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Part 36 clauses in CFAs

Posted by on 26th June 2019 in CFAs | 0 comments

The Law Society Model Conditional Fee Agreement contains the following clause:

“It may be that your opponent makes a formal offer to settle your claim which you reject on our advice, and your claim for damages goes ahead to trial where you recover damages that are less than that offer. If this happens, we will [not add our success fee to the basic charges] [not claim any costs] for the work done after we received notice of the offer or payment.”

The section in bold gives an either/or option as to the relevant consequence if the offer is not beaten.  The vast majority of claimant solicitors’ CFAs that I have seen have a similar clause.

This clause is contractual in nature and therefore, if the “not claim any costs” option is taken, also impacts on the indemnity principle.

This would not be a problem, subject to what I say below, for claimant lawyers if the normal costs consequences of CPR 36.17 were automatic (ie the claimant cannot recover costs from the date on which the relevant period expired if an offer is not beaten).  But CPR 36.17 simply sets our the default position.  The consequences of failure to beat a defendant’s offer are not automatic as the court may order otherwise if “it considers it unjust” to apply the default position.  However, if this standard clause is used, the solicitors are unable to charge their client a success fee (at best, if the first option is chosen) or recover any costs from the client or the opponent (at worst, if the second option is chosen) from the date of receipt of the offer or payment, regardless of whether the court limits the period for which costs are recoverable.

In any event, the wording of the clause itself is somewhat strange:

  1. It refers to “the work done after we received notice of the offer or payment”. CPR 36.17 anticipates that the trigger point will be “from the date on which the relevant period expired”.  The clause therefore also prevents recovery of either any costs or the success fee at least 21 days earlier than CPR 36.17 anticipates.
  2. It refers to “formal offer”, not “Part 36 offer”. It is therefore arguable that the clause applies whenever a “Calderbank” style offer is made, in addition to an offer than complies with the formalities of a Part 36 offer, and regardless of what costs order is made as a consequence of the offer.

It is strange that this clause remains so popular in CFAs.

Our sister company GWS Costs offers a full CFA drafting service for solicitors and can advise on the most suitable CFA for your firm’s requirements.

If a matter is funded by way of a CFA and the case goes to trial where the claimant recovers damages that are less than an earlier offer, defendant paying parties should always question the entitlement to recover any costs from the date of receipt by the claimant’s solicitors of that offer

Future of the legal costs industry

Posted by on 24th June 2019 in costs draftsmen | 1 comment

I’ve uploaded an old article from September 2009 that made predictions on the future of the legal costs industry in light of the Preliminary Report from Lord Justice Jackson.  How many of these predictions were accurate?  First published in the Solicitors Journal.

Why are legal costs so high?

Posted by on 30th May 2019 in ATE, CFAs | 1 comment

I’ve uploaded an old article from April 2011 that originally appeared Litigation Funding magazine.  This was written in response to research commissioned by the National Accident Helpline that formed part of their response to the original Jackson consultation process.  At the time, an article based on this report appeared in the Law Society Gazette, written by the National Accident Helpline.  The thrust of that article (and the research) was to try to justify the continued recoverability of success fees and ATE premiums on the basis that the true cause of high legal costs was delay/unreasonable behaviour by defendant insurers as opposed to recoverable additional liabilities.  In fact, what the research seemed to show was that success fees and ATE premiums were set at excessive levels in light of the very high success rate of claims.  In the event, the research made no difference and the Jackson proposals were accepted.

Costs Lawyers delegating work

Posted by on 28th May 2019 in costs draftsmen | 0 comments

The case of Allen v Brethertons LLP [2019] EWHC B3 (Costs) has received a fair amount of commentary in relation to the entitlement of non-Costs Lawyers to undertake certain “reserved activities”.

Costs Judge Master Leonard had no difficulty accepting that where a costs draftsman prepared a bill of costs under the supervision and instruction of a Costs Lawyer, that, although bill preparation amounted to a “preparation of a reserved instrument” and was therefore a “reserved activity”, the costs draftsman became an “exempt person” in this situation and the costs of preparing the bill are recoverable in principle.

Further, in relation to a costs draftsman attending a costs hearing:

“The issue of his right to appear as an advocate on costs hearings has come up before. His case is probably on all fours with Kynaston v Carroll but it is in any event my practice, for the avoidance of doubt, to grant him a right of audience.  That was the basis upon which I heard him on 15 January.  He was, for the purposes of that hearing, an exempt person, and his costs of preparation for and attending that hearing are, insofar as reasonable and proportionate, recoverable.”

The case of Kynaston was as far back as 2011 and it is surprising that the same tired arguments keep being re-run.

Nevertheless, re-run it was and appears to have been, at least in part, inspired by (or at least support sought from) a guidance note published by the Costs Lawyers Standards Board (CLSB).  Master Leonard summarised the contents of that guidance as stating:

“That guidance emphasises that the CLSB authorises and regulates individual costs lawyers, not authorised entities or licensed alternative business structures: and in consequence, that a Costs Lawyer cannot delegate reserved legal activities such as the exercise of a right of audience or the conduct of litigation.”

The CLSB guidance note is titled Reserved Legal Activity Rights and was apparently published on 18 July 2018, although I do not recall the CLSB circulating it to Costs Layers.  It states:

“This guidance has been written to clarify the authorised rights of a Costs Lawyer (as defined). It has been approved by specialist regulatory counsel, Gregory Treverton-Jones QC.”

It is worth setting out in full what the guidance says in relation to rights of audience:

3. RIGHT OF AUDIENCE

(i) Definition under the LSA

Schedule 2, paragraph 3(1):

A “right of audience” means a right to appear before and address a court, including the right to call and examine witnesses.

(ii) Can a Costs Lawyer delegate this right?

No. The CLSB authorises and regulates individual Costs Lawyers, and under s.18 it is the Costs Lawyer who is authorised in relation to this reserved legal activity. Under s.13 only an entitled (authorised) person may undertake a reserved legal activity, and the LSA makes no provision for the delegation of this specific right by an entitled (authorised) person.

Therefore, subject to paragraph 1(7) of Schedule 3 (set out below), if a Costs Lawyer sends a colleague to a Court hearing, that individual will not be entitled (authorised) to address the Court unless they are entitled (authorised) as a Costs Lawyer, or they are permitted to address the Court by the Court itself in the exercise of its discretion.

(iii) Exemptions to an offence under s.14

Schedule 3, paragraph 1:

(2) The person is exempt if the person-

(a) is not an authorised person in relation to that activity, but

(b) has a right of audience granted by the court in relation to those proceedings.

(3) The person is exempt if the person-

(a) is not an authorised person in relation to that activity, but

(b) has a right of audience before the court in relation to those proceedings granted by or under any enactment.

(7) The person is exempt if-

(a) the person is an individual whose work includes assisting in the conduct of litigation,

(b) the person is assisting in the conduct of litigation-

(i) under instructions given (either generally or in relation to the proceedings) by an individual to whom sub-paragraph (8) applies, and

(ii) under the supervision of that individual, and

(c) the proceedings are being heard in chambers in the High Court or a county court and are not reserved family proceedings.

(8) This sub-paragraph applies to-

(a) any authorised person in relation to an activity which constitutes the conduct of litigation;

(b) any authorised person who by virtue of section 193 is not required to be entitled to carry on such an activity.”

The guidance note expressly recognises the exemption set out in paragraph 1(7) of Schedule 3.  However, I struggle to understand the purpose of a “guidance note” that sets out an exemption but then conspicuously fails to explain in what situation this exemption will apply.

Even those who have, in the past, sought to put the most limited interpretation on “being heard in chambers”, have treated this as permitting (where instructed and supervised) a non-regulated person (eg costs draftsman) to attend a hearing in private (eg trial ordered to be in private on national security grounds; although this is, admittedly, not an example usually put forward by those arguing for this interpretation of “in chambers”).  But, even on this interpretation, it clearly would permit a Costs Lawyer to send a colleague to a Court hearing where the hearing is “in private”.

In truth, of course, “in chambers” does not mean “in private” and on a proper analysis (ie the analysis applied in Kynaston and applied daily by the Senior Courts Costs Office), “in chambers” will cover any detailed assessment hearing (and, almost certainly, any costs management hearing).  For the purposes of the day-to-day work of Costs Lawyers, and those to whom they might delegate attendance at court, the guidance note is simply wrong.  Paragraph 1(7) of Schedule 3 probably only prevents delegation in respect of appeals or hearings concerning what costs order to make at the conclusion of a case.

Other interpretations are available (see Friston on Costs at 3.85-3.90 for an analysis of the competing arguments) but it is less than helpful if the CLSB issues guidance notes stating as fact something which is, at best, highly debatable.  I say: “highly debatable”; the High Court in Kynaston said such: “arguments have no merit at all”.  Master Leonard’s decision certainly reflects what I understand to be the Senior Courts Costs Office’s belt-and-braces approach to the issue: costs draftsmen instructed in this way are probably covered by Kynaston but, if not, the court would exercise its discretion as a matter of routine.

What is interesting about the Allen decision is how this has been greeted by the Association of Costs Lawyers (ACL).  Responding to the decision, incoming ACL chair Claire Green said:

“Master Leonard has firmly dismissed this attempt to undermine the work of Costs Lawyers, who play a vital role in ensuring that the costs regime works smoothly and fairly. We are independent, regulated lawyers, with the attendant benefits and responsibilities that such status brings. This ruling should halt in their tracks what the judge called ‘arid technical objections’ to the recovery of the costs of our work.”

It may be remembered that the ACL had previously been very vocal in attempts to exclude costs draftsmen from detailed assessment hearings and limit rights of audience to Costs Lawyers (and, perhaps, begrudgingly, costs counsel).  Now, it sees it as a positive development that Costs Lawyers can delegate attendance at detailed assessment hearings to costs draftsmen.

What constitutes a “good reason” to depart from a costs budget

Posted by on 23rd May 2019 in costs budgeting | 0 comments

I’ve uploaded an article on the issue of what constitutes a “good reason” to depart from a costs budget to the Costs Law Articles Archive, first published in the New Law Journal.

Challenges to CFAs

Posted by on 10th May 2019 in CFAs | 0 comments

My office is in the process of being redecorated and this seemed like a good opportunity to have a general clear out.

As part of this, I came across a couple of articles published in Litigation Funding magazine from February and April 2000.

These show the dangers of trying to make predictions about the future of litigation.

In one article, barrister Gordon Wignall was quoted as saying:

“There is no reason now why either clients or unsuccessful defendants should not challenge the validity of their opponents’ lawyers’ retainers.  There are likely to be disputes over new-style funding arrangements for years to come.”

In the other article, solicitor Kerry Underwood was quoted as saying:

“Satellite litigation [over CFAs] won’t be a cottage industry it will be a palace industry. … Everyone who knows anything about this area knows how complicated it is.  There isn’t a hope in hell of district judges arriving at reasoned decisions.”

19 years later, I bet they both feel pretty silly.

Warning issued over proposed new Costs Lawyer training course

Posted by on 8th May 2019 in costs draftsmen | 0 comments

The Legal Services Board (LSB) is apparently minded to refuse the Cost Lawyer Standards Board’s (CLSB) proposals to introduce a new route of entry into the profession.

The LSB chief executive Neil Buckley said:

“Having considered the application and responses provided by the CLSB to a number of issues that the LSB has raised, the proposed changes continue to raise significant questions for the LSB and, as a result, we are considering refusing the application under paragraph 25(3) of schedule 4 to the [Legal Services] Act.”

Mr Buckley said the proposed approach to granting rights of audience appeared “inadequate” and to contradict the wider outcomes-focused approach of the CLCA:

“In particular, the proposal to allow for rights of audience to be gained through attendance at a one day training course, with no assessment, is at odds with the CLSB’s rationale for the CLCA, to shift away from an inputs based model and towards an outcomes-focussed assessment based model. The proposal would appear to set the bar considerably lower than other approved regulators in relation to awarding rights of audience. The CLSB has not presented sufficient evidence to justify this approach.”

It is not clear whether the LSB is aware that the majority of current Costs Lawyers gained their rights of audience through no more than attendance at a one or two-day training course with no assessment.

I wrote about this in 2011.  At the time, I commented that:

“In relation to advocacy, the ACL has not set the bar too low. It never set one in the first place and shows no plans to do so in the future.”

The LSB appears to be concerned that the CLSB is now in danger of repeating the same error in relation to its new proposed qualification route.

In relation to the old ACL training course, I wrote:

“There appear to be one of two ways of viewing this issue:

    1. Advocacy, at least in relation to detailed assessment proceedings, is something requiring little or no skill or experience. This includes costs appeals before High Court Judges and Circuit Judges. A level of “competence” can be achieved by those who may have had no previous advocacy experience in a 3 hour training session. Any form of initial or ongoing assessment is entirely unnecessary given how undemanding costs advocacy is. In this context, the ACL’s chairman’s comment that some of its members should be saying in big cases: ‘Don’t instruct a barrister. I can do this’ makes perfect sense. The ACL granting higher rights of audience as though they were handing out Smarties is nothing to be concerned about.

or

    1. Advocacy, at whatever level, is indeed a specialist skill that requires proper training and should be properly assessed. The ACL Costs Lawyer course should ensure that those standards have been met before granting higher rights of audience. The course is not fit for purpose.”

If the LSB is concerned that the proposed new training course is inadequate in respect to the granting of rights of audience, how does it judge the competency of many existing Costs Lawyers who achieved their rights of audience under the old ACL (one/two day) training route?

Careful now

Posted by on 12th April 2019 in costs draftsmen | 0 comments

The Civil Litigation Brief blog contained an interesting post about the dangers of lawyers working on the move and being overheard discussing confidential client matters or allowing confidential information to be read over their shoulders or leaving legal papers behind.

The costs profession is not immune.  Of the various examples given on Twitter:

“Absolutely correct. I once called to collect some files from a cost draftsman’s office. Manager greets me and says he’ll just get the files …. from his car. I almost had an apoplectic fit!” – Donna Beckett‏@BeckettandCo

“I once received a call from a bouncer of a London pub. Our cost draftsman had left one of our files there. Apparently it was a con with Counsel!” – Peter McKenna‏@PeterMcKenna2

VAT on medical agency fees

Posted by on 10th April 2019 in disbursements | 0 comments

When dealing with high value personal injury litigation, paying parties tend not to lose much sleep over the issue of whether VAT should be paid on the full amount of medical records fees, where the medical records are obtained through a medical reporting organisation (“MRO”), or whether VAT should only apply to the MRO’s administration fee.

On the other hand, for volume, lower value claims, the impact of this small amount per case can be significant when insurers are dealing with 10,000s or 100,000s of claims.

In Matthew Hoe’s excellent “A Practical Guide to Costs in Personal Injury Cases”, published as far back as April 2016, he writes:

“VAT on medical report fees is a doggedly contentious issue that has been producing notable judgments for a decade.  Although very small sums are involved in each case, it arises in so many claims that paying parties take the point.  The basic propositions are generally accepted and the disputes centre on the practices of medical agencies.

The correct VAT treatment of medical fees by medical agencies is an issue in desperate need of a decision by the senior courts to settle the point once and for all.”

As if by magic, three years later we have such a decision.

In British Airways Plc v Prosser [2019] EWCA Civ 547 the Court of Appeal held:

  1. It would normally be appropriate for MRO’s, in circumstances where they were doing more than simply acting as a post-box and where the report/records are being requested by the solicitors to enable them to perform their service to the client (rather than the solicitors acting just as the client’s agent), for VAT to be charged by the MRO on the total cost.
  2. In the context of a low value claims, where the amount of any VAT is not substantial, payment of VAT on the full amount was a cost that was “reasonably and proportionately incurred” and “reasonable and proportionate in amount”, so as to satisfy the requirements of CPR 44.3 regardless of whether the MRO was actually obliged to charge VAT as it did.

Automatic 100% success fees banned

Posted by on 4th April 2019 in CFAs | 2 comments

For many years, a large number of personal injury solicitors have automatically charged their clients a 100% success fee regardless of the risks of the case.  This has been a standard business model for many firms, with the reasoning being that this will usually lead to an automatic 25% cut of the client’s general and existing financial damages (as a result of the cap on the level of success fee in personal injury claims) in addition to any costs recovered from the other side.

The Court of Appeal has now held, in the case of Herbert v H H Law Ltd [2019] EWCA Civ 527, that this will normally be inappropriate and that any success fee should reflect the actual risks in the case (here held to be 15% for a straightforward RTA) unless the client has given “informed consent”.

In terms of CFAs already entered into, this decision is likely to open the floodgates to solicitor/own client challenges.

Going forwards, it is likely to be an uphill struggle, when entering into new CFAs, to show that the average lay client has given informed consent to a success fee that does not fairly reflect the risks of the case.

For a detailed summary of this decision, see Robin Dunne’s, junior counsel for the respondents in the appeal, article.  This also deals with the important issue of whether an ATE premium is a disbursement that needs to be included within a statute bill.