Costs budgeting and provisional assessments

On 9th February 2012, Lord Neuberger the Master of the Rolls, gave a lecture, the ninth in the Jackson Implementation Programme, which concluded with this quotation from an article written by Geoffrey Bindman in 1992:

The secret, perhaps half-perceived at the time, was the open-endedness of litigation. The more work one did, the more one got paid; and there was no limit to the amount of work one could do, and even justify it. Barristers were encouraged (if they needed encouragement) to join in the fun. More recently the tail started to wag the dog. The litigation machines in the large firms had to be fuelled. Every case had to be expanded to fill the resources available to work on it. The pattern set by the larger firms had to be followed by everyone else. However many letters came from one side, the other had to reply. However many affidavits the plaintiff filed, the defendant had to match them – just as one barrister cannot afford to leave unanswered a point taken by his opponent. However much money one side chose to invest in the case, the other had to match it or go to the wall.”

Lord Neuberger went on to state as part of his conclusions:

“Case management and the Woolf reforms generally were a significant step forward in bringing those days to an end. The Jackson reforms are an even more significant step forward in that regard”.

This last statement could be subject to challenge.

The Woolf Reforms implemented in April 1999 miserably failed to control costs.

The introduction in April 2000, the following year of the ill-fated reforms of the Access to Justice Act 1999, with its scheme of additional liabilities, recoverable on an inter partes basis, simply added fuel to an already blazing pyre.

In a real sense, the package of reforms advocated by Lord Justice Jackson, which seem certain now to take effect, with the passage into law on the 1st May 2012, of the Legal Aid Sentencing and Punishment of Offenders Act are both the completion of the unfinished agenda of Woolf and the revocation of the Labour administration’s Access to Justice Act.

This post looks at two of the key strains of reform: the desire to make the level of costs that litigation will generate more predictable and hence more certain, and the desire to strip out of the process as much as possible the “costs of the costs”, generated by arguments over recoverable costs, culminating in the detailed assessment process.  It principally looks at two relatively novel ways by which these ends will be sought: costs budgeting and provisional assessments.

Before we look at those two new procedures, it is worth noting that they will have application only to the comparatively modest tranche of cases, which by their size and complexity will fall to be dealt with on the Multi-track.

The most far reaching of the reforms, in terms of both the overall level of costs, and the process of quantification of those costs, relates to Fast Track personal injury claims. This is because from April 2013, the costs recoverable in respect of those claims will be fixed.

Lord Justice Jackson, set out his thoughts on fixed costs in his final report: that report contained detailed figures and options for both staging and quantifying costs, for such personal injury claims.  The Ministry of Justice is reviewing the figures now: the reason is not hard to discern, and is traceable to representations from the insurance industry that the putative fees are too high.

With the forthcoming  ban on referral fees, it is contended that the fixed costs should be adjusted downwards to reflect the fact that solicitors will no longer be (lawfully, at least) paying referral fees.

From April 2013, for personal injury cases worth up to £25,000 in terms of damages, the following consequences appear clear. First, a Defendant will be able to predict with certainty, that if a case is lost at trial, or settled at any given stage, what its liability for adverse costs will be.

Secondly, that tranche of the profession of costs draftsmen or costs lawyers, which makes a living from drawing bills, in Fast Track work will lose its raison d’etre.

Thirdly, as there will be no scope for recovery of counsel’s fees (save at trial) as a disbursement, pleading and advisory work for the Bar for these lower value cases, will start to disappear.

On 29th May 2012, Mr Justice Ramsey, addressed the Law Society Conference and delivered the Sixteenth Lecture in the Implementation Programme, entitled “Costs Management: A Necessary Part of the Management of Litigation”. In so doing, he unveiled amendments to part 3 of the Civil Procedure Rules 1998, and a new Practice Direction, which builds on the defamation and TCC costs budgeting pilots, and which will come into force in April 2013. The effect of the new rules is likely to be significant. In terms of the scope of the rules they will apply to virtually all multi-track work.

3.12 (1) This Section and Practice Direction 3E apply to all multi-track cases commenced on or after 1st April 2013 in:

(a) a county court or

(b) the Chancery Division or Queen’s Bench Division of the High Court (except the Admiralty and Commercial Courts) unless the proceedings are the subject of fixed costs or scale costs or the court otherwise orders. This Section and Practice Direction 3E shall apply to any other proceedings (including applications) where the court so orders.

(2) The purpose of costs management is that the court should manage both the steps to be taken and the costs to be incurred by the parties to any proceedings so as to further the overriding objective.

The rules also provide an initially robust requirement to file and serve costs budgets: and any party which fails to do so, is hit with a stiff sanction, in terms of the failure.

3.13 Unless the court otherwise orders, all parties except litigants in person must file and exchange budgets as required by the rules or as the court shall otherwise direct. Each party must do so within 28 days after service of any defence.

3.14 Unless the court otherwise orders, any party which fails to file a budget despite being required to do so shall be treated as having filed a budget comprising only the applicable court fees.

The budgets are just the first step in the process: the rules then provide for the court to go on, to consider what is termed a “costs management order”. The consequences of a costs management order, will be reflected at each stage of the proceedings:

3.15(1) In addition to exercising its other powers, the court may manage the costs to be incurred by any party in any proceedings.

(2) The court may at any time make a “costs management order”. By such order the court will:

(a) record the extent to which the budgets are agreed between the parties;

(b) in respect of budgets or parts of budgets which are not agreed, record the court’s approval after making appropriate revisions.

(3) If a costs management order has been made, the court will thereafter control the parties’ budgets in respect of recoverable costs.

The costs management order, is the tool by which the court will pro-actively control the level of costs, on a prospective basis: this is a real departure from current practice, and reflects the perception amongst the judiciary, that even a rigorous and proportionate detailed assessment, of costs will produce figures which are too high.

How often will a costs management order be made ? In respect of what sort of case, and what circumstances ?  The rules and Practice Directions are silent on these points. But the clear steer from the Sixteenth Lecture, is they will be made in every multi-track case, save where this is good reason to the contrary, e.g. where the parties have agreed on mediation and that mediation is imminent. The rules also provide for a new species of interlocutory hearing the costs management conference, which will deal with costs on an on-going basis.

3.16 (1) Any hearing which is convened solely for the purpose of costs management (for example, to approve a revised budget) is referred to as a “costs management conference”.

(2) Where practicable, costs management conferences should be conducted by telephone or in writing.

The rules also contain a specific injunction, that when making case management directions in a sense, these are to go hand in hand with costs management:

3.17 (1) When making any case management decision, the court will have regard to any available budgets of the parties and will take into account the costs involved in each procedural step.

(2) Paragraph (1) applies whether or not the court has made a costs management order.

The real sting however, will come at the end of the case. The new rules make it quite plain, that the default position is that the budget in their latest incarnation, will effectively stand as the paying parties liability for costs, unless there is good reason why they should be departed from.

 3.18 In any case where a costs management order has been made, when assessing costs on the standard basis, the court will –

(a) have regard to the receiving party’s last approved or agreed budget for each phase of the proceedings; and

(b) not depart from such approved or agreed budget unless satisfied that there is good reason to do so.”

What does “good reason” mean in this context, and how thorough are the courts going to be, in their scrutiny of the lawyers protestations that broken budgets have been exceeded for good reason ?

A recent decision by Master Hurst, provides a useful indication of the approach that will be taken. In Sylvia Henry.v.News Group Newspapers (SCCO 16th May 2012), Master Hurst was dealing with costs budgets, lodged under the pilot scheme for costs management, made in respect of defamation actions. She was libelled by The Sun, being the subject of various false accusations concerning the death of Baby P.

The case was one of the first to be dealt with under the Defamation Proceedings Costs Management Scheme, set out at Practice Direction 51D, which applies to libel claims commenced on or after 1 October 2009.  The Costs Management Scheme requires each party to prepare a costs budget in advance of any case management conference. The budgets detail reasonable allowances for the various elements of the litigation, including any specified contingencies. These budgets are then approved or disapproved by the court. In the event of disapproval, the budget “will record the court’s view”.

Under the Costs Management Scheme, solicitors must liaise on a monthly basis to check that their budget is not being exceeded. If the budget is being exceeded, either party can apply to the court for a costs management conference.

At the conclusion of the litigation, when the court assesses costs on the standard basis, the court will not depart from the approved budgets unless it is satisfied that there is good reason to do so.  In this case, both the Claimant and the Defendant exceeded their budgeted costs. Most significantly however, the Claimant exceeded her budgeted costs for disclosure by £76,306 (the original allowance was £11,250) and for witness statements by £216,404 (the original allowance was £12,487).

The question for the court therefore was whether there was “good reason” for the court to depart from the approved costs budgets in this case.  The court stressed that the provisions of the Practice Direction were in mandatory terms: each party must prepare a costs budget or revised costs budget; each party must update its budget; solicitors must liaise on a monthly basis to check that the budget is not being, or is likely to be, exceeded.

These requirements reflect the objective of the Practice Direction to manage the litigation so that the costs of each party are proportionate to the value of the claim and reputation issues at stake, and so that the parties are on an equal footing. Here, the court found that the Claimant’s solicitors had not adhered to the provisions of the Practice Direction to keep the parties updated as to the ongoing costs of the case. Accordingly, since the Defendant was unaware that the Claimant’s budget had been significantly exceeded, the parties were no longer on an equal footing and the purpose of the Costs Management Scheme was lost.

The court reached this decision, even though the Defendant’s conduct of the litigation (mounting a vigorous and lengthy defence which was amended four times and serving ten lists of documents) had had a major effect on the way in which the Claimant had pursued her case, and that consequently the Claimant would otherwise have been able to make “a very good case” on a detailed assessment for the costs claimed.
The court did give permission to appeal in light of the significant amount of money at stake and the importance of the issues involved which required a definitive binding decision to be given to provide a precedent in future cases.

Further detail on the practical aspects of costs budgeting, is to be found, in the Practice Direction which accompanies the rules. Practice Direction 3E, starts by explaining what is required from practitioners, under the new arrangements.

  1. Unless the court otherwise orders, a budget must be in the form of Precedent H annexed to this Practice Direction. It must be in landscape format with at least 12 point typeface. In substantial cases, the court may direct that budgets be limited initially to part only of the proceedings and subsequently extended to cover the whole proceedings. A budget must be dated and verified by a statement of truth signed by a senior legal representative of the party. In cases where a party’s budgeted costs do not exceed £25,000, there is no obligation on that party to complete more than the first page of Precedent H.

In effect, there is a new standard form to fill out, but this has to be treated with respect: far too often costs estimates, accompanying allocation questionnaires or pre-trial checklists, are simple “back of the envelope” calculations. But under the new rules, under estimation of costs for reasons of simple sloppiness, may well prove fatal, to the production of “good reasons” on any later detailed assessment.

  1. If the court makes a costs management order under rule 3.15, the following paragraphs shall apply.
  2. Save in exceptional circumstances:

(a) The recoverable costs of initially completing Precedent H shall not exceed the higher of £1,000 or 1% of the approved budget.

(b) All other recoverable costs of the budgeting and costs management process shall not exceed 2% of the approved budget.

This is an interesting provision, because it illustrates the determination to stop the calculation of costs, generating costs, by imposing a limit on how many hours (or more accurately capping the cost of the hours) can be spent undertaking this work. The Practice Direction then goes on to explain how budgets will be amended and change, during the course of the litigation, as well as commenting on the use to which they might be put.

  1. If the budgets or parts of the budgets are agreed between all parties, the court will record the extent of such agreement. In so far as the budgets are not agreed, the court will review them and, after making any appropriate revisions, record its approval of those budgets. The court’s approval will relate only to the total figures for each phase of the proceedings, although in the course of its review the court may have regard to the constituent elements of each total figure. When reviewing budgets, the court will not undertake a detailed assessment in advance, but rather will consider whether the budgeted costs fall within the range of reasonable and proportionate costs.
  2. As part of the costs management process the court may not approve costs incurred before the date of any budget. The court may, however, record its comments on those costs and should take those costs into account when considering the reasonableness and proportionality of all subsequent costs.
  3. The court may set a timetable or give other directions for future reviews of budgets.
  4. Each party shall revise its budget in respect of future costs upwards or downwards, if significant developments in the litigation warrant such revisions. Such amended budgets shall be submitted to the other parties for agreement. In default of agreement, the amended budgets shall be submitted to the court, together with a note of (a) the changes made and the reasons for those changes and (b) the objections of any other party. The court may approve, vary or disapprove the revisions, having regard to any significant developments which have occurred since the date when the previous budget was approved or agreed.

The plain intention from the final paragraphs, is that the costs budgets, will become far more integral, to the management and strategy of the case, than estimates ever were

  1. After its budget has been approved, each party shall re-file the budget in the form approved with re-cast figures, annexed to the order approving it.
  2. A litigant in person, even though not required to prepare a budget, shall nevertheless be provided with a copy of the budget of any other party.
  3. If interim applications are made which, reasonably, were not included in a budget, then the costs of such interim applications shall be treated as additional to the approved budgets.

The Costs Practice Direction, also provides further detail about what the use of budgets will be, in circumstances, where, for whatever reason the court has not made a costs management order.

6.1 In any case where the parties have filed budgets in accordance with Practice Direction 3E but the court has not made a costs management order under rule 3.15, the provisions of this Section shall apply.

6.2 If there is a difference of 20% or more between the costs claimed by a receiving party on detailed assessment and the costs shown in a budget filed by that party, the receiving party must provide a statement of the reasons for the difference with his bill of costs.

6.3 If a paying party –

(a) claims that he reasonably relied on a budget filed by a receiving party; or

(b) wishes to rely upon the costs shown in the budget in order to dispute the reasonableness or proportionality of the costs claimed;


the paying party must serve a statement setting out his case in this regard in his points of dispute.

6.4 On an assessment of the costs of a party, the court may have regard to any budget previously filed by that party, or by any other party in the same proceedings. Such a budget may be taken into account when assessing the reasonableness and proportionality of any costs claimed.

6.5 (a) Without prejudice to paragraph 6.4, this paragraph applies where there is a difference of 20% or more between the costs claimed by a receiving party and the costs shown in a budget filed by that party.

(b) Where it appears to the court that the paying party reasonably relied on the budget, the court may restrict the recoverable costs to such sum as is reasonable for the paying party to pay in the light of that reliance, notwithstanding that such sum is less than the amount of costs reasonably and proportionately incurred by the receiving party.

(c) Where it appears to the court that the receiving party has not provided a satisfactory explanation for that difference, the court may regard the difference between the costs claimed and the costs shown in the budget as evidence that the costs claimed are unreasonable or disproportionate.

So what are the consequences of costs budgets and costs management orders going to be, in practical terms ? The first and foremost to my mind, is that solicitors are actually going to have to take a far greater interest, at a far earlier stage in the grubby business of costs.

The simple truth of the matter is that many lawyers find the quantification and practice of costs, rather, well dull, and are far more interested in getting on with the litigation, than dealing with costs matters. That is observed in estimates which are regularly exceeded, usually without sanction on a detailed assessment and the tangles in retainers,that arise from time to time.

Now it is going to be necessary, to draft a detailed and accurate plan, for each and every multi-track case where proceedings are issued, with solicitors right at the start asking themselves, what sort of disclosure do they want and how much will it cost, how many witnesses and how long will it take to proof them, which expert to use, and how much will expert fees be, will counsel be instructed, and what will counsel’s fees be for drafting, advisory work and advocacy at trial ? And putting the detail of these considerations, down in a schedule.

Secondly this sort of input will generate costs of its own: but those costs are to be ruthlessly capped. There will be no scope for “prospective bills” to be drawn up with the level of detail that a bill of costs contains now. Quite the contrary, as bills of costs at the end of the case, will in effect be the budgets, plus anything that can be squeezed through the loophole, of the “good reason” exception. Thus the practice of drawing up bills and dealing expensively, with the “costs of the costs” is likely to be sharply truncated.

Thirdly, there can be little doubt that this concentration on the bottom line will force a change in litigation behaviour. Just how profound a change, both in terms of the orders the court makes for case management and the attitude of clients who will have it brought home to them in very clear terms what the final bill is likely to be, will be interesting to watch.

Many of you will be aware that for quite a while now (since 2010) the county courts in Leeds, York and Scarborough have introduced a pilot scheme for provisional assessment of costs. The detail is set out in Practice Direction 51E, which provides for a paper based assessment of bills up to £25,000 with a right to an oral hearing: but unless the provisional assessment is varied by 20%, the party requesting the oral hearing pays the costs of it.

In the Eighth Implementation lecture Lord Justice Jackson noted this:

4.6 Benefits of provisional assessment. The principal benefits of provisional assessment appear to be the following:

(i) The process is quick and simple. It thus enables many parties, who would normally be put off by the expensive and convoluted process of detailed assessment, to obtain a judicial assessment of bills. Thus the process addresses one major complaint about costs which was repeatedly pressed upon me during the costs review.

(ii) The figures which are assessed or agreed following provisional assessment are likely to be fairer than settlements negotiated in circumstances where neither party can face going through the process of normal detailed assessment. 

(iii) The process is far cheaper for the parties than traditional detailed assessment, because (save in rare cases) they avoid the costs of preparing for and attending a hearing. Indeed, unlike traditional detailed assessment, it is cost effective. DJs Hill and Bedford estimate that the savings for the parties are at least £4,000 per case. This is because the case usually ends after the PA and thus the parties avoid a half day or one day hearing.

4.7 Benefits of the pilot. There have been two main benefits of the pilot. First, it has enabled an objective assessment of the process to be made. Secondly, it has been possible to try out some detailed rules and to identify shortcomings or areas where the rules can be improved. These matters will be addressed in the drafts which I shall present to the Rule Committee.

4.8 Next steps. The Senior Costs Judge, DJ Bedford, DJ Hill and I have now prepared draft rule and practice direction amendments with a view to introducing provisional assessment on a national basis as from the general implementation date. I shall present these to the Rule Committee for consideration at its meeting on 3rd February. I hope that the Rule Committee will accept this proposal either then or at some time in the future.

On detailed assessment more generally, he had this to say:

5.11 Points of dispute and points of reply. Both points of dispute and points of reply need to be shorter and more focused. The practice of quoting passages from well known judgments should be abandoned. The practice of repeatedly using familiar formulae, in Homeric style, should also be abandoned. The pleaders on both sides should set out their contentions relevant to the instant cases clearly and concisely. There should be no need to plead to every individual item in a bill of costs, nor to reply to every paragraph in the points of dispute.

5.12 In order to achieve the required approach to points of dispute and points of reply I propose that sections 35 and 39 of the Costs PD be amended as set out in appendix 10 to this report.

5.13 Compulsory offers. PP should be required to make an offer when it serves its points of dispute. The offer may be contained in the points of dispute or in a separate document. The sum offered may be more or less than the amount of the interim payment ordered by the court.

5.14 Offers. The Part 36 procedure should apply to detailed assessment proceedings. The “14 day” provision in Costs PD paragraph 46.1 should be repealed.

5.15 Costs of detailed assessment proceedings. The default position should remain as set out in CPR rule 47.18. However, if PP makes an offer which RP fails beat, then the normal consequence should be that RP pays PP’s costs after the date when the offer expired. Likewise RP should be rewarded for making a sufficient offer, which PP rejects. The reward should be enhanced interest and indemnity costs in respect of the assessment proceedings.

5.16 Time for appeal. Time for appeal should start to run from the conclusion of the final hearing, unless the court orders otherwise. There will be some occasions when it would be appropriate for the court to order otherwise. For example, it may be sensible for an appeal against a decision on preliminary issues to proceed before the full detailed assessment takes place.”

3.2 Implementation. The Rule Committee has accepted these recommendations. It has approved appropriate amendments to the Civil Procedure Rules (“CPR”) and the Costs Practice Direction. These are set out in Appendix 2. These amendments will come into force on the general implementation date.

3.3 Longer term proposals. FR chapter 45 also makes recommendations for (a) the creation of a new form bill of costs and (b) the development of software which will automatically generate schedules of costs or bills of costs at different levels of generality, according to the client’s or the court’s requirements.3 The Association of Costs Lawyers (“ACL”) has set up a Jackson Working Group to take these proposals forward. The working group produced an excellent interim report in October 2011. The working group is currently developing an interim format for bills of costs, which will need to be piloted. This aspect of the reforms, therefore, is very much work in progress.

The key points to be drawn from this evaluation, is that the practice of provisional costs assessments, has been seen as a success, and will become widespread. So, with Fast Track cases being quantified by reference to fixed costs, and additional liabilities being stripped out of bills significantly lowering the bottom line claim for costs, provisional assessments of bills in multi-track cases will become more common.

The judges like provisional assessments, because instead of listening to the detail of the bill, and spending court time doing it, they can work quickly through the bill, in 40 minutes, and come up with a result which is practicably unchallengable.

What can confidently be predicted, is that the ceiling for bills, which get provisionally assessed, rather than listed for an oral hearing will be progressively raised, and there seems little reason why a bill of up to £50,000 should not be assessed in this way, particularly given the effect of costs budgets, noted above.

The headlines of the Jackson review, have focused on the abolition of success fees or ATE premiums, inter partes, or the dubiously named QUOCS. But the detail of the rules on costs, will have equally profound and possibly longer lasting consequences for the profitability of legal practice and the law and practice of costs.

Success fees in disease claims

This article was originally published in September 2012. A sequel dealing with the later High Court decision in Patterson v Ministry of Defence may be published in due course.

An ongoing issue in the context of assessment of costs and disease claims is the correct approach to construction of Rule 45.23 of the Civil Procedural Rules, where the underlying claim is one of acceleration or exacerbation of a pre-existing condition.  Two recent cases indicate how, at the moment, the balance of authority is now starting to favour the position of the paying party.

Fountain -v- Volker Rail Limited (Central London County Court 24th August 2012)

On 24th August 2012, his Honour Judge Mitchell sitting with Master Hurst as his assessor handed down Judgment in the paying parties’ appeal from the decision of Master Howarth on the 11th April 2011. The judge concluded that the Master had wrongly allowed a success fee of 100% instead of 27.5% and allowed the appeal.

As the Learned Judge noted when the matter came before him, the issue was as follows:

“The point that was at issue was whether or not the claimant’s condition in this case could be described as a disease so that the protocol relating to disease is applied and the success fee would be 100% as opposed to the 27.5%, which is the success fee for employment liability claims.  The claim arose in this way.  The claimant was required to carry large bags of stone, concrete and shingle down to his work upon the tube system at night.  He had to carry the items which were very heavy because the electricity was cut off and he was unable to use the lift.  During July 2006 he a bout of pain, he was unable to complete his shift and was absent for nearly 6 months with back symptoms.  After his return to work in January 2007, he suffered a recurrence of the back injury in April 2007.  The claim referred to repeated lifting between January and April 2007.”

The Learned Judge noted at paragraph 4 of his judgment the effect of the medical evidence in this case.

The injury sustained is set out in the report of Mr. A.H Osborne, Consultant Orthopaedic Surgeon, dated the 10th February 2009.  The doctor also answers some questions in a letter dated 15th March 2010.  The doctor noted early disc degenerative changes in the MRI scans and bulging at L4/5 and L5/S1.  The most significant changes appear to be lateral recessed stenosis at L4/5 on the right causing pressure on the nerve root.  In other words, he had a pre-existing condition of degeneration of the spine.  The degenerative disc disease at two levels in the lower back would account for the periodic pains of sciatica down his right leg.  He agreed that the heavy lifting in July 2006 had caused the acute onset of symptoms.  It had been confirmed that the claimant might develop increasing degenerative disease in the lower lumbar spine and require fusion surgery but he thought that unlikely.  Although he could return to work with the heavy lifting, he might have problems after the age of 60 as a result of the pre-existing condition.  In the letter he confirms that this was self-limiting injury and the claimant did have a probable pre-existing degenerative disc but this is not surprising in someone of his age.”

As the Learned Judge continued at paragraph 5:

“In other words because of the pre-existing degenerative condition, the heavy lifting had produced symptoms in his back…..”

At first instance before Master Howarth, that Learned Cost Judge had decided that this was a disease case and justified an award of 100%.

That conclusion was challenged by the paying party on appeal.  Rule 45.23 says this:

(1)Subject to paragraph (2) this Section applies where – (a) the dispute is between an employee  and his employer and (b) the dispute relates to a disease with which the employee is diagnosed that is alleged to have been contracted as a consequence of the employers alleged breach of statutory or common law duties of care in the course of the employees employment; and (c) the Claimant has entered into a funding arrangement of the type specified in Rule 43.2(1)(k)(i).

(3)For the purpose of this Section –

(a)Type (A) claim means a claim relating to a disease or physical injury alleged to have been caused by exposure to asbestos;

(b)Type (B) claim means a claim relating to –

(i)Psychiatric injury alleged to have been caused by work related psychological stress; (ii)A work related upper limb disorder which is alleged to have been caused by physical stress or stain, including hand/arm vibration injury; and

(c)Type (C) claim means a claim relating to a disease not falling within either type (a) or type (b).

In a nutshell, the arguments put forward on behalf of the paying party hinged upon what construction could properly be given to the words “disease” and “contracted”.  The Learned Judge commented at paragraph 10:

“Mr. Hogan then goes on to submit that what is required here is for the Court to construe “disease” and “contracted” in CPR 45.23 (1)(b) in common sense manner consistent with the meaning of those words.  Mr. Hogan then goes on to refer to the shorter Oxford English Dictionary and the definition of “disease”, which is:-

“A disorder of structural function in an animal or plant of such a degree as to produce or threaten to produce detectable illness or disorder; A definable variety of such a disorder, usually with specific signs or symptoms or affecting a specific location; an illness, a sickness.”

As regards “contract” that is defined as:-

“Become infected with, catch (disease, illness)”. 

He submits that passages in Bennion on statutory interpretations support the use of dictionaries, (pages 1221-1222) although there is an anecdote the contrary from one famous law lord who is now deceased.”

In conclusion the Learned Judge said at paragraph 20:-

“It has to be noted that this argument about disease is fact sensitive.  As I have already indicated I have taken on board Mr. Moore’s point that classification and definitions are shifting and have shifted.  In the context of this case it is the view of this Court that Master Howarth was wrong in concluding that it was a disease in the sense it was a work related disorder.  This was a claimant who had a degenerative spine whose condition was worsened as a result of a series of occurrences when he was carrying weights, which were far too much for him.  The fact that this was not just one occurrence but it was a series of occurrences does not make it a “disease” but in the meaning of the word as defined in the personal injury protocol.  Master Hurst was right when he posed the situation to Mr. Moore in an argument that one incident was physical injury does that mean that two incidents amounted to a disease?  It seems to me that question exposes the fragility of the Respondent’s submissions notwithstanding how well they were made.  In my Judgment Mr. Hogan is right; this case starts with a definition of “disease” and “contracted”.  By no stretch of the English language could it be said in this court’s judgment that this was disease or that it had been contracted.  The medical evidence in our view is conclusive to establish that this was a physical injury.  Accordingly, as Mr. Hogan has submitted this case is governed by CPR 45.20(1) and not by CPR 45.23.”

This case is proceeding to the Court of Appeal. It has been listed to be heard with a similar case, that of Bird -v- Meggit Aerospace Limited a decision of Regional Costs Judge Hale handed down on the 22nd June 2012, has already been transferred to the Court of Appeal utilising the “leapfrog” procedure.

Bird -v- Meggit Aerospace Limited (Nottingham County Court 22nd June 2012)

This was a reserved decision of District Judge Hale, sitting in the Nottingham County Court as a Regional Costs Judge, and the facts of the case may be briefly stated.  The Learned District Judge noted at paragraph 3 as follows:

The claimant was employed by the defendant as a moulder in its factory premises in Shepshed near Loughborough.  In the course of his employment he was required to carry out various manual handling operations most of which involved manipulation and transportation of moulds, which weighed 400 or 500 kilograms.  The claimant alleged that he sustained injury by reason of the ongoing heavy and repetitive nature of his work procedures and the claimant suffered symptoms of pain in his back, left shoulder, elbow, knee and arm.  The Particulars of Claim specifically plead that the claimant suffered an injury to his back and left shoulder, elbow, knee and arm and reliance is placed on the annexed report prepared by a Consultant Hand and Orthopaedic Surgeon, Mr. Downing.”

District Judge Hale summarised Mr. Downing evidence as follows:

Mr. Downing’s evidence is of crucial significance in the context of this particular issue.  He diagnosed non-specific bilateral muscle strain causing shoulder pain and left lateral epicondylitis or tennis elbow.  Mr. Downing was unable to give a specific diagnosis for the shoulder pain and found a relationship between this pain and the Claimant’s work was not entirely clear, as the symptoms appear to have commenced prior to his requirement to manipulate heavy steel moulds.  As for the tennis elbow, Mr. Downing had this to say at page 12 of his report:

Tennis elbow is a common constitutional condition of degenerative pathology.  It is not an inflammatory condition nor is it a condition of the epicondyle: it is an enthesopathy i.e., a degenerative condition of the common extensor origin at the lateral aspect of the elbow.  It is a common condition in middle age and arises through a constitutional degenerative process that is not caused by work.  It is not a prescribed disease.  The lack of inflammation biopsy specimens taken at surgery (Boyer and  Hastings 1999) for tennis elbow strongly supports the view that tennis elbow is not a response to either acute or repetitive trauma.  Further, there is no epidemiological evidence that tennis elbow can be pathologically caused by any particular work activity.  However, it is commonly agreed, and in my opinion entirely reasonable to conclude that forceful gripping in the presence of tennis elbow is likely to lead to exacerbation of symptoms.  It is therefore reasonable to conclude that if Mr. Bird developed constitutional tennis elbow then aspects of his work which involved forceful gripping, would lead to exacerbation of symptoms.  However, the fact that Mr. Bird was off work for several months, yet symptoms persisted, would indicate that his work was not entirely responsible for his symptoms.”

The issue in the case then was whether this was an employers liability claim attracting a modest success fee or whether it was a disease claim attracting an award of 100%.  The arguments that were deployed on behalf of the paying party were similar to those utilised before his Honour Judge Mitchell.  At paragraph 16 of his Judgment the Learned District Judge said this:-

“I have considered whether an aggravation or worsening of symptoms can be regarded as a disease as usually understood and defined.  I am satisfied that they cannot be so regarded.  Mr. Bird sought and recovered compensation for increased pain caused by gripping and engaging in heavy manual handling.  These actions did not cause a disorder of function or structure producing illness or symptoms (as a said disease).  The disorder and indeed the symptoms were pre-existing and only the symptoms were temporarily worsened.  Furthermore, it was never alleged nor could it have been that the prognosis or pathology of the conditions were affected in any way by the claimant’s work.  I am satisfied that the claimant was not suffering from a disease that was alleged to have been contracted as a consequence of his employers breach of duty and therefore his claim does not fall within the scope of Part V.  I believe I have arrived at that conclusion having applied the correct approach to interpretation of the rule.  Interpretation does not create an absurd result, it does not offend against the purpose of the rule which contemplates that some cases will attract higher success fees and some will attract lower fees.  Furthermore the object of achieving certainty and clarity is, I believe, better advanced by the construction contended for by the defendant than that contended for by the claimant.”

An appeal has been lodged against the decision of the District Judge.  His Honour Judge Barrie sitting in the Nottingham County Court has directed that the case be transferred to the Court of Appeal utilising the “leapfrog” procedure.

It remains to be seen when this matter will come for hearing before the Court of Appeal and some useful and binding guidance handed to Cost Judges who are grappling with cases of this nature on a daily basis.

Andrew Hogan was instructed by DLA Piper LLP on behalf of the paying party in Fountain -v- Volker Rail and is retained on behalf of the paying party by Berrymans Lace Mawer LLP in the case of Bird -v- Meggit Aerospace.

Is your firm “ready for Jackson”? The most important reforms to the law and principles governing the recovery of costs will come into effect in April 2013.  In March 2013 I am offering to undertake, to individual firms a half-day seminar on the Jackson reforms, at modest cost.  For more information or to discuss making a booking, please contact me in chambers on 0115 947 2581 or

Costs, credit hire and success

This post was published as an article in September 2011.

There is a legal saying that “hard cases make bad law”.  Nowhere is this more apparent at the current time than in the ever growing number of cases in the Court of Appeal which purport to establish principles meant to be acted upon by first instance judges on the proper order to make in relation to costs in a variety of factual circumstances arising in the context of hard fought litigation.

The more a court strives for perfect justice in an individual case, the greater the risk it seems of creating uncertainty across hundreds of other cases, through rendering it more difficult to predict with precision what costs consequences will apply in those cases.

A recent trio of cases in the Court of Appeal that of Abbott .v. Long (2011) EWCA Civ 874, Medway Primary Care Trust .v. Marcus (2011) EWCA Civ 750 and Fox .v. Foundation Piling Limited (2011) EWCA Civ 790 decided in the consecutive months of May, June and July illustrate this problem acutely.

In particular terms, the cases raise clear issues as to what order would be appropriate in terms of costs in common scenarios such as (i) when a credit hire claim largely collapses at trial or (ii) where a personal injury claim collapses with damages being reduced to a fraction of those claimed or (iii) where a claimant accepts a Part 36 offer made by a defendant which has to be considered against a higher gross sum offered by the defendant by way of earlier part 36 offer.

The Decision of the Court of Appeal in Abbott .v. Long

This decision will be of considerable interest to credit hire litigators as it involves an appeal against an Order of HH Judge Marshall QC made in the Central London County Court where a claim for credit hire damages was brought for £48,000.  That sum was considerably reduced by reason of a discount of 75% by way of contributory negligence and a finding by the trial judge that the claim for credit hire charges had been overstated in that a period of hire was reduced from June 2008 till December 2009 to a total of 6 months.

The credit hire damages recovered were only £8,600.

Crucially it should be noted that the defendant had made no offer and an appeal was made to the Court of Appeal when the circuit judge made no Order for Costs on the trial, pointing out that the appellant could be regarded as the successful party, liability had been denied, no offer had been made and the issues upon which the appellant had lost at trial were not causative of significant extra costs.

The circuit judge had been extremely critical of the approach of the hire company, which she had said was driving the litigation.  The circuit judge said this at paragraph 28 of the transcript in the court below:

The overall conclusion I have come to therefore, on hearing the arguments on both sides, is that the order I should make in these circumstances is that there be no order as to costs.  I do so particularly because of the balance between the following two principal considerations.  On the one hand Mr. Williams points out that once it was accepted by Miss McTague that in fact, there would at least have had to be a Fast Track trial in any event, and where his Client has made some recovery as a result, it is extremely difficult to justify any order requiring Mr. Abbott to pay any costs to Mr. Long.  On the other hand, owing to the way in which the matter has been conducted on the part of Mr. Abbott, without, as I see it any proper regard for Mr. Abbott’s duty to seek to mitigate his loss or to keep his expenses to an appropriate level for someone spending his own money rather than someone else’s, and where the defendant has had a significant measure of success both in resisting that last point in particular, and also establishing a measure of liability which shows that Mr. Abbott was vulnerable to a potential cross claim, I also do not consider it right that Mr. Long should pay any costs to Mr. Abbott.

As noted by the Court of Appeal at paragraph 8 of their Judgment:

In substance, the judge found that there were three factors: firstly, there had to be a trial because there was no offer; secondly, the conduct of the claimant had failed to show proper regard for the duty to mitigate and to keep expenses to an appropriate level; and thirdly, the defendant had had a significant measure of success both in resisting the claim for credit hire and also in establishing a division of liability, which shows that Mr. Abbott was vulnerable for a cross claim.  So the order made by the Judge was that there would be no order as to costs.

The Court of Appeal refused to interfere with the exercise by the Judge of her discretion.  The principal judgment in the Court of Appeal was given by Lady Justice Arden DBE who noted this at paragraph 13:

… the principal ground which there would have been in this case for reducing the costs of the appellant at the trial below were undoubtedly the fact that a claim had been made for credit hire of £48,000, which in the course of the trial was reduced by the concession that a replacement car could have been purchased in the course of the hearing, from June 2008 to December 2009, thus severely reducing that claim; and that I take to be the principal ground, and really the only relevant ground for a reduction in the entitlement as to costs. 

She continued at paragraph 15:

… it seems to me important that this court should consider what the Judge said about the reprehensible nature of the conduct and to what extent the Judge was saying it was reprehensible.  Going back to paragraph 26, which I have set out above, the kernel of the judge’s point as it seems to me was that this was a hirer who was a serial litigant, who ought to have systems in place to ensure that claims which were only properly capable of succeeding are pursued.  Of course that is not the same as dishonesty and Mr. Williams is quite right to make a submission that it is not.  But it is still blameworthy conduct or, to use Ward LJ’s term, it is still conduct which the Judge is capable of finding to be reprehensible.  To take the further argument advanced by Mr. Williams, he submits that the nature of that conduct has been fully taken into account in the Order made at trial for the payment of damages.  But if that was so, that would turn the costs jurisdiction on its head and of course it has been taken into account in relation to damages but it may also be taken into account in relation to costs as well.

She concluded at paragraph 18:

In those circumstances I do not consider that the appellant can overcome the standard that is required on a costs appeal of showing that the judge was not entitled to reach this conclusion.  It is a carefully reasoned judgment.  There are a basket of factors, and she is undoubtedly entitled to take into account the conduct which she had carefully described and of which she had marked her clear disapproval.  In those circumstances, in my judgment, there is no basis for saying that this order was disproportionate.  She was clearly only dealing with a proportion of the costs on the pleaded basis, and that proportion cannot in my judgment be said to have been a disproportionate sanction to which the Judge was not entitled to impose.

Against that backdrop this case will be of significance to those representing credit hire companies who no doubt will wish to argue that it is no more nor less than an instance of the Court of Appeal deciding a case on its own particular facts and failing to interfere with the very broad discretion that a trial judge has.

Conversely those representing motor liability insurers and defending claims from credit hire companies will say that what the case represents is recognition in terms of the appropriate order for costs and in circumstances where a credit hire company pursues a very high claim for credit hire damages but which is severely truncated at trial, that is a very material factor which should go into the balance and a judge will be entitled to make no order for costs in those circumstances even if the claimant succeeds in recovering some thousands of pounds worth of damages whether for credit hire or otherwise.

The difficulty that a case of this nature creates is the potential for uncertainty in the law and uncertainty in the prediction of the result.  This is a theme which will be picked up again in consideration of the later two decisions of the Court of Appeal below:

The Decision in Medway Primary Care Trust .v. Marcus

The case was concerned substantially with a decision made in the context of a claim for damages for clinical negligence whereby an appeal was brought by the defendants from an order that the claimant should have 50% of the costs of the entire action.  The appeal was made on the basis that this was a manifestly unjust and wrong decision and that they should have recovered all or a substantial proportion of their costs because the claim for practical purposes failed.

This is a classically hard case in one sense.  The claimant was a young man aged 31 who contracted a problem in his left lower leg which ultimately meant that it had to be amputated.  His case was that both his general practitioner and the hospital had failed to apply timely and appropriate treatment which would have saved his leg.  Quantum if it was found that negligence had caused his leg to be lost was agreed at £525,000.  At the trial the claimant lost on the basis of causation but succeeded on a barely pleaded and very much secondary point that he was entitled in any event to general damages for pain and suffering caused by delay in diagnosis even though ultimately it would have made no difference to the loss of his leg.  The judge at first instance awarded £2,000 damages a figure which as the respondent pointed out was 0.25% of the value of the claim as pleaded.

The decision went to the Court of Appeal who by a majority of 2-to-1 the leading judgment being given by the President of the Queen’s Bench Division with whom Lord Justice Tomlinson agreed, but a powerful dissenting Judgment given by Lord Justice Jackson, resulted in the overturning of the costs order below and an order that the Defendant should recover 75% of their costs from the Claimant.

The reasoning of the President was set out at paragraph 17 of the judgment:

In my judgment, the Deputy Judge was wrong in principle to conclude that the respondent was the successful party.  The award of £2,000 was insignificant in the context of the claim and the action as a whole, and, although it was technically within the pleaded claim, it was in truth a last minute addition to salvage something (0.25%) from an action which the respondent lost.  The whole action was about the cause of the need for the respondent to undergo a leg amputation and, for all that the first defendants did not admit breach until a late stage, the second defendant’s early admission would have carried the entire claim, if the respondent had succeeded on causation.  The causation issue was squarely advanced in the original defences.  Mr. Brierley’s opinion on the causation issue was the second defendant’s case from the start and it carried the day.  I have already indicated my view that such vindication as the action achieved was scant consolation for a claimant whose £525,000 claim had failed entirely.  This is not a case in which identification of the party who has to write the eventual (very small) cheque is persuasive as to the costs order. 

Interestingly the President went on at the same time to say this about the notion that the defendants could and should have made a Part 36 offer of say £3,000:

The fact that the appellants did not make a Part 36 offer or write a Calderbank letter is no more relevant to the costs issue than it was in Oksuzoglu.  If the defendants had made a Part 36 offer of (say) £3,000 at the outset, that would have carried a costs payment of some £100,000 which would have been disproportionate and unjust.  More importantly, however, an award of £2,000 on an afterthought claim for a short period of extra pain is insignificant in the context of the action as a whole and the nominal failure to make a Part 36 offer is of no consequence and a technical triviality.  As the Deputy Judge himself said, no rational person would issue or defend proceedings such as these, if the recovery was only £2,000. 

Lord Justice Jackson dissented powerfully from the decision of the majority in these terms.  He said at paragraph 28:

The blunt fact is that the claimant had a good claim for £2,000 and the defendants were refusing to pay anything.  The only way the claimant could recover the £2,000 due to him was by issuing proceedings and pressing on until the defendants agreed or were compelled to pay (a) £2,000 damages and (b) costs assessed on the standard basis.

He noted this at paragraph 30 as to what he saw the consequences of the law as framed by Part 36 and Part 44 of the Civil Procedure Rules:

In my view in a personal injury case where (a) the claimant has pursued his claim in a reasonable manner (b) the claimant recovers damages (other than nominal damages) and (c) there is no or no sufficient Part 36 offer, the starting point should be that the claimant recovers his costs.  That flows from rule 44.3(2)(a).  The next question to consider is whether any adjustment should be made to reflect the issues on which the claimant has lost.  In a typical personal injury or clinical negligence case where the Claimant is successful, the Claimant will win on some points and lose on other points along the way.  That is not normally a ground for reducing costs recovery: see the judgment of the Court of Appeal presided over by Sir Anthony Clark MR in Goodwin .v. Bennett UK Limited (2008) EWCA Civ 1658.  If, however, the claimant has lost on major issues which generated significant costs, then the Court will exercise its discretion under rule 44.3 to reduce the costs recovery.

He was scathing of the suggestion by the defendant’s counsel that costs as assessed by the Court on the basis of reasonableness and proportionality could in any shape or form be disproportionate at paragraph 25:

If the defendants had made and the claimant had accepted an offer of, say, £3,000 then the claimant would have been entitled to recover costs assessed on the standard basis.  Costs assessed on the standard basis are no more than is reasonable and proportionate: see rules 44.4(1) and (2).  Mr. Hutton argues that rules 44.4(1) and (2) have been interpreted by the Courts in such a way that the costs awarded would in fact be disproportionate.  Mr. Hutton draws attention to the decision of the Court of Appeal in Home Office .v. Lownds (2002) EWCA Civ 365.  Mr. Hutton may be right in his implicit criticism of the Lownds decision, but that is a matter for law reformers not for this Court.  We must proceed on the assumption that any assessment of costs made pursuant to rules 44.4(1) and (2) on the standard basis would result in a sum which is no more than is reasonable and proportionate.

This case in a sense illustrates fissures in the Court of Appeal.  Undoubtedly it represents what in one sense could be thought to be a sensible result, namely that a claimant whose claim had essentially collapsed at trial should not receive their costs of the action.

On the other hand the failure of the defendant to engage in the part 36 mechanism even with all that entailed in respect of a potential costs liability of £100,000 for settling a £3,000 claim raises the spectre of uncertainty.

Seasoned observers will have sympathy with the position of the defendants that after being through the mill of an assessment process a sum by way of costs would be awarded which would still be too high to be justice or good sense or a sum that the defendants should have to pay.

Nonetheless there is considerable force in Lord Justice Jackson’s logical proposition that if the rules provide for tests of reasonableness and proportionality to be applied and a judge purports to do that then absent his decision being shown to be wrong on appeal his decision must be taken as reasonable and proportionate.  In which case the debate is surely as to whether the rules require change rather than whether the rules have produced a wrong result in a particular case.

A matter of days later the issue arose again in a further case before the Court of Appeal where Lord Justice Jackson this time gave the only justice with which the balance of the court agreed.

The Decision in Fox .v. Foundation Piling Limited

This case involved a back claim emanating from the Sheffield County Court where the defendant obtained early and good surveillance evidence which revealed that the claimant was exaggerating the extent of his disability although he had undoubtedly suffered a genuine back injury which had accelerated the course of constitutional degeneration.  In September 2008 the defendant had made a Part 36 offer of £63,000 of which £39,449.21 would be paid to the Compensation Recovery Unit and the balance would be paid to the claimant.

Later in the action in November 2009 the defendant withdrew that Part 36 offer and made a new offer to settle whereby the claimant would be paid £31,702.53 and an additional figure of £7,597.47 in respect of the Compensation Recovery Unit’s liability.

The position was that the claimant accepted this latter payment and the question was what order for costs should be made in circumstances where the parties could not agree on the liability for costs.

In terms of the gross or headline figures, plainly the second offer was not as good as the first offer.  In terms however of the net receipt of sums the second offer was an increase on the first offer and it seems that the parties were unaware at first instance of the effect of rule 36.15(8) which clarifies that for the purposes of success in Part 36 it is the net sum which matters.

The Court of Appeal overturned the first instance judge and ordered the defendant to pay the claimant’s costs.  In so ordering Lord Justice Jackson drew a number of conclusions beginning at paragraph 44:

First, where one party makes a Part 36 offer and then achieves a more advantageous result than that proposed in his offer, the provisions of rule 36.14 modify the court’s general discretion in respect of costs.  This is important because parties who choose to use the Part 36 mechanism in their settlement negotiations need to have a clear understanding of the legal effects of making, accepting and rejecting offers under Part 36.

He continued:

Secondly, parties are quite entitled to make Calderbank offers outside the framework of Part 36.  Where a party makes such an offer and then achieves a more advantageous result, the court’s discretion is wider.  Nevertheless it may well be appropriate to order the party which has optimistically rejected the Calderbank offer to pay all costs since the date when that offer expired.  This is what the court ordered in Stokes.

He said at paragraph 46:

A not-uncommon scenario is that both parties turn out to have been over-optimistic in their Part 36 offers.  The claimant recovers more than the defendant has previously offered to pay, and less than the claimant has previously offered to accept.  In such a case the claimant should normally be regarded as the successful party within rule 44.3(2).  The claimant has been forced to bring proceedings in order to recover the sum awarded.  He has done so and his claim has been vindicated to that extent. 

He said at paragraph 47:

In that situation the starting point is that the successful party should recover its costs from the other side: see rule 44.3(2)(a).  The next stage is to consider whether any adjustment should be made to reflect issues on which the successful party has lost or other circumstances.  An adjustment may be required to reflect the costs referable to a discrete issue which the successful party has lost.  An adjustment may also be required to compensate the unsuccessful party for costs which it was caused to incur by reason of unreasonable conduct on the part of the successful party.

He said at paragraph 48:

In a personal injury action the fact that the claimant has won on some issues and lost on other issues along the way is not normally a reason for depriving the claimant of part of his costs: see Goodwin .v. Bennett UK Limited (2008) EWCA Civ 1658.  For example, the claimant may succeed on some of the pleaded particulars of negligence, but not on others.  Indeed the fact that the claimant has deliberately exaggerated his claim may in certain instances not be a good reason for depriving him of part of his costs: see Morgan .v. UPS.  A defendant who has obtained video surveillance evidence is perfectly well able to protect his position on costs by making a modest offer under Part 36.

Finally at paragraph 49 he noted:

Nevertheless in other cases (as stated above) the fact that the successful party has failed on certain issues may constitute a good reason for modifying the Costs Order in his favour.  This is commonly achieved by awarding the successful party a specified proportion of its costs.  In Widlake the facts were so extreme that the successful party was ordered to bear all its own costs.

Applying those principles in the context of this case he said at paragraph 61:

In my view there is no justification for departing from the usual starting point as set out in rule 44.3(2)(a) namely that the unsuccessful party should pay the successful party’s costs.  The Judge exercised his discretion on the wrong basis, namely the assumption that the defendant was the successful party.  It therefore falls to this court to re-exercise that discretion.

He then said in terms which appear to be heartfelt:

There has been a growing and unwelcome tendency by first instance courts and dare I say it, this court as well to depart from the starting point set out in rule 44.3(2)(a) too far and too often.  Such an approach may strive for perfect justice in the individual case, but at huge additional cost to the parties and at huge cost to other litigants because of the uncertainty which such an approach generates.  This unwelcome trend now manifests itself in (a) numerous first instance hearings in which the only issue is costs and (b) a swarm of appeals to the Court of Appeal about costs of which this case is an example.

He concluded at paragraph 63 in these terms:

I hope that the forthcoming amendment to rule 36.14 will point the way of a more clear cut approach to the cost rules in future.  In the context of personal injury litigation where the claimant has a strong case on liability but quantum is inflated, the defendant’s remedy is to make a modest Part 36 offer.  If the defendant fails to make a sufficient Part 36 offer at the first opportunity, he cannot expect to secure costs protection.  Different considerations may arise in cases where the claimant is proved to have been dishonest, but (on the Judge’s findings) that is not this case. 

Accordingly one can see in these circumstances that not only has Lord Justice Jackson reasserted himself in terms of the actual decision in this case but he is purported to lay down criteria or decisions now in the context of a unanimous division of the Court of Appeal in circumstances where he was in the minority in an earlier case decided the week before.

However the position taken by Lord Justice Jackson is likely to be embodied in the Civil Procedure Rules given the forthcoming amendments to Part 36 which it is contemplated will take effect in October 2011.

It may well be that the principles which have been established in the Court of Appeal are now tolerably clear as to how partial success in terms of a greatly truncated award of damages should be treated in the context of credit hire and personal injury claims.

But equally given the very wide discretion that a circuit judge has at first instance it seems likely that in particular where it would seem to be manifestly unjust that a party such as the claimant receiving a modest award of damages when they had hoped for a multiple many times higher and in particular terms given the ongoing nature of the credit hire awards in the county court it is the writer’s suspicion that these points will continue to be raised and run in circumstances where there is sufficient factual background to make it a viable proposition.

The Civil Justice Council and the Jackson Working Party

This post was originally published as an article in January 2012.

The Civil Justice Council has set up what it describes as an expert working party to help develop practical proposals to assist with the implementation of secondary legislation such as regulations or court rules in a number of areas, qualified one way cost shifting, atypical cases and behavioural aspects, the introduction of additional sanctions or rewards under Part 36 and the detail of the proportionality test with content of a practice direction and examples of when the test should not be applied.

The role of the working party is really to consider options.  The working party is not meant to be revisiting the policy objective set out in the government response but to focus on the practical measures which are required to give effect to the proposal.

The detailed drafting of any secondary legislation is (says the Civil Justice Council) a matter for the Civil Procedural Rules Committee (if indeed it is part of the Civil Procedural Rules) and/or government lawyers (if it is secondary legislation properly so called) the working party intended to draft papers setting out optional solutions together with an analysis of pro and cons in the last part of 2011.

The working party has produced a document entitled the CJC Working Group on Technical Aspects of Jackson Implementation: Options for Proportionality, Part 36 Offers and Qualified One Way Cross Shifting.  The paper runs to 102 pages A4 and was published in October 2011.  The options that it considers can be summarised under each of the three areas it has been tasked with looking at.

The working party has come up with four potential alternatives to meeting the objectives of a new rule on proportionality.

(a)The Longstop Model.  There would be no preliminary determination as to proportionality akin to the current Lownds Test.  Instead, under this proposal reasonableness (alone) would be applied to each item of costs or category costs as disputed by the paying party or as identified by the Court.  It would only be at the end of the assessment that the proportionality and the new rule would be applied and then only in exceptional cases.  The purpose of the Longstop is to provide the Court with an extra tool as a Longstop to be applied only in exceptional cases to reduce otherwise reasonable costs to proportionate level.  The cases falling within the Longstop would be exceptional and rare (because under this model reasonableness is synonymous with proportionality) and in all probability would bite on cases which in the light of the overall reasonable expenditure should not have been pursued and brought to a conclusion in the way they were.  These will turn to be rare and exceptional cases. 

(b)Reversal of Lownds model.  Under this model there would be no Longstop application of proportionality.  Proportionality would be applied at the end in all cases.  Instead of proportionality being considered at the outset (Lownds) it would only be considered at the end and then not part of a Longstop.  The bill of costs would be assessed item by item (or by category) against the sole test of reasonableness.  Once the bill has been assessed as reasonable, the Court would go on as a matter of routine to apply the proportionality test to reduce the bill still further to a proportionate level.  Unlike option A, the proportionality test would be applied and engaged in all cases and not just rare or exceptional cases.

(c)The hybrid model.  Under this model both reasonableness and proportionality are considered at the same time whenever and item or category is being assessed/budgeted.  Unlike A and B proportionality (and the new rule) is applied as the items of the bill or category of costs are being assessed alongside considerations for reasonableness.  There is then a residual Longstop for the Court to reduce the figures still further if the proportionality rule justifies it.  This would be applied only in rare/exceptional cases.  Like option A, the application of the Longstop will be in exceptional or rare cases only, but  this time not because reasonableness would have catered for disproportionate costs (as in option A) but because inevitably where a Court has assessed items as being reasonable and proportionate during an assessment there will only be in exceptional rare cases that the outcome of the assessment results in a disproportionate figure.

(d)Retention of Lownds.  Proportionality will considered at the outset.  If the costs as a whole appeared disproportionate within the meaning of the new rule then the necessity test would apply.  Unlike the present day application of Lowndes, the practice direction would contain lists of factors relevant to the application of a necessity test and make it clear what may it clear what may be reasonable or may not.

Each of these options is potentially flawed. The notion of a “long stop” discount test of proportionality, is a recipe for satellite litigation, as it will introduce chronic uncertainty into the assessment of costs, both in terms of when such a deduction will be applied and in terms of what the quantum of deduction might be.

Perhaps, more significantly, it is disappointing that even now, some 15 years after Lord Woolf “borrowed” the concept of principle of proportionality from European Union law, it remains a nebulous and uncertain concept, hard to define and even harder to apply, which is conceptually very odd, when one considers that the stated aim of Jackson was to reduce perceived disproportionate costs to a proportionate level. If you can’t define proportionality, how can you judge whether you have succeeded or not in moving from a disproportionate model of costs to a proportionate one?

A key proposal of Jackson is to “beef up” claimant’s part 36 offers, to give them more of a parity in their consequences to the effect of failing to beat a defendant’s part 36 offer. The key question which is not yet settled, is whether the sanctions for failing to beat a claimant’s part 36 offer should sound in damages, or costs.

It is material to note that the majority, although not all, of the working group favoured a cost based sanction rather than a damages based sanction recommended by Lord Justice Jackson. If cost based sanctions were to be implemented the majority of the working group were attracted to a solution involving significantly enhanced interests on costs of a prescribed rate of say 25% above the base rate.

If a cost based sanction were to be implemented it could be applied by one of 3 options.

Option A1: Cost based sanction (enhanced interest on costs of a prescribed rate of say 25% above base rate) biting on Judgment only, preferred by the majority of the working group.

Option A2: Cost based sanction (enhanced interest on costs of a prescribed rate of say 25% above base rate) also biting on acceptance of claimant’s Part 36 offer pre-trial, preferred by a minority of the working group.

Option A3: Costs based sanction applying to non-personal injury cases with a damaged based sanction only applying to personal injury cases preferred by a minority of the working group. 

Conversely, if a damages based sanction as proposed by Lord Justice Jackson were to be implemented, a majority of the working group agreed that a cost based sanction as outlined above should be used for non-financial claims or a cost based sanction should be used for what are termed mixed claims.

The proposals favoured by the working party would, in effect, re-introduce recoverable success fees through the “back door”.  In essence, the claimant’s lawyers would “bet” that they will beat their part 36 offer and will be rewarded by a 25% interest derived, success fee. Although interest on costs nominally belongs to a client, usually, under the terms of a retainer, it will be payable to the lawyers. Such a reform, would undoubtedly give real teeth to claimant’s part 36 offers however.

Qualified one way costs shifting is seen by Lord Justice Jackson as a panacea for providing costs protection for losing claimants and justifying the end of recoverable ATE insurance premiums in personal injury litigation.

Qualified one way costs shifting is a concept that for Middle England probably has no relevance whatsoever, due to the fact it is to be “means tested” in its application.

For that part of the population, ATE, BTE, and Trade Union indemnities will have to fill the gap, just as they did, with limited success, before 1st April 2000.

What will be a new and potentially very important form of costs protection will be solicitor’s indemnities, offered through alternative business structures, possessed of significant capital reserves. Such a form of funding may, in time, come to dominate the personal injury market place.

The ambit of the working party is not concerned with the means testing criteria however. They are concerned with when, as a point of principle, what circumstances within the litigation might cause the loss of qualified one way costs shifting.

In this respect the considerations of the working party are quite interesting.  They decided that  “claims for personal injury” should be widely interpreted for the purposes of qualified one way cost shifting and it should be noted that Rule 2.3 of the Civil Procedural Rules 1998 provides an extended definition of what is a personal injury claim in any event.

The crucial point to note was that the operation of qualified one way cost shifting where a claimant has failed to beat a defendant’s Part 36 offer is described as critical.

A majority favoured the normal principles of Part 36 taking precedence over qualified one way cost shift shifting with a set off of damages operating as a control mechanism and a majority also favoured setting off costs as well as damages.

A minority rejected the costs set off arguing that it could cause uncertainties and raise indemnity principle points.  A minority favour the primacy of qualified one way cost shifting over Part 36.

It cannot be stressed how important this point is. In the writer’s view, if part 36 offers by a defendant cause the loss of qualified one way costs shifting protection, the benefits of the new system will prove illusory. No properly advised claimant, will take the risk of not beating a part 36 offer and risking financial disaster from doing so.

The working party unanimously agreed that the bringing of a fraudulent claim should cause the loss of qualified one way cost shifting protection: but of course this begs the question of what is fraudulent?  Certainly, one anticipates “staged accidents” would fall within this category.

But what of the situation of where a claimant is exaggerating the value of his claim? Or where there is a real issue as to whether the  claimant was exaggerating his claim and it has been decided by a Judge that he was so exaggerating?

The majority of the working party also accepted that striking out a claim for abusive process should cause the loss of qualified one way cost shifting protection and the impact of the bringing of a frivolous claim or general or unreasonable litigation conduct can be resolved in a number of ways by adopting a high threshold test or a low threshold test whilst treating the matter solely as a matter of judicial discretion. The working party also believed that qualified one way cost shifting should apply to areas and types of personal injury claims on which costs are fixed, counter-claims and cases involving multiple defendants, multi party claims in which the harm complained of falls within the personal injury definition and mixed claims in which damages for personal injury are sought alongside a long non-monetary remedy and a number of practical points arose as to how qualified one way cost shifting might apply in cases in which a claim has been discontinued.

The overall tenor of the Jackson reforms is well known. There is clarity on the key change, that of the end of recoverability of additional liabilities. But the current proposals on such topics as qualified one way costs shifting and particularly proportionality indicate that there is a long way to go before the reforms which their final shape and that there is every prospect of the law of unintended consequences being invoked, to spark off a new chain of “costs wars”.

ATE Premiums and the Pre-action Protocol for Low Value Claims in RTAs

This post is a newsletter published in August 2011. A sequel dealing with the Liverpool ATE Test cases (May 2012) and whether the decision of District Judge Smedley was correct or not, may follow in due course.

Cases are starting to reach the assessment process on the single point, as to what ATE premiums incurred for cases disposed of either at a Stage Three hearing or more commonly through settlement at Stage One or Stage Two of the Pre-action protocol for low value personal injury claims in road traffic accidents are properly recoverable.

A significant body of ATE providers are utilising staged or stepped premiums which can be as little of 20% of the £400 or £500 that other ATE providers are charging.

The simple question that has to be posed is how a District Judge is meant to apply the test of reasonableness and proportionality in an individual case in order to determine whether a ATE premium should be recoverable in sums of £400 plus or a much lesser sum, sometimes as little as £100 or less?

The issue has arisen because a significant body of respectable ATE providers utilise stepped premiums which apply very low levels of premium to cases which are dealt with within the RTA claims process: whereas a significant body of other ATE providers has not seen fit to revisit their premium structure since the advent of the new claims process.

A significant body of Solicitors continue to use tried and tested policies, as they have done for many years, which appear now to be quite expensive at £400 or £500 at a time against that backdrop.

The District Judge when assessing costs under Rule 44.5 of the Civil Procedure Rules 1998 on a normal standard basis assessment will be looking at the proportionality and reasonableness of the costs incurred and claimed.

The starting point for any consideration of reasonableness remains the classical authority of Wraith -v- Sheffield Forge Masters (1997) which is a decision which should be treated with some caution given that it predates the Civil Procedure Rules and the introduction of the principle of proportionality and indeed was decided on facts from 20 years ago, when the legal market place was very different from the market place that currently exists for personal injury claims.

In that judgment the Court of Appeal approved the formulation of the test of reasonableness made by Mr. Justice Potter which, although made in the context of a client’s choice of Solicitor, is equally apt to be applied in the context of a choice between ATE providers.

In relation to the first question, were the costs reasonably incurred, it is in principle open to the paying party on the taxation of costs on the standard basis to contend that the successful party’s costs have not been reasonably incurred to the extent that they have been augmented by employment of a Solicitor who, by reason of his calibre, normal area of practice, status or location, amounts to an unsuitable or luxury choice, made on grounds other than grounds which would be taken into account by an ordinary reasonable litigant concerned to obtain skilful, competent and efficient representation in the type of litigation concerned…  However, in deciding whether such an objection is sustainable in practice the focus is primarily upon the reasonable interest of the Plaintiff in the litigation so that, in relation to broad categories of costs, such as those generated by the decision of a Plaintiff to employ a particular status or type of Solicitor or Counsel, or one located in a particular area, one looks to see whether, having regard to the extent and important of the litigation to a reasonably minded Plaintiff a reasonable choice or decision has been made.  If satisfied that the choice or decision was reasonable, it is the second question what is the reasonable amount to be allowed?  Which imports consideration of the appropriate rate or fee for a Solicitor or Counsel of the status and type retained.  If not satisfied the choice or decision was reasonable, then the question of reasonable amount will fall to be assessed on the notional basis of the costs reasonably to be allowed in respect of her Solicitor or Counsel of the status or type which should have been retained. In either case, Solicitors hourly rates will be assessed, not on the basis of the Solicitors actual charging rates, but (in the case where the decision to retain was reasonable) on the basis of the broad costs of litigation and the area of the Solicitor retained or (in the case were the choice made is not reasonable) of the type of or class of Solicitor who ought to have been retained.

The starting point thus reads promisingly for Claimants seeking to recover ATE premiums in the sense that it clearly encapsulates the notion that there will be a spectrum of reasonableness within which a choice can be made. There is no obligation per se on classical Wraith principles to make the election for the cheapest of a number of alternatives.

As noted above, in many ways the Wraith judgment must be treated with caution these days and a case decided some years later after the introduction of the Civil Procedure Rules, that of Sarwar -v- Alam (2002) 1WLR 125, again deals with the reasonableness of choice but also the constraints under which such reasonableness may have to be exercised again in the context of a choice of solicitors.

At paragraph 57 of the Judgment of the Court of Appeal the Court said this:

In R -v- Legal Aid Board, ex parte Duncan (2000) COD 159 the Divisional Court rejected the Applicant’s Solicitors contention that their clients had a common law right to representation by the Solicitor of their choice not with outstanding that they were unable to pay for the Solicitors services themselves and limitation from the choice of a publicly funded Solicitor would be prescribed by Parliament.  We do not consider that it is necessary to repeat here the powerful dictum of Neuberj in Maltez -v- Lewis (2000) 19CONS TLJ 65 quoted in the Judgment.  It is sufficient to record that he observed that the right of any citizen to be represented by advocates and/or Solicitors of his or her choice may be cut down by circumstances.  One of the circumstances that which may cut it down is the consideration that the cost of instructing a Solicitor of the client’s choice, and protecting the client from the risk of paying the other side’s costs, is disproportionate to the value of the proposed claim when an alternative, reasonable, method will advance in the client’s interest with the help of an appropriately qualified lawyer is available.

In the later case of Rogers -v- Merthyr Tydfil County Borough Council (2007) 1WL 808, the Court of Appeal dealt with the recoverability of ATE premiums by reference to the principle of proportionality expressed in the case of Lownds -v- Home Office (2002) 1WLR 2450, where the Court applied the concept of proportionality in this way at paragraph 105:

…… but we do not think that is right.  If the Court concludes that it was necessary to incur the stage premium, then if this Court’s judgment in the Lownds’ case (2002) 1WLR 2450 shows, it should be judged a proportionate expense.  The necessity here is, with think not some absolute litmus test.  It may be demonstrated by the application of strategic considerations which travel beyond the dictates of the particular case.  Thus it may include, as we are persuaded it does, the unavoidable characteristics of the market and insurance of this kind.  It does so because this very market is integral to the means of providing access to justice in civil disputes in what may be called the post legal aid world.

They concluded at paragraph 106:

It is important to recognise that this conclusion runs with, not across, the grain of the procedure reforms expressed in the CPR.   The very recognition that justice requires a use of resources that is proportionate to what is at stake implies the rightness of the strategic approach.  There can be no touch tone of a proportionate use of resources so under sub, with out and eye to the context in which any such resources are expended.  Once it is concluded that ATE stage premium here was necessarily incurred, principle and pragmatism together compelled in conclusion that it was a proportionate expense.

Finally it should be noted that all decisions made under 44.5 must also be made by reference to Rule 1.1, the so called overriding objective.  One limb of which requires that the parties act to save expense where appropriate in a particular case. 

In this respect it should be noted that the pre-action protocol for low value personal injury claims and road traffic accidents has been in force since 2010. It applies to road traffic accident claims which proceed where liability including contributory negligence is not in dispute and damages for personal injury are valued at no more than £10,000.

It could be argued with force that the protocol will apply for the vast bulk of road traffic litigation and in terms of costs cases which proceed under the protocol have the following consequences. The first is to note that the Claimant may very well incur a liability for disbursements of varying amounts. Second, under Stage One liability will be admitted or it will not but if it is payment of fixed costs become due to the claimant’s solicitor. Next, if the case at Stage Two settles, the claimant’s fixed costs success fee and reasonable disbursements will be paid.

Thus it is only at Stage 3, if, and only if, a claim is issued under practice direction part 8B, and if, and only if, a defendant’s offer is not beaten that the claimant will become liable to pay the defendant’s fixed costs which are £500 or potentially £500 uplifted by 100% whether the defendant’s be litigating under a no win no fee.

A solicitor considering matters reasonably, in summary would note: the vast majority of claims will settle within this process where the claimant’s risk as to costs is not existent, a minority of cases will proceed to a Stage Three hearing where the claimant’s risk as to costs is at most  £1,000 and an even smaller number will not be caught by the process or drop out of it and the claimant’s potential to be at risk for costs is accordingly increased only at that point. A solicitor’s advice should be tailored to these facts, accordingly.

A District Judge also cannot be ignorant of Lord Justice Jackson’s final report which says this at paragraph 4.4:

The reasons which will be set out in Chapter 10 below, my conclusion below that ATE insurance premiums ought not to be recoverable under a Costs Order.  The regime of recoverable ATE insurance premiums is based upon the premise that certain claimants need to be protected against the risk of having to pay adverse costs.  In order words, for policy reasons these claimants should be allowed to benefit from the costs shifting rule when they win, but be protected against this adverse affect when they lose.  The flaw in the present regime is that it is not targeted upon those who merit such protection.  Any person who finds a willing insurer can take out ATE insurance, whether that person is rich or poor, human or corporate, deserving or undeserving.  Furthermore the protection which the claimant derives from ATE insurance is total.  The claimant is not required to make a modest contribution towards adverse costs (which was the case under the legal aid regime, which the recoverability regime replaced in April 2000) even if he can afford to do so. 

He continued at paragraph 4.5:

Professor Willem Van Boon has delivered a forceful attack on the regime of recoverable ATE insurance premiums in its article juxtaposing BTE and ATE on the role of the European insurance industry in funding civil litigation.  He concludes:

“So, the upshot of all this is that a prevailing claimant can fully shift the costs of his Solicitor and his ATE premium on to the Defendant and a defeated claimant does not pay anything.  The CFA plus ATE industries justifies this on the basis that the policy itself insured, which actually implies that the insurers pools all risks and funds all the unsuccessful cases from premiums charged to the Defendant’s in successful.  So what self insured really means is allowing claimants and insurers to design an aleatory contract through which the costs of both parties can be fully externalised on third parties.”

Defendants will undoubtedly argue that the factors noted above, indicate that a solicitor offering advice to his client on the inception of an ATE insurance premium would consider carefully how economically the need for insurance could be met and be aware that since the inception of the protocol numerous well known respectable ATE insurance providers offer staged premiums which provide for modest premiums the cases which settles in the claims process.

They will then contend that a reasonable solicitor would offer advice to incept such a policy from one of a number of providers and it would be unreasonable to take out a single stage premium or a staged policy with the stages taking place at the issue of proceeding or allocation to the multi-track when the same would be most unlikely to be needed and it would be unreasonable and disproportionate to invite the defendant to pay such a premium.

Conversely those acting for claimants would wish to explore and adduce evidence as to why a particular premium was elected upon, to show that the ATE elected upon fell within the spectrum of reasonable choices.

Some reasons undoubtedly would be better than others. The fact that a particular solicitors firm is tied by reason of referral arrangements to recommending a single more expensive premium or receive a large commission from the particular provider or even in the extreme case that they are the owner of the ATE insurance provider would not seem to amount necessarily to good reasons. Conversely particular features of a policy which make it attractive or an experience of reliable claims settlement or prompt administration might seem to be better reasons why a particular policy was elected upon.

With Jackson looming the point may soon become otiose as the recoverability of ATE premiums is likely to be removed by the Legal Aid Bill currently passing through the Houses of Parliament.  But in the short term at least this will prove to be one of the more contentious arguments before the District Judge.

Alternative Business Structures

This post is a newsletter which was published in August 2011.

On 6th October 2011, utilising the provisions of the Legal Services Act 2007 permitting the establishment of Alternative Business Structures, the Solicitors Regulation Authority will start licensing solicitor’s practices operating as an Alternative Business Structure, rather than a traditional law firm.

The effect of this switch is potentially seismic, in terms of its consequences for the solicitor’s profession.  But it could have particularly beneficial consequences for personal injury litigators who may otherwise struggle to cope with the imminent reforms to costs and funding intimated by the Jackson report and currently proceeding through Parliament in the Legal Aid, Sentencing and Punishment of Offenders Bill.

The purpose of this newsletter is to consider briefly some of the practicalities of the changes taking effect later this year.

An Alternative Business Structure differs from a traditional firm of solicitors owned and run by solicitors, in that practices constituted as Alternative Business Structures will be able to accept external investment and ownership of the firm maybe by non-lawyers.  Such firms will, it can be reasonably anticipated, be run as limited companies with shareholders, rather than remaining as partnerships or even LLPs.

This has been referred to, only half-jokingly, as “Tesco law” as, in the post October 2011 world, law firms may be bought or created by organisations such as Tesco in order to penetrate lucrative legal markets and create profits for the shareholders.

The idea, derived from the policy underpinning the Legal Services Act 2007, is that the creation of ABS’s will permit greater competition in the delivery of legal services and a better deal for consumers.

ABS’s, as well as acting as conventional law firms, may also constitute a multi-disciplinary partnership, with accountants, barristers, surveyors or others, also being part of the structure.

The potential to operate as an ABS might be thought to be of most relevance to large firms, with significant volumes of work, large profit streams and partners, who are eager to realise some of their equity, by “floating” the firm.  But the reforms will be of interest to all firms who need to introduce extra capital to their business.

Extra capital will be a requirement for virtually every firm of personal injury lawyers after the end of recoverable additional liabilities and, in particular, the end of the ability to recover an ATE premium.

The reason is simple.  Qualified One Way Costs Shifting, as envisaged by Jackson to provide costs protection to personal injury claimants simply will not work.

No one in their right mind who owns a house or has significant assets, will take a personal injury claim to trial in circumstances where ,on judicial whim, they might find themselves liable to pay substantial costs personally because the court holds they have, in some shape or form, acted unreasonably.

Instead, Middle England (and Wales) will seek to instruct firms of solicitors who can ensure that any potential for adverse costs is removed through BTE insurance, sourcing ATE insurance or a Trade Union indemnity or even an indemnity from the solicitor’s own firm, and can cover the disbursements, rather than requiring sums on account from their lay clients.

Firms will find a need to draw on deep pockets to meet the disbursement and cost protection requirements of their clients. Those firms who do not, will simply lose market share to those who can and will do this.

In addition, it should be noted that the additional extraneous benefits of limited company status may prove attractive in their own right: limited liability, probably a more favourable taxation regime through payment of salary and dividends, rather than salary alone and of course, the potential to sell up and realise equity in the business.

The overarching regulator created by the Legal Services Act 2007 is the Legal Services Board and it is that body which permits the Solicitors Regulation Authority to regulate ABS’s. The SRA will do so by means of a licensing regime. No licence, will mean no permission to act as an ABS.

The reforms are sufficiently radical that the SRA has recently published a completely revised Handbook, indicating how it will regulate a solicitors profession, now at least partly comprised of ABS’s.

Under the Legal Services Act 2007, all ABS’s will have to have a Compliance Officer for Legal Practice (COLP) and a Compliance Officer for Finance and Administration (COFA).  The COLP must be a lawyer and bears the responsibility for ensuring compliance with the licensing regime.  The COFA’s role is to ensure compliance with those licensing rules, which relate to the treatment of money held by the ABS and the keeping of the firm’s accounts.  The HOLP and the HOFA can be the same individual.

The new Handbook repays careful study.  It is published in hard copy by the Law Society later this month but, as with all such matters these days, the up-to-date version is to be found on the SRA webpage.

In brief, the SRA has adopted a philosophy called OFR, an acronym derived from the phrase “Outcomes Focussed Regulation”. The old Code of Conduct of 2007 is swept away and replaced with a new approach that starts with 10 Principles, which are meant to underpin all the regulatory requirements.

The finer detail is brought out through dividing the rest of the guidance into what are termed mandatory outcomes and non-mandatory indicative behaviours.

Outcomes are simply that.  They are statements of what a solicitor is expected to achieve in order to comply with the Principles, in specific contexts. Indicative behaviours are examples of the kind of behaviours which will establish outcomes and prove compliance with principles.

How is an ABS created or how is an existing firm of solicitors converted into an ABS? The steps are relatively straightforward and key points will include:

  • Setting up a limited company to sell the solicitors practice to, via a Sale Agreement.
  • Creating a Shareholders Agreement, to regulate the way that the respective shareholders do business with each other.
  • Transferring whether by assignment or novation the work in progress, bearing in mind the sensitivities of the retainer relationship.
  • Application for an ABS licence.
  • Applications for approval of the HOLP and HOFA.
  • Application for non lawyer managers of the ABS to be cleared as “fit and proper” persons to be managers of a legal practice.

Applications for licences for ABS’s will be capable of being submitted from next month to the SRA: it will be interesting to see how the first round of applications is decided and which firms take the plunge into the new era of regulation.

Clients who don’t pay their bills

The post below was originally published in June 2011 in the Costs E-journal of Ropewalk Chambers Costs team.

Litigation should run smoothly.  A lay client will be properly advised.  Substantial work will be undertaken on the lay client’s instructions.  A case will be hard fought. And it will be won. But, by definition, 50% of litigation must end unsuccessfully and at that juncture the relationship between a solicitor and a lay client is most likely to break down.  A refusal to pay fees properly due and disbursements properly incurred will occur and a solicitor may be forced to sue for fees.  This post will consider some of the common pitfalls facing a firm which has to sue a former client and consider how they may be avoided.

The starting point is to consider the retainer between the firm and the client.  This is no more nor less than the bundle of contractual terms and obligations made between the solicitor and the client.  At the most basic level it sets out what a solicitor agrees to do and what the solicitor will be paid.

A retainer does not have to be made in writing, it may be made orally or by conduct in the way that any other contract may be made.  But a firm that does not insist on a written retainer is asking for trouble and not just through a failure to prove their entitlement to remuneration.  The Legal Complaints Service passed responsibilities to the Legal Ombudsmen on 6th October 2010 but the Solicitors Code of Conduct is clear:

2.02 Client care

(1)You must:

(a)identify clearly the client’s objectives in relation to the work to be done for the client;

(b)give the client a clear explanation of the issues involved and the options available to the client;

(c)agree with the client the next steps to be taken; and

(d)keep the client informed of progress, unless otherwise agreed.

 (2)You must, both at the outset and, as necessary, during the course of the matter:

(a)agree an appropriate level of service;

(b)explain your responsibilities;

(c)explain the client’s responsibilities;

(d)ensure that the client is given, in writing, the name and status of the person dealing with the matter and the name of the person responsible for its overall supervision; and

(e)explain any limitations or conditions resulting from your relationship with a third party (for example a funder, fee sharer or introducer) which affect the steps you can take on the client’s behalf.

(3)If you can demonstrate that it was inappropriate in the circumstances to meet some or all of these requirements, you will not breach 2.02.

This rule, together with rule 2.03 is well known to every solicitor in practice.

2.03 Information about the cost

(1)You must give your client the best information possible about the likely overall cost of a matter both at the outset and, when appropriate, as the matter progresses.  In particular you must:

(a)advise the client of the basis and terms of your charges;

(b)advise the client if charging rates are to be increased;

(c)advise the client of likely payments which you or your client may need to make to others;

(d)discuss with the client how the client will pay, in particular:

(i)whether the client may be eligible and should apply for public funding; and

(ii)whether the client’s own costs are covered by insurance or may be paid by someone else such as an employer or trade union;

(e)advise the client that there are circumstances where you may be entitled to exercise a lien for unpaid costs;

(f)advise the client of their potential liability for any other party’s costs; and

(g)discuss with the client whether their liability for another party’s costs may be covered by existing insurance or whether specially purchased insurance may be obtained.

(2)Where you are acting for the client under a conditional fee agreement (including a collective conditional fee agreement), in addition to complying with 2.03(1) above and 2.03(5) and (6) below, you must explain the following, both at the outset and, when appropriate, as the matter progresses:

(a)the circumstances in which your client may be liable for your costs and whether you will seek payment of these from the client, if entitled to do so;

(b)if you intend to seek payment of any or all of your costs from your client, you must advise your client of their right to an assessment of those costs; and

(c)where applicable, the fact that you are obliged under a fee sharing agreement to pay to a charity any fees which you receive by way of costs from the client’s opponent or other third party.

(3)Where you are acting for a publicly funded client, in addition to complying with 2.03(1) above and 2.03(5) and (6) below, you must explain the following at the outset:

(a)the circumstances in which they may be liable for your costs;

(b)the effect of the statutory charge;

(c)the client’s duty to pay any fixed or periodic contribution assessed and the consequence of failing to do so; and

(d)that even if your client is successful, the other party may not be ordered to pay costs or may not be in a position to pay them.

(4)Where you agree to share your fees with a charity in accordance with 8.01(h) you must disclose to the client at the outset the name of the charity.

(5)Any information about the cost must be clear and confirmed in writing.

(6)You must discuss with your client whether the potential outcomes of any legal case will justify the expense or risk involved including, if relevant, the risk of having to pay an opponent’s costs.

(7)If you can demonstrate that it was inappropriate in the circumstances to meet some or all of the requirements in 2.03(1) and (5) above, you will not breach 2.03.

The rules form a useful checklist for what is the bare minimum of a written retainer, usually contained in a client care letter.  It is a document which is often subordinated to the status of a form, or template letter, but common failures in drafting can cost a firm thousands of pounds in fees or raise doubts in litigation over fees, which do not exist.

Common problems include:

  • A failure to spell out in clear, simple terms precisely what the solicitor is to do from start to finish.
  • A failure to include an express term entitling the solicitor to ask for monies on account of costs and disbursements, or to specify what a reasonable amount would be.
  • A failure to specify, what constitutes a fundamental breach of contract on the part of the client or good cause, entitling a solicitor to terminate the retainer and sue for their fees.
  • A failure to specify, by way of express term, an obligation on the part of a client to pay interest on costs, from a clear and settled point in time at a specified rate.

In addition to the usual features that the common-law imparts to contracts, certain peculiar features attach to the contract of atypically privately paid retainer.  First, a contract of retainer is prima facie an entire obligation, that is a non-divisible contract: the solicitor is only entitled to be paid if they perform the entire contract and, conversely, is entitled to be paid nothing if the contract comes to a premature end.  This is subject to qualification, insofar as it might be possible to argue on the facts of the case that the contract is divisible.

Secondly, whilst a client can terminate a retainer at any time, for any reason, the solicitor must do so for good cause and with reasonable notice to the client.  Hence the importance of agreeing, in advance, what would constitute events which fall within this category.

In addition to the common law, the relationship between a solicitor and his client is overlaid by the provisions of the Solicitors Act 1974: under this statute the Solicitors Code of Conduct 2007 was made, as were the prior Solicitors Practice Rules, which provide much of the minutae of the provisions governing solicitor/client relations.  The statute is, however, significant for the existence of section 65(2) which permits a solicitor to request payments on account in the case of a non-divisible retainer where:

  • The work done is contentious.
  • A reasonable sum on account is requested.
  • The client refuses or fails to pay after a reasonable time has elapsed.
  • That refusal/failure is a “good cause” where, upon reasonable notice, the solicitor may withdraw from the retainer.

The Solicitors Act 1974, in particular sections 59 to 63, provide for a particular sub-species of retainer to be made: the contentious business agreement, which is meant to benefit clients by providing a mechanism by which clients forgo the right to a solicitor/own client assessment in return for a written agreement, specifying what the solicitor will do and what the solicitor will charge.  Given the uncertainties of litigation, very few solicitors would sensibly work under such an arrangement, given the clear potential for unexpected twists and turns to require further and additional work to be done.

A solicitor sues on a bill of costs but only when the requirements of the Solicitors Act 1974 have been met.  And the first of those requires consideration as to what the innocuous word “bill” means in this context.  Pursuant to section 69 of the Solicitors Act 1974, to be a valid bill permitting an action to be brought to recover costs:

  • No action can be brought until one month has expired since the delivery of the bill of costs.
  • The bill must be signed by the solicitor or an employee on his behalf, or enclosed with a signed letter.  NB: the signature these days can be electronic.
  • The bill must be delivered either personally, or sent by post or left at the client’s business, dwelling house or last known place of abode.
  • May only be sent electronically if the client has consented to that.

The bill pursuant to section 64 may be either a gross sum bill or a bill containing detailed items.  A client has a right within 3 months of delivery of a gross sum bill of costs to require a solicitor to deliver a detailed bill which stands in place of the gross sum bill.  It cannot be used to expand the bill formerly submitted.

A particularly vexed point which arises from time to time is the question of an initial, possibly rushed bill of costs being delivered, and then a significant quantity of other work being “found” on the file.  In those circumstances, consent, or ultimately leave of the court, must be sought to amend or vary the bill.  The court will look at this, much as it would any other amendment.

Action may be brought in the County Court, or in the High Court, on the bill.  But what options face a client then?  In effect, he has a number of options.

The first, is to request a solicitor/own client assessment.  A solicitor/own client assessment takes place under section 70 of the Solicitors Act 1970 and under part 48 of the Civil Procedure Rules 1998.  A client has an absolute right to an assessment if requested, within one month of delivery of the bill, the ability to apply to the court in its discretion for an order for assessment, for a period of up to 12 months after delivery and after 12 months have elapsed, only if a client can show special circumstances, will an assessment be ordered.

The problems that a solicitor/own client assessment can create are numerous:

  • The rarity of the process.  Most solicitors will bend over backwards to avoid litigating an assessment with their client.  There are important differences between the own client process and the inter partes process.
  • Lack of objectivity.  The difficulty with arguing over one’s own fees is manifest: the solicitor may sincerely believe his bill is justified but the court may take a different view.
  • Poor file keeping and preparation.  Short form attendance notes or, even worse, claims for estimated time will permit deep cuts to be made in a bill, despite the basis of assessment, being indemnity costs.
  • The 20% rule.  If a bill is discounted by more than 20%, or more accurately, the costs to be assessed are discounted by 20%, the solicitor will pay the costs of the assessment.

The second is to defend the action either seeking a common-law assessment, whereby the solicitor must prove the reasonableness of his charges, or seeking to offset (usually) a claim for damages for alleged professional negligence.  A solicitor who delivers a gross sum bill, and where no assessment is ordered, still has to prove the entitlement to costs claimed.  Pursuant to the case of Turner.v.O Palomo SA [2000] 1 WLR 37, the court may direct that a costs judge assesses costs, or if the amount is manageable, in the context of the trial, assess them itself.

It is common for this requirement to be overlooked when directions are being made, in the context of an action for debt and a counterclaim for professional negligence.

The third is to seek an extra-judicial remedy, which can be devastatingly effective. This is to make a complaint.

The Legal Ombudsman (who has an engaging website at pursuant to section 137 of the Legal Services Act 2007, now resolves complaints against solicitors.  Each firm is allowed two “free” complaints each year, thereafter the Legal Ombudsman will charge a firm a fee of £400 per complaint to resolve it. Conversely, the disgruntled client pays nothing.

His powers are wide. He can direct pursuant to the provisions of the Act:

  • An apology.
  • Fees claimed be limited in amount.
  • Payment of compensation for distress, or inconvenience.
  • Rectification of errors, omissions and deficiencies.
  • That other action be taken at the expense of the solicitor, in the interests of the complainant.

Will disputes over fees increase?  It seems likely for a number of reasons.  The first is the current recessionary climate: lay clients, like everyone else, have every reason to challenge and haggle over fees claimed and work done.  The second is the ever tightening web of statutory regulation, which the solicitors’ profession is subject to. It has never been easier to make a complaint.  And thirdly, with the implementation of Jackson looming, and fundamental changes in the law and practice of costs, there will undoubtedly be clear scope for expensive mistakes to be made.

BTE insurance and hourly rates

The post below was published as a newsletter in November 2011. Please note that the case of Brown-Quinn is due to be heard by the Court of Appeal on 21st-22nd November 2012 and may yet reverse the decision in the Commercial Court.

The controversies surrounding the provision of an indemnity to an insured by a before the event insurer (BTE) providing legal expenses insurance (LEI) are well known.

In particular, BTE insurers try to steer their insured towards their panel firms of solicitors in order to achieve the sensible tripartite aims of (i) securing the payment of referral fees for the case (ii) keeping costs incurred under the policy to a minimum and (iii) retaining a closer degree of control on the litigation.

A recent case that of Christine Brown-Quinn -v- Equity Syndicate Management Limited and Others (2011) EWHC 2661 indicates that the iron grip of BTE insurers on which firms of solicitors may undertake work for the lay client and under what terms as to payment is perhaps weaker than popularly perceived.

The Insurance Companies (Legal Expenses Insurance) Regulations 1990 were enacted to apply directly within the United Kingdom the provisions of Article 4 of EC Council Directive 87/344/EEC made on the 22nd June 1987 which in turn has been updated as article 201 of EU Directive 2009/138 EC.

Regulation 6 of the Regulations provides:

(1)Where under a legal expenses insurance contract recourse is to be had for a lawyer (or other person having such qualifications as may be necessary) to defend, represent or serve the interests of the insured in any enquiry or proceedings, the insured shall be free to chose that lawyer (or other person).

(2)The insured shall also be free to chose a lawyer (or other person having such qualifications as may be necessary) to serve his interest whenever a conflict of interest arises.

In practical terms, the wording of Regulation 6 has been invariably argued by the providers of legal expenses insurance to indicate that the freedom of choice provisions do not arise until proceedings are issued.

As the vast majority of litigation is compromised without the need for the issue of proceedings this has presented something of a hindrance to those who wish to instruct Solicitors of their own choice at a relatively early stage.

On the 19th July 2010 and re-issued on the 12th August 2010, the Financial Services Authority wrote a letter which set out its position which went much further than the Financial Services Ombudsman had done in preceding complaints made to him.  That letter says in terms of the FSA’s opinion on the Regulations:

Under the Regulations, the freedom to choose a lawyer arises in the following areas:

(i)Principally under Regulation 6, where recourse is had to a lawyer to represent the insured in any or any inquiry or proceedings.  It is important to note that freedom of choice arises before the commencement of any inquiry or proceedings;

(ii)Whenever there is a conflict of interest;

(iii)Finally if firms have chosen the option in Regulation 5(4) where the insured is afforded the right to entrust the defence of his interest to a lawyer of his choice, then the freedom to choose a lawyer exists as soon as the right to claim under the policy arises, and cannot be curtailed.

Thus the starting point has to be now that under the domestic law an insured pretty much has the right to chose who they wish to represent them, from the date of first instruction.

Does this mean that necessarily the BTE insurer is obliged to offer full indemnity to the insured when the insured chooses an expensive lawyer or more accurately a lawyer who will charge more than panel rates agreed by the BTE insurer with its own preferred panel of solicitors?

The point is of significance in two respects.  First the nature and extent of any indemnity is to a large degree going to be governed by the terms of the contract of insurance made between the lay client and the BTE insurer and secondly even if the policy is couched in prescriptive terms in terms of such things as hourly rates this may well not avail a BTE insurer at all if to do so would practically undermine the freedom choice expressed in European Union law and given direct effect in United Kingdom law.

There have been two cases of interest on this issue this year.  In the case of Pine -v- DAS Legal Expenses Insurance Company Limited (2011) EWHC 658 the issue arose in circumstances where a lay client wished to instruct not a Solicitor of her own choice but Counsel under the public access arrangements some members of the Bar accept instructions on.

The position adopted by DAS was that they were prepared to allow (and indeed could not realistically have prevented) Miss Pine to instruct Counsel of her own choice but wished to do so through the offices of a solicitor rather than on a
direct public access basis.

The action was therefore commenced by Miss Pine seeking declaratory relief and damages for breach of the terms of an insurance policy that she had effected with DAS.  It is noteworthy that Section D of the policy in issue in the case provided this.

Extra Definitions 

The lawyer, accountant or other suitable qualified person who has been appointed to act for you in line with the terms of this section.

Costs and expenses

(a) Legal costs

(a)All reasonable and necessary costs which the appointed representative may charge on a standard basis.  Also the costs your opponents have to pay in civil cases if you have been ordered to pay them or pay them without agreement.

On the face of those provisions, subject to the limit of indemnity DAS agreed to indemnify Miss Pine, in the events which have happened, the costs reasonably and necessarily incurred by her which her lawyer charged on a standard basis for his services in acting for her in the Solicitor’s action.  The limit of the indemnity was £50,000 so the terms of the insurance policy provided that subject to that long stop provision costs reasonably and necessarily incurred was the measure of benefit to be enjoyed by Miss Pine under the policy.

The issue of whether hourly rates and the quantum of costs which would be recoverable by the insured from the BTE insurer if she chose the services of a lawyer charging more than panel rates, would be limited to hourly rates, or only by the criteria of reasonableness was thrown into stark relief by the case of Christine Brown-Quinn -v- Equity Syndicate Management Limited and Others (2011) EWHC 2661.

In that case a number of clients represented by a firm of solicitors brought proceedings for declaratory relief against two insurance companies, Equity Redstar at Lloyds and ULR Norwich in order to recover their reasonable costs of acting for the lay clients.  Interestingly the solicitors were joined as parties to the proceedings.

The dispute however had a further complication to it.  The insurers in question had both panel rates and what they called non panel rates.  As the judge noted at paragraph 5 of his judgment:

BTE insurers traditionally, as did these insurers, retain a panel of Solicitors, with whom they have been able to negotiate reasonable, and no doubt discounted or reduced, fees for acting for their insured, in return for an expectation of receiving a quantity of such work, through clients being referred to them on a regular basis.  I have not seen evidence of what these rates are, but I shall call them panel rates.

The insurers also had a further set of rates described in these terms at paragraph 7 of the judgment:

The position taken by the insurers was that, so far as outset and transfer cases were concerned, they were entitled to insist that if an insured did not wish to instruct a panel solicitor, any other solicitor of the insured choice must not charge more than the rates prescribed by their terms of appointment for  non…. panel solicitors.  These included the following provisions….

(a)An hourly rate of £125 plus VAT which is expected to be fully inclusive of any relevant mark up;

(b)Letters out and in at 1/10 and 1/20 of the hourly rate respectively;

(c)Travelling and waiting time to be charged at two thirds of the agreed hourly rate.

The costs incurred on this basis as the learned judge found at paragraph 8 were described in these terms:

There were two significant constituents:

(i)There was a fixed hourly rate irrespective of the importance or complexity of the matter;

(ii)It was a flat rate chargeable in respect of whoever should carry out the work on behalf of the firm, be it partner, associate, assistant or trainee.  The rates which WD have sought to charge are very much more than that, in respect of the claim a very substantial global investment bank for redundancy, unfair dismissal and sex discrimination  (see BQ), race discrimination, constructive unfair dismissal, victimisation, breach of part time workers regulations and breach of flexible working regulations against a very large foreign investment bank (CJ) and unfair dismissal and disability discrimination against her former employer, an educational establishment (JB).  WD put forward hourly rates for a partner or associate (grades A/B) of £274, for a Solicitor £210 and for a trainee solicitor £205.

The insurers had informed the solicitors they would not agree to their acting for the clients.  The claim was accordingly brought against the insurers pursuant to Regulation 6 of the Insurance Companies (Legal Expenses) Insurance and the relevant terms of the policy provided as follows:


Cost and Expenses

Legal and professional fees for which you are responsible, including reasonable fees, costs and expenses incurred by the appointed representative acting for you in connection with the pursuit for defence of legal proceedings (there is a limitation for such costs and expenses of a maximum of £50,000 provided for by the terms and conditions).

When matters came before the Court the issue was to what rate the insurers were obliged to indemnify the Solicitors who were instructed by the Claimants and in particular whether the Claimants are restricted to recover recovery of solicitor’s fees at the rate of £125 or £139 per hour.

The insurer’s case was predicated upon Part 48.3 of the Civil Procedural Rules which stated:

Where the Court assess (whether by the summary or detailed procedure) costs which are payable by the paying party to the receiving party under the terms of the contract, the costs payable under those  terms are, unless the contract expressly provides otherwise, to be presumed to be costs which:

(a)Had been reasonably incurred, and

(b)Are reasonable in amount and the Court will assess them accordingly.

The position noted by the judge at paragraph 18 that the insurers chose to adopt was as follows:

The Defendants do not contend that, in this case, the policy expressly provides otherwise.  They submit that by reference to the policy the starting point should be the rate of £125 (or £139) as contained in the non-panel costs and the assessment of what is reasonable should take place in the light of and by reference to those figures, effectively such that they should only be departed from if such rates can be shown to be unreasonable….

Both parties prayed in aid the case of Stark -v- DAS Oesterreich Algemeine Rechtsschutz Ver Sicherungag (2011) case C-293/10 which noted that the member states remained free to determine the body of rules applicable to legal expense insurance contracts on condition that those comply with EU Law, and in particular with Article 4 of Directive 87/344.  The Court’s conclusion was that Article 4(1):

Must be interpreted as not precluding a national provision under which it may be agreed that a person covered by legal expenses insurance may select…. only persons professional authorised to represent parties who have their Chambers at the place of the Court or administrative authority having jurisdiction at first instance, on condition that … that restriction relates only to the extent of the cover by the legal insurance provider in respect of costs linked to the involvement of a representative and that the reimbursement actually provided by that insurers is sufficient, as being a matter for the referring Court to determine.

The European Court said at paragraph 33:

Consequently freedom of choice, within the terms of Article 4(1) of Directive 87/344 does not mean that member states are obliged to require insurers, in all the circumstances, to cover in full the costs incurred in connection with the Defence of an insured person, irrespective of the place where the person professionally entitled to represent that person is established in relation to the Court of Administrative Authority with jurisdiction to deal with the dispute, on condition that that freedom is not rendered meaningless.  That would be the case if the restriction imposed on the payment of those costs were to render de facto impossible a reasonable choice of representative by the insured person.  In any event, it is for the national courts, if an action is brought before them in this regard to determine whether or not there is any such restriction.

The Learned Judge rejected the stance taken by the BTE insurers that in effect they could impose non-panel costs upon solicitors who were instructed by the claimants.  In particular terms, however it should be noted that this was a decision made within the context of the wording of the policies in this case.

Thus the statement by the High Court judge at paragraph 23 must be taken with that in mind.

I conclude that the correct position on the wording of these policies is closer to that contended for by Mr. Wynter, namely that the Claimant’s entitlement to recover legal costs (and thus WD’s expectation of receiving fees covered under the insurance policies) will fall to be assessed, in the absence of agreement under CPR 48.3, not as restricted to the provision for £139 or £125 per hour but taking it into account.

However the judge went a little bit further in paragraph 24:

It is plain from Eschig that an insured is entitled to conclude that he would rather have his own solicitor than be part of a group at discounted rates, and agree with Mr. Wynter that the analogy is a close one, though not identical to a situation in which an insured prefers to have a solicitor of his own choice rather than one imposed upon him at panel rates or non panel costs.

However, the significant difference is that as a result of the concession referred to in paragraph 16 above, the Defendants are no longer seeking to prevent the insured from taking that course, but only to pay for the consequences of doing so.  I take into account Mr. Wynter’s submissions that Stark is addressing a national legislative provision, but it was still necessary for the European Court to consider whether that provision offended against Article 4; and I find helpful the consideration referred to in paragraph 33 of the European Court’s Judgement as to whether a restriction, or in this case a Feta would render de facto impossible a reasonable of representative by the insured person.  I also take into account the commercial background of the need for availability of BTE insurance on the basis of economically viable but reasonable premiums.

The judge concluded at paragraph 25:

My judgment accordingly is that, in the absence of agreement between the insurer and the firm which will have been accepted de facto as Authorised Representative but will not have accepted the insurers non-panel costs any assessment of costs due pursuant to CPR 48 will address the non-panel costs not as a starting point but as a comparator.  As I have concluded, it will be necessary and right for the Court assessing the costs to take into account the availability of any other suitable firms on lesser rates negotiated with the insurers, but there will also fall to be taken into account and both sides can draw assistance in this regard from the words of Kennedy L.J. in Wraith -v- Sheffield Forge Masters Limited (1998) 1WLR 132 at 1.42:

 (i)The location of the chosen solicitors.

(ii)Their specialisation and in particular any special qualifications for taking on the instant claim.

(iii)The complexity of the claim.

(iv)The importance of the claim for the insured.

(v)The substance and strength of the proposed defendant to such claim.

(vi)The nature of the work to be carried out, in particular whether it should sensibly be carried out by senior solicitors or partners whose rates would inevitably be likely to be greater than the hourly rate provided for in the non-panel costs.

This to my mind leaves open a sufficient ambit for the interplay (necessary within these policy provisions) between the recovery of reasonable fees and the requirement that the insured keep the costs as low as possible.

This case then is a useful indicator not only of the breadth now to be afforded to the 1990 Regulations and their provisions as to freedom of choice for solicitors but also as indicative that when a case is obtained by non-panel solicitors who seek to  make a claim on behalf of the insured under the BTE policy, the majority, one suspects, of policies which are written at the current time providing as they do for reasonable costs to be paid by the insurer, subject to a longstop maximum of £50,000 or in some cases £100,000 mean that the solicitor is entitled to charge what could be described as their normal rate or the Court approved rate subject to the considerations noted in paragraph 25 above.

Conversely this case indicates that BTE insurers may wish to reconsider the wording of their BTE policies and in particular whether they should be writing into those policies contractually binding restrictions on hourly rates that an insured can claim under those policies whilst relying on a longstop cap of £50,000 or £100,000 or whatever the limit is set at alone.

However a caveat must be noted that were hourly rates to be set at a level which in effect rendered the choice of lawyer provisions in the 1990 Regulations otiose there is a very real risk that European Union law will be infringed as the ability to chose will be rendered meaningless if there are no solicitors who are prepared to take on the job.

Having said that, it remains to be seen if a BTE insurer could successfully use the facility in English law for solicitors to work on a contingency or conditional fee basis to argue that it provides a base level of cover in terms of hourly rates and thereafter a client is expected to “top up” their costs provision by the solicitor working on a conditional or contingency fee basis.

This could be put into place relatively easily, as it already is in many cases involving BTE cover and personal injury claims by means of a collective conditional fee agreement and, of course, “discounted” collective conditional fee agreements are lawful and indeed normal in respect of a lot of litigation carried out on behalf of insurance companies by their panel firms.

However, again it remains a very real danger that a person’s freedom of choice might be unduly restricted by provisions of this nature.   Plainly these considerations will have to await a further case before the interrelationship between the conditional fee regime contained in the Courts and Legal Services Act 1990 and European Law falls to be considered further.

Hourly rates

This post is derived from a paper that was first presented to the Association of Law Costs Draftsmen at their Annual Conference on 19th March 2010.

On the 14th January 2010 Lord Justice Jackson published his final report, his review of civil litigation costs.  The purpose of the report was to establish the causes of what are perceived to be disproportionate costs in civil litigation and to come up with proposals for their mitigation.

The report is a labyrinthine document of 584 pages including appendices.  It puts forward numerous eye catching and innovative proposals, many of which require primary legislation.  The prospect of implementation of the report is at the current time unclear.

This paper puts forward the thesis that much of the Jackson Report is actually unnecessary and a simple and rigorous empirically based approach to the issue of hourly rates on the part of costs judges, requires no primary or even secondary legislation to effect reform on the way hourly rates are calculated and used by the courts, to assess costs, yet would have the effect of making considerable progress towards making costs both more proportionate and transparent.

Fundamentally the law of costs is a subset of the law of damages.  The purpose of an award of costs is to compensate the injured party for the wrong that has been done to them whether that be a tort or a breach of contract or some other cause of action and which in turn has required them to pay for and obtain the assistance of lawyers in order to obtain just satisfaction through the legal process.

Thus any enquiry into the amount of costs which should be paid by the paying party to the receiving party must fundamentally focus on the issue of what loss or out of pocket expense the receiving party has been put to.

This principle lies at the heart of the law of costs and is termed the indemnity principle.  But just as any other enquiry into damage caused to the injured party is tempered by considerations of reasonableness and objectivity so is the law costs.

Thus an enquiry into what quantum of costs should be awarded has to take part in two stages.  First to consider what the receiving party is liable to pay or should properly pay and it is just that they should pay, followed by a secondary question as to what it is reasonably objectively to be recovered by the receiving party from the paying party on an inter partes basis.

So far so good.  But the difficulty and tension which lies at the heart of this exercise is to recognise that on a fundamental level the issue involves two complications.

The first point is to note that when enquiring on what has been agreed to be paid between solicitor and client, the market for legal services is not a single monolithic whole.

Rather, there are markets for legal services where great disparity in bargaining power between either the solicitor or the client can be observed.  For example, an insurance company as the lay client will have huge and disproportionate bargaining power when placing contracts for the provision of bulk legal services; whereas a single mother living on benefits in a council house who wishes to pursue a tripping action in the county court has no bargaining power at all in terms of the hourly rates which will be offered to her by a solicitor.

The second and fundamental point to note at this stage and which must inform any sensible discussion on any issue of costs is to recognise the market making power of the court.  The fact that there is an assessment, an award, with the coercive power of the court brought to bear to enforce any award of costs facilitates market failure.

In short, there will always be a temptation for lawyers to charge or ostensibly to charge whatever they perceive the court will allow.  Thus a gulf emerges between the court seeking to make an enquiry into what is the proper market price for legal services in order to inform its own decisions on what orders for costs and quantum of costs to allow and those who operate in the legal market who in turn will anticipate what the court is likely to allow and seek to maximise whatever recovery the court is prepared to permit.

Given that lawyers are perhaps one of the more inventive sections of society and like any other section of society would wish to maximise their income it can be observed that built into any assessment by the court to be an upward pressure on the part of those receiving the benefit of costs orders or awards to maximise their recovery.

Provided the court is mindful of this tendency and has in place appropriate machinery or mechanism to enable it to take an informed view as to what the market price for legal services is and to take due allowance for the ingenuity of lawyers, then it can focus on ensuring transparency in pricing and judge its interventions to facilitate rather then to contradict market forces, in order to maximise efficiency.

Thus on a simple level analysis anyone trying to achieve reform in the field of costs should bear in mind what could be regarded as three particular principles or lodestones to govern their efforts.

  • Where possible it is best to work with the grain of free market economics in order to maximise efficiency in this part of the economy.
  • To grasp the nettle that the any costs-shifting system has to ensure free market considerations are maximised with the market failure occasioned by the Court’s intervention minimised.
  • To seek to simplify and streamline the principles upon which costs are awarded to facilitate certainty and to remove frictional costs insofar as that is possible to do.

Solicitors charge clients on the basis of an hourly rate.  That is not the only basis upon which Solicitors may charge for their time but the widespread acceptance of time based charging owes much to the ubiquity of the hourly charge rate. As has been noted elsewhere the solicitors’ profession introduced time costing as it became increasingly clear that not all work was profitable and the aim was to see what work was being run at a profit and what work at a loss and had nothing to do with charging or indeed the former “bread and butter work” of conveyancing, which was paid on a fixed scale.

It is a familiar basis for many sophisticated purchasers of legal services as well.  Many clients accept the premise that time is money in a professional services firm and believe that time based charging is the only way of ensuring a fair day’s pay for a fair day’s work. There are many other clients whose acceptance of time based charging is a more passive acceptance:  in other words they are unaware of the alternatives or feel that they lack the necessary clout to demand a different basis for charging.

It should be noted that the more sophisticated consumers of legal services may well have a less altruistic purpose in favouring uncapped time based charging.  Such clients typically are experienced buyers of legal services or qualified lawyers in their own right and are able to assess the finesse of their legal bills by analysing their solicitors’ records of trial stand time taken and time records can be fair game for fee negotiation when the matter has been concluded.

After the event fee negotiations are heavily weighted in favour of the client who having already gained the value from the solicitors’ advice has nothing to lose by pressing for a reduced price.  Solicitors may feel compelled to give some ground in terms of pricing for fear of jeopardising the client relationship.

There are other ways upon which fees can be charged.  Fees may be calculated on the basis of expense of time but subject to a cap.  There may be fees which are fixed at arbitrary levels without regard to expense of time. Both capped and fixed fees may cause service quality to be compromised.

Success fees may be paid and are now recoverable between the parties both for contentious and non-contentious business.  But for mainstream litigation it is uncapped time based charging the hourly rate which remains the norm and which will remain the norm for many years to come.  Even the trumpeted expansion of “fixed costs” for Fast Track work, is dependent on a baseline assessment of time.v.hourly rate, in order to fix costs at an empirical level.

How should an hourly rate be calculated? From what factors can it be derived? Hourly rates have historically been calculated with clear reference to what have been described as the A element and the B element, formerly the (a) element and the (b) element. The capitalisation reflects the elevation of the twin factors in the years immediately prior to the Woolf reforms. A pithy summary of this exercise is perhaps set out most succinctly in the assessor’s advice given to Brightman J in the case of In re Eastwood [1973] 3 WLR 795 at 798 where Brightman J recorded this at paragraphs D and E:

“At the present day, on the taxation of a bill of costs of a firm of Solicitors in private practice which has been engaged in litigation on behalf of a client (the expression “firms of Solicitors” being used to include a sole Solicitor in private practice on his own account) the taxation invariably proceeds on the following basis.  The firm informs the taxing master of the period of time that has been spent by any partner or employee of the firm on any “relevant” aspect of the case; (the word “relevant” is intended to exclude time spent on a part of the case for which there is a fixed charge prescribed by statute or rule).  The firm submits (a) what is the proper costs for hours of time so spent having regard to a reasonable estimate of the overhead expenses of the Solicitor’s firm including (if the time spent is that of an employee) the reasonable salary of the employee or (if the time spent is that of a partner) the notional salary.  The firm will also submit at the conclusion of item 26 or item 27 set to in RSC Order 62, appendix 2(B) is a proper additional sum to be allowed over and above (a) by way of further profit costs.”

This method is known as the A + B method, where the A rates constituted the actual cost to the firm of doing the work and the B rate an appropriate uplift or increase marking the profit that the firm has made upon the work. The difference between the two figures in the Eastwood case was of particular importance as the receiving party’s work had been carried out by an in-house solicitor with the paying party seeking to contend that accordingly only the A rate should be recoverable. This argument was however rejected on appeal (1975 Ch 112) with Russell LJ stating that the A + B method should also be used in the case of in-house Solicitors. Interestingly the Eastwood case remains of considerable practical significance for, amongst others, the Treasury Solicitor as justification for the a lack of differentiation between their hourly rates and that of the private sector.

Since Eastwood further guidance developed on a calculation of the A + B rates most notably in the case of the former with the publication of the Law Society document The Expense of Time.  Although primarily intended to assist practice management, the guidelines provide the easiest means of calculating the A rate. It is important to note however that in any case the A rate recovered between the parties will not necessarily be the actual costs of the time of the firm. First the A rate must be reasonable within the context of firms operating within the same area.  Secondly and more importantly, the receiving party must have acted reasonably in instructing the firm of solicitors that he did.  This latter stricture has been well established for many years since the case of Wraith .v. Sheffield Forgemasters Limited [1998] 1 WLR 132 where it was emphasised by the Court of Appeal that any costs that were necessary are proper for the attainment of justice should be recoverable between the parties.  In that case it was held that the plaintiff had been unreasonable in simply going to the London firm that was used by his Union.  Reasonableness remains an issue to be assessed upon the facts of each individual case.

The Wraith case is increasingly one of those judgments which remains notionally good law, but is increasingly disregarded in practice: most costs judges seem to accept the argument that for most litigants, the geographical location of their solicitor is an irrelevance, with the availability of funding mechanisms and appropriate expertise more important considerations, particularly as in, for example, low value personal injury litigation a client will never visit his solicitors offices. Just as banks and insurance companies operate over the internet, and through letters and telephone calls, so do solicitors.

In comparison, calculating the B rate is a somewhat more complicated exercise as it encompasses all of the imponderables such as the difficulty of the case and the degree of care and skill involved. The standard B figure is a 50% increase on the A rate although this could be adjusted up and down in accordance with the factors now listed at Rule 44.5(3) of the Civil Procedure Rules 1998.  These factors, colloquially known as the 7 Pillars of Wisdom form a set of ostensibly objective criteria upon which the imponderables of any case fall to be assessed. It should be noted that the 7 pillars themselves could be open to criticism due to the degree of overlap between them and other areas or within them not least the amount of time spent and the place where work was done.  The factors should accordingly be borne in mind when calculating the B rate.

The system of A + B calculation had much to commend it.  The first point was to note that it operated as a practical application of the principle of subsidiarity.  In effect, local rates could be applied by local courts with judges using their local knowledge and expertise to determine what appropriate A rates to allow. In circumstances where many district judges will have been solicitors in private practice, who often will have sought appointment as close as they reasonably can, to where they have spent many years living and working, the district judge would have a very good grasp of what the A rate should be based upon their previous professional experience.

Equally, assessing the difficulty of a case and the issues that it throws up together with gaining an understanding from the litigation involved is a matter classically for the court and guided by the 7 pillars of wisdom a B rate could be arrived at on the basis of calculations that were l be assessed upon an objective basis.

Since, however, 1999 this system has become obscured both by introduction of the Civil Procedure Rules 1998 which tore up scales for costs, and the introduction of new conventions including the abolition of A + B calculation and the introduction of single composite rates.  This was an innovation of the then Lord Chancellor, Lord Irvine.The price of innovation in this case has been very high.  The single most stark failure of the Woolf reforms is the failure to control costs and indeed there was a marked increase in costs which followed from the introduction of the reforms on 1st April 1999.

Why was that? Leaving aside the vexed questions of ATE premiums and CFA success fees constituting additional liabilities recoverable from the 1st April 2000 a year later, it should be noted that in particular in the context of CFA success fees these only act as a multiple to the underlying base costs.

What Woolf did, with the introduction of a half written set of rules, was to effectively demolish the mechanism for the consideration and assessment of costs, and failed to put into place effective controls on costs. The concept of proportionality, for example, presented a real opportunity, if the concept had been properly thought through and formed part of the grain of redrafted costs rules, to control costs. But it never was. It follows that the current rage against success fees is only part of the problem, and in many ways, forms the tip of the iceberg: if the calculation of base costs is disproportionately high then in fact the percentage uplift only adds more fuel to a fire that is already raging out of control, to mangle metaphors.

The current approach of the court is markedly different to what took place in the period prior to 1999.  In particular it should be noted that the introduction of summary assessment requiring the consideration of hourly rates, not at the end of a case but part way through it, led in turn to the publication of Guideline Hourly Rates principally for use in summary assessment but which have de facto morphed into hourly rates to be used for the litigation as a whole. Although these rates are of their very nature and nomenclature only guidelines as to what should be allowed, they are in reality regularly used at detailed assessments not least because they save the costs and expense of conducting a full A + B calculation. They also form a de facto tariff for settlement: costs lawyers like all lawyers thrive on certainty and if the perception is that these rates are material for a detailed assessment of costs, then for every case that fights to assessment, 100 will settle working on the assumption of the published hourly rates.

The question of reasonableness in accordance with Wraith criteria still remains but now once it has been accepted by the selection of the firm used was reasonable their rates are assessed according to the guideline figures with departures from the figure in either direction being justified by reference to the 7 pillars of wisdom. The departure from the A + B approach is further supported by the current Senior Court Costs Office Guide which advocates the use of single charging rate.  This rate will in the majority of cases be that which the solicitors have agreed to charge the client but equally it should be noted that what the solicitors have agreed to charge the client will be informed what the guide says! The guide further emphasises the fact that the guideline figures referred to above are just that and they should not be a substitute for accurate local knowledge.

This is not to say that the use of A + B rates is entirely dead as is illustrated by the case of Higgs .v. Camden & Islington Health Authority [2003] EWHC 15.  This was an involved case of clinical negligence, solicitors charging a very high hourly rate and using specialist counsel.  At first instance the costs judge had sought to justify the solicitors’ hourly rate using the A + B method but this approach was objected to by the paying party who appealed to the High Court.  The appeal court stated that although the CPR and the costs Practice Direction discouraged the use of an A + B calculation the judge had not misdirected himself in carrying out such a calculation for the figure claimed.

It should be noted that one of the most damaging effects of a single composite charging rate has been to obscure the difference between overhead the A factor and profit the B factor.  A transaction paid for by a client, who retains a solicitor involves those solicitor’s charges containing both elements of overhead and profit to the solicitor.

What the outside world, and for these purposes the outside world constitutes the paying party and the costs judge, sees however is that the former transparency which applied no longer applies.

In particular terms it should be noted that there is the opportunity for solicitors who are astute or assiduous at driving down their own costs base to decrease the cost to them of the A factor, claim in their bills the single composite hourly rate which may be reflective of the guideline hourly rate established for the purposes of summary assessment and the issue as to how much profit they are making in terms of the B factor never sees the light of day.

It should be emphasised that there is nothing wrong with a solicitor doing this.  The solicitor is simply operating within the constraints of the current system.  However, it means that there is an opacity to the question of hourly rates which leads to suspicion which may or may not be justified due to the lack of hard empirical evidence on this point that hourly rates are far too high.  What is plain as a pikestaff is the lack of transparency in the A + B calculation together with the ossification of local knowledge as to what is a proper A factor to allow in solicitors’ bills and thus to consider in turn whether the B factor which is claimed is commensurate with a fair profit preserving the principle of proportionality and access to justice simply cannot be achieved.

If there is one area which needs to be grasped fundamentally, although it is not “sexy” or dynamic nor requiring primary legislation to achieve, it is the notion of an accurate gauge being applied to what solicitors’ A factors are and what is a proper level of B factor in any given case. Otherwise the court does not have the tools to take cognisance of market forces and to mitigate market failure.

There is a significant point being made that hourly rates are at the current time too high in the context particularly of personal injury litigation.  The reason that this can be put forward as a hypothesis which requires due consideration is not hard to discern. The first point to note is that in a simple piece of personal injury litigation run, for example, on the one hand by a panel firm of solicitors acting for one of the major insurance companies and a panel firm of solicitors instructed by a client through a trade union, the disparity between the hourly rates can be as much as 100%.

In terms of disparity, I am of course referring to the actual rates which are likely to be recovered because it should be noted that the mechanism of conditional fee agreements may be being deployed by both sides in such a hypothetical piece of litigation: which further illustrates the issue of market failure in this area.  In practical terms, the collective conditional fee agreement of a firm retained by an insurance company, is likely to provide for a low hourly rate of £100 per hour or thereabouts for the conduct of litigation or defensive litigation which is “lost”, or if the litigation is “won” then the recoverable hourly rate is to be the guideline rate published by the court for the area where the litigation takes place.  Thus the divorce between the A and B factors can be seen to be complete.

Conversely, under an ordinary collective conditional fee agreement made between the trade union, injured person and Solicitor the hourly rates which would typically be claimed in that agreement will reflect the guideline hourly rates for the court where the litigation is taking place together with an uplift or additional liability of a success fee which will vary from any figure up to 100% to reflect both the nature of the work and the time at which any litigation might be compromised. But the hourly rate contained within the collective conditional fee agreements on both sides, particularly if the collective conditional fee agreements are CCFAs “lite”, whereby the emphasis is that the solicitor will simply charge what is recovered from the other side indicates the market is shaped by the courts’ market making power as to what is a fair hourly rate to allow between the parties.

The further argument that hourly rates, particularly in the context of personal injury litigation are out of kilter also flows from the reform if not revolution that has taken place in the conduct of personal injury litigation over the last 10 to 15 years. The various factors which are obvious to anyone who practices in this field include the deskilling of personal injury litigation through, for example, lower grades of fee earner being given more responsibilities, albeit that they are usually backed up by a case management system replete with precedents, documents and standard forms.

Secondly, and related to the first point, it can be argued that there is an increasing reliance on information technology to create efficiencies, time savings and hence costs savings which would otherwise serve to reduce the A factor, but which are now comfortably subsumed within a composite hourly rate and hence have “leaked” unspotted into the B factor. Thirdly, but pushing the other way, a pressure which serves to distort the A factor, is the practice of the payment of referral fees which represents a business overhead for solicitors which must be incorporated into the A factor.

Fourthly, the lack of empirical evidence to support the hourly rates which are claimed.  If one were to pose the question why is a particular hourly rate for a particular fee earner in a particular group of courts pitched at a certain figure, and how much of that is overhead and so much of it is profit, it would be very difficult indeed to see on what basis an answer which had objective credibility would be forthcoming.

The final point to note is the effect of Rule 44.5.  In effect this rule which is now applied to hourly rates per se is of course peculiarly related to the B factor on a historical basis. But it is used as part of a springboard in order to argue for ever increasing hourly rates particularly in the context of litigation which runs some way removed from the norm. It should be noted that particularly in the context of personal injury litigation for those who operate on actual or de facto CFA lite terms, there is no benefit to understating the hourly rates nor indeed to shielding the client from it in circumstances where the client never ever has to pay for the Solicitors’ professional services.

In summary, if one wishes to draw together the threads of what is the actual problem in relation to hourly rates going forwards into the second decade of the 21st Century they can be summarised as three particular points.

The first point is the conceptual and practical one of the blurring of A + B elements.  If the court is serious about introducing or re-introducing transparency and controlling costs, then it has to separate out overhead and profit so that it has the raw material upon which to employ any objective assessment.

The second particular problem is the lack of data and the lack of systemisation in terms of the review of hourly rates.  Without a broad based empirical study into what it costs to litigate it is difficult to see how hourly rates will ever be anything other than arbitrary figures divorced from market reality.

The third point is that the failure to apply a uniform system across the country or jurisdiction, requiring the courts to apply informed consideration to the issue of hourly rates, albeit with regional and local assessment of applicable rates, means that there will be a failure to achieve consistency of approach not only on a national basis but also between cases, at a regional or local level due to the current crudity of the assessment of guideline hourly rates.

It is against this backdrop that I turn to consider whether the reports of Lord Justice Jackson published in May 2009 and January 2010 will cut the Gordian knot and achieve what should be one of the easiest conceptually, of reforms to achieve requiring as it does no overarching legislation to do so.

It is interesting to note that in terms of guideline hourly rates the Association of British Insurers commissioned a consultancy firm to undertake an independent assessment of the market for personal injury solicitors to compare marketing costs across different sectors and to assess whether reducing guideline hourly rates could have serious implications for access to justice. That consultancy firm apparently concluded that unlike in normal competitive markets where marketing costs are subject to constraints imposed by consumer behaviour and the personal injury claims market this constraint does not exist because claimants are protected from the costs incurred by their own solicitor.

This is likely to lead to marketing costs incurred by solicitors to be much higher than in a range of other sectors with the result that a reduction in hourly rates for claimant personal injury solicitors would reduce the amount spent on marketing but would be unlikely to have a significant impact on access to justice.

Conversely, within the same section of the Final Report, it is firmly put forward by one firm that arguments that claimants’ solicitor’ costs in the context of personal injury litigation are excessive and disproportionate is specious.  The ways in which claimants’ and defendants’ costs operates are not analogous in any way.  Defendants’ solicitors take on volume work which comes in on a regular basis; they are paid whether they win or lose.

They take cases on at a later stage when decisions have been made on liability and quantum.  This is not the case for claimants’ solicitors who have very little information at the outset and have to carry out investigations and incur expenses before assessing whether there are reasonable prospects of success. Other firms of solicitors have put forward arguments on the other side of the table to suggest the defendant’s solicitors are obliged to charge what the market can stand where there is no discernible market pressure on claimants’ solicitors.

Interestingly at paragraph 2.17 it is noted that the Liverpool District Judges, who appear as significant actors in the report, are cited as saying that more research is needed in order to determine what appropriate guideline hourly rates should be.

They note there has been a tendency to increase rates each year broadly in line with inflation without reference to solicitors’ overheads and profit margins.  Proper evaluation of the actual costs to solicitors and barristers of carrying out their instructions is needed and it is put forward that as regards solicitors there may be merit in returning to the old A + B formula with (in addition) greater clarity of the basis upon which barristers’ fees are charged.

Lord Justice Jackson is certainly aware of the problem.  In a sense he puts the matter off for another day.  He states at paragraph 3.9 that the level of guideline hourly rates is a critical element in the civil justice system but the proper body to review and revise the guideline hourly rates is a Costs Council which he sets out in Chapter 6 of his report.

He makes the point that he does not set out a proposed set of guideline hourly rates, instead he recommends a new mechanism for setting guideline hourly rates and draws attention to some of the factors which should be taken into account. He suggests that the aim of the guideline hourly rates should be to reflect market rates for the level of work being undertaken.  These would be the rates which an intelligent purchaser with time to shop around for the best deal would negotiate.

It says that the guideline hourly rates are blended rates unlike the old A + B rates which were formerly used, therefore as their name suggests they should only be guidelines or starting points with a judge on a summary assessment moving up or down from those rates as appropriate.

He also sets out a number of questions that the Costs Council may have to consider including whether there is any justification for paying city rates to firms of Solicitors which choose to set up in the City of London but are not doing City work, what reduction there should be in hourly rates for personal injury work if referral fees are banned or capped and if one takes defendant hourly rates as representing a reasonable rate set by the market in certain areas of civil litigation, what factors justify higher rates to claimants’ solicitors and what allowance should be made for those factors.

He does not say whether the intelligent purchaser is to be judged to be the single mother living on a council estate who wishes to pursue her tripping claim in circumstances where she takes the rates that are on offer or not at all or an insurance company who with the promise of thousands of cases has been able to negotiate £100 per  hour with its panel firms of solicitors, the point being that the markets in personal injury litigation are quite distinct.

The failure to grasp the nettle of hourly rates is the most glaring omission in Lord Justice Jackson’s Report.  In practical terms hourly rates levied in the county court are either rates agreed by insurers with their panel firms of solicitors who either take the rates on offer or fail to take first place in the beauty parade when tendering for work when insurers jig or re‑jig their panel firms of solicitors, or they represent the maximum that claimants’ solicitors feel that a costs judge will allow.

In the one case there is a market based on inequality of bargaining power and in the other there is no market in any recognised sense of the word.  The market is made by the court who alone dictates what in theological terms might have been called without conscious irony “the just price”.

The failure to require firms to lodge expense of time calculations, or for judges to educate themselves upon what it really costs a firm of solicitors to operate an hour of fee earners’ time continues.

Similarly, the question that must be asked sooner or later is what do the judges regard as an appropriate amount of profit to allow on top of overheads?  They must ensure that the solicitor is adequately remunerated but also that a disproportionate burden is not put upon the tax payer or of those who pay insurance premiums.

Perhaps more damagingly it should be noted that there is now a proposal to fix costs, particularly in relation to Fast Track cases, but the fixed costs which are proposed are derived from costs currently claimed which are essentially plucked out of the air and have been devoid of any reliable empirical basis since at least the mid 1990s.

In reality what is required is an “expense of time” style exercise in order to determine how much it is costing the claimants’ firms of solicitors to run these cases and for the court to accept that the only ceiling on the market rate of costs is what the court will contemplate.

With the removal of additional liabilities it remains to be seen whether a defendant’s solicitor will be able to recover the enhanced court approved rates allowed under their collective conditional fee agreements or whether they will be limited to lower rates of £100 per hour or thereabouts which are commonly negotiated with panel firms by insurers.

Accordingly, drawing the threads of this paper together, in effect 3 particular points can be said to represent what it is anticipated might be the conclusions of the issues under discussion.

The first is that although hourly rates do not represent the topic at the head of Lord Justice Jackson’s list, they are of vital importance because unless base costs can be arrived at a level which represents both proportionality and enhancing or ensuring access to justice, the fixed costs derived from the hourly rates currently in use are irredeemably flawed.

Secondly, if there is any area where empirical evidence is required, it is this area and the courts have more than sufficient opportunity to undertake the gathering of empirical data and to judge for themselves what constitutes proper levels of overhead and profit and to ensure that fees are cast with the considerations in mind.  At the moment the system is out of control, because there is no systematic approach to data gathering.

The third and final point to note is that in many ways some of the more enthusiastic reforms of the last 10 years have proved to be contra to what they were intended to do.  Woolf failed to control costs in civil litigation.  The recoverability of success fees in ATE premiums is now in the view of the senior judiciary a Bad Thing the pendulum has swung too far.

Similarly, the abolition of A + B charging, has also abolished the discipline and transparency that that requires, this can clearly can be seen to be a key area where the courts have effectively abdicated control over the issue of costs.

If this is a “once in a generation” opportunity to regain control of the cost of justice and if the courts are serious about controlling costs, then the nettle of hourly rates is one that must be firmly grasped.


Welcome to my new costs blog.

The concept is very simple. From time to time, I shall update this blog, placing on it longer articles, which I hope will be of general interest, on a variety of topics which might be of use, to those who practice in costs.

I shall also re-publish the articles I have published in the last few years, in my chambers newsletters, and elsewhere where I have retained the copyright.

In addition, as 2012 rolls into 2013, I anticipate that the blog might need to be regularly updated, to reflect upon and comment on the package of measures known as the Jackson reforms, which promise a sea change in the law and practice of costs.

I will not discuss the details of individual cases I am instructed in, on this blog.

Neither will I comment publicly on specific queries for reasons of confidentiality and prudence.

I will also retain a firm editorial control of this blog and whilst welcoming people’s comments, offensive comments by “trolls”, will be sternly dealt with.

Please subscribe to the blog: from time to time, emails will be sent out telling you when it is updated, or when a particularly significant decision in the field of costs has been handed down.