26 December, 2007
Filed UnderLegal Costs
The main issue considered in Crane v Canons Leisure  EWCA Civ 1352 was whether the work performed by external costs draftsmen should attract a success fee. The claim had been conducted under a CCFA and, come the detailed assessment proceedings, the successful Claimant’s solicitors outsourced the work to external costs draftsmen. The Claimant’s solicitors then sought to treat the work performed by the draftsmen as forming part of their own profit costs such as to attract a success fee. The Defendant argued that the work should be treated as being a disbursement to which no success fee could be added. There was no dispute that if the work had been performed by internal costs draftsmen it would have formed part of the solicitors’ own profit costs and attract a success fee. There was also no dispute that the external costs draftsmen here would not recover the success fee themselves, this would go to the solicitors.
The decision depended on a construction of the CCFA and the definitions therein of “Base charges” as being “charges for work done by or on behalf of the Solicitors” and of “Disbursements” which were defined as “expenses which the Solicitors incur on the member’s behalf in the course of an action”.
By a two-to-one majority the Court of Appeal held that the work was to be treated as being part of the base charges and therefore attracted a success fee. In reaching this conclusion, the Court was required to make two findings:
1. That there was nothing to prevent a solicitor from delegating their own work to third parties and then charge the client a different amount, whether higher or lower, to that which they agree to pay the subcontractor. So long as the solicitor remains responsible for the work and it is work of the nature of “solicitors’ work” then it can be treated as forming part of the base costs. This part of the decision is of wider application as it gives general guidance as to the distinction between base costs and disbursements.
2. That the CCFA treated the work performed by the external draftsmen as falling within the definition of “Base charges” as opposed to “Disbursements”. This is an issue of construction and there may therefore be other CFAs/CCFAs where a different conclusion could be reached. It is interesting to note that the wording of both the old and new Law Society’s Model Conditional Fee Agreements defines “Basic charges” as being “our charges for the legal work we [emphasis added] do on your claim for damages” and deals with “Advocacy” on the basis that “the cost of advocacy and any other work by us [emphasis added], or by any solicitor agent on our behalf, forms part of our basic charges”. Would the same conclusion have been reached if one of these CFAs had been used? Although this decision is likely to be leapt on by claimants’ representatives as providing a definitive answer to the question as to whether a success fee can be charged on external draftsmen’s fees, the issue may not be quite so clear cut.
This decision does raise a number of issues of concern for defendants:
1. The potential adverse costs to which a defendant may be exposed in detailed assessment proceedings is considerably higher in light of this decision. A large number of claimant solicitors outsource costs work to external costs draftsmen and such work is now, potentially, likely to attract a success fee. (There is also a linked, and worrying, issue as to whether cases to which the fixed success fee regime now applies would have the 100% trial figure triggered, to the costs of the substantive action and/or the assessment costs, if the matter proceeds to detailed assessment. For the purposes of the rules, a “trial” is defined as including “the contested hearing of any issue ordered to be tried separately”, which could be treated as including detailed assessment.) This additional success fee to which defendants may be exposed, combined with the recent increase in the court fees for detailed assessment, highlights the importance of defendants making early and realistic settlement offers in relation to costs.
2. Given the Court of Appeal has given the go ahead to solicitors to outsource work at a lower charge, and then claim the work at a higher rate, what does the future hold? Is it easy to imagine some of the more imaginative schemes that will be set up to generate additional revenue for claimant solicitors. Will success fees now be claimed on work done by medical agencies?
3. Difficulties are likely to begin to emerge in trying to quantify the value of work done. For example, if a solicitor in Liverpool outsources work of a fee earning nature to a firm in India, what hourly rate is appropriate, even assuming that the paying party discovers what has been done?
Secondly, the Court was asked to reduce or disallow the success fee in relation to the detailed assessment proceedings on the basis that the risks attributable to detailed assessment are entirely distinct to those relevant to the substantive claim. The Court rejected these submissions and, following earlier decisions, held that there was no duty for a solicitor to set different success fees to different parts of a claim and that, unless the CFA itself was staged, the courts had no power to impose different success fees for different periods. Whatever success fee was reasonable at the outset would apply throughout, including to any detailed assessment proceedings.