Digital dreams

When I undertake a heavy detailed assessment (a working definition of which is more than 2 days or more than 2 boxes of documents to read) there are three indispensable things I require in order to function efficiently. The first is good coffee. The second is a bacon sandwich. The third is “Old Faithful”. Here is a picture of “Old Faithful”.

Old Faithful Old Faithful (and its predecessor now retired due to metal fatigue) demonstrate the falsity of the lie I was told some 25 years ago, when considering a career at the Bar, namely that although earnings could vary dramatically, at least it was “an inside job, without heavy lifting”. Old Faithful enables boxes, files and piles of paper to be transported efficiently and without strain, from car to court.

The reason of course that Old Faithful exists, is because despite being able to type this post on a computer in my study, or my room in chambers, or on the train, and upload it remotely, so that you can read it anywhere in the world, the Digital Age has not yet reached the civil courts.

We exist in a paper based system, and so for the assessment of costs, the papers have to be lodged at court and copies transported there in case the costs judge wishes to read them.

There seems no imminent change likely: recently a District Judge in the County Court at Slough, wrote to the Times rebutting the notion that he was about to lose his judicial lavatory, by pointing out that he had never had one, did not have a retiring room, worked in a building with a leaking roof, and also pointed out that in terms of IT, his building did not have Wifi and the computers ran on Windows XP.

It is accordingly against this backdrop, that one considers the Briggs report, a copy of which can be found here: The Civil Courts Structure Review Interim Report. This document repays careful reading, not least because of the speculation that the author’s hat is in the ring to become the next Master of the Rolls.

The report also, though not directly concerned with the law and practice of costs, will certainly impact upon it as recognised in the text and ones notes the language used when discussing the former Access to Justice Act 1999 with its scheme of recoverable liabilities:

3.3. It is no criticism of what are generally called the Jackson Reforms that they were, and their implementation has been, primarily directed to curing very serious abuses and disproportionality in the cost of conducting personal injuries litigation.

3.4. Certain recommendations made by Jackson LJ have not been implemented. In particular, fixed costs have yet to be applied to parts of the fast track or considered for application above the fast track, although there is now a proposal from the Department of Health that a fixed costs regime should be implemented for all clinical negligence cases where the claim does not exceed £250,000. There is growing pressure for an upwards extension of a fixed costs regime across the whole of civil litigation. It is important to my analysis because, although costs reforms are not part of my terms of reference, their availability as an adjunct or an alternative to structural change is material when considering how to address the formidable barriers to access to civil justice still represented by the costs likely to be both incurred and risked by the average litigant.

It also ominously contemplates further costs reforms as an alternative to structural change: in effect implying that if the report’s vision for digitisation of the courts does not come to pass something must be done, in order to further reduce costs.

The report is not directly concerned with the HMCTS reform programme including IT, but describes what is happening in these terms:

4.10. As is reflected in the second of the Reform principles (see paragraph 1.8) the ambition of HMCTS is to digitise the whole of the processes of the courts, including the civil courts, within four years from now, subject to funding and technical constraints. That can be (and is intended to be) achieved in two broad ways. The first, less ambitious, way is simply to replicate in digital form the current processes of the courts, so that the digital process is as near an approximation to the current paper or other physical process as can be achieved, thereby minimising changes in practice and procedure, including procedure rules. Thus for example, where an order of the court currently exists primarily in a physical form, as an original and one or more sealed paper copies, it will in future exist primarily as an electronic document, but be capable of being copied onto paper where necessary, for example where it has to be served on a person without facilities for receiving electronic documents.

4.11. The second, more ambitious, method is to make use of IT for new or different processes and procedures which are not capable of being carried out on paper. Thus for example, modern IT would enable court users to issue a claim without the assistance of lawyers by accessing online software, pre-designed to elicit the relevant information, evidence and documents necessary to enable the court to determine the claim, by an interactive process of question and answer, where each new question or set of questions is responsive to answers input by the user. This is the sort of IT contemplated for use in Tier One of the HM Online Court (“HMOC”) model described in the report to the Civil Justice Council and to the Master of the Rolls entitled “Online Dispute Resolution for Low Value Civil Claims” by the Online Dispute Resolution Advisory Group in February 2015. I will refer to it as “the ODR Report”. The same tiered structure was also adopted in the report by JUSTICE later in 2015 entitled “Delivering Justice in an Age of Austerity (“the Justice Report”). Both reports noted the precedents set Civil Courts Structure Review: Interim Report The HMCTS Reform Programme 43 for an online court or tribunal of broadly this kind already in use for family and consumer disputes in the Netherlands, and about to be deployed for small claims in British Columbia.

4.12. Digital innovation of this second kind would enable the creation of wholly new processes for the resolution of civil disputes. The current thinking of the HMCTS design team is that a new type of civil court (currently labelled the Online Court, or “OC”) could be created for the resolution of relatively straightforward debt and damages claims up to a provisionally chosen value at risk of £25,000. As will appear, the OC would achieve its purposes as far as possible by automated software, both for initial triage and basic conciliation, but disputes not thereby resolved would receive human attention both from Case Officers (previously labelled DJOs) and, for final determination, from judges.

4.13. This wholly new concept of an Online Court takes its lead from the ODR Report and from the Justice Report, but it is significantly different from both. I shall have a great deal more to say about it in due course but, for present purposes, it is sufficient to say that it is a concept which is wholly dependent on the introduction and imaginative use of IT, as well as upon behavioural and cultural change, both of which are principal aims of the Reform Programme, and would be impossible without them.

4.14. Running in parallel with these two different modes of digitisation is the development of “Assisted Digital” provision. Recognising that there is a substantial section of civil court users who would find it difficult or even impossible to conduct civil litigation through computers, it is being designed to ensure that they thereby suffer no impairment in their access to justice by the proposed digitisation of courts, by providing them with the requisite assistance. Forms of assistance currently being considered include online help, telephone help-lines and face to face human help.

Reading these proposals, reading the HMCTS reform programme, and noting the departure this month of its Chief Executive, who in a speech last year airily noted the possibility of a boundary dispute between neighbours over leylandii trees being just the sort of case, that could be resolved through evidence given over Iphones, without the need to go to court (yes, really, the speech is still on the web), one cannot help but feel sceptical as to how much of this is likely to come to pass.

The impediments as I see them to a digital future are threefold. The first is the money. Although £750 million has been promised, digging a little deeper, this assumes that £300 million is raised from selling off court buildings. A dip in the property market, may yet derail the whole project.

Secondly, what seems astonishing is the lack of emphasis on IT security: there is very little detail to be gleaned in any of the publically available documents as to how the government will protect the system from an attack from North Korea, or more prosaically, stop copies of all the data on it flowing to the USA under the Patriot Act. Devotees of the early 1980s flick, Wargames and the reimagined Battlestar Galactica, will readily note the vulnerability of networked computers.

Thirdly, there is a fundamental issue here, which is not to be glossed over: access to justice, includes as a necessary element, the public administration of justice. Anyone can walk into a Crown or County Court and see a public hearing, or report it in the press. How is that to be achieved when matters are dealt with digitally in cyberspace?

So at the moment, I remain dubious as to how the digitisation of the courts will proceed. But it is badly needed.

I wonder if there is scope for an alternative vision. Perhaps reform might start to take place, from the bottom up, and using off the shelf solutions. There seems no reason, why in this respect the profession cannot move forward, without having to wait for the courts. It doesn’t have to cost millions either.

More and more solicitors and barristers are moving to paperless working, irrespective of what the courts are up to. I can give a couple of examples from my own use of IT as to how it doesn’t have to cost a lot and actually saves me money.

Some years ago, when contemplating setting up this website, I was quoted £6000 plus VAT by a company to design and build it. Instead, using free WordPress software, each year I pay £6.99 for the website name and £49.99 for hosting services.

I often work remotely, receiving papers, and sending off documents by email, in itself an anachronism, to be replaced by secure document drop services. It is now a couple of years since I have signed paper Advices, and fondly sent them off with the DX. It means that I can be working without leaving my home or incurring wasted time travelling to and from chambers.

What I would like to see as the next logical step in costs work, is those boxes of photocopied paper, reduced to scanned images, catalogued, searchable and provided to me on a flash drive.

I would like to see the documents routinely loaded onto a £300 laptop, which is then lodged at court, so the costs judge can read them or be able to access them during the course of an assessment.

Then Old Faithful can be retired, and I can indeed have an indoor job, without heavy lifting. And I suspect that the detailed assessment would be shorter and cheaper too.


Principals, agents and Conditional Fee Agreements

As is well known, one of the effects of LASPO 2012 and the removal of recoverable success fees and ATE premiums has been to cause firms to leave the personal injury market, or more sadly, to cause many well known and well regarded firms, to enter into insolvency procedures.

When their work in progress is sold on, including the retainers made on a conditional fee agreement basis, there are a number of ways by which this transaction of the sale of work in progress can take place.

Perhaps the most familiar, is the attempt to assign conditional fee agreements, a concept which has proved problematic, given the number of recent cases litigated over this point in the County Court and SCCO. It will be some time yet before the Court of Appeal gives a definitive answer to the question of whether a conditional fee agreement is capable of assignment.

Another route, which has been utilised, is for the original firm of solicitors and the subsequent firm of solicitors, to declare that they have entered into an agency agreement, whereby the original firm is declared to be the principal, and the subsequent firm acts as their agent, undertaking work on their behalf.

Thus the argument runs, that the original conditional fee agreement with its recoverable success fee remains in place, the subsequent firm’s fees are recoverable as agent’s charges, with the success fee claimable on top in accordance with long established authority and the problems of assignment are avoided.

But will this arrangement work? In particular, if the original firm of solicitors has ceased to exist, or the original firm does no further work on the case, nor act as a principal supervising the agent, it would seem that the arrangement is open to attack on the basis of the doctrine of sham.

The doctrine of sham in its modern formulation is derived from the principle contained in the case of Snook v London and West Riding Investments Ltd [1967] 2QB786 at page 802 where Lord Justice Diplock as he then was said this:

As regards the contention of the plaintiff that the transactions between himself, Auto Finance and the defendants were a “sham”, it is, I think, necessary to consider what, if any, legal concept is involved in the use of this popular and pejorative word. I apprehend that, if it has any meaning in law, it means acts done or documents executed by the parties to the “sham” which are intended by them to give third parties or to the court the appearance of creating between the parties legal rights and obligations different from the actual legal rights and obligations (if any) which the parties intend to create.

The reason why  the scenario outlined above can give rise to a sham is because in an insolvency situation, the effect of the solicitor ceasing practice and being unable to perform his obligations under the conditional fee agreement would ordinarily terminate the conditional fee agreement or discharge it by reason of the doctrine of frustration. To suggest otherwise, is to argue against the clearly established fact that one party to the retainer, has to all intents and purposes ceased to exist.

If the original firm is still in existence, but has no meaningful role in the litigation, does not exercise supervision and does no work in the case, it is difficult to see how this is a relationship of principal and agent in any real sense:the obligations of a solicitor principal are quite onerous, as set out in a long chain of cases going back to the Law Society V Waterlow Bros and Leighton (1883) 8APP CAS 407 through to Hollins V Russell [2003] 1 WLR 2487 at page 2536 to 2538. If they have not taken place, this lends force to the analysis, that there is no true principal and agent relationship at all.

Where a sham exists, the transaction is either of no effect or the court gives effect to the true relationship that has been established: the difficulty for solicitors is that the likely conclusion on a true construction of the agreement, is that the original firm of solicitors has terminated its retainer and is not entitled to be paid for the work that it has done.

The second firm of solicitors in turn will be acting without a written retainer which complies with the requirements now set out in the Courts and Legal Services Act 1990 and the Conditional Fee Agreements Order 2013, and any implied retainer, or argument that a novation has taken place on the same terms of the original conditional fee agreement, will lead to a conclusion that this latter retainer is unenforceable and again no costs are recoverable under it.

Challenging costs awards in international arbitrations

Arbitrations in the international context, can be an expensive business. Arbitrators frequently can and do, make awards of costs, on a broad brush basis, and then go onto award compound interest on those costs, adding further expense to the losing party’s bill.

The assessment of costs can take place in the SCCO, but there is an increasing tendency for arbitrators to roll up their sleeves and enter into the nitty gritty of awarding particular items of costs, or what are claimed to be costs.

From time to time, they go onto award items of costs, which would not be recognisable as items of costs under the common law of England and Wales, such as, for example the cost of litigation funding, as a discrete head of costs, rather than as a cost compensable through an award of interest. This could be regarded as the cost of financing the costs of the arbitration, rather than the costs of the arbitration itself.

What is a paying party to do in such a situation?

There is an immediate difficulty in relation to any challenge to the arbitrator’s conclusion that he has the power to order an award of the costs of litigation funding against the respondent namely that this is an arbitration conducted according to a particular set of international rules, such as the ICC rules.

By way of example, the  former 1998 ICC rules provided in article 28 (6) that the parties by submitting the dispute to arbitration had waived their rights for a further determination: in this respect they have excluded the option of an appeal on a point of law to the High Court pursuant to section 69 of the Arbitration Act 1996.

In the context of such a challenge, there would be no point of jurisdiction here permitting a challenge under section 67 of the Arbitration Act 1996 and it follows that the only possible route of challenge is an arbitration claim issued and pursued further to section 68 of the Arbitration Act 1996. This is however a most problematic route.

The reason is that the limited grounds for a challenge contained within section 68 mean that the respondent would have to establish that there had been a serious irregularity in making the award and serious irregularity means according to section 68 (2) an irregularity in one of a closed list of 9 categories of potential faults, which has caused or will cause substantial injustice to the applicant to such a challenge.

Looking at the 9 categories, these are matters which include the failure by the tribunal to comply with section 33 (the general duty of the tribunal); or the failure by the tribunal to conduct the proceedings in accordance with the procedure agreed by the parties; or the failure by the tribunal to deal with all the issues that were put to it; or any arbitral or other institution or person vested by the parties with powers in relation to the proceedings exceeding its powers; or uncertainty or ambiguity in the effect of the award; or the award, being obtained by fraud or being contrary to public policy; or failing to comply with the requirements as the form of the award; or any irregularity in the conduct of the proceedings which is admitted by the tribunal or some other body.

The only real potential ground for challenging an award of costs, such as eg, the award of the cost of litigation funding, is that set out in section 68 (2) (b) which provides for a ground of challenge on the basis that the tribunal has exceeded its powers. That is, that it has acted in a way that amounts to an error far more serious than a simple error of law.

What does this mean? And how do sections 68 and 69 relate to each other? The leading case on the correct approach remains that of Lesotho Highlands Development Authority v Impregilo SpA [2006] 1 AC 221 a decision of the House of Lords which is the guiding authority on this particular point.

A V B [2011] EWHC 2345 and Kaneria v England and Wales Cricket Board [2014] EWHC 1348 (Comm) , are more recent cases, but these are first instance decisions which cite the House of Lords decision, rather than expanding upon the principles set out within in it.

The essential question arose in the Lesotho Highlands case as to how section 68 and section 69 were meant to work and the question that fell to be grasped in that case was whether an alleged error of arbitrators in interpreting the underlying or principal contract was an excess of power or simple error of law?

In the case of a simple error of law as the parties had excluded a right of appeal under section 69 they would effectively be left without a remedy and so had to pin their hopes on shoehorning the challenge into section 68. At paragraph 24 Lord Steyn said:

But the issue was whether the tribunal exceeded its powers within the meaning of section 68 (2) (b). This required the courts below to address the question whether the tribunal purported to exercise a power which it did not have whether erroneously exercised the power that it did have. If merely a case of erroneous exercise of power investing in the tribunal no excessive power under section 68 (2) (b) is involved. Once the matters approach correctly, it is clear that the highest in the present case on the currency point, there was no more than an erroneous exercise of the power available under section 48 (4). The jurisdictional challenge must therefore fail.

He noted that the requirement of a serious irregularity was a new concept in English arbitration law. A high threshold must be satisfied. He also noted the requirement that the regularity must cause substantial injustice to the applicant and was designed to eliminate technical and on meritorious challenges.

In particular at paragraph 29 he noted that there was no hint in section 68 that a failure by the tribunal to arrive at a correct decision could afford a ground for challenging the section 68.

On the other hand section 68 had a meaningful role to play where for example in conflict with an agreement in writing of the parties under section 37 the tribunal appointed an expert to report to it.

He also noted an example where an arbitration agreement expressly permitted only the award of simple interest and the arbitrators in disregard of the agreement awarded compound interest.

I think this is interesting or particularly this latter example is interesting because of course if the tribunal had no power to award compound interest but only simple interest but went ahead in so doing it would plainly be acting contrary to section 68.

One could argue by way of analogy that if a tribunal awards the costs of financing the costs of the arbitration as opposed to the costs of the arbitration itself then it is acting in a way which is in excess of its powers.

Lord Steyn concluded his analysis by stating it was necessary in paragraph 32 to focus intensely on the particular power under an arbitration agreement, the terms of reference  and the  relevant provisions of the 1996 Act which are engaged, judged in all the circumstances of the case. Noting, that it must always be borne in mind that the erroneous exercise of an available power cannot by itself amount in excess of power. A mere error of law does not amount to an excess of power.

Thus any challenge to an arbitrator’s costs decision, is going to be fraught with difficulty, with a very limited scope for challenge existing in the Commercial Court.