Solicitors and their bills

I have thought increasingly frequently in the last couple of years, about writing a book on solicitor-own client disputes a particularly interesting area of costs work, and uniquely painful for the solicitors who find themselves embroiled in a vulgar dispute with their own client about their fees.

Most solicitors never escalate a dispute with their client about their fees and many clients are reluctant to embark upon the uncertainties of a solicitor -own client assessment : if queries are raised, then a deal is usually struck which both sides are prepared to live with.

But sometimes it happens, and what has emerged in several solicitor-own client disputes I have seen in the last year, is the failure of the solicitors firms in question to appreciate the need to send their client a proper bill that complies with the formalities of the Solicitors Act 1974, or even to appreciate whether they are asking their client for monies on account, or sending an interim statute bill.

Most firms send their clients short form invoices. But are those invoices interim statute bills or invoices for payments on account? The question whether a bill is to be regarded as an interim statute bill or an invoice for payment on account is always an issue of fact in respect of each case.

The starting point is always the retainer which will often expressly state whether an interim invoice is to be regarded as an interim invoice on account or an interim statute bill. Assuming that the bill is a proper statute bill, a danger lurks in the 1974 Act, in that if the bill fails to comply with the provisions of the Act, then no bill for the purposes of the Act has been delivered and any action on it is likely to be a nullity.

Section 69 (1) of the Solicitors Act 1974 precludes any action from being brought to recover any cost due to a solicitor before the expiration of one month from the date on which a bill of those costs is delivered in accordance with the requirements mentioned in subsection (2).

Those requirements are that the bill must have been signed in accordance with section 69 (2A) and must’ve been delivered in accordance with section 69 (2C) in that it was delivered to the party to be charged the bill personally, or was delivered to that party by being sent to him by post to or left him at his place of business dwellinghouse or last known place of abode or it was delivered to that party by means of an electronic communications network.

The difficulty with some bills that I see is whether the bills contain a “sufficiency of narrative” to be statute bills, which is not a statutory requirement per se but rather a requirement that the courts have constructed when looking at section 69 and its predecessor statutory section.

In Carter Ruck (a firm).v.Mireskandari [2011] EWHC 24 (QB)  Mrs Justice Swift comments on some of the earlier authorities. The crucial point to note is that she applied a test formulated originally by Lord Justice Ward where he explained that the burden on the client under section 69 (2E) of the 1974 act to establish that a bill for a gross sum in contentious business is not a bill bona fide complying with the Solicitors Act 1974 is satisfied if the client shows that there is no sufficient narrative in the bill to identify what it is his being charged for and that he does not have sufficient knowledge from other documents in his possession or from what he has been told reasonably to take advice whether or not reply that bill to be taxed.

The classic example of an insufficient narrative is something like “For professional services supplied”.

But on the authorities, the deficiencies in the narrative could probably be satisfied by setting out what documents the client has and what he was told to show that he did know sufficient about the incurrence of fees, whether or not to apply for the bill to be taxed. In this scenario, a set of explanatory letters and good quality attendance notes will be crucial.

The Aarhus Convention and costs

The case of R versus Environment Agency and others (Number 2) (2013) UK SC 78 is perhaps now the leading case on the application of the Aarhus Convention in domestic law insofar is that convention is concerned with questions of cost. The Aarhus Convention requires that proceedings to which it applies should be “fair, equitable, timely and not prohibitively expensive”.

Although the Convention is not directly applicable in domestic law the same requirements have been incorporated into European Union directives relating to environmental impact assessment and integrated pollution prevention and control.

Quickly recapping the litigation concerned a cement works in rugby, Warwickshire. The environment agency had issued a permit to continue operations with an alteration in its fuel from coal and petroleum coke to shredded tyres.

This decision enraged the public who started a public campaign, one such opponent being a local pressure group engagingly called “Rugby in Plume”. The litigation proved a disaster for the claimant who lost in the High Court and the Court of Appeal and then ultimately in the House of Lords, though curiously at a late stage in the Court of Appeal the claimant was substituted for another individual. To get to the House of Lords, she was obliged to put down £25,000 as security for costs.

On 18 July 2008 costs of the appeal in the House of Lords were ordered against the claimant in favour of the Environment Agency and the Secretary of State who then claimed a total sum of just over £88,000.The problem created for a litigant of modest means who pursues an appeal is plain and obvious: the costs that may be incurred even if assessed down to what the court considers reasonable and proportionate may yet prove to be prohibitively expensive for an individual.

In those circumstances how is the court to give effect to the United Kingdom’s international obligations to ensure that environmental litigation is not “prohibitively expensive”?

As is well known on 1 April 2013 there was an amendment to the civil procedure rules to deal precisely with this issue. In relation to claims in the High Court for judicial review to limits were set on the costs recoverable from a claimant by defendant of £5000 with the claimant is an individual and £10,000 in any other case and on the costs recoverable by claimant from a defendant a limit of £35,000

For appeals a new rule was added in CPR 52:

Orders to limit the recoverable costs of an appeal

Rule 52.9A

(1) In any proceedings in which cost recovery is normally limited or excluded at first instance, an appeal court may make an order that the recoverable costs of an appeal will be limited to the extent which the court specifies.

(2) In making such an order the court will have regard to-

(a) the means of both parties;

(b) all the circumstances of the case; and

(c) the need to facilitate access to justice.

(3) If the appeal raises an issue of principle or practice upon which substantial sums may turn, it may not be appropriate to make an order under paragraph (1).

(4) An application for such an order must be made as soon as practicable and will be determined without a hearing unless the court orders otherwise

In the Supreme Court the Costs Practice Direction Number 13 was amended with effect from November 2013 to include a specific provision for “an order limiting the recoverable costs of an appeal in an Aarhus convention claim”.

Canny observers will note that whilst in proceedings at first instance the rules make it easy to determine what an individual’s costs liability will be both in terms of their own costs and cost they may be ordered to pay for example a local authority, the position is more open textured once one goes to the Court of Appeal and potentially above.

In those circumstances how is the discretion given to the court by the rule and the practice direction to be exercised. The answer seems to lie in a judgement of the European Court of Justice in the Edwards case reported as Edwards versus The Environment Agency (number 2) (case C-260/11) (2013) 1WLR2914. As noted by the Supreme Court the substantive guidance was set out in full:

40 That assessment cannot, therefore, be carried out solely on the basis of the financial situation of the person concerned must also be based on an objective analysis of the amount of the costs, particularly since, as has been stated in paragraph 32 of the present judgement, members of the public and associations are naturally required to play an active role in defending the environment. To that extent, the cost of proceedings must not appear, in certain cases, to be objectively unreasonable. Thus, the cost proceedings was neither exceed the financial resources of the person concerned nor appear, in any event, to be objectively unreasonable.

41 As regards the analysis of the financial situation of the person concerned, the assessment which must be carried out by the national court cannot be based exclusively on the estimated financial resources of an average applicant, since such information may have little connection with the situation of the person concerned

42 The court may also take into account the situation of the parties concerned, whether the claimant has a reasonable prospect of success, importance of what is at stake for the claimant and for the protection of the environment, the complexity of the relevant law and procedure in the preferred potentially frivolous nature of the claimant its various stages.

43 It must also be stated that the fact, put forward by the Supreme Court of the United Kingdom, that the claimant has not been deterred, in practice, from asserting his or her claim is not in itself sufficient to establish that the proceedings are not, as far as the claimant is concerned, prohibitively expensive for the purpose (as set out above) of directives 85/337 and 96/61.

44 Lastly, as regards the question whether the assessment as to whether or not the costs are prohibitively expensive ought to differ according to whether the national court is deciding on costs at the conclusion of first instance proceedings, an appeal or a second appeal, an issue which was also raised by the referring court, no such distinction is envisaged in directives 85/337 and 96/61, nor, moreover, would such an interpretation be likely to comply fully with the objective of the European Union legislature, which is to ensure wide access to justice and to contribute to the improvement of environmental protection.

45 The requirement that judicial proceeding should not be prohibitively expensive cannot, therefore, be assessed differently by national court depending on whether it is adjudicating at the conclusion of first instance proceedings, an appeal or second appeal

The Supreme Court summarised the points which could be extracted from the European Court of Justice’s judgement in the following way:

  • First the test is not purely subjective. The cost of proceedings must not exceed the financial resources of the person concerned nor appear to be objectively unreasonable, at least in certain cases (the meaning of the latter qualification is not immediately obvious, but it may be better expressed in the German version meaning simply in individual cases). The justification is related to the objective of the relevant European legislation referred to in paragraph 32 of the judgement which is to ensure that the public plays an active role in protecting and improving the quality of the environment.
  • The court did not give definitive guidance as to how to assess what is objectively unreasonable. In particular it does not in terms adopt Sullivan LJ’s suggested alternative of an objective assessment based on the ability of an ordinary member of the public to meet the potential liability for costs. While the court did not apparently reject that as a possible factor in the overall assessment, exclusive reliance on the resources of an average applicant was not appropriate, as it might have little connection with the situation of the person concerned.
  • The court could also take into account what might be called the merits of the case: that is in the words of the court whether the claimant has a reasonable prospect of success, importance what is at stake for the claimant and the protection of the environment, the complexity of the relevant law and procedure, the potentially frivolous nature of the claim that its various stages.
  • That the claimant is not in fact been deterred from carrying on the proceedings is not in itself determinative.
  • The same criteria are to be applied on appeal as at first instance.

In the event the Supreme Court limited the costs which had to be payable by the losing party to the £25,000 which she had already provided as a term of pursuing her appeal to the House of Lords. An excellent example of the judgment of Solomon, in the context of environmental litigation. Given that the amendments to the civil procedure rules have largely overtaken the issues in this litigation, the focus of the judgement will be undoubtedly on cases that proceed to the Court of Appeal.

Although certainties provided by the fixed costs prescribed by the rules deal with the position in the High Court one has to view with unease the potential arbitrary nature of any Order provided by the Court of Appeal and the scope that this might create for tactically stifling any appeal which does not proceed with the benefit of for example legal aid funding.

 

Debt collection and damages based agreements

We live in exciting times. From 1st October 2015, the SRA will gracefully relinquish its role in regulation firms which act in the debt collection market, and pass the baton onto the Financial Conduct Authority (FCA). “Debt collection” is now a portfolio term, which covers many activities only tangentially related to sweating cash out of people.

Solicitors in this field are already anxiously considering the regulatory position, and how regulation under the FCA will differ from the lighter touch currently applied by the Solicitors Regulation Authority (SRA).

Another issue, that frequently arises in the debt collection industry, is the retainer used by solicitors when pursuing debt recovery action.

Damages based agreements (DBAs) are (or rather should be) ideally suited to use by solicitors acting in bulk claims for institutional clients on a contingency basis, taking as their remuneration a share of the funds recovered, their fees directly and proportionately aligned to the sums in dispute and their remuneration in perfect accord with the interests of their client.

However it does not work like that. Of all the reforms implemented in 2013, cases involving damages based agreements which have landed on my desk have caused the biggest problems.

Even assuming an agreement is drafted which complies with the requirements of the Damages Based Agreements Regulations 2013, the agreement’s use can prove problematic, in at least three aspects.

The first is the fact that the concept of the Collective Damages Based Agreement, is absent from the regulations. No one is sure whether you can have a single agreement which applies to 10,000 individual debt recovery claims, and even if you theoretically can, drafting such an agreement to comply with the obligation to specify the proceedings to which it relates could prove problematic.

A second problem, is that if a client decides to dispense with a solicitors services half way through the case, unlike the position under a CFA, which can contain comprehensive provisions for the solicitor to be paid immediately on termination of the retainer, a DBA may not contain such provisions, due to the restrictions on payment in the regulations.

Thirdly, and perhaps most importantly, the adoption of the Ontario model, can act perversely. A £15,000 debt claim where the fee under a DBA is set at 25% of the sums recovered, can act to cap the solicitors fee at £3750 as such agreements are subject to the indemnity principle. This  could problematic, if that claim is disputed, allocated to the Multi-track and concludes at trial, after £20,000 of time is spent pursuing it.

In the meantime, the regulations are being reviewed by the Ministry of Justice.

The 2013 Regulations may be scrapped and there is even talk of dispensing with the Ontario model, in favour of a hybrid CFA/DBA retainer. But there is no timeframe that I can discern as to when or if this will come to pass.

So what is the solution in the interim? I generally advise my clients to pass swiftly over a damages based agreement as an option, and instead utilise a Collective Conditional Fee Agreement Lite, which provides through a series of carefully drafted waivers, that the client remains liable to pay the solicitors fees and disbursements, but the solicitors waive the right to enforce their claim to those sums, to the extent they exceed 25% of the damages recovered.

A tried and tested formula, which ensures that the solicitors get paid, either out of costs or sums recovered, and the client retains at least 75% of the proceeds recovered for him.

Are fixed costs optional on the Fast Track?

I have very fond memories of part 45: right from the start of the introduction of fixed recoverable costs, it has proved a bone of contention and a fruitful source of satellite litigation. I am therefore unsurprised to note that the modern post 2013 incarnation is continuing to create problems.

The principal problem at the moment, concerns the relationship between part 36 and the fixed costs for claims which fall out of the various Portals, and which are prescribed by part 45.

If a claimant succeeds in beating his own part 36 offer at trial, is he still limited to the fixed costs prescribed by the rules, or does he receive indemnity costs, calculated and summarily assessed on the familiar hourly rate basis?

There is an intriguing ambiguity in the rules.

Rule 36.17 provides as follows:-

(1) Subject to rule 36.21, this rule applies where upon judgment being entered—

(a) a claimant fails to obtain a judgment more advantageous than a defendant’s Part 36 offer; or

(b) judgment against the defendant is at least as advantageous to the claimant as the proposals contained in a claimant’s Part 36 offer.

(Rule 36.21 makes provision for the costs consequences following judgment in certain personal injury claims where the claim no longer proceeds under the RTA or EL/PL Protocol.)

(2) For the purposes of paragraph (1), in relation to any money claim or money element of a claim, “more advantageous” means better in money terms by any amount, however small, and “at least as advantageous” shall be construed accordingly.

(3) Subject to paragraphs (7) and (8), where paragraph (1)(a) applies, the court must, unless it considers it unjust to do so, order that the defendant is entitled to—

(a) costs (including any recoverable pre-action costs) from the date on which the relevant period expired; and

(b) interest on those costs.

(4) Subject to paragraph (7), where paragraph (1)(b) applies, the court must, unless it considers it unjust to do so, order that the claimant is entitled to—

(a) interest on the whole or part of any sum of money (excluding interest) awarded, at a rate not exceeding 10% above base rate for some or all of the period starting with the date on which the relevant period expired;

(b) costs (including any recoverable pre-action costs) on the indemnity basis from the date on which the relevant period expired;

(c) interest on those costs at a rate not exceeding 10% above base rate; and

(d) provided that the case has been decided and there has not been a previous order under this sub-paragraph, an additional amount, which shall not exceed £75,000, calculated by applying the prescribed percentage set out below to an amount which is—

(i) the sum awarded to the claimant by the court; or

(ii) where there is no monetary award, the sum awarded to the claimant by the court in respect of costs—

Amount awarded by the court Prescribed percentage
Up to £500,000 10% of the amount awarded
Above £500,000 10% of the first £500,000 and (subject to the limit of £75,000) 5% of any amount above that figure.

(5) In considering whether it would be unjust to make the orders referred to in paragraphs (3) and (4), the court must take into account all the circumstances of the case including—

(a) the terms of any Part 36 offer;

(b) the stage in the proceedings when any Part 36 offer was made, including in particular how long before the trial started the offer was made;

(c) the information available to the parties at the time when the Part 36 offer was made;

(d) the conduct of the parties with regard to the giving of or refusal to give information for the purposes of enabling the offer to be made or evaluated; and

(e) whether the offer was a genuine attempt to settle the proceedings.

(6) Where the court awards interest under this rule and also awards interest on the same sum and for the same period under any other power, the total rate of interest must not exceed 10% above base rate.

(7) Paragraphs (3) and (4) do not apply to a Part 36 offer—

(a) which has been withdrawn;

(b) which has been changed so that its terms are less advantageous to the offeree where the offeree has beaten the less advantageous offer;

(c) made less than 21 days before trial, unless the court has abridged the relevant period.

(8) Paragraph (3) does not apply to a soft tissue injury claim to which rule 36.21 applies.

(Rule 44.2 requires the court to consider an offer to settle that does not have the costs consequences set out in this Section in deciding what order to make about costs.)

Rule 36.21 which must be read in conjunction with rule 36.17 reads:

(1) Where a claim no longer continues under the RTA or EL/PL Protocol pursuant to rule 45.29A(1), rule 36.17 applies with the following modifications.

(2) Subject to paragraphs (3), (4) and (5), where an order for costs is made pursuant to rule 36.17(3)—

(a) the claimant will be entitled to the fixed costs in Table 6B, 6C or 6D in Section IIIA of Part 45 for the stage applicable at the date on which the relevant period expired; and

(b) the claimant will be liable for the defendant’s costs from the date on which the relevant period expired to the date of judgment.

(3) Subject to paragraphs (4) and (5), where the claimant fails to obtain a judgment more advantageous than the defendant’s Protocol offer—

(a) the claimant will be entitled to the applicable Stage 1 and Stage 2 fixed costs in Table 6 or 6A in Section III of Part 45; and

(b) the claimant will be liable for the defendant’s costs from the date on which the Protocol offer is deemed to be made to the date of judgment; and

(c) in this rule, the amount of the judgment is less than the Protocol offer where the judgment is less than the offer once deductible amounts identified in the judgment are deducted.

(“Deductible amount” is defined in rule 36.22(1)(d).)

(4) In a soft tissue injury claim, if the defendant makes a Part 36 offer or Protocol offer before the defendant receives a fixed cost medical report, paragraphs (2) and (3) will only have effect in respect of costs incurred by either party more than 21 days after the defendant received the report.

(5) In this rule “fixed cost medical report” and “soft tissue injury claim” have the same meaning as in paragraph 1.1(10A) and (16A) respectively of the RTA Protocol.

(6) For the purposes of this rule a defendant’s Protocol offer is either—

(a) defined in accordance with rules 36.25 and 36.26; or

(b) if the claim leaves the Protocol before the Court Proceedings Pack Form is sent to the defendant—

(i) the last offer made by the defendant before the claim leaves the Protocol; and

(ii) deemed to be made on the first business day after the claim leaves the Protocol.

(7) A reference to—

(a) the “Court Proceedings Pack Form” is a reference to the form used in the Protocol; and

(b) “business day” is a reference to a business day as defined in rule 6.2.

(8) Fixed costs must be calculated by reference to the amount which is awarded.

(9) Where the court makes an order for costs in favour of the defendant—

(a) the court must have regard to; and

(b) the amount of costs ordered shall not exceed,

the fixed costs in Table 6B, 6C or 6D in Section IIIA of Part 45 applicable at the date of judgment, less the fixed costs to which the claimant is entitled under paragraph (2) or (3).

(10) The parties are entitled to disbursements allowed in accordance with rule 45.29I incurred in any period for which costs are payable to them.

So far so straightforward: it would seem to suggest that where a case has fallen out of the Protocol, that indemnity costs will apply, unless the court deems it unjust that they do so.

However, if one turns to the latter rules of part 36, one notes that curiously, if a claimant beats his offer at a stage 3 hearing, that he does not get indemnity costs but only fixed, costs, per rule 36.29:

(1) This rule applies where, on any determination by the court, the claimant obtains judgment against the defendant for an amount of damages that is—

(a) less than or equal to the amount of the defendant’s Protocol offer;

(b) more than the defendant’s Protocol offer but less than the claimant’s Protocol offer; or

(c) equal to or more than the claimant’s Protocol offer.

(2) Where paragraph (1)(a) applies, the court must order the claimant to pay—

(a) the fixed costs in rule 45.26; and

(b) interest on those fixed costs from the first business day after the deemed date of the Protocol offer under rule 36.26.

(3) Where paragraph (1)(b) applies, the court must order the defendant to pay the fixed costs in rule 45.20.

(4) Where paragraph (1)(c) applies, the court must order the defendant to pay—

(a) interest on the whole of the damages awarded at a rate not exceeding 10% above base rate for some or all of the period starting with the date specified in rule 36.26;

(b) the fixed costs in rule 45.20;

(c) interest on those fixed costs at a rate not exceeding 10% above base rate; and

(d) an additional amount calculated in accordance with rule 36.17(4)(d).

Yet, section II of part 36 is plainly only applicable to cases which conclude within the Protocol, as otherwise rules 36.17 and 36.21 could have no utility.

This would seem to suggest that there are two classes of part 36 offer: part 36 offers properly so called and Protocol offers, and the question of which applies to a case will hinge on the chances of it leaving the Protocol.

It follows that part 36 has a powerful incentive built into it: if a claimant can correctly pitch a part 36 offer prior to trial, then he will succeed in recovering indemnity costs: at least from the point 21 days after the offer is made.

This in turn raises the interesting question of how an entitlement to fixed costs to that point can be married up, with summarily assessed indemnity costs in the period up to trial.

Paying parties will doubtless point to the primacy of the restrictions in part 45 which might be thought to trump part 36  and argue this should have the effect of restricting costs to fixed costs in any event, but even those rules have an escape route based on exceptionality.

Other problems exist under part 45: for example where an action is brought by three jointly represented claimants eg: three passengers in the same vehicle. If their claims conclude at trial, do they get three lots of fixed costs as they would have under the former part  45 or only one set?

In practical terms on the Fast Track, calculating part 36 offers on litigated cases have now taken on an even greater imperative.