The format of the precedent H budget and precedent R are working well, claims Mr Justice Birss

At February’s Civil Procedure Rules Committee meeting Mr Justice Birss reported that “work was ongoing to make certain that the new bill costs, Precedent H and Precedent H Guidance are consistent and accurate and that N260 the summary costs statement follows the same format. The content of Precedent H itself would not be changing. The Chair added that in his experience having settled down, Precedent H and R are working very well“. Therefore no changes are expected to the precedent H budget or the precedent R budget discussion report, the remaining changes relate to the bill of costs and statements of costs.

The wholesale changes to costs that we have encountered over the last 5 years were made as a result of Sir Rupert Jackson’s report whereby he likened the current bill of costs to a “Victorian style account book” making it “relatively easy for a receiving party to disguise or even hide what has gone on”. His purpose was to create transparency and unison with time recording systems and costs related documents, hence the need for the new electronic bill of costs, which is the final piece of Jackson’s jigsaw.

If the legal profession were to embrace time recording as Jackson intended, i.e. recording time in phase, task and activity, then astonishingly some 5 years after the publication of his legendary reforms, Sir Rupert Jackson may achieve his aim. However, Sir Rupert narrowly missed having his vision fully formalised and embedded into the rules during his working lifetime, his retirement has pipped him to the post.  He can now sit back and watch from afar, how his intended co-ordinated approach to costs will work in reality!

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.

 

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.

Pre 1.4.13 CFA – Advocacy or Litigation services provided OR not?

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 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.

 

Third Party Funding – Regulation or Not?

John Hyde of the Law Society Gazette recently gave a useful update on the issue of statutory regulation in relation to third party litigation funding. You can access his short article by following this link.

I personally think that this is a very interesting topic/debate. As I understand the position, the government is wary of imposing statutory regulation at this moment in time as it is concerned that it could stifle the funders who are currently in the litigation funding marketplace and deter any new entrants. In light of the substantial funding changes post LASPO, it is important not to make any changes which could impact on access to justice. There is currently a voluntary code of conduct in place and optional membership of the Association of Litigation Funders (http://associationoflitigationfunders.com/), but is this enough?

Third party funders can earn substantial amounts from successful cases and therefore surely some form of regulation should be introduced to ensure that both individual and corporate purchasers of third party funding are protected.

What are your thoughts in relation to this topic? Would you regulate the area now or would you give the area time to develop and then look to regulate in due course? My view is the latter.

I await your comments with interest.

 

This blog was prepared by Andrew McAulay is who a Partner and the Head of the Costs and Litigation Funding Team at Clarion. Andrew can be contacted on 0113 336 3334 or at andrew.mcaulay@clarionsolicitors.com

PROPORTIONALITY HITS FAMILY LAW

I have previously posted blogs on the topic of proportionality (Who needs fixed costs! and Proportionality continues to get tougher) and made the comment that it would be interesting to see how the area and application of proportionality develops.

Recently we have seen proportionality develop in the area of Family Law.  In the case of Kay v Kay [2016] EWHC 2002 (Fam) the successful party’s claim for costs was reduced on Summary Assessment from £33,813.00 to £3,737.50.  This was a reduction of approximately 89%.

The Summary Assessment was carried out by Mr Justice Macdonald and he felt that the claim for costs was unreasonable and excessive taking into account the circumstances of the case.  He said the following; “it is remarkable that such a significant sum of money has been spent by these two parents arguing over a single question the answer to which was indisputable from the outset.  The costs incurred in this case were disproportionate to the single issue at hand”.

During the Summary Assessment the Judge reduced items heavily such as hourly rates, attendances upon the client and work done on documents. Interestingly, no schedule (breakdown of time) was attached to the Statement of Costs in relation to the documents work. This no doubt contributed to the significant costs reduction.

The Judge conducted the Summary Assessment by assessing the claims within the statement of costs on a summary basis, which brought the figure of £3,737.50.  What he did not appear to do was assess the costs and then stand back and reduce the costs to what he thought was a proportionate amount.  Clearly, in this case the Judge must have felt comfortable with the ‘end’ amount or when he conducted the summary assessment he applied the tests of reasonableness and proportionality at the same time.  In the cases of Who needs fixed costs! and Proportionality continues to get tougher (both detailed assessments and not summary assessments) both Judges determined what was reasonable and then ‘sat back’ and reduced the claims for costs to what they deemed were proportionate amounts. This is the approach that LJ Jackson set out in his final report at Part 1, chapter 3, paragraph 5.13:

In other words, I propose that in an assessment of costs on the standard basis, proportionality should prevail over reasonableness and the proportionality test should be applied on a global basis. The court should first make an assessment of reasonable costs, having regard to the individual items in the bill, the time reasonably spent on those items and the other factors listed in CPR rule 44.5(3). The court should then stand back and consider whether the total figure is proportionate. If the total figure is not proportionate, the court should make an appropriate reduction. There is already a precedent for this approach in relation to the assessment of legal aid costs in criminal proceedings: see R v Supreme Court Taxing Office ex p John Singh and Co [1997] 1 Costs LR 49.

The case demonstrates that the new test of proportionality is not just limited to the areas of Civil and Commercial Litigation, but equally applies to the area of Family Law.  Effectively, regardless of the area of law, where legal costs are to be assessed pursuant to CPR 44.3(2) then the new test of proportionality (the ‘Jackson’ test) applies.

Finally, this is another example of the Courts tackling disproportionate legal costs and demonstrates that the Court has the tools already to deal with disproportionate claims for costs and that fixed costs are not required.

This blog was prepared by Andrew McAulay who is a Partner at Clarion and the Head of the Costs and Litigation Funding department.   Andrew can be contacted at andrew.mcaulay@clarionsolicitors.com or on 0113 336 3334.

 

Good news on assignment of CFAs-Jones v Spire Healthcare Limited appeal successful

In a County Court judgment handed down on 11 May 2016 regarding District Judge Jenkinson’s decision on CFA assignment in Jones v Spire Healthcare, His Honour Judge Graham Wood QC has allowed the Claimant’s appeal – thereby rendering assignment of CFAs between separate firms of solicitors valid and enforceable and allowing recovery of both pre- and post-assignment costs.Read More »

Raising the Bar: how guideline hourly rates limit access to justice

In a statement dated 17 April 2015, Master of the Rolls the Rt Hon Lord Dyson said that the Guideline Hourly Rates (‘GHRs’) form ‘…an integral part of the process of… summary assessment… a starting reference point in the preparation of detailed assessments… [and] a yardstick for comparison purposes in costs budgeting’, something of a non sequitur following his previous statement that the GHRs are becoming ‘less and less relevant’. Nevertheless the GHRs remain, yet do they undermine the fundamental principles of access to justice?

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