THIRD PARTY FUNDING – A VIABLE OPTION FOR 21st CENTURY LITIGATION (Part 1)

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 first part of this series will explore how the Court’s attitude to third party funding has changed significantly from the 19th through to the 21st Century.

Champerty and Maintenance

The historic position taken by the Court in respect of third party funding was that it was illegal and tortious. Two offences had developed through the common law: champerty and maintenance.

Champerty referred to when a person who did not have a legal interest in the matter provided financial assistance to litigation in order to receive a share of the profits.

Maintenance was the procurement of direct or indirect financial assistance from another in order to carry on, or defend, proceedings without lawful justification (British Cash & Parcel Conveyors v Lamson Store Service Co [1908]).

Therefore, the default position was that such agreements, which would be considered third party funding arrangements today, would be considered illegal, tortious and unenforceable. However, even at the turn of the 20th Century, the courts were willing to find such arrangements enforceable as a matter of public policy. For instance, in insolvency proceedings, which by their very nature meant that one party would need financial assistance in order to carry on or defend proceedings (Seear v Lawson (1880)), the Court found that a third party funding agreement was enforceable.

Abolition

The default position changed with the enactment of the Criminal Law Act 1967 (CLA 1967). S.13 CLA 1967 abolished the offences and torts of champerty and maintenance. S.14 CLA 1967 changed the approach of the test, which now started from the presumption that such agreements were enforceable, unless there was a valid reason as a matter of public policy.

Comment

Statutory intervention was important to provide additional certainty and security to parties wishing to enter into third party funding arrangements. However, such an approach cannot be taken for granted outside of the jurisdiction of England and Wales.

Recently, the Supreme Court in Ireland, in the matter of Persona Digital Telephony Ltd v The Minister for Public Enterprise (2017), found a third party funding agreement to be unlawful. This is because the offences of Champerty and Maintenance have not been abolished by statute In Ireland. The Court felt that it is consequentially bound to find such agreements unlawful and that any change of approach was within the remit of the Legislator, not the Judiciary.

In the next part of the series…

The next blog will take a look at how the Court has begun to develop the law in respect of third party funding, with a look at the decision in Factortame Ltd v Secretary of State for Transport, Local Government and the Regions No.8 [2002].

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 new statement of costs goes live on 1 April 2019

I have further updates regarding the new statement of costs following on from our January newsletter. The pilot scheme will operate from 1 April 2019 to 31 March 2021 and will apply to all claims in which costs are to be summarily assessed, whenever they were commenced. There will be two statements of costs which may be used whilst the scheme is in force; the N260A when the costs have been incurred up to an interim application and the N260B when the costs have been incurred up to trial. The N260 will be available in paper/pdf form and in electronic form. Parties are able to use the paper/pdf form only, however if they use the electronic spreadsheet form this must be filed and served in paper form and electronic means. The format has changed and the document schedule now requires the time entries to be dated. 

In cases which have been subject to a costs management order, any party filing the form N260B must also file and serve the precedent Q (which is a summary that details any overspend/underspend for each phase of the budget). Now that the court can identify overspends in the budget, will this additional layer of information result in more costs being summarily assessed and less detailed assessments? Will this assist with applications for payments on account? Will we see the N260B being used at trials that are listed for more than one day, to demonstrate that there hasn’t been any overspend in the budget and resultantly the budgeted costs being allowed in full? Possibly, but only if the incurred costs are identified separately to the estimated costs, please see my earlier blog for a more detailed analysis in that regard.

Sue Fox is a Senior Associate and the Head of Costs Management in the Costs and Litigation Funding Department at Clarion Solicitors. You can contact her at sue.fox@clarionsolicitors.com and 0113 336 3389, or the Clarion Costs Team on 0113 246 0622.

 

Confused by QOCS? A brief summary of everything you need to know…

Qualified One way Costs Shifting (QOCS) was introduced in April 2013 for personal injury matters and it is essentially a rule that means a successful defendant cannot recover their costs from an unsuccessful claimant except in specific circumstances (such as the claim being fundamentally dishonest).

2018 saw 3 decisions of interest; one from the Court of Appeal, and 2 County Court decisions that conflicted each other. It is likely that the issues in the County Court decisions will be tested again, hopefully with binding authority.

Court of Appeal – 28/06/18: Cartwright v Venduct Engineering Limited [2018] EWCA Civ 1654

This was a NIHL (Noise Induced Hearing Loss) claim where the claimant pursued 2 defendants (as is often the case with industrial disease matters).

The claimant successfully negotiated settlement against defendant 1, and dismissed the claim against defendant 2. Defendant 2 argued that their costs (following the discontinued claim) could be enforced against the claimant up to the level of damages recovered from defendant 1. It was argued that the purpose of QOCS was to ensure that the claimant was no worse off after litigation had been conducted than before it had started. The court of appeal agreed – defendant 2 was entitled to their costs, limited to the amount of damages recovered from defendant 1.

This decision confirmed that a claimant was not entitled to QOCS protection when they issued against a defendant (in a multi defendant case where they succeeded against a different defendant) and their claim was ultimately unsuccessful (prior to this decision, the rule had been if no fundamental dishonesty had been proven by a successful defendant, then the claimant would be protected by QOCS in this scenario – the county court decision of Bowman).

The Cartwright decision means that litigators now need to be extremely vigilant when deciding against which defendants to issue their claim. If they do not adequately consider and evaluate the risks against each and every defendant, there is potential for a professional negligence claim.

The second issue decided in Cartwright was whether a successful QOCS defendant could enforce a tomlin order (remembering that a tomlin order is a record of settlement and not an order of the court). The rules state that QOCS applies to orders for costs made against the Claimant and therefore Cartwright found that defendants would not be able to enforce a tomlin order or Part 36 agreement in order to benefit from QOCS on the basis they are not orders made by the court. The order must either have been made at trial, or be within a consent order or provisional damages order.

Ketchion v McEwan – Jun 2018 (County Court decision)

This was an RTA matter where the claimant brought a claim for financial loss (but not personal injury). The defendant denied liability and issued a part 20 counterclaim for personal injury. The matter proceeded to a fast track trial – the judge found the defendant to be 100% at fault and therefore entered judgment and dismissed the counterclaim.

The claimant sought their costs but the judge ordered that the defendant was protected by QOCS (given the existence of his unsuccessful counterclaim). Therefore, despite the claimant succeeding in full, their costs were not recoverable as the defendant had QOCS protection. The claimant sought permission to appeal but this was dismissed – the judge found that the rules referred to “proceedings” and that this captured the claim AND counterclaim. It should not be limited to just the claim – any successful claim could be precluded from recovering costs by an unsuccessful counter claim.

Waring v McDonnell – Nov 2018 (County Court decision)

This was a claim involving 2 cyclists. One brought a claim for personal injury, the other a counterclaim for personal injury. The counterclaim was unsuccessful and the court found that the defendant/Part 20 claimant was not protected by QOCS. This decision was to deter the bringing of frivolous counter claims in order to avoid a costs order/benefit from QOCS. It was found that the defendant was not an unsuccessful claimant, but an unsuccessful defendant and that he would only have been entitled to QOCS protection if he had brought his own PI claim.

So, what’s next? 

It is recognised that there is currently some tension in the drafting of the QOCS rules, and that they need to be re-worded in order to iron out issues.  Currently, the term “proceedings” in Cartwright encompasses multiple defendants, however, in the county court decisions, “proceedings” do not include counterclaims.

There is also an increasing trend in defendants arguing fundamental dishonesty in order to set aside QOCS. There is currently limited authority on what constitutes fundamental dishonesty, however, the Court of Appeal decision of Howlett v Davies & Another [2017] EWCA Civ 1696 concluded that fraud did not have to be pleaded for the Court to make a finding of dishonesty. The defendant merely had to have given adequate warning to the claimant of their intention to submit evidence that could lead to the Court making such a finding, such as within their defence.

Finally, there is talk about extending the QOCS regime to non-clinical professional negligence claims, and also private nuisance proceedings. It, therefore, appears that QOCS is going to expand beyond the realms of personal injury in the not too distant future.

Joanne Chase is a Senior Associate Costs Lawyer in the Costs and Litigation Funding Department at Clarion Solicitors.

You can contact her at joanne.chase@clarionsolicitors.com and 0113 336 3327, or the Clarion Costs Team on 0113 246 0622.

 

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.

A new year, a new statement of costs. But why stop at that? A few intended changes to Costs Management too

The CPR committee have been hard at work again coming up with solutions to the problems that have been encountered by the legal profession since the Jackson reforms nearly 6 years ago.  Following the scratching of many heads, a few of those creases have been ironed out and the following proposals have been made:

Statements of costs

A voluntary 2 year pilot scheme for the new statement of costs will be implemented, starting from 1 April 2019.

The current proposals are for two new forms of costs statements, namely N260A and N260B which may be used for summary assessment. These new forms will  include a VAT declaration and the forms will now include the signature of a legal representative, which is in line with the rules, as opposed to a company partner. The Form N260A will cross refer to the document schedule in the summary. No model forms are available yet.

Master Howarth has suggested that the precedent Q, the document that identifies whether there has been an under or overspend in a phase of a budget, is incorporated into the statement of costs. This will create transparency at the summary assessment stage regarding the amount incurred in comparison to the approved budget – supporting the need for a well drafted budget.

The committee is to give consideration to lower value cases and the relevance of statements of costs for those cases where there will never be a summary assessment, as there was concern regarding the wasted costs incurred in those instances.

Costs management

The precedent H costs budget will remain the same, but there will be some adjustments to the guidance notes to align costs budgeting with the new electronic bill approach.

There has been many a debate regarding what date the incurred costs should be included up to in the budget and there is tension in the wording of the rules in that regard. The committee have recognised this and have debated the very same problem. They have understood that differing practices appear to be in place and that overall there is value in a consistent approach. It has been advised that this issue should be resolved as part of a future review of the practice direction.

There will be some adjustments to the precedent R, however that is the only guidance that has been provided at this stage, so the amendments remain unknown for the time being.

Sue Fox is a Senior Associate and the Head of Costs Management in the Costs and Litigation Funding Department at Clarion Solicitors. You can contact her at sue.fox@clarionsolicitors.com and 0113 336 3389, or the Clarion Costs Team on 0113 246 0622.

 

Voluntary capped costs pilot scheme in the Business Courts

Following on from my blog and newsletter (see below) over a year and half ago, it has now been announced that the capped costs pilot scheme will go live in January 2019 to coincide with the launch of the disclosure pilot scheme. The capped costs pilot scheme will apply to the Business and Property Courts in Leeds and Manchester (Chancery, Circuit Commercial and the Technology and Construction Court) and the London Circuit Commercial Court.

It is a voluntary scheme that will last for 2 years, with costs capped at £80,000.00.

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Blog published 20.06.17

Fixed Recoverable Costs – the pilot scheme

Following on from my newsletter below, the Civil Procedure Rule Committee meeting notes have been published today. Last month I explained how Jackson LJ had suggested how ‘capped fixed costs’ would work. The meeting notes have now confirmed how the pilot scheme will work, explaining that costs for preaction would be capped at £10,000, for particulars of claim at £7,000 and for defence and counterclaims at £7,000.

Many thanks to John Hyde of the Law Society Gazette who has reported that “Parties can claim up to £6,000 for a reply and defence to the counterclaims, £6,000 for the case management conference, £6,000 for disclosure and £8,000 for witness statements. Expert reports are capped at £10,000, with the trial and judgment costs limited to £20,000.

The working group dedicated to the pilot scheme proposes an overall cap of £80,000 rather than setting an actual fixed amount at this stage.

The proposal, backed in principle by the committee, is to run the pilot in certain specialist civil courts: the London Mercantile Court and three courts in each of the Manchester District Registry and Leeds District Registry. Any cases where the trial will go beyond two days, or where the value is more than £250,000, are excluded”.

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Clarion May 2017 Newsletter

Fixed Recoverable Costs. A taster of how the pilot scheme may work.

The judiciary have released an outline regarding how the fixed recoverable costs regime may work. Jackson LJ attended a costs seminar in Birmingham back in March 2017, which focused on mercantile and business litigation. At that seminar both Jackson LJ and HHJ Waksman outlined their proposals for the fixed costs pilot scheme, those proposals being subject to the approval of the Civil Procedure Rules Committee. The details of their proposals were as follows:

The pilot scheme will run in the London Mercantile court, and Manchester and Leeds specialist courts.

  • It is likely that the pilot will commence in October 2017 and will last for two years.
  • The pilot scheme is optional.
  • There will be a separate fixed costs list.
  • The pilot can be joined at certain stages:
    • The pre-action stage
    • No later than 14 days after service of the defence
    • At the case management conference (CMC)
    • Claimants can commence proceedings in the fixed costs list.

The Defendant has an absolute right to object to this, and if so then the proceedings would be removed from the fixed cost list.

  • The CMC will be the last opportunity to join the pilot.
  • Parties will not be able to withdraw from the pilot, apart from the Defendant if the Claimant issues in the pilot scheme (see above).
  • There will be a shortened process with strict case management .

The pilot is currently a ‘work in progress’, however it is envisaged that these proposals will be making their way to the Civil Procedure Rules Committee in June 2017, so these could be public by July 2017. It is currently predicted that:

  • Parties will be required to file their “core documents” (the documents that are relevant to the issues in the claim) with their statements of case, i.e. the particulars of claim, defence, reply and defence to counterclaim.
  • There will be no need for further disclosure, unless parties can justify this at the CMC.
  • If further disclosure is required, parties will need to apply for the same before the CMC. If the parties cannot agree, an order will be made.
  • At the CMC, the judge will suggest Alternative Dispute Resolution (ADR), including Early Neutral Evaluation (ENE).
  • The CMC will be the only interim hearing, this will include setting the trial timetable.
  • Consideration is being given to limiting the number of witnesses, the thoughts are that there will be one factual witness on each side.
  • Costs budgeting will not be required and there will be no pre-trial review.
  • The trial length will be up to two days (excluding judicial reading)
  • Cross-examination will be “very strictly controlled”.
  • An early hearing date will be guaranteed.
  • Judgments will be produced within a short period of time.
  • Pilot participants can expect “active and proactive” case management.
  • Costs will be summarily assessed at the end of trial.

The above proposals were made in March 2017, however since then there have been further proposals, as follows:

  • The pilot will only relate to claims that are less than £250,000.
  • The pilot will only relate to claims where the trial is no more than 2 days.
  • The pilot will only relate to non-complex matters.
  • The maximum costs that will be allowed will be £80,000. The pilot scheme will be similar to the IPEC costs regime. There will be caps for phases of litigation and those phases will be the same as the phases used in costs budgets.
  • Parties can only leave the scheme under exceptional circumstances, examples of those circumstances are; allegations of fraud, if the matter subsequently is listed for a 3 day trial.
  • Judgment will be handed down within 6 weeks.
  • The proposed ‘grid’ is not yet available and it is likely that this will not be available until the practice directions are published, so it may make its way into any July update to the rules. The main benefits of the pilot scheme are that claims will be resolved speedily and parties will be more aware of their potential costs exposure.
  • We will continue to provide updates regarding fixed costs, as well as all costs related law.

Sue Fox is a Senior Associate and the Head of Costs Management in the Costs and Litigation Funding Department at Clarion Solicitors. You can contact her at sue.fox@clarionsolicitors.com and 0113 336 3389, or the Clarion Costs Team on 0113 246 0622.