THIRD PARTY FUNDING – A VIABLE OPTION FOR 21ST CENTURY LITIGATION (Part 2)

This series of blog articles will address the increasing viability of third party funding as an alternative to traditional litigation funding methods. It will look at how the law has developed historically and how the Court now approaches third party funding and the potential liability of third party funders.

The second part of this series will explore the Court’s first acceptance of third party funding in the matter of Factortame Ltd v Secretary of State for Transport, Local Government and the Regions No.8 [2002].

Background

This matter related to a challenge brought by Spanish fisherman who sought to claim damages against the Secretary of State for the unlawful prohibition of fishing in UK territorial waters. A firm of accountants agreed with the Claimants to prepare and submit claims for loss or damage as a result of any losses suffered. The Accountants agreed to act in return for 8% of any damages recovered.

The Claimant’s succeeded in their challenge and were awarded damages and costs. On a preliminary issue the agreement was held to be not champertous and could be enforced against the Secretary of State.

The Defendant’s Challenge

The Defendant claimed that such an agreement was champertous and unlawful. It was argued that for an expert to act on a contingency fee basis would give the expert a significant financial interest in the case which is highly undesirable.

Decision

As stated in my previous blog, the tort of champerty had been abolished and the starting point for considering any arrangement was that it would be presumed enforceable unless there was a valid reason as a matter of public policy.

The Accountants had not acted as experts directly in this matter but had instead funded independent experts. Furthermore, by the time that they were instructed the issue of liability had already been decided.

Therefore, the Court held that such an agreement was not in the circumstances champertous or against public policy.

In the next part of the series…

The next blog will take a look at the liability of third party funders in litigation in the matter of Arkin v Borchard Lines Ltd (nos 2 and 3) [2005] 1 WLR 3055.


This blog was prepared by Kris Kilsby who is an Associate Costs Lawyer at Clarion and part of the Costs Litigation Funding Team.  Kris can be contacted at kris.kilsby@clarionsolicitors.com or on 0113 227 3628.

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Hourly Rates – How far can you depart from the Guideline Hourly Rates?

The case of Sir Philip Green & Ors v Telegraph Media Group Limited [2019] EWHC 96 (QB)

Background

This matter revolved around the Claimant and two companies seeking an injunction against the Defendant to restrain them from publishing information about the Claimant. The information related to the alleged misconduct of the Claimants which had been subject to non-disclosure agreements.

A number of pre-trial applications were addressed by Warby J, including the issue of costs budgeting . Given the time-sensitive nature of proceedings, the issue of costs budgeting could only be addressed two weeks before trial.

The hourly rates claimed by the Claimant’s City of London-based solicitors ranged from £190 (for a Grade D trainee) to £690 (for a Grade A lawyer – a Partner). Other Partners’ rates claimed by the Claimants were between £510 and £635 per hour. Warby J noted that all these figures were well in excess of the guideline rates, which are £126 for Grade D and £409 for Grade A (emphasis added).

Warby J recognised that, due to the late stage of costs budgeting, the majority of costs were incurred, and as such he was restricted from budgeting incurred costs due to CPR PD 3E 7.4, and was limited to only making comments.

Warby J said he did not consider that hourly rates of more than £550 could be justified, and proportionate reductions should also be made to the lower Partners’ rates.

The Judge added: ‘Of course, fees in excess of the guidelines can be and often are allowed, and in this case the defendants (who themselves claim up to £450 per hour) and I both accept that fees above those rates are justified. But not to the extent of the differences here.’

Comment

The outcome of this hearing raises two interesting topics for discussion: the level of hourly rates in general, and, the approach the Court can take in respect of hourly rates in costs management.

Hourly rates in general

As a starting point, and as referenced by Warby J indirectly, it is well accepted that Guideline Hourly Rates are just that, a guideline. They are suitable for carrying out a summary assessment and can be a starting position for detailed assessment. Following this , the Court will take into account both CPR 44.3(5), and the 8 ‘pillars of wisdom’ contained within CPR 44.4(3), when considering whether costs are proportionate and reasonable in amount (when assessing on the standard basis). These factors can be used to support an enhancement, for instance, given the complexity of the matter, or the conduct of parties.

The Court has recently commented further on a case which claimed very high hourly rates, far in excess of the Guideline Hourly Rates. In the matter of Dana Gas PJSC v Dana Gas Sukuk Ltd & Ors [2018] EWHC 332 (Comm), the Court found that hourly rates in excess of £900 were unreasonable, even in a matter which was factually/legally complex, had an international element and was of significant value. The Court considered that hourly rates of half that amount (hence being very similar to the rates referred to as reasonable by Warby J in the case of Sir Philip Green & Ors v Telegraph Media Group Limited [2019] EWHC 96 (QB)), were considered more reasonable to obtain competent representation in such a case.

There is technically no limit on the hourly rates which can be charged by a firm of solicitors, so long as the client agrees to pay them, but the Court is now taking a much tougher stance in respect of how much of that hourly rate can be recovered inter partes. This leaves the firm in an unenviable position: either write off those costs claimed, or, bill the client for the shortfall.

Perhaps this was a factor in Sir Philip deciding to abandon the claim?

Budgeting

It is well established that the Court must walk a tightrope when addressing hourly rates while setting a budget. The Court can have regard to the constituent elements of the budget, including hourly rates (CPR PD 3E 7.3), but the Court must not over step the mark and proceed to fix or approve hourly rates (CPR PD 3E 7.10). Warby J’s comments appear to strike the right balance between the two. Unfortunately, shortly after the hearing, the Claimants abandoned the claim, and we will therefore not see at detailed assessment stage how much weight is given to comments made at costs management stage.

The interplay between hourly rates, costs budgeting and detailed assessment is an interesting one, and a topic which will, no doubt, continue to develop as more and more budgeted cases proceed to detailed assessment.


This blog was prepared by Kris Kilsby who is an Associate Costs Lawyer at Clarion and part of the Costs Litigation Funding Team. Kris can be contacted at kris.kilsby@clarionsolicitors.com or on 0113 227 3628.

 

THE INDEMNITY PRINCIPLE – WHAT IS IT? IS IT IMPORTANT?

What is the Indemnity Principle?

A long-established principle which effectively means that a successful party cannot recover more in legal costs then they are liable to pay their solicitor under the terms of the contract with their solicitors.

Why does it exist?

To indemnify the winner for the reasonable legal costs incurred on the matter. In practice, the loser contributes to those costs.

If the indemnity principle did not exist, then a losing party could face a costs liability higher than the winner is liable to pay his solicitor. This would mean that a client would make a profit from the costs of the litigation which is not the intention of costs awards. The intention is to reasonably compensate the winner for the legal costs they have incurred.

Please note that there are some exceptions to the indemnity principle, for example, inter-partes claims for costs where the matter was funded by way of a Legal Aid Certificate, and fixed costs claims i.e. where the costs incurred are lower than the costs that can be claimed inter parties.

Key Case Law

Harold v Smith [1860] 5 H & N 381

Costs orders inter-partes are awarded as an indemnity to the receiving party. They are not awarded to impose a punishment on the party who pays them.

Gundry v Sainsbury [1910]

The Court of Appeal confirmed the underlying principle set out in Harold v Smith. The solicitor had acted for no charge and tried (unsuccessfully) to seek costs from the opponent. The court held that the solicitor was not entitled to recover costs as there was no agreement from the client to pay.

J H Milner & Son v Percy Bilton Limited [1966] 1 WLR 1985

Retainer (contract for services by the solicitor) is fundamental to the right to recover costs. No retainer equals no entitlement to recover costs from clients (and therefore no entitlement to costs inter-partes).

Is the Indemnity Principle important?

Taking into account the above cases (which remain good authorities) the indemnity principle is clearly very important and something which every contentious lawyer should have a sound knowledge and understanding of. Failure to do so can lead to serious professional consequences.

The importance of the indemnity principle is best illustrated by the case of Bailey v IBC Vehicles Limited [1998] 3 All ER 570 where the Court said that the signature of a Bill of Costs is that of an officer of the Court and that mis-certification of the Bill is a serious (disciplinary) offence.

In that case Lord Justice Henry said:

“the signature of the Bill of Costs under the rules is effectively a certificate by an officer of the Court that the receiving party’s solicitors are not seeking to recover in relation to any item more than they have agreed to charge under a contentious business agreement. The Court can (and should unless there is evidence to the contrary) assume that his signature to the Bill of Costs shows that the indemnity principle has not been offended”.

When lawyers sign costs budgets, statements of costs for summary assessment and Bills of Costs it is therefore fundamentally important to ensure that there is no breach of the indemnity principle.

I am now going to consider two recent cases regarding the indemnity principle:

Gempride v Jagjit Bamrah & Law Lords of London Limited [2018] EWCA CIV 1367

In this matter, the receiving party’s bill of costs claimed hourly rates higher than those which the client had agreed to pay their solicitor within the retainer. Furthermore, misleading information was provided in Replies to Points of Dispute in respect of the availability of before the event insurance.

The matter proceeded to the Court of Appeal where the Court imposed a penalty for the mis-certification of the Bill of 50% (Part 1 of the Bill of Costs only). Whilst the penalty in the end was not too severe, the real damage for the law firm was to its reputation.

HMRC v Gardiner and Others [2018] EWHC 1716 (QB)

This matter related to an appeal by HMRC in respect of an order for them to pay the Respondents’ costs in tax appeal proceedings. The Respondents were amongst several tax payers challenging penalties imposed by HMRC for incorrect tax returns.

The Respondent’s tax advisors were at the forefront of the work carried out. Counsel was instructed to represent the Respondents and the fees were paid by their tax advisors. HMRC alleged a breach of the indemnity principle (no direct retainer). That argument failed and the key points were as:

  1. There was never an agreement that the Respondents would never pay Counsel’s fees;
  2. Counsel was there to represent the Respondents, not their advisors;
  3. No difference to a trade union funding arrangement; and
  4. The key is a liability to pay (the Respondents were liable to pay the fees that were incurred, but the tax advisors paid them).This is a useful case to rely on where costs have been paid by a third party and a challenge is raised that there has been a breach of the indemnity principle as a result.


    Summary

    As you can see from the authorities, the indemnity principle has been with us for some time. Lord Justice Jackson recommended the abolition of the indemnity principle in his Final Report in 2010. He was of the opinion that the indemnity principle caused more problems than it solved. However, in my view the indemnity principle should always be in place whilst we have a cost shifting environment in England and Wales. Otherwise, it could encourage inflated claims for costs and allow clients to profit on the costs of litigation and therefore increase claims for costs – which would be contrary to the whole purpose of the Jackson Reforms!

    Do you have any views? – please feel free to share them.

    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 at andrew.mcaulay@clarionsolicitors.com or on 0113 336 3334 or 07764 501252.

Court holds that an application under CPR 44.11 to reduce a party’s costs on the basis of misconduct is not a vehicle to give paying parties a “second bite of the cherry”

In Paul Andrews & Anor -v- Retro Computers Ltd & Ors [2019] EWHC B2 (Costs), Master Friston held that an application that the receiving party’s costs should be reduced or disallowed under CPR 44.11 on the basis of that party’s conduct was not to be used as a vehicle to contest the order for costs made by the trial judge.

This update is a summary of a complex and lengthy judgment. A full analysis will follow in due course.

CPR 44.11

CPR 44.11 states (so far as relevant) that:-

(1) The court may make an order under this rule where –

(a) 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

(b) 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.

(2) Where paragraph (1) applies, the court may –

(a) disallow all or part of the costs which are being assessed; or

(b) order the party at fault or that party’s legal representative to pay costs which that party or legal representative has caused any other party to incur.

The Case

The Defendants applied under CPR 44.11(2)(b) on the basis that the Claimants’ conduct had been “unreasonable or improper”. There was no suggestion that the Claimants’ legal representatives had acted improperly or that there had been a failure to comply with a rule or practice direction.

Summary of Judgment

The court held that:-

  1. An application under CPR 44.11 is not a vehicle to allow the paying party to have a “second bite of the cherry”, and that issues which were before the trial judge (or which the parties were reasonably capable of bringing to the trial judge’s attention) could not be considered on such an application;

2. The conduct complained of must have been relevant to the proceedings;

3. There is a high bar for establishing that the conduct was unreasonable; and

4. The sanctions the court can impose are limited.

Conclusion

It is important that solicitors and advocates ensure that issues of conduct are raised at trial and are incorporated into the order for costs.

The issues which the court can consider are wide-ranging but should generally have some relevance to the proceedings.

There is a high bar to establishing that conduce was unreasonable, that “unreasonableness” is to be interpreted narrowly, and is conduct which is so bad as to “permit no reasonable explanation” or which “the consensus of professional opinion would regard as improper”.

The sanction which the court can impose will generally be restricted to disallowing the costs which have been incurred as a result of the unreasonable conduct.

Non-Party Costs Orders

The case of Housemaker Services & Anor -v- Cole and Anor [2017] is a useful case for any litigant or law firm considering whether to make an application for a non-party costs order.

Facts

  1. 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.
  2. 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.
  3. 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.
  4. 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

  1. 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.
  2. 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.
  3. 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 general comment 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 indeed the 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”. 


    Conclusion
     

    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 andrew.mcaulay@clarionsolicitors.com.

THE NEW TEST OF PROPORTIONALITY – 66% REDUCTION!

 

The recent case of Rezek-Clarke -v- Moorfields Eye Hospital is another example of how the new test of proportionality is being applied and the impact it is having on the receiving parties’ claims for costs.

This case related to a low value medical negligence claim.  The Claimant instructed his solicitors on 31 July 2013 and letters of claim were sent to the proposed Defendants on 20 June 2014. The Defendant admitted liability on 14 November 2014, but denied causation.  Proceedings were issued against the Defendant on 1 October 2014 (mainly due to impending limitation issues).

The claim, at best, was worth £5,000.00 and was compromised on 8 July 2015 for £3,250.00.

On 29 October 2015, the Claimant’s solicitors commenced Detailed Assessment Proceedings.  The bill of costs for detailed assessment totalled £72,320.85.  The matter proceeded to a Provisional Assessment before Master Simons on 21 July 2016, where he assessed the bill and reduced this to £24,604.40. On 24 August 2016, the Claimant requested an oral hearing in relation to the provisional assessment and that oral assessment took place on 10 January 2017.

The judgment dealt solely with the issues of proportionality and the ATE insurance premium. The Master did make some increases (to other items within the bill of costs) to what he originally allowed on Provisional Assessment, however, these other items/issues that were heard at the oral hearing did not form part of the judgment.

The key points which arose from the judgment are as follows:

Proportionality

At paragraph 19 the Master referred to the well-known case of Jefferson -v- National Freight Carriers Plc [2001] EWCA Civ 2082 where HHJ Bolton said the following:

“In modern litigation, with the emphasis on proportionality, it is necessary for parties to make an assessment at the outset of the likely value of the claim and its importance and complexity, and then to plan in advance the necessary work, the appropriate level of person to carry out the work, the overall time which will be necessary and appropriate to spend on the various stages in bringing the action to trial, and the likely overall cost. While it is not unusual for costs to exceed the amount in issue, it is, in the context of modern litigation such as the present case, one reason for seeking to kerb the amount of work done, and the cost by reference to the need for proportionality”.

Master Simons, in his judgment, seemed to be critical of the Claimant’s solicitors inability to be able to produce any evidence to support any case planning or consideration regarding the appropriate costs to be incurred (taking into account the fact that the claim was always going to be of a low value).  Looking at this point from a practical perspective, it seems logical for any Claimant solicitor, as a matter of course, to produce a case plan from the outset of a case together with a skeleton costs budget.  Documentation (evidence) of this nature could prove invaluable when trying to demonstrate to a Master or Costs Judge that case planning and consideration did take place. In the absence of such evidence the receiving party could be left in a more vulnerable position, particularly in low value claims where costs are globally disproportionate.

Furthermore, Master Simons ruled that the new test for proportionality does apply to liabilities incurred post 1 April 2013. In this case the ATE insurance premium was one which is still allowed under the Recovery of Costs Insurance Premiums in Clinical Negligence Proceedings (No. 2) Regulations 2013). This contradicts the decisions of Master Rowley in King v Basildon and of Master Brown in Murrells v Cambridge University. However, it is consistent with the decision of Master Saker in BNM v MGN.

What is abundantly clear is there is disagreement at the Senior Court Costs Office as to the application of the new test of proportionality in relation to post 1 April 2013 additional liabilities and clarity is required to ensure that any confusion is avoided.

ATE Insurance Premium

The ATE premium totalled £31,976.49. On Provisional Assessment, the Master reduced the premium to £2,120.00 (a reduction of circa. 93%).  This was reduced on the basis of proportionality.

The Claimant’s solicitors made the usual submissions in relation to ATE premiums and relied on the well-known case of Rogers v Merthyr Tydfil County Borough Council. However, Master Simons ruled that the case was distinguishable from ‘Rogers’ as ‘Rogers’ was decided pre-LASPO.  Paragraph 64 of the Judgment is useful to read in relation to this point, but essentially it explains that the test of proportionality was fundamentally different when the ‘Rogers’ case was decided. In ‘Rogers’ the Court concluded that if it was necessary to incur an ATE insurance premium, then it should be adjudged a proportionate expense.  However, now proportionality trumps necessity.  No doubt the ATE insurance market had some tears in their eyes when they read this paragraph of the judgment as it will no doubt cause challenges to those ATE insurance premiums which remain in the system.

Another interesting point made was at paragraph 67 of the judgment where the Master made a comment in relation to the calculation of an ATE insurance premium:

“……As the premium is deferred, surely the basis of calculation should be on the reasonable amount of the fees for the medical reports, not the actual cost…….”.

The Master therefore felt that the premium should be calculated taking into account the amount allowed on assessment and not the claimed amount.  I suspect such an approach would receive some real opposition from the ATE insurance market, as ATE insurers pay the claimed amount to experts if the claim fails.

Another interesting point is made further on in paragraph 67:

“……Furthermore, it is often the case that the fee claimed for a medical report includes the fee charged by a medical agency.  I query whether any attempt is made by solicitors or the insurers when calculating the premium, to distinguish between the actual cost of the report and the fee paid to the medical agency……”.

Clearly, for those acting for paying parties, there are some useful questions and points to raise in relation to post 1 April 2013 ATE insurance premiums following this judgment.

Preparation of the bill of costs

A separate point raised in the submissions regarding the ATE insurance premium was the calculation of the premium and in turn, the preparation of the bill of costs.  This was quite a serious point and demonstrates the importance of preparing accurate bills of costs for detailed assessment.  The premium was claimed at £31,976.49, but during the oral detailed assessment hearing, the receiving party explained that the premium had been calculated incorrectly, and that the correct amount was £22,255.23.  However, the Claimant could not provide an explanation regarding why there had been an error in the calculation and (more importantly), why the bill of costs had been certified as accurate and true when it contained such a substantial error (the error being £9,721.26).

This did seem to trouble the Master and paragraphs 61, 62 and 63 are useful to read in this regard.  The Master raised concerns regarding the lack of evidence that had been provided to support the correct level of the premium. The methodology in calculating the premium at £22,225.23 was based on witness evidence. The only evidence in front of the Master was a Schedule of Insurance which showed a premium of £30,916.50, and therefore the failure to include the correct (or evidence the correct) premium in the bill of costs caused some real prejudice to the Claimant.  At paragraph 63, Master Simons stated that he would have been justified in disallowing the premium in full.

This demonstrates the importance of preparing accurate bills of costs and ensuring that each item is correct before a bill is signed and detailed assessment proceedings are commenced. The premium was claimed incorrectly and even when the error was identified the Claimant failed to explain how the new and correct figure was calculated. This failure could not have helped the Claimant in their submissions that the premium was proportionate or support their arguments that the drastic reduction at provisional assessment was incorrect.

Summary

The real headline point that can be taken from this case is how the courts are approaching the application of the new test of proportionality to additional liabilities. This case further adds to the current confusion as to how the new test of proportionality is to be applied in relation to post 1 April 2013 additional liabilities.  Hopefully, by the end of the year we should have clarity as the Court of Appeal is due to look at the matter at some point in October.  Until then, we should all expect a mixed bag of outcomes (or adjournments) on detailed assessment from the different Masters and Costs Judges all around the country!

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 andrew.mcaulay@clarionsolicitors.com.