The Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO) was a piece of legislation which introduced a number of very important changes to civil litigation costs and funding.
One of those changes was the abolition of the recovery of additional liabilities inter partes for retainers created on or after 1 April 2013 (save for some limited exemptions). This meant that additional liabilities were to be paid by clients, and on personal injury matters, it was foreseen (and currently happens in practice) that they would be deducted from the client’s damages. Additional liabilities are therefore now a solicitor/own client expense.
The case of Herbert -v- HH Law Limited is a case that any law firm conducting personal injury litigation (and deducting additional liabilities from clients’ damages) should read. The case relates to an Appeal by the Defendant Solicitors (“HH”) of decisions made by District Judge Bellamy at Sheffield County Court in April and June 2017. The decisions on Appeal were:
The reduction of a success fee from 100% to 15%;
Approval of a cash account in terms which treated the payment of an ATE Insurance Premium as a solicitor’s disbursement; and
Ordering HH to pay the costs of the assessment and refusing to inquire further into HH’s contention that the retainer of the Claimant’s new solicitors (JG Solicitors Limited) was illegal and/or unenforceable.
The appeal was heard on 21 March 2018 before Mr Justice Soole at Sheffield High Court, where he dismissed all 3 grounds.
A Risk Assessment should always be prepared in respect of any Conditional Fee Agreement. The LASPO reforms have not resulted in risk assessments no longer being required (a point unsuccessfully argued by HH). A Risk Assessment is a very important document that goes to the heart of the calculation of the success fee. It is a key document for the Court to consider in any solicitor/own client dispute over the level of a success fee charged. It is important that law firms do not take a ‘blanket’ approach to success fees. Law firms should calculate success fees individually on each case, taking into account the specific facts and risks.
In this case, the success fee was claimed at 100%, but by virtue of the LASPO reforms was subject to a maximum cap of 25% of the total amount of general damages for pain, suffering, loss of amenity and damages for past financial loss. The Appeal Judge endorsed the success fee allowed by District Judge Bellamy, which was based on the findings that the facts of the case were straightforward, the nature of the injury was minor soft tissue damage and whiplash, there was no time off work and it was likely that the case would be settled for a modest amount in a short period of time.
The Appeal Judge stated:
“in the circumstances of this particular case, allowing for the fact that the modest disbursements were funded by the solicitors for a fairly short period, the appropriate success fee was 15%……”.
This case therefore represents a useful guide as to what the success fee should be on straightforward and low value personal injury work.
An ATE insurance premium should be treated as a solicitor’s disbursement and should therefore be included in any final invoice to a client and in any solicitor/own client bill/breakdown of costs.
In this case, the Defendant did not treat the ATE premium accordingly and therefore failed to properly include it within the final invoice. The result of this was that when District Judge Bellamy considered and approved the cash account, it left a balance of £349.00, which was ordered to be refunded to the Claimant (despite the Defendant actually paying the sum to the insurer!).
The Appeal Judge said the following:
“if the solicitor fails to include the item in the delivered bill of costs, he has to bear the consequence; subject to an application for leave to withdraw the bill and deliver a fresh bill”.
It is therefore very important for any firms which conduct litigation work under Conditional Fee Agreements (with the support of ATE insurance) to ensure that Risk Assessments are properly prepared for each case and that ATE insurance premiums are included in final invoices to clients.
This blog was prepared by Andrew McAulay, who is a Partner and the Head of the Costs and Litigation Funding Team at Clarion. He can be contacted on 0113 336 3334 or at email@example.com.
The case of Tibbles v SIG PLC , dealt with issues of allocation and ‘prompt recourse’ which directly affected the Claimant’s costs recovery.
The Court originally allocated the matter to the small claims track, which the Claimant’s solicitor disputed and the matter was successfully reallocated to the fast track. The Claimant was successful at Trial and was awarded costs ‘on the standard basis to be subject to detailed assessment, if not agreed’. The Claimant subsequently prepared a bill of costs and commenced detailed assessment proceedings. The Defendant argued that the Claimant was only entitled to small claims track costs whilst the matter was within the remit of the small claims track and entitled to fast track costs post allocation to that track.
Within the detailed assessment proceedings, the Claimant made an application to seek an order under CPR 3.1(7) or CPR 40.12, to vary the order and reallocate the entire matter to the fast track. The District Judge varied the order accordingly. The Defendant successfully appealed that decision and the Claimant therefore appealed to the Court of Appeal.
The Court of Appeal upheld the decision. In essence, it held that the Claimant should have applied more promptly to vary the order and amending the order would be unfair on the Defendant who had relied on it.
What was interesting in the Judgment was what Rix LJ said at paragraph 48:
“There is nothing in civil procedure about which solicitors can justifiably be expected to know as much, as matters of costs”.
Whilst the above case relates to a procedural issue, it does feed into a topic which we (as a legal costs team at Clarion) regularly encounter difficulties; orders not being prepared properly or failing to include basic, but salient points.
Here are some basic costs related points that litigators should always think about when preparing consent orders, tomlin orders or any costs settlement agreement:
Pursuant to the above case, think about any track issues. If you do have a case which flips between tracks, then deal with the matter immediately upon reallocation to the higher track. If you fail to do so then maybe not all is lost because you could word the order for costs as follows:
“The Defendant do pay the Claimants costs (based on fast track costs for the entirety of the case) on the standard basis to be subject to detailed assessment, if not agreed”.
Always use the words incidental or occasioned by. For example, “the Defendant do pay the Claimant’s costs of and incidental to the Claimant’s application for specific disclosure to be subject to detailed assessment on the standard basis, if not agreed”. The words incidental or occasioned by are very powerful and can in most circumstances broaden the remit of the costs agreement.
Think about payments on account. Most matters are now budgeted and in light of the decision in ‘Harrison’ payments on account should always be sought. It is much better to receive money sooner, rather than later.
When dealing with the payment of money always make the date for payment clear. Don’t just include a date, include a time i.e. by 4:00 pm on xxxx date. Also include the words ‘clear funds’. It is much better to receive money which is cleared and immediately accessible rather than a cheque which can take 3-5 days to clear.
Always ensure that the agreement to pay costs makes clear whether the assessment is on the standard or indemnity basis. If the order is silent, then standard basis is the default. You might be entitled to indemnity costs for a specific period, make it clear in the order or agreement.
Always include the words “to be assessed, if not agreed”. We have ran successful arguments (acting for the paying party) that an order for costs has not provided for an assessment and the Court therefore did not have the power under the order to hear the detailed assessment.
Where the matter is subject to fixed costs, you should quantify the amount and include it in the order. Failure to do this can result in paying parties challenging the amount of fixed costs i.e. premature issue of proceedings or certain disbursements are unreasonable. It would be wise to agree the amount of fixed costs and define it in the settlement agreement to prevent such disputes occurring.
In respect of interlocutory matters, ensure that the order provides for an “immediate” assessment. Failure to do so can create a technical argument that you do not have authority to commence detailed assessment proceedings until the claim has concluded (allowing the paying party to delay payment of the costs). An immediate assessment can create a significant tactical advantage.
Think about counterclaim costs. It may be that the claim and counterclaim are both successful and therefore the case of Medway Oil and Storage Co Ltd v Continental Contractors Ltd  needs to be considered. However, it may be that you win your claim and successfully defend the counterclaim. Make it very clear (in the order for costs) that the Claimant is entitled to both the costs of the claim and the costs of the counterclaim. Again, lack of clarity could cause confusion and would result in arguments on detailed assessment.
It is also worth making clear the position in relation to interest. The default position is 8% (see Judgments Act 1938). However, we are increasingly seeing paying parties successfully reduce interest to a much lower rate given that the current Bank of England base rate is 0.5% (please see https://clarionlegalcosts.com/2017/06/20/interest-on-costs/). Therefore, it is advisable for the settlement agreement to state that interest is agreed and notably include a provision that interest is to be calculated at 8% from the date of the order for costs. This provides additional protection, therefore potentially preventing a paying party from attempting to argue a lower rate of interest (and a reduced time period) at a later stage.The inclusion of some of the points highlighted above will create a more robust order for costs and should result in a quicker and more economical compromise with the opponent. What you do not want to do is work hard on a case, win it and then get bogged down in technical costs issues on detailed assessment which could have easily been avoided by a more clear and well drafted final order/agreement.
The above are just some examples of difficulties that we have seen in the past. There will probably be many more, and if you have any examples, then please feel free to share them through this blog.
This blog was prepared by Andrew McAulay who is a Partner at Clarion and the Head of the Costs and Litigation Funding team. Andrew can be contacted on 0113 336 3334 or 07764501252 or at firstname.lastname@example.org
The claim was brought under CPR Part 8 for a limitation direction under Section 1028 of the Companies Act 2006. The underlying claim related to three disputed invoices rendered by the First Claimant to the Defendants. The First Claimant had subsequently been struck off the register and dissolved.
The Court dismissed the claim because the First Claimant could not demonstrate that the dissolution of the company had caused the claim not to be brought, and therefore the Court declined to give a limitation direction.
The Court ordered the First Claimant to pay the Defendants’ costs on the standard basis. The Defendants applied for Mr Wayne Williams, the sole director of the Claimant, to be joined as Second Claimant to the proceedings, for the purposes of making an application for a non-party costs order against him.
The Court made the order joining Mr Williams (Second Claimant) and then gave further directions for the application against him to be dealt with on paper. The Judgment essentially deals with those submissions and the Courts determination of the application for a non-party costs order against Mr Williams.
Submissions of Interest/Note
Mr Williams gave instructions to pursue the proceedings and appeared to have funded them. The First Claimant had no assets and it was highly unlikely that they would be able to satisfy an order for costs.
In respect of a non-party costs order, a warning at the earliest opportunity should be given. The first warning of the application was made at a very late stage.
There was no suggestion that proceedings were brought in bad faith, for an ulterior motive or improperly.
Useful Information/Comments from the Judgment
Paragraph 10 – “A decision to make a non-party costs order is exceptional, but this only means that it is outside of the ordinary run of cases. In a case where a non-party funds and controls or benefits from proceedings, it is ordinarily just to make him pay the costs, if his side is unsuccessful, because the non-party was gaining access to justice for himself, and thus can be regarded as the real party to the litigation”. (this was a generalcomment about non-party costs orders).
Paragraph 11 – “However, the director of a limited company is in a special position. It is not an abuse of the process for a limited company with no assets to bring a claim in good faith. It is always open to a defendant to such a claim to apply for security for costs. The mere fact that a director who controls the company’s litigation also funds the claim is not enough in the ordinary case to justify a non-party costs order against him if the company’s case fails”.
Paragraph 12 – “A company is indeed owned by its members. But this does not mean that the shareholder is the “real” party to the claim. In law, the assets of the company (including any claim) belong to the company, and not to the members. Where the proceedings are brought in good faith and for the benefit of the company (rather than for some collateral purpose), the company is indeedthe real claimant. If it were otherwise, the principle of the separate liability of the company from its members would be eroded”.
Paragraph 13 – “Moreover, it is not an unusual thing, let alone wrong, that a director who is a shareholder of a company and who funds the company’s claim will ultimately benefit from it if it is successful. It is simply a consequence of the policies adopted by our company law, allowing businessmen to take some risks in seeking profit without incurring unlimited liability”.
Paragraph 14– “A person choosing to deal voluntarily with (or to sue) a limited liability company does so against the legal background. Any potential unfairness caused to a party who is (involuntarily) sued by such a company is remedied by the security for costs jurisdiction”.
Paragraph 15 – “Accordingly, in order to make it just to order a director to pay the costs of unsuccessful company litigation, it is necessary to show something more. This might be, for example, that the claim is not made in good faith, or for the benefit of the company or it might be that the claim has been improperly conducted by the director”.
The Court decided that this was not a case where non-party costs order should be made. The Court did not find that the behaviour of Mr Williams in controlling, funding and ultimately hoping to benefit from the claim went beyond the ordinary case of the director and shareholder of a company pursuing a legal claim (paragraph 22).
This blog was prepared by Andrew McAulay who is a Partner at Clarion and the Head of the Costs and Litigation Funding team. He can be contacted on 0113 336 3334 or at email@example.com.
The case of Jago v Whitbread Group plc relates to the Defendant’s application for an order pursuant to CPR 44.11(1) & (2), which reads as follows:
“The Court may make an order under this rule where –
a party or that party’s legal representative, in connection with a summary or detailed assessment, fails to comply with a rule, practice direction or court order; or
it appears to the Court that the conduct of a party or that party’s legal representative, before or during the proceedings or in the assessment proceedings, was unreasonable or improper.”
The Defendant requested that the Court disallow all or part of the Claimant’s entitlement to costs on the grounds of her solicitors improper and/or unreasonable conduct during the detailed assessment proceedings.
The following is a brief summary of the substantive case and detailed assessment proceedings:
The Claimant brought a personal injury claim against the Defendant, which settled for damages of circa £41,000, with costs to be subject to detailed assessment, if not agreed.
The matter settled on 4 March 2015 and on 12 March 2015, the Claimant disclosed an informal statement of costs to the Defendant. The statement of costs was a two page document which totalled £101,677.21. The statement included a success fee of 20%, various disbursements in the total sum of £537.00 and two and half hours for preparing and checking the statement of costs. The statement was signed by a senior solicitor and partner at the Claimant’s firm.
On receipt of the statement of costs, the Defendant’s solicitors responded requesting disclosure of the Claimant’s conditional fee agreement, with the Claimant’s solicitors responding on 18 June 2015, stating that the Claimant “……was not subject to a CFA in regards to this matter”.
The Defendant’s solicitors responded querying why therefore a success fee of 20% had been claimed in the statement of costs when no CFA was in existence.
On 19 November 2015, the Claimant served notice of commencement of detailed assessment, with the bill of costs totalling £91,474.41. This bill of costs was of course over £10,000 less than the sum claimed in the statement of costs. Disbursements had been reduced to £430.00 and profit costs had also been reduced. A success fee of 25% was claimed in the bill of costs, despite the correspondence on 18 June 2015 stating that the matter was not subject to a CFA.
The bill of costs was certified by the supervising solicitor and partner. A claim of three and a half hours was included by a law costs draftsman and one hour by the supervising solicitor to check the bill of costs. The certification confirmed that the bill of costs was valid and accurate (and therefore no breach of the indemnity principle).
In December 2015, the Defendants served points of dispute and shortly thereafter amended points of dispute raising a number of significant queries and challenges to the bill of costs.
On 15 January 2016, the Claimant filed and served a fresh bill of costs. Instead of amending the existing bill of costs, the Claimant’s solicitors effectively started the detailed assessment proceedings again with a redrafted bill of costs. The redrafted bill totalled £56,719.00, which represented a reduction of circa. £35,000.00 from the total sum claimed in the bill of costs served in November 2015.
In respect of the revised bill of costs, the success fee was removed. Disbursements were reduced further to £385.00 and the profit costs sought in the bill were significantly reduced. Again, a claim of three and half hours was included in the bill of costs for a law costs draftsman preparing the same, together with an hour for the supervising solicitor/partner checking and certifying the bill of costs.
On receipt of the redrafted bill of costs, the Defendant’s solicitors wrote to the Claimant’s solicitors highlighting the procedural error in that they should have simply amended the existing bill of costs rather than creating a new bill of costs.
In response to that correspondence, on 8 April 2016 the Claimant’s solicitors filed and served a further bill, this time an amended bill of costs. The total sum claimed in the bill was £55,393.19. Profit costs were reduced again together with a further reduction to disbursements. Again, the bill was signed and certified by the supervising solicitor and partner.
Master Whalan found the Claimant’s solicitors’ actions to be “improper” and “unreasonable” and imposed the following penalty for the “improper” and “unreasonable” behaviour:
The Claimant’s entitlement to costs be disallowed to the extent of 50% of the assessed costs allowed on detailed assessment.
Specific deductions to the bill of costs (see paragraph 41 of the Judgment). These reductions included time in relation to other work done i.e. preparing, checking and certifying the bill of costs.
In reaching his decision, Master Whalan stated that the breaches in the case were significant, repeated and either unexplained or unjustified (paragraph 40 of the Judgment).
This is an excellent case which demonstrates the importance of preparing an accurate bill of costs and ensuring that a bill of costs does not breach the indemnity principle before certifying the same. What is clear from the Judgment is that Master Whalan would probably have been forgiving for the errors made in the first instance, but the failings the second time round and further failings thereafter were not capable of forgiveness and resulted in the severe penalty reduction of only 50% of assessed costs for the Claimant’s solicitors. So ensure statements of costs and bills of costs are prepared and checked properly!
This blog was prepared by Andrew McAulay who is a Partner at Clarion and Head of the Costs and Litigation Funding Team. Andrew can be contacted on 0113 336 3334 or at firstname.lastname@example.org
The case of MacInnes v Hans Thomas Gross  contains some very useful information for any law firm or litigant considering the issue of indemnity basis costs awards. Pages 2 and 3 are the relevant pages to consider in the judgment.
In the case, the First Defendant applied for an indemnity basis costs award against the Claimant, but this was rejected by The Honourable Mr Justice Coulson, and in doing so he considered a number of authorities in relation to such awards. Those very useful authorities are at paragraph 3 of the judgment and are as follows:
Indemnity costs are appropriate only when the conduct of the paying party is unreasonable “to a high degree. ‘Unreasonable’ in this context does not mean merely wrong or misguided in hindsight” see Kiam v MGN Limited .
The review of key authorities in the judgment is very useful and provides an excellent starting point for anyone tasked with considering whether to apply for an indemnity basis costs award.
Do remember that an indemnity basis costs award should always be sought in the appropriate cases, due to the fact that proportionality is not a consideration/factor when costs are assessed on the indemnity basis. There is also case law that supports the position that a receiving party is not restricted/held to its costs budget where costs are assessed on the indemnity basis (Slick Seating Systems  and Kellie v Wheatley ). CPR 3.18 also supports this.
The new test of proportionality has had a real impact (negatively for receiving parties) on some reported cases (see, for example, The new test of proportionality – 66% reduction) and therefore an indemnity basis award would provide protection for a receiving party from the new test of proportionality. Furthermore, there is a strong argument that an indemnity basis costs award escapes fixed costs (Broadhurst v Tan ) and therefore applications for indemnity basis costs awards may well be on the increase given the likely extension of fixed costs for civil and commercial litigation in the not too distant future.
This blog was prepared by Andrew McAulay who is a Partner at Clarion and the Head of the Costs and Litigation Funding Team. Andrew can be contacted on 0113 336 3334 or at email@example.com.
The case of MacInnes v Hans ThomasGross is a very useful case to read as it covers a number of topics including indemnity basis costs awards, interest, proportionality, costs budgeting and payments on account. The focus of this article is the useful contents from the Judgment in relation to interest on legal costs. Pages 3, 4 and 5 are the relevant aspects of the Judgment to consider in this regard and I set out below the key points:
The court awarded pre-judgment interest at a rate of 4% above base rate and relied heavily on the Judgments in McPhilemy v Times Newspapers Limited and KR v Bryn Alyn Community (Holdings) Limited  EWCA Civ 383 when making its decision.
In relation to post-judgment interest the court ruled that it should not start to accrue until 27 April 2017 (which was 3 months after the date of the Judgment). The reason for this was because the court awarded a very substantial payment on account and followed the logic of Leggatt J in the case of Involnert Management Inc v Aprilgrange Limited and Others  which provided some very useful guidance in relation to post-judgement interest. The logic behind the deferral of 3 months was the fact that by that time Detailed Assessment Proceedings should have been commenced, and therefore the paying party would have had sight of the bill and could start to make a realistic assessment of the amount of their liability. Without sight of the Bill of Costs, it could not do that.
It is important to note that in relation to the post-judgement interest point, the deferral of interest for 3 months was primarily due to the fact that a Costs Management Order was in place and the court made an order for a substantial payment on account. If a Costs Management Order was in place, but a substantial payment on account was not made then one would expect the court not to make such an Order in relation to post-judgment interest i.e. interest would run in the traditional way (8% from the date of Judgment).
The position in relation to pre-judgment interest should be considered by any law firm acting for a client on a private fee paying retainer. When it comes to the issue of interest on costs, the court has a wide discretion as to when interest starts to run under CPR 44.2 (6) (g).
Therefore, where appropriate, law firms should be seeking interest from before the date of Judgment as it will be beneficial to the client given that the rate is likely to be 4% above base rate from when the law firm’s invoices were paid (invoices could date back a number of years).
This blog was prepared by Andrew McAulay who is a Partner at Clarion and the Head of the Costs and Litigation Funding team. Andrew can be contacted on 0113 336 3334 or at firstname.lastname@example.org.
The recent case of Choudhury -v- Markerstudy could have serious repercussions for receiving parties in Detailed Assessments. Here is a brief summary of the case:
Rohan Choudhury (a child) suffered an accident on 12 March 2013. Rohan was a minor and was therefore represented by her Mother, Mrs Choudhury.
An Infant Approval hearing took place in January 2015, where the Court approved a settlement figure of £1,050.00.
The Claimant was represented by Irwin Mitchell solicitors, who at the time of instruction, were acting under a Collective Conditional Fee Agreement (CCFA) with Aviva.
Following the accident Aviva wrote to the Claimant, and thereafter, Irwin Mitchell wrote to the Claimant explaining the terms in which they would be retained. Those letters were sent before 1 April 2013, but no other work was carried out.
Mrs Choudhury instructed Irwin Mitchell by signing a document on 1 April 2013 and returning it. The document that she signed was the pre 1 April 2013 CCFA.
The Defendant argued that the retainer was invalid because it was signed and entered into on 1 April 2013, but was based on a regime which on 1 April 2013, was no longer available to litigants (and therefore invalid).
The Claimant stated that this was incorrect because ‘Advocacy or litigation Services were provided to the Claimant under the agreement in connection with that matter before the commencement day’ (Section 44.6, 6b of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 – ‘LASPO’).
The Court ruled that ‘Advocacy or litigation services’ had not been provided and therefore the retainer was invalid. As a consequence, no costs were payable by the Defendant to the Claimant as there was no indemnity between the Claimant and the Claimants Solicitors.
The District Judge clearly adopted a strict interpretation of LASPO and what amounts to ‘Advocacy and litigation services’. The paying party did not dispute that if litigation services had been provided then the retainer would have been valid.
This Judgment will no doubt cause concern to receiving parties. Whilst the Judgment is only at County Court level, it will encourage paying parties to raise such arguments. There will still be plenty of cases left in the system where the additional liabilities were entered into very close to 1 April 2013. In fact, it was widely reported in many legal publications (at the time) that law firms had signed up clients to Conditional Fee Agreements, and in particular ATE insurance, very close to the deadline of 1 April 2013.
Many believe that a black and white approach should be adopted in relation to the inception i.e. if the additional liability was incepted pre 1 April 2013 then it is valid and the associated additional liability recoverable, however, if it is entered into post 1 April 2013 then the additional liability is not recoverable. The issue over ‘Advocacy or litigation services’ will create some interesting arguments!
In my opinion, what law firms should have done is sent a “holding” Letter of Claim to the Opponent (or likely Opponent) prior to 1 April 2013. Surely, this would have provided protection from the ‘Advocacy or litigation services’ point?
The key practical point from the Judgment is that the work which was done before 1 April 2013 was effectively ‘client care’ work. In reality, the case will only have an impact on clients who were signed up to CFA’s and/or ATE insurance premiums close to 1 April 2013. For example, if a client was on a private fee paying retainer from say January 2013, but switched to a CFA retainer in late March 2013, then ‘Advocacy or litigation services’ would have most likely been provided by the time the CFA was entered. This scenario would therefore be safe from the argument.
It is widely reported that fixed costs for all fast track work and low level multi-track work will be introduced in October 2018. Those who draft the rules as to implementation need to do so carefully as otherwise arguments and satellite litigation will take place.
This blog was prepared by Andrew McAulay who is a Partner at Clarion and the Head of the Costs and Litigation Funding. He can be contacted on 0113 336 3334 or at email@example.com.