year.

    

   11. The advocate for the court made the following submissions in particular:

   (1) There is authority on the distinction between "proportionate" and "reasonably incurred" costs in the context of the Civil Procedure Rules (see CPR 44.3 to 4, Home Office v Lownds (Practice Note) [2002]) 1 WLR 2450.

   (2) Neither the principle nor quantum of a costs award are in the discretion of the Magistrates' Court. Under Regulation 34(7) an order of the costs reasonably incurred "shall be made".

   (3) Under Regulation 34(7) the Magistrates' Court has no power either to (i) make an award of costs on the basis that the amount claimed is proportionate or (ii) reduce a costs bill that is otherwise "reasonably incurred" on the grounds it is disproportionate (contrast CPR 44.3(2)(a) and Lownds at paragraph 31).

   (4) Whether it is reasonable to incur a cost is not the same question as whether that cost is a reasonable amount (see Nicolson at paragraph 52 and CPR 44.4(1)).

   (5) Whether the amount of costs is reasonable is a fact sensitive question. It must be answered with reference to the particular features of each case.

   (6) The "reasonably incurred" test does not import a standard of necessity (contrast Lownds at paragraph 28).

   (7) Nothing in the legislation or the cases prevents the value of a liability order from being a relevant consideration in answering whether a local authority's costs are "reasonably incurred". Whether costs are "reasonably incurred" is not referable to the direct numerical relationship between the value of the liability order and value of the costs bill.

    

   12. In general I agree with the points made by both counsel for the Council and by the advocate for the court. The starting point is that the Magistrates' Court has to make an order for the costs "reasonably incurred". It has no discretion in the matter.

   13. What are the costs “reasonably incurred” is a question to be determined by reference to what costs were in fact incurred in the case in question and whether it was reasonable to incur those cost in that case. Costs “reasonably incurred” will include, but are not limited to, costs which it was necessary to incur. Exactly the same costs may reasonably, and indeed necessarily, be incurred in obtaining a liability order for a £50 claim as for a £5,000 claim.

   14. In all cases in which the liability order is not opposed it is likely that the same costs will be incurred regardless of the amount in issue since they are essentially fixed costs. In such "standard" cases the probability is that the same administrative steps are going to be required and the same administrative costs, expenses and court fees are going to be incurred.

   15. In the present case, for example, it is said by the Council that the costs for each order were calculated by dividing the costs of all the applications between the number of cases. The legitimacy of such an averaging approach was recognised by the court in the Nicolson case at paragraph 46:

    

   "In principle, therefore, provided that the right types of costs and expenses are taken into account, and provided that due consideration is given to the dangers of double counting, or of artificial inflation of costs, it may be a legitimate approach for a local authority to calculate and aggregate the relevant costs it has incurred in the previous year, and divide that up by the previous (or anticipated) number of summonses over twelve months so as to provide an average figure which could be levied across the board in 'standard' cases, but could be amplified in circumstances where there was justification for incurring additional legal and/or administrative costs."

    

   16. None of the orders sought in this case sought more than the costs appropriate to a "standard" case. No additional legal or administrative costs were sought. If they had been, then it may be that issues of reasonableness relating to the complexity of the issues and the amount at stake would have arisen. If, for example, a QC had been instructed, then those matters might well be relevant to whether it was reasonable to incur those extra costs. It follows that there may be cases where the amount sought by the liability order is relevant to the issue of whether the costs were “reasonably incurred”. Even where that is so it will simply be one relevant factor. It can never be the sole relevant and determinative factor.

   17. In the present case, the Council's evidence was that £115 was the costs figure incurred in relation to each application on an averaging basis. There was no suggestion that those cost were not in fact incurred. That that was a reasonable cost in relation to each application is borne out by the District Judge's own finding this was the costs figure to be awarded in all the cases over £200. In terms of the work done and the expense involved there was no distinction to be drawn between cases involving more than or less than £200. If £115 was costs reasonably incurred for that work and expense in respect of claims over £200, it must equally have been so for the same work and expense in respect of claims under £200.

   18. The District Judge did not question that £115 in costs were actually incurred in relation to each liability order. He did not however consider whether those costs were reasonable for the work and expense involved in obtaining the order. Instead he disallowed a significant proportionate of those costs by reference solely to a sliding scale of his own devising relating to the amount of the liability order ultimately obtained.

   19. The question of whether it was reasonable to incur costs is fact specific. It cannot depend upon an arbitrary sliding scale that pays no regard to the work and expense actually involved in obtaining the order and the need for that work and expense. In determining the recoverable costs on the basis of such a sliding scale the District Judge erred in law.

    

   Conclusion

   20. I would accordingly allow the appeal and answer the questions for the court as follows:

   (1) What are the costs "reasonably incurred" is a mixed question of fact and law to be determined by reference to what costs were in fact incurred in the case in question and whether it was reasonable to incur those cost in that case. Costs “reasonably incurred” will include but are not limited to costs which it is necessary to incur. The amount sought by the liability order may be relevant to the issue of whether the costs were “reasonably incurred”. Where that is so it will simply be one relevant factor. To that extent whether costs are "reasonably incurred" may be measured amongst other things "in the context of the overall indebtedness of each individual". However, there is no power for the Magistrates' Court to make adjustments to an otherwise "reasonably incurred" costs bill to ensure "proportionality" between the value of the liability order and the value of the bill.

   (2) The amount of a liability order may amongst other things be relevant to whether the local authority's costs are "reasonably incurred" under Regulation 34(7). However, whether a cost is "reasonably incurred" is not referable to the direct numerical relationship between the value of the liability order and the value of the costs bill.

    

   MR JUSTICE JEREMY BAKER: I agree.

    

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