QUALIFIED ONE WAY COSTS SHIFTING (“QOCS”)

Summary

1. QOCS fully retrospective except where additional liability claimed.
2. Costs orders NOT limited to amount of damages.
3. Claimant’s pre-Part 36 costs may be eaten into.
4. Court NOT limited to making orders only when defendant’s Part 36 not beaten, even when no dishonesty.
5. No costs payable by a claimant who accepts defendant’s Part 36 offer out of time.
6. “Fundamentally dishonest” test replaces “Fraud”.
7. New CPR 44.13 to 44.17 set to be the most contentious legislation in funding and costs history.

Qualified One Way Costs Shifting has been introduced by the Civil Procedure (Amendment) Rules 2013 and the scheme is set out in CPR 44.13 to CPR 44.17 and the relevant Practice Direction is the 60^th Update Practice Direction Amendments and QOCS is dealt with in Section II, subsection 12 at pages 33-35 of the update.

Scope

It applies only to personal injury cases, including clinical negligence matters, but it is the Government’s stated intention to introduce it for all areas of civil litigation. At present  QOCS applies to claims for damages:

(a)    for personal injuries;

(b)   under the Fatal Accidents Act 1976;

(c)    which arise out of death or personal injury and survive for the benefit of an estate by virtue of section 1(1) of the Law Reform (Miscellaneous) Provisions Act 1934.

All relevant cases, irrespective of the parties’ financial circumstances, are covered.

 The idea

The basic concept is that the claimant will not be required to pay the defendant’s costs if the claim fails, but the defendant must pay the claimant’s costs in the usual way if the claim succeeds.

On the face of it this avoids the need for claimant after-the-event insurance and thus dovetails with the abolition of recoverability of the premium from the losing party achieved by section 46 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 and which came in to force in relation to insurance policies taken out after 31 March 2013. The theory is that the disadvantage to corporate defence insurers of not recovering costs in the event of victory is outweighed by not having to pay recoverable after-the-event insurance premiums in the event of defeat.

Claimants in personal injury cases could proceed in the certain knowledge that they would never be liable for the defendants’ costs; consequently there was no need to take out after-the-event (ATE) insurance; worthless claims would be filtered out by the claimants’ solicitors who would not take on useless, and therefore non-fee earning, cases.

In theory this is an excellent idea. We already have no-costs regimes in employment and family work and the Small Claims track is a no-costs zone whatever the type of work. Part 36 is not applicable to any of those areas and is specifically stated not to apply to Small Claims matters.

The reality

However, the continued existence of the full force of Part 36 of the Civil Procedure Rules in QOCS cases, makes QOCS almost pointless.

True it is that, subject to certain exceptions dealt with below, a claimant whose claim fails completely will not have to pay the successful defendant’s costs, although a full, but generally unenforceable, costs order will be made. This has led Judge Michael Cook to ask

“…under QOCS might even the weakest case now have a nuisance value? Will this be a blackmailer’s charter?”

The coach and horses driven through QOCS is the fact that a claimant who succeeds, but fails to beat a defendant’s Part 36 offer will be ordered to pay all of the defendant’s costs from the date of expiry of the time for accepting the offer, although such order is only enforceable without leave of the court up to the level of damages actually awarded by the court.

This is the “damages wipe-out” option, or as Judge Michael Cook puts it

“So, they may lose all their damages in paying costs but will not actually be out of pocket.”

The position is simple: no QOCS system can possibly work alongside the continuing existence of Part 36 in such proceedings. The current system in England and Wales implicitly recognizes this; that is why by virtue of CPR 27.2(1)(g) Part 36 specifically does not apply to the non-costs bearing Small Claims Track. Neither is there anything similar to Part 36 in other non-costs bearing areas of law such as family law and Employment Tribunal cases.

One Way Costs Shifting has considerable merit. Interestingly the NHS Litigation Authority draft pilot for claims of £25,000 or less is avowedly a One Way Cost Shifting scheme and NOT a Qualified One Way Costs Shifting scheme. Qualified One Way Costs Shifting, with Part 36 remaining in full force, is an unworkable disaster, with claimants being forced to settle for a fraction of what the claim is worth, or having to fund expensive after-the-event insurance, which avoids the Part 36 problem, but again leads to the claimant losing much of their damages.

Thus an entirely reasonable and honest claimant who wins his or her case but just fails to beat the defendant’s Part 36 offer is liable for all of the defendant’s costs from the expiry of the date for accepting the Part 36 offer in the usual way.

The only change from the pre-1 April 2013 regime is that the sum of costs paid to the successful defendant cannot generally exceed the amount of damages awarded, although even that is subject to numerous exceptions.

Thus a claimant faces loss of all damages but nothing more, as far as liability to the successful defendant is concerned.

However, the claimant will also have his or her own legal costs, or more likely disbursements, to deal with in the absence of any ATE insurance. If a claimant does have such insurance he will have to pay for it himself, as of course the case will have been “won”, albeit that it may be a Pyrrhic victory.

Thus in a QOCS case a defendant makes a Part 36 offer. The claimant can accept it or proceed and risk losing all damages AND paying all of his own disbursements from thereon, including Counsel’s fees, court fees and experts’ fees.

It is true that all of these problems exist in all civil work and it could be argued that at least personal injury claimants are off the costs’ hook to a certain, albeit limited, extent.

The difficulty is that in virtually all personal injury cases the defendant is an insurance company, and thus has deep pockets. This problem had largely been averted by the widespread availability of after-the-event insurance, whereby the losing claimant never paid the after-the-event insurance premium and the winning claimant recovered the premium from the defendant insurance company.

It is the combination of the abolition of recoverability of the premium, which itself might lead to the collapse of the ATE market, and the continuation of the full rigour of Part 36 which causes the problem.

What goes round comes round.

I am old enough to remember anguished news reports of victims who had won their cases in relation to terrible injuries but received nothing because of an earlier payment in to court – the forerunner of Part 36.

Generally the Part 36 dice remain firmly loaded against claimants; a claimant only gets an enhancement if judgment is given at a hearing and thus a defendant is free to accept a claimant’s Part 36 offer years out of time with no penalty, whereas a claimant who accepts a defendant’s Part 36 offer out of time pays every penny of costs of both sides from the minute after the expiry date for accepting the offer.

This bias appears time and again in judgments. Take this statement by Mr Justice Henderson in AB v CD [2011] EWHC 602 (Ch):-

“The concept of an “offer to settle” is nowhere defined in Part 36. I think it clear, however, that a request to a defendant to submit to judgment for the entirety of the relief sought by the claimant cannot be an “offer to settle” within the meaning of Part 36…In my judgment the offer must contain some genuine element of concession on the part of the claimant, to which a significant value can be attached in the context of the litigation. The basic policy of Part 36 is to encourage the sensible settlement of claims before trial, or even the issue of proceedings…The concept of a settlement must, by its very nature, involve an element of give and take. A so-called “settlement” which was all take and no give would in my view be a contradiction in terms.

Therefore, a claimant cannot make a Part 36 offer to settle his claim in full and then, if he succeeds in full, seek the benefits of obtaining a judgment as advantageous as his offer.”

Thus a claimant must lose out, must sacrifice part of their damages. The logic of this, if applied to defendant’s Part 36 offer, is that they should EXCEED the value of the claim, otherwise what concession is the defendant making?

Of course for a defendant to get costs at trial, having lost, it must have made an offer that matches the sum awarded by the court, but for the reasoning set  out above, the claimant’s risk is far greater than that of the defendant, and the prospective benefit almost nil. Thus a claimant, in effect, has to accept a substantial discount against the true value of the claim but a defendant does not need to make any such concession.

This all greatly exacerbated by the combination of QOCS and no recoverable after-the-event insurance premiums.

The detail

Qualified One Way Costs Shifting is dealt with very shortly in the Civil Procedure (Amendment) Rules 2013 at new CPR 44.13 to 44.17, and this appears at the end of this piece.

Exceptions

Pre-action disclosure applications are not protected by QOCS, nor are proceedings where a claimant has entered into a pre-commencement funding arrangement before 1 April 2013.

Put simply if, prior to 1 April 2013, there is in place a conditional fee agreement or collective conditional fee agreement or ATE or membership organisation indemnity, then QOCS protection will not apply.

I can understand why, if ATE insurance or membership organisation protection is in place, QOCS should not apply as it would be unfair for a defendant to pay the recoverable ATE premium to a clamant who, on the face of it, is at no risk of paying costs.

However the success fee is to reward the lawyer for taking the chance of getting no fee because the case is lost. What on earth has that got to do with the risk of the defendant’s costs being payable?

Why should a claimant with a CFA with a success fee, but no ATE, lose QOCS protection? Surely it is in the defendant’s interest as well, as they would be off the hook for the ATE premium, the whole point being that it is cheaper for the insurance industry to recover no costs but pay no ATE.

This thinking is as woolly as a mammoth.

A pre-commencement funding arrangement is a creature “as defined in rule 48.2” (new CPR44.17). So, naturally, one looks at new CPR48.2, where at CPR 48.2(1)(a)(i) one will find the following:

“48.2(1) A pre-commencement funding arrangement is-

………..

(i)                  a funding arrangement as defined by rule 43.2(1)(k)(i) where……”

CPR 43.2(1)(k)(i) defines a funding arrangement as “an arrangement where a person has –

(i)                  entered into a conditional fee agreement or a collective conditional fee agreement which provides for a success fee…..”

A first day trainee can do better than that.

So QOCS applies to all personal injury proceedings where there is no pre-1 April 2013 recoverable success fee or ATE or membership organisation premium in place.

Retrospection

Thus it is fully retrospective in all other cases, covering cases that have been going on for years, which may come as a shock to insurers.

The transitional provision is new CPR 44.17.

“44.17 This Section does not apply to proceedings where the claimant has entered into a pre-commencement funding arrangement (as defined in rule 48.2)”.

See above for my analysis of this definition, but, as a pre-commencement funding arrangement can, under new CPR 48.2 ONLY be pre-1 April 2013, it follows that any other pre-1 April 2013 arrangement is covered by QOCS.

On the face of it a claimant without a CFA or ATE with, say, a £200,000 costs order against them prior to 1^st April 2013 does not now have to pay. A costs order where the defendant won on liability is worthless. Where the defendant won on a Part 36 offer, then generally the order is only as good as the level of damages recovered by the claimant.

This also highlights one of the odd aspects of the Court of Appeal’s decision in Simmons v Castle [2012] EWCA Civ 1288 re the 10% general damages uplift to all claimants who prior to 1 April 2013 did not have a Conditional Fee Agreement with recoverable success fee in place.

Such a claimant, for example funded by a before-the-event insurance (BTE) policy, will get 10% extra general damages to compensate them for the non recovery of a non-existent success fee AND will benefit from QOCS to avoid them having to buy adverse costs insurance which in fact they already have through their BTE policy.

Furthermore a defendant gets no Part 36 costs protection until a costs order is made, so late acceptance of a defendant’s Part 36 offer does not trigger costs, whereas it did prior to 1 April 2013. So acceptance post  1 April 2013, out of time and the last one, two, three years’ costs liability goes, unless you have a CFA with recoverable success fee or you have recoverable ATE.

However I suspect that the defendant will refuse to pay costs unless a set-off for post-Part 36 costs is made, forcing the claimant to go to detailed assessment, except that if the bill is for £75,000 or less it will be a paper-only provisional assessment in the first instance. I hope that no-one in the Court of Appeal is planning any holiday any time soon.

Retrospective retrospection

Are you free to tear up any agreement providing for the recoverability of an additional liability and thus gain QOCS protection?

The relevant rule is CPR 44.17 which reads:

“This Section does not apply to proceedings where the claimant has entered into a pre-commencement funding arrangement (as defined in rule 48.2).”
New CPR 48.2 is long, complicated, and to use the current common idiom amongst lawyers, drafted by aliens, but CPR 48.2(1)(a)(i)(aa) – I have not made that up – defines a funding arrangement as itself defined by CPR 43.2(1)(k)(i) – I have not made that up either – as where  “the agreement was entered into before 1 April 2013 specifically for the purposes of the provision to the person by whom the success fee is payable of advocacy or litigation services in relation to the matter that is the subject of the proceedings in which the costs order is to be made;
or
……..”

This deals with CFAs, (bb) deals with CCFAs, 48.2(1)(ii) deals with ATE and 48.2(1)(iii) with membership organisation self-insurance.

Any one of these disapplies QOCS. By ending any relevant agreement can you disapply the disapplication and retrospectively achieve retrospective QOCS protection?

Thus it depends upon the meaning of “has entered into”. Clearly the better wording would have been “had entered into” or “has ever entered into” which would have put it beyond doubt. “Has” is not tense specific. “Has my client got a CFA ?” is present tense.

It is clearly arguable either way, but equally clearly the intention of Parliament was to disapply QOCS where recoverability of an additional liability was in place, so on the basis that courts should adopt a purposive construction of legislation, my view is that anyone who has ever had a recoverable liability does not get QOCS protection.

Don’t get me started on CPR 48.2(1)(a)(i)(aa) and its reference to the claimant paying the success fee in a pre 1 April 2013 when the whole point of it all is the abolition of recoverability – the client was not allowed to pay the success fee!

With thousands of pages of Jackson related material, this is currently winning the “worst-drafted provision” award, and as the old joke goes, that is with some pretty stiff competition!

Provisional Assessment

What happens in a provisional assessment, where the penalty for failing to do a least 20% better at an oral assessment is an order against you for costs of assessment? Does this, or does this not apply in QOCS cases?

Fixed costs

Likewise fixed costs.

Extent of protection

New CPR 44.14 does indeed limit costs enforcement by the defendant to damages recovered without the permission of the court. (My italics)

CPR 44.14(2) provides that a costs order against a QOCS claimant may only be enforced after proceedings have been concluded and after the costs have been assessed or agreed.

Thus a defendant who has obtained an interim order for costs cannot use it to put pressure on a QOCS claimant prior to all matters being resolved.

Thus a court can make any costs order that it thinks fit, within what is accepted as a very wide discretion in costs matters, and the only restriction is that such a costs order cannot be enforced if it exceeds the amount of damages, unless one of the exceptions in CPR 44.15 or CPR 44.16 is satisfied.

Thus a costs order can be made against a winning claimant who has beaten a Part 36 offer, but is found to have unreasonably refused to mediate, or has exaggerated, or whatever.

Thus CPR 44.15 allows a defendant to enforce “to the full extent of such orders” – that is exceeding damages, without permission of the court, where the proceedings have been struck out on the ground that –

(a)    the claimant has disclosed no reasonable grounds for bringing the proceedings;

(b)   the proceedings are an abuse of the court’s process; or

(c)    the conduct of –

(i)            the claimant; or

(ii)            a person acting on the claimant’s behalf and with the claimant’s knowledge of such conduct,

is likely to obstruct the just disposal of the proceedings.

Note that the proceedings must be struck out  to trigger the costs liability. It is not sufficient that summary judgment has been entered against the claimant.

Often an application to strike out and an application for summary judgment are issued and heard together.

Prior to 1 April 2013 this may have seemed a distinction without a difference. Now it is hugely important. If a judge awards summary judgment against a claimant as compared with striking out the claim, then the claimant will be protected from an adverse costs order.

Note also that a claimant who is the subject of a striking out application may jump the gun and discontinue the proceedings and avoid liability for costs.

In such circumstances the court has no power to re-open the matter to consider any of the striking out grounds that could have triggered a costs liability.

The position is different if the claimant has discontinued in order to avoid a finding of fundamental dishonesty and a consequent costs order. There the court may direct that issues arising out of an allegation that the claim was fundamentally dishonest be determined notwithstanding that the notice has not been set aside pursuant to CPR 38.4 – see Practice Direction 12.4 below.

CPR 44.16(1) allows full recovery, that is over and above damages, with the permission of the court “where the claim is found on the balance of probabilities to be fundamentally dishonest”.

As far as I am aware “fundamentally dishonest” is a new concept in English law. Throughout all reports, recommendations and consultations the term was the much more familiar one of fraud.

Are you OK if the claim is “fairly dishonest”, “quite dishonest”? I was not aware until now that there were degrees of dishonesty.

CPR 44.16(2) also allows full recovery with the permission of the court, but now only “to the extent that it considers just”.

Forgive me but I thought that the general idea was that courts only made costs orders to the extent that they consider just. On the face of it this sanctions unjust orders in all other instances. Remember that in both instances the court has had to consider whether to give permission. One sort of hoped that the court would not exercise its discretion to allow enforcement of an unjust order.

So CPR 44.16(2) allows full recovery with the permission of the court, to the extent that it considers just, where.

(a)    the proceedings include a claim which is made for the financial benefit of a person other than the claimant or a dependant within the meaning of section 1(3) of the Fatal Accidents Act 1976 (other than a claim in respect of the gratuitous provision of care, earnings, paid by an employee or medical expenses);

or

(b)   a claim is made for the benefit of the claimant other than a claim to which this section applies.

CPR 44.16(3) allows the court to make an order against a third party in a 44.16(2)(a) case.

The claimant who loses completely and gets no damages at all and who does not fall within the CPR 44.15 and CPR 44.16 exceptions cannot have any costs order enforced against them. This is the effect of CPR 44.14. This is the only new protection and it protects only complete losers (cases not the people!)

Note that a full costs order will be made against a losing claimant; it simply cannot be enforced with or without the court’s permission.

This is why CPR 44.14(3) exists and provides:

“(3) An order for costs which is enforced only to the extent permitted by paragraph (1) shall not be treated as an unsatisfied or outstanding judgment for the purposes of any court record”.

This does not prevent a credit-rating agency taking it in to account; it does stop solicitors and barristers from being struck off or disbarred as there will not be an outstanding or unsatisfied judgment against them.

Discontinuance

The general rule is that a discontinuing claimant is automatically liable for the defendant’s costs. That role is disapplied in QOCS cases for the simple reason that a claimant with a weak case would be better off proceeding to trial and losing rather than discontinuing and being automatically liable for cost.

However there is still a potential liability on discontinuance, as QOCS protection does not apply in various situations, eg credit hire claims, gratuitous care claims etc – see below; so I set out the normal rule on discontinuance.

CPR 38.6

“Liability for costs

(1)    Unless the court orders otherwise, a claimant who discontinues is liable for the costs which a defendant against whom the claimant discontinues incurred on or before the date on which notice of discontinuance was served on the defendant.

(2)    If proceedings are only partly discontinued –

(a)    the claimant is liable under paragraph (1) for costs relating only to part of the proceedings which he is discontinuing; and

(b)   unless the court orders otherwise, the costs which the claimant is liable to pay must not be assessed until the conclusion of the rest of the proceedings

(3)    This rule does not apply to claims allocated to the Small Claims track.

(Rule 44.12 provides for the basis of assessment where the right to costs arises on discontinuance and contains provisions where a costs order is deemed to have been made and applying for an order under section 194(3) of the Legal Services Act 2007.)”

The court will always make an order for the full extent of the costs and in that sense the name Qualified One Way Costs Shifting is misleading. It suggests that costs orders will not be made against Claimants and that is entirely untrue. All that the new rule does is to limit enforceability of those orders without leave of the court.

Thus a full costs order will be made exactly the same way as before Qualified One Way Costs Shifting was introduced.

Thus the only limitation is that contained in CPR 44.14 which reads as follows:-

(1)    Subject to rules 44.15 and 44.16, orders for costs made against a claimant may be enforced without the permission of the court but only to the extent that the aggregate amount in money terms of such orders does not exceed the aggregate of the amount in money terms in any orders for damages and interest made in favour of the claimant.”

Thus it is correct that leave of the court is needed to enforce an order over and above the amount of damages awarded to the claimant.

Thus if a claimant loses entirely, then obviously there are no damages and therefore nothing can be enforced without leave of the court.

If a Part 36 offer is not beaten by the claimant then the order in favour of the defendant in relation to post Part 36 costs may be enforced up to the total amount of the damages without leave of the court.

Set-off

CPR 44.12 reads:

(1)    Where a party entitled to costs is also liable to pay costs, the court may assess the costs which that party is liable to pay and either –

(a)    set off the amount assessed against the amount the party is entitled to be paid and direct that party to pat the balance; or

(b)   delay the issue of a certificate for the costs to which the party is entitled until the party has paid the amount which that party is liable to pay.”

The Practice Direction is silent as to the effect of this rule.

This raises the question as to whether even the claimant’s pre Part 36 costs are at risk of being eaten in to to satisfy the unsatisfied element of a costs order in favour of a defendant when a defendant’s Part 36 offer has not been beaten.

Thus the claimant is awarded £30,000 at court and an order is made in the defendant’s favour for £40,000, leaving an unsatisfied balance of £10,000.

May the defendant set this off against the claimant’s pre Part 36 costs?

Yes, seems to be the clear answer. That situation appears to fall fairly and squarely with CPR 44.12(1)(a).

 CPR 44.15 then deals with matters where a full extent of the order may be enforced without leave of the court, and those circumstances are set out there. Again this is not the whole story as by definition a court will have needed to have made an order on one of those grounds, thus effectively triggering full costs enforcement without further leave.

CPR 44.16 provides exceptions whereby the full order may be enforced, over and above the damages awarded, but now only with specific permission of the court.

Fundamental Dishonesty

CPR 44.16(1) deals with fundamental dishonesty; the court has to find that, on the balance of probabilities, the claim was fundamentally dishonest before allowing enforcement of the full order.

It is not clear what constitutes fundamental dishonesty. Does the whole claim have to be fundamentally dishonest, or does it suffice that one claim in one head of damage is false? Can gross exaggeration cause the fundamental dishonesty line to be crossed?

Where there is an allegation of fundamental dishonesty the court will normally direct that issues arising out of such an allegation be determined at trial (Practice Direction 12.4(a)) and where the proceedings have been settled the court will not, save in exceptional circumstances, order that issues arising out of an allegation of fundamental dishonesty be determined. (Practice Direction 12.4(b)).

Where the claimant has served a notice of discontinuance the court may nevertheless direct that issues arising out of an allegation of fundamental dishonesty be determined even though the notice has not been set aside pursuant to CPR 38.4. (Practice Direction 12.4(c)).

Financial Benefit

CPR 44.16(2) provides that orders for costs may be enforced up to the full extent of such orders with the permission of the court, and to the extent that it considers just, where –

(a)    the proceedings include a claim which is made for the financial benefit of a person other than the claimant or a dependant within the meaning of section 1(3) of the Fatal Accidents Act 1976 (other than a claim in respect of the gratuitous provision of care, earnings paid by an employer or medical expenses); or

(b)   a claim is made for the benefit of the claimant other than a claim to which this Section applies.”

The Practice Direction in relation to this new rule is the 60^th update – Practice Direction Amendments and is contained in section II , subsection 12 which appears at pages 33 to 35 of the Practice Direction, and I have set this out at the end of this piece.

Paragraph 12.2 the Practice Directions states:-

“Examples of claims made for the financial benefit of a person other than the claimant or a dependant within the meaning section 1(3) of the Fatal Accidents Act 1976 within the meaning of rule 44.16(2) are subrogated claims and claims for credit hire.”

I am satisfied that a claim in relation to a minor is not a claim made for the financial benefit of a person other than the claimant. The minor is the claimant, but simply acts through a Litigation Friend, and I am satisfied that QOCS applies to minor claims and that such a claim is not one made on behalf of someone else.

The position is treated as being the same in relation to gratuitous care claims.

Practice Direction paragraph 12.3 states:-

“Gratuitous provision of care” within the meaning of rule 44.16(2)(a) includes the provision of personal services rendered gratuitously by persons such as relatives and friends for things such as personal care, domestic assistance, chid minding, home maintenance and decorating, gardening and chauffeuring.”

Thus in relation to gratuitous care claims, QOCS protection DOES apply, even though the claim is for the financial benefit of another. The position is the same in relation to earnings paid by an employer and medical expenses. 

Practice Direction 12.5 reads :-

“The court has power to make an order for costs against a person other than the claimant under section 51(3) of the Senior Courts Act 1981 and rule 46.2. In a case to which rule 44.16(2)(a) applies (claims for the benefit of others) –

(a)    the court will usually order any person other than the claimant for whose financial benefit such a claim was made to pay all the costs of the proceedings or the costs attributable to the issues to which rule 44.16(2)(a) applies, or may exceptionally make such an order permitting the enforcement of such an order for costs against the claimant.

(b)   the court may, as it thinks fair and just, determine the costs attributable to claims for the financial benefit of persons other than the claimant.”

Rule 44.16(3) confirms that Rule 46.2 applies to QOCS, that is that before a non-party costs order is made that non party must be added to the proceedings and be given an opportunity to be heard by the court.

Paragraph 12.6 of the Practice Direction makes it clear that such orders can exceed the value of damages awarded.

This is confusing, to put it mildly, in that generally it would be  difficult to pick out what costs are attributable to the non-protected heads of special damages, as compared with other heads of special damages, and in any event if the claim is won then it is only the claimant’s failure to beat a Part 36 offer which triggers a liability for costs it will be unusual for a defendant to have made an offer in relation to just some aspects of special damages.

This is yet another example of the very poorly thought out provisions in relation to Qualified One Way Costs Shifting.

 Exercise

You act for a claimant in a case where you are reasonably confident, but by no means certain, of winning. You value the damages at £100,000.

(A)      Under the current regime, with ATE insurance in place to cover own disbursements and adverse costs, including in relation to Part 36, what is the minimum Part 36 offer you would advise the claimant to accept?

(B)       Does that figure change, and if so what to, in the new regime, with no insurance in place and no Counsel on board under a CFA and a claimant who will be unable to pay Counsel’s fees, court fees and experts’ fees in the event of failing to beat the Part 36 offer?

If you act for defendants then state what figure you would expect to be accepted (A) now and (B) under the new regime.

Defendant insurers have made it clear that they expect to be able to settle for much lower figures under QOCS if the claimant does not have ATE insurance.

One of the points being missed is the solicitor’s risk of being left with a liability for post-Part 36 disbursements that a client who has failed to beat a Part 36 offer cannot, or will not, pay. This is bound to influence solicitor behaviour. There is no point in a client spending a substantial sum on after-the-event insurance to cover this Part 36 risk unless they are likely to recover a sum that exceeds the Part 36 offer by at least as much as the premium, in which case why take out the insurance at all?

Thus the client who beats the Part 36 offer will always question why such expensive ATE insurance was necessary and the client who fails to beat the Part 36 offer will always think that the solicitor should have taken out such insurance.

The initial consideration as to whether to take out unrecoverable ATE insurance essentially to cover the Part 36 risk is not easy.

True One Way Costs Shifting has considerable merit and operates in some states of the United States of America in relation to discrimination claims. Qualified One Way Costs Shifting with Part 36 remaining fully in force in unworkable, forcing claimants, to undersettle grossly or to fund expensive after-the-event insurance.

Either way claimants will be left severely out of pocket, and that is without taking in to account the fact that they will now have to pay some of their own costs, generally a sum equal to 25% of general damages and past special damages, net of Compensation Recovery Unity payments.

Case law

The Court of Appeal has already considered one of the potential problems arising under QOCS.

In Flatman and Germany v Weddall and Barchester Health Care Limited [2013] EWCA Civ 278

the Court of Appeal held that solicitors who help their clients by funding the cost of disbursements should not be liable for costs if the case fails even if no After-the-Event insurance is in place.

Although both appeals related to pre-Jackson cases the Court of Appeal recognized that the situation is likely to become much more common post-Jackson with the abolition of legal aid for all but a small number of clinical negligence cases and with the abolition of the recoverability of the After-the-Event insurance premium.

The issue of solicitors being able to fund disbursements without being at risk of an adverse costs order is regarded as one of access to justice and the Court of Appeal allowed the Law Society to intervene.

The Court of Appeal specifically approved the funding of disbursements generally with the client repaying the solicitor at the end and also the solicitor paying disbursements on a contingency basis, that is without recovering them from the client if the case is lost.

Although not necessary for the judgment in these two cases by extension it allows solicitors to agree to only charge the client for disbursements actually recovered from the other side.

The Court of Appeal also recognized the importance of the decision in relation to Qualified One Way Costs Shifting:

“Defendant’s insurers can undermine the principle of qualified one way costs shifting (which will limit recovery of costs by insurers in failed personal injury actions) by pursuing the solicitors acting for the claimant who fails.”

The point here is that, contrary to popular belief, costs orders against claimants are made for the full sum, but may only be enforced beyond the level of damages with permission of the court.

Under CPR 44.16(3) where the claim is for the benefit of another, the court will usually order that beneficiary to pay costs. Thus if the solicitors had been held to be beneficiaries, then they could be ordered to pay the excess of costs awarded over the damages sum.

The Court of Appeal conducted an exhaustive analysis of case law, stating at Paragraph 45:

“…the legislation does visualise the possibility that a solicitor might fund disbursements and, in that event, it would not be right to conclude that such a solicitor was ‘the real party’ or even ‘a real party’ to the litigation.”

and at paragraph 47:

“…payment of disbursements, without more, does not incur any potential liability to an adverse costs order. “

The Civil Procedure Rules

Parts 44.13 – 44.17

“44.13

(1)    This Section applies to proceedings which include a claim for damages –

(a)    for personal injuries;

(b)   under the Fatal Accidents Act 1976; or

(c)    which arises out of death or personal injury and survives for the benefit of an estate by virtue of section 1(1) of the Law Reform (Miscellaneous Provisions) Act 1934,

but does not apply to applications pursuant to section 33 of the Senior Courts Act 1981⁹ or section 52 of the County Courts Act 1984¹⁰ (applications for pre-action disclosure), or where rule 44.17 applies.

(2)    In this Section, ‘claimant’ means a person bringing a claim to which this Section applies or an estate on behalf of which such a claim is brought, and includes a person making a counterclaim or an additional claim.

Effect of qualified one-way costs shifting

44.14

(1)    Subject to rules 44.15 and 44.16, orders for costs made against a claimant may be enforced without the permission of the court but only to the extent that the aggregate amount in money terms of such orders does not exceed the aggregate amount in money terms of any orders for damages and interest made in favour of the claimant.

(2)    Orders for costs made against a claimant may only be enforced after the proceedings have been concluded and the costs have been assessed or agreed.

(3)    An order for costs which is enforced only to the extent permitted by paragraph (1) shall not be treated as an unsatisfied or outstanding judgment for the purposes of any court record.

Exceptions to qualified one-way costs shifting where permission not required

44.15

Orders for costs made against the claimant may be enforced to the full extent of such orders without the permission of the court where the proceedings have been struck out on the grounds that –

(a)    the claimant has disclosed no reasonable grounds for bringing the proceedings;

(b)   the proceedings are an abuse of the court’s process; or

(c)    the conduct of –

(i)            the claimant; or

(ii)            a person acting on the claimant’s behalf and with the claimant’s knowledge of such conduct,

is likely to obstruct the just disposal of the proceedings.

Exceptions to qualified one-way costs shifting where permission required

44.16

(1)    Orders for costs made against the claimant may be enforced to the full extent of such orders with the permission of the court where the claim is found on the balance of probabilities to be fundamentally dishonest.

(2)    Orders for costs made against the claimant may be enforced up to the full extent of such orders with the permission of the court, and to the extent that it considers just, where –

(a)    the proceedings include a claim which is made for the financial benefit of a person other than the claimant or a dependant within the meaning of section 1(3) of the Fatal Accidents Act 1976 (other than a claim in respect of the gratuitous provision of care, earnings paid by an employer or medical expenses); or

(b)   a claim is made for the benefit of the claimant other than a claim to which this Section applies.

(3)    Where paragraph (2)(a) applies, the court may, subject to rule 46.2, make an order for costs against a person, other than the claimant, for whose financial benefit the whole or part of the claim was made.

Transitional provision

44.17

This Section does not apply to proceedings where the claimant has entered into a pre-commencement funding arrangement (as defined in rule 48.2).”

The Practice Direction

“12.1

This subsection applies to proceedings to which Section II of Part 44 applies.

12.2

Examples of claims made for the financial benefit of a person other than the claimant or a dependant within the meaning of section 1(3) of the Fatal Accidents Act 1976 within the meaning of rule 44.16(2) are subrogated claims and claims for credit hire.

12.3

‘Gratuitous provision of care’ within the meaning of rule 44.16(2)(a) includes the provision of personal services rendered gratuitously by persons such as relatives and friends for things such as personal care, domestic assistance, childminding, home maintenance and decorating, gardening and chauffeuring.

12.4

In a case to which rule 44.16(1) applies (fundamentally dishonest claims) –

(a)    the court will normally direct that issues arising out of an allegation that the claim is fundamentally dishonest be determined at the trial;

(b)   where the proceedings have been settled, the court will not, save in exceptional circumstances, order that issues arising out of an allegation that the claim was fundamentally dishonest be determined in those proceedings;

(c)    where the claimant has served a notice of discontinuance, the court may direct that issues arising out of an allegation that the claim was fundamentally dishonest be determined notwithstanding that the notice has not been set aside pursuant to rule 38.4;

(d)   the court may, as it thinks fair and just, determine the costs attributable to the claim having been found to be fundamentally dishonest.

12.5

The court has power to make an order for costs against a person other than the claimant under section 51(3) of the Senior Courts Act 1981 and rule 46.2. In a case to which rule 44.16(2)(a) applies (claims for the benefit of others) –

(a)    the court will usually order any person other than the claimant for whose financial benefit such a claim was made to pay all the costs of the proceedings or the costs attributable to the issues to which rule 44.16(2)(a) applies, or may exceptionally make such an order permitting the enforcement of such an order for costs against the claimant.

(b)   the court may, as it thinks fair and just, determine the costs attributable to claims for the financial benefit of persons other than the claimant.

12.6

In proceedings to which rule 44.16 applies, the court will normally order the claimant or, as the case may be, the person for whose benefit a claim was made to pay costs notwithstanding that the aggregate amount in money terms of such orders exceeds the aggregate amount in money terms of any orders for damages, interest and costs made in favour of the claimant.

12.7

Assessments of costs may be on a standard or indemnity basis and may be subject to a summary or detailed assessment.”

Suggested wording of Civil Procedure Rule

“44.14 Subject to rules 44.15 and 44.16 no costs order shall be made against a claimant covered by rule 44.13 unless the claimant at trial fails to beat a defendant’s Part 36 offer”.

PREVIOUS COMMENTS

john hall

Does this mean that if defendants decide to put forward part 36 offers of say £100 on all cases that they intend taking to trial then if they win they can recover all their costs and therefore effectively circumvent QOCS?

 kerryunderwood

No, not quite as bad as that. Generally defendants will only get their costs if claimant fails to beat Part 36 offer, or has exaggerated, or been unreasonable or whatever and, except in exceptional circumstances set out in the blog, those costs are limited to the damages awarded – that is the damages wipe-out option.

 

Ben Elsom

What happens when a case is transferred from one solicitors practice which acted on a CFA and incepted an ATE policy pre April 01st to a new solicitor and the new solicitor incepts a CFA post April 01st. With firms choosing to exit the Personal Injury field or going into administration what rules would be the position with regards QOCS and ATE recoverability?

kerryunderwood

Very good question. Not dealt with in the Act or in transitional provisions or The Conditional Fee Agreements Order 2013. On the face of it any agreement signed on or after 1 April 2013 cannot have a recoverable success fee. Same point applies re minors when they achieve majority post 1 April.

Can a CFA be assigned? Je ne sais pas, but I am working on it.

Garret Spring

Any idea if they can be assigned?

kerryunderwood

No law on it. Considering point.

Tony

Have a look at jenkins v Young Brothers Transport Ltd [2006] All ER (D) 270 (Feb) 

kerryunderwood

Many thanks – greatly appreciated.

Luke Hallinan

Do I take it that eg a claimant with an existing CFA with success fee signed PRIOR to 1.4.13 but obtains ate cover POST 1.4.13 can, if successful, claim costs + success fee + usual disbs but not the ate premium?  That’s how I read it. Thanks

kerryunderwood

 100% correct.

 R Campbell

Sorry if this is a bit dense, but if there is a pre-1st april CFA in place but no ATE in place,  is the best course of action in order to limit the Claimant’s personal liability to scrap that CFA and then enter a damages-based agreement? That way, if they win they get all their damages and the solicitor gets 25% uplift, but if they lose they wouldn’t be liable for their own costs under the DBA or the costs of the Defendants due to QOWCS (unless they fail to be a part 36). DBAs don’t open the Claimant up to a costs liability I haven’t spotted do they?

 kerryunderwood

Hi Richard

My view is that what you propose does not work The relevant rule is new CPR 44.17 which reads:

This Section does not apply to proceedings where the claimant has entered into a pre-commencement funding arrangement (as defined in rule 48.2). New CPR 48.2 is long, complicated, and to use the current common idiom amongst lawyers, drafted by aliens, but CPR 48.2(1)(a)(i)(aa) – I have not made that up – defines a funding arrangement as itself defined by CPR 43.2(1)(k)(i) – I have not made that up either – as where ” the agreement was entered into before 1 April 2013 specifically for the purposes of the provision to the person by whom the success fee is payable of advocacy or litigation services in relation to the matter that is the subject of the proceedings in which the costs order is to be made; or ……..

This deals with CFAs, (bb) deals with CCFAs, 48.2(1)(ii) deals with ATE and 48.2(1)(iii) with membership organisation self-insurance.

Any one of these disapplies QOCS.

Thus it depends upon the meaning of “has entered into”. Clearly the better wording would have been ” had entered into” or “has ever entered into” which would have put it beyond doubt. Has is not tense specific. “Has my client got a CFA ?” is present tense.

Clearly arguable either way, but equally clearly the intention of Parliament was to disapply QOCS where recoverability of an additional liability was in place, so on the basis that courts should adopt a purposive construction, my view is that if you have ever had an additional liability you do not get QOCS protection.

I trust that the Court of Appeal will agree.

Don’t get me started on CPR 48.2(1)(a)(i)(aa) and its reference to the claimant paying the success fee in a pre 1 April 2013 when the whole point of it all is the abolition of recoverability – the client was not allowed to pay the success fee!.

Of the 12,000 pages or so of Jackson related stuff, this is currently winning the “worst-drafted provision” award, and as the old joke goes, that is with some pretty stiff competition!

Contingency Fee Agreement – MOTOR INSURERS’ BUREAU UNTRACED DRIVERS’ CLAIMS – Underwoods Model

This agreement is a legally binding contract between you and [firm]

Agreement Date [date]

We, the legal representative: [firm]

You, the client: [name]

What is covered by this agreement?

Your claim for an award from the MOTOR INSURERS’ BUREAU (the ‘BUREAU’) regarding personal injury and/or loss suffered [give details].

What is not covered by this agreement?

Any action you wish us to take in relation to an appeal against the Bureau’s decision.

 Paying us

If you are awarded money by the Bureau you pay us 25% of that compensation. This figure includes VAT at the current rate of 20%. Thus we charge you 20.83% plus VAT of 4.17% of the total [It does not include disbursements]. [It also includes disbursements]. Thus you never pay us more than 25% if you win [plus disbursements].

An award includes, without limitation, an interim award, a provisional award, a structural settlement award and a final award.

If you lose the case you do not pay us anything [except disbursements].

Costs and Disbursements recovered from the Motor Insurers’ Bureau

If the application is not successful we recover no costs or disbursements.

 Disbursements

If the claim is successful then the Bureau will pay disbursements incurred with their prior agreement and we will give credit to you for any disbursements recovered from the Bureau.

Costs

If the claim is successful then the MIB will pay costs as set out in this table.

Table
Amount of the award (1)	Specified fee (2)
Not exceeding £150,000	15% of the amount of   the award subject to a minimum of £500 and a maximum of £3,000
Exceeding £150,000	2% of the amount of the   award

As the costs paid depends upon the amount of the award we will not know until the end of the case how much those costs will be.

[The 25% of any award payable by you to us is in addition to those costs recovered from the MIB and our total charge to you is those recoverable costs and disbursements plus 25% of damages.]

[We will deduct from the 25% of damages payable by you any costs recovered from the Bureau, meaning that you only pay us the balance.]

If you end the agreement before the Bureau makes a decision with regard to whether or not to make an award to you, you are liable to pay our costs at the rate of [£   ] per hour with letters and telephone calls charged at [£   ] each unless they last for 6 minutes or longer in which case they will be charged at the appropriate proportion of the hourly rate. All of these figures include VAT at the current rate of 20%.

Disbursements

 Payments we make on your behalf such as:

•  experts’ fees;
• accident report fees;
• travelling expenses.
• medical record fees

For what happens if we end the agreement before the Bureau makes a decision with regard to whether or not to make an award to you, please refer to paragraph 5.

 1.         Our responsibilities

We must always act in your best interests in pursuing your claim for an award and obtaining for you the best possible results, subject to our duty to the Bureau.

 2.         Your responsibilities

-       you must give us clear instructions which allow us to do our work properly;

-       you must not ask us to work in an improper or unreasonable way;

-       you must not deliberately mislead us;

-       you must co-operate with us when asked;

-       you must attend an expert for examination when asked;

 3.         What happens if you win?

If the Bureau makes an award you pay us 25% of any award including any disbursements. You agree that we may receive the award that the Bureau pays to you. If the Bureau refuses to accept our receipt, you will pay the cheque you receive into a joint bank account in your name and ours. Out of the money you agree to let us take 25% of the damages including disbursements. You take the rest.

Thus you will always recover at least 75% of the sum awarded. [Less disbursements].

If the Bureau fails to make an award to you we have the right to take recovery action in your name to enforce a judgment, order or agreement. The costs of this action are payable by you to us in addition to 25% of the damages.

 4.         What happens if you lose?

If you lose you do not have to pay us anything. [Except disbursements].

5.         What happens when the agreement ends before the case itself ends?

You can end the agreement at any time. You are then liable to pay us our costs incurred up to the date you end the agreement calculated at the hourly rate, together with disbursements.

We can end the agreement if you do not keep to your responsibilities in condition 2. You are then liable to pay us our costs incurred up to the date the agreement ends calculated at the hourly rate, together with disbursements.

We can end the agreement if we believe that you are unlikely to obtain an award from the Bureau and you disagree with us. You do not have to pay us anything. [Except disbursements].

We can end the agreement if you reject our opinion about accepting an award from the Bureau. You are then liable to pay us our costs incurred up to the date the agreement ends calculated at the hourly rate, together with disbursements.

If you reject our opinion about accepting the figure proposed by the Bureau then under the terms of this agreement that is deemed to be you behaving unreasonably.  However if you recover an award of at least 20% more than the figure that we advised you to accept then this agreement deems your behaviour to have been reasonable in that regard and you will not have to pay us anything, except disbursements.

 6.         What happens after the agreement ends?

After the agreement ends we will inform the Bureau that we are no longer acting as your representative. We have the right to preserve our lien over any property of yours in our possession unless any money owed to us under this agreement is paid in full.

7.         Non-Contentious Business Agreement

This is a non-contentious business agreement within the meaning of section 57 of the Solicitors Act 1974 and is thus excluded from the provisions of The Damages-Based Agreements Regulations 2013 by virtue of Regulation 1(4) of those Regulations.

Signed for the legal   representative:[name]

Signed by the client: [name]

Notes for Solicitors

Motor Insurers’ Bureau Untraced Drivers’ claims can be dealt with by way of a contingency fee agreement, rather than a Damages-Based Agreement, as such work is non-contentious within the meaning of section 57 of the Solicitors Act 1974.

Motor Insurers Bureau claims are an oddity in that they are non-contentious business, but there is recoverability of costs to a limited extent, essentially a contingency fee of 15% of damages, plus VAT, but payable in addition to damages.

One option is to accept the fee payable under the MIB scheme, in which case no agreement beyond an ordinary client care letter, setting out the terms of business, is necessary, although it should be remembered that the solicitor is still taking the risk of not getting paid in the event of no award being made; thus it is still a no win – no fee arrangement and the solicitor is entitled to an extra fee for taking that risk and for removing that risk from the applicant.

A second option is to have a contingency fee agreement.  There is no statutory cap on the percentage that may be charged to the client, although obviously the Solicitors Code of Conduct 2011 applies to such agreements.  I have inserted a contingency fee of 25% including VAT.  This is on the basis that in other areas of personal injury work, where costs are recoverable, Parliament has prescribed that as the maximum success fee in conditional fee agreements and the maximum percentage in Damages-Based Agreements.

Thus, in line with other types of personal injury claim conducted on a no – win no fee basis, the fee is recoverable costs plus a sum limited to 25% of damages by way of unrecovered solicitor and own client costs.

A third option is to charge the client 25% of damages including VAT, but giving credit to the client for costs recovered from the MIB.  This is for all intents and purposes a Damages-Based Agreement, but without all of the regulation.

Disbursements

  The MIB pays disbursements if they have been incurred with the prior agreement of the MIB but counsel’s fees will not be paid unless the applicant is a minor or a person under a disability.

Appeals (oral hearings)

 Oral hearings are extremely rare in MIB cases and this agreement does not cover such oral hearings.

An appeal is before an arbitrator who may order costs to follow the event.  For these reasons it is considered that a contingency fee agreement is not suitable for an appeal, and that a conditional fee agreement is more appropriate.

The Law

 Non-contentious business agreements are specifically excluded from the provisions of The Damages-Based Agreements Regulations 2013 by Regulation 1(4) of those same Regulations:

“(4) Subject to paragraph (6), these Regulations shall not apply to any damages-based agreement to which section 57 of the Solicitors Act 1974 (non-contentious business agreements between solicitor and client) applies.”

The paragraph (6) exception reads:

“(6) Where these Regulations relate to an employment matter, they apply to all damages-based agreements signed on or after the date of which these Regulations come into force.”

and thus has no application to Motor Insurers’ Bureau claims.

As the Explanatory Note to The Damages-Based Agreements Regulations states:

“…section 58AA(9) of the [Courts and Legal Services] Act provides that, where section 57 of the Solicitors Act 1974 (c.47) applies to a DBA (other than one relating to an employment matter) it is not unenforceable only because it does not satisfy the conditions in section 58AA (4), under which these Regulations are made. Accordingly article 1(4) [sic – should read Regulation 1(4) – articles apply to Orders not Regulations] excludes those DBAs to which sections 57 of the Solicitors Act 1974 applies from the scope of these Regulations.”

Section 57 of the Solicitors Act 1974 has itself been amended by section 98 of the Courts and Legal Services Act 1990 and sections 117 and 221 of, and schedule 16 to, the Legal Services Act 2007, and now reads:

“57 Non–contentious business agreements

(1)   Whether or not any order is in force under section 56, a solicitor and his client may, before or after or in the course of the transaction of any non–contentious business by the solicitor, make an agreement as to his remuneration in respect of that business.

(2)   The agreement may provide for the remuneration of the solicitor by a gross sum or by reference to an hourly rate, or by a commission or percentage, or by a salary, or otherwise, and it may be made on the terms that the amount of the remuneration stipulated for shall or shall not include all or any disbursements made by the solicitor in respect of searches, plans, travelling, taxes, fees or other matters.

(3)   The agreement shall be in writing and signed by the person to be bound by it or his agent in that behalf.

(4)   Subject to subsections (5) and (7), the agreement may be sued and recovered on or set aside in the like manner and on the like grounds as an agreement not relating to the remuneration of a solicitor.

(5)   If on any assessment of costs the agreement is relied on by the solicitor and objected to by the client as unfair or unreasonable, the costs officer may enquire into the facts and certify them to the court, and if from that certificate it appears just to the court that the agreement should be set aside, or the amount payable under it reduced, the court may so order and may give such consequential directions as it thinks fit.

(6)   (6)Subsection (7) applies where the agreement provides for the remuneration of the solicitor to be by reference to an hourly rate.

(7)   If, on the assessment of any costs, the agreement is relied on by the solicitor and the client objects to the amount of the costs (but is not alleging that the agreement is unfair or unreasonable), the costs officer may enquire into—

(a)    the number of hours worked by the solicitor; and

(b)   whether the number of hours worked by him was excessive.”

It will be seen that section 57(2) specifically sanctions remuneration by way of a percentage.

I have set the contingency fee at 25% including VAT and disbursements. There is no statutory cap on this figure, but I have borrowed it from the maximum permitted by Parliament in personal injury cases, which are analogous in the sense that there is still an element of recovery of costs in Motor Insurers’ Bureau claims.

Thus I am satisfied that it is a fair and reasonable fee and it is certainly one with which clients are happy.

The agreement must be in writing and must be signed by the client (section 57(3) Solicitors Act 1974).

The protection and value to the client is that they pay nothing in the event of failure to gain an award.

 The client is guaranteed 75% of anything recovered.

Please use this agreement as you wish free of charge, but please respect my copyright by keeping the copyright symbol on each page of each agreement, and please keep the name “Underwoods Model” in the title.

 

© Kerry Underwood 2013

PROVISIONAL ASSESSMENT

I am grateful to Simon Gibbs at http://www.gwslaw.co.uk/blog/ for much of the material in this piece.

Provisional assessment applies to all detailed assessment proceedings commenced in the High Court or County Court on or after 1 April 2013 where the amount of costs claimed is £75,000 or less (CPR 47.15(1)).

This is treble the figure recommended in Chapter 45 of Lord Justice Jackson’s Final Report and treble the figure piloted in Leeds, Scarborough and York County Courts.

CPR 47.6(1) provides:-

“Detailed assessment proceedings are commenced by the receiving party serving on the paying party –

(a)    notice of commencement in the relevant practice form;

(b)   a copy of the bill of costs.”

CPR 44.1 defines costs:-

“’costs’ includes fees, charges, disbursements, expenses, remuneration, reimbursement allowed to a litigant in person under rule 46.5 and any fee or reward charged by a lay representative for acting on behalf of a party in proceedings allocated to the small claims track.”

There is a new form N258 – Request for Provisional/Detailed Assessment – which requires one of two options to be ticked:

“I confirm the costs claimed are £75,000 or less and I ask the court to undertake a provisional assessment” or

“I confirm the costs claimed are over £75,000 and I ask the court to arrange a detailed assessment hearing”.

As Simon Gibbs has said:

“As the majority of detailed assessment hearings that will be requested over the next few months will relate to claims where the costs are under £75,000 but detailed assessment proceedings were commenced (that is an N252 was served) before 1 April 2013, and so provisional assessment does not apply, the new form is not currently fit for purpose in the majority of cases”.

In accordance with CPR 47.15(5) “The court will not award more than £1,500 to any party in respect of the costs of the provisional assessment”. This appears to include the court fees and VAT, and also seems to include the cost of preparing and checking the bill following the Court of Appeal decision in Crosbie v Munroe [2003] EWCA Civ 350.

In Crosbie v Munroe the Court of Appeal said:-

“Until the time the substantive claim is settled, the “proceedings” relate to liability and the amount of any compensation. After the substantive claim is settled, the “proceedings” relate to the assessment of the costs the paying party has to pay. Although CPR 43.2 contains no definition of “assessment” as such, the White Book comment on this rule accurately states that “assessment” is “the process by which the court decides the amount of any costs payable”.

Provisional assessment is a procedure whereby the court provisionally assesses costs on paper, that is without an oral hearing, and if either party is dissatisfied then it can seek an oral hearing, but will pay the costs of that exercise if it does not achieve a 20% improvement upon the provisional assessment.

All that is filed at court is:

-     the bill

-     points of dispute

-     replies

-     costs orders

-     copies of fee notes

Also to be filed with the court when requesting a provisional assessment under the new Practice Direction 14.3(d) to CPR 47.15 are:

“the offers made (those marked “without prejudice save as to costs” or made under Part 36 must be contained in a sealed envelope, marked “Part 36 or similar offers”, but not indicating which party or parties have made them).”

and as per Practice Direction 14.3 (c)

“a statement of the costs claimed in respect of the detailed assessment drawn on the assumption that there will not be an oral hearing following the provisional assessment.”

Thus the concept is that at the end of the provisional assessment the judge will open the sealed envelope, see what offers have been made, decide liability and make a decision.

Practice Direction 14.4(1) to CPR 47 states:-

“On receipt of the request for detailed assessment and the supporting papers, the court will use its best endeavours to undertake a provisional assessment within 6 weeks.”

Practice Direction 14.2(2) to CPR 47  states that paragraph 13 of the Practice Directions, in relation to Detailed Assessment, also applies to Provisional Assessment and Practice Direction 13.12 refers to supporting documents as follows:-

“The papers to be filed in support of the bill and the order in which they are to be arranged are as follows –

(i) instructions and briefs to counsel arranged in chronological order together with all advices, opinions and drafts received and response to such instructions;

(ii)                reports and opinions of medical and other experts;

(iii)               any other relevant papers;

(iv)              a full set of any relevant statements of case;

(v)                correspondence, file notes and attendance notes;”

Thus at present it is unclear whether the court require the papers in support of the bill as set out in Practice Direction 13.12, as 13.11 requiring these documents to be filed is exempt from Provisional Assessment, and my advice is to lodge only the stated documents, set out above, as in Practice Direction 8.2 and 13.3 to CPR 47 and wait for the court to request the full files of papers.

The Senior Courts Costs Office will still require the full file of papers to be lodged. Any court is free to order this.

Any oral hearing will be conducted by the District Judge who made the provisional assessment on paper; an oral hearing is not an appeal but rather a “second stage of the process before the assigned District Judge”.

If the party is unhappy with the outcome of a provisional assessment they can request an oral hearing.  Liability for the costs of the hearing are dealt with by new CPR 47.15 (10):

“Any party which has requested an oral hearing, will pay the costs of and incidental to that hearing unless –

(a)    it achieves an adjustment in its own favour by 20% or more of the sum provisionally assessed; or

(b)   the court otherwise orders.”

Practice Direction 14.5 to CPR 47.15 (10) states:

“When considering whether to depart from the order indicated by CPR 47.15 (10) the court will take into account the conduct of the parties and any offers made.”

It is unclear as to whether a successful Part 36 offer trumps the 20% rule.

Thus £30,000 is awarded.  The paying party makes a Part 36 offer of £28,000.  The court cuts the award to £27,000, that is a 10% reduction, which is obviously less than a 20% adjustment in the sum provisionally assessed, but nevertheless is more than the Part 36 offer.

Where do costs lie?

Practice Direction 14.4(2) provides:

“Once the provisional assessment has been carried out the court will return Precedent G (the points of dispute and any reply) with the court’s decisions noted upon it. Within 14 days of receipt of Precedent G the parties must agree the total sum due to the receiving party on the basis of the court’s decisions. If the parties are unable to agree the arithmetic, they must refer the dispute back to the court for a decision on the basis of written submissions.”

That seems to suggest the judge won’t do the calculations at the end of the provisional assessment. Why then require costs schedule(s) to be filed with the request for the provisional assessment if it is known that further work must be undertaken (doing the arithmetic) but the amount of work required will not be known?

For some bills the extra work needed may be relatively minimal but for others may be more drawn out, particularly where there is disagreement between the parties.

Further, in this situation if the parties have to do the arithmetic, what is the normal mechanism for then asking the court to determine liability for the costs of the provisional assessment where the parties cannot agree? Practice Direction 14.6 provides:-

“If a party wishes to be heard only as to the order made in respect of the costs of the initial provisional assessment, the court will invite each side to make written submissions and the matter will be finally determined without a hearing. The court will decide what if any order for costs to make in respect of this procedure.”

An appeal will be to a Circuit Judge.

This is one of the Jackson reforms that I support. The ‘costs of costs’ has become an Alice in Wonderland feature of English court procedure. Indeed I would go further and extend this procedure to all bills, whatever their value. There is the safeguard of an oral hearing and an appeal to the next tier of the judiciary. The danger is that, rightly or wrongly, High Street solicitors will see this as yet another aspect of the Jackson Report designed to put them out of business while letting firms in the City charge what they want without the same restrictions. That may be unfair, but trust me, that is likely to be the reaction of most solicitors given the bias of the report and the Government’s proposals generally.

 Court forms

Provisional Assessment is a form of Detailed Assessment.  New forms have been published:

-     Precedent A: Model form of bill of costs

-     Precedent F: Certificates for inclusion in bill of costs

-     Precedent G: Points of Dispute and Reply

-     Precedent H: Costs Budget

-     Precedent P: Solicitors Act 1974: breakdown of costs

Points of Dispute: Precedent G

The new Practice Direction to CPR 47.9 states:-

“8.2                Points of dispute must be short and to the point. They must follow Precedent G in the Schedule of Costs Precedents annexed to this Practice Direction, so far as practicable. They must:

(a)                           identify any general points or matters of principle which require decision before the individual items in the bill are addressed; and

(b)                          identify specific points, stating concisely the nature and grounds of dispute.

Once a point has been made it should not be repeated but the item numbers where the point arises should be inserted in the left hand box as shown in Precedent G.”

The new rules relating to Replies to Points of Dispute apply to all Replies that are served after 1 April 2013.

When the receiving party replies to the Points of Dispute there must consider the new Practice Direction to CPR 47.13 which states:-

“12.1      A reply served by the receiving party under Rule 47.13 must be limited to points of principle and concessions only. It must not contain general denials, specific denials or standard form responses.”

Thus a receiving party should not reply to the grounds of dispute that has been raised unless a concession is inserted into the box relating to that point.

Precedent G: Points of Dispute and Reply gives the following example of a point of principle:-

“The claimant was at the time a child/protected person/insolvent and did not have the capacity to authorise the solicitors to bring these proceedings.”

Simon Gibbs, in his excellent blog at http://www.gwslaw.co.uk/blog/ suggests other potential points of principle:-

-          a challenge concerning the indemnity principle;

-          a challenge as to the enforceability of a conditional fee agreement;

-          an argument that proceedings were issued prematurely and that only fixed pre-issue costs should apply.

He raises the question as to whether any of the following are points of principle:-

-          an argument that defective notice was given in relation to an additional liability;

-          the level of the success fee in a case where the success fee is recoverable;

-          incorrect apportionment of VAT.

It should be noted that there is no transitional provision dealing with Points of Dispute and Replies and therefore the new rules apply to any Points of Dispute or Replies served on or after 1 April 2013.

The following are not treated as points of principle, but rather ground of dispute, in Precedent G: Points of Dispute and Reply, and therefore should not be replied to under the new Practice Direction 12.1 to CPR 47.13:-

-          the number of conferences with counsel;

-          the number of fee earners attending each conference;

-          timed attendances on the claimant;

-          time spent on documents;

-          time spent on preparing and checking the bill.

Commencing Costs Only Proceedings

Gone is the old CPR 44.12A(2):

“Either party to the agreement may start proceedings under this rule…”

Does this mean that paying parties can no longer get things going? If this was a deliberate decision, why was it taken? Are paying parties now unable to take any positive step to progress matters where a receiving party drags their heels?

 Costs Officers

The new Practice Direction 3.1 to CPR 47.3 increases the powers of principle court officers from £75,000 including additional liabilities but excluding VAT to £110,000 base costs excluding VAT.

Once you add back in success fees, ATE premiums and VAT the size of the bill that can now be assessed by a principle court officer is £300,000 or more.

For non-principal court officers, the power increases from £30,000 including additional liabilities but excluding VAT to £35,000 base costs excluding VAT. That probably equates to covering some bills with a value of up to £100,000.

You can still object. If both parties agree, the court will automatically relist before a costs judge or district judge (Practice Direction 3.2 to CPR 47.3). Otherwise, an application is to be made to a costs judge or district judge (Practice Direction 3.3 to CPR 47.3).

 Time to appeal

New CPR 47.14(7) introduced on 1 April 2013 states:-

“If an assessment is carried out at more than one hearing, then for the purposes of rule 52.4 time for appealing shall not start to run until the conclusion of the final hearing, unless the court orders otherwise.”

Under the section headed “Appeals from Authorised Court Officers in Detailed Assessment Proceedings” is CPR 47.23(1):

“The appellant must file an appeal notice within 21 days after the date of the decision against which it is sought to appeal.”

Note that this is a reference to date of the decision (as was the case prior to 1 April 2013), not the date of the conclusion of the final hearing. This is almost certainly a drafting error as the two conflict. There is no reason the time for appealing against a decision of a costs officer should be stricter that otherwise. Which prevails?

Proportionality

There is an interplay between provisional assessment and proportionality.  It appears that, rather than undertake the arithmetic on a provisionally assessed bill, Judges are simply to send the annotated Points of Dispute/Replies back to the parties to work out the final figure allowed.  Practice Direction 14.4(2) provides:

“Once the provisional assessment has been carried out the court will return Precedent G (the points of dispute and any reply) with the court’s decisions noted upon it.  Within 14 days of receipt of Precedent G the parties must agree the total sum due to the receiving party on the basis of the court’s decisions.  If the parties are unable to agree the arithmetic, they must refer the dispute back to the court for a decision on the basis of written submissions”.

Simon Gibbs comments:

“How does this tie in with the new proportionality test?  If, at the end of the provisional assessment, the judge does not know the figure he has allowed (because he has not done the calculations) how does he know whether to apply a further discount to make the costs “proportionate”?  The new rules do not envisage any procedure for the parties to return to the court after they have agreed the “total sum due” to ask the court to make a further “proportionality adjustment if appropriate”.

There has been a staggering failure to think through the practicalities of how the new provisional assessment process will work.”

Well, that applies to almost all of the Jackson Reforms.

Part 36

In relation to detailed assessments “commenced” before 1 April 2013 the old CPR 47.19 applies and that is achieved by the Civil Procedure (Amendment) Rules 2013 at s.22(1)

“The provision made by rule 47.20(1) to (5) and (7) in the Schedule (liability for costs of detailed assessment proceedings) does not apply to detailed assessments commenced before 1 April 2013 and in relation to such detailed assessments, rules 47.18 and 47.19 as they were in force immediately before 1 April 2013 apply instead.”

Where a Part 47.19 offer was made prior to 1 April 2013, but notice of commencement was not served until 1 April 2013 or after, then the new Part 36 provisions apply.

Since 1 April 2013, CPR 47.19 offers have disappeared and Part 36 applies, incorporated into detailed assessment proceedings by virtue of CPR 47.20(4), and the relevant part now reads:-

“Costs consequences following detailed assessment

36.14

(1)    This rule applies where upon completion of the detailed assessment.

(a)    a receiving party fails to obtain an outcome more advantageous that a paying party’s Part 36 offer; …

(b)   the outcome of the detailed assessment hearing is at least as advantageous to the receiving party as the proposals contained in a receiving party’s Part 36 offer.

 

(2)    The court will, unless it considers it unjust to do so, order that the receiving party is entitled to –

(a)    his costs from the date on which the relevant period expired; and

(b)   interest on those costs.

 

(3)    …the court will, unless it considers unjust to do so, order that the receiving party is entitled to –

(a)    interest on the whole or part of any sum of money (excluding interest) awarded at a rate not exceeding 10% above base rate for some or all of the period starting with the date on which the relevant period expired;

(b)   costs on the indemnity basis from the date on which the relevant period expired;

(c)    interest on those costs at a rate not exceeding 10% above base rate and

(d)   an additional amount, which shall not exceed £75,000, calculated by applying the prescribed percentage set out below to an amount which is –

(i)      where the claim is or includes a money claim, the sum awarded to the claimant by the court

…

Amount   awarded by the court	Prescribed   percentage
up to £500,000	10% of the amount awarded;
Above £500,000 up to   £1,000,000	10% of the first £500,000 and 5% of any   amount above that figure”

 Subparagraph (d)(i) appears to be drafted widely enough to cover a claim for costs. The successful receiving party therefore gets a 10% uplift on whatever the bill is assessed at plus the other benefits listed at (a) to (c).

 The fact that the Judge does not make the final calculations also causes obvious problems with Part 36, specifically how does the Judge know whether a party has succeeded in relation to a Part 36 offer?

If the Judge does not know who or who has not won on Part 36, then how does the Judge know what decision to make in relation to the costs of the assessment?

A receiving party who matches or beats its own Part 36 offer receives a 10% uplift on costs, up to a maximum uplift of £75,000, calculated in the same way as the Part 36 uplift on damages. Care needs to be taken in drafting the retainer to ensure that you entitle yourself to this sum, as costs belong to the client and an additional sum cannot be charged in the absence of clear agreement.

As to the general concept of Part 36 in assessment proceedings I leave that to Simon Gibbs:-

“Let me tell you a story.

Claimant for, Paye Cash & Praye are currently negotiating with defendant costs firm Kermit & Co over a £10,000 bill. Points of Dispute and Replies have been served.

On 2 April 2013 Paye Cash & Praye make a Part 36 offer to settle those costs for £7,000.

Kermit & Co accept the offer on 3 April 2013.

Acceptance of the offer creates a deemed costs order under the new CPR 44.9(1)(b). Under CPR 36.10(1) this means the receiving party is entitled to their costs of the assessment proceedings up to the date on which notice of acceptance was served.

The new CPR 47.20(5) states:

“The court will usually summarily assess the costs of detailed assessment proceedings at the conclusion of those proceedings”

However, the new CPR 44.1(1) clearly states:

“‘summary assessment’ means the procedure whereby costs are assessed by the judge who has heard the case or application”

In this example the matter has never come before a judge and summary assessment is not appropriate. All that’s left is detailed assessment proceedings in the absence of agreement.

In reliance on the deemed costs order Paye Cash & Praye serve a Notice of Commencement and new bill in respect of their assessment costs on 10 April 2013. (As an aside, where a matter settles prior to a provisional assessment being carried out, but the bill is for less than £75,000, does the £1,500 cap apply?) The costs claimed are £1,000. Service of the new Notice of Commencement amounts to commencement of new detailed assessment proceedings.

Kermit & Co, rather taken back by this turn of events, make a Part 36 offer of £800 in respect of those costs on 17 April 2013. No response to that offer is received within 21 days of service of the Notice of Commencement forcing Kermit & Co to serve Points of Dispute to the bill, which they serve on 1 May 2013. On 3 May 2013 Paye Cash & Praye serve Replies. On 4 May 2013 Paye Cash & Praye accept the Part 36 offer of £800. As the offer has been accepted within 21 days of it being made the Claimant is entitled to their costs of the new assessment proceedings up to the date on which notice of acceptance was served, including the period covering preparation of the new Replies.

Acceptance of the new Part 36 offer also creates a further deemed order for costs.

In reliance on the new deemed costs order Paye Cash & Praye serve a Notice of Commencement and new bill in respect of their further detailed assessment costs considering the Defendant’s Points of Dispute, drafting Replies and considering the Part 36 offer.

And so on, for ever.”

 Costs Management Orders

Where costs are not expected to exceed £25,000 only the first page of the nine pages of Form H Costs Budget needs to be completed.

Now that provisional assessment is to cover all cases of £75,000 or less it remains to be seen whether the exemption from completing the full Costs Budget form will also rise to £75,000.

Otherwise there is the prospect of a very detailed budget and a Costs Management Order all ending in a paper-only assessment for those bills between £25,000 and £75,000.

Qualified One Way Costs Shifting (QOCS)

QOCS is widely regarded as the weakest part of the Jackson Reforms, and as the old joke has it, that is against some pretty stiff opposition. The unanswered question here is whether the costs risk of failing to achieve 20% more than the provisional assessment figure applies in QOCS cases, that is all personal injury cases of all kinds. On the face of it, it does not, as the exceptions to QOCS are limited, and this is not one of them.

Precisely the same point applies in relation to Fixed Recoverable Costs, which has the same 20% escape rule; here the rich irony is that Fixed Recoverable Costs apply only to personal injury cases, just like QOCS.

Oh dear! It cannot possibly be the case, can it, that Fixed Recoverable Costs were announced out of the blue, without thinking of this can it? Can it?

Obviously everything else in relation to this exercise has been checked and checked again by the Ministry of Justice until perfect. See for example Precedent A: Model Form Bill of Costs.

I set out below our annotations. Can you spot any more errors?

 

Wipe your hand across your mouth, and laugh;

The worlds revolve like ancient women

Gathering fuel in vacant lots.

T. S. Eliot: Preludes

SCHEDULE OF COSTS PRECEDENTS

PRECEDENT A: MODEL FORM OF BILL OF COSTS

2011 – B – 9999

IN THE HIGH COURT OF JUSTICE

QUEEN’S BENCH DIVISION

BRIGHTON DISTRICT REGISTRY

BETWEEN

 AB

Claimant

- and –

 CD

Defendant

__________________________________________

CLAIMANT’S BILL OF COSTS TO BE ASSESSED PURSUANT

TO THE ORDER DATED 2^ND APRIL 2013

_________________________________________

VAT NO. 33 4404 90

In these proceedings the claimant sought compensation for personal injuries and other losses suffered in a road accident which occurred on 1 January 2011 near the junction between Bolingbroke Lane and Regency Road, Brighton, East Sussex.  The claimant had been travelling as a front seat passenger in a car driven by the defendant.  The claimant suffered severe injuries when, because of the defendant’s negligence, the car left the road and collided with a brick wall.

The defendant was later convicted of various offences arising out of the accident including careless driving and driving under the influence of drink or drugs.

In the civil action the defendant alleged that immediately before the car journey began the claimant had known that the defendant was under the influence of alcohol and therefore consented to the risk of injury or was contributory negligent as to it.  It was also alleged that, immediately before the accident occurred, the claimant wrongfully took control of the steering wheel so causing the accident to occur.

The claimant first instructed solicitors, E F & Co, in this matter in July 2011.  The claim form was issued in October 2011 and in February 2012 the proceedings were listed for a two day trial commencing 25th July 2012.  At the trial the defendant was found liable but the compensation was reduced by 25% to take account of contributory negligence by the claimant.  The claimant was awarded a total of £78,256.83 plus £1,207.16 interest plus costs.

The claimant instructed E F & Co under a retainer which specifies the following hourly rates.

Partner – £217 per hour plus VAT

Assistant Solicitor – £192 per hour plus VAT

Other fee earners – £118 per hour plus VAT

Except where the contrary is stated the proceedings were conducted on behalf of the claimant by an assistant solicitor, admitted November 2008.

Item No.	Description of work done		VAT £	Disbursements £	Profit   Costs £
	8th   July 2011 – E F & Co instructed
1.	7th   October 2011 – Claim issued
2.	Issue   fee			685.00
	21st   October 2011 – Particulars of claim served
	25th   November 2011 – time for service of defence extended by agreement to 14   January 2012
3.	Fee on   allocation			220.00
	20th   January 2012 – case allocated to multi-track
	9th   February 2012 – Case management conference at which costs were awarded to the   claimant and the costs were summarily assessed at £400 (paid on 24th   February 2012)
	23rd   February 2012 – Claimant’s list of documents
	12th   April 2012 – Part 36 Offer £25,500
	13th   April 2012 – Filing pre-trial checklist
4.	Paid   listing fee			110.00
5.	Paid   hearing fee			1,090.00
	25th   July 2012 – Attending first day of trial: adjourned part heard
	Engaged   in court 5.0 hours	£960.00
	Engaged   in conference 0.75 hours	£144.00
	Travel   and waiting 1.5 hours	£288.00
6.	Total   solicitors fee for attending				1,392.00
7.	Counsel’s   fee for trial (Miss GH)		400.00	2,000.00
8.	Fee of   expert witness (Dr IJ)			850.00
9.	Expenses   of witnesses of fact			84.00
	26th   July 2012 – Attending second day of trial when judgment was given for the   claimant in the sum of £78,256.53 plus £1,207.16 interest plus costs
	To summary:		400.00	5,039.00	1,392.00

Item No.	Description   of work done		VAT £	Disburse-ments £	Profit Costs £
	Engaged   in court 3.0 hours	£576.00
	Engaged   in conference 1.5 hours	£288.00
	Travel   and waiting 1.5 hours	£288.00
10.	Total   solicitor’s fee for attending				1,152.00
11.	Counsel’s   fee for second day (Miss GH)		190.00	950.00
	Claimant
12.	8th   July 2011 – First instructions: 0.75 hours by Partner:Other   timed attendances in person and by telephone – See Schedule 1				162.75
13.	Total   fee for Schedule 1 – 7.5 hours				1,440.00
14.	Routine   letters out and telephone calls – 29 (17+12) total fee				556.80
	Witnesses of fact
	Timed   attendances in person, by letter out and by telephone – See Schedule 2
15.	Total   fee for Schedule 2 – 5.2 hours				998.40
16.	Routine   letters out, emails and telephone calls – 8 (4+2+2) total fee				153.60
17.	Paid   travelling on 10th October 2011		4.59	22.96
	Medical Expert (Dr IJ)
18.	11   September 2011 – long letter out 0.33 hours fee				63.36
19.	31st   January 2012 – long letter out 0.25 hours fee				48.00
20.	23rd   May 2012 – telephone call 0.2 hours fee				38.40
21.	Routine   letters out and telephone calls – 10 (6+4) total fee				192.00
22.	Dr IJ’s   fee for report		-	500.00
	Defendant and his solicitor
23.	8th   July 2011 – timed letter sent 0.5 hours fee				96.00
24.	19th   February 2012 – telephone call 0.25 hours fee				48.00
25.	Routine   letters out and telephone calls – 24 (18+6) total fee				460.80
	Communications with the court
26.	Routine   letters out and telephone calls – 9 (8+1) total fee				172.80
	To summary:		194.59	1,472.96	5,582.91

Item No.	Description   of work done			VAT £	Disburse-ments £	Profit Costs £
	Communications with counsel
27.	Routine   letters out, emails and telephone calls – 19 (4+7+8) total fee					364.80
	Work done on documents
28.	Timed   attendance – see Schedule 3
	Total   fees for Schedule 3 – 0.75 hours at £217, 44.5 hours at £192, 12 hours at   £118					10,122.75
	Work done on negotiations
	23rd   March 2012 – meeting at offices of solicitors for the Defendant
	Engaged   1.5 hours	£288
	Travel   and waiting – 1.25 hours	£240
29.	Total fee for meeting					528.00
	Other work done
	Preparing and checking   bill
	Engaged solicitor – 1 hour		£192
	Engaged: Costs draftsman –   4 hours (at £110)		£480£440
30.	Total fee on other work   done					672.00 632.00
31.	VAT on solicitor’s fees   (20% of £18,662.46£18,622.46)			3,731.49 3,724.49
32.	VAT on Counsel’s fees (20%   of £3,950.00£2,950.00)			790.00
	CHARGED WITHIN BILL
	To summary:			4,521.49 3,724.49		11,687.55 11,647.55
	Summary
	Page 2			400.00	5,039.00	1,392.00
	Page 3			194.59	1,472.96	5,582.91
	Page 4			4,521.49		11,687.55
				3,724.49		11,647.55
	Totals:			5,116.084,319.08	6,511.96	18,662.4618,622.46
	Grand Total					30,290.5029,453.50

CICA: FREE MODEL CONTINGENCY FEE AGREEMENT

Contingency Fee Agreement – CICA Claims – Underwoods Model

This agreement is a legally binding contract between you and [firm]

Agreement Date [date]

We, the legal representative: [firm]

You, the client: [name]

What is covered by this agreement?

Your claim for compensation from the Criminal Injuries Compensation Authority (the ‘Authority’) regarding personal injury and/or loss suffered [give details].

What is not covered by this agreement?

Any action you wish us to take in relation to a re-opening or review of the Authority’s decision and any appeal against a decision made by the Authority on review.

 Paying us

If you are awarded compensation from the Authority you pay us 35% of that compensation. This figure includes VAT at the current rate of 20%. Thus we charge you 29.166% plus VAT of 5.833% of the total. It also includes disbursements. Thus you never pay us more than 35% if you win.

If you lose the case you do not pay us anything.

If you end the agreement before the Authority makes a decision with regard to whether or not to award you compensation, you are liable to pay our costs at the rate of [£   ] per hour with letters and telephone calls charged at [£   ] each unless they last for 6 minutes or longer in which case they will be charged at the appropriate proportion of the hourly rate. All of these figures include VAT at the current rate of 20%.

For what happens if we end the agreement before the Authority makes a decision with regard to whether or not to award you compensation, please refer to paragraph 5.

 1.         Our responsibilities

We must always act in your best interests in pursuing your claim for compensation and obtaining for you the best possible results, subject to our duty to the Authority.

 2.         Your responsibilities

-       you must give us clear instructions which allow us to do our work properly;

-      you must not ask us to work in an improper or unreasonable way;

-       you must not deliberately mislead us;

-      you must co-operate with us when asked;

-      you must attend an expert for examination when asked;

3.         What happens if you win?

If the Authority awards you compensation you pay us 35% of any compensation including any disbursements. You agree that we may receive the compensation the Authority pays to you. If the Authority refuses to accept our receipt, you will pay the cheque you receive into a joint bank account in your name and ours. Out of the money you agree to let us take 35% of the damages including disbursements. You take the rest.

Thus you will always recover at least 65% of the sum awarded.

If the Authority fails to pay any compensation to you we have the right to take recovery action in your name to enforce a judgment, order or agreement. The costs of this action are payable by you to us in addition to 35% of the damages.

 4.         What happens if you lose?

If you lose you do not have to pay us anything.

5.         What happens when the agreement ends before the case itself ends?

You can end the agreement at any time. You are then liable to pay us our costs incurred up to the date you end the agreement calculated at the hourly rate.

We can end the agreement if you do not keep to your responsibilities in condition 2. You are then liable to pay us our costs incurred up to the date the agreement ends calculated at the hourly rate.

We can end the agreement if we believe that you are unlikely to obtain compensation from the Authority and you disagree with us. You do not have to pay us anything.

We can end the agreement if you reject our opinion about accepting compensation from the Authority. You are then liable to pay us our costs incurred up to the date the agreement ends calculated at the hourly rate.

If you reject our opinion about accepting the figure proposed by the Authority then under the terms of this agreement that is deemed to be you behaving unreasonably.  However if you recover an award of at least 20% more than the figure that we advised you to accept then this agreement deems your behaviour to have been reasonable in that regard and you will not have to pay us anything.

6.         What happens after the agreement ends?

After the agreement ends we will inform the Authority that we are no longer acting as your representative. We have the right to preserve our lien over any property of yours in our possession unless any money owed to us under this agreement is paid in full.

7.         Non-Contentious Business Agreement

This is a non-contentious business agreement within the meaning of section 57 of the Solicitors Act 1974 and is thus excluded from the provisions of The Damages-Based Agreements Regulations 2013 by virtue of Regulation 1(4) of those Regulations.

Signed for the legal representative:

[name]

Signed by the client:

[name]

© Kerry Underwood 2013

Notes for Solicitors

Criminal Injuries’ Compensation Authority claims can be dealt with by way of a contingency fee agreement, rather than a Damages-Based Agreement, as such work is non-contentious within the meaning of section 57 of the Solicitors Act 1974.

Such agreements are specifically excluded from the provisions of The Damages-Based Agreements Regulations 2013 by Regulation 1(4) of those same Regulations:

“(4) Subject to paragraph (6), these Regulations shall not apply to any damages-based agreement to which section 57 of the Solicitors Act 1974 (non-contentious business agreements between solicitor and client) applies.”

The paragraph (6) exception reads:

“(6) Where these Regulations relate to an employment matter, they apply to all damages-based agreements signed on or after the date of which these Regulations come into force.”

and thus has no application to CICA claims.

As the Explanatory Note to The Damages-Based Agreements Regulations states:

“…section 58AA(9) of the [Courts and Legal Services] Act provides that, where section 57 of the Solicitors Act 1974 (c.47) applies to a DBA (other than one relating to an employment matter) it is not unenforceable only because it does not satisfy the conditions in section 58AA (4), under which these Regulations are made. Accordingly article 1(4) [sic – should read Regulation 1(4) – articles apply to Orders not Regulations] excludes those DBAs to which sections 57 of the Solicitors Act 1974 applies from the scope of these Regulations.”

Section 57 of the Solicitors Act 1974 has itself been amended by section 98 of the Courts and Legal Services Act 1990 and sections 117 and 221 of, and schedule 16 to, the Legal Services Act 2007, and now reads:

“57 Non–contentious business agreements

(1)   Whether or not any order is in force under section 56, a solicitor and his client may, before or after or in the course of the transaction of any non–contentious business by the solicitor, make an agreement as to his remuneration in respect of that business.

(2)   The agreement may provide for the remuneration of the solicitor by a gross sum or by reference to an hourly rate, or by a commission or percentage, or by a salary, or otherwise, and it may be made on the terms that the amount of the remuneration stipulated for shall or shall not include all or any disbursements made by the solicitor in respect of searches, plans, travelling, taxes, fees or other matters.

(3)   The agreement shall be in writing and signed by the person to be bound by it or his agent in that behalf.

(4)   Subject to subsections (5) and (7), the agreement may be sued and recovered on or set aside in the like manner and on the like grounds as an agreement not relating to the remuneration of a solicitor.

(5)   If on any assessment of costs the agreement is relied on by the solicitor and objected to by the client as unfair or unreasonable, the costs officer may enquire into the facts and certify them to the court, and if from that certificate it appears just to the court that the agreement should be set aside, or the amount payable under it reduced, the court may so order and may give such consequential directions as it thinks fit.

(6)   (6)Subsection (7) applies where the agreement provides for the remuneration of the solicitor to be by reference to an hourly rate.

(7)   If, on the assessment of any costs, the agreement is relied on by the solicitor and the client objects to the amount of the costs (but is not alleging that the agreement is unfair or unreasonable), the costs officer may enquire into—

(a)    the number of hours worked by the solicitor; and

(b)   whether the number of hours worked by him was excessive.”

It will be seen that section 57(2) specifically sanctions remuneration by way of a percentage.

I have set the contingency fee at 35% including VAT and disbursements. There is no statutory cap on this figure, but I have borrowed it from the maximum permitted by Parliament in employment cases, which are analogous in the sense that there is no recovery of costs from anyone but the client.

Thus I am satisfied that it is a fair and reasonable fee and it is certainly one with which clients are happy.

The agreement must be in writing and must be signed by the client (section 57(3) Solicitors Act 1974).

The protection and value to the client is that they pay nothing in the event of failure to gain an award, which in CICA claims includes cases where the claim is merited but the award is less than £1,000, in which case the client gets nothing and the solicitor gets nothing.

 The client is guaranteed 65% of anything recovered.

 Please use this agreement as you wish free of charge, but please respect my copyright by keeping the copyright symbol on each page of each agreement, and please keep the name “Underwoods Model” in the title.

 

© Kerry Underwood 2013

RELIEF FROM SANCTIONS: CLEANING UP DODGE CITY?

Relief from sanctions applications are governed by CPR 3.9 and from 1 April 2013 that rule reads:

“(1)        On an application for relief from any sanction imposed for a failure to comply with any rule, practice direction or court order, the court will consider all the circumstances of the case, so as to enable it to deal justly with the application, including the need –

(a)    for litigation to be conducted efficiently and at proportionate costs, and

(b)   to enforce compliance with rules, practice directions and orders.”

This is achieved by way of The Civil Procedure (Amendment) Rules 2013 and sweeps away the old list of circumstances which the court had to consider, that is:

(a)    the interests of the administration of justice;

(b)   whether the application for relief has been made promptly;

(c)    whether the failure to comply was intentional;

(d)   whether there is a good explanation for the failure;

(e)   the extent to which the party in default has complied with other rules, practice directions, court orders and any relevant pre-action protocol;

(f)     whether the failure to comply was caused by the party or his legal representative;

(g)    whether the trial date or the likely trial date can still be met if relief is granted;

(h)   the effect which the failure to comply had on each party; and

(i)      the effect which the granting of relief would have on each party.”

On the face of it, this is a significant change and it remains to be seen how much tougher courts will now be and whether they will take in to account case law under the old provisions.

Arguably the continuing need for the court to consider “all the circumstances” means that the change is more apparent than real and that the courts will continue to look at the old listed factors.

Talk of the old factors being “dumped” (District Judge Gold in the New Law Journal) is misconceived.

You do not actually need a Civil Procedure Rule to say that the Civil Procedure Rules must be obeyed.

I suspect that this rule change will make little difference, for an apparently unrelated reason, and that is the huge increase in litigants in person.  If anything, the courts will become more forgiving and the law is the law, whether it is a litigant in person or a represented party.

The courts themselves are under pressure due to budget cuts and District Judges are likely to baulk at rigid enforcement of the rules if their own court’s administrative processes are months behind.

See here for Lord Dyson MR views on this subject, although it is not clear why he thinks District Judges will toe the line and be less independent than they have always shown themselves to be.

The transitional provisions provide that “these Rules do not apply to applications made before 1 April 2013 for relief from any sanction imposed for a failure to comply with any rule, practice direction or court order.”

Thus the relevant date is the date of the application and not the date of the breach.  Thus if, for example, in 2011 there was a failure to serve Form N251, Notice of Additional Liability and an application for relief is made now, then the new Rule applies.

Of course all lawyers should comply with court orders and should be punished heavily in costs if they fail so to do, but I believe that the idea that new CPR 3.9 will clean up Dodge City is misplaced.

PROPORTIONALITY: THE EMPEROR’S NEW CLOTHES PART TWO

I am grateful to Simon Gibbs, http://www.gwslaw.co.uk/blog/ and Judge Michael Cook, both of whom know much more about this subject than I will ever know.

“Rule Forty-two. All persons more than a mile high to leave the Court”, from Alice in Wonderland.

That is as rational as it gets in this piece.

Since 1 April 2013 the overriding objective of the Civil Procedure Rules enables the court to deal with cases justly “and at proportionate cost” (CPR 1.1).

The new proportionality test is contained in CPR 44.3, but it will not apply to work undertaken before that date, nor to any work, pre- post 1 April 2013, where proceedings were issued before 1 April 2013:

CPR 44.3(7)

“(7)        Paragraphs (2)(a) and (5) do not apply in relation to cases commenced before 1 April 2013 and in relation to such cases, rule 44.4(2)(a) as it was in force immediately before 1 April 2013 will apply instead.”

Proportionality also finds its way in to the new CPR 3.9 which deals with applications for relief from sanctions, where the application has been made since 1 April 2013, whatever the date of the breach.

CPR 3.9(1):

“On an application for relief from any sanction imposed for a failure to comply with any rule, practice directions or court order, the court will consider all the circumstances of the case, so as to enable it to deal justly with the application, including the need –

(a)    for litigation to be conducted efficiently and at proportionate cost; and

(b)   to enforce compliance with rules, practice directions and orders.”

 

Timetable

 The rules until 31 March 2013, and which continue to apply to all stage of cases issued before 1 April 2013, are that on a standard basis assessment the court will “only allow costs which are proportionate to the matters in issue” (CPR 44.4(2)(a)). When the Court of Appeal was asked to interpret in Lownds v Home Office [2002] EWCA Civ 365 what proportionality meant it held: “what is required is a two-stage approach. There has to be a global approach and an item by item approach. The global approach will indicate whether the total sum claimed is or appears to be disproportionate having particular regard to the considerations that Part 44.5(3) states are relevant. If the costs as a whole are not disproportionate according to that test then all that is normally required is that each item should have been reasonably incurred and the costs for that item should be reasonable. If on the other hand the costs as a whole appear disproportionate then the court will want to be satisfied that the work in relation to each item was necessary and, if necessary, that the cost of the item is reasonable.”

This rule will remain in place in relation to all aspects of all cases where proceedings were issued before 1 April 2013.

 

The New Rule

“44.3

(2)

Where the amount of costs is to be assessed on the standard basis, the court will-

(a)                only allow costs which are proportionate to the maters in issue.  Costs which are disproportionate in amount may be disallowed or reduced even if they were reasonably or necessarily incurred

…..

(5)          Costs incurred are proportionate if they bear a reasonable relationship to-

(a)                the sums in issue in the proceedings;

(b)               the value of any non-monetary relief in issue in the proceedings;

(c)                the complexity of the litigation;

(d)               any additional work generated by the conduct of the paying party; and

(e)               any wider factors involved in the proceedings, such as reputation or public importance”.

Thus it is assumed that Lord Justice Jackson’s approach will apply:

“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 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”.

However the  definitions in CPR 44.3(5) are not straightforward. Take “the complexity of the litigation.” Fine – but what figure is to be put on this? A 50% uplift? Or a line by line examination of the work done due to “complexity” which takes one back to the Lownds test?

Likewise “any additional work generated by the conduct of the paying party.” Is that any work, such as denying liability or obtaining their own expert’s report? Or is it only to be misconduct that triggers extra fees?

Lord Neuberger summarized the aim of the new test as:

“effectively reversing the approach taken in Lownds. In this way, as Sir Rupert said, disproportionate costs, whether necessarily or reasonably incurred, should not be recoverable from the paying party. To put the point quite simply: necessity does not render costs proportionate”.

Lord Neuberger went on to say:

“As such it seems likely that, as the courts develop the law, the approach will be as Sir Rupert described it:

“….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”.

He added:

“It would be positively dangerous for me to seek to give any sort of specific or detailed guidance in a lecture before the new rule has come into force and been applied. Any question relating to proportionality and any question relating to costs is each very case-sensitive, and when the two questions come together, that is all the more true. The law on proportionate costs will have to be developed on a case by case basis. This may mean a degree of satellite litigation while the courts work out the law, but we should be ready for that, and I hope it will involve relatively few cases”.

Surely the whole point of proportionality is to give a broad-brush approach as to what is a proportionate level of costs to incur to recover, say, £25,000.00, or £50,000.00 or whatever.

True it is that no two cases are the same, but most litigation is routine and involves predictable factors. Most litigation is not test litigation and does not involve any wider factors, such as reputation or public importance.

If each case must be considered on its merits, then inevitably the courts will be looking at what work was it necessary and what work was it reasonable to carry out, but this is of course what is supposed to be forbidden under the new rule, as it is simply a return to Lownds. Indeed everything comes back to Lownds, maybe because it was a well-thought out judgment which addressed all of the issues and dealt with them. Why re-invent the wheel?

Unless specific, detailed advice is given, then what is the point of proportionality? Why should the country’s most senior judge not say:

“I have spoken with my judicial colleagues and reviewed the evidence and unless factors (d) and/or (e) apply I would expect a party never to recover more in costs than a sum equal to 40% of damages in a personal injury claim, 20% in a commercial claim……”

etc, etc.

As Simon Gibbs has said:

“Indeed, it is difficult to see why the answer to the issue of what is a proportionate level of costs to recover £25,000.00 should normally vary from case to case”. And

“I have yet to meet a costs practitioner who believes that the new proportionality test is workable. More worryingly, I have yet to meet a costs judge who is able to explain by what margin, if any, a Bill of Costs in relation to routine litigation that has been assessed at £75,000.00 applying the reasonableness test should then be reduced down to if the amount in dispute was only £25,000.00.”

True proportionality is achieved by fixed costs, or capped costs and of course contingency fees are the purest form of proportionality.

Absent fixed or capped costs no jurisdiction has ever succeeded in developing a consistent judicial approach to proportionality. That is unsurprizing as it is an entirely meaningless word in a financial context when not applied as a strict mathematical formula.

Proportionality = The Emperor’s New Clothes, which is why no court has ever applied it.

It is the costs equivalent of having the Ogden Tables without any of the figures filled in, or a crossword where the setter has not thought out the answers.

Now, Lord Neuberger is a very good judge indeed and has the chance in his new post of President of the Supreme Court to achieve greatness.

I believe that he knows that the piecemeal implementation of what was in any event a deeply flawed report is likely to be a disaster, and that he is laying the ground for what may turn out to be massive judicial intervention to prevent the civil justice system falling into chaos.

Predictions of “satellite litigation” and “a period of slight uncertainty” by the judiciary about a change in the law are hardly statements of judicial approval.

Specialist costs counsel Andrew Hogan, commenting on the model now adopted said:

“The notion of a “long stop” discount test of proportionality, is a recipe for satellite litigation, as it will introduce chronic uncertainty into the assessment of costs, both in terms of when such a deduction will be applied and in terms of what the quantum of deduction might be. Perhaps, more significantly, it is even more disappointing that even now, some 15 years after Lord Woolf ‘borrowed’ the concept of principle of proportionality from European Union law, it remains a nebulous and uncertain concept, hard to define and even harder to apply, which is conceptually very odd, when one considers that the stated aim of Jackson was to reduce perceived disproportionate costs to a proportionate level. If you can’t define proportionality, how can you judge whether you have succeeded or not in moving from a disproportionate model of costs to a proportionate one?”

Master Haworth of the Senior Court Costs Office, speaking at the LexisNexis Costs and Litigation Funding Forum on 31 October 2012, said that the new rule on proportionality was vulnerable to court challenge:

“It’s going to be left to decisions up and down the country to determine what is proportionate”,

which of course utterly defeats the point of proportionality.

In a recent webinar the legendary Judge Michael Cook, from whom I have learnt an enormous amount about all sorts of things, not all connected with costs, had this to say:

‘What is proportionality?’ is a conundrum the courts are still trying to solve. There are two problems with proportionality. First, no one knows what it means and second, where does it stand in relation to necessary costs and reasonable costs? Sir Rupert once told me that proportionality had caused him more problems than any other aspect of costs and then invited me to address a judicial conference on it!

At a meeting of costs experts five different definitions were debated without reaching any conclusion.

Is it proportionate for the recoverable costs to exceed the amount in dispute? If so when? And there is the more fundamental question of whether it is proportionate for a lawyer to earn more than a dustman but less than Wayne Rooney. What standard of living can a lawyer expect the costs of litigation to fund? Should he or she drive a Rolls Royce or a Lada and travel first or second class by train  at other people’s expense?

A practical ‘seat of the pants’ aid to considering proportionality is to look at the costs incurred by the paying party. What, for example, was their level of fee earner, charging rate, seniority of counsel and the amount of time spent? If the paying party has increased the stakes by using a senior partner, leading counsel and a fashionable expert, is it disproportionate for the receiving party to have done likewise? Is the pot calling the kettle black?

And then we have what Sir Rupert described as Professor Zuckerman’s ‘pithy summary’ of proportionality: ‘The aim of the proportionality test is to maintain a sensible correlation between costs, on the one hand, and the value of the case, its complexity and importance on the other hand’.

My own view is that the definition in CPR 44.3 (5) is as good as we are going to get – and it is not very good!

Sub paragraph (7) emphasises that proportionality trumps necessity and reasonableness and gives a timetable.

The rule expressly states that even costs which were necessarily and reasonably incurred may fall foul of the test of proportionality.

The distinction between necessary and reasonable is now so blurred it serves only to confuse and ‘necessary’ should once again be struck from the costs lexicon. Proportionality should prevail over reasonableness with the test of reasonableness only being applied to individual items once it has been established that the total costs are proportionate.

But there is trouble ahead – satellite litigation looms.

The requirement that costs should bear ‘a reasonable relationship’ to the factors specified in sub-rule (5) should keep the courts occupied for the foreseeable future.”

 

Transitional, revised transitional, varied revised uncertain transitional and provisions announced even when there was no intention of ever bringing them in

When the new costs rules were first published the relevant transitional provision concerning the new proportionality test read:

“Paragraphs (2)(a) and (5) do not apply in relation to cases commenced before 1 April 2013 and in relation to such cases, rule 44.4(2)(a) as it was in force immediately before 1 April 2013 will apply instead.”

This caused two problems. Firstly, the phrase “cases commenced” was ambiguous. Secondly, it appeared to be retrospective,  meaning that  the new test would apply in some cases to work already undertaken.

This problem was, partly, recognised and Richard LJ said that the rule committee “acknowledged the force” of the argument and was to insert a further transitional provision within rule 44.3:

“to the effect that costs incurred in respect of work done before 1 April 2013 will not be disallowed if they would have been allowed under the rules in force immediately before that date”.

Simon Gibbs comments:

“What makes this truly shocking is that the letter confirming these changes from Lord Stephen Richards, who chairs the rules committee, records the fact that the committee was aware of this problem and agreed to make this change at the meeting on 8 February 2013 which approved the rules that were then released on 12/13 February.  However, when releasing the Statutory Instrument there was no mention that they had already decided to change this in at least one crucial aspect.

How are practitioners mean to prepare for the changes and train staff when, ludicrously late in the day as the rules have been published, we can’t even trust the accuracy of what has been released?”

That would have meant all work done pre-April 2013 would be subject to the old test and any work done post-April 2013 subject to the new test.

We now have the Civil Procedure (Amendment No.2) Rules 2013 to deal with this. However, it does something totally different again:

“Paragraphs (2)(a) and (5) do not apply in relation to—

(a) cases commenced before 1st April 2013; or
(b) costs incurred in respect of work done before 1st April 2013,

and in relation to such cases or costs, rule 44.4.(2)(a) as it was in force immediately before 1st April 2013 will apply instead.”

Nevertheless, from the context I am treating “cases commenced” as meaning “cases where proceedings have been issued” (how hard would it have been to use that wording?).

This old proportionality test will apply to all work done for cases where proceedings were issued before 1 April 2013.”

The following variations therefore apply:

•  All work done pre-1 April 2013 – Old proportionality test applied to all work.
•  All work done post-1 April 2013  – New proportionality test applied to all work.
•  Work done pre and post-1 April 2013. Proceedings not issued – Old proportionality test applied to work done pre-1 April 2013. New proportionality test applied to work done post-1 April 2013.
•  Work done pre and post-1 April 2013. Proceedings issued pre-1 April 2013  – Old proportionality test applied to all work.
•  Work done pre and post-1 April 2013. Proceedings issued post-1 April 2013 – Old proportionality test applied to work done pre-1 April 2013. New proportionality test applied to work done post-1 April 2013.

Speaking on 5 February 2013 Master Haworth thought that the issue of proportionality may not arise much in practice as where a costs management order has been made there will be little to argue about on assessment.  Costs within budget will be deemed proportionate and it is unlikely that the Costs Judge will re-visit the issue.

Indeed, there is a clear tension between the cost process and proportionality.  The cost management process implies that once the court has decided that certain steps in litigation are reasonable, then the full cost of undertaking that work will be recoverable, as the judge dealing with assessment will not normally depart from the approved budget.

The new proportionality test means that on detailed assessment a judge may decide that even though a step within the litigation was reasonable, the full cost may not be recovered once the global basis test is applied.

Mr Justice Ramsey said:

“First, the court will have to apply the new proportionality test to the costs budget.  As stated in the Final Report, the judge carrying out costs management will not only scrutinize the reasonableness of each party’s budget, but also stand back and consider whether the total sums on each side are “proportionate” in accordance with the new definition.

If the total figures are not proportionate, then the judge will only approve budget figures for each party which are proportionate.  Thereafter if the parties choose to press on and incur costs in excess of the budget, they will be litigating in part at their own expense.  It will be important for the judges to apply the test consistently and for parties and their lawyers to be aware of the impact on recoverable costs.”

As Simon Gibbs points out, that simply shifts the problem back to the judge making the costs management order; it does not solve the problem or answer the questions raised above, and it begs the question as to what is the point of expensive and time-consuming costs management and detailed assessment hearings to determine what costs are reasonable if, at the end of the day, the judge can then knock the figure down further on an apparently arbitrary basis.

Both Mr Justice Ramsey and Master Haworth were speaking before the Rich Boys Club, aka the Commercial Court, Mercantile Court, Technology and Construction Court and the Chancery Division, opted out of costs management, which leaves rather a lot of big unmanaged bills for detailed assessment with proportionality to be considered.

There is also the interplay between provisional assessment and proportionality.  It appears that, rather than undertake the arithmetic on a provisionally assessed bill, Judges are simply to send the annotated Points of Dispute/Replies back to the parties to work out the final figure allowed.  Practice Direction 14.4(2) provides:

“Once the provisional assessment has been carried out the court will return Precedent G (the points of dispute and any reply) with the court’s decisions noted upon it.  Within 14 days of receipt of Precedent G the parties must agree the total sum due to the receiving party on the basis of the court’s decisions.  If the parties are unable to agree the arithmetic, they must refer the dispute back to the court for a decision on the basis of written submissions”.

Simon Gibbs again:

“How does this tie in with the new proportionality test?  If, at the end of the provisional assessment, the judge does not know the figure he has allowed (because he has not done the calculations) how does he know whether to apply a further discount to make the costs “proportionate”?  The new rules do not envisage any procedure for the parties to return to the court after they have agreed the “total sum due” to ask the court to make a further “proportionality adjustment if appropriate”.

There has been a staggering failure to think through the practicalities of how the new provisional assessment process will work.”

Well, that applies to almost all of the Jackson Reforms.

Thus we wait to see if this reform will be any more successful than The Recovery of Damages and Costs Act 1278 or the Commands in Delay of Justice Act 1328 and all of the subsequent attempts at establishing proportionality.

JACKSON’S HERE! AN OVERVIEW

Reblogged from Kerry Underwood:

IMPLEMENTATION OF THE JACKSON REPORT

All Jackson reforms, with the exception of the portal changes, went ahead on 1 April 2013, and the Orders and Regulations, with a start date of 1 April, have been approved by Parliament, and the Civil Procedure (Amendment) Rules 2013 and the Civil Procedure (Amendment No. 2) Rules 2013 have been published, as has the 60th update to the Civil Procedure Rules containing the…

Read more… 3,032 more words

apil’s MISLEADING PRESS RELEASE

The Association of Personal Injury Lawyers (apil) has tweeted a press release dated 2 April 2013 and entitled “Public denied justice as “no-win no-fee” ends.”

That heading is simply untrue.

Nothing at all changes in relation to the no-win no fee element. I know of no firm of solicitors who currently operate such agreements who propose to start charging clients WHEN THEY LOSE.

No-win no fee is not ending; far from it, it has been made more accessible by the introduction of Qualified One Way Costs Shifting (QOCS) whereby a losing claimant in a personal injury matter does not have to pay costs to the successful defendant, although I accept that QOCS has major deficiencies.

Within the press release is the statement:

“Injured people will no longer be able to recover all the costs of a case from the negligent defendant responsible for the injury, so payment will have to come from the injured person’s compensation.”

Not true. No-one is forcing solicitors to charge a success fee or charge the client at all, in addition to recoverable costs.

The success fee compensates the solicitor for taking the risk of getting no win in a no-win no fee case, and thus no fee – hence the name. The headline of the apil press release says that no-win no fee has ended. How does that work then?

A client is free to pay a solicitor win or lose and then no success fee is charged.

What does the talk of the changes switching “the burden from the guilty party to the victim” mean?

I really mean it – what does it mean? What burden? What is switched?

What about “now injured people are expected to cover the cost of pursuing redress.”

How? If they lose they pay nothing and if they win they recover costs from the other side. They are free to pay win or lose, but in order to be free of legal costs to their own lawyer if the case is lost, they pay an extra fee, limited to 25% of their damages, to that lawyer.

What is wrong with that? How is that covering the cost of pursuing redress? How do I fund CICA claims? How do I fund discrimination claims? Two wrongs do not make a right, but perhaps apil can point me to their press releases re employment tribunal claims re discrimination, where damages for personal injury are made? The fact is that personal injury claimants continue to have greater protection than any other type of claimant, including those claimants with more deserving cases.

Let us stop the pretence that the only motive for lawyers dealing with cases on a no-win no fee basis is concern for victims.

It is a very popular method of funding which therefore produces work, and therefore profits for the lawyer. Nothing at all wrong with that, but a bit of honesty please.

apil risks undoing all of its very good work by issuing such a misleading press release, which might deter people from bringing claims because they fear having to pay costs if they lose, a groundless fear as we have seen.

WARNING! LAW SOCIETY CONDITIONAL FEE AGREEMENT

Yesterday the Law Society published a Model Conditional Fee Agreement and Schedules and Guidance.

These documents contain serious errors, and a flavour of the lack of attention to detail can be gained by reference to “LASPOA 2013” and “Simmons v Newcastle”.

I have publicly offered to help re-draft the documents for the Law Society free of charge.

As you all know I believe passionately in contingency fees as giving access to justice and thus I really wanted these documents to be right.

Over the Easter weekend I will blog further on this subject so as to assist the profession in any way I can.

In the meantime, and with regret, I must advise you not to rely on these documents.

WHEN YOUR CFA IS A DBA

The personal injury market is clearly settling at 25% of damages plus recovered costs, which is hardly surprising given the very sharp reduction in recoverable costs.

 Lawyers need to beware of the trap whereby a CFA unwittingly becomes a DBA, with all that goes with it.

 You want to charge your client 25% in the event of a win and nothing if you lose. The CFA has that as the charging basis.

 That is in fact a DBA and you must give credit £ for £ for all money received from the other side AND the indemnity principle applies, limiting recovery from the losing party to a sum equal to 25% of damages.

 Defendants cannot challenge a non-recoverable success fee, but can ask for clarification of the retainer to check that they have a liability to pay.

 Claiming a sum that is not due is “a most serious disciplinary offence” – see

 Bailey v IBC Vehicles Ltd EWCA Civ 566 (27 March 1998)

 Post 1 April CFAs need drafting with considerable care.

CLINICAL NEGLIGENCE: ATE UNRECOVERABLE?

On the face of it The Recovery of Costs Insurance Premiums in Clinical Negligence Proceedings Regulations 2013 (S.I. 2013/92) allow for the continuing recoverability of the after-the-event (ATE) insurance premium insofar as it relates to the cost of reports concerning liability and causation.

 However that may not be the case.

 All Statutory Instruments are subject to scrutiny by the House of Lords and House of Commons Joint Committee on Statutory Instruments and its full constitution and powers are contained in House of Commons Standing Order 151 and House of Lords Standing Order 74.

 Its function is to check the technical quality of Statutory Instruments and draw to the attention of each House of Parliament any problems.

 It has now reported these Clinical Negligence Regulations on two grounds:

 (i)                  that they may be ultra vires, that is that the original Act of Parliament does not allow the provision to be made; and

 (ii)                 that insofar as any enabling power exists, there is an unexpected use of that enabling power.

 The enabling section is section 58C of the Courts and Legal Services Act 1990 as inserted by section 46 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012.

 The Committee asked the Ministry of Justice (MOJ) to identify the descriptions  of “clinical negligence proceedings” and of “policy” and the MOJ stated that the Regulations are intended to apply to all descriptions of clinical negligence proceedings and to any description of costs insurance policy.

 The Committee responded:

 “1.4        This response assumes that the reference to proceedings and policies of a prescribed description in the Act are superfluous. Not only does this assumption appear to ignore accepted principles of statutory interpretation, but it also conflicts with the words of the Explanatory Notes to section 46 of the 2012 Act (see paragraph 297 of the Explanatory Notes to the Act): “The effect of section 58C is to limit the recoverability of insurance premiums to certain clinical negligence proceedings”. (Committee’s emphasis).

 The Committee’s view is that the wording of the Act arguably requires regulations to relate only to specified descriptions of proceedings and policies and that even if that is regarded as an unnecessarily strict view, the Explanatory Notes appear “to create a clear expectation that coverage of the Regulations in respect of proceedings will be less than comprehensive.”

 At 1.5 the report concludes:

 “The Committee accordingly reports these Regulations for appearing to be of doubtful vires and (to the extent that the vires exist) making an unexpected use of the power under which they were made.”

 A response is awaited, but it will be very unwise of claimant solicitors to assume that any element of the ATE insurance premium will be recoverable. The courts are always able to strike down secondary legislation as ultra vires and it is obviously a very powerful argument in favour of striking down that the very Parliamentary Committee charged with scrutinizing secondary legislation expressed serious concerns about the validity of these Regulations.

 In practice all ATE policies on everything should be incepted by midnight 31 March 2013. Most ATE insurers and brokers are working all of Easter weekend and so should you be.

 It has not been a good time for the MOJ. Held in contempt of Parliament by another Parliamentary Committee and now a dubious Statutory Instrument. That would be bad enough for any Department; it is far worse when it is the very Ministry charged with the administration of the legal system and the maintenance of the rule of law.

 The MOJ, and practitioners, will be relieved to note that the Committee approved the Belarus (Asset-Freezing) Regulations 2013 along with the Authorisation of Frequency Use for the Provision of Mobile Satellite Services (European Union) (Amendment) Regulations 2013.

MEDIATION IN THE COURT OF APPEAL: A BAD THING

The Court of Appeal is piloting a mediation scheme for all personal injury and contract claims up to the value of £100,000.00 where permission to appeal has been given.

Known as the Court of Appeal Mediation Scheme (CAMS), it is being managed by the Centre for Effective Dispute Resolution (CEDR), and is running until next month April 2013.

Parties are expected to mediate unless the judge orders otherwise.  If both parties agree to mediate then a panel of accredited CAMS mediators will be nominated by CEDR.

Comment

Mediation in the Court of Appeal is likely to be even less successful, and even more unpopular, than mediation at first instance.

If the case should not be before the Court of Appeal then why was permission to appeal given?

As I have said before mediation is the plaything of those who can afford to pay for litigation twice.

If the case should be before the Court of Appeal then, by definition, the Court of Appeal should hear it, determine it and give guidance for other cases, something that the secretive mediation process singularly fails to do.

Clear Court of Appeal guidance, applicable to all cases, is what saves legal time and money.

Passing the buck to a mediator may appear to save money in a particular case – although rarely does in my experience – but it undoubtedly costs money in uncertainty and wasted costs in other cases.

Yet again it is the relatively low value cases that are being shunted off to the mediator’s yard, although £100,000.00 is a huge sum to most people.

Why not start with compulsory mediation for all commercial cases valued over £10 million and see how that goes?

Or, better still, recognize that as a matter of public policy it is wholly unacceptable for matters before the Court of Appeal, where of course, leave has been given, to be forced in to mediation.  What possible justification can there be for telling a party who has a judgment of a High Court Judge in its favour that it must now pay for a mediator to look at the case?  Why not just endorse all first instance decisions with a message:

“If you have lost you might as well appeal as then your successful opponent will be forced to mediation and if you don’t like the result then the Court of Appeal will look at it”.

Obviously there will be a dramatic increase in the number of applications for leave to appeal, which will increase, not lessen, costs

The mediation lobby is powerful and vocal and will no doubt cry out that no-one is being forced to do anything.  Being told by the Court of Appeal to mediate or face costs penalties is “forcing” in my book.

Parliament, not Judges, should decide what court system we have.

Interestingly Lord Neuberger the new President of the Supreme Court , but speaking when Master of the Rolls, is on record as not being an unqualified supporter of mediation, saying that an insidious notion exists that litigation is a bad thing and that “other, more consensual means of resolving disputes are necessarily good things”.

Lord Neuberger said that “access to the courts is not a privilege but a fundamental right”, and that if people cannot do that “then justice is either not done or he must resort to violence to achieve a sort of justice.  Either way, the rule of law dies. “  ¹  “A policy which treats the civil justice system merely as a service to be offered at cost in the market place, and to be paid for by those who choose to use it, profoundly and dangerously mistakes the nature of the system and its constitutional function”.

Lord Dyson, Master of the Rolls, has said:

“you might be forgiven for thinking that I am not mediation’s greatest zealot, and that word: “zealot”.  It is amazing how it seems to crop up….there is something about mediation which does attract very considerable keenness”.  ²

While recognizing the benefits of mediation in certain cases Lord Dyson pointed out that it can be expensive, and if unsuccessful, increases, not lessens costs, and spoke against parties being “frogmarched” to the mediation table and being denied “access to the courtroom”.

“Can it be right that a person who has exercised his constitutional right to go to court should be forced to sit down with the individual he believes to have wronged him to try and find a compromise which will probably leave him worse off than he would have been if he had had his day in court?”

He referred to the public interest in the courts promoting “the proper development of the law”, a point also recognized by Lord Neuberger who referred to “judges developing the law”.

That has now come to a full stop in personal injury cases as all cases are to be shunted off to a second-class, non-judicial, non-binding, secret forum.

Victims of personal injury deserve better than that, as do the people of this country.

This insidious scheme should not be extended.

We shall not cease from exploration

And the end of all our exploring

Will be to arrive where we started

And know the place for the first time

T. S. Eliot – Four Quartets

¹Bentham Lecture 2011

²CIArb’s Third Mediation Symposium, October 2010

 

This first appeared in Claims Magazine.

CFAS – IS RISK ASSESSMENT NECESSARY?

Nowhere in the Conditional Fee Agreements Order 2013 is there any reference to risk assessment as a basis of calculating the success fee.

The Government had said all along that there would be. In its October 2012 update the Ministry of Justice said that solicitors would be required to provide clear information to the client on how the success fee had been calculated including showing the breakdown between solicitor and counsel, if appropriate, adding

“This will be a new requirement for both CFAs and damages-based agreements (DBAs), and is designed to help transparency and consumer protection, and make it easier for clients to compare success fees”.

None of this has made it in to the Conditional Fee Agreements Order, although there is a faint echo of it in Regulation 3 of The Damages-Based Agreements Regulations 2013 in relation to DBAs:

“3. The requirements prescribed for the purposes of section 58AA(4)(c) of the Act are that the terms and conditions of a damages-based agreement must specify –

(a)    the claim or proceedings or parts of them to which the agreement relates;

(b)   the circumstances in which the representative’s payment, expenses and costs, or part of them, are payable; and

(c)    the reason for setting the amount of the payment at the level agreed, which, in an employment matter, shall have regard to, where appropriate, whether the claim or proceedings is one of several similar claims or proceedings.”

Nothing similar to 3(c) has made it in to the Conditional Fee Agreements Order 2013.

Further evidence that, without telling anyone, the Government has changed its mind is contained in the 27 February 2013 Ministry of Justice Consultation response: Extension of the Road Traffic Accident Personal Injury Scheme: proposals on fixed recoverable costs.

In its response to the suggestion that lower recoverable fees will lead to a reduction in the quality of legal advice the Government says, at paragraph 45:

“It should be remembered that when the provisions in Part 2 of the LASPO Act 2012 are enacted, success fees in personal injury cases will no longer be limited to 12.5%. Solicitors will be free to negotiate with their client for success fees up to 25% of damages for pain, suffering and loss of amenity and historic pecuniary loss.”

Leaving aside the Ministry of Justice’s confusion between costs-based success fees (12.5%) and the damages-based success fee of 25% and leaving aside the fact that it was only in road traffic accident matters, not personal injury cases generally, that the costs-based success fee was limited to 12.5%, it does indicate that risk-based success fees have been scrapped.

Thus the only costs-based limit on success fee is 100% (Article 3 of The Conditional Fee Agreements Order 2013).

Thus it seems that at long last the Underwoods Method is officially the law of the land. Unofficially it always was.

That method, established in pre-recoverability days, involved always having a 100% costs-based success fee, but always capping the damages taken from the client at 25%.

I set out below Chapter 3 of my 1998 book “No Win No Fee No Worries”

 Chapter 3 – No Win No Fee No Worries

 The Success Fee And The Cap

 Myth And Reality

Conditional fees differ from U.S. style contingency fees only in that it is not permissible to simply agree a “percentage take”. The Conditional Fee Agreements Order 1995 stipulates a maximum increase of 100% per cent (the “success fee”) but does not impose a percentage cap (“the cap”). However as far as the public is concerned the key consideration is the cap — i.e. will the solicitor guarantee to limit the percentage of damages taken in costs?

Discussions about the percentage success fee (as opposed to the cap), the assessment of risk and which fees form the base sum to be increased by a maximum of 100%, are lost on most solicitors, let alone the public. Amongst those who have considered the success fee in detail there is a widespread but erroneous view that it is the risk of losing which is the main factor in calculating the success fee. It is not!

Understanding this is the key to working successfully on a conditional fee basis.

The Statutory Background

Conditional fees were made lawful by Section 58 of the Courts and Legal Services Act 1990 and that section, without using the term, created the concept of the success fee. By contrast the cap, which actually protects the client, is neither mentioned nor alluded to in the Act or the Conditional Fee Agreements Order 1995. However the Conditional Fee Agreements Regulations 1995 make it mandatory, in a Conditional Fee Agreement, to state whether or not there is a cap but impose no requirement to actually have one.

Why Parliament chose to use the concept of a “success fee” rather than the cap is a mystery but when Parliament extends the operation of conditional fees probably this autumn, 1998, it is to be hoped that the existing regulations will be replaced by a section reading:

It shall be unlawful for a solicitor to charge a client in a conditional fee case more than 25%, including Value Added Tax, of the damages actually recovered for that client.

However in the meantime we must deal with the law as it is, and the relevant parts of Section 58 read:

(2)          Where a conditional fee agreement provides for the amount of any fees to which it applies to be increased, in specified circumstances, above the amount which would be payable if it were not a conditional fee agreement, it shall specify the percentage by which that amount is to be increased.

(4)          In this section “specified proceedings” means proceedings of a description specified by order made by the Lord Chancellor for the purposes of subsection (3).

(5)          Any such order shall prescribe the maximum permitted percentage for each description of specified proceedings.

(6)          An agreement which falls within subsection (2) shall be unenforceable if, at the time when it is entered into, the percentage specified in the agreement exceeds the prescribed maximum percentage for each description of proceedings to which it relates.

(9)          Rules of court may make provision with respect to the taxing of any costs which includes fees payable under a conditional fee agreement.

Thus the scheme of the Act is to limit the amount by which the solicitor’s costs can be raised, not to limit the percentage of damages that can be taken.

This, as we will see, in Mr Jones’ example below has bizarre consequences.

The Consequences for Mr Jones

Five years later Parliament approved The Conditional Fee Agreements Order 1995. Article 3 reads:

For the purpose of Section 58.(5) of the Courts and Legal Services Act 1990 the maximum permitted percentage by which fees may be increased in respect of each description of proceedings specified in article 2 is 100%.

Article 2 includes personal injury proceedings.

Thus under the scheme laid down by Parliament solicitors may double their fees, bur no more, and may ignore the consequences to the client.

The following is a letter not to send even though it complies with these regulations.

Dear Mr Jones,

I am pleased that the Judge found in your favour and indeed I have already received the damages cheque for £5,000.

My Firm’s costs total £6,000 of which I have recovered £4,000 from the other side.

You will recall that under the terms of the conditional fee agreement we agreed that I could increase my costs by 100% if you won. We agreed that figure because this was a risky case as shown by the fact that it went to trial.

The effect of increasing my costs by I 00% is that they now total £12,000 and, as mentioned above, I have received £4,000 costs from the other side leaving a shortfall of £8,000, but I have applied the £5,000 damages and so the balance due to me from you is £3,000. To make this easy to follow I have prepared a little table.

	£
My   firm’s basic costs	6,000
Success   fee	6,000
Total	12,000
Less   costs from other side	4,000
Balance	8,000
Less   damages applied to costs	5,000
Balance   due to me from you	3,000

 

Please let me have your cheque in due course.

You will recall that for £85 we insured against you having to pay the other side’s costs and our own disbursements if we lost. This means that if you had lost it would have cost you nothing but as you have won it has cost you £3,000.

Never mind. It’s a funny old world.

I recall that you wanted the conditional fee scheme because you could not afford lawyer’s fees. A wise decision!

I will be pleased to act for you again in the future — after your forthcoming bankruptcy has finished.

Alternatively next time you are a passenger in a bus and you get injured you might find it cheaper just to admit liability. Yours sincerely

Some scheme. Some protection.

 The Need for a Cap

Of course, as many of those involved in looking at conditional fees realised, the “success fee” concept is hopelessly flawed. One only has to look at why it is not used in those jurisdictions which have contingency fees. Those jurisdictions recognise that the cap is the client’s protection.

Thus in The Conditional Fee Agreements Regulations 1995 Parliament made its first faltering steps towards the cap. Thus Regulation 3:

An agreement shall state:‑

(a)          the particular proceedings or parts of them to which it relates (including whether it relates to any counterclaim, appeal or proceedings to enforce a judgment or order);

(b)          the circumstances in which the legal representative’s fees and expenses or part of them are payable;

(c)           what, if any, payment is due :-

(i)            upon partial failure of the specified circumstances to occur

(ii)           irrespective of the specified circumstances occurring; and

(iii)          upon termination of the agreement for any reason;

(d)          the amount payable in accordance with sub-paragraphs (b) or (c) above or the method to be used to calculate the amount payable; and in particular whether or not the amount payable is linked by reference to the amount of any damages which may be recovered on behalf of the client. (my italics)

Thus the Conditional Fee Agreement does not have to contain a cap but it must state whether or not there is a cap.

The rest of Regulation 3 is very difficult to follow. It is primarily concerned with what payments are due when there is not necessarily a win, e.g. because one or other party terminates the agreement, or because the agreement stipulates that disbursements are payable in any event. These possibilities must be covered in advance in the agreement.

However the section italicised above refers to a limit of these costs by reference to the amount of damages recovered and yet by definition there will not necessarily be any damages and yet certain payments may be due. The italicised section should be a free‑standing regulation applying unequivocally to all aspects of a solicitors charges to his client.

The Law Society, to its credit, saw the reality and in its model Conditional Fee Agreement imposed a 25% cap plus VAT on damages taken by way of a success fee, and thus the gap between solicitor and own client costs and inter-partes costs does not need to be brought into either the 25% cap figure, or the maximum 100% success fee.

I strongly recommend that practitioners include all charges to the client including any solicitor and own client costs and VAT in the 25% cap but not in the percentage success fee. (“the Underwoods Method”).

In Conditional fees speak the full solicitor and own client costs –which include any costs received from the other side – are known as “base costs”.

 The Options for Mr Jones

To make this clear let us return to poor Mr Jones and look at the three options.

A 100% success fee but no cap.

B 100% success fee but a 25% cap on success fee

C 100% success fee but a 2.₅% cap on all fees charged to client.

The damages recovered in each case are £5,000.

 A No Cap

In the position set out in the letter to Mr Jones

	£
Base   costs	6,000
Less   received from other side	4,000
Balance	2,000
Success   fee (100% of basic costs)	6,000
Balance actually charged to client	8,000
Damages	5,000
Money   to client	Minus  3,000

 

B Cap on Success Fee only

Base   costs	6,000
Less   received from other side	4,000
Balance	2,000
Success fee (£6,000 but capped at   25% of £5,000)	1,250
Charged   to client	3,250
Damages	5,000
Balance   due to client	1,750

Actual success fee (£1,250 on £6,000) = 20.833%

Thus in B, applying the 100% success fee and limiting that success fee to 25% in accordance with the Law Society’s agreement the solicitor actually takes £3,250 from the client’s £5,000. I have excluded VAT for the sake of simplicity (!) but you are entitled to add that to the £3,250 and thus:

	3,250.00
VAT at 17.5%	568.75
Total costs	3,818.75
Balance to client	1,181.25
TOTAL	5,000.00

You might like to undertake an exercise to compose a letter to Mr Jones explaining that his cheque for £1,181.25 out of £5,000.00 damages really does represent 75% of his damages and that the £3,818.75 taken by you out of his £5,000.0o really is a 25% cap on the success fee.

C – All Costs to Client Capped – The Underwoods Method

£

Base costs	6,000
Less received from other side	4,000
Balance	2,000
Success fee (£6,000 but capped at 25% of   £5,000)	1,250
But total charged to client capped at 25%   of damages Therefore charged to client Damages Balance to client	1,250 5,000 3,750

Actual success fee (£1,250 charged less base costs of £2,000 = minus £750)

Minus £750 on £6,000 = Minus 12.5%

Thus in example C in order to ensure that the client gets 75% of the damages we have actually foregone part of the Base Costs as well as taking no success fee and thus there is a negative success fee.

Only the Underwoods method fully protects the client, i.e. guarantees that the client will get 75% of his or her damages.

In return for always protecting the client in this way you should also aim to achieve 25% of the damages by way of an additional fee that is additional to the costs cheque received from the Defendant’s insurers. To maximise that chance I advise always having the success fee in the agreement as 100%, unless in a particular case you wish to make no charge to the client, e.g. because the client is a friend, relative, minor, client who gives you a lot of work or whatever. In these cases the correct percentage is 0%, i.e. you will take none of the damages.

CONDITIONAL FEE AGREEMENTS, DAMAGES-BASED AGREEMENTS AND CONTINGENCY FEES

CFAs and DBAs – A Quick Guide

	CFA   Success Fee	DBA	CFA   without Success Fee
Indemnity principle applies	NO	YES	NO
Counsels’ fees included	NO	YES, except in employment	NO
Capped by reference to damages	In Personal Injury Only	YES	NO
Pool of damages limited	YES	YES	NO
VAT included in any cap	YES	YES	NO
£ for £ credit given re recoverable costs	NO	YES	YES
Risk assessment required	YES	YES	NO
Onerous level of explanation	YES	YES	NO
Claimant’s Part 36 offer rendered ineffective?	NO	YES	NO

CONDITIONAL FEE AGREEMENTS

Part 2 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 is headed Litigation Funding and Costs and deals with conditional fee agreement success fees (section 44), damages-based agreements (section 45), recovery of insurance premiums by way of costs (section 46), recoverability of “self-insurance” premia by membership organisations (section 47) and offers to settle and the payment of additional amounts to successful claimants (section 55).

These provisions implement the Jackson reforms insofar as they require primary legislation, and Article 3 of The Legal Aid, Sentencing and Punishment of Offenders Act 2012 (Commencement No 5 and Saving Provision) Order 2013 confirms that sections 44-47 come in to force on 1 April 2013. The Order brought in to effect, from 19 January 2013, the power to make orders, regulations and rules of court under the Act, and The Conditional Fee Agreements Order 2013, dealt with below, does just that in relation to conditional fee agreements.

Section 44 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 and The Conditional Fee Agreements Order 2013 and the Commencement Order are set out at the end of this piece.

 THE CONDITIONAL FEE AGREEMENTS ORDER 2013

The Conditional Fee Agreements Order 2013 has been laid before Parliament, and was debated by the House of Lords on 26 February 2013 and will come in to effect on 1 April 2013 – Jackson Day – to watch the debate click here.

The Order revokes in its entirety The Conditional Fee Agreements Order 2000, but all key provisions are replicated in the new draft Order.

Scope

The scope of work covered by Conditional Fee Agreements remains unchanged, essentially all work except family and crime with the proviso that criminal proceedings under section 82 of the Environmental Protection Act 1990 may be the subject of a conditional fee agreement without a success fee. (Article 2).

Success Fees

The system of Fixed Success Fees applicable in Road Traffic Accident, Employers’ Liability and Industrial Disease cases is scrapped in relation to Conditional Fee Agreements entered in to on or after 1 April 2013, with the exception of mesothelioma claims where recoverability continues and the fixed recoverable success fee of 27.5% remains in place.

Thus there must be a full risk assessment in each and every cases where there is a success fee claimed, which of course will only be from one’s own client as recoverability is abolished. In Road Traffic Accident matters this is likely to be between 10% and 20%.

The maximum success fee is 100%, (Article 3), of base costs, but with additional restrictions in personal injury cases.

The court has a number of options:-

1. To utilize the about to be abolished fixed success fee of 12.5%.
2. To revert to Callery v Gray, that is 20%.
3. To follow their own decision in Beal v Russell [2011] SCCO, where they awarded 5% in relation to a pre-fixed success fee road traffic accident case. It is true that liability had been admitted in that case.

The effect is that generally solicitors are going to get nowhere near achieving the 25% of damages by utilization of the success fee.

In Beal v Russell [2011] SCCO, the Senior Courts Costs Office, in a case pre-dating fixed success fees, held that a 5% success fee was appropriate in a road traffic accident claim where liability was admitted before the CFA was signed. The Claimant was seriously injured in a road traffic accident and the Defendant’s insurers admitted liability and made payments on account and offer to settle for £115,000. Ms Beal issued on the day before limitation and six months later entered into a CFA with her solicitors and the claim eventually settled. The court held that 5% was the appropriate success fee.

A similar decision, awarding 5% success fee, was made on similar facts in Hines v Sarner by Master Howarth [2005] EWHC 90009 (Costs).

I appreciate that that is where liability was admitted, but it is a short step from that to say that as liability is admitted in around 99% of such cases, 5% is the appropriate fee.

Note that the maximum uplift of 100% is on the lawyer’s fee, that is solicitor and own client costs, and NOT just on recoverable costs – see Explanatory Note. Also, although the percentage maximum of damages in relation to personal injury cases includes counsel’s fees and Queen’s Counsel fees the maximum uplift of 100% applies to counsel’s fees and Queen’s Counsel’s fees separately; in other words the solicitor’s solicitor and own client costs AND counsel’s AND Queen’s Counsel’s fees can be uplifted by a maximum of 100%.

This makes sense as otherwise the amount of the success fee would depend upon who did the work, solicitor or counsel.

Is Risk Assessment necessary?

Nowhere in the Conditional Fee Agreements Order 2013 is there any reference to risk assessment as a basis of calculating the success fee.

The Government had said all along that there would be. In its October 2012 update the Ministry of Justice said that solicitors would be required to provide clear information to the client on how the success fee had been calculated including showing the breakdown between solicitor and counsel, if appropriate, adding

“This will be a new requirement for both CFAs and damages-based agreements (DBAs), and is designed to help transparency and consumer protection, and make it easier for clients to compare success fees”.

None of this has made it in to the Conditional Fee Agreements Order, although there is a faint echo of it in Regulation 3 of The Damages-Based Agreements Regulations 2013 in relation to DBAs:

“3. The requirements prescribed for the purposes of section 58AA(4)(c) of the Act are that the terms and conditions of a damages-based agreement must specify –

(a)    the claim or proceedings or parts of them to which the agreement relates;

(b)   the circumstances in which the representative’s payment, expenses and costs, or part of them, are payable; and

(c)    the reason for setting the amount of the payment at the level agreed, which, in an employment matter, shall have regard to, where appropriate, whether the claim or proceedings is one of several similar claims or proceedings.”

Nothing similar to 3(c) has made it in to the Conditional Fee Agreements Order 2013.

Further evidence that, without telling anyone, the Government has changed its mind is contained in the 27 February 2013 Ministry of Justice Consultation response: Extension of the Road Traffic Accident Personal Injury Scheme: proposals on fixed recoverable costs.

In its response to the suggestion that lower recoverable fees will lead to a reduction in the quality of legal advice the Government says, at paragraph 45:

“It should be remembered that when the provisions in Part 2 of the LASPO Act 2012 are enacted, success fees in personal injury cases will no longer be limited to 12.5%. Solicitors will be free to negotiate with their client for success fees up to 25% of damages for pain, suffering and loss of amenity and historic pecuniary loss.”

Leaving aside the Ministry of Justice’s confusion between costs-based success fees (12.5%) and the damages-based success fee of 25% and leaving aside the fact that it was only in road traffic accident matters, not personal injury cases generally, that the costs-based success fee was limited to 12.5%, it does indicate that risk-based success fees have been scrapped.

Thus the only costs-based limit on success fee is 100% (Article 3 of The Conditional Fee Agreements Order 2013).

Thus it seems that at long last the Underwoods Method is officially the law of the land. Unofficially it always was.

That method, established in pre-recoverability days, involved always having a 100% costs-based success fee, but always capping the damages taken from the client at 25%.

I set out below Chapter 3 of my 1998 book “No Win No Fee No Worries”

Chapter 3 – No Win No Fee No Worries

The Success Fee And The Cap

 Myth And Reality

Conditional fees differ from U.S. style contingency fees only in that it is not permissible to simply agree a “percentage take”. The Conditional Fee Agreements Order 1995 stipulates a maximum increase of 100% per cent (the “success fee”) but does not impose a percentage cap (“the cap”). However as far as the public is concerned the key consideration is the cap — i.e. will the solicitor guarantee to limit the percentage of damages taken in costs?

Discussions about the percentage success fee (as opposed to the cap), the assessment of risk and which fees form the base sum to be increased by a maximum of 100%, are lost on most solicitors, let alone the public. Amongst those who have considered the success fee in detail there is a widespread but erroneous view that it is the risk of losing which is the main factor in calculating the success fee. It is not!

Understanding this is the key to working successfully on a conditional fee basis.

The Statutory Background

Conditional fees were made lawful by Section 58 of the Courts and Legal Services Act 1990 and that section, without using the term, created the concept of the success fee. By contrast the cap, which actually protects the client, is neither mentioned nor alluded to in the Act or the Conditional Fee Agreements Order 1995. However the Conditional Fee Agreements Regulations 1995 make it mandatory, in a Conditional Fee Agreement, to state whether or not there is a cap but impose no requirement to actually have one.

Why Parliament chose to use the concept of a “success fee” rather than the cap is a mystery but when Parliament extends the operation of conditional fees probably this autumn, 1998, it is to be hoped that the existing regulations will be replaced by a section reading:

It shall be unlawful for a solicitor to charge a client in a conditional fee case more than 25%, including Value Added Tax, of the damages actually recovered for that client.

However in the meantime we must deal with the law as it is, and the relevant parts of Section 58 read:

(2)          Where a conditional fee agreement provides for the amount of any fees to which it applies to be increased, in specified circumstances, above the amount which would be payable if it were not a conditional fee agreement, it shall specify the percentage by which that amount is to be increased.

(4)          In this section “specified proceedings” means proceedings of a description specified by order made by the Lord Chancellor for the purposes of subsection (3).

(5)          Any such order shall prescribe the maximum permitted percentage for each description of specified proceedings.

(6)          An agreement which falls within subsection (2) shall be unenforceable if, at the time when it is entered into, the percentage specified in the agreement exceeds the prescribed maximum percentage for each description of proceedings to which it relates.

(9)          Rules of court may make provision with respect to the taxing of any costs which includes fees payable under a conditional fee agreement.

Thus the scheme of the Act is to limit the amount by which the solicitor’s costs can be raised, not to limit the percentage of damages that can be taken.

This, as we will see, in Mr Jones’ example below has bizarre consequences.

The Consequences for Mr Jones

Five years later Parliament approved The Conditional Fee Agreements Order 1995. Article 3 reads:

For the purpose of Section 58.(5) of the Courts and Legal Services Act 1990 the maximum permitted percentage by which fees may be increased in respect of each description of proceedings specified in article 2 is 100%.

Article 2 includes personal injury proceedings.

Thus under the scheme laid down by Parliament solicitors may double their fees, bur no more, and may ignore the consequences to the client.

The following is a letter not to send even though it complies with these regulations.

Dear Mr Jones,

I am pleased that the Judge found in your favour and indeed I have already received the damages cheque for £5,000.

My Firm’s costs total £6,000 of which I have recovered £4,000 from the other side.

You will recall that under the terms of the conditional fee agreement we agreed that I could increase my costs by 100% if you won. We agreed that figure because this was a risky case as shown by the fact that it went to trial.

The effect of increasing my costs by I 00% is that they now total £12,000 and, as mentioned above, I have received £4,000 costs from the other side leaving a shortfall of £8,000, but I have applied the £5,000 damages and so the balance due to me from you is £3,000. To make this easy to follow I have prepared a little table.

	£
My   firm’s basic costs	6,000
Success   fee	6,000
Total	12,000
Less   costs from other side	4,000
Balance	8,000
Less   damages applied to costs	5,000
Balance   due to me from you	3,000

 Please let me have your cheque in due course.

You will recall that for £85 we insured against you having to pay the other side’s costs and our own disbursements if we lost. This means that if you had lost it would have cost you nothing but as you have won it has cost you £3,000.

Never mind. It’s a funny old world.

I recall that you wanted the conditional fee scheme because you could not afford lawyer’s fees. A wise decision!

I will be pleased to act for you again in the future — after your forthcoming bankruptcy has finished.

Alternatively next time you are a passenger in a bus and you get injured you might find it cheaper just to admit liability. Yours sincerely

Some scheme. Some protection.

 The Need for a Cap

Of course, as many of those involved in looking at conditional fees realised, the “success fee” concept is hopelessly flawed. One only has to look at why it is not used in those jurisdictions which have contingency fees. Those jurisdictions recognise that the cap is the client’s protection.

Thus in The Conditional Fee Agreements Regulations 1995 Parliament made its first faltering steps towards the cap. Thus Regulation 3:

An agreement shall state:‑

(a)          the particular proceedings or parts of them to which it relates (including whether it relates to any counterclaim, appeal or proceedings to enforce a judgment or order);

(b)          the circumstances in which the legal representative’s fees and expenses or part of them are payable;

(c)           what, if any, payment is due :-

(i)            upon partial failure of the specified circumstances to occur

(ii)           irrespective of the specified circumstances occurring; and

(iii)          upon termination of the agreement for any reason;

(d)          the amount payable in accordance with sub-paragraphs (b) or (c) above or the method to be used to calculate the amount payable; and in particular whether or not the amount payable is linked by reference to the amount of any damages which may be recovered on behalf of the client. (my italics)

Thus the Conditional Fee Agreement does not have to contain a cap but it must state whether or not there is a cap.

The rest of Regulation 3 is very difficult to follow. It is primarily concerned with what payments are due when there is not necessarily a win, e.g. because one or other party terminates the agreement, or because the agreement stipulates that disbursements are payable in any event. These possibilities must be covered in advance in the agreement.

However the section italicised above refers to a limit of these costs by reference to the amount of damages recovered and yet by definition there will not necessarily be any damages and yet certain payments may be due. The italicised section should be a free‑standing regulation applying unequivocally to all aspects of a solicitors charges to his client.

The Law Society, to its credit, saw the reality and in its model Conditional Fee Agreement imposed a 25% cap plus VAT on damages taken by way of a success fee, and thus the gap between solicitor and own client costs and inter-partes costs does not need to be brought into either the 25% cap figure, or the maximum 100% success fee.

I strongly recommend that practitioners include all charges to the client including any solicitor and own client costs and VAT in the 25% cap but not in the percentage success fee. (“the Underwoods Method”).

In Conditional fees speak the full solicitor and own client costs –which include any costs received from the other side – are known as “base costs”.

 The Options for Mr Jones

To make this clear let us return to poor Mr Jones and look at the three options.

A 100% success fee but no cap.

B 100% success fee but a 25% cap on success fee

C 100% success fee but a 2.₅% cap on all fees charged to client.

The damages recovered in each case are £5,000.

 A No Cap

In the position set out in the letter to Mr Jones

	£
Base   costs	6,000
Less   received from other side	4,000
Balance	2,000
Success   fee (100% of basic costs)	6,000
Balance   actually charged to client	8,000
Damages	5,000
Money   to client	Minus  3,000

B Cap on Success Fee only

Base   costs	6,000
Less   received from other side	4,000
Balance	2,000
Success   fee (£6,000 but capped at   25% of £5,000)	1,250
Charged   to client	3,250
Damages	5,000
Balance   due to client	1,750

Actual success fee (£1,250 on £6,000) = 20.833%

 Thus in B, applying the 100% success fee and limiting that success fee to 25% in accordance with the Law Society’s agreement the solicitor actually takes £3,250 from the client’s £5,000. I have excluded VAT for the sake of simplicity (!) but you are entitled to add that to the £3,250 and thus:

	3,250.00
VAT at 17.5%	568.75
Total costs	3,818.75
Balance to client	1,181.25
TOTAL	5,000.00

You might like to undertake an exercise to compose a letter to Mr Jones explaining that his cheque for £1,181.25 out of £5,000.00 damages really does represent 75% of his damages and that the £3,818.75 taken by you out of his £5,000.0o really is a 25% cap on the success fee.

C – All Costs to Client Capped – The Underwoods Method

£

Base costs	6,000
Less received from other side	4,000
Balance	2,000
Success fee (£6,000 but capped at 25% of   £5,000)	1,250
But total charged to client capped at 25%   of damages Therefore charged to client Damages Balance to client	1,250 5,000 3,750

Actual success fee (£1,250 charged less base costs of £2,000 = minus £750)

Minus £750 on £6,000 = Minus 12.5%

Thus in example C in order to ensure that the client gets 75% of the damages we have actually foregone part of the Base Costs as well as taking no success fee and thus there is a negative success fee.

Only the Underwoods method fully protects the client, i.e. guarantees that the client will get 75% of his or her damages.

In return for always protecting the client in this way you should also aim to achieve 25% of the damages by way of an additional fee that is additional to the costs cheque received from the Defendant’s insurers. To maximise that chance I advise always having the success fee in the agreement as 100%, unless in a particular case you wish to make no charge to the client, e.g. because the client is a friend, relative, minor, client who gives you a lot of work or whatever. In these cases the correct percentage is 0%, i.e. you will take none of the damages.

 Personal Injury Cases

A claim for personal injuries (including clinical negligence) is a “specified proceeding” (Article 4) with its own rules (Article 5).

In first instance personal injury proceedings the success fee shall not exceed 25% of damages (Article 5(1)(a)) and in appeal proceedings shall not exceed 100% of damages (Article 5(1)(b)).

The damages forming the pool upon which the 25% or 100% maxima can bite are:-

-          general damages for pain, suffering , and loss of amenity; and

-          damages for pecuniary loss, other than future pecuniary loss

net of any sums recovered by the Compensation Recovery Unit of the Department for Work and Pensions.

The figures of 25% and 100% of damages include VAT (see Explanatory Note), giving a profit costs percentage of 20.83% and 83.33% respectively.

In all cases the maximum success fee fixed by reference to damages includes the fees of counsel and Queen’s Counsel.  This makes sense as otherwise the client could end up losing 75% of damages – 25% to the solicitor, 25% to counsel and 25% to Queen’s Counsel.

 Personal Injury Exceptions

Articles 4 and 5 do not apply to any Conditional Fee Agreement entered in to in relation to proceedings relating to a claim for damages in respect of diffuse mesothelioma. (Article 6(2)(a)) of this Order and Article 4(a) of The Legal Aid, Sentencing and Punishment of Offenders Act 2012 (Commencement No 5 and Saving Provision) Order 2013.

In such proceedings the success fee remains recoverable and is not limited by reference to damages.

Other Exceptions

In relation to the exceptions set out below, the success fee remains recoverable. In simple terms insolvency, defamation and privacy claims carry on as before.

Exempted from the scope of the Order are:-

(a)    defamation;

(b)   malicious falsehood;

(c)    breach of confidence involving publication to the general public;

(d)   misuse of private information;

(e)   harassment, where the defendant is a news publisher.

“News publisher” means a person who publishes a newspaper, magazine or website containing news or information about or comment on current affairs.

(Article 6(2)(b) and Article 1) of this Order and Article 4(b) of The Legal Aid, Sentencing and Punishment of Offenders Act 2012 (Commencement No 5 and Saving Provision) Order 2013.

Also exempted are:-

(c)           proceedings in England and Wales brought by a person acting in the capacity of –

(i) a liquidator of a company which is being wound up in England and Wales or Scotland under Parts IV or V of the 1986 Act; or

(ii) a trustee of a bankrupt’s estate under Part IX of the 1986 Act;

(d)          proceedings brought by a person acting in the capacity of an administrator appointed pursuant to the provisions of Part II of the 1986 Act;

(e)          proceedings in England and Wales brought by a company which is being wound up in England and Wales or Scotland under Part IV and V of the 1986 Act; or

(f)           proceedings brought by a company which has entered administration under Part II of the 1986 Act.

(Article 6(2)(c-f) and Article 1) of this Order and Article 4(c) to (f) of The Legal Aid, Sentencing and Punishment of Offenders Act 2012 (Commencement No 5 and Saving Provision) Order 2013.

References to the 1986 Act are to the Insolvency Act 1986.

 Timescale

The test in an individual Conditional Fee Agreement is the date of “entering into” the agreement.

Provided that the agreement is entered into on or before 31 March 2013, then provided that it was entered into specifically for the purposes of the provision to a person of advocacy or litigation services in connection with the matter which is the subject of the proceedings, the old regime applies, that is the success fee is recoverable and is not limited by reference to damages. (Article 6(1)(a)).

In relation to Collective Conditional Fee Agreements there must be provision to a person of advocacy or litigation services under the agreement in connection with those proceedings on or before 31 March 2013. (Article 6(1)(b)).

This deals with the problem that became apparent during the passage of the Legal Aid, Sentencing and Punishment of Offenders Act 2012, that is that on the face of it a Collective Conditional Fee Agreement signed before 1 April 2013 would allow recovery of the success fee in all future cases, even if the cause of action arises in 2014 or 2015 or whenever.

What Article 6(1)(b) requires is that for the success fee to be recoverable some actual work must have been done on the actual case prior to 1 April 2013. If that is the case then all future work is covered and will be the subject of a recoverable success fee.

Under new CPR 44.17 inserted by The Civil Procedure (Amendment) Rules 2013 a person who has entered in to a CFA with a recoverable success fee is not subject to Qualified One Ways Costs’ Shifting (QOCS).  Neither is such a person entitled to the 10% general damages uplift under Simmons v Castle [2012] EWCA 1288 (second judgment), so where no CFA has yet been entered in to a decision needs to be made as to whether the claimant is better off foregoing the recoverable success fee and getting the 10% uplift, and the benefit of QOCS.

Some problems

The Order will lead to significant and unnecessary problems.

Minors

A minor who has entered in to a CFA through a Litigation Friend prior to 1 April 2013 will recover the success fee for work done during his or her minority.  However if the minor becomes 18 years old after 31 March 2013, then the new CFA which he or she must enter in to will not be able to have a recoverable success fee and thus only in relation to work done up to the claimant’s 18^th birthday will the success fee be recoverable.

Thus the extent to which the success fee will be recoverable will depend upon the claimant’s age at the time of the accident.

That is clearly discrimination on the ground of age.  It remains to be seen whether the Ministry of Justice will seek to justify such discrimination and on what ground.  Expect early litigation on this point.

In practice carry out all possible work at all possible speed so that as little work as possible is done after the claimant’s 18^th birthday so as to minimize work carrying a non-recoverable success fee.

 Solution

Amend the Conditional Fee Agreements Order 2013 by inserting new Article 6(2)(g)

“(g)        proceedings brought by a person who was under 18 years of age as at 1 April 2013 and where a Litigation Friend entered in to a conditional fee agreement on behalf of that person before 1 April 2013.”

 Change of solicitor

A similar problem exists in relation to a change of solicitor after 31 March 2013 – may the CFA be assigned after that date with the success fee recoverable for all work done, or will the success fee only be recoverable on pre-assignment / pre new CFA work?

In practice this is likely to be a major issue as many personal injury firms will close and the files will be transferred to other solicitors. If the old firm continues to exist, then the case could be dealt with on an agency basis, with the original CFA being preserved. That will not work if the original firm has ceased to exist.

Death

The same point arises. If a person dies, then does the CFA entered in to by the Personal Representatives post 31 March 2013 carry a recoverable success fee? On the face of it, it does not, and the position is analogous to that of a minor achieving majority after 31 March 2013.

Solution

The date of the cause of action, not the date of the CFA, should have determined recoverability.

Thus if the cause of action arose before 1 April 2013, then the success fee would be recoverable irrespective of when the CFA was signed.

The system is a lottery. The client who rushes off to a lawyer by the end of March can recover the success fee; the client who seeks to resolve matters first without seeing a lawyer loses out if they sign up after 31 March 2013.

Why?

 The 25% damages cap in personal injury proceedings

I have no problem with this, but limiting the pool of damages to general damages and specials to date, thus excluding future loss, will cause endless problems.

1. Global offers

Most defendants’ offers, Part 36 or otherwise, are global, that is they cover all aspects of the claim except costs.

That makes perfect sense, but how is a claimant and solicitor to determine what element relates to future special damages which are thus excluded from the pool on which the 25% bites?

2. Future delayed become specials to date

Solicitor’s firm Quick and Good settle early and their 25% is based on general damages of say £50,000 and one year’s specials to date of £50,000, total £100,000 – fee £25,000.

General damages	£50,000
1 year’s specials at £50k	£50,000
	£100,000
Solicitor’s success fee capped at

£25,000

Firm Slow and Poor take 5 years to settle the claim and only get £40,000 generals and £40,000 a year specials

General damages	£40,000
5 year’s specials at £40k	£200,000
	£240,000
Solicitor’s success fee capped at

£60,000

Quite simply every month delayed in any case with heavy special damages is a significant extra fee for the solicitor.

Appeals

For reasons beyond me, a solicitor acting other than at first instance can take all of the damages by way of a success fee (Article 5(1)(b)), that is literally 100%, but no more!

Now if as a claimant you lost at first instance then in a sense nothing is lost, except all of your damages if you win on appeal.

However a claimant winning at first instance and then responding to an appeal risks losing all of their damages, even if wholly successful in the appeal.

My firm has always taken the view that resisting an appeal and seeking to hold on to the client’s damages is part of the job.

If the appeal is successfully resisted then ordinary costs, at a decent rate, are recovered from the other side; if the appeal is lost then there are no damages to get even the 25% from anyway.

Take the client who wins and is awarded £100,000 and pays a success fee of £25,000.  The client successfully appeals quantum and is awarded £120,000; the solicitor, being ever so reasonable, takes just 50%, not 100% of damages, leaving the successful appellant with £60,000, that is £15,000 less than if he or she had not appealed and won.

Initial award	£100,000
Success fee – 25%	£25,000

Client receives

£75,000

  Award after appeal

£120,000

Success fee – 50%

£60,000

Client receives

£60,000

Having a different cap at appeal level makes no sense at all and is deeply harmful to clients.

 Solution

To avoid the establishment of the Department of Cases That We Never Finish Until the Client Dies – echoes of Jarndyce v Jarndyce in Bleak House – and to avoid the Global Offer issue the following should be adopted:

25% cap on damages up to £100,000

10% cap on damages between £100,000 and £500,000

5% cap on damages above £500,000

You can play around with the figures but the principle is sound.

Note that there is nothing stopping a Claims Management Company charging the client 25% of damages under The Damages-Based Agreements Regulations 2013 and the solicitor then taking the case on and charging a 25% of damages success fee under The Conditional Fee Agreements Order 2013, resulting in the client losing 50% of any damages as well as any After-the-Event insurance premium.

As a consumer/client protection measure this ranks alongside Claims Direct and The Accident Group.

 Information

In its October 2012 update the Ministry of Justice said that solicitors will be required to provide clear information to the claimant on how the success fee has been calculated including showing the breakdown between solicitor and barrister (if appropriate), and the type of damages that the cap applies to (excluding future care and loss), adding

“This will be a new requirement, for both CFAs and damages-based agreements (DBAs), and is designed to help transparency and consumer protection, and make it easier for clients to compare success.”

Details are awaited.

This is both confusing and misleading. No such comparison can be made between a contingency fee and a success fee, due to the nonsensical Ontario method whereby recoverable costs are deducted from the contingency fee payable by the client, but not from the success fee paid by the client, and where the indemnity principle applies to DBAs, but not CFAs.

Thus in the Alice in Wonderland World of Lord Justice Jackson and the Ministry of Justice a 10% success fee will almost certainly cost the client a great deal more than a 25% contingency fee. Indeed contingency fees in personal injury matters will nearly always be free to the client, so whether it is 1% or 25% or anything in between is irrelevant.

It is wholly misleading, indeed Orwellian, to talk about “clear information,” “transparency” and “consumer protection” in relation to DBAs given that the client will have no idea of the amount of costs he or she will have to pay, just that it will be limited to 25% or 35% or 50% of damages, depending on the worktype.

Out and out contingency fees would of course produce such clarity and transparency.

Counsel

Having an overall cap of 25% also creates potential problems.  Now that counsel have got used to success fees they may not be keen to accept instructions on a CFA basis where liability is seriously in issue but they will get a success fee based on say 12.5% of damages if they split the 25% with the instructing solicitor.

Solicitors may be reluctant to instruct counsel on a CFA, where the matter is proceeding to trial on quantum only, if they have to surrender half of their success fee, having shouldered nearly all of the risk.

Solicitors are effectively paying counsel’s success fee out of their own pocket.

True it is that all of these problems existed pre-recoverability but then counsel working under a CFA was much less common and the 25% cap was voluntary, although generally observed.

The answer is to cap the whole sum which may be taken from the client, however comprised, maybe at 35% as is the case in employment tribunal cases, although there, there is no recovery of any costs from the losing party.

Section 44(4) abolishes recoverability of the success fee in all cases. 100% will remain the maximum costs-based success fee in all cases.  The cap on the success fee of a sum equal to 25% of damages only applies in personal injury cases.

Transitional arrangements

Solicitors need to ensure that if a CFA is to be entered in to it is signed by 31 March 2013 to ensure that the other side, and not one’s own client, pays the success fee.

Conditional fee agreements with counsel should be entered in to as soon as possible, even if counsel is never in fact instructed as in relation to any conditional fee agreement entered in to with counsel from 1 April 2013 the success fee will be payable by the client, whereas if it is entered in to before 1 April 2013, even if all of counsel’s work is done after that date, it is recoverable from the other side.

The Ministry of Justice has suggested, without any authority, that counsel will need to have worked on the matter prior to 1 April 2013, so as a precaution counsel should be instructed to advise on, say, the primary limitation period in that type of work and counsel should so advise. Five minutes work but it solves the problem.

Thus the precise date of the agreement will determine who pays the success fee.

Clearly an agreement dated post 1 April 2013 but retrospective will not avoid the provisions of the Act and the courts have found against rectification – see Oyston v Royal Bank of Scotland [2006] EWHC 90053 (Costs).

However it is arguable that an agreement actually entered in to on or after 1 April 2013 but backdated is not caught by the Act as although the courts clearly prefer retrospective CFAs they have not gone as far as actually to prohibit backdated CFAs.

In Forde v Birmingham City Council [2009] EWHC 12 (QB) 1 WLR 2732

the High Court held the second of two conditional fee agreements to be valid and enforceable, even though it was retrospective and the retrospective period covered a period prior to 1 November 2005, when there was a very different, much stricter, regime in place.

Consequently CFAs which were defective under the pre-1 November 2005 regime could be “cured” by entering in to a new, but retrospective, CFA.

The same logic could be applied in relation to CFAs entered in to post 1 April 2013, but backdated to bring them within the pre-LASPO 2012 regime.

However in such circumstances a court would almost certainly exercise its discretion to disallow recoverability, both because the notice to the paying party will have retrospective effect, although not backdated, and also so as to give effect to the clear will of Parliament; as we have seen even where a backdated CFA is valid the courts have been very reluctant to allow recoverability from the period prior to the actual date of signing.

COLLECTIVE CONDITIONAL FEE AGREEMENTS

In relation to Collective Conditional Fee Agreements it will not be possible to claim a success fee in a post April 2013 matter even if the Collective Conditional Fee Agreement was signed prior to 1 April 2013.

In such circumstances the relevant date is when the work began – if it began prior to 1 April 2013 then the success fee is recoverable; if not then it is not.

MESOTHELIOMA

Mesothelioma claims have been exempted from the ban on recoverability of success fees and after-the-event insurance premiums; in other words claimants will continue to recover success fees and insurance premiums even when the conditional fee agreement is entered in to after 1 April 2013 and the insurance is taken out after that date.

Mesothelioma victims will, nevertheless, receive the 10% uplift in general damages in relation to all awards made on or after 1 April 2013, even though they will not have to pay any element of the success fee, which was what the extra 10% was designed to cover. This follows the Court of Appeal’s controversial ruling in Simmons v Castle [2012] EWCA Civ 1039, although that decision is now to be revisited, with the Court of Appeal effectively withdrawing it following publication of my piece “Things Fall Apart – Jackson, 10% increase and the Court of Appeal”.

The Government has also said that it will introduce a new, streamlined claims process for mesothelioma claims, which will address “the civil litigation costs for all mesothelioma claims, to reflect the faster claims process and in line with the Government’s wider reforms”.

Details are non-existent at present, but expect a fixed fee scheme with costs much lower than those generally awarded at present.

Section 44 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012:-

44 Conditional fee agreements: success fees

(1) In section 58 of the Courts and Legal Services Act 1990 (conditional fee agreements), in subsection (2) –

(a) omit “and” after paragraph (a), and

(b) after paragraph (b) insert “and

(c) references to a success fee, in relation to a conditional fee agreement, are to the amount of the increase”.

(2) After subsection (4) of that section insert –

“(4A) The additional conditions are applicable to a conditional fee agreement which –

(a) provides for a success fee, and

(b) relates to proceedings of a description specified by order made by the Lord Chancellor for the purposes of this subsection.

(4B) The additional conditions are that –

(a) the agreement must provide that the success fee is subject to a maximum limit,

(b) the maximum limit must be expressed as a percentage of the descriptions of damages awarded in the proceedings that are specified in the agreement,

(c) that percentage must not exceed the percentage specified by order made by the Lord Chancellor in relation to the proceedings or calculated in a manner so specified, and

(d) those descriptions of damages may only include descriptions of damages specified by order made by the Lord Chancellor in relation to the proceedings”.

(3) In section 58A of that Act (conditional fee agreements: supplementary), in subsection (5) after “section 58(4)” insert “,(4A) or (4B)”.

(4) For subsection (6) of that section substitute –

“(6) A costs order made in proceedings may not include provision requiring the payment by one party of all or part of a success fee payable by another party under a conditional fee agreement.”

(5) In section 120(4) of that Act (regulations and orders subject to parliamentary approval) after “58(4),” insert “(4A) or (4B),”.

(6) The amendment made by subsection (4) does not apply in relation to a success fee payable under a conditional fee agreement entered into before that subsection comes into force.

CONTINGENCY FEES AND DAMAGES BASED AGREEMENTS

THE PRE 1 APRIL 2013 REGIME

Contingency fee agreements have always been allowed in non-contentious work.  Pre-issue work is classed as non-contentious and therefore can be carried out under a contingency fee agreement.

However once the case is issued then that pre-issue work retrospectively becomes contentious and thus the contingency fee agreed is of no effect.  The solution is to enter in to a conditional fee agreement and a contingency fee agreement from Day One and to serve Form N251 on the other side.

The agreement with the client will be that the contingency fee agreement operates until proceedings are issued at which point it drops away and the conditional fee agreement is deemed to have been in place from the beginning.  This is achieved by a bridging agreement.

Absent contractual agreement with the other side there is no right to costs pre-issue and therefore it does not matter that the conditional fee agreement is not in place.  Costs are only payable by agreement; if they are agreed then there is no problem and if they are not agreed then proceedings will need to be issued at which point the conditional fee agreement comes in to force with effect from the beginning of the case.

The potential problem is that fees on an hourly basis, even with a success fee, may be significantly less than the contingency fee would have been.  That will depend upon a combination of the settlement figure and the contingency fee percentage on the one hand and the time spent and the hourly rate on the other hand.

Thus where there is a contingency fee agreement you should have a high hourly rate in the conditional fee agreement.

Solicitor and own client rates can and should be very much higher than the rates that you are likely to recover on a between the parties basis.

This is for two reasons:

(i)              to maximize the alternative “take” to the contingency fee; and

(ii)             to maximize the indemnity costs received if, as a claimant, you match or beat your own Part 36 offer.

THE NEW REGIME: POST 31 MARCH 2013

Contingency fee agreements are allowed in all types of civil litigation, including in relation to all post-issue work including advocacy.

This is achieved by section 45 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 which I set out below and this amends Section 58AA of the Courts and Legal Services Act 1990, which was itself an amendment to formalize and regulate contingency fee agreements in employment tribunals. Article 3(b) of The Legal Aid, Sentencing and Punishment of Offenders Act 2012 (Commencement No 5 and Saving Provision) Order 2013 brings section 45 in to effect from 1 April 2013.

Article 2(a) of The Legal Aid, Sentencing and Punishment of Offenders Act 2012 (Commencement No 2 and Specification of Commencement Date) Order 2012 beings into force section 45(1) and (8) of the Act.

Section 45(1) makes provision for amendments to section 58AA of the Courts and Legal Services Act 1990 and section 45(8) inserts into section 58AA of that Act a new subsection (6A), and that new subsection provides that rules of court may be made in respect of the assessment of costs in proceedings where a party in whose favour a costs order is made has entered into a damages-based agreement.

The Damages-Based Agreements Regulations 2013 have now been laid before Parliament and come in to effect on 1 April 2013.  They appear at the end of this section.

On 15 February 2013 The Civil Procedure (Amendment) Rules 2013 were published.

Indemnity Rule applies

The final nail in the DBA coffin is confirmation that the indemnity principle applies to DBAs. Thus a solicitor will never be able to recover from the losing party a sum in excess of the amount chargeable to one’s own client under the DBA, which sum itself is capped by Regulation 4 of The Damages-Based Agreement Regulations 2013.

Thus in a personal injury case the DBA is capped at 25% of damages, that sum includes VAT and counsel’s fees. Maximum recovery, after a trial, is limited to that sum, which net of VAT is 20.83% profit costs, less counsel’s fees.

Let us take an Employer’s Liability case where £15,005 is awarded at court.

Act on an hourly rate basis, getting paid win or lose, and the proposed fixed recoverable costs (FRC) are £12,517.80 including advocacy fees and VAT.

In addition you are free to charge the client extra non-recoverable solicitor and own client costs and you are free to charge the client full solicitor and own client costs in the event of defeat.

Have a conditional fee agreement with the client and in the event of a win you can have all of the above and a success fee.

Thus a DBA provides by far the greatest protection to the client. The application of the indemnity principle benefits only the tortfeasor, as credit must already be given to the claimant, £ for £, for costs recovered.

This is a lawbreaker’s Charter.

Here is how it works on a DBA:

Maximum fee (25% of £15,005)	£3,751.25
Less
Counsel fixed advocacy fee including VAT	£1,980.00
	£1,771.25
Say counsel’s fee for conference,   advice, etc.

£1,500.00 + VAT

£1,800.00

Fee to solicitor for taking risk and   winning

MINUS  £       28.75

So you take all of the risk – and win.

Recovery is limited to £3,751.80, all of which – and more – is spent on counsel’s fees.

The defendant gets a windfall of £8,766.55 (FRC of £12,517.80 minus MAXIMUM DBA of £3,751.80).

Alternatively act by the hour and charge what you want.

Thus due to the indemnity principle, the solicitor acting for a successful claimant will only receive the contingency fee, even if recoverable costs would be higher. This point has been picked up by Master Haworth of the Senior Courts Costs Office. Speaking at the Lexis Nexis Costs and Litigation Funding Forum on 31 October 2012 he questioned what would happen in such a case, pointing out that the Legal Aid, Sentencing and Punishment of Offenders Act 2012 does not abrogate the indemnity principle and concluded that this meant that the solicitor would not be able to recover more than he would recover as a contingency fee.

Master Haworth gave as an example of a £12,000.00 personal injury case with recoverable costs of £6,000.00.

A solicitor operating under a Damages-Based Agreement would only be able to recover £3,000.00, providing the defendant’s insurer with a windfall of £3,000.00 and achieving no benefit for the claimant.

A solicitor in the same case with a conditional fee agreement and no success fee, thus totally protecting the claimant from any fees or deduction from damages would receive £6,000.00.

A solicitor with a conditional fee agreement with a success fee would receive up to £9,000.00, being recoverable fees plus a success fee capped at £3,000.00, being 25% of damages.

As Master Haworth so accurately put it:

“It makes DBAs meaningless in low-value claims,”

The Cap

In personal injury claims there will be a 25% cap on the amount of damages, excluding damages for future care and loss, that can be taken as a lawyer’s contingency fee. The cap will apply to net damages after Department of Work and Pensions benefit recovery; this Department seeks to recover benefits paid out where a claimant subsequently recovers damages for loss of income.

The 25% includes VAT and counsel’s fees.

In relation to proceedings other than those at first instance there is no limit on the percentage of the client’s damages that can be taken.  Compare this with the conditional fee success fee where the maximum is 100% in non-first instance matters.

In its October 2012 Jackson Reforms update the Ministry of Justice said:

“The lawyer will be required to provide clear information to the claimant on how the success fee has been calculated including showing the breakdown between solicitor and barrister (if appropriate), and the type of damages that the cap applies to (excluding future care and loss). This will be a new requirement, for both CFAs and damages-based agreements (DBAs), and is designed to help transparency and consumer protection, and make it easier for clients to compare success fees.”

This is both confusing and misleading. For reasons set out by Master Haworth above, no such comparison can be made between a contingency fee and a success fee, due to the nonsensical Ontario method whereby recoverable costs are deducted from the contingency fee payable by the client, but not from the success fee paid by the client.

Thus in the Alice in Wonderland World of Lord Justice Jackson and the Ministry of Justice a 10% success fee will almost certainly cost the client a great deal more than a 25% contingency fee. Indeed contingency fees in personal injury matters will nearly always be free to the client, so whether it is 1% or 25% or anything in between is irrelevant.

It is wholly misleading, indeed Orwellian, to talk about “clear information,” “transparency” and “consumer protection” in relation to DBAs given that the client will have no idea of the amount of costs he or she will have to pay, just that it will be limited to 25% or 35% or 50% of damages.

Out and out contingency fees would of course produce such clarity and transparency.

In employment tribunal cases the cap remains at 35% as prescribed by the Damages-Based Agreements Regulations 2010, which have been repealed by The Damages-Based Agreements Regulations 2013, but all key provisions are replicated in the new Regulations. In Employment Tribunal proceedings alone, counsel’s fees may be charged in addition to the capped percentage of solicitors’ fees.

In all other cases, including employment cases in the High Court/County Court, there will be a 50% cap on the amount of damages.

PART 36

Defendants’ Offers

One problem is the interplay between the cap and Part 36.  Thus a claimant is awarded £100,000 at court, but has failed to beat a defendant’s Part 36 offer and is ordered to pay £20,000 costs, meaning that the amount that actually passes from defendant to claimant is £80,000.

Is the 25% of £100,000 or £80,000?

Of course the solicitor is only entitled to the shortfall between costs recovered and 25%, but this is precisely when that shortfall is likely to occur, as the solicitor will not have recovered post Part 36 costs.

Supposing a defendant makes a Part 36 offer which is much less than the amount claimed and the claimant accepts it.  How do the claimant and the solicitor then ascertain the amount to be attributed to future care and loss, and thus to be excluded from the fund on which the 25% cap bites?

Claimants’ Offers

Claimants’ Part 36 offers will normally have no relevance in DBA cases. To achieve indemnity costs a claimant has to match or beat its own offer at trial. If a matter has reached trial the costs capped by damages will long since have been exhausted and the indemnity principle means that the claimant can never recover more.

 Global offers

Most defendants’ offers, Part 36 or otherwise, are global, that is they cover all aspects of the claim except costs.

That makes perfect sense, but how is a claimant and solicitor to determine what element relates to future special damages which are thus excluded from the pool on which the 25% bites?

Future delayed become specials to date

Solicitor’s firm Quick and Good settle early and their 25% is based on general damages of say £50,000 and one year’s specials to date of £50,000, total £100,000 – fee £25,000.

General damages	£50,000
1 year’s specials at £50k	£50,000
	£100,000
Solicitor’s success fee

£25,000

Firm Slow and Poor take 5 years to settle the claim and only get £40,000 generals and £40,000 a year specials

General damages	£40,000
5 year’s specials at £40k	£200,000
	£240,000
Solicitor’s success fee

£60,000

Quite simply every month delayed in any case with heavy special damages is a significant extra fee for the solicitor.

Appeals

For reasons beyond me, a solicitor acting other than at first instance can take all of the damages by way of a contingency fee in a Damages-Based Agreement. (Regulation 4(4) The Damages-Based Agreements Regulations 2013.)

Now if as a claimant you lost at first instance then in a sense nothing is lost, except all of your damages if you win on appeal.

However a claimant winning at first instance and then responding to an appeal risks losing all of their damages, even if wholly successful in the appeal.

My firm has always taken the view that resisting an appeal and seeking to hold on to the client’s damages is part of the job.

If the appeal is successfully resisted then ordinary costs, at a decent rate, are recovered from the other side; if the appeal is lost then there are no damages to get even the 25% from anyway.

Take the client who wins and is awarded £100,000 and pays a success fee of £25,000.  The client successfully appeals quantum and is awarded £120,000; the solicitor, being ever so reasonable, takes just 50%, not 100% of damages, leaving the successful appellant with £60,000, that is £15,000 less than if he or she had not appealed and won.

Having a different cap at appeal level makes absolutely no sense at all and is deeply harmful to clients.

Solution

Clearly there should be the same cap whether at first instance or on appeal.

To avoid the establishment of the Department of Cases That We Never Finish Until the Client Dies – echoes of Jarndyce v Jarndyce in Bleak House – and to avoid the Global Offer issue the following should be adopted:

25% cap on damages up to £100,000

10% cap on damages between £100,000 and £500,000

5% cap on damages above £500,000

You can play around with the figures but the principle is sound.

For the client a contingency fee agreement is likely to be more attractive than a conditional fee agreement.

In personal injury cases contingency fees are almost entirely pointless from a solicitor’s point of view as they are subject to all of the restrictions that apply in relation to conditional fee agreements AND the solicitor has to allow a pound for pound reduction in relation to any costs received from the losing party, something that does NOT apply in relation to the conditional fee success fee, AND the Indemnity Principle applies, giving the tortfeasor a huge windfall.

ADVERSE COSTS

There is a further potential problem from a solicitor’s point of view and that relates to potential liability for adverse costs.

In Hodgson v Imperial Tobacco [1998] 1 WLR 1056 the Court of Appeal held that no adverse costs order could be made against a solicitor simply because of the solicitors having entered in to a lawful conditional fee agreement.

One would think that the same principle must apply to solicitors acting under a DBA.  However in his Terms of Reference to the Working Party Lord Justice Jackson said:

“If the lawyer stands to receive a share of the proceeds of the litigation, then the question arises whether – if the client fails to pay – the lawyer should be liable for adverse costs on Arkin principles.  It so, there is the further question of whether CPR 48.2 requires amendment or is sufficient as it stands.  If there is no such liability, then litigation funders may be able to bypass their existing liability for adverse costs by buying up law firms and funding litigation through the mechanism of DBAs.”

Lord Justice Jackson is right. Putting Arkin very simply, a funder is potentially liable for the costs of the opposing party only to the extent of the funding provided.  So a Third Party Funder who is prepared to put in £100,000, with the prospect of gaining a much greater reward, is liable to the tune of no more than £100,000 of the other side’s costs if the case is lost.  Those of you who remember legal aid contributions will recall a similar system – a client whose contribution to own costs was £500 was also at risk of paying £500 of the other side’s costs.

The advent of Alternative Business Structures allows Third Party Funders to either buy up law firms as posited by Lord Justice Jackson, or indeed set up their own firm and that would indeed avoid the Arkin risk.  Actually that could be achieved by dealing with everything as a carefully constructed conditional fee agreement where, due to Hodgson, there is no Arkin risk.

Thus the need to deal with Arkin avoidance by Third Party Funders becoming ABSs potentially creates a huge adverse costs risk for lawyers acting under DBAs, a risk that does not exist if acting under a conditional fee agreement, be it a no win – no fee or a no win – lower fee agreement and with or without a success fee.

Neither does the risk exist if acting on the hourly rate win or lose method.

This is another, powerful, reason why solicitors should not touch Damages-Based Agreements.

Lord Neuberger, President of the Supreme Court, said in the 14^th Lecture in the Implementation Programme:

“Some have already argued that there is little incentive for solicitors to act on DBAs in circumstances where they could act on a CFA. Kerry Underwood has expressed that opinion in this way,

In personal injury cases contingency fees are almost entirely pointless from a solicitor’s point of view as they are subject to all of the restrictions that apply in relation to conditional fee agreements AND the solicitor has to allow a pound for pound reduction in relation to any costs received from the losing party, something that does NOT apply in relation to the conditional fee success fee[1].

It is an interesting opinion. But it might seem to neglect the client’s point of view in a new legal market place. It may be that it would be unattractive from a solicitor’s perspective to offer a DBA, rather than a CFA, in a personal injury case. But what one solicitor finds pointless may represent another solicitor’s competitive advantage. Given the choice between a solicitor who only offers CFAs and one who offers CFAs and DBAs at more advantageous prices, and perhaps with normal costs calculated by way of fixed fee rather than hourly billing, clients can reasonably be expected to appreciate where their interests lie. In other words, the brave new world of DBAs may well help to encourage a more genuinely competitive market place, in which solicitors are having to become even more client – or consumer – focused.”

Master Haworth of the Senior Courts Costs Office, speaking at the Lexis Nexis Costs and Litigation Funding Forum on 31 October 2012 predicted that damages-based agreements would not be used in low-value cases.

Furthermore the technical requirements in relation to this statutory form of contingency fee agreement are greater than for conditional fee agreements, which defeats the purpose of pure contingency fee agreements whose beauty is their simplicity and certainty. This point was picked up by Lord Neuberger, Master of the Rolls:

“More generally, care will also need to be taken to ensure that the rules governing DBAs are as simple and straightforward as possible. Again, we cannot afford creating a situation where satellite litigation concerning the nature and enforceability of DBAs becomes as common, and detrimental, a feature of litigation as was satellite litigation over 1999 CFAs in relation to litigation after the Access to Justice Act. DBAs cannot be allowed to become yet another blot on the landscape of civil justice. Regulations and rules governing their operation should as far as possible be drafted so that such a possibility cannot arise in practice. We must therefore learn from the problems which arose from 1999 CFAs and keep it simple. Just as important as keeping the rules and regulations simple is ensuring that DBAs themselves are kept simple. One of the things the CJC’s working party will be looking at is the elements which a DBA ought to contain. It is not for the working party to prepare a standard form DBA; that may well be a matter for the professional and regulatory bodies.”

The significance of this measure is that it is a statutory recognition of contingency fees and that ends all arguments about their lawfulness, due to the doctrine of the Sovereignty of Parliament.

With the small claims track limit rising to £10,000.00 from 1^st April 2013 and then to £15,000.00, or possibly even £25,000.00, contingency fees will have an increasing role to play as obviously they are of greater value and importance where costs are not recoverable from the other side, which obviously applies in small claims track cases. This point was recognized by the Master of the Rolls, Lord Neuberger in his 14^th Lecture in the Implementation Programme on 11 May 2012 when he said:

“In cases where a claim falls within the no cost-shifting regime, it is possible that, contrary to what some believe, a DBA will be preferable to other forms of funding agreement, including conditional fee agreements.”

Contingency fees have been widely used in fields where costs are not recoverable from the other side, especially in CICA claims and in employment tribunals.

The whole Motor Insurers’ Bureau Untraced Drivers Scheme is based on contingency fees.

This half-hearted measure is pointless in relation to costs-bearing cases and I can envisage few cases where a Damages-Based Agreement would be appropriate, for the solicitor.

In cases where costs do not follow the event it is a different matter.

Pre-action contingency fee agreements have always been allowed as pre-action work is non-contentious but retrospectively becomes contentious upon issue.  That will change in that contingency fees will now be allowed in respect of contentious work.

It is not yet clear, and may not become clear, whether old-fashioned pure contingency fee agreements will continue to be allowed.

If they are, then the answer is to have a pre-action contingency fee agreement, a bridging agreement and a conditional fee agreement that only comes in to play if proceedings are issued.

Thus if the success fee and the contingency percentage are the same, and in personal injury work the maximum is 25% of damages excluding future loss, then:

•  it is ALWAYS in the solicitor’s interest to have a conditional fee agreement as that is costs recovered PLUS 25% of damages as a success fee;
•  it is ALWAYS in the client’s interest to have a contingency fee agreement as that is 25% LESS costs recovered from the other side, and the Indemnity Principle limits recovery from the other side to a sum equal to 25% of damages.

The 25% cap in relation to the contingency fee “take” applies only in personal injury cases, with a 50% cap in relation to all other work, except employment tribunal work where it is 35%, but there will be no success fee cap by reference to damages in conditional fee cases, except in relation to personal injury cases where it will be 25%.

All success fees remain subject to the rule that they must not exceed 100% of base costs.

Base costs are solicitor and own client costs NOT the sum recovered from the other side on a between the parties’ basis.

In non-personal injury cases it will be possible to construct a contingency fee agreement along the lines of “whatever fees which once the as yet unknown recovered costs are taken in to account and set off against that fee, will leave the solicitor with 25%, or 30% or whatever of damages” or to put it another way a promise that the client will get 75% or 70% or whatever of damages with the solicitor keeping the rest.

In Employment Tribunal claims the maximum contingency fee is 35%, including VAT, which, with VAT at 20%, is a contingency fee of 29.17% plus VAT; in other words the profit costs are 29.17% of the sum recovered.

In Employment cases, but not any other type of case, counsel’s fees can be charged on top of the contingency fee.

The 50% maximum in other cases will give a profit costs figure of 41.66%.

From a solicitor’s point of view any deal can be done with counsel, such as

• splitting the contingency fee 50-50;
• splitting the contingency fee in some other way;
• paying counsel win or lose and keeping all of the contingency fee in the event of a win but paying counsel personally in the event of defeat;
• instructing counsel on a conditional fee basis.

However generally if a contingency fee is being used it is better for the solicitors’ firm to do the advocacy itself.

Interplay with Third Party Funding

There appears to be a failure to understand the way funding, as opposed to costs, works.

In pre 1 April 2013 Conditional Fee Agreements a client’s success fee is paid by the other side but the third party funder’s fee is paid by the client.

If the client is to be the payer in any event then an informed decision needs to be made in each case between these two methods of funding.

For example in what looks like a safe case the client may feel better off with a Third Party Funder taking 20% of any damages and agreeing to pay the solicitor in the event of defeat.  The potential loser here is the solicitor who will receive no additional fee for winning but will face no risk.

These will be difficult calls and the tension between non-recoverable success fees, contingency fees and third party funding has not been fully considered.

In the pre-2000, pre-recovery, days there was no third party funding and so the issue has not arisen.

Suppose a third party funder was to advertise that it would back any viable road traffic accident case in return for 10% of damages.

What would the solicitor’s duty then be? To limit their own success fee to 10%?  To take no success fee at all?

Lord Justice Jackson says in favour of Third Party Funding that it provides an additional means of funding litigation, “and for some parties the only means” and, unlike conditional fee agreements does so without “any additional financial burden upon opposing parties,” and that it tends “to filter out unmeritorious cases”.

Reflecting his view that recoverability of success fees should be banned Lord Justice Jackson states that it is better for a claimant “to recover a substantial part of damages than nothing at all,” and notes, correctly, that Third Party Funding would “become even more important as a means of financing litigation if success fees under conditional fee agreements become irrecoverable.”

Jackson also appears to accept that in the absence of the recoverability of after-the-event insurance Third Party Funding may fill the gap.

In referring to Stone and Rolls (in Liquidation) v Moore Stephens (a Firm) [2009] UKHL 39 where the third party funded claimant lost and had not taken out after-the-event insurance to cover its adverse costs risk Lord Justice Jackson said:

“These facts illustrate that third party funders can operate satisfactorily in the absence of ATE insurance and they can accept liability for any adverse costs orders”, adding that the risk undertaken by the funder was reflected in the percentage of damages which the funder was entitled to receive in the event of success.

What was not addressed is the percentage of damages to be left to the successful third party funded claimant.

Thus a clinical negligence action is third party-funded in a post-Jackson world where there is no recoverability of the success fee or after-the-event insurance premium.  The third-party funder agrees to cover any adverse costs order, in other words to be the after-the-event insurer as well as the funder.  In those circumstances a percentage take towards the top of the range for the third party funder would not be unreasonable – say 40% of damages.  It agrees to pay a discounted fee to the solicitor in any event, that is the solicitor works under a discounted conditional fee agreement.

The solicitor’s conditional fee agreement success fee is capped at 25% of damages.

The claimant wins and thus gets 35% of damages awarded.

It could in fact be rather less – there may be interest on the third party funding and some irrecoverable solicitor and own client costs.

That is why Third Party Funding in an age of non-recoverability of success fees and after-the-event insurance premia risks a re-run of Claims Direct and the Accident Group.

Section 45 of The Legal Aid, Sentencing and Punishment of Offenders Act 2012

“45.        Damages-based agreements

(1)Section 58AA of the Courts and Legal Services Act 1990 (damages-based agreements) is amended as follows.

(2)In subsection (1) omit “relates to an employment matter and”.

(3)In subsection (2)—

(a)          after “But” insert “(subject to subsection (9))”, and

(b)          omit “relates to an employment matter and”.

(4)          Omit subsection (3)(b).

(5)          After subsection (4)(a) insert—

“(aa)must not relate to proceedings which by virtue of section 58A(1) and (2) cannot be the subject of an enforceable conditional fee agreement or to proceedings of a description prescribed by the Lord Chancellor;”.

(6)          In subsection (4)(b), at the beginning insert “if regulations so provide,”.

(7)          In subsection (4)(d) for “has provided prescribed information” substitute “has complied with such requirements (if any) as may be prescribed as to the provision of information”.

(8)          After subsection (6) insert—

“(6A)Rules of court may make provision with respect to the assessment of costs in proceedings where a party in whose favour a costs order is made has entered into a damages-based agreement in connection with the proceedings.”

(9)          After subsection (7) insert—

“(7A)In this section (and in the definitions of “advocacy services” and “litigation services” as they apply for the purposes of this section) “proceedings” includes any sort of proceedings for resolving disputes (and not just proceedings in a court), whether commenced or contemplated.”

(10)        After subsection (8) insert—

“(9)Where section 57 of the Solicitors Act 1974(non-contentious business agreements between solicitor and client) applies to a damages-based agreement other than one relating to an employment matter, subsections (1) and (2) of this section do not make it unenforceable.

(10)For the purposes of subsection (9) a damages-based agreement relates to an employment matter if the matter in relation to which the services are provided is a matter that is, or could become, the subject of proceedings before an employment tribunal.”

(11)        In the heading of that section omit “relating to employment matters”.

(12)        In section 120(4) of that Act (regulations and orders subject to parliamentary approval) for “58AA” substitute “58AA(4)”.

(13)        The amendments made by subsections (1) to (11) do not apply in relation to an agreement entered into before this section comes into force.

This wording is very clumsy indeed.  I set out below the effect that it has on Section 58AA of the Courts and Legal Services Act 1990, so what follows is the amended version of Section 58AA:

(1)          A damages-based agreement which relates to an employment matter andsatisfies the conditions in subsection (4) is not unenforceable by reason only of its being a damages-based agreement.

(2)          But (subject to subsection (9)) a damages-based agreement which relates to an employment matter anddoes not satisfy those conditions is unenforceable.

(3)          For the purposes of this section-

(a)          a damages-based agreement is an agreement between a person providing advocacy services, litigation services or claims management services and the recipient of those services which provides that-

(i)           the recipient is to make a payment to the person providing the services if the recipient obtains a specified financial benefit in connection with the matter in relation to which the services are provided, and

(ii)          the amount of that payment is to be determined by reference to the amount of the financial benefit obtained;

(b)          a damages based agreement relates to an employment matter if the matter in relation to which the services are provided is a matter that is, or could become, the subject of proceedings before an employment tribunal

(4)          The agreement-

(a)          must be in writing;

(aa)        must not relate to proceedings which by virtue of section 58A(1) and (2) cannot be the subject of an enforceable conditional fee agreement or to proceedings of a description prescribed by the Lord Chancellor;

(b)          if regulations so provide, must not provide for a payment above a prescribed amount or for a payment above an amount calculated in a prescribed manner;

(c)           must comply with such other requirements as to its terms and conditions as are prescribed; and

(d)          must be made only after the person providing services under the agreement has provided prescribed information has complied with such requirements (if any) as may be prescribed as to the provision of information.

(5)          Regulations under subsection (4) are to be made by the Lord Chancellor and may make different provision in relation to different descriptions of agreements.

(6)          Before making regulations under subsection (4) the Lord Chancellor must consult-

(a)          the designated judges,

(b)          the General Council of the Bar,

(c)           the Law Society, and

(d)          such other bodies as the Lord Chancellor considers appropriate.

(6A)       Rules of court may make provision with respect to the assessment of costs in proceedings where a party in whose favour a costs order is made has entered into a damages-based agreement in connection with the proceedings.

(7)          In this section-

• “payment” includes a transfer of assets and any other transfer of money’s worth (and the reference in subsection (4)(b) to a payment above a prescribed amount, or above an amount calculated in a prescribed manner, is to be construed accordingly);
• “claims management services” has the same meaning as in Part 2 of the Compensation Act 2006 (see section 4(2) of that Act).

(7A)       In this section (and in the definitions of “advocacy services” and “litigation services” as they apply for the purposes of this section) “proceedings” includes any sort of proceedings for resolving disputes (and not just proceedings in a court), whether commenced or contemplated.

(8)          Nothing in this section applies to an agreement entered into before the coming into force of the first regulations made under subsection (4).

(9)          Where section 57 of the Solicitors Act 1974 (non-contentious business agreements between
solicitor and client) applies to a damages-based agreement other than one relating to an employment matter, subsections (1) and (2) of this section do not make it unenforceable.

 (10)        For the purposes of subjection (9) a damages-based agreement relates to an employment matter if the matter in relation to which the services are provided is a matter that is, or could become, the subject of proceedings before an employment tribunal.

---

[1] K. Underwood, Contingency Fees and Damages-Based Agreements, at [16] http://kerryunderwood.wordpress.com/2012/01/31/contingency-fees-and-damages-based-agreements/

JACKSON’S HERE! AN OVERVIEW

IMPLEMENTATION OF THE JACKSON REPORT

All Jackson reforms, with the exception of the portal changes, went ahead on 1 April 2013, and the Orders and Regulations, with a start date of 1 April, have been approved by Parliament, and the Civil Procedure (Amendment) Rules 2013 and the Civil Procedure (Amendment No. 2) Rules 2013 have been published, as has the 60^th update to the Civil Procedure Rules containing the Practice Direction Amendments and the 61^st update containing further Practice Direction amendments.

Judicial Review proceedings brought by APIL and MASS in relation to the proposed portal fees were dismissed by the Administrative Court on 1 March 2013.

These reforms bear the name of Lord Justice Jackson but in fairness to him they go way beyond his proposals and in particular he was against any cut in the provision of legal aid. (See Lord Neuberger’s comments below).

To call the programme of implementation and announcements shambolic is a kindness. We are now set for the most chaotic period in legal costs and funding since the concept was codified in the Statute of Westminster 1275. The Civil Procedure Amendment Rules had to be amended before they came in to force and a Joint Committee of the House of Commons and House of Lords declared one of the implementing Statutory Instruments to be ultra vires.

The senior judiciary, according to the ever-reliable Professor Dominic Regan

“despair of the shambles surrounding Jackson implementation”.

Click here for the interview of 5 March 2013 with Lord Neuberger, President of the Supreme Court, relating to the legal aid cuts.

Master Haworth of the Senior Courts Costs Office (SCCO) speaking at the Lexis Nexis Costs and Litigation Funding Forum on 31 October 2012 said that the SCCO is “gearing up for Costs War 2” stating that there is too much to play for to expect claimant and defendant lawyers not to enter into satellite litigation, and saying:

“There’s a lot to gain for the profession, and a lot to lose”.

For those lawyers concerned about the nature of the changes, rather than just the dithering, and defective rules and unlawful Statutory Instruments, we have seen it all before, and survived it all.

After The Recovery of Damages and Costs Act 1278, Parliament left matters alone until the Commands in Delay of Justice Act 1328 and the Civil Procedure Act 1330, and if you were wondering where the Law Society got the term “Next Friend” from in its Guidance in relation to Conditional Fee Agreements, I can enlighten you. It was the Suit of Infant by Next Friend Act 1285. It was changed to Litigation Friend some years ago now.

(See my piece Back to the Future for more of this sort of thing.)

Summary

Orders, Regulations, Rules, Practice Directions and Drafts published in relation to all matters with the key outstanding issues being whether the Personal Injury Small Claims limit will go up, and if so when and what to. The Government’s consultation ended on 8 March 2013, and no change is expected before October 2013.

The market is unquestionably settling down to recoverable costs plus 25% of damages in personal injury cases.

Conditional Fee Agreements

The Conditional Fee Agreements Order 2013 is now in force.

This Order implements Section 44 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO) which abolishes recoverability of success fees from the losing party in relation to any conditional fee agreement signed on or after 1 April 2013. However in relation to insolvency proceedings, where the Government, through the medium of HMRC, is often the claimant, abolition of recoverability is being delayed until 1 April 2015.  No coherent reason beyond naked self-interest has been given.  Diffuse mesothelioma claims also continue under the old regime, as do defamation actions and breach of privacy claims.

The Conditional Fee Agreements Order 2000 is revoked but all key provisions are replicated in the new Order.

After-the-Event Insurance

Section 46 of LASPO 2012 abolishes recoverability of after-the-event insurance premiums in relation to insurance premia liability incurred on or after 1 April 2013, with a minor exception in relation to reports in clinical negligence cases.  Again, mesothelioma, insolvency and defamation claims continue as before.

See The Recovery of Costs Insurance Premiums in Clinical Negligence Proceedings (No. 2) Regulations 2013 in relation to clinical negligence.

Clinical Negligence

New Regulations were laid before Parliament on 28 March 2013 to rectify the defects in SI 2013/92, which has been revoked.

Unlike the original ones these appear to be valid, that is intra vires the Courts and Legal Services Act 1990.

The Recovery of Costs Insurance Premiums in Clinical Negligence Proceedings (No 2) Regulations 2013, effective 1 April 2013, provide that recovery of the ATE premium is only allowed if

-          the financial value of the claim for damages in respect of clinical negligence is more than £1,000; and

-          the risk insured is of incurring liability to pay for an expert relating to liability or causation, and

-          recoverability is limited to that part of the premium relating to the “risk of incurring liability to pay for an expert or reports relating to liability or causation in respect of clinical negligence in connection with the proceedings.”

See also my blog Clinical Negligence and ATE Recoverability which will be updated in due course.

The blog Clinical Negligence: ATE Unrecoverable? is now of historic interest only.

Qualified One Way Costs Shifting (QOCS)

Lord Jackson proposed the creation of a qualified one way costs shifting system, that is that a winning claimant recovers costs from a losing defendant, but a winning defendant does not recover costs from a losing claimant, except where the claimant has failed to beat a defendant’s Part 36 offer.

This applies only to personal injury cases, including clinical negligence.  It is retrospective.  It does not apply to cases where an additional liability is claimed, whether that be a success fee or an ATE premium.

On 8 February 2013 the CPR Committee considered the potential unfairness to claimants who enter into a CFA before 1 April 2013, but take out after ATE insurance after 31 March 2013 and thus neither are able to recover the ATE premium nor benefit from QOCS.

The Committee found that solicitors had had sufficient notice to take out ATE by 31 March 2013 “even if they might otherwise have delayed until just prior to the commencement of legal proceedings.”

This would appear to defeat any defendant argument that acting in such a way involved taking out the insurance prematurely. This is significant given the huge number of extra ATE policies taken out immediately pre-Jackson.

New CPR 44.13 to 44.17, inserted by The Civil Procedure (Amendment) Rules 2013, refers. Practice Direction 44.12 applies.

The continued existence of Part 36 makes the scheme almost meaningless.

For an up-to date analysis of some of the problems – see my summary – Qualified One Way Costs Shifting: The New CPR.

Contingency Fee Agreements/Damages-Based Agreements

The Damages-Based Agreements Regulations 2013 implementing Section 45 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 are now in force.

Damages-Based Agreements are to be allowed in all civil work, post-issue as well as pre-issue.

However costs remain recoverable from the losing party and the solicitor acting for the winning party must give pound for pound credit to the client against the contingency fee.

As recovered costs will virtually always exceed the contingency fee, this too is meaningless.

New CPR 44.18 applies, inserted by The Civil Procedure (Amendment) Rules 2013 deals with Damages-Based Agreements and the main point to note is that the indemnity principle applies in full.  Thus a maximum charge of 25% of damages to the client limits between the parties recovery to that sum, and so a tortfeasor will almost always receive a significant windfall.

See my piece – Damages-Based Agreements – Dead on Arrival – The New CPR for how this can work out.

The one ray of sunshine is that now that Parliament has sanctioned contingency fees the courts are absolutely forbidden from considering any issue of public interest in relation to contingency fees.

This is due to the doctrine of the Sovereignty of Parliament – judges please note well. This is particularly important as contingency fee agreements remain lawful in non-contentious work, including pre-issue work and can be combined with a Conditional Fee Agreement that operates from the beginning once the case is issued. This achieves the benefits of, but avoids the pitfalls of, Damages-Based Agreements.

Note also that licensed Claims Management Companies may enter in to a Damages-Based Agreement direct with the claimant – see The Damages-Based Agreements Regulations 2013.

Fixed Recoverable Costs

With one exception Fixed Recoverable Costs cover exactly the same territory as the portals, that is all Road Traffic Accident, Employers’ Liability and Public Liability matters with a value up to £25,000.00.

The exception is that Industrial Disease cases exiting the portal go straight to open costs and thus can never be the subject of Fixed Recoverable Costs – they are either in the portal or in the open costs regime.

The level of Fixed Recoverable Costs is set out in the 27 February Government Response :

Extension of the Road Traffic Accident Personal Injury Scheme: proposals on fixed recoverable costs.

which in spite of its name deals with Employers’ Liability and Public Liability matters as well.

All Fixed Recoverable Costs for all matters are set out at page 23 of the response in Annex A. Confusingly Annex A is what was Annex B in the 19 November 2012 consultation.

Fixed Recoverable Costs have not yet been brought in for other types of civil litigation.

Timescale for Fixed Recoverable Costs

For RTA matters in respect of the existing scheme, that is up to £10,000 – “end of April 2013”.

For RTA extension, that is £10,000 to £25,000 and the new Employers’ Liability and Public Liability portals, “end of July 2013”.

The relevant date is the date of falling out of the protocol (see Portal).

For a brief summary see Letter from the Lord Chancellor of 27 February 2013.

10% uplift on General Damages

The 10% uplift applies where the successful claimant does NOT have a Conditional Fee Agreement with a recoverable success fee in place.

It remains to be seen whether the Court of Appeal will again re-visit the issue if the personal injury small claims limit is raised.  A one-off 30% increase, that is 20% in addition to the increase in Simmons v Castle [2012] EWCA Civ 1039 would allow solicitors to charge the maximum 25% allowed under The Damages-Based Agreements Regulations 2013 without loss to the client.

Referral Fees

Banned by sections 56-60, Legal Aid, Sentencing and Punishment of Offenders Act 2012.

Section 56(1) bans referral fees but the less-noticed section 56(2) bans making arrangements and being paid for such arrangements.

Thus arranging for a client to take out particular ATE insurance or to use a particular Medical Reporting Agency or whatever is illegal if the solicitor receives any form of payment.

All commissions, rebates, inducements etc in all personal injury work are now banned, whoever they are paid to, even if it is the client who benefits. Hospitality that is reasonable in the circumstances is still permitted.

Providing information to a client whereby they contact another firm of solicitors for example is potentially an arrangement. That is fine unless you get paid for it, in which case there is a significant risk that section 56(2) is breached.

Furthermore The Damages-Based Agreements Regulations 2013 allow a licensed Claims Management Company to enter in to a DBA with a claimant, claim 25% of damages, and pass the case to a solicitor.  One might think that this makes the ban on referral fees entirely pointless – it just shifts the payment of the referral fee from the solicitor to the client.

Part 36

10% uplift on awards made on or after 1 April 2013, where at court a claimant matches or beats his or her own Part 36 offer, with a maximum uplift of £75,000.00. Rules of Court are awaited but The Offers to Settle in Civil Proceedings Order 2013 has now been approved by Parliament, effective 12 February 2013.

See here for my piece – Part 36: The Dry Salvages.

Road Traffic Act Portal

To be extended “at the end of July” in relation to all claims up to £25,000.00 with the fees sharply reduced from current levels.

The cut in fees in relation to the existing threshold of £10,000 comes in “at the end of April 2013” as stated in the Response to the Consultation on proposals on fixed recoverable costs and the accompanying letter from the Lord Chancellor.

A draft new portal has been published; in relation to claims of between £10,000 and £25,000. It applies to claims where the cause of action arises after “the end of July 2013”.

In sub-£10,000 cases the existing portal – and existing portal fees – applies to cases where a Claim Notification Form was issued on or before 29 April 2013.  Otherwise new portal applies sub-£10,000 cases.

Fees in the RTA portal for cases up to £10,000 have now been fixed at £500 for stages One and Two, a reduction from £1,200, or a 58% cut.

Thus all sub £10,000 cases should be put on the portal as soon as possible.

Click here for the new RTA protocol fees.

Employers’ Liability Portal

A draft Employers’ Liability portal has been published and covers all claims up to £25,000 where the cause of action occurs on or after “the end of July 2013”.  Industrial disease claims are covered where notification is given on or after “the end of July 2013”.

Industrial Disease claims exiting the portal go straight to the open-cost regime without passing Go, that is an industrial disease case can never be the subject of Fixed Recoverable Costs.

As the key date is the date of the cause of action there is no need to rush around portalling everything before the end of July 2013.

Click here for the new Employers’ Liability protocol fees

Public Liability portal

A draft Public Liability portal has been published and covers all claims up to £25,000 where the cause of action occurs on or after “the end of July 2013”.  As the key date is the cause of action, there is no need to rush around portalling everything before the end of July 2013.

Click here for the new Public Liability fees.

Small Claims limit

Went up from £5,000.00 to £10,000.00 on 1 April 2013, in relation to non-personal injury matters. Thus personal injury, housing disrepair and actions against the police are excluded from the £10,000 limit.

Personal Injury Small Claims limit

Apparently going up to £5,000.00 or possibly £15,000.00 but when is anybody’s guess. Government consultation on raising the limit to £5,000.00 for just whiplash claims, or alternatively all road traffic claims, ended on 8 March 2013 and an announcement is awaited, but the Government are now considering raising the small claims limit to £15,000 for everything including personal injury.

The new Practice Direction allows recovery for “experts’ reports” replacing “expert’s reports”, that is more than one expert, and allows experts’ fees of £750 instead of £200.  Some are seeing this as a harbinger of an increase in the personal injury small claims limit, and history’s most important shift of a possessive apostrophe.

Unlikely to be any rise in the small claims limit before October 2013.

Contingency Legal Aid Scheme

Scrapped.

Costs Management Orders

Apparently important provision applying to all cases issued on or after 1 April 2013, but largely neutered by the decision that except in the Queen’s Bench Division all cases involving damages over £2 million are exempt, even though those were the very cases that led to the proposals, and those were the cases where the scheme was piloted. New CPR 3.11 to 3.18 inserted by The Civil Procedure (Amendment) Rules 2013 applies.  New Practice Direction 3E – Costs Management applies.

The Commercial Court has already opted out.

The new Costs Budgeting Form H and guidance has been issued.

In a major blow to the Jackson Reforms the Court of Appeal, on 28 January 2013, allowed an appeal against a decision of the Senior Courts Costs Office, finding that there was good reason in this particular case for the cost budget to be exceeded. (See Henry v News Group Newspapers Ltd [2013] EWCA Civ 19 and Ryder plc v Beever [2012] EWCA Civ 1737.

For the Jackson Reform-wrecking opt out by the rich boys see the Costs Management in the Chancery Division and the Specialist Lists in the Queen’s Bench Division: Amendment to CPR rule 3.12(1).

Provisional Assessment

Paper-only assessment of any bill where detailed assessment proceedings commenced on or after 1 April 2013 and where costs are not expected to exceed £75,000.00. New Practice Direction 47.14 applies, and new CPR 47.15 applies.

The key point to note is that Provisional Assessment is a form of Detailed Assessment and therefore Guideline Hourly Rates are of no relevance.

See here for my piece on the new Provisional Assessment Scheme.

Proportionality

The new rule came in to force on 1 April 2013, but the old rule applies in relation to proceedings issued by 31 March 2013, both to pre-1 April and post 1 April work.

In relation to unissued proceedings the old rule applies for work done up to and including 31 March 2013 and the new rule applies thereafter.

Most commentators take the view that the new rule is so loosely worded that it does not make any difference. However it remains to be seen whether the judiciary will use the opportunity of the Jackson reforms to pay more attention to proportionality.

See here for my piece on Proportionality: The Emperor’s New Clothes Part Two.

Third Party Funding

Not subject to any statutory regulations. Likely to become an important method of funding. See here for my piece on Third Party Funding.

Litigants in Person

Everyone is expecting a huge increase in the number of Litigants in Person as legal fees rocket post-Jackson.

See here for my piece – Litigants in Person: Acting in cases involving them.

Click here for Lord Neuberger’s speech.

Guideline Hourly Rates

Strictly not affected by the Jackson Reforms, but as these are the most misunderstood point of the costs system see here for my piece – Guideline Hourly Rates: Their Use and Misuse. It is most important to note that Guideline Hourly Rates have no relevance in Provisional Assessment.

Before The Event Insurance

This is likely to become more important with the sharp rise in fees paid by claimants under the Jackson Reform.

See here for my piece – Before The Event Insurance.

Summary

Expect five years of litigation that will paralyze the Court of Appeal, with the added complication that several of its members will have to recuse themselves as already having become politically involved in these most controversial and divisive of reforms. It is a signal achievement for there to have been three Court of Appeal decisions BEFORE the reforms come in!

(See Castle v Simmons No 1

and Castle v Simmons No 2)

and Henry v News Group Newspapers Ltd [2013] EWCA Civ 19.

Jackson Reforms Review

Without a trace of irony the Ministry of Justice has announced that the Jackson Reforms will be reviewed after three years, that is in April 2016. Me thinks that the other reviews – Judicial Reviews, General Elections, civil unrest – that sort of thing will take place first.

This is the way the world ends

Not with a bang but a whimper

T.S. Eliot: The Hollow Men

DAMAGES-BASED AGREEMENTS – DEAD ON ARRIVAL – THE NEW CPR

Here I deal with the provisions relating to Damages-Based Agreements (DBAs) as set out in The Civil Procedure (Amendment) Rules 2013.

 This is a truly exciting scheme as it can involve you taking all of the risk and earning nothing and actually paying your client for the privilege of winning!

 Other blogs – Contingency Fees – Ontario Model – Jackson’s Casablanca Moment, and Contingency Fees and Damages-Based Agreements, deal with the wider issues.

 I will unify these blogs in due course.

 Indemnity Rule applies

The final nail in the DBA coffin is confirmation that the indemnity principle applies to DBAs. Thus a solicitor will never be able to recover from the losing party a sum in excess of the amount chargeable to one’s own client under the DBA, which sum itself is capped by Regulation 4 of The Damages-Based Agreement Regulations 2013.

 Thus in a personal injury case the DBA is capped at 25% of damages, that sum includes VAT and counsel’s fees. Maximum recovery, after a trial, is limited to that sum, which net of VAT is 20.83% profit costs, less counsel’s fees.

 Let us take an Employer’s Liability case where £15,005 is awarded at court.

 Act on an hourly rate basis, getting paid win or lose, and the proposed fixed recoverable costs (FRC) are £12,517.80 including advocacy fees and VAT.

 In addition you are free to charge the client extra non-recoverable solicitor and own client costs and you are free to charge the client full solicitor and own client costs in the event of defeat.

 Have a conditional fee agreement with the client and in the event of a win you can have all of the above and a success fee.

 Thus a DBA provides by far the greatest protection to the client. The application of the indemnity principle benefits only the tortfeasor, as credit must already be given to the claimant, £ for £, for costs recovered.

 This is a lawbreaker’s Charter.

 Here is how it works on a DBA:

 

 Maximum fee (25% of £15,005)                                            £3,751.25

Less

Counsel fixed advocacy fee including VAT                            £1,980.00

                                                                                                      £1,771.25

Say counsel’s fee for conference, advice, etc.   

£1,500.00 + VAT                                                                         £1,800.00

Fee to solicitor for taking risk and winning            MINUS  £     28.75

 

So you take all of the risk – and win.

Recovery is limited to £3,751.80, all of which – and more – is spent on counsel’s fees.

 The defendant gets a windfall of £8,766.55 (FRC of £12,517.80 minus MAXIMUM DBA of £3,751.80).

 Alternatively act by the hour and charge what you want.

 In due course I will deal with other aspects, for example that it renders a claimant beating its own Part 36 offer meaningless, no indemnity costs as all capped at the DBA rate.

 As everyone knows I am a big fan of contingency fees. The Ontario train crash is bad enough – having to give credit for costs recovered when you have to do no such thing with a CFA success fee.

 Adding to it the indemnity principle wrecks DBAs for all matters. I doubt whether one will be signed, except in Small Claims matters.

 This is the last-ditch rearguard action of the old guard – the establishment who are scared of contingency fees and the access it gives ordinary people to the courts.

 Shame on you.

 

The eyes are not here

There are no eyes here

In this valley of dying stars

In this hollow valley

This broken jaw of our lost kingdom

 T.S. Eliot – The Hollow Men

National Legal Service: My speech – 1975 Labour Party Conference

Report of the seventy fourth annual conference of the Labour Party – Blackpool 1975

 Kerry Underwood (Harrow West CLP): The legal system in this country is still in a disgraceful state and makes a mockery of the oftstated claim that British justice is the best in the world. British justice still has to be bought, and the price of that justice is very high.

 There has been no real attempt to make the legal system generally available to the public and so it remains the privilege of the well-off whilst the ordinary people are denied access to their legal rights and protection, simply because they have not got money to hire solicitors and barristers.

 Legal aid has done very little to help the situation and I do not believe that it is really the answer, even if there were to be a massive extension of legal aid. It would still be means tested, and it would still mean that most people would be deterred from asserting their legal rights.

 I favour the creation of a National Legal Service, the basic principles being the same as the National Health Service, with people being registered with a solicitor, as with a doctor, and receiving legal advice free from them. If necessary the solicitor, or in certain cases a barrister, would take the matter to court. In this respect the system would be similar to that prevailing now, except that it would be free and all people, irrespective of economic status, would be able to gain the full protection of the law, as is their right.

 It is an absurd and an anachronistic situation that we have Labour Governments passing a considerable volume of legislation designed to protect tenants, consumers, etc., yet those very people whom these measures are designed to protect are denied the means of obtaining that protection. It is the landlord not the tenant, big business and the chain stores, not the consumer, who enjoy the services of the legal profession.

 While I support the motion, as any advance is to be welcomed, it is only the last two lines which have the real solution – “a National Legal Service” – so that recourse to the law shall be within the effective and obtainable reach of the whole community.

LITIGANTS IN PERSON: ACTING IN CASES INVOLVING THEM

The courts have anticipated a significant increase in the number of Litigants in Person following the very sharp increase in legal fees to be paid by individuals as a result of the Jackson reforms.

 The Civil Procedure (Amendment) Rules 2013, published on 13 February 2013, do not alter substantially the position in relation to Litigants in Person, but the relevant rule is now CPR 46.5, which I set out at the end of this piece.

 The High Court has now produced a formal guide for Litigants in Person in interim applications – click here – and no doubt more will follow. 

 Here I am largely dealing with the consequences for lawyers representing clients who are opposed by Litigants in Person, now to be known by the Orwellian name of “self-represented litigants “. No doubt “self-operating patients” will be with us soon.

 In Tinkler and another v Elliott [2012] EWCA Civ 1289 – click here for full judgment – the self-representing Mr Elliott failed to attend trial but instead submitted a medical certificate of unfitness to attend court.  The trial judge rejected this and granted the other party a permanent injunction and general restraining order against Mr Elliott.

 On appeal the High Court set the judgment aside under CPR 39.3 holding that Mr Elliott had a good reason for not attending the original hearing.

 The Court of Appeal restored the original court’s decision, holding that CPR 39.3 must be rigorously applied.  Under that Part the court had no discretion to set aside a decision taken in a party’s absence until the applicant satisfied the three positive requirements of the rule.

 The first requires that the applicant “has acted with all reasonable celerity* in the circumstances”.

 -          See Regency Rolls Ltd v Carnall [2000] EWCA Civ 379.

 (*Celerity – noun archaic – “swiftness, speed”.  Appears below celeriac and above celery in the Oxford English Dictionary).

 Mr Elliott had relied on his poor mental health and “his ignorance as a litigant in person of the availability of an application to set aside”.

 The Court of Appeal held that Mr Elliott had been capable of acting as a litigant in person.  However the significance of the case is the Court of Appeal’s findings in relation to his ignorance as a person representing himself.

 The Court of Appeal said that “there may be facts and circumstances in relation to a litigant in person that may go to an assessment of promptness……they will only operate close to the margins,” and that “an opponent of a litigant in person is entitled to assume finality without expecting excessive indulgence to be extended to the litigant in person,” and that lack of understanding of procedures “does not entitle him to extra indulgence”.

 This was in the context of a 21 month delay in Mr Elliott making his CPR 39.3 application, but the findings are of relevance generally and were not specific to this case.

 In Fernandes v Kenny and Others, Court of Appeal, 23 October 2012

 an unrepresented landlord applied to set aside a judgment for damages in respect of a deposit, the judgment having been entered at a small claims hearing which he had failed to attend.

 The application to the District Judge failed, as did the first tier appeal to the Circuit Judge, who held that there was no discretion to hear an application made out of time.

 The Court of Appeal held that the Circuit Judge had overlooked the fact that CPR3.1 allowed the court to extend the time limit set out in CPR27.11(2) but nevertheless found that the lower courts had been correct in finding that the landlord had had no good reason for failing to attend the original hearing. 

 However the Employment Appeal Tribunal has taken a different view in relation to litigants in person in Employment Tribunals, possibly influenced by the fact that such tribunals have historically been no-costs zones where individuals were expected to be able to represent themselves.

 In AQ Ltd v Holden  [2012] IRLR 648

 the Employment Appeal Tribunal held that a court was entitled to take in to account the fact that a party was a litigant in person in deciding whether to order costs against that party.

 Although the law is the same whether a litigant is or is not professionally represented, the application of that law, and the court’s exercise of its discretion, must take in to account whether a litigant is professionally represented.

 A tribunal cannot and should not judge a litigant in person by the standards of a professional representative.

 Lay people are entitled to represent themselves in tribunals and, as legal aid is not available and they will not usually recover costs if they are successful, it is inevitable that many lay people will represent themselves.

 Justice requires that tribunals do not apply professional standards to such people, who may be involved in legal proceedings for the only time in their life.  They are likely to lack the objectivity and knowledge of law and practice brought by a professional legal adviser.

 Even if the threshold tests for an order for costs are met, the tribunal has discretion whether to make an order, and that discretion must be exercised having regard to all of the circumstances.

 However lay people should not regard themselves as immune from costs orders.

 The EAT was here dealing with Rule 40(3) of Schedule 1 of the Employment Tribunals (Constitution and Rules of Procedure) Regulations 2004, which provides that an order for costs may be made where the paying party in bringing or conducting proceedings has acted vexatiously, abusively, disruptively or otherwise unreasonably.

 In January 2013 the Legal Services Commission announced that with effect from 1 April 2013 it will cease funding the Advice Services Alliance, the Law Centres Network and the Royal Courts of Justice Citizens Advice Bureau.

 The Royal Courts of Justice CAB assists litigants in person involved in cases in the High Court, the Court of Appeal and the Principal Registry.  The grant funds a team of four solicitors and two receptionists who support 170 volunteers and between them they assist 2,000 people a year.

 The cuts save £655,317.

 Also in January 2013 the High Court published a self-help guide for litigants in persons presenting cases to the interim applications court.  The Guide has been written by Mr Justice Foskett and takes litigants through each stage of the process, from giving notice and presenting documents to how to behave in court, apply for costs and seek permission to appeal.

 The interim applications court deals with short applications of an interim nature within existing or, sometimes, proposed proceedings in the Queen’s Bench Division of the High Court.  It does not deal with family or matrimonial cases.  The most commonly heard applications include applying for an injunction to prevent a former employee from abusing confidential information, setting up in competition or working for a rival employer; preventing travellers occupying a site in contravention of the planning laws; freezing orders to prevent the sale of property; and applying for the disclosure of specific documents.

 The Guide will be kept under review and updated.

 Paragraph 52.4 of the Costs Practice Direction was amended with effect from 1 October 2011 to increase costs payable from £9.25 per hour to £18.00 per hour.

 New CPR 46.5(5), replacing its identically worded predecessor, pre-empts double recovery by providing:

 ‘A litigant who is allowed costs for attending at court to conduct his case is not entitled to a witness allowance in respect of such attendance in addition to those costs.’

 Litigants in person (LIPs) fall into two categories: those who can prove financial loss and those who cannot. The new rate of £18 an hour is compensation for time reasonably spent by those who cannot prove financial loss.

 And what of those who can prove loss? There are two caps: first, they cannot recover more than they have lost. The second cap is that the litigant cannot recover more than two-thirds of the amount to which a solicitor would have been entitled.

 The consequences of a LIP not using a solicitor were demonstrated in Agassi v Robinson (Inspector of Taxes) (Bar Council intervening) [2005] EWCA Civ 1507, [2006] 1 All ER 900, [2006] 1 WLR 2126. Mr Agassi retained a tax expert who was a member of the Chartered Institute of Taxation licensed to instruct counsel directly. No solicitors were involved. Mr Agassi was awarded his costs as a LIP. Were the tax expert’s fees recoverable as costs under the general costs provisions of CPR 48.6? The answer is no. Although Mr Agassi could recover counsel’s fee as a disbursement, he was not entitled to recover as a LIP costs as a disbursement in respect of work done by the tax expert which would normally have been done by a solicitor. That meant he was not entitled to recover the costs of the tax expert providing general assistance to counsel.

 Below is the text of CPR 46.5 with effect from 1 April 2013, as created by The Civil Procedure (Amendment) Rules 2013.

 Litigants in person

46.5.—(1) This rule applies where the court orders (whether by summary assessment or detailed assessment) that the costs of a litigant in person are to be paid by any other person.

(2) The costs allowed under this rule will not exceed, except in the case of a disbursement, two-thirds of the amount which would have been allowed if the litigant in person had been represented by a legal representative.

(3) The litigant in person shall be allowed—

(a)   costs for the same categories of—

                               (i)  work; and

                              (ii)  disbursements,

which would have been allowed if the work had been done or the disbursements had been made by a legal representative on the litigant in person’s behalf;

(b)   the payments reasonably made by the litigant in person for legal services relating to the conduct of the proceedings; and

(c)    the costs of obtaining expert assistance in assessing the costs claim.

(4) The amount of costs to be allowed to the litigant in person for any item of work claimed will be—

(a)   where the litigant can prove financial loss, the amount that the litigant can prove to have been lost for time reasonably spent on doing the work; or

(b)   where the litigant cannot prove financial loss, an amount for the time reasonably spent on doing the work at the rate set out in Practice Direction 46.

(5) A litigant who is allowed costs for attending at court to conduct the case is not entitled to a witness allowance in respect of such attendance in addition to those costs.

(6) For the purposes of this rule, a litigant in person includes—

(a)   a company or other corporation which is acting without a legal representative; and

(b)   any of the following who acts in person (except where any such person is represented by a firm in which that person is a partner)—

(i)  a barrister;

(ii)  a solicitor;

(iii)  a solicitor’s employee;

(iv)  a manager of a body recognised under section 9 of the Administration of Justice Act 1985 (a) ; or

(v)  a person who, for the purposes of the 2007 Act(b), is an authorised person in relation to an activity which constitutes the conduct of litigation (within the meaning of that Act).

(a)       1985 c. 61. Section 9 was amended by the Courts and Legal Services Act 1990, section 125(3), (7), Schedules 18 and 20; the Access to Justice Act 1999 section 106, Schedule 15 Part II; S.I. 2000/1119 regulation 37(3), Schedule 4 paragraph 15; the Legal Services Act 2007, section 177, 210, Schedule 16, Part 2, paragraphs 80 and 81 and Schedule 23; S.I. 2001/1090,  regulation 1, 9, Schedule 5 paragraph 12; S.I. 2011/1716 article 4.

(b)      2007 c.29.

COSTS MANAGEMENT ORDERS INCLUDING THE NEW CPR

Costs Management Orders will apply to all multi-track cases commenced on or after 1 April 2013 in the County Court, Chancery Division and Queen’s Bench Division, except the Admiralty and Commercial Courts, unless the proceedings are the subject of fixed costs or scale costs or the court orders otherwise, and to any other proceedings where the court so orders (CPR3.12(1)).

All references to CPR are to the CPR as amended by The Civil Procedure (Amendment) Rules 2013.

CPR3 is to be divided in to sections, the first containing current rules on case management (CPR3.1 to 3.11) the second containing new rules on costs management (CPR3.12 to 3.18) and the third containing rules on costs capping (CPR3.19 to 3.21).

This is achieved by Rule 5(a) to (c) and (h) of The Civil Procedure (Amendment) Rules 2013.

I set out at the end of this piece the new CPR3.12 to 3.18 dealing with Costs Management.

The proposed scheme, which has been piloted successfully, is based on Lord Justice Jackson’s proposals, which themselves were based on the recommendations in the Woolf Report, a fact recognized by Lord Justice Jackson who said “The present project is essentially a matter of building upon Lord Woolf’s work and proposing reforms where, (after ten years’ experience) these appear to be appropriate.

Mrs Justice Gloster, speaking at the Bar Conference 2012, said that the scheme may lead to “ill-informed” decisions on costs and that judges must be realistic about legal fees and what it costs to bring a case and that there was a tendency for judges who had made a good living as barristers to become “kind of mean” when it comes to the assessment of costs.

Mrs Justice Gloster also said that she had “won the battle” to ensure that the Commercial Court was exempt from costs management.

Many of the rest of us feel that the Commercial Court is where costs management is most necessary; it is that court more than any other which brings the legal system in to disrepute as far as ridiculously high levels of costs are concerned.

Where no Costs Management Order has been made, whether that be a fast-track matter or in the Commercial Court, an amended version of CPR 6.5(a) states that where the costs claimed are more than 20% over budget, the court may limit the costs to “such sum as is reasonable for the paying party to pay in light of that reliance, notwithstanding that such sum is less than…………the costs reasonably and proportionately incurred”.

CPR3.12(2) states that the “purpose of costs management is that the court should manage both the steps to be taken and the costs to be incurred by the parties to any proceedings so as to further the overriding objective”.

Under the pilot scheme solicitors are expected to liaise monthly to check that their respective budgets are not being exceeded (paragraph 5.5).

Unless the court orders otherwise, all parties except litigants in person must file and exchange costs budgets in precedent H – see here. Each party must do so by the date specified in the Allocation Questionnaire, to be known as the Directions Questionnaire in future or, if no such date is specified, seven days before the first case management conference (CPR3.13).

Unless the court orders otherwise, any party which fails to file a budget despite being required to do so will be treated as having filed a budget comprising only the applicable court fees.  So – no budget – no fees. (CPR3.14).

The court may at any time make a Costs Management Order to control the parties’ budgets in respect of recoverable costs.  The order will record the extent to which the budgets are agreed, and, where not agreed, record the court’s approval after making appropriate revisions.  It will be kept under review throughout the case. (CPR3.16(1)).

Any hearing which is convened solely for the purpose of costs management, for example, to approve a revised budget, is referred to as a costs management conference (CPR3.16(1).

Where practicable, costs management conferences should be conducted by telephone or in writing. (CPR3.16(2)).

The presumption is in favour of the court making an order, but even where this does not happen the court, in making any case management decision, will have regard to any available budgets of the parties and will take in to account the costs involved in each procedural step. (CPR3.17).

In any case where a costs management order has been made, when assessing costs on the standard basis, the court will

(a)    have regard to the receiving party’s last approved or agreed budget for each phase of the proceedings; and

(b)   not depart from such approved or agreed budget unless satisfied that there is a good reason to do so. (CPR3.18).

By Rule 22(14) The Civil Procedure (Amendment) Rules 2013, dealing with transitional provisions, any proceedings in the Mercantile Courts and the Construction Courts commenced before 1 April 2013 that are within the scope of the Costs Management in Mercantile Courts and Construction Courts Pilot Scheme provided for by Practice Direction 51G supporting CPR51 will proceed and be completed in accordance with that scheme.

Form H is an Excel Spreadsheet nine pages long and Lord Justice Jackson estimates that it will take two hours to complete. However if the estimated costs do not exceed £25,000.00 then only the first page needs completing and the matter will then be dealt with by way of provisional assessment at the end of the case. In all other cases the parties are required to break down the costs in each of the following stages of litigation:

             • pre-action costs;

             • issue of proceedings and pleadings;

             • Case Management Conference;

             • disclosure;

             • witness statements;

             • experts’ reports;

             • pre-trial review;

            • trial preparation;

             • trial;

             • settlement discussions; and

             • a provision for contingencies.

The short-form budget for claims of £25,000 or less dovetailed with the proposals for provisional assessment of all bills of £25,000 or less.  Unexpectedly the provisional assessment limit has now been raised to £75,000, that is all bills of £75,000 or less submitted on or after 1 April 2013 will be subject to paper only assessment in the first instance.  It remains to be seen whether the short-form budget limit will also be raised from £25,000 to £75,000.

The recoverable costs for preparing the budget are likely to be the higher of £1,000 or 1% of the approved budget and for dealing with all budgetary matters through the life of the case, but not assessment, 2% of the approved budget.

The estimate must deal with both costs and disbursements, both incurred and anticipated. As well as considering whether the amount of time spent by lawyers is necessary the courts are expected to subject to specific scrutiny the need for experts and their fees and the volume of documents.  Professor Dominic Regan advises:

“If you are looking to involve expensive experts you ought to consider seeking tenders. Let them pitch for and give quotations.”

In Smales v Lea and Others, the Court of Appeal again drew attention to CPR 52 Practice Direction emphasising the need to include only those documents specifically required with all extraneous material to be excluded. The Court of Appeal said that in future it would consider imposing sanctions on solicitors who failed to exclude irrelevant documents. Very few documents now need to be supplied on provisional assessment, just the bill, points of dispute, replies, costs orders and fee notes.

The judge will consider the budgets and may make a Cost Management Order approving the budget, or a revised version of it. If it turns out to be no longer accurate the parties must produce a revised budget showing the departures from budget and the reasons for such departures.

Detailed assessment still occurs at the end of such a case provided that the bill for assessment exceeds £75,000. If it does not exceed that sum, then it will be subject to paper assessment in the first instance. The Costs Management Order cannot approve costs incurred up to that point, but can make comments on them. In regard to costs incurred in accordance with an approval budget the court, on detailed assessment, will not depart from the budgeted figure unless for good reason.

In the pilot such orders have been made in most cases. The pilot was introduced by Practice Direction 51G and applied in the Mercantile and Technology and Construction Courts. In Birmingham Mercantile Court a typical Costs Management hearing has lasted 45 minutes.

The Costs Management Order will be based on the party’s budget, but the court can make appropriate revisions at the Case Management Conference and as the case progresses.

It appeared to be becoming clear that the courts intended to take a very hard line in relation to Costs Management Orders, with the first decision being given by the Senior Costs Judge Peter Hurst in

                Henry v News Group International Ltd [2012] EWHC 90218

This was a defamation action and as such was caught by an early budgeting pilot scheme applying only to defamation cases issued in the Royal Courts of Justice or Manchester District Registry on or after 1 October 2009. Here the Claimant submitted a bill which was 18 times higher than budgeted for in relation to witness statements and eight times higher for disclosure. Overall, the extra costs were nearly £300,000.

The Senior Courts Costs Office “reluctantly” held that there was “no good reason to depart” from the court approved budget where the claimant’s costs had exceeded that budget, even though the court recognized that the claimant could probably “make out a very good case on detailed assessment for the costs being claimed”. It found that the claimant had “largely ignored” the mandatory provisions of the Defamation Costs Management Scheme set out in CPR PD 51D, although recognizing that the issue was important and needed a definitive and binding decision, the SCCO indicated that it would be prepared to grant permission to appeal under CPR 52.3(6)(b).

Professor Dominic Regan, commenting on the decision, said

“What, one might ask, is the point of imposing a budget only to ignore it? The lesson is blindingly clear. If the approved budget, for whatever reason, seems to be no longer accurate then get back to court and seek approval for revised figures.”

Speaking at the LexisNexis Costs and Litigation Forum on 31 October 2012 SCCO Master Haworth said

“I can’t imagine that the Court of Appeal is going to row back from Costs Management and Costs budgeting.”

However that is exactly what they have done, unanimously allowing the appeal and remitting the matter to the SCCO.

In Henry v News Group Newspapers Ltd [2013] EWCA Civ 19

the Court of Appeal found that that was good reason to depart from the budget, which is precisely the same test in the new CPR3.18(b) inserted by The Civil Procedure (Amendment) Rules 2013.

In relation to the future, the Court of Appeal had this to say in two paragraphs which they headed “The future”:

“ 27.       The practice direction with which this appeal is concerned applies only to proceedings for defamation. It was the first pilot scheme introduced by the Civil Procedure Rule Committee (“the Rule Committee”) and was intended both to control the costs of defamation proceedings and to provide experience of how costs management would work in practice. A similar costs management pilot scheme which reflected developments in the understanding of how costs management could most usefully be applied was subsequently introduced in the Mercantile Courts and the Technology and Construction Courts (see Practice Direction 51G).

28.       In the light of the experience gained from those pilots the Rule Committee decided to adopt Sir Rupert Jackson’s recommendation that the management of costs by the court should in future form an integral part of the ordinary procedure governing claims allocated to the multi-track. Those rules, which will become effective from 1^st April 2013, differ in some important respects from the practice direction with which this appeal is concerned. In particular, they impose greater responsibility on the court for the management of the costs of proceedings and greater responsibility on the parties for keeping budgets under review as the proceedings progress. Read as a whole they lay greater emphasis on the importance of the approved or agreed budget as providing a prima facie limit on the amount of recoverable costs. In those circumstances, although the court will still have the power to depart from the approved or agreed budget if it is satisfied that there is good reason to do so, and may for that purpose take into consideration all the circumstances of the case, I should expect it to place particular emphasis on the function of the budget as imposing a limit on recoverable costs. The primary function of the budget is to ensure that the costs incurred are not only reasonable but proportionate to what is at stake in the proceedings. If, as is the intention of the rule, budgets are approved by the court and revised at regular intervals, the receiving party is unlikely to persuade the court that costs incurred in excess of the budget are reasonable and proportionate to what is at stake.”

Nevertheless it remains a fact that the Court of Appeal allowed the claimant to proceed with the full costs claim in the absence of any revised budget being submitted to the court and in the absence of any notification to the other side’s solicitors of the amount of costs being incurred.

The judge at first instance said (paragraph 67):

“……the fact is that the budget has been exceeded by a very significant amount, and there has been no attempt by the Claimant to pass this information on.  The fact that both sides exceeded their budgets does not assist the Claimant.  The Defendant kept the Claimant informed, but the Claimant gave no indication to the Defendant”.

In paragraph 28 of the Court of Appeal decision dealing with the future the court made it clear that under the post-1April 2013 regime the court will still have the power to depart from the approved or agreed budget if it is satisfied that there is good reason to do so, precisely the finding here.

It is clear that faced with these facts under the new regime the Court of Appeal would have made the same decision.

However in another very recent case –

Ryder Plc v Dominic James Beever [2012] EWCA Civ 1737

the Court of Appeal upheld a Circuit Judge’s overturning of a Deputy District Judge’s Order striking out the claimant’s claim for failing to comply with an unless order in relation to a costs estimate.

At paragraph 53 of that Judgment the Court of Appeal said that here…….

“the delay in providing the costs schedule had not caused any real prejudice of which the defendant complained.  Nor had it delayed the progress of the action.  That is not to say that a costs schedule is not important.  It has two main purposes.  One is to enable the parties to make fully-informed decisions on Part 36 offers.  However, the powers of the court on making a costs order are wide and allowance can be made at that stage for any prejudice that a party has suffered as the result of the delayed service of a costs schedule.  The costs schedule also enables a defendant’s insurer to estimate an appropriate reserve and thereby manage its financial affairs.  However, I do not think that, in the absence of evidence, it should be assumed that the delay in service of a costs schedule could have a seriously prejudicial effect on a defendant”.

In personal injury cases – and Ryder was such a case – this will always be a one-way argument in the sense that Qualified One Way Costs Shifting means that unless and until a Defendant’s Part 36 Offer is not beaten a Claimant will never have to pay costs, and presumably a Defendant will not have to provide a costs budget at a Costs Management Conference.

Consequently insurance companies, not always the most punctual of people in relation to court timetables, will mercilessly attack claimants’ costs budgets and any failure to supply them on time. They will have nothing to lose.

The Court of Appeal, in the two decisions, and in many ways Ryder is more significant that Henry, are making it clear that there will be no gauleiter approach by Judges to the Jackson Reforms.

Henry has been seen as a blow to the Jackson Reforms, and in some sense it is, but it is also a brave and heartwarming decision; courts are there to do justice, not to obey Government diktats.

The other side of that coin is shown in the decision of HH Judge Simon Brown in

                Safetynet Security Ltd v Coppage [2012] EWHC B11 (Mercantile)

After giving judgment for the claimant the Judge decided that as the spend was within the court-approved budget a detailed assessment would be an expensive and futile exercise.

Consequently a final costs order was made within minutes of the substantive judgment being delivered.

Below is the text of the new CPR3.12 to 3.18 in force from 1 April 2013 in relation to proceedings commenced on or after that date.  These are completely new provisions and not just a re-numbering of existing Rules.

 

SECTION II

Costs Management

Application of this Section and the purpose of costs management

3.12.—(1) This Section and Practice Direction 3E apply to all multi-track cases commenced on or after 1^st April 2013 in—

(a)   a county court; or

(b)   the Chancery Division or Queen’s Bench Division of the High Court (except the Admiralty and Commercial Courts),

unless the proceedings are the subject of fixed costs or scale costs or the court otherwise orders. This Section and Practice Direction 3E shall apply to any other proceedings (including applications) where the court so orders.

(2) The purpose of costs management is that the court should manage both the steps to be taken and the costs to be incurred by the parties to any proceedings so as to further the overriding objective.

Filing and exchanging budgets

3.13. Unless the court otherwise orders, all parties except litigants in person must file and exchange budgets as required by the rules or as the court otherwise directs. Each party must do so by the date specified in the notice served under rule 26.3(1) or, if no such date is specified, seven days before the first case management conference.

Failure to file a budget

3.14. Unless the court otherwise orders, any party which fails to file a budget despite being required to do so will be treated as having filed a budget comprising only the applicable court fees.

Costs management orders

3.15.—(1) In addition to exercising its other powers, the court may manage the costs to be incurred by any party in any proceedings.

(2) The court may at any time make a “costs management order”. By such order the court will—

(a)   record the extent to which the budgets are agreed between the parties;

(b)   in respect of budgets or parts of budgets which are not agreed, record the court’s approval after making appropriate revisions.

(3) If a costs management order has been made, the court will thereafter control the parties’ budgets in respect of recoverable costs.

Costs management conferences

3.16.—(1) Any hearing which is convened solely for the purpose of costs management (for example, to approve a revised budget) is referred to as a “costs management conference”.

(2) Where practicable, costs management conferences should be conducted by telephone or in writing.

Court to have regard to budgets and to take account of costs

3.17.—(1) When making any case management decision, the court will have regard to any available budgets of the parties and will take into account the costs involved in each procedural step.

(2) Paragraph (1) applies whether or not the court has made a costs management order.

Assessing costs on the standard basis where a costs management order has been made

3.18. In any case where a costs management order has been made, when assessing costs on the standard basis, the court will—

(a)   have regard to the receiving party’s last approved or agreed budget for each phase of the proceedings; and

(b)   not depart from such approved or agreed budget unless satisfied that there is good reason to do so.

(Attention is drawn to rule 44.3(2)(a) and rule 44.3(5), which concern proportionality of costs.)

 

 

 

PI SMALL CLAIMS LIMIT MAY RISE TO £15K SAYS DAILY TELEGRAPH

The following appears at page 6 of today’s Daily Telegraph under the heading “SMALL CLAIMS COURT LIMITS MAY BE LIFTED”

Personal injury victims could be able to claim up to £15,000 without hiring lawyers under revised plans being considered by ministers to cut down on legal fees.

Ministers were intending to reduce lawyers’ fees from £1,200 to between £500 and £800 for motorists’ personal injury claims of up to £25,000 from April.  But after lawyers brought a judicial review over the plans this week, Chris Grayling, the Justice Secretary, is understood to be reassessing whether more drastic changes should be brought in.

The revised plans could see the limit on cases being made in the small claims court, where claimants typically represent themselves, increasing from £1,000 for personal injuries and £5,000 for other cases to £15,000 for all claims.

The move could cut insurers’ costs with the savings passed on to motorists, sources said.  The judicial review, brought by the Association of Personal Injury Lawyers and the Motor Accident Solicitors, appears likely to delay the Government’s plans to reduce lawyers’ fees, particularly in whiplash claims.

The increase in the number of people claiming for injuries sustained in the most minor of motoring accidents has seen the average cost of premiums increase by about £90, the Association of British Insurers has claimed.

CLINICAL NEGLIGENCE AND ATE RECOVERABILITY

On 24 January 2013 the Recoverability of Costs Insurance Premiums in Clinical Negligence Proceedings Regulations 2013 were laid before Parliament and come into force on 1 April 2013 – click here.

By Paragraph 2 it provides that a court may make a costs order in relation to an ATE premium, or indeed a BTE premium, incurred in relation to experts’ reports, but Paragraph 2(2) provides that such a costs order may not require payment if

(a)           the report was not in the event obtained;

(b)          the report did not relate to liability or causation; or

(c)           the cost of the report is not allowed under the costs order.

There is no limit to the number of reports, but if the court has not ordered the defendant to pay the cost of the report, then the insurance premium in relation to that report is not recoverable, so, for example, you cannot recover the premium in relation to a report that you choose not to use.

The report must relate to liability or causation, but can cover other matters, typically quantum, as well.

Only that part of the premium dealing with reports, not giving evidence, answering questions, experts’ meetings etc, is covered.

All of this is a huge improvement on the issues raised in the consultation paper.  In particular out go:

-               any limit on the number of reports;

-               any limit on the costs of those reports;

-               any limit on the ATE premium;

-               any requirement to give notice to the defendant;

-               any restriction on a liability/causation report also dealing with quantum.

A full analysis of all aspects of the abolition of recoverability, including in relation to clinical negligence, appears in my blog AFTER-THE-EVENT INSURANCE – ABOLITION OF RECOVERY – click here.

GUIDELINE HOURLY RATES: THEIR USE AND MISUSE

There is more misunderstanding about Guideline Hourly Rates than any other aspect of costs. Quite simply they have no application at all in relation to anything other than summary assessment, and even in summary assessments they are guidelines and not tramlines, and are not supposed to replace the experience and knowledge of those familiar with the local area and field and the field of law generally (see (1) KMT, (2) Kay, (3) Mey, (4) MJY (Children proceedings by their Litigation Friend the Official Solicitor) v Kent County Council [2010] EWHC 2088 QB.

Here I am not setting out the rates, but rather when they should be used, and more particularly when they should not be used.

I am grateful to Judge Michael Cook for much of the following, which appears in Butterworths Personal Injury Litigation Service.

The Senior Courts Cost Office (SCCO) “Guide to the Summary Assessment of Costs” contains guideline hourly rates for different levels of fee earner in different parts of the country. It is not the fault of the guide that the profession and the judiciary ignore its title and most of its content, and focus entirely on the tables of hourly rates. As the title and the content state, the guide is specifically limited to summary assessments of costs, and is intended to provide a simple collation of hourly rates applicable for routine costs to be assessed summarily at the end of a hearing which has lasted no more than a day. It has nothing to do with detailed assessments.

Increasingly the guide is treated as if it prescribes hourly rates: it does not, it merely collates them. To regard these rates as a substitute for solicitors calculating their own rates is to put the cart before the horse – the figures in the guide are no more than a simple collation of figures that individual firms of solicitors have calculated. The original figures for each locality were arrived at through a framework of local co-ordinators based on civil trial centres set up by the Law Society to assist in the agreement of local rates. The co-ordinators were responsible for liaising with local law societies and district judges, and afterwards with the designated civil judge for each trial centre to ensure consistency across the group. The figures were then communicated to the SCCO for publication on its website and in the guide.

In 2005 the guide ceased to give hourly rates approved for each court. It massaged the rates into three groups for the entire country plus London. As a result the rates are no longer approved by any member of the judiciary, do not refer to any particular court and to that extent have become a bureaucratic and not a judicial exercise.

Advisory Committee on Civil Costs

In 2008, the Ministry of Justice transferred the task of collating hourly rates to an Advisory Committee on Civil Costs under the chairmanship of Professor Stephen Nickell, who wrote to the Master of the Rolls on 9 December 2008 as follows:

‘The Advisory Committee on Civil Costs recommends the attached Table of Guideline Hourly Rates to apply from 1st January, 2009. As you know these guideline rates are broad approximations to be used only as a starting point for judges carrying out summary assessment. These rates are interim in nature in the sense that there remain some unresolved issues which are made clear in the enclosed document entitled “The Derivation of New Guideline Hourly Rates”, from which you will understand that at least one member was pressing for an immediate reduction in rates. The unresolved issues include the extent of work done by solicitors outside the region in which they are located and the extent to which referral fees can account for the gap between the hourly rates charged by claimants’, as opposed to defendants’, solicitors. We hope to have looked at these specific issues by 2010.

Our new interim Guideline Hourly Rates are based on data collected in a survey of solicitors and other interested parties as well as both written and oral evidence provided by representatives of the main interest groups and others. The information collected refers to the calendar year 2007 and, as last year, we have used the rise in the Office of National Statistics Average Earnings Index (AEI) for Private Sector Service industries, excluding bonuses, seasonally adjusted, from 2006 Q3 to 2008 Q3 to uprate the 2007 numbers.

I should emphasise that the Committee sees this as unfinished business and that when the outstanding issues have been resolved, we shall revisit the question.’

The committee was concerned that the figures were skewed because an increasing number of firms have offices both in London and the provinces and by the payment of referral fees.

The Master of the Rolls accepted the recommendation of the Advisory Committee that the guideline hourly rates for Summary Assessment should be increased in line with inflation by 1.7% with effect from 1 April 2010. The rates for London 3, Bands A and B are presented as ranges which are said to go some way towards reflecting the wide range of work types transacted in these areas.

Using the guide

The following extracts from the SCCO Guide to the Summary Assessment of Costs are important to its application:

• The guide is specifically limited to summary assessments of costs and is intended to provide a simple collation of hourly rates incorporating a 50% profit mark-up appropriate for routine costs to be assessed summarily at the end of a hearing which has lasted no more than a day. It has nothing to do with detailed assessments.

• The rates, in the words of the guide, ‘are broad approximations only’. They are not prescribed by the SCCO. They are not a scale. They may be amended locally at any time by the Designated Civil Judge. They are not carved in stone.

•  The guideline figures have been grouped according to locality by way of general guidance only. Although many firms may be comparable with others in the same locality, some of them will not be. For example, a firm located in the City of London which specialises in fast track personal injury claims may not be comparable with other firms in that locality and vice versa.

• In any particular case the hourly rate it is reasonable to allow should be determined by reference to the rates charged by comparable firms. For this purpose the costs estimate supplied by the paying party may be of assistance. The rate to allow should not be determined by reference to locality or postcode alone.

• An hourly rate in excess of the guideline figures may be appropriate for Band A fee earners in substantial and complex litigation where other factors, including the value of the litigation, the level of complexity, the urgency or importance of the matter as well as any international element, would justify a significantly higher rate to reflect higher average costs.

• The guideline rates for solicitors provided here are broad approximations only. In any particular area the Designated Civil Judge may supply more exact guidelines for rates in that area. Also, the costs estimate provided by the paying party may give further guidance if the solicitors for both parties are based in the same locality.

In (1) Brown-Quinn (2) Webster Dixon LLP and Others v (1) Equity Syndicate Management Ltd (2) Motorplus Ltd [2012] EWCA Civ 1633 the Court of Appeal said that the Guideline Rates for Summary Assessment were of no use or relevance in relation to the hourly rates to be paid by before-the event insurers to non-panel solicitors.

 

PORTALS: NEW YEAR NEWS!

With just 83 days until Jackson Day no-one has a clue what will happen to the portals, least of all, I suspect, the Ministry of Justice.

Here I do my best to navigate the maze.

On 19 November 2012 the Ministry of Justice published details of its proposals for portal costs from April 2013. Consultation ended on 4 January 2013.

Late on Friday 21 December 2012, when most organizations had closed for Christmas, the Lord Chancellor, in what Neil Rose of @litfutures described as a dramatic climbdown, announced that the extension of the Road Traffic Accident portal from £10,000 to £25,000 would be delayed beyond the proposed April 2013 introduction.

This followed Judicial Review proceedings, brought by the Association of Personal Injury Lawyers (APIL) and Motor Accident Solicitor Society (MASS), on the ground that the full evaluation of the existing portal that was promised when this proposed change was announced has not been carried out.

A Ministry of Justice spokesman said:

“Earlier this year the government announced proposals to extend the road traffic accident scheme for personal injury claims to £25,000.”

“Following a legal challenge the Justice Secretary is now considering afresh the timing for implementation of the extended scheme. Further details will be announced in the New Year.”

To date, 7 January 2013, no such announcement has been made.

The government made it clear that the 58% cut in recoverable fees in the existing road traffic accident portal involving claims up to £10,000 is unaffected and will be implemented in April 2013.

This climbdown, forced by Judicial Review proceedings, came just eight days after publication of the consultation on the Ministry’s sinister proposal to curtail heavily the right to bring Judicial Review proceedings, which I will deal with elsewhere.

I set out below the proposed fees, but as yet less than three months before Jackson Day, they remain just that a proposal.

It is not clear whether the introduction of the Employers’ Liability and Public Liability portal will take place in April 2013 or be delayed, although it does appear that figures are fixed, subject to the consultation which ended on 4 January 2013.

On the face of it the proposed implementation of the Employer’s Liability and Public Liability portal is unaffected, but Neil Rose of @litfutures has been told orally by the Ministry of Justice that the introduction of this portal is to be delayed beyond April 2013 as well.

The new Fixed Recoverable Costs Scheme, for all RTA, Employers’ and Public Liability Claims up to £25,000 is unaffected by any portal delay. See here.

Thus New Employers’ Liability and Public Liability portals to £25,000.00 will be introduced with the Road Traffic Portal being extended to £25,000.00, but now we do not know when, and the proposed 58% cut in fees in the existing road traffic accident portal involving claims up to £10,000 will go ahead in April 2013 as planned.

Fees for Employers Liability and Public Liability are the same and are higher than for Road Traffic, and in all three portals fees rise if the claim is over £10,000.00.

Proposed Fees

Road Traffic

From £1,000.00 to £10,000.00                                                      £

Stage 1 -                                                                                        £200.00

Stage 2 -                                                                                        £300.00

Total                                                                                              £500.00 (down from £1,200.00)

Implementation: April 2013

From £10,000.00 to £25,000.00 (new)                                        £

Stage 1 -                                                                                      £200.00

Stage 2 -                                                                                      £600.00

Total                                                                                             £800.00

Implementation: Unknown

Employers’ Liability and Public Liability (new)

From £1,000.00 to £10,000.00                                                   £

Stage 1 -                                                                                     £300.00

Stage 2 -                                                                                     £600.00

Total                                                                                            £900.00

From £10,000.00 to £25,000.00                                                  £

Stage 1 -                                                                                      £300.00

Stage 2 -                                                                                      £1,300.00

Total                                                                                            £1,600.00

Implementation: Unknown

 Stage 3 Hearings

In all cases in all portals, whatever the value of the claim, the Stage 3 fee is £250.00 for a paper hearing and £500.00 for an oral hearing.

 VAT and Disbursements

All fees above are exclusive of VAT and recoverable disbursements.

Success Fees

It is presumed that the existing fixed success fees, currently recoverable from the other side, will remain in place post 1 April 2013 when in relation to any conditional fee agreement signed on or after that date, any success fee is payable by one’s own client.

Solicitor and own client costs

Note that these are fixed RECOVERABLE costs. Solicitors are entitled to charge the client costs over and above these rates. Whether the market will bear that is another matter.

DAILY TELEGRAPH SAVAGES MOTOR INSURERS

The front page of “Your Money” in the Daily Telegraph @telegraph of Saturday 5th January 2013 is an article by @hwallop:

“Insurers cash in on your cash”

setting out some of the grubby little tricks that motor insurers get up to.

Click here for the link to the Daily Telegraph article.

Watch Channel 4 @Channel4, tonight at 8pm
Dispatches: Secrets of Your Car Insurance

PERSONAL INJURY SMALL CLAIMS LIMIT AND THE MINISTRY OF TRUTH

Less than three months to Jackson Day and the Ministry of Justice is disintegrating.

On 11 December 2012 it published a consultation paper , with consultation ending on 8 March 2013, entitled

“Reducing the number and costs of whiplash claims”

The Foreword is Orwellian. Witness this paragraph:

“With every fraudulent and every exaggerated insurance claim that goes unchallenged the premium of each motorist increases. Insurers estimate that the cost of whiplash claims from road traffic accidents, which comprise 90% of relevant personal injury claims, to the average policy-holder is £90 per year. This is not a victimless problem.”

Note the non-sequitur, that is the mention of fraud followed by the saving if ALL claims, including the overwhelming majority which are genuine, are barred.

The consultation is predicated upon three obviously false assumptions
(1) Insurers cannot afford to defend fraudulent claims (Paragraphs 8, 10, 24, 26, 29, 58, 59, 63)
(2) Doctors are liars or at best incompetent (runs right through the report – Foreword, Paragraphs 3, 6,
19, 21, 24, 25, 31-45)
(3) Judges are incapable of trying cases and deciding against fraudulent parties (Foreword, Paragraph 24)

The Government presents two options for change:
1. Raising the small claims limit to £5,000 for just those road traffic accident involving whiplash
injuries;
2. Raising the small claims track limit to £5,000 for all road traffic accidents.

No-one should respond to this consultation; that merely validates the Ministry of Truth and will make no difference anyway.

The Government recognizes that Option 1 would add further complexity by creating early arguments over the classification of the injury.

Thus the most likely outcome is an increase in the small claims track limit to £5,000 for all road traffic accident claims.

The Government, bizarrely, believes that the small claims track procedure is more suitable for dealing with claims involving alleged fraud.

Paragraph 60 “Consequently the Government in consulting on options that would bring more PI or whiplash claims arising from RTAs into the small claims track, thereby providing a better framework for the challenging of fraudulent or exaggerated claims.”

See also Paragraph 63: “The intended result of an increase to the limit would be to allow more relatively straightforward cases to be heard in the Small Claims court with the additional benefit of making it more economic for insurers to challenge fraudulent and exaggerated claims. The Small Claims track is a less costly regime in which to bring a case, and therefore a less costly one in which to challenge questionable whiplash injuries.”

The Government recognizes that without costs recovery claimants are more likely to represent themselves in the small claims track. (Paragraph 66, 68).

So there we have it. It is the stated policy of the Ministry of Justice to have, in the small claims court, self-represented claimants dealing with allegations against them of fraud made by insurance companies who will no doubt be represented by lawyers, something fully recognised by the Ministry (Paragraph 66).

Am I alone in thinking that every Judge in every court in the land will allocate such a case to the fast-track, or even the multi-track?

The consultation comes just 22 days after the separate consultation on new Fixed Recoverable Costs, published on 19 November 2012, including new figures for road traffic accidents up to £5,000.

At paragraph 79 of the current document the Ministry states:

“…the Government has announced the intention to extend the RTA Protocol (sic) by April 2013 to include claims up to £25,000, and to incorporate employers’ and public liability accident claims.

(The Minister means the Portal, not the Protocol. Protocols for all personal injury matters have been in for years).

On 21 December 2012, that is just 10 days after this paper was published the Government announced a delay in the portal changes, presumably because of the Judicial Review proceedings. Note that the Government is proposing to make such Judicial Review proceedings very much harder to bring.

So the timeline is:

19 November 2012 – Proposal for new Fixed Recoverable Costs including £1,000 – £5,000 band for road traffic accidents, for all matters not in the new portals.

11 December 2012 - Consultation on raising small claims limit, taking into account portal extension from April 2013, which would render pointless the above band proposed just 22 days earlier.

21 December 2012 - Portal extension delayed

That is three changes of policy in 32 days.

This is not a victimless solution. All of those genuine victims of road traffic accidents risk losing out. I have suffered whiplash; it hurts and it restricts normal social and sporting activity and it is long-lasting.

I am as against fraud as anyone and support lengthy prison sentences for those found guilty, but to restrict access to courts to all innocent people is absurd and wrong.

Getting rid of the, say, 10% of fraudulent claims may save £9 a year on a typical insurance premium. Insurers have not spent millions on contributions to the Conservative Party to achieve that. How strange that Her Majesty’s Government believes that insurance companies, with the most vested interest of all, are better able to judge fraud than Her Majesty’s Judges.

Why not get the Norwich Union to run the Old Bailey?

It follows as night follows day that the cost to insurance companies of successfully defending a claim in a costs-bearing track is less than in the small claims track as the insurance company recovers most of their costs from the claimant.

If the problem is claimants standing to win and recover costs, with the poor old multi-national insurance company unable to afford to defend the claim, where does Qualified One Way Costs Shifting fit in?

This is about slashing genuine claims so as to make more profits for insurance companies.

The irony is that it will almost certainly have the opposite effect.

Freed from depending on legal fees payable by defendants’ insurance companies, solicitors will switch to contingency fees and be far better remunerated, so firms like mine who have abandoned such work will return to the fray, so expect an increase, not reduction, in claims.

Also the political pressure on an incoming Labour Government to create a state insurance company is growing and will continue to grow.

Even if I am wrong about all of that, what is the point of insurance companies who do not insure anything? These lovers of the free market conveniently forget to mention that their role is wholly dependent upon the fact that motor insurance is compulsory, a gross interference with the free market.

Some clear, logical, coherent, consistent thought from the Ministry of Justice would be most welcome. Prentice, Djanogly and now Grant. What have we done to deserve this?

I too survey that endless line
of men whose thoughts are not as mine
A. E. Housman – A Shropshire Lad

MY DAD

MY DAD

My Dad died a year ago today, Christmas Eve 2011.

He was 96 and died in his sleep and had been in good physical health and perfect mental health until a week earlier.

Dad fought in the Second World War, landing on D-Day, and was decorated before being shot and seriously wounded during the Allied advance through Holland. He was not expected to survive but in fact lived for another 67 years and virtually never had a day off work.

Dad was a lifelong socialist and Queens Park Rangers supporter and was born in Shepherd’s Bush and saw his first match at Loftus Road in the 1920′s and continued to go to QPR matches until he was in his 90′s. We had a 90th birthday party for him in a box at Loftus Road. I was taken to my first QPR game at White City, when aged 6.

A polite and mild-mannered man, Dad was unwaveringly honest and principled,refusing private medical treatment and refusing to have Sky – or anything Murdoch related – in the house.

He and Mum, who died on New Year’s Day two years earlier, were married for 69 years.

People sometimes refer to a parent as being a moral compass. It was only when Dad died that I realized the full meaning and truth of that.

So Christmas and New Year are inevitably tinged with sadness at present, but also with gratitude for the lives lived.

I miss Dad every day.

FIXED RECOVERABLE COSTS

On 19 November 2012 the Ministry of Justice announced its proposals to introduce fixed recoverable costs in relation to all aspects of all fast-track claims involving Road Traffic Accident, Employers’ Liability matters and Public Liability matters.

These will be introduced at the same time as the Road Traffic Accident portal is extended upwards to £25,000.00 and at the same time as the introduction of portals in relation to Employers’ Liability matters and Public Liability matters.

The Ministry of Justice has set out the figures, although at present all matters are technically part of a consultation ending on 4 January 2013.

The Ministry of Justice states specifically that the proposed fees have been reduced as compared with those in Table B of the Jackson Report “to reflect the forthcoming ban on referral fees.”

Lord Justice Jackson himself proposed banning referral fees and everyone had assumed that his Table B reflected this; that is that he was proposing fixed costs for a post referral-fee world.

The matrix is below. It will apply to all matters exiting the portals, as well as those which never entered the portals to start with.

To give a flavour of the costs I set out the fixed recoverable costs in damages claims for £5,000.00.

	RTA	EL	PL
Pre   issue	£1,100	£1,825	£1,825
Issued,   pre allocation	£2,160	£3,630	£3,325
Post   allocation, pre listing	£2,880	£4,600	£4,190
Post   listing, pre trial	£3,665	£5,780	£5,165
Trial   (including solicitor costs + advocacy fee)	£4,355	£6,470	£5,855

To escape fixed costs it will be necessary to achieve 20% more on assessment – this is very rarely going to happen.

  ANNEX B

MOJ PROPOSED FIXED RECOVERABLE COSTS FOR RTA, EL AND PL CLAIMS OUTSIDE THE RTA AND EL/PL PROTOCOLS                                                                                    

	Pre issue£1,000-£5,000	Pre Issue   £5,001-£10,000	Pre Issue   £10,001-£25,000	Issued –Post issue   Pre Allocation	Issued –Post   allocation pre listing	Issued –Post   listing pre trial	Trial -Advocacy   Fee
	Case Settles   before Issue	Case   Settles before Issue	Case   Settles before Issue
Road   Traffic Accident
Fixed Costs	Greater of £550 or £100+ 20% of Damages	£1,100+15% of Damages over £5k	£1,930+ 10% of Damages over £10k	£1,160+ 20% of Damages	£1,880+ 20% of Damages	£2,655+ 20% of   Damages	£485 (to £3,000)£690 (£3-10,000)£1,035 (£10-15,000) £1,650 (£15,000+)
Escape	+ 20%	+ 20%	+ 20%	+ 20%	+ 20%	+ 20%	na
Employers   Liability
Fixed Costs	£950+ 17.5% of Damages	£1,855+12.5% of Damages over £5k	£2,500+ 10% of Damages over £10k	£2,630+ 20% of Damages	£3,350+ 25% of Damages	£4,280+ 30% of   Damages	£485 (to £3,000)£690 (£3-10,000)£1,035 (£10-15,000) £1,650 (£15,000+)
Escape	+ 20%	+ 20%	+ 20%	+ 20%	+ 20%	+ 20%	na
Public   Liability
Fixed Costs	£950+ 17.5% of Damages	£1,855+10% of Damages over £5k	£2.370+ 10% of Damages over £10k	£2,450+ 17.5% of Damages	£3,065+ 22.5% of Damages	£3,790+ 27.5% of Damages	£485 (to £3,000)£690 (£3-10,000)£1,035 (£10-15,000) £1,650 (£15,000+)
Escape	+ 20%	+ 20%	+ 20%	+ 20%	+ 20%	+ 20%	na

Notes:

Base fees – in all cases increased by 12.5% where London firm as per CPR 45

 

PORTALS: LATEST NEWS! (DECEMBER 2012)

On 19 November 2012 the Ministry of Justice gave details of its proposals for portal costs from 1 April 2013. Consultation ends on 4 January 2013.(For January 2013 update click here)

New Employers’ Liability and Public Liability portals to £25,000.00 will be introduced with the Road Traffic Portal being extended to £25,000.00.

Fees for Employers Liability and Public Liability are the same and are higher than for Road Traffic, and in all three portals fees rise if the claim is over £10,000.00.

Road Traffic

From £1,000.00 to £10,000.00                                 £

Stage 1 -                                                               £200.00

Stage 2 –                                                               £300.00

Total                                                                      £500.00 (down from £1,200.00)

From £10,000.00 to £25,000.00                               £

Stage 1 -                                                               £200.00

Stage 2 –                                                               £600.00

Total                                                                      £800.00

Employers’ Liability and Public Liability   

From £1,000.00 to £10,000.00                                 £

Stage 1 -                                                               £300.00

Stage 2 –                                                               £600.00

Total                                                                      £900.00

From £10,000.00 to £25,000.00                                £

Stage 1 -                                                               £300.00

Stage 2 –                                                               £1,300.00

Total                                                                      £1,600.00

Stage 3 Hearings

In all cases in all portals, whatever the value of the claim, the Stage 3 fee is £250.00 for a paper hearing and £500.00 for an oral hearing.

VAT and Disbursements

All fees above are exclusive of VAT and recoverable disbursements.

Success Fees

It is presumed that the existing fixed success fees, currently recoverable from the other side, will remain in place post 1 April 2013 when any success fee is payable by one’s own client.

Solicitor and own client costs

Note that these are fixed RECOVERABLE costs. Solicitors are entitled to charge the client costs over and above these rates. Whether the market will bear that is another matter.

AFTER-THE-EVENT INSURANCE – ABOLITION OF RECOVERY

At the end of this blog is the exact wording of Section 46 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO).The numbering will confuse you as much as it does me, but I cannot change the numbering of an Act of Parliament!

The abolition of recoverability of after-the-event insurance premiums comes in on 1 April 2013 and this is achieved by Article 3 (c) of The Legal Aid, Sentencing and Punishment of Offenders Act 2012 (Commencement No 5 and Saving Provision) Order 2013, Statutory Instrument 2013 No 77 – click here.

Article 2(1)(c) brought Section 46 of LASPO in to effect from 19 January 2013 in relation to the exercising of any power to make orders, regulations or rules of court.

Such orders etc are now awaited, but in relation to the limited clinical negligence exception, where a degree of recoverability remains, the Regulations – The Recovery of Costs Insurance Premiums in Clinical Negligence Proceedings Regulations 2013 – have been published and I deal with them below.

Section 46(3) provides that the abolition of recoverability does not apply in relation to a costs order made in favour of a party to proceedings who took out the policy before the commencement date, 1 April 2013. The courts have consistently upheld the rights of parties to enter in to retrospective agreements, including retrospective conditional fee agreements and after-the-event insurance policies, so in theory a policy made retrospective to before 1 April 2013, even though arranged after that date, would carry a recoverable premium.

The detail will be in the Regulations.  In any event it is unlikely that the court would exercise any discretion in favour of the receiving party; in other words a claimant is unlikely to be awarded the cost of the after-the-event insurance premium in a retrospective agreement, even if technically allowable.

Solicitors need to ensure that if after-the-event insurance is to be taken out it is taken out sooner rather than later.

The section refers to when the policy is taken out, not when the premium is paid.

Thus it is unclear what the position will be in relation to a policy taken out in March 2013 with a ceiling of, say, £50,000.00 which in May 2013 is increased on payment of a further premium.

Is only the pre-1^st April 2013 premium recoverable, or are both recoverable as the policy was taken out before the commencement date?

What about staged permia? Suppose a further tranche of the premium is payable on setting down.  It appears that the recoverability of that element, often of tens of thousands of pounds, will depend upon whether setting down takes place before 1 April 2013 or not.

What about a single premium, subsequently heavily discounted in the event of settlement? Will the courts view this as an unlawful attempt to recover an element of premium really incurred after 1 April 2013?

Thus a single premium of £50,000 is incurred, but will be discounted to £40,000 if settled before trial and to £30,000 if settled before setting down. The case is set down in May 2013 and settled shortly thereafter. Thus the premium is discounted to £40,000. Clearly the extra cost of the risk for the period between setting down and trial is £10,000 as reflected in the proposed discount from £40,000 to £30,000 if it does not reach that stage. Will the defendant be able to argue successfully that there is a separate risk incurred wholly after 1 April 2013, and thus not recoverable?

This is possible, but unlikely, as it would simply lead to after-the-event insurers not discounting at all in relation to premiums incurred before 1 April 2013.

All after-the-event insurance policies should be carefully checked now as a matter of urgency and re-negotiated with the after-the-event insurers if appropriate.

Once recoverability of after-the-event insurance premiums is abolished, parties and their advisers will not only have to consider whether or not to take out after-the-event insurance at all, but in the event that they do take out such insurance, they will need to decide whether to choose a staged premium policy or a single premium policy.

If a claimant believes that the claim will settle early he or she may favour a staged premium, in which case only the stage one premium will be lost from the damages, or indeed may choose not to insure at all.

A claimant who thinks that the case will fight might prefer a single premium as that is likely to be cheaper than a staged premium once a number of stages are reached.

Claimants’ solicitors should also consider agreeing with after-the-event insurers taking out an after-the-event policy prior to 1 April 2013, so as to secure recovery of the premium from a losing defendant, while making it a condition of the policy that proceedings will not be issued before 1 April 2013.  The reason for this is that the claim will then be within the Qualified One Way Costs Shifting System (QOCS) and thus the insurer will face no liability in the event of defeat and the insured risk will be the consequence of the claimant failing to beat the defendant’s Part 36 offer.

Consequently the insurance should be much easier to obtain as there is no liability risk whatsoever.

It must be noted that QOCS applies only to personal injury claims, including clinical negligence claims.

Maybe the Regulations will deal with this and other points.

Section 47 abolishes recoverability of notional insurance premia by membership organisations and contains similar provisions as section 46 in relation to liability incurred pre-commencement date. Section 47 appears at the end of this section.

Further pressure on the viability of the ATE market will result from the Government’s proposals to introduce qualified one-way costs shifting in all personal injury cases, including clinical negligence.

Clinical Negligence

It will be seen that by virtue of a new Section 58C(2) to (4) of the Courts and Legal Services Act 1990 the Lord Chancellor is empowered to make Regulations allowing recovery of just that element of an after-the-event insurance premium relating to the costs of a claimant’s own risk of having to pay for one or more expert’s reports.

The Recovery of Costs Insurance Premiums in Clinical Negligence Proceedings Regulations 2013, Statutory Instrument 2013 No 92, were laid before Parliament on 24 January 2013 and come in to force on 1 April 2013 – click here.

It is short and relatively sweet and appears at the end of this section.

By Paragraph 2 it provides that a court may make a costs order in relation to an ATE premium, or indeed a BTE premium, but Paragraph 2(2) provides that such a costs order may not require payment if

(a)          the report was not in the event obtained;

(b)          the report did not relate to liability or causation; or

(c)           the cost of the report is not allowed under the costs order.

There is no limit to the number of reports, but if the court has not ordered the defendant to pay the cost of the report, then the insurance premium in relation to that report is not recoverable, so, for example, you cannot recover the premium in relation to a report that you choose not to use.

The report must relate to liability or causation, but can cover other matters, typically quantum, as well.

Only that part of the premium dealing with reports, not giving evidence, answering questions, experts’ meetings etc, is covered.

All of this is a huge improvement on the issues raised in the consultation paper.  In particular out go:

-              any limit on the number of reports;

-              any limit on the costs of those reports;

-              any limit on the ATE premium;

-              any requirement to give notice to the defendant;

-              any restriction on a liability/causation report also dealing with quantum.

 Mesothelioma

Diffuse mesothelioma claims have been exempted from the ban on recoverability of success fees and after-the-event insurance premiums; in other words claimants will continue to recover success fees and insurance premiums even when the conditional fee agreement is entered in to after 1 April 2013 and the insurance is taken out after that date. In relation to the success fee this remains recoverable, and not subject to the 25% damages cap by virtue of Article 6(2)(a) of The Conditional Fee Agreements Order 2013.

In relation to ATE insurance the continuing recovery of the ATE premium from the losing party is achieved by Article 4 (a) of The Legal Aid, Sentencing and Punishment of Offenders Act 2012 (Commencement No 5 and Saving Provision) Order 2013. Statutory Instrument 2013 No 77.

Insolvency

The ATE premium remains recoverable from the losing party in insolvency proceedings.

The Government itself is a significant beneficiary of this exclusion as HMRC is the claimant in very many such claims.

Thus in insolvency cases both the success fee and after-the-event insurance premiums remain recoverable.  In relation to the success fee this is achieved by virtue of Article 6(2)(c) to (f)of The Conditional Fee Agreements Order 2013 and in relation to the ATE premium by virtue of Article 4 (c) to (f) of The Legal Aid, Sentencing and Punishment of Offenders Act 2012 (Commencement No 5 and Saving Provision) Order 2013, Statutory Instrument 2013 No 77.

The position is exactly the same in relation to defamation, malicious falsehood, breach of confidence involving publication to the general public, misuse of private information and harassment, but in relation to harassment alone only where the defendant is a news publisher.  Recoverability of the success fee is maintained by Articles 1 and 6(2)(b) of The Conditional Fee Agreements Order 2013  and of the ATE premium by Article 4(b) of The Legal Aid, Sentencing and Punishment of Offenders Act 2012 (Commencement No 5 and Saving Provision) Order 2013, Statutory Instrument 2013 No 77.

Section 46

 Section 46 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 reads:

46           Recovery of insurance premiums by way of costs

(1) In the Courts and Legal Services Act 1990, after section 58B insert—

“58C              Recovery of insurance premiums by way of costs

(1) A costs order made in favour of a party to proceedings who has taken out a costs insurance policy may not include provision requiring the payment of an amount in respect of all or part of the premium of the policy, unless such provision is permitted by regulations under subsection (2).

(2) The Lord Chancellor may by regulations provide that a costs order may include provision requiring the payment of such an amount where—

(a)          the order is made in favour of a party to clinical negligence proceedings of a prescribed description,

(b)          the party has taken out a costs insurance policy insuring against the risk of incurring a liability to pay for one or more expert reports in respect of clinical negligence in connection with the proceedings (or against that risk and other risks),

(c)           the policy is of a prescribed description,

(d)          the policy states how much of the premium relates to the liability to pay for an expert report or reports in respect of clinical negligence (“the relevant part of the premium”), and

(e)          the amount is to be paid in respect of the relevant part of the premium.

(3)    Regulations under subsection (2) may include provision about the amount that may be required to be paid by the costs order, including provision that the amount must not exceed a prescribed maximum amount.

(4)    The regulations may prescribe a maximum amount, in particular, by specifying—

(a)                a percentage of the relevant part of the premium;

(b)               an amount calculated in a prescribed manner.

(5)    In this section—

“clinical negligence” means breach of a duty of care or trespass to the person committed in the course of the provision of clinical or medical services (including dental or nursing services);

“clinical negligence proceedings” means proceedings which include a claim for damages in respect of clinical negligence;

“costs insurance policy”, in relation to a party to proceedings, means a policy insuring against the risk of the party incurring a liability in those proceedings;

“expert report” means a report by a person qualified to give expert advice on all or most of the matters that are the subject of the report;

“proceedings” includes any sort of proceedings for resolving disputes (and not just proceedings in court), whether commenced or contemplated.”

(2)    In the Access to Justice Act 1999, omit section 29 (recovery of insurance premiums by way of costs).

(3)    The amendments made by this section do not apply in relation to a costs order made in favour of a party to proceedings who took out a costs insurance policy in relation to the proceedings before the day on which this section comes into force”.

Section 47

 “47.        Recovery where body undertakes to meet costs liabilities

(1)    In the Access to Justice Act 1999, omit section 30 (recovery where body undertakes to meet costs liabilities).

(2)    The repeal made by subsection (1) does not apply in relation to a costs order made in favour of a person to whom a body gave an undertaking before the day on which this section comes into force if the undertaking was given specifically in respect of the costs of other parties to proceedings relating to the matter which is the subject of the proceedings in which the costs order is made.”

CONTINGENCY FEES:- ONTARIO MODEL – JACKSON’S CASABLANCA MOMENT

The Jackson Report proposed that in relation to Contingency Fee Agreements in civil litigation – to be known as Damages-Based Agreements – England and Wales adopt the Ontario Model.

This requires that solicitors set off, pound for pound, all between-the-parties costs recovered.

This will usually mean no extra costs at all for the risk-taking solicitor, who with any other method of funding can charge the client, either by way of a non-recoverable success fee or by charging the gap between recovered costs and the charging rate agreed to the client, even when taking no risk at all.

Thus a client expecting to pay 25% of damages will pay nothing. It is the equivalent of advertising for sale a car at £15,000 when the seller will only ever charge £10,000.

I have said my piece about this elsewhere – click here.

Being an inquisitive and open-minded sort of person I researched the Ontario Model. It is a train wreck, and is widely regarded as such in Canada, where no other province has adopted the system.

Why does it come as no surprise to me that of all the systems in all the jurisdictions in all the world Lord Justice Jackson walks in to this one?

It should be noted that Ontario was not keen on Contingency Fee Agreements – which existed in other Canadian States – and clearly adopted this half-baked system as a last resort.

Exactly the same psychology is in place in England and Wales.

No other Canadian province has such a system.

Manitoba, Nova Scotia, Saskatchewan and British Columbia and Alberta all have conventional contingency fees, albeit subject to different regulations in different states; for example British Columbia has a maximum of one third in road traffic cases and 40% in other personal injury cases.

Furthermore few commentators in the United Kingdom understand the situation in Canada. A number of Canadian provinces, such as Manitoba, Saskatchewan, and Quebec have no-fault automobile insurance schemes, where the right to sue in tort for automobile accident- related injuries is eliminated altogether in exchange for a menu of first-party insurance benefits from the driver’s own insurance company.

Ontario itself operates a hybrid tort – no fault auto insurance system where access to the tort system for auto-related injuries is reserved only for very serious cases.

Canadian insurance policies provide that the insurance company has the right to sue the wrongdoer in the insured’s name in order to recover it’s company’s losses. The injured, insured, person is paid directly by the insurer, which then proceeds against the alleged wrongdoer. See for example: Gordon Hilliker, Liability Insurance Law in Canada, 4^th edition (2006).

The inability to sue in tort for auto-related injuries in Canadian provinces has shifted the civil litigation landscape with respect to automobile accidents and the necessity of lawyers in the process. Claimants in those jurisdictions are focused more on issues between the injured victim and his or her insurance company.

Interestingly, the courts in Ontario often allowed a risk premium against the losing party – for all intents and purposes a recoverable success fee – in contingency fee cases, but that has been outlawed following the Supreme Court of Canada’s decision in Walker v Ritchie [2006] 2 SCR 428.

Thus the judiciary in Ontario appeared to see the need for contingency fees, but the legislature did not.

In Chapter 61, pages 629-638 of Lord Justice Jackson’s Preliminary Report, he states the following:

“1.1        Canada operates a federal system of government. Laws are made at a federal and provincial level. Generally speaking, in Canada the cost shifting rule is applied.

1.2          For the sake of brevity not all of the Canadian provinces and territories will be considered in this preliminary report. The principle focus will be upon Ontario, which is the most populous province with the largest economy (although aspects of the laws of other provinces will also be considered).”

In fact, as we have seen, the other provinces of Canada have very different systems indeed.

Lord Justice Jackson, completely accurately, says at paragraph 2.13:

“Motor vehicle claims. In Ontario, there is a no-fault compensation regime in respect of motor vehicle accidents. Any dispute is resolved by statutory mediation and arbitration. The statutory scheme provides compensation for financial losses (e.g. loss of earnings or costs of care), but not general damages for pain and suffering. A plaintiff can only proceed in court if his or her injuries pass a specified, high-level threshold of seriousness. In that event, the plaintiff can recover general damages for pain, suffering and loss of amenity from any tortfeasor who is responsible for the injuries.”

As stated above, in most Canadian provinces there is no jurisdiction to deal with road traffic accident claims at all whatever their seriousness.

In his final report Lord Justice Jackson’s formal recommendations in Chapter 12 – Contingency Fees read:

“5.1        I make the following recommendations:

(i)                  Both solicitors and counsel should be permitted to enter into contingency fee agreements with their clients. However, costs should be recoverable against opposing parties on the conventional basis and not by reference to the contingency fee

(ii)                Contingency fee agreements should be properly regulated and they should not be valid unless the client has received independent advice.”

That does not specifically recommend the Ontario Model, but paragraph 4.1 of the chapter reads:

“Having weighed up the conflicting arguments, I conclude that both solicitors and counsel should be permitted to enter into contingency fee agreements with their clients on the Ontario Model. In other words, costs shifting is effected on a conventional basis and in so far as the contingency fee exceeds what would be chargeable under a normal fee agreement, that is borne by the successful litigant.”

That is what will come in on 1 April 2013, a discredited system operating in an atypical province in a country hardly renowned for its civil justice system.

Lord Justice Jackson at Chapter 61, paragraph 4.15, page 638 of his Preliminary Report pointed out that The Word Bank’s “Doing Business Report” (2009) ranks Canada at 58^th position in the world for the ease of enforcing contracts.

Canada has now slipped to 62 out of 185; that is below Mauritius, Kazakhstan, Rwanda, Tonga, Vanuatu, and 56 others.

The only lesson any of us need to learn from Canada is how to ice-skate.

The icing on the cake is that the Ontario Model being introduced in this country  largely to deal with personal injury cases, the vast majority of which are road traffic accidents, that is the very type of work for which they are not available in Ontario.

Play it Rupert, play it again.

Part 36: The Dry Salvages

Time present and time past

Are both perhaps present in time future

And time future contained in the past.

If all time is eternally present

All time is unredeemable

 

T.S. Eliot: The Four Quartets

Fail to beat a Part 36 offer and all time is indeed unredeemable.

10% uplift on damages for successful Part 36 claimants

The Jackson Report proposed a 10% damages uplift for claimants who match or beat their own Part 36 offer. This is now Section 55 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012.

I set out the text of section 55 at the end.  Implementation is by the Lord Chancellor by Statutory Instrument (55(8)), and Article 2(b) of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (Commencement No 2 and Specification of Commencement Date) Order 2012 (SI 2012 No. 2412 (c.94) brought Section 55 in to force with effect from 1 October 2012.

Rules of Court are now awaited, but The Offers to Settle in Civil Proceedings Order 2013 Statutory Instrument 2013 No.93, has now been approved by Parliament and came in to force on 12 February 2013 – click here

The Order prescribes the percentage uplifts in various types of case.

Money only claims

Article 2 prescribes the uplift on damages in money only claims as follows:

Amount   awarded by the court	Prescribed percentage
Up to £500,000	10% of the amount awarded
Above £500,000, up to £1 million	10% of the first £500,000 and 5% of the amount   awarded above that figure
Above £1 million	7.5% of the first £1 million and 0.001% of the   amount awarded above that figure

This is as expected, with the addition of 0.001% of damages over £1 million, that is one-one thousandth of a per cent, or £10 for ever extra £1 million. There must be a reason for this, but it eludes me.

Mixed claims, that is monetary and non-monetary benefits

Article 3(4)(a) provides:

Amount   awarded by the court	Amount to   be paid by the defendant
Up to £500,000	10% of the amount awarded
Above £500,000, up to £1 million	10% of the first £500,000 and 5% of the amount   awarded above that figure

By Article 3(5) the maximum is specifically stated to be £75,000.

Non-monetary only claims

Article 3(4)(b) provides for an uplift on costs not damages in such cases:

Costs ordered to be paid to the claimant	Amount to be paid
Up to £500,000	10%
Above £500,000   and up to £1 million	10% of the first   £500,000 and 5% of any costs above that

By Article 3(5) the maximum is specifically set at £75,000.

Although the Order is effective 12 February 2013 nothing will change until Rules of Court are published and these are expected to be effective from 1 April 2013.

Those Rules make provision as to the calculation of the value of a non-monetary benefit awarded to a claimant (Article 3(3)(b)), a hospital pass if ever there was one.

At present it is unclear as to whether the uplift will apply only to Part 36 offers made on or after 1 April 2013 or to all Part 36 offers, whenever made, provided that judgment is given on or after 1 April 2013.

It should be noted that the anti-claimant bias of Part 36 remains; a claimant only gets the enhancement if judgment is given at a hearing and thus a defendant is free to accept a claimant’s Part 36 offer years out of time with no penalty, whereas a claimant who accepts a defendant’s Part 36 offer out of time pays every penny of costs of both sides from the minute after the expiry date for accepting the offer.

It must be noted carefully that the 10% Part 36 uplift is additional to, and separate from, the Simmons v Castle 10% uplift on general damages. There are obvious problems in relation to the interplay between the two.

Supposing a claimant now offers £10,000.00 and a defendant now offers £9,500.00 and in April 2013 the court awards £9,200.00, uprated by 10% to £10,120.00.

Has the claimant beaten its own offer, thus qualifying for indemnity costs, or has the claimant failed to beat the defendant’s offer, thus incurring liability for all of the defendant’s costs from 21 days after the defendant’s offer?

Why should a defendant who has made an offer now, which is above what a court would order now, not get the Part 36 benefits? In the scenario set out above salt will be rubbed in to the defendant’s wound as he will have to pay indemnity costs as well!

Of course it can be argued that any defendant can now increase its Part 36 offer by 10%, but why should a defendant pay over the odds now in relation to a regime not yet in?

In any event that is not a complete solution.

Supposing a defendant in a clinical negligence case made an offer of £200,000.00 in August 2010 and now, in August 2012, increases that to £220,000.00 and in April 2013 the court awards £190,000.00 uprated to £209,000.00.

The defendant has at each stage offered more than the claim is worth, but presumably will only get costs protection from the Part 36 offer made in 2012. Thus, entirely unfairly, the defendant will have to pay both its own costs and the claimant’s costs for the two years between August 2010 and August 2012, even though throughout that period there was on offer a sum which should have been accepted.

Actually it is even worse. Section 55 of LASPO allows for a damages uplift where a claimant matches or beats its own Part 36 offer.

This 10% is wholly separate from the 10% general damages uplift.  It applies in all cases, contract as well as tort, and to special damages as well as general damages, although subject to a cap of £75,000.00 in relation to the additional award.

Let us revisit the clinical negligence case above.  In August 2010 the defendant makes a Part 36 offer of £440,000.00 to include general damages and special damages.  As we have seen the correct level of general damages is £190,000.00.  Let us assume that £250,000.00 is the correct level of special damages.

However this time the defendant has not increased its offer to reflect the proposed general damages uplift.

On 9 March 2013 the claimant makes a Part 36 offer of £445,000.00.

In April 2013 the court awards £190,000.00 general damages and £250,000.00 special damages, total, in old money, of £440,000.00.

The general damages are uprated by 10% to £209,000.00, giving a new total of £459,000.00, which means that the claimant has beaten its Part 36 offer made just 4 weeks earlier, and in the certain knowledge that the judgment would be given after 1 April 2013.

The claimant automatically receives a 10% Part 36 bonus on the whole sum, that is an additional £45,900.00, that is £64,900.00 more than the case was worth on 31 March 2013, giving a new total of £504,900.00.  The only way that the defendant can avoid this is by accepting the claimant’s offer and thus paying more than the claim is worth, while the claimant, having failed for over 2 years to accept a perfectly good offer – gets all costs.

In fact it is much more complicated than that.  Part 36 offers usually encompass both general damages and special damages in one sum.  However it is only general damages, not special damages, that will receive the 10% uprating, so in each case the court, having made its award, will need to dissect any Part 36 offer – claimant’s as well as defendant’s – to see precisely how much of the offer related to general damages, to see who has beaten what.

Law is often said to be a matter of chance but courts should not be casinos, and it is never a good idea to make the outcome of a case dependent upon the date that judgment is given.

Turn the clock forward.  It is mid-afternoon on Thursday 28 March 2013.  Our clinical negligence case is being heard and the Judge is about to give judgment for £440,000.00, which unbeknownst to him or her will fail to beat the defendant’s August 2010 Part 36 offer, resulting in an award of £440,000.00 less all of the defendants costs from 21 days after the Part 36 offer, with the claimant bearing its own costs from August 2010 onward.

There is a fire alarm.  The Judge adjourns the matter to 9.00am Tuesday 2 April.

It has been Easter weekend.  Appropriately a miracle has occurred.  The award has become £504,900.00 plus all costs, and with no deduction in relation to defendant’s costs from the date of its Part 36 offer which for all bar 2 days of its 2 years 7 months existence should have been accepted.

Parliamentary debate and properly drafted transitional provisions would have avoided all of this.

Carver v BAA plc reversed

 With effect from 1 October 2011 CPR 36 was amended with a new Rule 36.14(1A) reading:

“For the purposes of paragraph (1), in relation to any money claim or money element of a claim, “more advantageous” means better in money terms by any amount, however small, and “at least as advantageous” shall be construed accordingly.”

The effect of this rule change is formally to overturn the decision in

Carver v BAA plc [2008] EWCA Civ 412 [2008] 3 All ER 911

obviously wrong but understandable, insofar as it survived the conjoined cases of

Gibbon v Manchester City Council and

L G Blower Ltd v Reeves [2010] EWCA Civ 726

It is worded this way to deal with claimants’ offers where the claimant needs to secure a result “at least as advantageous” as his or her own offer to achieve the benefits of making a successful Part 36 offer and defendants’ offers where a claimant needs to secure a result “more advantageous” than the defendant’s Part 36 offer to avoid the adverse costs consequences of failing to beat a defendant’s Part 36 offer.

This was one of the first proposals in the Jackson Report to be implemented.

The amendment was effected by the 57^th update to the Civil Procedure Rules.

In a separate Part 36 development in relation to the road traffic portal, Paragraph 7.55 has been amended to make it clear that there is a difference between open offers and Part 36 offers.

Where damages have not been agreed in Stage 2 and the case is about to proceed to Stage 3, the protocol requires the claimant to send to the defendant the Court Proceedings Pack (Part A and Part B).

Part A of the pack contains the final open offers of each party, after assessing damages the district judge opens the sealed envelope containing Part B, which gives the final Part 36 offers of each party. This is for the purpose of deciding costs.

Section 55 Legal Aid, Sentencing and Punishment of Offenders Act 2012

“55.     Payment of additional amount to successful claimant

(1)                Rules of court may make provision for a court to order a defendant in civil proceedings to pay an additional amount to a claimant in those proceedings where—

(a)                the claim is a claim for (and only for) an amount of money,

(b)               judgment is given in favour of the claimant,

(c)                the judgment in respect of the claim is at least as advantageous as an offer to settle the claim which the claimant made in accordance with rules of court and has not withdrawn in accordance with those rules, and

(d)               any prescribed conditions are satisfied.

(2)                Rules made under subsection (1) may include provision as to the assessment of whether a judgment is at least as advantageous as an offer to settle.

(3)                In subsection (1) “additional amount” means an amount not exceeding a prescribed percentage of the amount awarded to the claimant by the court (excluding any amount awarded in respect of the claimant’s costs).

(4)                The Lord Chancellor may by order provide that rules of court may make provision for a court to order a defendant in civil proceedings to pay an amount calculated in a prescribed manner to a claimant in those proceedings where—

(a)                the claim is or includes a non-monetary claim,

(b)               judgment is given in favour of the claimant,

(c)                the judgment in respect of the claim is at least as advantageous as an offer to settle the claim which the claimant made in accordance with rules of court and has not withdrawn in accordance with those rules, and

(d)               any prescribed conditions are satisfied.

(5)                An order under subsection (4) must provide for the amount to be calculated by reference to one or more of the following—

(a)                any costs ordered by the court to be paid to the claimant by the defendant in the proceedings;

(b)               any amount awarded to the claimant by the court in respect of so much of the claim as is for an amount of money (excluding any amount awarded in respect of the claimant’s costs);

(c)                the value of any non-monetary benefit awarded to the claimant.

(6)                An order under subsection (4)—

(a)                must provide that rules made under the order may include provision as to the assessment of whether a judgment is at least as advantageous as an offer to settle, and

(b)               may provide that such rules may make provision as to the calculation of the value of a non-monetary benefit awarded to a claimant.

(7)                Conditions prescribed under subsection (1)(d) or (4)(d) may, in particular, include conditions relating to—

(a)                the nature of the claim;

(b)               the amount of money awarded to the claimant;

(c)                the value of the non-monetary benefit awarded to the claimant.

(8)                Orders under this section are to be made by the Lord Chancellor by statutory instrument.

(9)                A statutory instrument containing an order under this section is subject to annulment in pursuance of a resolution of either House of Parliament.

(10)             Rules of court and orders made under this section may make different provision in relation to different cases.

(11)             In this section—

• “civil proceedings” means proceedings to which rules of court made under the Civil Procedure Act 1997 apply;
• “non-monetary claim” means a claim for a benefit other than an amount of money;
• “prescribed” means prescribed by order made by the Lord Chancellor.

 

 

CONTINGENCY FEE LEGAL AID SCHEME

The Ministry of Justice has dropped proposals for a Supplementary Legal Aid Scheme, which would have applied in clinical negligence claims and would have seen legally-aided claimants pay 25% of general damages in to the legal aid fund.

Legal aid has been abolished for all clinical negligence claims with the exception of babies who suffer brain damage during pregnancy, or at birth or during the first eight weeks of their life and for women who are injured during pregnancy or labour.

The abolition of legal aid takes effect on 1 April 2013, but given the time it takes to deal with an application it has, at the date of writing – 23 January 2013, effectively been abolished already.

This change of plan means that unless a person falls within the very limited exception above they are likely to pay out around 35% or 40% of their damages, taking in to account the success fee and the after-the-event insurance premium, both to be non-recoverable.

Due to the continued full force of Part 36, so-called after-the-event insurance is essential even in Qualified One Way Costs Shifting cases.

As this was by far the most obvious area for a Supplementary Legal Aid Scheme to be introduced, it appears that this concept is off of the agenda for the foreseeable future.

However, surely it’s time will come; a State Third Party Funding Scheme, whereby adverse costs are covered and client’s own disbursements are covered, in return for the State taking a share of the damages, would solve an enormous number of problems, and may even make a profit.

A non-means tested, self-financing State Legal Aid Contingency Fee Scheme, properly run, would be a sure fire winner.

 

Pennies and Buns – the 10% General Damages increase

On 10 October 2012 the Court of Appeal had its second attempt at implementing Lord Justice Jackson’s proposal that general damages be increased by 10% to compensate partly claimants who will have to pay the conditional fee success fee themselves, out of damages, once recoverability of success fees is abolished. The same Judges sat as on the first occasion.

With effect from 1 April 2013, general damages will be increased in all cases by 10%, unless the claimant has a conditional fee agreement with a success fee, that is falls within section 44(6) of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO). (Simmons v Castle [2012] EWCA 1288 (second judgment) – click here

I wrote, in relation to the first decision:

“Had the court added the words: “Save where the claimant is represented under a conditional fee agreement with a recoverable success fee” the issue would not arise.”

That is effectively what the Court of Appeal has now done. Click here for my blog “Hokey-Cokey in the Court of Appeal – The 10% damages increase fiasco”, and click here for Neil Rose’s Litigation Futures take on the initial decision.

This is a change from the terms of the original, heavily criticized, judgment given on 26 July 2012 where such claimants, in the words of the Lord Chief Justice, “would have the penny and the bun”, that is a recoverable success fee AND a 10% damages uplift to compensate for the fact that the success fee was to come out of damages, even though it was not. Simmons v Castle [2012] EWCA Civ 1039 – (first judgment) – click here

Whether or not the claimant has so-called after-the-event insurance in place, and whether or not the premium is recoverable, makes no difference to the 10% increase which is designed to deal with the non-recoverability of the success fee and nothing else. The Court of Appeal recognized this at paragraph 12 of its revised judgment:

“ABI [Association of British Insurers] also originally contended that any claimant who was entitled to require the defendant to pay the ATE premium should be disallowed from enjoying the 10% increase, but that argument has now been abandoned; it is therefore unnecessary to say any more about it, except that the decision to abandon the argument seems to us to be well judged.”

The confusion had arisen due to Lord Justice Jackson’s confusion about his own report. In the tenth of his Implementation Programme lectures, given on 29 February 2012, he said that he was persuaded to recommend that personal injury claimants be given the 10% increase as “a quid pro quo for losing recoverability of success fees and ATE premiums.”

In fact the proposed increase was only ever to deal with the success fee issue.

It is to the credit of the Court of Appeal that it had the courage to recognize its mistake and to re-open the case and acknowledge its error.

Given the Government’s proposal to increase the small claims limit to £5,000 in road traffic accident cases, we wait with bated breath to see if the Court of Appeal will now have a third bite at the cherry and in such cases increase damages by another 20%, that is 30% in all.  This would allow solicitors to take 25% of damages, as allowed by The Conditional Fee Agreement Order 2013 and The Damages-Based Agreements Regulations 2013 without the client losing out.

There is an argument that those claimants without conditional fee agreements will get a windfall, although that ignores the fact that they are at a massive disadvantage to start with in that they are paying a full hourly rate, win or lose, as compared with conditional fee clients who will generally pay nothing in the event of defeat.

Among the arguments persuading the Court of Appeal to give everyone except the section 44(6) claimants the increase were that it would be wrong in principle to provide for different measures of damages for differently funded claimants and that limiting the increase to conditional fee agreement funded claimants would “be a perverse incentive encouraging CFAs” – see paragraph 14 of the revised judgment.

This decision is not limited to personal injury matters but rather applies to all general damages in all civil claims and at paragraph 50 of its revised decision the Court of Appeal lists those types of damages which will be increased by 10%:

(i)                  pain and suffering;

(ii)                loss of amenity;

(iii)               physical inconvenience and discomfort;

(iv)              social discredit;

(v)                mental distress;

(vi)              loss of society of relatives.

In its revised judgment – paragraph 45 – the Court of Appeal recognized that Lord Justice Jackson’s Final Report described the damages to which the 10% damages should apply

“in more than one way – damages for “personal injuries, nuisance and all other civil wrongs to individuals”, damages claimed by “personal injury claimants”, “general damages for pain, suffering and loss of amenity”, “general damages for nuisance, defamation and any other tort which causes suffering to individuals” and “the level of general damages…generally.” The MoJ’s March 2011 announcement referred to “non-pecuniary general damages, such as pain, suffering and loss of amenity in tort cases”, and in his Tenth Implementation lecture Sir Rupert referred to the 10% increase as being “given to personal injury claimants”.

I will not speculate upon the judicial response that an advocate before the Court of Appeal would receive if she or he presented a skeleton argument riddled with the inconsistencies of Lord Justice Jackson. I will confine myself to the observation that the comment of Lord Dyson, Master of the Rolls, in his speech to the Law Society on 18 October 2012 that Lord Justice Jackson achieved his task “magnificently” is not a view shared by many, or indeed any, not even by Lord Justice Jackson, I suspect.

The Court of Appeal in its revised judgment held that it would be inconsistent and unfair to limit the 10% increase to claims in tort, rather than extending it to claims in contract

“there is much overlap between tort and contract cases, both in the sense of parallel claims under each head, each based on essentially the same facts (e.g. many professional negligence claims), and in the sense of similar claims (e.g. disappointing holiday claims in contract). Further, claims in tort and contract are and will be equally susceptible to being funded on a CFA basis (or, after 1 April 2013, under a damages based agreement). Indeed, while it is hard to think of many examples, we can see no good reason why the 10% increase should be limited so as to exclude any type of claim.” (Paragraph 46 of revised judgment).

The Court of Appeal then went on to say , in paragraph 48, that the best guidance as to what damages will be covered by the 10% increase is to be found in Chapter 3 of the 18^th edition of McGregor on Damages, which is concerned with “Non-Pecuniary Damages”.

At paragraph 49 of its judgment the Court of Appeal said:

“We accept that there may be cases where either the cause of action, or, perhaps less unlikely, the nature of the damages, is such that it is not clear whether the 10% increase is to apply. Those cases will have to be dealt with on their merits if and when they arise.”

Andrew Dismore of AJAG correctly makes the point:

“What they’re trying to do is to give effect to statute that isn’t there. Basically they’re trying to implement government policy rather than apply the law.”

Incidentally the increase clearly applies to injury to feelings awards in Employment Tribunals, something which part-time Employment Judge Sean Jones QC has already taken on board. This is a view also shared by the legendary Professor Dominic Regan.

The revised judgment is a welcome improvement, but it fails to address the interplay between an across-the-board rise in damages and Part 36.

Supposing a claimant now offers £10,000.00 and a defendant now offers £9,500.00 and in April 2013 the court awards £9,200.00, uprated by 10% to £10,120.00.

Has the claimant beaten its own offer, thus qualifying for indemnity costs, or has the claimant failed to beat the defendant’s offer, thus incurring liability for all of the defendant’s costs from 21 days after the defendant’s offer?

Why should a defendant who has made an offer now, which is above what a court would order now, not get the Part 36 benefits? In the scenario set out above salt will be rubbed in to the defendant’s wound as he will have to pay indemnity costs as well!

Of course it can be argued that any defendant can now increase its Part 36 offer by 10%, but why should a defendant pay over the odds now in relation to a regime not yet in?

In any event that is not a complete solution.

Supposing a defendant in a clinical negligence case made an offer of £200,000.00 in August 2010 and now, in October 2012, increases that to £220,000.00 and in April 2013 the court awards £190,000.00 uprated to £209,000.00.

The defendant has at each stage offered more than the claim is worth, but presumably will only get costs protection from the Part 36 offer made in 2012. Thus, entirely unfairly, the defendant will have to pay both its own costs and the claimant’s costs for the two years plus between August 2010 and October 2012, even though throughout that period there was on offer a sum which should have been accepted.

Actually it is even worse. Section 55 of LASPO allows for a damages uplift where a claimant matches or beats its own Part 36 offer. On 17 July 2012 Jonathan Djanogly, the Parliamentary Under-Secretary of State, Ministry of Justice, issued a written Ministerial Statement, stating that the uplift will be 10% on the first £500,000.00 and 5% on the balance between £500,000.00 and £1million, giving a maximum uplift of £75,000.00.

This 10% is wholly separate from the 10% general damages uplift. It applies in all cases, contract as well as tort, and to special damages as well as general damages, although subject to a cap of £75,000.00 in relation to the additional award.

Let us revisit the clinical negligence case above. In August 2010 the defendant makes a Part 36 offer of £440,000.00 to include general damages and special damages. As we have seen the correct level of general damages is £190,000.00. Let us assume that £250,000.00 is the correct level of special damages.

However this time the defendant has not increased its offer to reflect the proposed general damages uplift.

On 9 March 2013 the claimant makes a Part 36 offer of £445,000.00.

In April 2013 the court awards £190,000.00 general damages and £250,000.00 special damages, total, in old money, of £440,000.00.

The general damages are uprated by 10% to £209,000.00, giving a new total of £459,000.00, which means that the claimant has beaten its Part 36 offer made just 4 weeks earlier, and in the certain knowledge that the judgment would be given after 1 April 2013.

The claimant automatically receives a 10% Part 36 bonus on the whole sum, that is an additional £45,900.00, that is £64,900.00 more than the case was worth on 31 March 2013, giving a new total of £504,900.00. The only way that the defendant can avoid this is by accepting the claimant’s offer and thus paying more than the claim is worth, while the claimant, having failed for over 2 years to accept a perfectly good offer – gets all costs.

In fact it is much more complicated than that. Part 36 offers usually encompass both general damages and special damages in one sum. However it is only general damages, not special damages, that will receive the non-Part 36 10% uprating, so in each case the court, having made its award, will need to dissect any Part 36 offer – claimant’s as well as defendant’s – to see precisely how much of the offer related to general damages, to see who has beaten what.

Law is often said to be a matter of chance but courts should not be casinos, and it is never a good idea to make the outcome of a case dependent upon the date that judgment is given.

Turn the clock forward. It is mid-afternoon on Thursday 28 March 2013. Our clinical negligence case is being heard and the Judge is about to give judgment for £440,000.00, which unbeknownst to him or her will fail to beat the defendant’s August 2010 Part 36 offer, resulting in an award of £440,000.00 less all of the defendants costs from 21 days after the Part 36 offer, with the claimant bearing its own costs from August 2010 onward.

There is a fire alarm. The Judge adjourns the matter to 9.00am Tuesday 2 April.

It has been Easter weekend. Appropriately a miracle has occurred. The award has become £ 504,900.00 plus all costs, and with no deduction in relation to defendant’s costs from the date of its Part 36 offer which for all bar 2 days of its 2 years 7 months existence should have been accepted.

I could not make it up. Parliamentary debate and properly drafted transitional provisions would have avoided all of this.

I admire these Court of Appeal judges enormously, but nothing but bad ever comes out of Judges stepping in to the political arena.

Having made a lengthy and tortuous attempt to justify judicial implementation of part of a highly controversial report not implemented by Parliament, the Lord Chief Justice says, at Paragraph 19 of the first Simmons v Castle:

“The only remaining question is precisely how the increase should be applied”.

The only remaining question?

If only!

Oh to be a costs lawyer now that Jackson is near!

One good thing has come out of this sorry saga and that is the exquisite phrase about the penny and the bun, so much better than cakes and eating it, nearly always incorrectly stated as “having your cake and eating it,” rather than “eating your cake and still having it.”

Pennies and buns it is from now on.

Referral Fee Ban: Gesture without motion

It is expected that the prohibition on referral fees in personal injury cases will come in to effect on 1 April 2013, but that details of the ban will not be known until three weeks before, which sounds like an invitation for Judicial Review on Wednesbury grounds. Presumably Lord Justice Jackson will not sit on any appeal.

Full details are not yet available as the Lord Chancellor has not yet announced details of the Regulations to be laid before Parliament and because the statutory framework contained in sections 56 – 60 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO) (click here) will be implemented by regulators such as the Solicitors Regulation Authority and the Claims Management Regulator and they have not yet stated how this will be done, although guidance has now been given by the Legal Services Board to the Regulators and a timetable has been set out by the Solicitors Regulation Authority.

On 23 October 2012 the Solicitors Regulation Authority (SRA) published its consultation paper on the ban on referral fees in personal injury cases – Click here

This reflects the fact that the Legal Aid, Sentencing and Punishment of Offenders Act 2012 leaves it to the regulators to enforce the ban.

The timetable on this latest, and presumably last, consultation is:

Consultation ends:                                                                                           18 December 2012

Code changes to be approved by SRA Board:                                                   23 January 2013

Changes to Regulatory Framework approved by Legal Services Board:             Mid February 2013

Final version:                                                                                                   Early March 2013

Implementation of ban:                                                                                   1 April 2013

Thus it will be seen that practitioners will not know the precise terms of the ban until two to three weeks before it is implemented.

The SRA will not “pre-approve” business models.

It believes that outcomes-focused regulation will allow it to look at the substance of any arrangement, rather than the form, and to “focus on those arrangements that pose a real risk to the public interest”.

The onus will be on personal injury solicitors to show that any payment said to be for services is reasonable and does not include the payment of a referral fee.

Payments made purely for marketing and not linked to the referrals received are unlikely to breach the ban, but at paragraph 31 of its consultation paper the SRA says:

“However, section 57(8) provides that referrals by or to a firm or an arrangement which appears to the SRA to be  a referral fee may be treated as such unless the firm can show that the payment was made as consideration for another service and not for the referral.  We are likely to look beyond arrangements merely titled as “marketing arrangement/joint marketing schemes” and examine what services(s) the firm receives for the payment made.

The paper then, helpfully, gives a number of examples:

-          Communication of a client’s name and contact details will be treated as a prohibited referral

-          A website offers to find a suitable firm of solicitors for members of the public and the client has to input their details and then receive an email with contact details of a law firm.  The law firm pays a fixed annual fee and a further payment per referral.

This is not considered to be a prohibited referral

-          A group of SRA regulated firms gets together to advertise their services and they set up a separate not for profit company wholly owned and regulated by them under a brand name.  Enquiries are made to a call centre and details of clients are passed to member firms on a rota basis with each firm paying an equal share of the costs of advertising and operating the scheme.

This is unlikely to involve an unlawful referral fee.

However if the advertising/marketing is carried out by a commercial entity and the fees paid by the regulated firms depend upon the number of referrals, rather than the cost of the campaign, this is likely to be a prohibited referral fee.

-          A Claims Management Company (CMC) advertises in its own name and refers cases to a panel of firms.  The CMC takes brief details and asks standard questions to ensure that the claim is in time.  The client is told that a solicitor will contact them in the next 24 hours and firms pay a fixed fee in respect of each client referral.

This is likely to be a prohibited referral fee.

The SRA states that any of the following indicate a prohibited referral fee:

-          payment for services which are in excess of the normal market rate for such services;

-          an arrangement where receipt of referrals is conditional upon payment;

-          payments that are made per referral or which are otherwise linked to the number of referrals;

-          Evidence that a genuine service is not being provided.

The SRA provides a flow chart designed to help practitioners examine whether an arrangement is in breach – Click here

The SRA takes the view that contravening the ban is not a criminal offence.  However the Bar Standards Board in its October 2012 publication: “Guidance on the Prohibition of Referral Fees” takes the view that any payment of any referral fee is potentially a criminal offence under the Bribery Act 2010 – Click here

Former Court of Appeal Judge, Lord Hooper has called for lawyers paying illegal referral fees to be reported to the police.

Speaking at the Bar Conference 2012 he said that such fees were paid or received by barristers in four situations

Payment of a fee by a trial advocate to an instructing solicitor.

By a group of advocates offering a service to solicitors in return for work, e.g. doing Magistrates’ Court work free in return for Crown Court work.

An advocate who attends the case management hearing paying another advocate to do the case.

Where legal aid is granted for two advocates, requiring the trial advocate to use an advocate from the instructing solicitor’s firm as the second advocate.

Michael Turner QC, chairman of the Criminal Bar Association called referral fees “bribery for briefs” and said that they were “commonplace.”

He said that barristers paying solicitors to instruct them and solicitors paying clients to instruct them “is a crime under the government’s own legislation – the Bribery Act.”

The SRA lists the proposed amendments to the Solicitors’ Code of Conduct 2011.

So far, so (relatively) clear.

However in relation to Alternative Business Structures, which are licensed and regulated by the SRA, there appears to be some confusion.  The paper says:

“Models which suggest an intention to continue as more than one business, with referrals being made between them, may not be licensed, if we believe the referral arrangements will be unlawful”.

This has been misinterpreted by most of the legal press as somehow making it difficult for CMCs to become ABS. This is not correct.

A CMC can, subject to all other matters being in place, become an ABS and conduct the whole of the case; that is the whole point of the Legal Services Act 2007.  There can be no discrimination between ABSs and traditional law firms as that would defeat the purpose of the Legal Services Act 2007.

Thus a CMCABS can instruct a firm of solicitors on an Agency basis, or indeed instruct counsel.  This is not avoiding the ban but it does allow a business model where a CMCABS gets the work which is then largely done by another firm for a fee.

Ban that and you ban solicitors instructing counsel.

The SRA in its June 2012 consultation paper recognized this:

“a claims management company might join forces with a firm of solicitors…….there would be no need for referrals…….we cannot seek to prevent such arrangements simply because they are set up to avoid being caught by the ban”.

In its late summer 2012 response to the consultation the SRA said that if the new body “meets the authorisation requirements and the ABS complies with all its regulatory obligations, the SRA will not oppose such arrangements”.

By virtue of Section 56(4) LASPO the ban relates to prescribed legal business, that is personal injury claims and any claim that is ancillary to a personal injury claim, that is business that involves providing legal services to a client relating to:

- any claim or potential claim for damages for personal injury or death;

- any other claim or potential claim for damages arising out of circumstances involving personal injury or death;

- other matters that the Lord Chancellor may subsequently prescribe by way of regulations.

The Act applies to regulated persons, which includes those authorized by the Solicitors Regulation Authority or the Bar Council or the Claims Management Regulator.

Certain Financial Services Authority persons may also be included and the Lord Chancellor has power to extend the ban to persons authorized by other regulatory bodies.

The Act prohibits

(i)                  paying or receiving payment for the personal injury claim itself; (Section 56)

(ii)                receiving payment in return for arranging for a third party to provide services to the client in connection with a personal injury claim, for example receiving a payment from a medico-legal agency (Section 56(2)).

Section 57(7) LASPO refers to both types of payment as referral fees, although most would consider (ii) to be a commission payment. The 2011 Solicitors Regulation Authority Code of Conduct already requires solicitors to account to clients for such commission payments.

Section 56(5) states that a referral will occur where a person other than the client provides information that a provider of legal services would need in order to make an offer to the client to provide relevant services, that is any legal service.

The definition of payment in Section 56(8) applies to both referral fees and commission payments and covers any form of consideration, whether any benefit is received by the regulated person or by a third party, but does not cover reasonable hospitality, which is not further defined.

Breach of the Act will not be a criminal offence and will not give rise to an action for breach of statutory duty and does not render the solicitor-client retainer void or unenforceable but a contract to pay a referral fee or commission in breach of Section 56 is unenforceable (Sections 57(5) and (6)).

Breach of the Act is a regulatory issue to be dealt with by the regulator.

Each regulator can make rules providing that a referral fee or commission payment shall be treated as a referral fee unless the regulated person shows that it was made not as a referral fee but rather as a consideration for the provision of services or for another reason (Sections 57(7) and (8)).

The Lord Chancellor has power to set a cap on the maximum consideration that can be paid for the provision of services and by Section 57(9) any payment above that sum is caught by the ban, irrespective of the regulators’ rules.

One of the key, unanswered, questions is whether the ban covers collective advertising arrangements and although the Government has said that it does not, the wording of Section 57 suggests otherwise.

A party, such as a Claims Management Company or insurer, passing information to a law firm re potential personal injury clients and receiving payment, is a prohibited arrangement.

Why is a consortium of law firms getting together to fund advertising, with the advertising arm passing the information to the law firms, in any different position in relation to the consortium’s pooled contributions?

Referral fees and commission payable between solicitors are now, for the first time, to be made illegal. Even before the lifting of the general ban on referral fees such arrangements were permitted.

However that particular ban can easily be avoided by Agency instructions.

 GUIDELINES

The Legal Services Board (LSB) has now issued guidance to all regulators involved in the regulation of referral fees, following the passage of ss 56-60 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO). Section 5 of the Act requires regulators to have in place ‘appropriate arrangements for monitoring and enforcing the restrictions imposed on regulated persons’. Click here for the LSB Guidance.

The LSB has indicated that it will take a ‘liberal approach’ but liberal hardly begins to describe the Board’s approach, although, tellingly, it actually uses that word: ‘A liberal approach that supports the regulatory objectives of the Legal Services Act 2007, while properly delivering the legislative intent of LASPO, will therefore be crucial in making sure that both pieces of legislation are implemented effectively’.

Indeed the Board clearly sees the Legal Services Act 2007 (LSA 2007), with its sanctioning of Alternative Business Structures (ABSs) as a Parliamentary intention to relax the rules on referral fees, saying ‘In particular, regulators will need to justify any ban on the payment or receipt of referral fees that remains in place with clear supporting evidence’. Thus, outside the area of personal injury law, regulation of referral fees is clearly about to be relaxed.

This follows the Solicitor’s Regulation Authority’s (SRA) discussion paper (click here), where the SRA stated that it would not be able properly to enforce the ban on referral fees in personal injury cases due to problems with the definition of what is a referral, combined with the fact that law firms and claims management companies will be able to circumvent the ban by forming Alternative Business Structures.

The SRA says, entirely correctly:

“There would be no need for referrals, and therefore no referral fees would be paid. We believe that, provided that all of the requirements are met and the ABS complies with all of the regulatory obligations, we cannot seek to prevent such arrangements simply because they are set up to avoid being caught by the ban”.

It also claims that policing referral arrangements will be problematic as claims management companies “may legitimately argue that they are carrying out marketing for groups of firms”.

The SRA predicts that the referral fee ban will lead to “a steep increase in the number of financial failures among small firms”.

In an internal document prepared prior to the discussion paper the SRA correctly summarized the key points in the discussion papers as follows:

• SRA “approach to supervision and enforcement is risk-based and      proportionate” (para 14).
• A draft supervision and enforcement stategy may be published (para      15).
• The key issue is whether a payment is for a referral rather than a      service. SRA will be seeking to ensure that arrangements are transparent      (para 24).
• SRA will “focus on those arrangements that pose a real risk to the      public interest” (para 27).
• An ABS comprising a CMC and a solicitor will effectively circumvent      the ban and this cannot be stopped (para 29).
• Detailed rules would not be consistent with outcomes based      regulation. The appropriate approach is a set of mandatory outcomes and      non-mandatory indicative behaviours (para 30).

It is clear that both the Legal Services Board and the SRA are approaching enforcement of the ban on referral fees with little enthusiasm and with no indication of a forceful enforcement campaign.

The problems of definition are recognized, as is the fact the Legal Services Act is wholly inconsistent with the concept of banning traffic between Claims Management Companies and solicitors.

What the ban does is to force Claims Management Companies to become ABSs, possibly forcing solicitors out of the low-value personal injury market altogether and leaving it entirely to Claims Management Companies re-constituted as ABSs, which is presumably not what Parliament had in mind.

 Does the legislation apply more narrowly to Personal Injury?

In relation to personal injury, Mr Chris Kenny, Chief Executive of the LSB say, in a letter to all approved regulators dated 21 August 2012 (click here for the full text): ‘In respect of personal injury, Regulators will, of course, wish to rely on the justification provided by the provisions of ss 56-60 of LASPO 2012’.

Now, I fully understand the LSB’s frustration in relation to referral fees, as the treatment of this subject by successive governments has been shambolic.

First it was left to the Regulators. Then Parliament sanctioned and licensed referral fees under the Compensation Act 2006. The Coalition government made it clear that referral fees were not to be banned, in spite of Lord Justice Jackson’s recommendation to the contrary. Latterly it introduced a late amendment to LASPO, banning referral fees, but only in personal injury cases, and with no sanction.

Thus the whole issue of referral fees in personal injury cases – completely banned by Parliament – is left to the regulators whereas referral fees in all other matters – specifically permitted and licensed by Parliament in the Compensation Act, are subject to a 2-year prison sentence if the formalities are not complied with.

 Risks to practitioners

So, slip up in a payment protection insurance referral fee arrangement, permitted by Parliament, and it is two years inside but ignore the ban on referral fees in personal injury matters – banned by Parliament, and it is down to the regulator.

If Parliament has washed its hands of the matter then why should the LSB do anything different?

The LSB’s approach has the benefit of certainty – it is laid back to the point of falling over.

The issue of referral fees divides lawyers more than any other. Those paying them will welcome the Guidance; the rest will see it as part of a deliberate policy of breaking up a powerful profession that has had the guts to stand up to oppressive governments, especially in the field of Human Rights.

Clearly, outside the area of personal injury law it will be business as usual, but there maybe a backlash.

It is a singular achievement for those lawyers taking PPI mis-selling work from Claims Management Companies (CMCs) to have become even more despised than the banks who mis-sold the policies in the first place.

The ban on referral fees in personal injury cases will clearly be legally avoided by solicitors and CMCs becoming ABSs, thus dragging personal injury lawyers down to the level of the worst CMCs.

We await the draft Regulations.

However the ban is under 5 months away and solicitors who obtain personal injury work from Claims Management Companies need to plan now, as do Claims Management Companies themselves.

Clearly CMCs can apply to become Alternative Business Structures (ABS’s) and will then be able to run the whole of the case themselves, but many will not want to do this and will prefer to carry on with the existing business model of selling the work to solicitors.

A CMC licensed as an ABS will be able to instruct a firm of solicitors on an agency basis with the financial arrangements reflecting the agreed split of the fee between the CMCABS and the law firm.

The law firm may choose to supply to CMCABS the Head of Legal Practice, required by all ABS’s and/or may choose to assist the CMC to become an ABS.

The law firm may choose to merge with the CMC to become an ABS, so that there would be no need for Agency instructions, but rather a profit split agreed between the members/directors of the ABS, no doubt reflecting the old referral fee arrangements. This ABS need not absorb all of the law firm; it could be just the road traffic accident department that enters in to an ABS.

The law firm may choose to employ directly those people who currently run the CMC and get the work. This avoids setting up an ABS, but creates employment liabilities for the law firm.

In practice the likely sharp reduction in portal fees and the possible increase in the personal injury small claims limit will have more effect on the low-value personal injury market than the easily avoidable ban on referral fees; a ban that Parliament clearly intends to be avoided as otherwise it would have repealed the Legal Services Act 2007.

 Predictions for future developments

The reality is that this government never intended to ban referral fees and is simply forcing solicitors’ firms into the hands of CMCs. CMC’s tend not to judicially review the government, represent those charged with serious offences etc, or do any of the things that an independent legal profession does.

However the public dislike of texts and cold calling re personal injury and PPI mis-selling is so great that a complete ban is inevitable. When it comes, such a ban may not be limited to referral fees, but is likely to cover advertising of all kinds by PI lawyers, something already happening in Ireland and some states of Australia.

Shape without form, shade without colour,

Paralysed force, gesture without motion.

T S Eliot

The Hollow Men

HOKEY-COKEY IN THE COURT OF APPEAL – THE 10% DAMAGES INCREASE FIASCO

In spite of the Court of Appeal’s version of the hokey-cokey in Simmons v Castle with the 10% uplift in damages, – in – out – and certainly now shaken all about, the Government’s stated intention is that all of the Jackson and associated reforms will come in on 1 April 2013.

I admire the Court of Appeal for having the guts to admit it was wrong, especially as it was my piece “Things Fall Apart – Jackson, 10% and the Court of Appeal” wot done it, but one wonders what was in its collective mind to start with.  Just as with “mirror, signal, manoeuvre” the order of things is “evidence, submissions, decision”, and not any other order.

So here a chance to read the piece that made the Court of Appeal think again. Of course had they asked me in the first place, rather than basing everything on Lord Justice Jackson’s delegates at the Worshipful Company of Stupidly Rich City Lawyers or whatever, their judicial blushes would have been spared.

Small victories and all of that, so here goes…

 The Jackson Report proposed that general damages be increased by 10% so as partly to compensate claimants for having to pay the conditional fee success fee themselves, out of damages, once recoverability of success fees is abolished.

Section 44 of The Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO) abolishes recoverability of success fees from a date to be determined by Regulations, but the Government has made it clear that that date will be 1 April 2013 and that the provision will apply only to conditional fee agreements signed on or after that date.

Thus a client with a pre-1 April 2013 conditional fee agreement will recover any success fee from the losing party, whenever the case ends, and clearly in some cases that will be years after 1 April 2013.

The Jackson 10% increase was not dealt with in LASPO and it was unclear as to how the increase would be effected.  It appeared that the answer had come from the Court of Appeal, and I set out below the Court of Appeal’s decision and its consequences.

However as a result of these observations it was announced on 3 September 2012 that the Court of Appeal is re-opening its decision.

As Litigation Futures – http://www.litigationfutures.com/news/court-appeal-reopens-ruling-10-damages-uplift – said

“the decision [in Simmons v Castle [2012] EWCA Civ 1039] came out of the blue in late July after the court hijacked a straightforward application to approve a settlement of an appeal in a personal injury action to make its pronouncement – There was no argument on the issue before the court.”

My piece criticising this decision – “Things fall apart – Jackson, 10% and the Court of Appeal” first appeared on Litigation Futures website and is largely reproduced below.

Watch this space.

What happened in Simmons v Castle [2012] EWCA Civ 1039

is that the Court of Appeal was dealing with a consent order, which would normally be dealt with by a single Judge in writing.

However the Court of Appeal brought out its big guns – the Lord Chief Justice, the Master of the Rolls and the Vice-President saying:

“….this appeal provides an appropriate opportunity for this court to announce an increase in general damages in most tort actions with effect from 1 April 2013”.

The Court had decided that the increase shall apply to all cases where judgment is given after 1 April 2013, whether or not the matter is being conducted under a conditional fee agreement and irrespective of when that agreement was signed.

Thus all of the judgments for the first year or so would give a bonus to claimants represented under a conditional fee agreement as the success fee in relation to any conditional fee agreement pre-dating 1 April 2013 will remain recoverable from the defendant, who will also have to pay a 10% increase in damages.

This could easily have been avoided.  At Paragraph 19 of its judgment the court says:

“We have concluded that it should apply to all cases where judgment is given after 1 April 2013”.

Had the court added the words: “save where the claimant is represented under a conditional fee agreement with a recoverable success fee” the issue would not arise.

The Court of Appeal appeared to recognize that its decision was likely to be highly controversial as in Paragraph 19 it went on to say:

“It seems to us that, while it can be said that this conclusion does not achieve perfect justice in every case, the same thing can be said about any other answer to the question”.

The decision was clearly unfair to defendants but in the words of the Lord Chief Justice “has the great merits of …..providing a simplicity or clarity”.

Or does it? Nowhere in the judgment is Part 36 mentioned, and as with Qualified One Way Costs Shifting, it is the failure to address the interplay between Part 36 and these reforms which threatens to make Jackson implementation anything but simple.

Supposing a claimant now offers £10,000.00 and a defendant now offers £9,500.00 and in April 2013 the court awards £9,200.00, uprated by 10% to £10,120.00.

Has the claimant beaten its own offer, thus qualifying for indemnity costs, or has the claimant failed to beat the defendant’s offer, thus incurring liability for all of the defendant’s costs from 21 days after the defendant’s offer?

Why should a defendant who has made an offer now, which is above what a court would order now, not get the Part 36 benefits? In the scenario set out above salt will be rubbed in to the defendant’s wound as he will have to pay indemnity costs as well!

Of course it can be argued that any defendant can now increase its Part 36 offer by 10%, but why should a defendant pay over the odds now in relation to a regime not yet in?

In any event that is not a complete solution.

Supposing a defendant in a clinical negligence case made an offer of £200,000.00 in August 2010 and now, in August 2012, increases that to £220,000.00 and in April 2013 the court awards £190,000.00 uprated to £209,000.00.

The defendant has at each stage offered more than the claim is worth, but presumably will only get costs protection from the Part 36 offer made in 2012. Thus, entirely unfairly, the defendant will have to pay both its own costs and the claimant’s costs for the two years between August 2010 and August 2012, even though throughout that period there was on offer a sum which should have been accepted.

Actually it is even worse.  On 17 July 2012 Jonathan Djanogly, the Parliamentary Under-Secretary of State, Ministry of Justice, issued a written Ministerial Statement dealing with various matters, including the introduction of the 10% uplift in damages where a claimant matches or beats its own Part 36 offer.

This 10% is wholly separate from the 10% general damages uplift.  It applies in all cases, contract as well as tort, and to special damages as well as general damages, although subject to a cap of £75,000.00 in relation to the additional award.

Let us revisit the clinical negligence case above.  In August 2010 the defendant makes a Part 36 offer of £700,000.00 to include general damages and special damages.  As we have seen the correct level of general damages is £190,000.00.  Let us assume that £500,000.00 is the correct level of special damages.

However this time the defendant has not increased its offer to reflect the proposed general damages uplift.

On 9 March 2013 the claimant makes a Part 36 offer of £705,000.00.

In April 2013 the court awards £190,000.00 general damages and £500,000.00 special damages, total, in old money, of £690,000.00.

The general damages are uprated by 10% to £209,000.00, giving a new total of £709,000.00, which means that the claimant has beaten its Part 36 offer made just 4 weeks earlier, and in the certain knowledge that the judgment would be given after 1 April 2013.

The claimant automatically receives a 10% Part 36 bonus on the whole sum, that is an additional £70,900.00, that is £89,900.00 more than the case was worth on 31 March 2013.  The only way that the defendant can avoid this is by accepting the claimant’s offer and thus paying more than the claim is worth, while the claimant, having failed for over 2 years to accept a perfectly good offer – gets all costs.

In fact it is much more complicated than that.  Part 36 offers usually encompass both general damages and special damages in one sum.  However it is only general damages, not special damages, that will receive the 10% uprating, so in each case the court, having made its award, will need to dissect any Part 36 offer – claimant’s as well as defendant’s – to see precisely how much of the offer related to general damages, to see who has beaten what.

Law is often said to be a matter of chance but courts should not be casinos, and it is never a good idea to make the outcome of a case dependent upon the date that judgment is given.

Turn the clock forward.  It is mid-afternoon on Thursday 28 March 2013.  Our clinical negligence case is being heard and the Judge is about to give judgment for £690,000.00, which unbeknownst to him or her will fail to beat the defendant’s August 2010 Part 36 offer, resulting in an award of £690,000.00 less all of the defendants costs from 21 days after the Part 36 offer, with the claimant bearing its own costs from August 2010 onward.

There is a fire alarm.  The Judge adjourns the matter to 9.00am Tuesday 2 April.

It has been Easter weekend.  Appropriately a miracle has occurred.  The award has become £779,900.00 plus all costs.

I could not make it up. Parliamentary debate and properly drafted transitional provisions would have avoided all of this.

I admire these Court of Appeal judges enormously, but nothing but bad ever comes out of Judges stepping in to the political arena.

Having made a lengthy and tortuous attempt to justify judicial implementation of part of a highly controversial report not implemented by Parliament, the Lord Chief Justice says, at Paragraph 19 of Simmons v Castle:

“The only remaining question is precisely how the increase should be applied”.

The only remaining question?

If only!

Oh to be a costs lawyer now that Jackson is near!

PROPORTIONALITY: THE EMPEROR’S NEW CLOTHES

In the Jackson Report proportionality is dealt with in Chapter 3, pages 27-39 and Lord Justice Jackson’s proposed wording for a new rule in relationship to proportionality has been adopted, as announced by Lord Neuberger, President of the Supreme Court, but then Master of the Rolls. The proposals for Jackson implementation change almost daily. What follows is the position as at 23 January 2013. As things progress this piece will be updated and notification will be via Twitter @kerry_underwood

The current rules are that on a standard basis assessment the court will “only allow costs which are proportionate to the matters in issue” (CPR 44.4(2)(a)). When the Court of Appeal was asked to interpret what “proportionality” meant in Lownds v Home Office [2002] EWCA Civ 365 it held: “what is required is a two-stage approach. There has to be a global approach and an item by item approach. The global approach will indicate whether the total sum claimed is or appears to be disproportionate having particular regard to the considerations that Part 44.5(3) states are relevant. If the costs as a whole are not disproportionate according to that test then all that is normally required is that each item should have been reasonably incurred and the costs for that item should be reasonable. If on the other hand the costs as a whole appear disproportionate then the court will want to be satisfied that the work in relation to each item was necessary and, if necessary, that the cost of the item is reasonable.”

The new rule will be CPR 44.4(5) and will come in to effect on 1 April 2013 and will read:

“44.4(5) Costs incurred are proportionate if they bear a reasonable relationship to:

(a)    the sums in issue in the proceedings;

(b)   the value of any non-monetary relief in issued in the proceedings;

(c)    the complexity of the litigation;

(d)   any additional work generated by the conduct of the paying party; and

(e)   any wider factors involved in the proceedings, such as reputation or public importance.”

These definitions are not straightforward. Take “the complexity of the litigation.” Fine – but what figure is to be put on this? A 50% uplift? Or a line by line examination of the work done due to “complexity” which takes one back to the Lownds test?

Likewise “any additional work generated by the conduct of the paying party.” Is that any work, such as denying liability or obtaining their own expert’s report? Or is it only to be misconduct that triggers extra fees?

Lord Neuberger summarized the aim of the new test as:

“effectively reversing the approach taken in Lownds. In this way, as Sir Rupert said, disproportionate costs, whether necessarily or reasonably incurred, should not be recoverable from the paying party. To put the point quite simply: necessity does not render costs proportionate”.

Lord Neuberger went on to say:

“As such it seems likely that, as the courts develop the law, the approach will be as Sir Rupert described it:

“….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”.

He added:

“It would be positively dangerous for me to seek to give any sort of specific or detailed guidance in a lecture before the new rule has come into force and been applied. Any question relating to proportionality and any question relating to costs is each very case-sensitive, and when the two questions come together, that is all the more true. The law on proportionate costs will have to be developed on a case by case basis. This may mean a degree of satellite litigation while the courts work out the law, but we should be ready for that, and I hope it will involve relatively few cases”.

Surely the whole point of proportionality is to give a broad-brush approach as to what is a proportionate level of costs to incur to recover, say, £25,000.00, or £50,000.00 or whatever.

True it is that no two cases are the same, but most litigation is routine and involves predictable factors. Most litigation is not test litigation and does not involve any wider factors, such as reputation or public importance.

If each case must be considered on its merits, then inevitably the courts will be looking at what work was it necessary and what work was it reasonable to carry out, but this is of course what is supposed to be forbidden under the new rule, as it is simply a return to Lownds. Indeed everything comes back to Lownds, maybe because it was a well-thought out judgment which addressed all of the issues and dealt with them. Why re-invent the wheel?

Unless specific, detailed advice is given, then what is the point of proportionality? Why should the country’s most senior judge not say:

“I have spoken with my judicial colleagues and reviewed the evidence and unless factors (d) and/or (e) apply I would expect a party never to recover more in costs than a sum equal to 40% of damages in a personal injury claim, 20% in a commercial claim……”

etc, etc.

As Simon Gibbs has said:

“Indeed, it is difficult to see why the answer to the issue of what is a proportionate level of costs to recover £25,000.00 should normally vary from case to case”. And

“I have yet to meet a costs practitioner who believes that the new proportionality test is workable. More worryingly, I have yet to meet a costs judge who is able to explain by what margin, if any, a Bill of Costs in relation to routine litigation that has been assessed at £75,000.00 applying the reasonableness test should then be reduced down to if the amount in dispute was only £25,000.00.”

True proportionality is achieved by fixed costs, or capped costs and of course contingency fees are the purest form of proportionality.

Absent fixed or capped costs no jurisdiction has ever succeeded in developing a consistent judicial approach to proportionality. That is unsurprizing as it is an entirely meaningless word in a financial context when not applied as a strict mathematical formula.

Proportionality = The Emperor’s New Clothes, which is why no court has ever applied it.

It is the costs equivalent of having the Ogden Tables without any of the figures filled in, or a crossword where the setter has not thought out the answers.

Now, Lord Neuberger is a very good judge indeed and has the chance in his new post of President of the Supreme Court to achieve greatness.

I believe that he knows that the piecemeal implementation of what was in any event a deeply flawed report is likely to be a disaster, and that he is laying the ground for what may turn out to be massive judicial intervention to prevent the civil justice system falling into chaos.

Predictions of “satellite litigation” and “a period of slight uncertainty” by the judiciary about a change in the law are hardly statements of judicial approval.

Specialist costs counsel Andrew Hogan, commenting on the model now adopted said:

“The notion of a “long stop” discount test of proportionality, is a recipe for satellite litigation, as it will introduce chronic uncertainty into the assessment of costs, both in terms of when such a deduction will be applied and in terms of what the quantum of deduction might be. Perhaps, more significantly, it is even more disappointing that even now, some 15 years after Lord Woolf ‘borrowed’ the concept of principle of proportionality from European Union law, it remains a nebulous and uncertain concept, hard to define and even harder to apply, which is conceptually very odd, when one considers that the stated aim of Jackson was to reduce perceived disproportionate costs to a proportionate level. If you can’t define proportionality, how can you judge whether you have succeeded or not in moving from a disproportionate model of costs to a proportionate one?”

I leave the last word, for now, to Master Haworth of the Senior Court Costs Office, who, speaking at the LexisNexis Costs and Litigation Funding Forum on 31 October 2012, said that the new rule on proportionality was vulnerable to court challenge:

“It’s going to be left to decisions up and down the country to determine what is proportionate”,

which of course utterly defeats the point of proportionality.

 

 

NHS LITIGATION AUTHORITY: HOW IT MISLED PARLIAMENT

One year ago I wrote about the 2010-2011 NHSLA Report to Parliament and suggested that its statement that “after large increases in previous years we saw new claims volumes for newly reported clinical claims rise by around 30% in 2010-2011″  was misleading and that the truth was very different. (Click here for original piece: http://kerryunderwood.wordpress.com/2011/08/25/nhs-litigation-authority-has-it-misled-parliament/ )

The press picked up on the NHSLA statement and lurid headlines followed with this being used as yet another example of the compensation culture.

I said then that “No such increase ever occurred” and that the true figure, based on other statistics was between 6.67% and 7.51%, an increase indeed, but consistent with previous increases.

The reason behind the apparent increase was a change in the reporting methods, something tucked away on Page 12 of the report, whereas the headline figure was contained in the opening statement of Mr Steve Walker, the then Chief Executive, but no longer in that position.

I said:

“Of course next year, based on this year’s higher figure and using the same, new, recording procedure the percentage increase will revert to a true figure, so it is just this one year when the percentage increase is distorted upwards”.

Now it is next year and the 2011-2012 Report has been published.

Was I right?

Yes.  This year’s report shows that the number of new claims rose by 6% with clinical claims rising by just 5.6% and non-clinical claims by 6.3%.

These figures are very similar indeed to last year’s true figures, and actually show a slight drop in the rate of increase in the number of claims, and indeed this year’s report recognizes that this year’s increase is “lower than each of the previous three years” (Page 11).

Nevertheless, Mr Tom Fothergill, Director of Finance, persists with the fiction that there was a large rise in claims last year, saying:

“The number of new claims received in the year rose by 6%, a significant increase but a substantially lower one than in 2010-2011.” (Page 11) and

“As the graph indicates, clinical and non-clinical claims grew at a similar rate (5.6% and 6.3% respectively) after the sudden sharp rise of over 30% in clinical claims in the year before” (Page 11).

Mr Fothergill, like Mr Walker before him, knows full well that there was no “sudden sharp rise” – indeed he goes on to say:

“Part of the growth in claims volumes in recent years is attributable to the earlier reporting of claims….”.

In fact the whole of the apparent additional jump last year, over and above the rise of 6% or so, is explained by a change in the reporting system.

Misleading Parliament is a very serious matter.  In this case it is even more serious than normal as the misleading 2010-2011 Report to Parliament was the current Report throughout the period that Parliament debated and voted upon the Legal Aid Sentencing and Punishment of Offenders Bill, which became law 3 months ago.  That Bill, now the Legal Aid, Sentencing and Punishment of Offenders Act 2012, largely abolished legal aid for clinical negligence cases and also, through abolishing recoverability of conditional fee success fees, made it far harder for claimants to bring claims.

I am not saying that the outcome of the Parliamentary debates would have been different had this misleading report not been published.

I simply do not know.  However, we all know that this was a highly controversial Bill which suffered a record number of defeats in modern times in the House of Lords.

I am not expecting banner headlines in the Daily Mail or The Telegraph.

“NHS claims rise lowest in 4 years”

but I do think that there should now be a Parliamentary Inquiry in to this matter.

If a public body has misled Parliament in a way that has affected the passage of legislation that affects millions of people then that is a most serious matter indeed.

BECOMING AN OPERA SINGER

In tune with this weekend’s festivities Lucy Mervik, an Opera singer sponsored by Underwoods Solicitors, hijacks my blog for a day.

Fresh from the convent, a young Dorset girl arrives in the Big Smoke, full of operatic hopes and dreams.  12 years on, after 8 years of formal music education, 2 years of floating between Australia, Germany and UK, another 2 years on a Young Artist Programme and one daughter later, I still feel like that young Dorset girl, with my hopes and dreams intact, but a little bit closer!

Being a young and ambitious opera singer I wouldn’t let anything knock me off my path, no matter how convoluted and winding the road!  I would flash my smile at potential employers, sponsors and audience members; I became a better actress than a singer, often fooling myself that finances would be fine, arriving on stage in a glitzy concert gown yet barely being able to rub two pennies together for the tube ride home.

Working several jobs whilst completing my degree and Masters, I never lost sight of my goal, and thanks to Underwoods Solicitors I had financial support for my tuition fees, and the knowledge that others believed in me.

On completing a Masters of Music at the Guildhall School of Music and Drama, I spent two seasons in Germany and then relocated to Perth with my fiancé.  One huge advantage to being a singer is that you can do your job anywhere, and moving to the most remote city in the world certainly seemed to put that theory to the test!  I auditioned for the state opera company, West Australian Opera and was delighted, and relieved, to be offered chorus work in all their operas and a small role in the first main stage production of the season.

18 months on and I was offered a position on their Young Artist Programme, despite being 4 months pregnant with our first child.  I continued on, singing in main stage productions until I was fit to burst, asking wardrobe staff for mens’ braces to lift the heavy material of the skirts off my ever burgeoning bump!

High heels were out, and comfy character shoes were in, costumes had to be let out left, right and centre!  I was competing on the concert platform too, with only 3 weeks until my due date – but I was reassured that a patron of the competition had, in his day, been a highly sought after obstetrician, and if anything were ‘to happen’ he would jump (or rather hobble) on stage to my aid!

I returned to work and studying for the Young Artist Programme just 2 weeks after giving birth to our beautiful daughter Ella Grace, rehearsals and classes seemed easy compared to the night feeds, constant nappies and juggling of babysitters, and I had to be super organised.  The hard work paid off, and despite having a baby of only 6 months of age, I was offered the prestigious Wesfarmers Arts Young Artist Scholarship 2012.

The year is flying by with lessons, coachings, language classes, roles to learn and operas and operatic concerts to perform in.  At the end of the year I will be auditioning and competing in Sydney and Melbourne, as well as Perth.

Perhaps we all have our fate written in the stars, and all our decisions made for us already, or maybe, just maybe, our fortune is changed by the good will of others.

Sponsorship and support comes in all shapes and sizes, and whilst financial support is often what artists need, moral support cannot be underestimated.

Having Kerry Underwood sitting in the audience in a theatre in Germany, having flown there to support me in my first post-masters production, meant I knew that one person in the audience already believed in me.  Now my job was to convince the other 99!

Visit Lucy’s website at

http://lucymervik.com/

Lucy Mervik is sponsored by Underwoods Solicitors

Back to the future……

In these turbulent times for lawyers and their clients, with the Legal Services Act challenging the whole concept of law and the legal profession and the Legal Aid, Sentencing and Punishment of Offenders Act 2012 having largely abolished civil legal aid and the Enterprise and Regulatory Reform Bill, presented to Parliament this week, about to wipe out employment rights, it is salutary to reflect on some of our earliest laws and the history of the institutions now under threat.

Jackson Reforms?  Check out the Commands in Delay of Justice Act 1328 and the Civil Procedure Act 1330.

Think that employment protection is a late 20^th Century invention, now being abolished just 50 years later?  Take a look at the Labourers Act 1368, the Labourers’ Wages Act 1389 and the Apprentices’ Fees Act 1530.  True it is that disabled workers had no special protection until the Disabled Soldiers Act 1592, but that is still 403 years earlier than most lawyers realize.

But on gay rights – I am not sure that the Buggery Act 1553, the Sodomy Act 1548 and the Sodomy Act 1562 would have encouraged anyone to come out.

The oldest statute still in force is the Distress Act 1267, although three sections of Magna Carta, originally signed in 1215, are still extant, but they were re-enacted in 1297.  Magna Carta was an agreement between the king and the barons, not an Act of Parliament.  The earliest Act of Parliament was the Coparceners Act 1229, but the second oldest Act is the Attorneys in County Courts Act 1235.  Thus county courts and the concept of paid advocates in those courts, go back nearly 800 years.

Other 13^th century statutes include the Limitation of Writs Act 1235, the Inquest Act 1267, Juries Act 1267, Suits of Court Act 1267, Champerty Act 1275, Coroners Act 1275, Maintenance Act 1275, and a forerunner of today’s ASBOs, or the forthcoming CRIMBO’s, the Trespassers in Parks and Ponds Act 1275 (followed in 1331 by the Arrest of Night Walkers Act and in 1388 by the Nuisances in Towns Act).

The Recovery of Damages and Costs Act came in 1278, and if you think that ‘homicide’ is some modern Americanism take a look at the Homicide Act  1278, or that the intestacy rules were a clever Victorian idea, then read paragraph 27 of Magna Carta 1215.

However, it is the Statute of Westminster 1275 which is by far the most important early Act of Parliament and indeed some historians regard 1275 as the true beginning of Parliament in its modern form.

The Statute was a consolidating measure: “A code by itself; it contains 51 clauses and covers the whole ground of legislation.  Its language now recalls that of Canute or Alfred, now anticipates that of our own day; on the one hand common right is to be done to all, as well poor as rich, without respect of persons” says The Constitutional History of England by William Stubbs.

The Statute created the concept of time immemorial, that it time beyond legal memory and the formal beginning of English law, and set it at 3 September 1189, the accession of Richard I.

This was (and is) the earliest date from which evidence in land disputes could be considered because then, in 1275, a living man might be able to testify about what his father had told him existed in 1189 (rights for women were still some way off – 643 years off, actually).  In the alphabetical Dictionary of Legal Terms “Time Immemorial” appears just four places below “Tesco Law”.

The general right to bail was created by the Statute as was the need for fines to be proportionate to the offence.

The court system already existed, but many of the procedures were codified by the statute.  Trial by jury, seemingly under constant threat from recent governments, had existed since at least as early as 1164 when it was ordered by the King, without a Parliament then, that “The sheriff shall make twelve legal from the neighbourhood to swear that they will make known the truth according to their conscience”.

Later Acts insisted that juries try matters “according to the facts” a controversial measure.  Fortunately even today juries will revert to trying matters according to their conscience and, have, in appropriate cases acquitted in the face of apparently overwhelming evidence.

The most significant parts of the Statute for solicitors are those relating to costs.  The Statute established the principle that the loser pays both sides’ costs and also outlawed champerty and maintenance, but see also the Maintenance and Champerty Act 1285.

Other, apparently modern concepts, are, in fact, ancient.

Worried about over-fishing– take a look at the Salmon Preservation Act 1285.  Unsure about the law on representing children – you need the Suit of Infant by Next Friend Act 1285.  Consumer protection – see the Weights and Measures Act 1303 or paragraph 35 of Magna Carta – “Let there be one measure of wine throughout our whole realm; and one measure of ale; and one measure of corn, to wit, “theLondonquarter”.

Legal Aid, virtually abolished by the Legal Aid, Sentencing and Punishment of Offenders Act 2012 as far as civil legal aid is concerned, stems not from 1949, but from 1488 in Scotland, followed in England by the Poor Persons Act 1495, which:

-          exempted the poor from court fees;

-          assigned lawyers to prepare pleadings and represent poor people free of charge.

In 1531 a statute (Hen. 8 C15) removed the liability of poor persons for the costs of a successful opponent, something picked up again 418 years later in the Legal Aid Act 1949.

The 1531 Act remained in place until the 19^th Century when the Clarkes and Camerons of the Victorian era held sway.  Throughout the 19^th Century the only official assistance was an in forma pauperis procedure codified by the Forma Pauperis Act 1893 and that applied only to the superior courts and indeed remained in force until 1960, as the Legal Aid Act 1949 did not cover appeals to the House of Lords.

The Civil Procedure Act 1883 made provision for Legal Aid to be granted by courts.  In the early 20^th Century a poor persons’ procedure was introduced by the Rules of the Supreme Court (Poor Persons) 1914, but it did not cover county court cases.

Thus we are now back to the early 16^th Century.

What goes round comes round.

FREE LEGAL WORK (PRO BONO): NO THANKS!

For all of you as fed up as I am by the notion that lawyers, alone of all trades and professions, should carry out work free, I am happy to provide a template reply.

This is an actual exchange between a person we had had no previous contact with, who, surprise, surprise, obtained our name from an Internet Search, and Robert Males, my business partner, who, normally is rather milder-mannered than me.

 

Hello,

are you able to provide free legal representation? I am working, however I am not able to afford solicitors fees.

Thank you

 

Robert Males’ reply

Dear           

 

I thank you for your enquiry.

 

My firm does not provide free legal representation. If my firm’s bank provides interest free loans, my governing  body, the Solicitors Regulation Authority, will authorize my firm to practise for free, my firm’s professional indemnity insurance is reduced to nil, my firm’s staff will all work for nothing, if the computer company who I deal with will provide all computers and servicing free of charge and if the stationery business who we deal with will give us all paper and consumables for free and the utilities will provide gas, electricity and water for free then I may be in a position to provide free representation. Until that time I am not.

 

My firm does however do a considerable amount of free work for charitable institutions including the Royal British Legion and the Lord’s Taverners charity for disadvantaged children as well as making donations to other very good causes.

 

The only reason that we can do this is because we charge our clients for the very high quality legal advice and work that we do on their behalf.

 

Yours sincerely

 

Robert Males

Solicitor

Managing Partner

UNDERWOODS SOLICITORS

JESUS AND THE TWELVE CONSUMERS

The Legal Ombudsman investigates, and seeks to resolve, complaints about the service provided by lawyers.

In his March 2012 report he states that the term client “embodies the traditional view of the relationship between lawyers and those they represent” and that the “notion of a consumer turns this relationship on its head.  In most businesses, the consumer has the power and can choose which services to buy from which provider”.

The Ombudsman’s suggestion is that many of the perceived problems with lawyers could be solved by a change of name and culture; everything will be fine if we are all consumers, conveniently ignoring the dreadful service that we consumers get from the banks, the utilities, insurance companies etc.

The attempt to turn all clients, patients, pupils, parishioners, passengers, constituents, readers, theatre-goers  etc. into consumers is Orwellian.  It equates law, medicine, teaching, religion, democracy and the rule of law itself to the equivalent of a packet of cornflakes.  For many of us the low point of the last Government was the fatuous statement of the Minister for Justice that obtaining legal advice should be no different from buying baked beans.  It is the language of the lowest common denominator.

It is true that the term “client” or indeed “patient” denotes dependency but why should that be considered a bad thing?

Far from being undesirable, surely mutual dependency is the hallmark of a civilized society.  One is dependent upon a doctor, one’s children are dependent upon teachers, one is dependent upon a pilot when you fly, a plumber when you have a leak etc.  What is wrong with that?

The logic of consumerism is each person for him or herself, which is why it is a right-wing concept – think United States of America.  Now, there may be a legitimate view that “there is no such thing as society”, that there should be no mutual dependency, but rather each person for himself and devil take the hindmost, but will the bleeding-heart brigade please recognize that consumerism is Thatcherite, right-wing ultra-conservative philosophy?

Recently I flew back from Barcelona and the plane hit severe turbulence.  The pilot was re-assuring and handled everything superbly and landed us safely.  All of us were totally dependent upon him, a trained pilot.  I was also glad that I was flying with British Airways and not a budget airline.

Is there any difference between that situation and a trained lawyer guiding a client through the personal storms that life throws up?

Client is a term of respect for the client.  Consumer is not; indeed the dictionary definition of “consume” is:

Destroy, occupy or waste time, spend (money or goods) especially wastefully, use so as to destroy; take up and exhaust; use up, eat up, drink down; devour, waste away with disease or grief, decay, rot, burn away

The very language is absurd – imagine – “I must finish this now – I have a consumer waiting”.

Law is an art and not a science.  Hermann Hesse, in The Glass Bead Game, tells of a society where all art and emotion is reduced to a mathematical formula represented in a three-dimensional glass bead game, and then demonstrates the fallacy of this uber-rational view of human behaviour.

The Legal Ombudsman belittles and demeans the very people he purports to represent. He patronizes them in the way that he thinks that we do.

So, with Easter here, reflect upon the Last Supper and Jesus and his Twelve Consumers.

 

BBC Radio 4: You and Yours 5 March 2012

BBC Radio 4: You and Yours 5 March 2012

 

For a discussion of Alternative Business Structures, including an interview with me, please click

http://www.bbc.co.uk/iplayer/console/b01cvk8g

21 minutes 27 seconds in.

 

Kerry Underwood

Cape Town Opera in Oxford!

I am organizing on behalf of the Lord’s Taverners in association with Underwoods Solicitors a performance by Cape Town Opera at the Sheldonian Theatre in Oxford at 8.00pm on Monday 11^th June 2012.

The programme will include spirituals, opera choruses and excerpts from the new South African opera Mandela Trilogy and will also include popular arias.

All proceeds will be split equally between the Lord’s Taverners charity for disabled children and Cape Town Opera. The Opera company is performing free of charge and Underwoods Solicitors are paying for the hire of the Sheldonian, and Shurtape Limited are sponsoring the programme.

Thanks also to Perrins Solicitors, John Allen,Chris Potter, Joe Egan Solicitors and Villa Plus for sponsoring seats for students and children, and thanks to Nicholas Cleobury for help with all matters musical.

Tickets are £10 for the wooden benches, (£7.50 for students), £20, £30 and a few remaining at £50 and are available in advance of going on general sale to followers of this blog and my followers on Twitter. Contact me on 01442 430900 or email me at kerry.underwood@lawabroad.co.uk.

In a summer featuring the London Olympics and Paralympics, the Queen’s Diamond Jubilee and Euro 2012 this will be one of the great highlights, combining a truly outstanding and original Opera company with one of the loveliest theatres on the planet.

Being a fanatical Queens Park Rangers supporter I am well aware that 11^th June sees England play France in Euro 2012, so we have a list of pubs within walking distance of the Sheldonian that will be showing the football. Kick-off is at 5.00pm and the game will be over by 7.00pm.

Cape Town Opera 

I am very familiar with Cape Town Opera as I sit on the Board of the UK Friends of Cape Town Opera and Underwoods Solicitors deals with Cape Town Opera’s legal work free of charge in the United Kingdom and South Africa.

Archbishop Desmond Tutu says:

“The South African voice is unique, rich with colour and strength and its represents this country’s best qualities – Cape Town Opera gives to audiences…..the opportunity to experience that wonderful South African sound, what a gift”.

Click www.capetownopera.co.za for more information.

Lord’s Taverners 

The Lord’s Taverners is the UK’s leading youth cricket and disability sports charity.  Its mission is to give a sporting chance to those in need.  Its focus is on youth cricket in disadvantaged areas and sports and recreational equipment for young people with disabilities and special needs, including sports wheelchairs, specially-adapted minibuses and sensory play areas.

Both partners of Underwoods Solicitors, Robert Males and Kerry Underwood, are active members. 

Click www.lordstaverners.org

Sheldonian Theatre 

Built by Christopher Wren between 1664 and 1668 the Sheldonian Theatre was opened with great ceremony in 1669, and is described in the King’s England as -“perhaps the most distinctive of all the noble buildings in the Broad”.

The interior of the theatre, with its tiers of struts and a gallery borne on wooden pillars is an impressive sight. The flat ceiling shows the Triumph of Virtues, Arts and Sciences over Envy, Hatred, and Malice with cherubs tumbling over clouds in joyful accompaniment”.

Click www.ox.ac.uk/sheldonian for more information.

Sponsorship opportunities 

£75.00 buys ten seats for students/children and a mention in the souvenir programme.

£750.00 buys a full-page advert in the souvenir programme.

£1,000.00 buys co-sponsorship of the souvenir programme, including a full-page advert.

This will be a night to remember. I want the Sheldonian rocking and I want your help!

Nkosi Sikele ‘I Afrika

God Bless Africa

Kerry Underwood

Thank you!

 

A big thank you to all of you who have subscribed to my blog. I have been a bit quiet on the blog front lately but will make up for it in 2012.

Rather than just saying thank you I have some treats on offer.

At Underwoods Solicitors we have Club Wembley tickets so contact me if you would like to watch a match at Wembley Stadium. Apparently not everyone likes football! So we have some other treats on offer.

By kind permission of TRH the Prince of Wales and the Duchess of Cornwall we have access to the fascinating gardens at their home, Highgrove, near Tetbury in Gloucestershire. The cost is £18.00 and the tour lasts 2 hours.

We do Cape Town Opera’s legal work. Cape Town Opera has a major tour of the UK in summer 2012. I have organized a performance at the Sheldonian Theatre, Oxford on the evening of Monday 11^th June 2012 with all profits being split between The Lord’s Taverners Charity for disadvantaged children and Cape Town Opera. My company is paying for the hire of the theatre.

Just by returning the form online, you will be entered in to a draw and the 40 winners will receive their choice of two Highgrove tickets, two Cape Town Opera tickets or a cheque for £25.00.

Employment law affects most families and all businesses and so we are running a series of free seminars.

Please complete the response form by visiting http://lawabroad.co.uk/draw.htm and submit it to express interest in any of these events and to be entered into our free prize draw.

A very Merry Christmas and Happy New Year to you all!

Kerry

Kerry’s Modern English Usage

Atlantic Bridge:	Proper noun.  Local lodge for the Cabinet.
Bank:	Noun. Not now in polite use.  Formerly an institution that lent money (archaic).
Cameron:	Collective noun for multi-millionaires – mainly in the Cabinet.
Casino:	Noun. See Bank.
Cat:	Noun. Technical legal term concerning Human Rights Act – see May.
Djanogly:	Collective noun for Claims Management Companies. Also a condition where you are Minister in charge of your family’s businesses, as in “to have the Djanoglies”.
Fox:	Noun. Social animal that takes its best friend to work.
Fox:	Verb. To treat the Cabinet like a Freemasons Lodge – just there to help your mates.
May:	Noun. Urban myth creator, as in anything that she says May or May not be true. Derived from Old English “to Mayke things up”.
Resignation:	Noun. Cure for the Djanoglies – see above.
Silence:	Noun. Condition affecting Labour Front Bench re referral fees, possibly connected with huge income Labour Party and Trades’ Unions receive from referral fees.
Straw:	Verb. To forget, especially that you were the Cabinet Minister responsible for all of the things you now attack.
Theft:	Noun. See Bank above.
Treason:	Noun. See Bank above.

Jack Straw and referral fees

 

Jack Straw introduced a 10 minute rule Bill in the House of Commons on 13 September 2011 seeking to ban referral fees.  The Government has adopted that Bill. Referral fees will be banned in personal injury cases and it is likely to be a criminal offence, punishable by two years imprisonment, to pay or receive or offer or solicit a referral fee in a personal injury case. 

I have no problem with that.  I do have a problem with Mr Straw, a Cabinet Minister for the whole of the 1997-2010 Government, and Justice Secretary and Lord Chancellor from June 2007 to 6 May 2010 suddenly discovering referral fees. 

The Compensation Act 2006, which licenses Claims Management Companies (CMCs) and specifically regulates and authorizes the payment of referral fees, came in to force on 23 April 2007, just weeks before Mr Straw became Justice Secretary and Lord Chancellor.  His own department, the Ministry of Justice, is responsible for licensing Claims Management Companies, and the list of such companies appears on the MoJ’s website. 

Thus for most of the lifetime of regulated referral fees Mr Straw was the Minister directly responsible for them. 

Yesterday, 6 October 2011, the Legal Services Act 2007, surely the most disastrous piece of legislation of the last Government, and one of the worst in the country’s history, came in to effect. 

It allows all comers, subject to minimal requirements, to sell legal services.  The Claims Management Companies that Mr Straw dislikes so much will become Alternative Business Structures (ABSs) (the Act’s name not mine!) and will practise law. 

Thus the ban on referral fees will be utterly meaningless and irrelevant as the sellers of the work, the Claims Management Companies – will simply do the whole case themselves, or carry on selling the work to other ABSs and law firms as there has never been any restriction on payment of referral fees between lawyers. 

The whole purpose of the Legal Services Act is to allow non-lawyers to compete with lawyers on a level playing field.  Preventing Claims Management Companies which are ABSs from trading work in the way that solicitors can would defeat that objective. 

In any event CMCs which are ABSs can instruct the solicitors that they currently sell clients to on an agency basis.  Thus at present a CMC sells a client whose claim attracts costs of £1,200.00, for a £700.00 referral fee. 

Now the CMC can simply instruct the solicitor on an agency basis and pay the solicitor £500.00, keeping the balance of £700.00. 

Thus the CMC receives £700.00 and the solicitor £500.00, exactly as now and for doing exactly the same work. 

Like Theresa May and the Human Rights Act cat, Mr Straw must know this. 

The Legal Services Act 2007 received Royal Assent on 30 October 2007 at which time Mr Straw was the Lord Chancellor and the Justice Minister.  He is also a barrister.  Hate it or love it, everyone regards it as one of the most significant Acts ever in relation to law. It is inconceivable that Mr Straw was unaware of its consequences – its whole purpose is to allow CMCs and others to compete with lawyers. 

Here is the link to Mr Straw’s speech in the House of Commons seeking leave to introduce the Bill: 

http://services.parliament.uk/hansard/Commons/bydate/20110913/mainchamberdebates/part004.html 

Reading this no-one would ever have any idea that it was Mr Straw’s Government that has caused all of these problems, and specifically Mr Straw himself who was the Cabinet Minister responsible when the Legal Services Act became law. 

Thus Mr Straw himself has ensured that his proposed ban on referral fees is totally meaningless and irrelevant, but of course it attracts favourable comments in the Daily Mail, and uncritical publicity on the BBC’s website. 

I would prefer not to be governed by people like Mr Straw and Ms May.

NHS Litigation Authority: Has it misled Parliament?

                                           

“30% rise in negligence claims against NHS” screams the Daily Telegraph headline of 5 August 2011, typical of others.

No such increase ever occurred as I will demonstrate below, so where did this figure come from?

In its report to Parliament 2010-2011 the Chief Executive, Steve Walker, a Civil Servant, leaps straight in to the political arena:

“We are delighted that the Ministry of Justice is taking forward the recommendations made by Lord Justice Jackson regarding the costs of civil litigation.  We believe very strongly that a regime which allows success fees and the recoverability of After-the-Event (ATE) insurance premiums makes litigation so profitable that solicitors and so-called “claims farmers” are drawn into the market thereby fuelling the rise in claims volumes we have experienced.

After large increases in previous years we saw new claims volumes for newly reported clinical claims rise by around 30% in 2010-2011 and by around 6% for non-clinical”.

The truth is very different.

Conditional fee agreements were first allowed on 5 July 1995.  According to the NHSLA’s own figures the number of claims notified in 1997/1998, when conditional fee agreements were first becoming popular in clinical negligence claims, was 6,711.  By 2009/2010 the number had fallen to 6,652.

Recoverability of success fees and ATE insurance premia came in on 1 April 2000, apparently causing the explosion in claims.  Yet the 2007 NHSLA report said “the number of matters we receive has remained remarkably steady over recent years.  This year there was a small decrease in the number of clinical matters in 2006/2007 over 2005/2006″.

The 2008 report said: “The number of claims we receive has continued to remain remarkably steady over recent years.  This year, there was an increase of less than 1% in the number of clinical claims reported”.

Between 2008 and 2009 there was an increase in clinical claims of 11.30% from 5,470 to 6,088 and between 2009 and 2010 a further increase of 9.26% from 6,088 to 6,652.

The pattern of non-clinical claims very closely follows that of clinical claims, and the percentage rises in such claims between 2007-2008 and 2008-2009 was 10.74%, up from 3,380 to 3,743 and between 2008-2009 to 2009-2010 was 8.84% up from 3,743 to 4,074.  Previous years show a similar close correspondence.

2010-2011

Between 2009-2010 and 2010-2011 non-clinical claims rose from 4,074 to 4,346, an increase of 6.68%.

Another measure of activity is the figure of claims open at the year end.  A big surge in new claims will result in an even bigger rise in figures because it will be the older, lower, number of claims falling out whereas the new ones are all still in.  On this measure non-clinical claims showed a 7.52% rise between 2009-2010 and 2010-2011 and clinical claims showed a rise of 7.51%.

So for 2010-2011 on three measures we have rises of 6.67%, 7.52% and 7.51%.

Yet clinical claims jumped from 6,652 to 8,655, an astonishing increase of 30.1%.

Very obviously this rise has nothing to do with conditional fees or recoverability of success fees and ATE as conditional fees had been in for 15 years and recoverability for 10 years, and as we have seen claims sometimes fell during the years of recoverability.

So what DOES explain it?

Nothing, because there was no such increase.

On page 12 of the report, under “Claims Received” it says:

“Formal clinical claims received under CNST [Clinical Negligence Scheme for Trusts] saw an increase of 31.6% on 2009/2010 and non-clinical claims under LTPS [Liabilities to Third Parties Scheme] rose by 7.8%.  Part of the significant increase in claims under CNST may be explained to some extent by the requirement for claimants to now send us a copy of the Letter of Claim at the same time as it is sent to the defendant NHS body, at which point we now record the claim, but we are analysing patterns and trends to obtain a better understanding of the reasons behind the increase” (My emphasis).

Thus the headline-grabbing 30% increase is pure fiction and is obviously and readily explained by a change in reporting methods.

Why did Mr Walker not mention this?  Why make the politically charged, and wholly inaccurate, link between “large increases” and recoverability of success fees and After-the-Event insurance premia?

Of course next year, based on this year’s higher figure and using the same, new, recording procedure the percentage increase will revert to a true figure, so it is just this one year when the percentage increase is distorted upwards.

Am I being too cynical in thinking that it suited the NHSLA to present the report to Parliament in this way this year just as Parliament is considering the abolition of recoverability?

As Disraeli said “There are lies, damned lies and statistics”.

Hertfordshire Boy

Bovingdon played local rivals Sarratt at cricket last Sunday.

Until 15 years ago the villages had not played each other since the 1940’s. Rationing was in place and a Sarratt player, a farmer, had been working all hours to bring in the harvest. With hay still in his hair he turned up at tea to be told by Bovingdon that he could not bat as he had not fielded.

Protestations that people would starve had he fielded were met with the response beloved of cricket teams and lawyers alike: Rules is Rules.

Sarratt walked off for 50 years. After being out for a duck on Sunday I nearly marched off; I had courgettes to pick and broad beans to freeze.

The Sarratt – Bovingdon cold war divided families. Between the wars the Bovingdon to Sarratt love-bus ran twice a year between the two villages to bring youngsters together and, apparently, to widen the gene pool. The jury is out on whether this was successful but most villagers over 70 have one of two birthdates.

Chipperfield play Bovingdon for the Chiltern Trophy, which Bovingdon always retains, not just because of our cricketing skills but because:

- I wrote the rules; and
- Chipperfield are unaware of the existence of the trophy.

Bovingdon has the loveliest of grounds so we rarely venture away on Sundays and we always get lost when we do, culminating in the Iver Heath incident when the four cars carrying the Bovingdon stars were each first in line at the four points of a country crossroads.

One time our convoy passed the other side’s convoy coming the other way. We turned up at their ground and they turned up at ours. As the team was Nazeing Common, 30 miles away, this was a problem. Mobile phones have prevented a recurrence.

Our Sunday team, like most others, is a mix of class, race, talent and age with representatives of every decade from our Justin Bieber lookalike teenager to our seventy-something Methuselah lookalike wicketkeeper.

25 miles from London and just outside Hemel Hempstead, the world’s best town, Bovingdon is a million miles from the chatterati of Hampstead.

Ours is a better England.

RACING UNCERTAINTIES

The Great Legal Profession De-Regulation Stakes

 Westminster: 6 October 2011

Sponsors:	Office of Fair Trading sired out of Jealousy and Nihilism
Prize:	Destruction of the one part of the constitution still functioning.
Runners:
ASDA:	Fixed Price Guarantee!
	Handicap: £9.39 million fine for price fixing.
SAINSBURYS:	Handicap: Fined £11 million yesterday for price fixing.
	Try Something New today?
TESCO:	Handicap: £10 million price fixing fine.  Every Little Helps.
NEWS
INTERNATIONAL:	Won’t be able to hack it.
NORTHERN ROCK:	Poor on the home run, or anything to do with homes.
CO-OPERATIVE
FUNERAL SERVICES:	Dead Certs.
LLOYDS HBOS:	Seeking to diversify.  Might try running a bank.
	Not one for the Journey.
ROYAL BANKRUPT
OF SCOTLAND:	Took £22 billion in one day! Unfortunately it was from us.
	Would have funded 10 YEARS of legal aid.
	Rank. Outsider.

All prizes donated by the Office of Fair Trading out of fines levied on supermarkets for price-fixing; that is the same Office of Fair Trading whose report led to the de-regulation of the legal profession allowing all of the law-breaking price fixing supermarkets to become law firms.

 Well done OFT!!

Going: Awful to even worse

Distance: 900 years

Rust that clings to the form that strength has left
Hard and curled and ready to snap.

T S Eliot: Rhapsody on a Windy Night

 

Follow me on Twitter – @kerry_underwood

Legal Aid dies – aged 63

The death of civil Legal Aid, born in 1948, has been announced in the Legal Aid, Sentencing and Punishment of Offenders Bill.

A spokesperson for the Legal Aid family said:

“Legal Aid used to be a voucher scheme, with clients having an unrestricted choice of solicitors, all of whom did legal aid and who received the same fee.

“Clients paid means-tested contributions and solicitors paid 10% of their fees, including those received from a losing party, to the Law Society to administer legal aid, which thus made a profit in many cases for the Legal Aid Fund.

“It cost the taxpayer almost nothing, and most taxpayers had access to legal aid. It was very healthy and very popular.

“Then the big business profit centre mediocre middle management statists radicalized our Legal Aid. Individual clients meant nothing; solicitors meant nothing. Mass contracts and “matter starts” replaced justice, quality and professionalism.

“Most of Legal Aid’s friends deserted him; he had become unpleasant due to his terrible ‘big business syndrome’.

“This strange cult decided that Not for Profit organisations were the answer. These were Alternative Non-Business Structures funded by the State, but public spending cuts mean that they are all dying too; the Immigration Advisory Service and Law for All have just been buried and 18 out of 56 Law Centres are terminally ill.

“People do not realize how terrible this cult is and how it is infecting every area of British life.

“All Solicitors were friends of Legal Aid and then he lost most of them. His death is a release from this terrible curse.”

The Legal Aid family hopes that one day a cure will be found and request that all donations be sent to “Small is Beautiful”.

“Glance is the enemy of vision”
Ezra Pound

Follow me on Twitter – @kerry_underwood