The stench of hypocrisy

Recently in my household, I have had to declare a state of emergency, suspend the normal democratic procedures, and issue an executive order, banning my children from the use of technology in their bedrooms.

The pernicious blue glow of tablets and phones, has been banished from what should be calm and peaceful surroundings for rest.

The irony of doing so, is not lost on me, as I type this post outside working hours from the comfort of my study, suitably fortified by a succession of Mr Clooney’s ristrettos.

However, needs must as I am preparing a paper for delivery to some 200 fellow lawyers and have a very limited time in which to write it.

Next week, on Friday 4th March, a colleague and I will be speaking at the Ropewalk Chambers Personal Injury Conference, on such matters as fixed costs, digital billing, the assignment of CFAs and the most interesting costs cases of the last 12 months.

I hope to see many of you at the conference. Please do not be shy, but come up and say hello. Feel free to offer to buy me a glass of wine, or indeed to offer me a lucrative brief.

The paper will be published after the conference on this website, as I have done in previous years, but the best gags will only be available on the day.

The shadow of Cassandra

Last year, I wrote a post on the fixed costs regime and how in my opinion as far as claimants were concerned, they were an optional choice on the Fast Track.

The original blog post is here: http://costsbarrister.co.uk/uncategorized/are-fixed-costs-optional-on-the-fast-track.

This week, I was proved right in the decision handed down by the Court of Appeal in Broadhurst v Tan and another [2016] EWCA Civ 94, a copy of which can be found here: Broadhurst v Tan and another.

At this point I should declare an interest, having argued the first appeal unsuccessfully before HH Judge Robinson on behalf of the claimant.

Like Cassandra, I prophesised but was not believed.

Undoubtedly the decision of the Court of Appeal is correct: as soon as the Explanatory Memorandum was brought to the Court’s attention, the game would have been up as far as the defendant was concerned.

Moreover, one can see the clear public policy in ensuring that part 36 offers are taken seriously, and as many cases settle as possible. Should a defendant now take a case to trial and lose, they will now suffer what have been termed penal consequences.

The real question which must now be addressed, is how each part of the personal injury industry, systematically addresses it’s use of part 36. For claimants and those representing them, the challenge is now to calculate and issue a part 36 offer as early as possible.

It will not be lost, that as part 36 offers can be made on liability only, a part 36 offer of 95% would be effective to set the ball rolling and place the defendant, minded to defend a claim on liability at risk.

The balancing act required a little later down the process, is that when a solicitor is instructed, there will often be a continuing loss accruing, such as hire charges in a credit hire claim. At this point more skill will have to be deployed, to judge when to make an offer, as well as what that offer should be.

For defendants, a different set of challenges arises.

It is well known that many insurance companies utilise software, to value claims, particularly of the bottom end of the scale, and often on the basis of a database which includes all data for settled cases, and skews the value of any part 36 offer downwards.

As a seasoned common law barrister observed to me many years ago, insurers like to pay 70 pence in the pound by way of settlement, judged against the true value of a claim.

The effect of the Broadhurst decision will be to alter the dynamics of that calculation and the variables used, when calculating a settlement offer. If a defendant’s part 36 offer is beaten and the claimants part 36 offer exceeded at a hearing, then the cost of losing the claim will now increase dramatically. Instead of fixed costs, proper costs will be awarded on the “full fat” indemnity basis to which the principle of proportionality will not apply, and of course with the further uplift on damages to boot.

Thus in my view, Broadhurst will have a double impact in terms of the inflation of claims: first the cost of losing an individual claim at trial will now be higher and secondly across the board, insurers when looking at the book of claims which constitute their exposure, will have to adjust their overall offers upwards, if claimants’ solicitors start systematically making well pitched and early part 36 offers.

The decision may also throw into reverse a trend that I have noticed over the last year and a half, confirmed anecdotally by colleagues at the Bar, that more cases, particularly at the bottom end are going to trial, a trend traceable to the low exposure to costs that insurers face, should they fight a case subject to fixed costs and lose.

In the longer term, given that fixed costs for NIHL and clinical negligence costs are on the horizon, there may well be scope for the impact of those regimes to be blunted.

If for example, every time a solicitor is instructed in a clinical negligence case, it is open to them to make a part 36 offer on liability, to the tune of 95%, then straightaway the defendant is on the horns of a dilemma, with its fixed costs protection at risk.

There is of course still nothing to read, in terms of detailed proposals for fixed costs in NIHL and clinical negligence cases. Instead the legal world’s attention has been diverted by the recent lecture given by Jackson LJ, where fixed costs for cases worth up to £250,000 are mooted.

Those proposals have been described by virtually every legal commentator as unworkable: and in our current system of litigation, with the current levels of remuneration for lawyers, particularly in the personal injury sector that would be right.

If however, there is an agenda is to drive down the rates that solicitors bringing personal injury claims and clinical negligence cases against insurance companies or emanations of that state, recover in respect of their costs, to levels akin to those paid in Legal Aid cases and to ensure that a QC earns no more than a consultant does from his NHS salary, then the reasoning behind the proposals is logical.

Given that the fixed fees applicable to RTA Portal claims, were influenced by the Legal Aid rates, that may indeed be part of the agenda at work and so the consultation documents on NIHL and clinical negligence are ones that I look forward to reading with considerable interest.

Credit hire companies and non party costs Orders

I have been asked on many occasions by insurance companies and their instructed solicitors how one “gets round” QUOCS. The answer for the most part, is “you can’t.”

QUOCS represents part of the post LASPO 2012 settlement in personal injury and clinical negligence claims, where as part of the package which included the abolition of recoverable success fees and ATE premiums, defendants and paying parties are required to stand their own costs, even when vindicated at trial.

There are exceptions to this general principle within the rules however.

The principal exceptions which will be relevant after a trial are set out in rule 44.16 which provides as follows:

(1) Orders for costs made against the claimant may be enforced to the full extent of such orders with the permission of the court where the claim is found on the balance of probabilities to be fundamentally dishonest.

(2) Orders for costs made against the claimant may be enforced up to the full extent of such orders with the permission of the court, and to the extent that it considers just, where –

(a) the proceedings include a claim which is made for the financial benefit of a person other than the claimant or a dependant within the meaning of section 1(3) of the Fatal Accidents Act 1976 (other than a claim in respect of the gratuitous provision of care, earnings paid by an employer or medical expenses); or

(b) a claim is made for the benefit of the claimant other than a claim to which this Section applies.

(3) Where paragraph (2)(a) applies, the court may, subject to rule 46.2, make an order for costs against a person, other than the claimant, for whose financial benefit the whole or part of the claim was made.

Most claims which are lost at trial, will not be lost for reasons of fundamental dishonesty. Most claims are lost at trial because a witness fails to come up to proof, the defendant’s witnesses are more compelling, the claimant’s lawyers have miscalculated, or some other example of the vissitudes  of litigation has occurred.

But where a claim is brought for the financial benefit of a third party, the broad sunlit uplands of the non-party costs jurisdiction can be trespassed upon for the benefit of the defendant.

The principal type of claim where this will prove to be of interest, is where alongside a modest claim for personal injuries, there is a more substantial claim for credit hire.

I elect upon credit hire with deliberation.

This is because the example of a credit hire claim is expressly contemplated by the Practice Direction to part 44 as an example of a claim brought for the financial benefit of someone else, namely the credit hire company.

Paragraph 12.2 provides as follows:

Examples of claims made for the financial benefit of a person other than the claimant or a dependant within the meaning of section 1(3) of the Fatal Accidents Act 1976 within the meaning of rule 44.16(2) are subrogated claims and claims for credit hire.

So far so good.

But there is a problem with this Practice Direction in that it appears to conflict with the analysis of the House of Lords in the case of Giles.v.Thompson [1994] 1 AC 142 where Lord Mustill, rebutting suggestions that the credit hire companies in that case were engaged in maintenance and champerty observed as follows:

Although the arguments before the Court of Appeal, and initially before the House, proceeded on the footing that the two appeals were the same, it is I believe clear that there are significant differences between them, and that they call for separate consideration. I will begin with Devlin v Baslington. An essential preliminary is to answer certain questions concerning the rights and liabilities created by the hiring agreement. Since, however, I believe that the resolution of this particular appeal admits of no doubt I will deal with these questions quite briefly.

The first is this: what rights does the company possess in the sums recovered by the motorist from the defendant? The answer is plainly: none. Neither the contract nor the form of authority purported to create a charge over the proceeds of the claim, either as regards the hiring charges, or the damages for personal injuries, or any other item. Clause 5(iv) merely required the motorist to press ahead with the recovery of sufficient funds to discharge her indebtedness to the companies. Equally, there was no assignment of the proceeds of the action or of the cause of action itself. As for the second part of the form of authority, even if this was irrevocable (which I doubt) it was no more than a mechanism designed to ensure that, once the motorist was put in funds by the successful actions, the appropriate part of them reached the company.

And in the second appeal, that of Giles v Thompson:

As in Devlin v Baslington an essential preliminary is to ascertain the rights and obligations created by the hiring agreement. First, one must see whether the companies obtain any direct rights over the fruits of the claim for the element of damages representing the hire charges. Here, the answer is just as clear as it was before. The companies have no interest, whether by charge or assignment, which give them any claim to the proceeds which they can enforce against the defendant. Nor is any part of the recovery shared with the motorist, in the sense (for example) that they have a preferential claim to it against the other creditors of the motorist. The position is simply that the success of this part of the claim will equip the motorist with extra money, from which the hire charges can be satisfied.

This seems clear enough: in those cases at least, the credit hire companies had no financial interest in the litigation on the analysis propounded by Lord Mustill.

That does not of course mean that in all conceivable factual scenarios where a a credit hire claim is made that there can never ever be a financial benefit accruing to a credit hire company, but where does it leave paragraph 12.2 of the Practice Direction which seems to contemplate that all credit hire claims will be caught? And whether or not a non-party costs order can be properly made against a credit hire company?

The simplest answer is that paragraph 12.2 must be “read down” as an ordinary exercise in construction, so that it only applies to credit hire claims where there is something more or additional to Lord Mustill’s analysis based on the facts before him, and so the paragraph should be given a narrow construction.

The bolder answer is to conclude that paragraph 12.2 is ultra vires. The law has been established by Giles v Thompson and as a Practice Direction is neither primary or secondary legislation, not being made by Parliament in either an Act of Parliament or a statutory instrument, it is not open to a Practice Direction to alter the substantive law as declared by the House of Lords.

The answer to this question matters tremendously.

It will dictate whether the cost of the “saecular war” still raging between the insurance industry and the credit hire companies, is borne by the insurance industry, come what may.

Assignment of CFAs: are your retainers bullet proof?

A steady flow of assignment points continue to arise and to cross my desk on a weekly basis.

Solicitors who have purchased cases from administrators, merged firms with another firm, changed their employment, reconstituted from an unlimited liability partnership to an LLP, all seem to have elected upon assignment as the tool of choice for transferring the value in their cases in changed circumstances.

The problem is particularly acute in personal injury and clinical negligence litigation, but also arises in general litigation where substantial success fees are at stake, as paying parties are now probing assiduously for cracks in the retainer.

I can help.

If you would like me to consider your retainers, and advise on their validity and whether remedial steps need to be taken to safeguard your work in progress, I am happy to advise under my usual terms, found on this website.

Please feel free to contact me in chambers accordingly.

 

Third party costs assessments reconsidered

Third party costs assessments are rare beasts. The context in which they commonly arise is in the context of challenging a solicitor’s costs for administering an estate, when disappointed beneficiaries find that the residuary pot from which their legacies have been drawn, has been depleted rather more than they had hoped.

The starting point is to note that the work is non-contentious business and accordingly as a point of substantive law pursuant to section 56 (7) of the Solicitors Act 1974 the assessment of a bill of costs of a solicitor in respect of non contentious business is to be subject to the provisions of any Remuneration Order made under the section.

The Solicitors (Non-contentious Business) Remuneration Order 2009 is the order currently in force and this provides crucially at article 3 the criteria by which a solicitors fees or costs are to be judged.

In particular there is a requirement that a solicitor’s costs must be fair and reasonable having regard to all the circumstances of the case and in particular; to the complexity of the matter or the skill or novelty of the questions raised; the skilled labour specialised knowledge and responsibility involved; the time spent on the business; the number and importance of the documents prepared or considered, without regard to length; the place where the circumstances in which the business or any part of the business is transacted; the amount of value of any money or property involved; whether any land involved is registered land within the meaning of the Land Registration Act 2002; the importance of the matter to the client; and the approval (express or implied) of the entitled person and the express approval of the testator to the solicitor undertaking all or any part of the work giving rise to the cost; or the amount of the costs.

In the “interpretations” contained in article 2 an entitled person means a client or an entitled third-party and an entitled third-party means the residuary beneficiary absolutely and immediately and not contingently entitled to an inheritance where a solicitor has charged the state for his professional costs for acting in the administration of the estate and the only personal representatives are solicitors or their like.

It is open to  residual beneficiaries to apply for a assessment known as a third-party assessment under section 71 (3) of the Solicitors Act 1974.

The case of Tim Martin Interiors Ltd-v-Akin Gump LLP [2011] EWCA Civ 1574 is particularly interesting,  given that purportedly it applies in respect of personal representatives who hold estates and beneficiaries who wish to challenge the amount of costs incurred and paid out of the fund per paragraph 2 of Lord Justice Lloyd’s judgement which reads as follows:

The same problem may arise in other situations. A purchaser may be liable to pay costs incurred by a vendor, a tenant the costs incurred by a landlord, an insurer may have to pay costs incurred by its insured, or one party the costs incurred by another in some other kind of transaction.  By analogy, the liability to bear the burden of the costs may arise because the solicitor’s client is a fiduciary, a trustee or personal representative holding a trust fund or estate, or an office-holder in an insolvency or a receivership, and a beneficiary or creditor may wish to challenge the amount of the costs incurred and paid out of the fund.

In particular terms paragraphs 82 to 84 of the judgement of Lord Justice Lloyd which seems to truncate horribly the scope of an assessment under section 71 are of concern:

None of the older cases seems to show that the court allowed the recovery of a lesser amount for some item in the bill on the basis that some expenditure on it was proper but that too much had been claimed. The cases all appear to me to show that items were either allowed or disallowed in whole.  In particular what Cozens-Hardy J said in Re Gray at page 246, quoted at paragraph [46] above, is inconsistent with Mr Saifee’s submission that on a third party taxation under section 38 of the 1843 Act, the amount allowable in respect of given work could be reduced as regards the liability of the third party even if it could not be reduced as regards the liability of the client under section 37.

Neither on the basis of precedent, therefore, nor as a matter of principle does it seem to me that it is open to the court on an assessment under section 71 to substitute a lower amount for a higher one, on the basis that something is allowable but that the rate claimed is unreasonably high, unless that substitution could have been made on an assessment under section 70 as well. Where the client has agreed the bill and paid it, such a substitution is not possible under section 70.

Thus, I accept Mr Saifee’s argument to the extent (but no further) that on an assessment under section 71, the court can strike out of a bill (a) any item which relates to business for which the third party is not liable at all (e.g. here the bankruptcy, which is outside the scope of liability under the mortgages) and (b) any item which, as a whole, would only be allowable as against the client on the basis of advice that it would not be recoverable against the third party, and therefore is to be treated as subject to a special arrangement between client and solicitor. I do not accept that either the cases or the statute allow the court to alter the amount of an item in the bill in respect of which something is properly chargeable, but where the court considers that the amount claimed is excessive and unreasonable, so that a lower amount should be allowed, unless that could be done on an assessment under section 70, as between the solicitor and the client directly.  I therefore agree with Lewison J who said at paragraph 34:

“On an assessment under section 71 the court is entitled to interfere with the hourly rate agreed between the solicitor and the client; but only to the extent that it could have interfered with it at the behest of the client.”

He went on to point out that in a case where the client had agreed the rate there was very little scope for such interference, because of the presumption under CPR rule 48.8(2)(b).

That is a serious limitation on the scope of an assessment under section 71 for determining the question what is properly due from the third party to the client. In his submissions Mr Saifee invoked the words of Kekewich J in Re Longbotham & Sons, quoted at paragraph [48] above, in support of the argument that the courts had been able to construe the section in a more constructive way, so as to be more useful to a third party, and that this approach should be maintained.  It is a fair comment that the courts were able to go quite a long way towards helping a third party in this situation, and also that, if this cannot be applied in present circumstances where the dispute is likely to include matters such as the proper hourly rate, then resort to an assessment under section 71 will rarely be of use to a third party.  Nevertheless, it seems to me that what Mr Saifee invited the court to sanction is not within the scope of the section.  I therefore agree with Lewison J that, while it was correct for Master Campbell to exclude from the assessment under section 71 matters to do with actual or possible bankruptcy proceedings against the guarantors, it was not open to him to reduce the amount chargeable in respect of items which, as such, were within the scope of the liability for costs under the mortgages.  In particular it was not open to him to assess the bill on the basis that no more than £225 per hour should be allowed for a Grade A fee earner’s time spent on the matter.  The Bank as client had agreed to these charges and could not itself have challenged them on an assessment, even if it had wanted to do so.  It follows that the third party could not challenge them by way of a section 71 assessment.

Indeed it contemplates that were for example an executor, to have agreed a bill of costs rendered to him by the solicitor, if this case applies to an application for an assessment by residuary beneficiaries there will be very little indeed that can be challenged by way of assessment as the executor, is of course, the client.

But this judgement can be distinguished on another ground. In particular it seems to me that there is a clear distinction to be drawn between the position of a mortgagor under section 71(1) of the Solicitors Act 1974 and section 71 (3) which is the section we are concerned with concerning the rights of residual beneficiaries.

This latter section lacks the crucial wording “as if he were the party chargeable with it”, indicating that the assessment under section 71(3) is wider in scope than that which applies under section 71(1).

That would be quite sensible: a beneficiary is not subject to the contractual obligations contemplated by section 71(1) and is never “liable” for the bill. That would serve as a point of distinction although  the wording of paragraphs 101 and 102 of the judgement  again contemplates that it is applicable to claims arising out of the administration of an estate.

Instead of seeking an assessment under section 71, therefore, in almost all cases a mortgagor or other party seeking to challenge the costs claimed and received by a mortgagee should bring a claim for an account of the sums due under the mortgage. I doubt that such proceedings for an account nowadays would be much more complex than assessment proceedings.  In practice the mortgagor would issue a claim form, perhaps under Part 8, in the Chancery Division or, where appropriate, in the county court, and on the first hearing before the Master or District Judge he would apply for an order that the costs in dispute be referred for assessment, normally to the SCCO.  From then on, the procedure would be as for an assessment under section 70, but with the right parties contesting it, namely the mortgagor and the mortgagee.  The costs judge will have the necessary expertise, and will be able to decide the dispute, on ordinary principles and processes of assessment, in an economical and efficient manner.  Once the assessment is complete, the result would be reported to the Master or District Judge, and the account would proceed on that basis.  Somewhat more by way of steps in the proceedings would be necessary than for an ordinary assessment, but not a great deal.  If there are other issues in dispute as well they can be dealt with in whatever is the appropriate way, by the Master or District Judge or, if necessary, by a judge.

A claim for an account may be the right approach for several situations which can throw up this sort of problem, for example in the case of a trust or the administration of an estate. In other cases that may not be the right approach, and it may be necessary to claim a declaration as to the amount properly due, especially if the amount claimed has had to be paid by the third party, no doubt under protest.

In the light of this judgment it may be anticipated that third party assessments will become rare, whereas claims for an account, and like proceedings in other types of case, where the real issue is as to the reasonableness of legal costs, best resolved by those experienced in the assessment of costs, may become much more frequent. With that in mind, it seems to me that it might be sensible for a dispute which is only, or mainly, about legal costs to be able to be commenced as an application for an account directly in the SCCO, rather than having to go via the Chancery Division.  So far as the jurisdiction of the county court is concerned, as regards an assessment under section 70 or 71 it is limited to a case where the bill relates wholly or partly to contentious business in the county court and where the bill does not exceed £5,000: see article 2(7) of the High Court and County Courts Jurisdiction Order 1991.  So far as I am aware, none of the financial limits on the jurisdiction of the county court in that article applies to a claim for an account under a mortgage.  It seems to me that the appropriate procedure for a dispute of this kind is a subject worthy of the attention of the Civil Procedure Rules Committee. 

It may be then that there is a simpler solution than prodding that sleeping Leviathan the Rules Committee: given that the Court of Appeal appear not to have noticed the difference in wording between sections 71(1) and (3) and were not concerned with a claim for costs arising from the administration of an estate, the comments could be said to be obiter dicta and per incuriam in any event.

Assignment: the plot thickens

An interesting decision on the issue of assignment of CFAs was handed down this week by District Judge Besford sitting in the County Court at Hull.

A copy of the judgment can be found here:

Budana v Leeds Teaching Hospitals NHS Trust 3KH000905

The appeal in Jones v Spire Healthcare has also been adjourned and is to be relisted later in the year.

It is clear that this point has a little way to run yet.

Facts and figures

The new edition of Litigation Funding comes out this week and I am pleased to note that my most recent article is inside.

Facts and Figures can be downloaded here: Facts and Figures

The article is about risk: a subject I feel is particularly pertinent at the current time, given the slow crucifixion a number of law firms in the personal injury market are currently enduring over the state of their finances.

Costs lecture 4th March 2016

On Friday 4th March 2016 in Nottingham, I shall be presenting my paper “Costs 2016” with a colleague at the Ropewalk Chambers Personal Injury Conference. I shall be speaking on issues including the assignment of CFAs, digital billing and J codes, and fixed costs amongst other matters.

There is no charge to attend, but places are limited, and I ask for a donation to a charity that we as a chambers, collect for each year.

If you would like to attend, please drop Alan, my clerk a line on alan@ropewalk.co.uk or by telephone on 0115 947 2581 for more information.