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: http://www.chba.org.uk/for-members/library/cfas 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.

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