Tag: costs lawyers

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

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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.

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The Local Authority seeks orders to restrict the Husband’s contact with the Protected Party.

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The case of SR v A Local Authority & Anor (2018), involves the Protected Party (SR), who was an 83-year-old woman who suffered from late onset Alzheimer’s, which was of moderate to severe intensity.

The Protected Party resides at a care home and lacks capacity to decide who she has contact with and to decide on any arrangements for such contact. The Local Authority raised awareness that the Protected Party may be at risk of harm in her husband’s sole care, due to his expressed views on euthanasia, which involved reference to throwing himself and his wife into a river and supplying her with tablets. The Protected Party’s husband also had restrictions placed on the care that he could provide to the Protected Party, such as having to be accompanied if he took her out of the care home. The Protected Party’s family wished for her to return home and the Protected Party has allegedly stated her wishes to be with her husband as she becomes distressed when he leaves her.

In determining whether the Protected Party would be at risk, the court reached the conclusion that the restriction sought by the Local Authority was neither justifiable, proportionate or necessary. They therefore declined to make the Order sought. It was believed that the Protected Party’s husband would most likely not harm the Protected Party, as he had been previously been with her many times unaccompanied. The Protected Party’s daughter also stated that her mother and her father were a happy and loving couple with no allegations of domestic violence ever having been made between them.

Voluntary capped costs pilot scheme in the Business Courts

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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.

Court of Protection denies Official Solicitor the recovery of costs

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“In 2017, the NHS Dorset Clinical Commissioning Group launched what were intended to be four test cases seeking clarification of the law concerning the deprivation of liberty of mentally incapacitated adults. For various reasons, however, all of those applications, or in some cases that part of the application relating to the deprivation of liberty issue, were withdrawn, but not before the Official Solicitor had agreed to act for two of the respondents with the benefit of publicly-funded certificates and had incurred some legal costs. Subsequently, the Official Solicitor has applied for all or part of those costs to be paid by the applicant.” [2018] EWCOP 7 (http://www.bailii.org/ew/cases/EWCOP/2018/7.html)

This is the opening of the judgement delivered by Mr Justice Baker before rejecting the application by the Official Solicitor to recover the costs incurred in dealing with the test cases that were eventually dropped in relation to the Deprivation of Liberty of mentally incapacitated adults.

The four test cases mentioned were to seek clarification on whether mentally incapacitated adults whom lived at home with care plans devised and administered by the applicant, were being deprived of their liberty. In each application the applicant sought a declaration from the Court of Protection that the respondent was not being deprived of their liberty.

In respect of two of the four cases the Official Solicitor declined to accept the invitation, that by reason of their means, they did not qualify for public funding. It was considered not appropriate to utilise their own funds to support a test case and therefore it was agreed these two cases would be stayed. In respect of the remaining two respondents who qualified for public funding, the application continued. Inter-party discussions led to the Official Solicitor withdrawing the applications for declarations and instead sought consequential directions in all four cases.

The grounds for withdrawal were; reconsideration in light of the Official Solicitor’s analysis, difficulties and delays meant only one of the four cases was capable of proceeding on the preliminary issues and the recent publication by the Law Commission reduced the justification of the declaration sought.

The two publicly funded cases, by this point had amounted costs of approximately £30,000.00. The Official Solicitor applied for all or part of the costs accrued to be the responsibility of the applicant by arguing that the case should not have been viewed as a typical welfare case but more as a civil claim. For various reasons, this was rejected.

When considering the Applicants conduct in the matter, it was successfully pointed out that three of the four test cases were unsuitable to be included from the outset which should have been identified. The remaining test case was not pursued due to the ineligibility of public funding, it was viewed by the Court that the applicant should have funded the matter. The Law Commission’s report in which the Official Solicitor relied upon when responding to the application was published prior to the case management hearing so the outcome of the Official Solicitors response should have been reasonably considered. Thus, rendering the costs incurred by the Official Solicitor in responding for the most part as unnecessary.

In response, the Applicant submitted that the application was in good public interest due to the uncertainty of the area of law in respect of the Cheshire West’s “Acid Test”, that withdrawing the application was justified due to the lack of a “sufficiently broad range of facts to give the applicant sufficient guidance to the 100+ incapacitated adults for whom it is responsible for providing healthcare services at home” and the budget constraints which made funding the application without public assistance unattainable.

It was concluded that a costs order against the applicant in this matter was inappropriate save as to those of the Official Solicitor’s costs that were publicly funded.

Bridie Sanderson is a Paralegal in the Costs and Litigation Funding Department.

You can contact Bridie on 0113 336 3350, or alternatively email at bridie.Sanderson@clarionsolicitors.com

Court of Protection Costs – What happens after the death of P?

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Upon the death of the Protected Party, the Deputy’s authority under the First General Order seizes with immediate effect. Once the matter is transferred to the Executors of the Estate, the Deputy can agree their costs directly without a need for assessment, if possible, which will generally save the Protected Party money overall, without the need for the assessment process. If this is not possible, it may be necessary to apply to the Court for the costs to be assessed.

The interim work and the costs of the Deputy bringing the matter to a conclusion following the death of the Protected Party have been questioned over the years, as there has been very little guidance on this issue. In many cases, there is reasonable and necessary work involved in preparing the case for the Executor to thereafter deal with the Estate, however, what is a reasonable sum for this work?

Following correspondence with the Senior Courts Costs Office (SCCO), the following change has been made to the assessment procedure with immediate effect. The SCCO may now allow ‘reasonable costs’ (post death of the Protected Party) in order that the Deputy can finalise his/her involvement in the matter. The SCCO have indicated that such costs should not be expected to exceed £1,500.00 +VAT.

As a result, where it appears that the post-death profit costs exceed £1,500.00 +VAT, the Deputy will require the authority to assess that part of the Bill of Costs. Costs below this amount are likely to be deemed reasonable on assessment but are, of course, subject to the usual assessment process and will be allowed based on what was reasonable, necessary and proportionate in the circumstances.

If you have any queries relating to post-death costs in Court of Protection cases, please do not hesitate to contact Stephanie Kaye.

Getting paid properly – Costs Estimates

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Costs Estimates

Why provide an estimate of costs to your client in respect to their legal claim?

It keeps your client informed and therefore there are no surprises, this in turn manages your client’s expectation. This helps to avoid any dispute regarding the level of fees.

However, there is also the techy but important part!

Failure to provide information about costs and funding options for litigation is a breach of the Solicitors Regulation Authority Code of Conduct 2011 (SRA Code 2011),  your obligations are to “clearly explain your fees and if and when they are likely to change”.

Consequently, keep your estimate up to date, monitor the estimate and advise the client if the estimate requires changing – prospective thinking is the key.

The estimate must be clear and concise, must be worded in a way that is appropriate for the client and must be given in writing and regularly updated. The client should be provided with a detailed estimate, not just a ball park figure.

A solicitor is required to undertake a cost benefit analysis. The Code’s requirement in Rule 2.03 (6) is that “a solicitor discusses with their client whether the likely outcome in a matter will justify the expense or risk involved, including, if relevant, the risk of having to bear an opponent’s costs”.

It is essential that the cost-benefit analysis must be kept under review throughout the matter and reviewed with the client at key stages.

What is the impact of not providing an estimate?

Your client may argue that they would have given different instructions/or not proceeded with the matter if they had known: how expensive the claim would be, the length of time it would take, the level of their legal costs that would be recoverable from the other side and also their liability for the other side’s costs.

What if the client asks you to undertake out of scope work?

Explain that the estimate does not cover the additional work and provide a further estimate of the additional work. Advise the client if there is any risk that this work may not be deemed recoverable from the other-side. Failure to do so may result in those additional costs being disallowed.

Is a solicitor bound by their estimate?

Sort of!

If the client requests an assessment of their costs in accordance with the Solicitors Act, the estimate may be used as a “yardstick to measure reasonableness”. Any estimates that have been exceeded because they are simply wrong will be taken into account, together with the circumstances surrounding it, i.e. the reliance the client placed on the estimate and costs reduced accordingly.

Always provide a realistic estimate

Keep your estimate realistic at the outset. Even regular updating might not subsequently save a bad original estimate. The court’s view is that the first estimate is a critical piece of information for a client’s decision whether or not to embark on the action.

The Code’s requirements are for “best” information to be provided about costs. Therefore providing low estimates are unlikely to comply with the SRA Code of Conduct.

IN SUMMARY

Always provide a detailed estimate of costs.

Prepare a realistic estimate of costs.

Monitor the estimate and revisit with client throughout – costs/benefit analysis.

Identify and advise regarding out of scope work.

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.