Specialist costs counsel Dr Mark Friston has put together an invaluable guide to the recent decision in MGN v United Kingdom, concerning success fees. He has been kind enough to allow the Legal Costs Blog to host a copy. It can be read: here. One Blog reader, when thanking Mark in advance for this, commented that they did have a copy of Civil Costs: Law and Practice and this briefing note should perhaps be treated as “excellent after sales service”.
It may be that there is less of a delay than previously expected before we see the approach that the English courts may adopt to the MGN v UK decision. Many readers will be familiar with the case of Sousa v London Borough of Waltham Forest  EW Misc 1 (EWCC). That case concerned a claimant who suffered subsidence damage to his property caused by tree roots of a tree owned by the defendant. The claimant’s damage was insured under an insurance policy between the claimant and an insurer. The claimant made a claim upon the policy. The insurer satisfied the claim and exercised its rights of subrogation to bring proceedings against the defendant in the name of the claimant. The claim was brought under the terms of a Collective Conditional Fee Agreement between the solicitors for the claimant and the insurer. The defendant objected to payment of the success fee. The judge as first instance disallowed the success fee on the basis that as the claimant was never at risk of having to pay costs, because he had the benefit of an insurance policy for the loss, it was unreasonable for a CFA to be entered into. The claimant successfully appealed that decision and the success fee was reinstated. The local authority appealed and the hearing recently took place before the Court of Appeal, with judgment reserved. And then there was the decision in MGN v UK. The Court of Appeal has invited written representations (due by last Friday apparently). It appears that the Court of Appeal wants to take the opportunity to take MGN v UK into account when giving judgment. It is quite possible that they might decide they have little scope to “change” English law on recoverability of success fee but suggest that the Supreme Court might. It is then to be hoped that the matter proceeds to that level swiftly.
So what has been the initial response from claimant lawyers to this decision? So far, they seem to fall into two broad groups. The first have suddenly been trying to accept defendants' offers on costs that a couple of weeks ago apparently held no attraction. The second group are simply carrying on as though nothing has happened. It is not clear whether this is simply a robust negotiating stance or whether it is because this group has not yet read or understood the potential implications of this case. I suspect that, at least for some, it is the latter. A quick Google search for the costs firms that appear in the top twenty results for the term “law costs draftsmen” and “costs lawyer” produced only one firm, other than Gibbs Wyatt Stone, that has any mention on their website of this case, notwithstanding a significant number having dedicated news or blog pages. Or maybe their clients are simply not interested.
Judgment was recently handed down in an important decision concerning the correct treatment of VAT for medical records and medical reports.
In Barratt Goff & Tomlinson v HMRC (see judgment) it was held where medical reports or medical records were obtained by solicitors, for the purpose of personal injury claims, the solicitors did not need to charge VAT on the fee as they were to be treated as being disbursements, as opposed to being part of the legal services being provided.
Although the impact of this decision is less than it might have been as most medical reports already have VAT added by the medical expert, for the small number of cases where the medical expert is not VAT registered or for the large number of cases where the medical records are obtained direct from the holder of the records, VAT does not need to be added by the solicitor. A decision in the other direction would have added significant costs for defendants.
Law Society Gazette article: here.
(A different conclusion had been reached on this issue in Makuwatsine v Trathens Travel Services Limited.)
We are now into the final frantic lobbying in relation to implementation of the Jackson Report (much good it will do claimant lawyers post-MGN Ltd v United Kingdom).
Here are some entirely random quotes from some claimant solicitors:
“Despite what is suggested in the [Ministry of Justice’s] consultation paper, solicitors do not cherry pick and only run winning cases.” – Malcolm Underhill, partner at IBB Solicitors, writing in Solicitors Journal – 14 December 2010
“We succeed in 98% of our accident claims.” – Claims For You solicitors' website
“Mr firm only takes on cases on a CFA if they have a very good chance of winning. Some would call this ‘cherry picking’.” – Amanda Stevens, partner with Charles Russell, past president of APIL, speaking at CLT’s Annual Solicitors Costs Conference – 26 January 2010
I pop out of the office for a few days to deal with a small detailed assessment hearing (£1.6 million costs claim for personal injury matter involving single claimant) and I miss, arguably, the most important costs decision of the past decade.
Last week the European Court of Human Rights (ECHR) handed down judgment in a decision that may turn out to be the most important costs case of the last decade. Commentators and costs experts are furiously trying to determine the precise significance of the case. One thing, however, is clear beyond doubt: defendants and insurers need to make an immediate decision as to how to respond.
The case of MGN Limited v United Kingdom (Application No. 39401/04) was a case involving the supermodel Naomi Campbell’s right to privacy versus a newspaper’s right to freedom of expression. The House of Lords, as it then was, approved Campbell’s claim for damages. The claim had been funded, in the House of Lords, by Conditional Fee Agreements (CFAs) with 95% and 100% success fees.
MGN argued before the House of Lords that it should not be liable to pay the success fees as it was so disproportionate as to amount to a breach of its right to freedom of expression under Article 10 of the European Convention on Human Rights. Article 10 provides, so far as relevant:
“1. Everyone has the right to freedom of expression. This right shall include freedom to hold opinions and to receive and impart information and ideas without interference by public authority and regardless of frontiers...
2. The exercise of these freedoms, since it carries with it duties and responsibilities, may be subject to such formalities, conditions, restrictions or penalties as are prescribed by law and are necessary in a democratic society, ... for the protection of the reputation or rights of others, for preventing the disclosure of information received in confidence,...”
The House of Lords held that the recoverable success fees were compatible with Article 10 and that passing the cost of successful litigation onto unsuccessful defendants was a proportionate measure to provide litigants with access to justice. Further, such a funding scheme was equally open to wealthy litigants such as Campbell.
MGN took the matter to the ECHR. Their complaint as to whether there had been a breach as a result of the decision to award damages for the publication was dismissed. The more interesting question, so far as we are concerned, was whether the award of costs, including the success fees, constituted a disproportionate interference with MGNs right to freedom of expression.
The ECHR accepted many of the criticisms of the current CFA regime highlighted by Lord Justice Jackson in his Review of Civil Litigation Costs. The Court found that that the requirement to pay the success fees in this case constituted an interference with the applicant's right to freedom of expression under Article 10. The Court concluded that the requirement to pay success fees to the claimant was disproportionate having regard to the legitimate aims sought to be achieved and exceeded even the broad margin of appreciation accorded to the Government in such matters. It was therefore held that there had been a breach of Article 10.
Important though this decision clearly is for publication claims, what impact does it have for wider litigation?
The first observation is that this is almost certainly the final nail in the coffin for recoverable success fees and ATE premiums. The Government had already placed itself firmly behind Jackson LJ’s proposals for ending recoverability. This judgment is the last word on the subject. The claimant lobby can save their breath. Further pleading on the subject is pointless. Jackson will be implemented.
What about existing litigation? Will this decision have an immediate impact even without primary legislation changing the current system?
Horwich Farrelly chief executive, Anthony Hughes, was quoted in Insurance Times adopting the cautious approach:
“Although this case is purely focused on media law, we are interested to see what the implication is for CFAs in general”
At the other end of the spectrum, also in Insurance Times, specialist costs counsel Dr Mark Friston was reported as saying that even though the judgment is not binding, losing parties can use this case to argue for a slashing in success fee costs, with a very high chance of success and the case should translate across to personal injury. Losing parties will possibly be able to slash success fee payments by between 80% and 90%. Friston said:
“For liability insurers it is staggeringly important, and it’s likely to have a dramatic impact. If I’m right, it will have a dramatic effect on what they are paying out.”
Rosalind English, writing on the UK Human Right Blog, expressed the view that:
“This judgment has serious practical implications not just for publication cases but for any civil case not covered by legal aid, and although the ruling is only binding on the government, not on the courts, the potential for its immediate domestic impact cannot be ignored. Defendants challenging costs orders will have this judgment at the head of their arsenal from today; the practical resonances of the case are imminent.”
It is important to recognise that this decision concerned a breach of Article 10. Outside of publication litigation, the argument would have to be advanced on a different basis.
In an article on the judgment from Four New Square, the position is explained further:
“It seems inevitable that paying parties in non-defamation/privacy civil cases will want to develop the arguments considered in this case in a wider context but there will be considerable difficulty in doing so where the right to freedom of expression in Article 10 (which was competing with the Article 6 right underlying the CFA system) is not in play. Given the acknowledged ‘ransom’ or ‘chilling’ effect of success fees being recoverable against the unsuccessful party, it may be possible to argue that litigants have competing Article 6 rights which need to be balanced against one another. Limitations on the right of access to court do also involve considerations of proportionality”
Rosalind English expands:
“It is open to any unsuccessful litigant in a non-media case to make a case for transposition of this Article 10 solution/change by analogy; after all, the Jackson proposals – without which this aspect of the Campbell case may never have seen the light of day – apply to a very wide collection of cases. … So in any given civil case a defendant could reasonably argue that their right to a fair trial under Article 6 is being infringed by a punitive costs regime which is forcing them to settle and thereby depriving them of access to court.”
Article 6, so far as relevant, reads:
“In the determination of his civil rights and obligations…, everyone is entitled to a fair … hearing”
This argument would tie in nicely with Jackson LJ’s view that defendants are equally entitled to access to justice as claimants are and that the current CFA regime does not achieve this.
Although MGN had not argued that it was unreasonable that they should have to pay an ATE premium, there is no reason to suppose that similar arguments could not be mounted against ATE premiums. It will be interesting to see if the judiciary is prepared to start to take a more robust approach to ATE premiums, something it has been incredibly reluctant to do in the past.
The ECHR was mindful of the fact that in this case the claimant was wealthy and not in the category of persons considered excluded from access to justice for financial reasons. Although this does not appear to have been a decisive issue, it does leave open the scope for fresh arguments as to the circumstances in which it is “reasonable or proportionate” to enter into a CFA or take out ATE cover. The obvious categories where such challenges might be made would include:
• The small number of cases where the claimant is a wealthy individual.
• Commercial disputes where the claimant does not “need” to fund a claim with a CFA or ATE policy.
• Subrogated claims brought by insurers under CFAs (see Sousa v London Borough of Waltham Forest  EW Misc 1 (EWCC) (12 January 2010)).
• Claims funded by trade unions through CCFAs and notional insurance premiums. Such claims were funded by trade unions prior to the current regime being introduced and there is no reason to suppose that such claims “need” recoverable additional liabilities.
In addition to direct attacks on recovery of success fees or ATE premiums, this decision does arguably re-open the whole issue of “proportionality”. Since the Jackson Report was published, some commentators have been anticipating an attack on the courts’ current approach to proportionality (see Home Office v Lownds  EWCA Civ 365). This ECHR judgment makes such a challenge that much more likely. The Four New Square article comments:
“Paying parties are also likely to try to develop the arguments in favour of purely discretionary arguments as to reasonableness and proportionality in costs assessments. However, it will have to be kept clearly in mind that ‘proportionality’ for the purposes of the CPR (concerned with whether expenditure on litigation is proportionate to the amount at stake) is a different concept to proportionality for the purpose of the European Convention where the issue is whether a particular measure is proportionate to the legitimate aim to be achieved, having regard to the effect on competing (here Article 10) rights”
Defendants and insurers need to make immediate decisions as to how to respond to this judgment. Should they look to withdraw all current costs offers that include offers for success fee and/or ATE premiums? Should they make offers for these elements in future cases or make significantly reduced offers? Millions of pounds are at stake. Running novel arguments based on this decision will be expensive but there is probably too much to gain for the opportunity to be missed. If challenges are brought, the likelihood is that this will produce a logjam of cases with everything involving a success fee or ATE premium being stayed pending resolution by the higher courts.
This decision will throw the industry back into the confusion and uncertainty that existed with the introduction of recoverability and that led to the Callery v Gray test litigation. The irony is that this new period of uncertainty arises at exactly the same time we know that the current regime is likely to be scrapped.
Any news on how the provisional assessment pilot is going?
Over the last day or two I’ve been highlighting some of the more novel arguments put forward in opposition to Jackson LJ’s costs proposals. Inevitably, most arguments, both pro and anti Jackson, are generated by the self-interest of those making the arguments.
It is therefore a welcome relief that an independent voice has stepped forward to present some impartial arguments against Jackson.
Esther Rantzen, the consumer champion, failed parliamentary candidate and ex-presenter of that TV programme with the dog that could say “sausages”, has come out in support of the Access to Justice Action Group which opposes the Jackson proposals.
Ms Rantzen was reported as saying:
“Everyone should have access to justice. The Jackson proposals, if implemented, will ruin the lives of some of the most vulnerable in society. I’m not just saying this because of all the money I make from fronting TV advertisements for Accident Advice Helpline. Have you any idea how difficult it is with all the ageism in TV these days for a woman of my age to get television work? The public has grown tired of programmes based on amusingly shaped vegetables. Ambulance chasing Helping innocent people whose lives have been wrecked by the negligence of others has given my life meaning again. That’s Life!”, she quipped. “Now, that horrid man Rupert is trying to take it all away from me. It’s so unfair. Have I mentioned all the charity work I do for children?” she said, breaking down into tears.
OK. To be honest, I couldn’t find a single quote from Esther Rantzen on the internet on the subject and so I have had to make most of this up. Still, I’m sure it catches the general spirit of what she would have wanted to say.
If it's any consolation to Esther, her TV advertisement is still being talked about.
“It appears that the Senior Judges of this country are trying to damage the legal industry which for the past number of years have happily been their paymasters. Let us not forget that Solicitors and Claims Management companies breathe life into the Court Service. Without them being the champions for the rights of Claimants, a vast number of Judges would be unemployed. The old saying of biting the hand that feeds might one day be accepted but by then, it might be too late.”
Yesterday’s argument was concerned with the implication that the role of the claims industry is to help create jobs for lawyers, claims handlers, etc. This refocuses that argument to suggest that the purpose of the legal system is to keep judges in work; and judges would be well advised to keep this in mind.
I’m going to use this line the next time I bring a CFA challenge in the Senior Courts Costs Office. Unless costs judges allow a reasonable proportion of such challenges to succeed they may find themselves out of a job. I’ll let you know how I get on.
Take any controversial subject: the death penalty, abortion, legalising drugs, immigration, Marmite. Most people will have a view, one way or the other, on these topics. When presented with new arguments or studies supporting or opposing these pre-held beliefs, do we objectively weigh the strengths or weaknesses of them? Of course not. Those that support our own views are considered “more convincing” or “better conducted”. Those that oppose our own views are considered “weak”, “ill-conceived” or have “obvious flaws”.
Arguments or studies in support of our beliefs simply strengthen our convictions. Those that are against our beliefs are simply ignored. (See chapter 11 of Irrationality.)
Lord Justice Jackson consulted extensively when writing his Review of Civil Litigation Costs. I don’t know what preconceptions he secretly brought to the process, but the response from the legal and insurance industries was entirely predictable. Defendants and insurers (with the exception of ATE insurers) are broadly behind the proposals and claimant representatives (solicitors, trade unions, claimant management firms, etc) are opposed. What a surprise.
We are now into a further period of consultation on implementation. Any guess as to what each side is going to say? I really can’t believe that the Ministry of Justice is going to take any notice of responses unless some hugely convincing statistical evidence is produced. There are some interesting alternatives/amendments contained within the consultation and it is obvious the MoJ has been advised by some individuals with a real understanding of the issues. However, I just can’t see that the consultation will sway the MoJ one way or the other. The arguments that will be presented in response to the consultation will not come from objective analysis of the merits but will be inspired by existing beliefs generated by self-interest.
As Lord Justice Jackson was reported as saying by Litigation Funding:
“the competing arguments, which I heard over the past ten months, are the same as the competing arguments which I heard last year”
And they are going to be trotted out again by the usual suspects.
The usual arguments have been too well rehearsed to be worth commenting on again, but over the next day or two I will mention some of the more novel ones.
Last year a letter was published in the Law Society Gazette from Rhonwen Barraclough. Among the various reasons put forward as to why the Jackson proposals were a bad thing was:
“There is also the prospect of losing even more high street practices, given the constant onslaught from professional indemnity insurance and farcical legal aid rates. Like it or not, personal injury is big business, with the majority of fee income going back into the economy in the form of taxes, VAT, wages and to other associated businesses. Has the practical impact of the reforms been considered in that context at all? Can the government really afford to lose the revenues generated by PI?”
A similar point was made by specialist costs counsel Christopher Perry on a LinkedIn discussion forum:
“I think there is little political currency especially in the present climate in abolishing the ATE market and costs shifting arrangements, collaterally putting many costs draftsman, claims handlers, intermediaries, etc, out of business. Joe public are likely to be more worried by news of jobs cuts rather that being concerned about the cost of their car insurance. Don't forget the IPT income received on ATE premiums.”
Now, it’s a fascinating question as to whether the income generated for the government by the claims industry (through taxes) outweighs the cost to government (through NHSLA expenditure, etc) and one that will no doubt be the one that ultimately decides whether Jackson is implemented. However, I can’t be the only one who feels a bit queasy about the idea that personal injury law should be influenced by how many lawyers’, and other hangers’ on, jobs it provides.
I recently received a copy of an anonymous letter addressed to the Legal Services Board. A copy of the letter had also been sent to the Bar Council, Law Society and ILEX. The letter had apparently been written by a costs lawyer. The gist of the letter can be gathered from this sentence:
“My concern is that, in comparison to other regulated professionals, many Costs Lawyers lack the proper training required to act on behalf of clients and before the courts.”
The fact that Association of Costs Lawyers (ACL) members are writing to regulatory bodies complaining about the standards required for costs lawyers is indicative of the strength of feeling felt in some quarters.
When the ACL was considering whether to remain an approved regulator I was opposed to the idea. At the time I wrote:
“The proposed increases to membership fees may currently seem manageable, if disproportionate to the benefits. However, they are based on a current understanding of what regulation will require. As Popplewell notes: ‘at the time of applying for authorised body status, we did not know and could not have known the implications of the act’. Precisely. In the highly unlikely event that the ALCD did acquire protected body status, there would then be no way to go back. The ALCD would not be able to decide at some future date that the benefits no longer justified the costs and simply unregulate itself. Once regulated under the Act, there is no way of knowing what may be demanded in the future. Only a moment’s thought will reveal the LSB might demand almost anything at some future date. Does the ALCD really want to lock itself into a regulatory system over which it would have no control?”
In Wednesday’s post we examined JAG’s proposals for criminal advocacy quality assurance scheme. JAG’s consultation paper said: “Further consideration will be given to the question of quality assurance in relation to other areas”. There is therefore every possibility that through JAG, or a regulatory body, a decision will be made to impose advocacy assurance standards on costs lawyers. Frankly, it is amazing the ACL has been able to grant (limited) higher rights of audience based on its current training scheme. It is entirely unknown what future standards might be imposed or what the cost of this might be.
I am grateful for those who have posted comments on the Legal Costs Blog explaining the history behind costs lawyers acquiring current rights. If I have understood correctly, the Ministry of Justice appears to have accepted that all existing members of the ALCD at the time, whether Fellow or Associate, were suitable for being granted rights of audience without further training or assessment. Given a sizeable number would never have conducted advocacy or had any advocacy training (eg many legal aid costs draftsman), all I can say is that the Ministry of Justice must have been asleep on the job.
The reason why the Costs Lawyer course is so short, and has become even shorter, is no doubt one of cost. To produce a training course that was adequate to produce no more than “competent” advocates (and not even at higher court level) has no doubt been viewed as prohibitively expensive. The next Costs Lawyer course year is priced at £300 (including VAT). With the best will in the world, you can’t provide a proper advocacy training course in half a day for £300.
The number of costs lawyers has probably now grown to 600-700. What percentage of these would pass a proper quality assessment test for advocacy at High Court or Circuit Judge level? I would hazard to suggest that a large number would not turn up to a formal assessment on the basis that they have a more realistic understanding of their abilities than the ACL or the Ministry of Justice. Now that responsibility for regulation of the ACL is switching to the Costs Lawyers Standards Board, who knows what they will decide. It would hardly be a surprise if they decided to impose an immediate accreditation process on existing costs lawyers, at least for those wishing to practice advocacy, to ensure consistent quality across the membership.
The same issues arise in relation to ACL’s goal of achieving protected body status. If achieved, there is no way of knowing, and little way of controlling, what requirements or costs of compliance may then be imposed on members.
The ACL had already admitted: “the costs of compliance with the Act will probably be disproportionate to the direct benefits gained by LSB regulation in terms of the exercise of section 27 and 28 rights by Costs Lawyers”.
September’s edition of Costs Lawyer magazine reported:
“The LSB noted that the ongoing costs of regulation are likely to increase the level of revenue required by the ALCD/CLSB, which in turn will probably mean higher practising certificate fees. It said: ‘It remains to be seen what the impact is on ALCD membership of increasing their fees to meet such costs. There may be consumer impact if increased cost leads to existing members moving away from regulation.’ In its action plan, the ALCD said this highlighted the importance of making costs-related work a reserved legal activity.”
This is the ultimate irony. The ACL recognises that the actual benefits of regulation may not justify the costs. It fears that members may vote with their feet and leave the ACL. Its solution is therefore to try to make membership compulsory for those who work in the field of costs. If the ACL ever finds it is obliged to ensure its members are subject to proper advocacy training and assessment the cost of regulation will rise substantially. It is locking itself into something that it clearly believes many of its members cannot afford or would not be prepared to pay for.
All this is happening at the same time as the recommendations contained in the Jackson Costs Review start to be implemented. At the moment there has been no news on the proposal to introduce fixed costs for the fast-track, other than extension of the RTA claims process. Given how simple and, amongst many, popular this step would be, it would be a miracle if this does not happen in the next year or two. If, and when, it comes, there are going to be heavy casualties in the costs world. Costs budgeting is not going to make up for the shortfall.
The costs profession is facing the legal aid shake-up that is also likely to seriously impact on the numbers practicing.
Post-Jackson the ACL is likely to find itself smaller and in a very different costs landscape. In so far as one of the aims of the ACL has been to remove the “cowboys” from the costs profession, the Jackson fixed costs proposals would largely achieve this through natural selection. If only high-value costs claims are left in the system only genuine costs experts are likely to survive. (For the love of God, let it be so.) The ACL may find itself stuck with an expensive regulatory system but with only a small number left to pay for it. Its recent decision to automatically upgrade Associates to Fellows, and then to Costs Lawyers on the back of a one-day course, takes the ACL in the opposite direction to the one it should be taking.
At the time, the ACL said:
“the relevant test has to be one of competence, not excellence. The ALCD would be failing in its duty to entrants and the public if it were to set the bar so high that only a select few could clear it”
Is “competent” by today’s standards going to be sufficient post-Jackson/post-legal aid meltdown?
Events outside the ACL’s control mean that there are only going to be a “select few” left. The Association has to strive for excellence if its members are to be among the survivors. There are too many excellent costs professionals outside the ACL for membership alone to guarantee survival.
I will try to bring these various rambling thoughts into something approaching a coherent whole in the next day or two.
Yesterday I popped into the local supermarket to pick up a couple of bottles of plonk. When I reached the check-out, the checkout assistant asked how old I was. When you get to my age, the years start to blur together and it took me a few moments to give the correct answer: 38.
Given the assistant appeared to have doubts as to whether I was 18 or over, this was probably not the answer he was expecting. He then, in all seriousness, asked if I had any ID to prove my age. Eventually, I managed to produce something showing my date of birth as being in 1972. The assistant could not believe this.
Now, those readers who have met me, and seen by worn and haggard features (I have worked in costs for the last 14 years) will obviously find this story entirely implausible. To be fair, it was cold and raining so I was wearing a baseball cap to keep my head dry. I suppose the checkout assistant must have thought I looked so “down and with the kids” that I was obviously still in my teens. And I didn't even have it on back-to-front.
It does remind me of an occasion when I was still at university and having some drinks with friends in a pub. The girlfriend of one of those present came into the pub and showed her boyfriend a small piece of paper. She was another student at the university. It was a bus ticket. For a child. When she had asked for a ticket into town the bus driver had, without being asked, automatically issued her with a child’s ticket. At the time, children’s tickets were only available up to the age of 14. This was met with some merriment. However, as the boyfriend commented: “Don’t knock it. Some people pay good money for that kind of thing”.
I have to admit that I am not asked for proof of my age on a regular basis. I think the last time was when I was in a Happy Shopper buying some vodka and Special Brew. When I was 16 or 17.
Still, back to my story, I did walk out of the supermarket with a spring in my step on the basis that there was at least one short-sighted checkout assistant who thought I could pass for less than half my age. Then I got back to the office and read the latest set of Replies to land on my desk. And lost the will to live again.