The statutory caps on expenses

In short, legislation provides that if the value of a simple procedure claim is £3,000 or less then awards of expenses made by the court are subject to the following statutory caps:

• £200 or less - no expenses are recoverable
• £200 to £1,500 - maximum of £150
• £1,501 to £3,000 - maximum award is 10% of the sum claimed
• £3,001 to £5,000 - no cap on award of expenses 

So far, so straightforward…

What value determines the cap?

There has been some confusion over whether the relevant cap is determined based on the sum claimed in the claim form or based on the sum ultimately awarded by the court in the decree (court judgment).

This point was considered in Graham v Farrell (discussed below) where the claimant argued that the cap on expenses shouldn't apply as the sum in the claim form had exceeded £3,000. The sum awarded by the court was less than £3,000.  

Sheriff McGowan found that the sum awarded in the decree  would determine whether a cap applies and not the sum originally sought in the claim form. 

Is the capped amount inclusive of VAT and outlays?

The rules don’t expressly state whether the capped awards include VAT and outlays or whether payment of VAT and outlays can be enforced in addition to the capped sum. This has been considered in a number of cases:

Gowans v Miller

The question of whether the cap applied to the fees element only (ie. exclusive of VAT and outlays, meaning those would be payable in addition to the capped amount) or to the whole expenses (ie. inclusive of fees, VAT and outlays meaning no further sums beyond the capped amount would be payable) was considered by Summary Sheriff Martin-Brown at Forfar Sheriff Court in November 2017. The case was settled for £2,184,50 prior to the case management discussion. The claimant asked the court to grant expenses and this was opposed. The court ultimately held that the award of expenses was inclusive of VAT and outlays. The Sheriff found that interpreting the term ‘expenses’ as including VAT and outlays (1) “is in keeping with the principles of quick resolution at least expense and only coming to court when necessary” that are at the basis of the simple procedure, and (2) does not risk removing the predictability for parties on expenses that are offered by the caps. 

Andrew Martin v Southern Rock Insurance Company Ltd

This case concerned a damages claim for £1,665.88. Parties agreed settlement but could not agree expenses. A hearing on expenses was heard by Sheriff McFadyen at Edinburgh Sheriff Court in January 2018. The respondent argued that expenses should be capped at £150 inclusive of VAT and outlays. The claimant argued that VAT and outlays should be payable in addition to the £150 capped expenses award. 

In his decision, the Sheriff considered the legislation that is applicable to simple procedure expenses. Although he noted that the legislation was unnecessarily complex, the Sheriff was satisfied that the court outlay for raising a simple procedure claim and VAT were payable in addition to the capped expenses.

What next?

Similar arguments were made in both Gowans v Miller and Andrew Martin v Southern Rock Insurance Company Ltd but different decisions were reached. Neither decision is binding so it is likely that clarification will be sought in further cases that come before the courts.  Until then, the position remains uncertain and therefore it's still worth having the argument in any given case. 

There’s always an exception to the rule

Section 81(5)(a)(ii) of the Courts Reform (Scotland) Act 2014 dis-applies the various expenses caps in cases where the respondent …

“ … having stated a defence, has not proceeded with it”

The meaning of this phrase was considered by Sheriff McGowan at Edinburgh Sheriff Court in the case of Graham v Farrell. 

Graham v Farrell

A claim was raised, a response form lodged and, after a failed attempt at mediation, an evidential hearing was fixed. Around 3 weeks before the evidential hearing the respondent lodged a minute of tender offering to pay the claimant £3,000 and expenses in settlement of the sum claimed. The tender was accepted and the claimant lodged an application asking the court to grant decree in the amount of the tender and an uncapped award of expenses. 

The claimant argued that the cap on the expenses should not apply as the respondent had initially stated a defence but had not proceeded with that defence as the case settled as a result of the tender and acceptance of the tender. 

In his decision, Sheriff McGowan referenced the earlier decision of Sheriff Principal Stephen in Tallo v Clark (which considered a similar provision under the earlier small claims procedure) in saying that the meaning of ‘has not proceeded with the defence stated’ was "definitively determined… to mean " … not proceeding with the hearing on evidence and obtaining a decision or judgment of the court …”".

As the respondent in Graham had put forward the tender rather than proceeding with the evidential hearing, he had put forward a defence and failed to proceed with it. As such he was not protected by the capped expenses. Sheriff McGowan found the respondent liable for expenses to be assessed under the Table of Fees. 

What next?

There is a concern that this decision could dissuade respondents from trying to agree settlement where this may result in them being found to have stated a defence and failed to proceed with it, as this will mean that they lose the protection of the cap on expenses. If no cap is applicable then respondents could end up being liable to pay a significant sum in expenses in addition to the agreed settlement amount.  This could result in them paying out more in expenses than they would if they proceeded with their defence to a full hearing where the cap on expenses would most likely still apply.

It's certainly something for parties to think about when considering whether to agree settlement.

The future of simple procedure expenses

Given that the decisions discussed above aren't binding there will likely be more disputes concerning simple procedure expenses that come before the court. Hopefully the decisions in these cases will provide further clarity.  Until then, the position is far from simple…