St Michael and All Angels

Today is the Feast of St Michael and All Angels, which has given its name to Michaelmas term, always the busiest of the legal year, in the run up to Christmas.

To mark the start of the new legal year, I have decided to offer two separate seminars to my professional clients, each of 90 minutes in duration.

“Retainers, costs and clients” looks at the common issues, which arise in solicitor-own client costs disputes, and considers what can be done to contain the fallout and ensure that a solicitors firm receives the fees that it is entitled to.

“Costs for commercial lawyers” looks at the key issues which can arise in commercial cases, including funding, security for costs, budgeting, settlement including part 36 and the recovery of costs in inter partes detailed assessments.

If your firm would be interested in my delivery of either of these seminars, then please feel free to get in touch at

Money and misery

This post first appeared as an article written for the Family Bar in November 2015.

A fast growing area of practice for the Family Bar, is the provision of advice and representation for unmarried couples or others who find themselves engaged in property disputes under the Trusts of Land and Appointment of Trustees Act 1996 (TOLATA). As such proceedings, despite wishful thinking in some quarters are civil proceedings tried in the County Court or Chancery Division, the normal principles of civil costs apply to them. The purpose of this article is to consider some of the issues such cases throw up.

It is the exception, rather than the rule that an award of inter partes costs is made in family proceedings, such as ancillary relief. In those proceedings, the costs are paid out of the pot of assets that the divorcing couple have. In civil cases, a wholly different ethos applies, namely that the loser pays the winner’s costs and stands his or her own costs. In turn, the ways of funding a client’s costs can be more adventurous than the typical privately paid retainer, or increasingly these days, Public Access contract made directly with a lay client in family proceedings.

As TOLATA proceedings are civil proceedings, the statutory prohibition against the use of contingency fee arrangements (damages based agreements) or conditional fee agreements, the two major types of no win, no fee agreements do not apply. It is perfectly lawful and proper for counsel, to agree to represent a client on the basis of a discounted conditional fee agreement, whereby the client agrees to pay eg £250 per hour if the case is won, or say, £150 per hour if the case is lost.

Although many family lawyers would dismiss such arrangements out of hand, the Chancery Bar is quite adept at working on conditional fee arrangements and their website provides some useful precedent agreements: though it would be a brave soul who acts under a pure damages based agreement, given that there are real problems with drafting an enforceable damages based agreement, or recovering any fees from the client should they choose to end the agreement, before a case is lost or won.  It would be an even braver soul, who decided to act for a client in a Public Access matter on any type of no win, no fee arrangement: given the prohibitions on handling client money and the practicalities of enforcing an award of costs, such agreements can only sensibly be made where there is a solicitor at the other end of it.

All barristers in civil proceedings, these days have to be costs experts: and given a particular feature of these cases, is the costs risk, if a case is lost or costs are not recovered in full, it pays to be aware of what the clients arrangements are with the solicitor, and whether the client has the benefit of BTE (before the event) legal expenses insurance, or has purchase ATE (after the event) legal expenses insurance, and what the limit of that cover is. If a client is horribly exposed to costs risks, a more cautionary approach may need to be taken to the case.

One of the key reforms that the implementation of LASPO 2012 and the package known as the Jackson Reforms, was the introduction of a newly formulated principle of proportionality. What this principle will mean in practice is not yet clear: but on its wording, it means that costs can be reasonably incurred, they can be necessarily incurred to bring a case to its conclusion, but notwithstanding reasonableness and necessity, they can still be disproportionate, and if so, will be disallowed by the court. This principle affects both budgeting and the assessment of costs.

Since 1st April 2013, civil claims issued under part 7 of the Civil Procedure Rules 1998, and most TOLATA cases will be issued under part 7 as they will involve fiercely disputed facts, will be subject to a process of costs budgeting. In advance of the first costs and case management conference, the parties must file and serve the horrendous Precedent H, a form, which sets out the budget for the proceedings.

These forms will then be used by the court to manage the costs of the proceedings, in effect serving as a form of “costs capping lite”. It is essential to consult with an instructing solicitor, prior to the form being completed, as to what figures for counsel’s fees will be included in the precedent H: because if those figures prove to be unrealistically low, then any excess fees may not be recoverable from the losing side.

It has been wisely observed, that there are no winners in family proceedings. At the conclusion of a civil case, there will be a winner and there will be a loser, someone whose claim has succeeded if only in part, and someone who has lost. It is at this point, that part 44 of the Civil Procedure Rules 1998 comes into play.

The court has a structured discretion as to how it will deal with the costs of the proceedings. The starting point is as set out in rule 44.2(2): the general rule is that the unsuccessful party will be ordered to pay the costs of the successful party, though the court may make a different order.

Pursuant to rule 44.2(4) the court will have regard to all the circumstances, including the conduct of the parties, degrees of partial success and most particularly any admissible offer to settle, of which the most important variety of offer, will be a part 36 offer.

Costs can be awarded on the standard or indemnity basis: the standard basis means such costs are subject to the criteria of reasonableness and proportionality and the burden is on the receiving party to justify those costs: on the indemnity basis, the only criteria is whether the costs are reasonable and the burden of proof lies on the paying party to show they are unreasonable.

Each and every case, should have at least two part 36 offers, one made by the defendant and one made by the claimant, which reflects their realistic case, rather than their best case, or the open case alleged on the pleadings. I would go so far as to say, that a lawyer who does not advise on an appropriate part 36 in good time before a trial, is skirting with professional negligence and failure to advise a client on the risks posed by an opponent’s part 36 offer, certainly is prima facie negligent.

The effect of a well pitched part 36 offer can be devastating in terms of costs consequences, and is of a magnitude of effectiveness, far greater than the familiar Calderbank offer. Part 36 was comprehensively revised and updated in April 2015.

Part 36 has nothing to do with principles of contract law: it is its own self contained procedural code. Part 36 offers can be made in respect of any issue in proceedings: and at any time, before proceedings are started, or in respect of an appeal.

Should a claimant succeed in beating her own part 36 offer at trial, she will receive indemnity costs from a point in time 21 days after the offer was made, interest on those costs, part 36 enhanced interest and an additional amount: a penalty figure of 10% of the damages awarded.

For a defendant, making a part 36 offer, may be the only practical way, they can protect themselves at trial. Should a claimant fail to beat a defendant’s part 36 offer, then notwithstanding a degree of success at trial, she will be ordered to pay the defendant’s costs, from a point in time 21 days after the offer was made.

When drafting part 36 offers, careful consideration must be given to the form, as if a part 36 offer does not comply with the requirements as to its form and content prescribed by rule 36.5, it will not be an effective part 36 offer, and will take effect, if it does at all, as a mere offer to settle.

Acceptance of a part 36 offer made after proceedings have commenced, will serve to automatically stay those proceedings and create a deemed costs order in favour of the party accepting the offer.

It is worth reiterating again, that a claimant who beats her own part 36 offer at trial, will be awarded indemnity costs, and the principle of proportionality will not apply: when costs come to be assessed this can be of the utmost importance.

If a party’s claim for costs is less than £75,000 then in the first instance these will be assessed on paper, by the District Judge. If more, then by a traditional detailed assessment. In either case, in order to maximise recovery of costs, it is a good rule of thumb that if counsel’s fees are more than £5000 for counsel to write a note for the court’s benefit setting out what work was done, and why in order to flesh out the fee notes most clerks bang out: these may in their own way, like Japanese brush paintings, be beautiful in their sparse simplicity, but if lacking in detail might not be regarded as helpful by the District Judge.

Quis custodiet ipsos custodes?

Many of my colleagues at the Bar believe that I spend my days with an abacus, counting out 6 minute units of time, and the minutes of my own life in coffee spoons.

Far from it. As I have frequently observed, the law and practice of costs and litigation funding throws up more problems of fraud, negligence and professional regulation than any other sphere. Part of my work involves the law relating to the regulation of claims management companies, some of whom burn “white hot” in terms of the acceptability of their practices.

One case that I dealt with some years ago concerned a man who set up as an unregulated claims management company, systematically targeting disabled people, who often had very sound claims for disability discrimination and exploiting their claims for profit.

Earlier this year, long after the hearing I dealt with at Central London County Court in 2012, he was sent to prison.

The facts of the case are set out here:

The case illustrated to me two particular points.

The first was the comprehensive net of regulatory provisions which forbade such activity.

First there are the provisions which preclude people from pretending to be solicitors. Section 20 of the Solicitors Act 1974 (as amended by the Legal Services Act 2007 on 8th March 2008) states that no unqualified person may act as a Solicitor and any person who contravenes this prohibition is guilty of an offence and liable on conviction on indictment to imprisonment for a term of up to 2 years or to a fine or both.

Section 21 of the Solicitors Act 1974 catches an unqualified person who wilfully pretends to be or takes or uses any name title additional description implying that he is qualified or recognised by law as qualified to act as a solicitor and provides that he shall be guilty of an offence and liable on summary conviction to a fine.

Secondly, there are the provisions which provide criminal sanctions for unregulated persons, carrying out litigation or exercising rights of audience. Section 12 of the Legal Services Act 2007 establishes a number of reserved legal activities including inter alia the exercise of a right of audience and the conduct of litigation and makes them subject to statutory regulation. Section 13 provides that the question as to whether a person is entitled to carry on an activity which is a reserved legal activity is to be determined solely in accordance with the provisions of this Act and a person may only carry on such an activity if the person is authorised or exempt within the statutory scheme.

Section 14 of the Legal Services Act 2007 establishes an offence for a person to carry on an activity which is a reserved legal activity unless that person is entitled to carry on the activity such offence being punishable on summary conviction to a term of imprisonment of up to 12 months or a fine or conviction on indictment to a term not exceeding 2 years or a fine or both.

Section 17 of the Legal Services Act 2007 creates a further offence for a person wilfully to pretend to be entitled to carry on any activity which is a reserved legal activity when that person is not so entitled or with the intention of implying falsely that that person is so entitled to take or use any name title or description.

Pursuant to Section 18 and 19 of the Legal Services Act 2007 the Act further defines who are authorised persons and who are exempt persons.

Schedule 2 of the Legal Services Act 2007 the conduct of litigation is defined to mean the issuing of proceedings before any Court in England and Wales, the commencement prosecution and defence of such proceedings and the performance of any ancillary functions in relation to such proceedings such as entering appearances to actions.

Thirdly, any fee arrangements are likely to be void and unenforceable, in this context. Fee arrangements provided by non-qualified persons, unlawfully conducting litigation on a “no win-no fee” basis, are usually unlawful contingency fee arrangements and void at common law and contrary to and prohibited by the statutory scheme for Conditional Fee Agreements set out in the Courts and Legal Services Act 1990.

Finally, there are the provisions which apply to the provisions of claims management services. Perhaps most significantly, by Section 4 of the Compensation Act 2006 a person is prohibited from providing regulated claims management services unless he is authorised or exempt or a waiver has been granted or he is an individual acting otherwise than in the course of a business.

Pursuant to Section 7 of the Compensation Act 2006 a person commits an offence if he contravenes Section 4 and is liable on conviction on indictment to imprisonment for a term not exceeding 2 years or to a fine or to both or on summary conviction for a term of imprisonment not exceeding 12 months or to a fine not exceeding the statutory maximum or to both.

The Compensation (Regulated Claims Management Services) Order 2006 Regulation 4 provides that services of the kind specified are prescribed in relation to the making of a claim of a kind described in paragraph 3 or in relation to a cause of action that may give rise to such a claim.

Under Regulation 4(3) the kinds of claim include claims for personal injuries as defined by the Civil Procedure Rules 1998 which includes any claim which may give rise to a claim for inter alia a mental illness such as depression or “damages for a mental impairment” which would include an award for injury to feelings or in respect of claims in relation to employment including discrimination claims.

The second point that struck me about the case was that all these measures, providing consumer protection to the public were effectively worthless, if, there was no enforcement of them by the public authorities: leaving in this case a vulnerable section of the public exposed for many years to the actions of a criminal and without access to justice.

Non party costs applications against credit hire companies

An important issue in credit hire litigation if a claim fails, is the extent to which a successful defendant, can either enforce its claim for costs against a claimant, or seek an order for non party costs against the credit hire company.

An interesting judgment was handed down earlier this year, on that issue. Running to 46 pages, the District Judge examined the substantive law, the procedural rules, the authorities and all the arguments with great care before concluding that it would be inappropriate to make a non party costs Order.

A copy of the judgment can be found here: Nathanmana-v-Uk Insurance Judgment

The third way

When a client receives a bill for a solicitor’s work, it may provoke a gamut of emotions from gratitude to anger, and anger normally arises from a belief that the client has been overcharged, or is being asked to pay for work of poor quality or work that has been undertaken negligently, in turn causing the client to suffer further financial loss.

In such circumstances a client’s options should they wish to take matters further are threefold. The first can be an action for damages for professional negligence, the second can be an application for a solicitor-client detailed assessment in the SCCO or a District Registry, and the third can be a complaint, initially to the solicitor, but then almost inexorably to the Legal Ombudsman.

The question of which of these routes is to be pursued, will normally follow from correctly identifying what the subject matter of the complaint is, and what remedy will be sought. However, in a post LASPO 2012 world, where success fees are irrecoverable as is the cost of ATE insurance, if it can be obtained at all, the ability of a client to fund further legal proceedings against his former advisors is likely to be severely curtailed, possibly rendering professional negligence proceedings or a solicitor-client detailed assessment unviable.

The Legal Ombudsman route becomes of necessity, a client’s only real chance of redress, because in making a complaint to the Legal Ombudsman, a client does not expose themselves to the prospect of an adverse costs Order, noting that particularly in the context of a solicitor-client detailed assessment, the 20% rule loads the dice against a client recovering the costs of those proceedings. In addition, because the process is inquisitorial, much of the “heavy lifting” in terms of determining the complaint, will be undertaken by the Legal Ombudsman, giving an unrepresented individual a greater prospect of success.

The Legal Ombudsman’s role has been expanded in recent years, to include complaints about claims management companies as well as solicitors and other lawyers. A significant proportion of complaints against solicitors are complaints about fees, and in 2014 the Legal Ombudsman published a report “Complaints in Focus: No win, no fee agreements”, which identified an increasing concern with conditional fee agreements, including particular problems with the transfer of risk of unrecovered costs, lack of clarity in terms and conditions, a lack of explanation of complex terms and conditions, aggressive marketing and a lack of robust vetting.

In respect of claims management companies, the report “Complaints in focus: Claims management companies” identified that 40% of complaints against claims management companies are about fees, including unjustified fees, the failure to refund upfront fees and contractual disputes about fees.

It follows that when a dispute about fees arises and a complaint is made, a solicitor will need to know with clarlity, the basis upon which the Legal Ombudsman will reach a decision, and assuming the worst, how that decision might be capable of challenge.

The Legal Ombudsman is the ombudsman scheme established by the Office for Legal Complaints under the auspices of the Legal Services Act 2007. The details of the scheme are contained within the Scheme Rules, the latest version of which is January 2015. The scheme closely parallels that which applies to financial services albeit that the source of its jurisdiction and its context is distinct. It is open principally to consumers of legal services who are individuals, or small businesses at micro-enterprise level or charities or clubs with an income of less than £1 million per annum, who have a right of complaint.

The Legal Ombudsman will usually require that a complaint is made first to the solicitor’s firm for redress under their internal complaints procedure, but if that is not addressed within 8 weeks or inhouse resolution is not possible, or there are other exceptional reasons, a complainant can ask the Legal Ombudsman to deal with the complaint directly.

There is a limitation period of 6 years from the date of the act or omission, with provision for a later period of 3 years from the date of knowledge of the act or omission, and the Legal Ombudsman retains a discretion to extend time. Detailed rules of procedure establish an inquisitorial system for the garnishing of evidence, the receipt of representations, the grounds on which a complaint may be dismissed or discontinued and the possibility of an oral hearing, though most complaints will be resolved “on the papers”. The criteria by which a complaint will be determined are set out in rules 5.36 and 5.37:

5.36       An ombudsman will determine a complaint by reference to what is, in his/her opinion, fair and reasonable in all the circumstances of the case.

5.37       In determining what is fair and reasonable, the ombudsman will take into account (but is not bound by):

(a)         what a decision a court might make;

(b)         the relevant Approved Regulator’s rules of conduct at the time of the act/omission; and

(c)          what the ombudsman considers to have been good practice at the time of the act/omission.

It is these rules, which have led to the fearsome and often misunderstood proposition that the Legal Ombudsman is not bound to apply the law: what it means is best addressed by example. For instance, when looking at a solicitor’s conduct, in a case where there has been negligent advice, but that advice has not resulted in any financial loss to the client, t a court trying a professional negligence action would be bound to dismiss the case on the grounds of lack of causation of loss. The Legal Ombudsman is not bound to apply the law of causation and reach the same conclusion, and can simply give a remedy for poor service.

The Legal Ombudsman himself, is a creature of public law, his actions are amenable to judicial review and is accordingly bound by well established principles of public law to reach a decision which is legal, according to his powers.

Thus in this sense, the Legal Ombudsman is very much subject to law, and a solicitor aggrieved by a Legal Ombudsman’s decision is entitled to challenge the decision in the High Court. In the context, of a dispute about fees, given that the Legal Ombudsman has the power to award compensation of up to £50,000 or an unlimited ability to reduce fees, it can be seen that in a real sense the remedies available under the scheme, exceed those which would be available to a Costs Judge on a detailed assessment.

In general it can be observed that judicial reviews are hard to run successfully. In procedural terms, any claimant faces a number of hurdles, from the tight time limit that proceedings should be brought as soon as possible, to the requirement to grant permission. In substantive terms, the High Court, is usually prepared to afford a public law decision taker, acting in their particular area of expertise a degree of deference. But judicial reviews can be brought and won, against the Legal Ombudsman

The grounds upon which a decision of the Legal Ombudsman can be impugned are the full array of grounds which can be deployed in public law challenges in any context. These include ultra vires, jurisdictional error, error of law, error of fact, fettering a discretion, insufficient inquiries, bad faith or improper motive, unfairness, inconsistency, irrelevancy, Wednesbury unreasonableness, procedural unfairness, proportionality and also human rights, such as A1P1, where money is involved. Perhaps the most fruitful area for challenge lies, in the field of natural justice, including the obligation by the Legal Ombudsman to give a lawyer a chance to make representations and to give reasons for his decision.

Two relatively recent decisions of the High Court, illustrate some of the issues which arise in fee disputes. In the case of Stenhouse v Legal Ombudsman & Pasture [2016] EWHC 612 (Admin), this case concerned a dispute over a barrister’s fees, incurred on a Direct Access basis. A jurisdictional challenge to the Legal Ombudsman’s decision failed, but a challenge on the grounds of natural justice succeeded. The barrister’s conduct had been unfairly traduced in the decision, because the first he had known of the allegation was when he read about it in the decision.

In the case of Mitchell and Co v Legal Ombudsman and Patel [2016] EWHC 1933 (Admin) conversely, a solicitor’s challenge to a decision that he repay his client £34,000 in fees incurred under a contingency arrangement, on the basis of  (1) that the Ombudsman lacked jurisdiction to direct the repayment; (2) alternatively, that the Ombudsman’s decision was not founded upon the quality of the advice provided to the client, as he claimed, but rather on the fairness of the contingency fee agreement; and (3) the decision to direct repayment was irrational or unreasonable, failed on all grounds.

Overall, then the conclusion that I draw is that when a client disputes a solicitors’ fees, the cumbersome and expensive procedure of a solicitor own client assessment, may prove less advantageous than a complaint to the Legal Ombudsman, for the reasons outlined above. However, the popularity of this approach will hinge on whether the quality of the Legal Ombudsman’s decision making, is perceived to be comparable to a rigorous approach by a judge and whether in the years to come the current impasse in obtaining adverse costs protection can be overcome.