Spring Lecture Tour

Already the diary is filling up for the first few months of next year, and so, precipitate as it may seem, I have had to bring forward my booking arrangements for my spring lecture tour.

If you would like me to come and give a talk to your firm, please do drop me a line and we can discuss matters further.

I charge a reasonable fee and some travelling expenses, and would like some lunch and coffee.

Popular seminars that I deliver include:

Costs budgeting

Clients, retainers and bills

Costs and commercial clients

A conversation on costs

Soon the clocks will be changing and winter will have arrived, but the next few months usually pass very quickly. Mince pie anyone?

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A new model for group litigation

This summer has seen the conclusion of a number of group actions, including the RBS Rights Issue litigation and the failed attempt at collective proceedings of Merricks v MasterCard Incorporated [2017] CAT 18 under section 47B of the Competition Act 1998. All of these group actions have thrown up interesting issues on the relationship between group litigation or “class action” and litigation funding, which will prove food for thought in the years to come.

Group litigation is on the rise. The 1980s and 1990s saw a series of pioneering group actions in the fields of product liability and personal injury, which in turn led to judges developing a series of principles for the efficient management and disposal of group litigation. These in turn found their way into the Civil Procedure Rules, in particular part 19, practice direction 19B and part 46, which deals with costs. These actions may historically have benefitted from Legal Aid funding, or the backing of trade unions.

The demise of Legal Aid and the introduction of LASPO 2012 with the removal of recoverable additional liabilities left an effective funding gap: whilst for example personal injury claims continue to benefit from a protected costs regime, through for example, qualified one way costs shifting, other areas such as environmental litigation where there is a need to insure against adverse costs have been much more problematic.

The way this gap can and is being filled, is through group litigation to achieve economies of scale and to obtain litigation funding, which can be used to purchase ATE insurance and fund what can be very expensive disbursements.

The important group actions of the second decade of the 21st century, will include environmental litigation, shareholder actions, competition claims, and particularly claims for breach of data protection and privacy laws: a single data breach of personal information held by a large plc could affect tens of thousands of customers or employees.

In turn, the compilation and structuring of cohorts of claims and funding them, will pose unique challenges for solicitors in terms of constructing a litigation scheme, complying with increasingly onerous requirements for client care and regulatory considerations, and measuring and recovering costs. Information technology, and artificial intelligence will assist this process and also throw up more problems which will have to be anticipated and managed.

I therefore turn to what I consider can be described as the key considerations when contemplating venturing into the field of group litigation. Overall I am optimistic that information technology and increasing access to capital, through litigation funding will facilitate group litigation but also lower barriers to entry into what is a very profitable line of business. Even a small well run firm, provided it can access the necessary expertise, technology and capital, can rapidly step up to handle this challenge.

The starting point for group litigation will inevitably be “an event”, causing harm to large numbers of people. It will become apparent that there has been a disaster, a large scale data breach, a well publicised breach of competition law, a product liability scandal, a chemical leak or some other event giving rise to a cause of action.

A solicitor who realises that there is a business opportunity and wishes to act for the victims must then carefully set about constructing a litigation scheme, which satisfies regulatory requirements, is properly funded, fair to the clients and which will profitable at the end of the day.

Underpinning every consideration are the regulatory requirements. Many solicitors will not have read the Code of Conduct since law school, but it contains clear and precise directions on how clients must be treated fairly, provided with the best possible costs advice, the restrictions on advertising and payment of referral fees. Solicitors must also consider the requirements they are subject to, when undertaking insurance mediation activities and now the role of the FCA, which is an issue when funding litigation, if clients are being provided with credit, for eg the funding of disbursements.

Client relationships have a new dimension, when undertaking group litigation. How do you take instructions from 10,000 clients? The usual way is to structure a management committee of representative clients, who have authority to act on behalf of all the clients, effectively being the body which gives instructions to the solicitors in a manageable way. This in turn means that an agreement to provide authority to act must be made between each client and the committee, and then between the committee and the solicitors. Both agreements are usually contained in one document. This is often described as a litigation management agreement.

The drafting of a litigation management agreement poses further challenges. A solicitor will be conscious that it should contain provisions which deal with the usual incidences of litigation, a procedure for settling the case, or a formula for distributing the proceeds to clients who may have different degrees of interest. Can it legitimately commit the cohort of claimants to agreeing unlimited funding advances, ultimately repayable from damages? Can it grant a unilateral power of variation of the terms of the retainer to the solicitors? Would these provisions infringe the obligations in the Code of Conduct to act fairly?

In a group action, the need for funding will be evident and the funding requirements will run into millions. How can this money be obtained, as few firms will have a “war chest” which they could or would wish to use to fund the litigation?

Litigation funding is often used as a synonymous term for third party funding, but it is wider than that. Third party funding is on the rise due to the enormous thirst litigants have for capital. A firm such as Burford Capital, has seen its share price rise from just over 400p per share a year ago, to 1135p at the time of writing, as business is booming.

The drafting of a funding agreement is an intricate business as it must lock in, with the litigation management, and also the terms of the ATE insurance policy, it will invariably be used in part to purchase. The suite of documents would ideally be drafted together.

But third party funding, where the funder asks for three times their outlay or a percentage of damages recovered, whichever is higher, as their fee is expensive. There are other options available.

The litigation against the West Bromwich Building society last year, by the Property118 action group, was crowded funded, using the platform www.crowdfunder.co.uk. It’s campaigns are still ongoing. There is no reason in principle, why crowdfunding cannot be used more widely for group litigation, but it requires detailed knowledge of the regulatory provisions, special purpose vehicles and potential liabilities eg for non party costs to structure efficiently.

On the horizon, is an even more interesting potential development that of raising litigation funding through an initial coin offering (ICO), a cryptocurrency. Although bitcoin remains the best known currency, anyone can launch an ICO, which involves selling cryptographic tokens to investors. These can represent anything from a currency to exclusive access to a service, or potentially a share in the proceeds of litigation. Regulators are globally playing “catch up” with this phenomenon, where already there is a global market estimated at £136 billion.

A solicitors retainer in group litigation will almost invariably be a variant of a conditional fee agreement (CFA). But this could be a collective CFA (CCFA) made with a special purpose vehicle or a normal CFA or a CFA Lite. Almost inevitably a solicitor will charge a success fee. But this in turn, as it will be payable out of the proceeds of the action, will necessitate a priorities agreement, between the litigation funder, the ATE insurer and the lawyers, as a scenario might arise where there would be insufficient money recovered to pay all these parties in full. Moreover, a solicitor will be mindful of the need to ensure that the client’s interests are protected too, with a given percentage of recoveries ringfenced for the client.

The efficient running of group litigation will be dependent on information technology. A solicitor can expect to obtain his clients through the Internet and should consider the construction of a “portal” which acts as an advertisement, but also permits a client to complete retainer documentation, to signify agreement to giving authority to a committee, and which provides information to the client. This in turn requires consideration of regulatory requirements and also cyber security.

Information technology also raises interesting dilemmas for the calculation of individual costs. The cost of servicing a client through email, who is simply part of the cohort, will be very low, well under a £100. At a press of a button, 10,000 standard letters providing a monthly update can be sent. How does one quantify and claim for such work which is delivered at near zero marginal cost? In earlier litigation 1/3 of a unit has been allowed for paralegals stuffing form letters into envelopes and paying for a stamp. In the digital age such justifications can’t apply. The humble unit, however, may not yet have had its day.

From the defendant’s point of view, any costs Order made as part of the GLO will usually provide for several liability on the part of the claimants. There are few defendants who will contemplate with equanimity 10,000 or more sets of enforcement proceedings, each to recover a fraction of their total costs.  Accordingly a defendant will scrutinise hard the provision made by the claimants for ATE insurance, be concerned to find out the identities of the litigation funders, and consider at an early stage, applications for security for costs. The RBS Rights Issue litigation demonstrates how important early applications are, and astute litigators will also be aware of the pressure such applications can place upon claimants.

A version of this article first appeared in Litigation Funding magazine October 2017.

Creative accounting

In the last few months I have been undertaking an increasing number of detailed assessments where costs management orders have been made in the substantive proceedings and there are “budgeted costs” and phase totals to consider when assessing the costs, acting for both receiving and paying parties.

The hearings have been illuminating both for the problems that are emerging when carrying out the assessment, but also for the fact that many of the problems are created at the time when the costs management order is made but not spotted and then lie placidly hidden within the file, until bursting into sight again some years down the line. So what follows are some personal thoughts, on the problems and potential improvements that can be made to the budgeting process.

Take ownership

All too often the budget is outsourced, to a costs draftsman or costs lawyer, who is left to get on with the budget. The reasons for taking this course can range from a belief that it is more efficient, needs a specialist knowledge of costs or simple disinterest in the turgid exercise of creating Precedent H.

But unless there is extremely close co-operation between the drafter and the solicitor actually running the case, there will be a plain disconnect between the budgeted costs and what the case actually requires. This will only be exacerbated, if the budget is prepared a significant time before the CCMC. There is no substitute in my view, for the solicitor running the case, going through the Precedent H, line by line, and checking or challenging what is put in it by the drafter. The profitability of the case depends upon getting a robust budget, fit for purpose.

Take stock

I still undertake a significant amount of personal injury litigation and have devised my own project management form, whereby I list the assumptions that I have made about the case, and then plot out my fees. Drafting particulars of Claim, drafting schedule(s) of loss, conferences, part 35 questions, brief fees for CCMC and PTR, refresher fees, advices, approval hearings, a joint settlement meeting etc and provide this to my instructing solicitor for inclusion in the budget.

This “project management” function extends to all aspects of the budget, including getting quotations from expert witnesses, and particularly a solicitor sitting down and estimating the time that will be required for key pieces of work, such as disclosure, and drafting of witness statements. The Precedent H will never be perfect, but at least it should be informed.

Update

“Phew. That’s that done. Lets get on with the case.” is a recipe for disaster and selling the ultimate costs claim short. There is scope within the rules in part 3 CPR, to revise budgets when there have been significant developments in the litigation. If there needs to be a further round of expert evidence, or further experts instructed, plainly the budget should be revised.

But I would go further and suggest that every time the case comes back to court, there should be scope to revise the parties budgets. And this should be seized by the paying party as well as the receiving party: budgets can go down as well as up, and if the experts are largely agreed, the trial length and its costs might fall to be revised downwards. Moreover if there is a significant gap between the submission of Precedent H and the CCMC hearing, do an updated Precedent H, a few days before.

Attendance

I can see no need for there to be more than one advocate at a CCMC, who should be competent to conduct both the advocacy for the directions and the costs management. Costs and costs budgeting is a necessary skill set for all advocates. Moreover it removes duplication and the need to co-ordinate submissions, ensuring that matters are more likely to be addressed holistically.

Good reason arising from flaws with the budgeting process

Problems that have recently have arisen, include budgets which have significantly underestimated costs for phase totals, but for which there is no good reason for a  departure and budgets which were prepared 4 months before a CCMC, which massively understated incurred costs when the budget was approved, which were then sought to be later claimed in the Bill.

Accuracy in calculating incurred costs is important. Budgets which underestimate incurred costs, might be misleading, and falsify the premise on which budgeted costs are set, opening the door for a paying party to argue there is good reason to depart from the budgeted costs, as a false picture was presented at the CCMC.

Trust and fiction

I always read carefully the Precedent Q, I receive with the Bill when acting for  a paying party to look at the costs claimed against the budgeted costs. God knows why, because it could be a complete work of fiction, and I would have very little means of discovering that.

Although Bills are divided into many, many parts, with work attributed to phase totals, I have no means when acting for a paying party of doing more than the crudest cross check as to whether the costs claimed actually have been properly attributable to the correct phase. The scope to conceal work within the Bill or indulge in creative accounting is enormous.

Revised budgets

Rule 3.18 CPR is clear that when applying the budget, it is the last approved or agreed budget which is applied. The Rules contemplate that a budget will be revised at various points in the case. But what does one do with budgeted costs, which by the time a further CCMC takes place, have by reason of effluxion of time become incurred costs? Practically how does one draft the Precedent H, given that there is no column for incurred costs which were once budgeted? Which column do they go in then? And if it is incurred, then on the last approved budget, the former budgeted costs will escape the stricture of costs budgeting.

Apportionment of phase total

Say £20,000 is allowed as a phase total for trial. The costs claimed on the Bill amount to £30,000. But included within the trial costs, are VAT’able and non-VAT’able disbursements, fees some of which attract a recoverable success fee, and others of which do not. Which elements of fees and in what proportions, of the £30,000 is allowed as a phase total? There is no guidance, and some judges are adopting a parri passu approach. This can have a very significant effect on the total claim for costs.

Perhaps most significantly, I have not to date, found that costs management is making for shorter detailed assessment hearings, not least because the incurred costs still have to be gone through, and the costs budgeting arguments simply add to the overall time required, to assess a bill.

Costs budgeting 2017

On 16th October 2017 I am speaking at the Law Society Commercial Litigation Conference in Chancery Lane on the subject of costs budgeting.

Full details of the conference can be found here:

https://events.lawsociety.org.uk/ClientApps/Silverbear.Web.EDMS/public/default.aspx?tabId=37&id=1798&orgId=1&guid=07979564-cb9b-404e-ae6c-190c60330413

I understand that there are still a few places left, but for those who cannot attend the conference, I have placed a copy of the paper that I am delivering here:

Costs Budgeting A presentation for the Law Society PDF

I am now undertaking a significant number of detailed assessments, both for paying and receiving parties, in budgeted cases where a lot of new issues are being thrown up about the budgeting regime. In the next couple of posts on this blog, I shall consider those further.

 

Hard times

The Civil Proceedings Fees Order 2008 amongst other horrors, provides a set of convoluted provisions for remission of court fees for people of modest means.

A complicated scheme is set up by article 5 and schedule 2 of the Order, providing that if a gross monthly income and/or disposable income test is met, then a party can be granted a fee remission.

The amount of detail required to complete a fee remission application, and the supporting documents is frankly eyewatering, and must be completed on a “per fee” basis, not a per case basis, so potentially requiring multiple applications during the same piece of litigation.

I am seeing points of dispute arise that paying parties can take advantage of a receiving party’s right to a fee remission to argue that they should not have to pay court fees, which may have been paid by the receiving party.

The arguments put forward by paying parties are that in circumstances where court fees are paid when a client is entitled to a remission, the payment constitutes an unreasonable expense, as the receiving party could have avoided the expense entirely. The argument is not the same as, but akin to, an argument that the failure to claim a remission is a failure to mitigate.

Such an argument is likely to be misconceived for two reasons. The first is that the sheer amount of time a solicitor must spend, to complete the applications will in many cases outweigh the savings to be gained from doing so. The decision to pay the court fee may actually be a conscious decision to adopt a cheaper course of action.

The second reason arises from a point of law. Many personal injury practitioners will be familiar with the battles a decade ago, where it was argued on the part of the insurers that they could reduce their claims for care, by requiring a claimant to claim their entitlements to social care from the public purse, and if they did not, that claimant was acting unreasonably in failing to mitigate their loss and the sums which could have been obtained from the state, should be deducted from the damages they were claiming for care costs.

In the case of Peters v East Midlands Strategic Health Authority [2010] QB 48, the Cout of Appeal found no difficulty in finding that the argument was misconceived, as the claimant had a right to claim damages from a tortfeasor without any requirement to mitigate their loss by reliance on the public purse:

53 Having reviewed these authorities, we can now express our conclusion on this issue. We can see no reason in policy or principle which requires us to hold that a claimant who wishes to opt for self-funding and damages in preference to reliance on the statutory obligations of a public authority should not be entitled to do so as a matter of right. The claimant has suffered loss which has been caused by the wrongdoing of the defendants. She is entitled to have that loss made good, so far as this is possible, by the provision of accommodation and care. There is no dispute as to what that should be and the council currently arranges for its provision at The Spinnies. The only issue is whether the defendant wrongdoers or the council and the PCT should pay for it in the future.

54 It is difficult to see on what basis the present case can in principle be distinguished from the case where a claimant has a right of action against more than one wrongdoer or a case such as The Liverpool (No 2) [1963] P 64 where a claimant has a right of action against a wrongdoer and an innocent party. In The Liverpool (No 2) , those two cases were treated alike. In our judgment, the present case should be treated in the same way. It is true that in the present case, the claimant’s right against the council is the statutory right to receive accommodation and care. But the fact that there is a statutory right in the claimant to have his or her loss made good in kind, rather than by payment of compensation, is not a sufficient reason for treating the cases differently.

If that is the position in relation to damages, it is difficult to see why it should be any difference in relation to costs, and a claimant declining to rely on a statutory right to fee remission and actually paying the court fees should be able to recover them as of right from the tortfeasor.

The Imitation Game

QUOCS (or QOCS as some term it) is one of the more sensible aspects of the LASPO 2012 reforms: in return for the abolition of recoverable success fees and ATE premiums, the insurance industry and other compensating bodies were made subject to a regime of one way costs shifting, which was broadly fair and ensured access to justice for injured people.

This is not to say that the scheme is not without its rough edges: there are still quite a number of points, which fall to be worked out.

Earlier this year I wrote about one of them, namely to what extent in a multi-party action successful defendants could recover their costs from any pot of damages that a claimant won against an unsuccessful defendant.

The article is here:   http://costsbarrister.co.uk/uncategorized/quocs-and-nihl-claims/.

Rather sooner that I expected, the arguments I formulated have found favour with the County Court bench and have been accepted in this case:  Bowman v Norfran Aluminium HH Judge Freedman County Court at Newcastle 11th August 2017 Approved judgment.

I am grateful to Caroline Cousins of A and M Bacon, for kindly forwarding me a copy of the judgment and acknowledging that the article on this blog played some useful role in the arguments put forward successfully on the part of the claimant.

I do not yet know if there will be an appeal from this judgment. There are a number of potentially very good arguments on the part of a defendant in this situation, which do not feature in the judgment and may or may not have been raised in oral argument.

The point is now starting to gather traction: I am arguing it next month in another case, and so yet another area of satellite litigation is launched.