I previously commended on the fact the law has traditionally avoided applying hindsight when assessing the reasonableness of legal costs that have been incurred.
This approach was confirmed when applying the old proportionality test in Lownds v Home Office  EWCA Civ 365:
“the proportionality of the costs incurred by the claimant should be determined having regard to the sum that it was reasonable for him to believe that he might recover at the time he made his claim”
I also commented on the problems this creates when trying to apply this in practice.
However, has this basic principle survived recent reforms?
CPR 44.3(5)(a) certainly provides that “costs incurred are proportionate if they bear a reasonable relationship to the sums in issue in the proceedings”, although that simply begs the question as to what sums really were in issue.
I would suggest that the traditional “rule” against applying hindsight may no longer apply.
Certainly, in the area of personal injury claims, the majority of matters are now subject to one form or another of fixed fees. Generally, the greater the level of damages recovered, the higher the award of fixed costs to a successful claimant. This is intended, on a swings-and-roundabouts basis, to reflect the fact that the higher the level of damages recovered the more complex the matter was likely to have been and the more work that would have been reasonably necessary.
However, the crucial point to recognise is that claimants’ costs are calculated by reference to the damages actually recovered, not the amount claimed or the amount it may have been reasonable to expect to recover.
If costs in the majority of cases are therefore now expressly subject to hindsight, by reference to the damages recovered, on what logical basis should those cases that fall outside fixed costs be subject to a fundamentally different test? Lord Justice Jackson is now embarking of a massive further extension of fixed fees. Again, initial suggestions are that these will based (at least in broad bands) on greater damages recovery meaning greater costs recovery).
It would be very odd to have two different general principles (absolute hindsight v no hindsight) operating at the same time in civil claims.
It would be nice to think the Court of Appeal will expressly address this issue when they consider proportionality in BNM v MGN Limited, but I won’t hold my breath.
My annual Costs Lawyer Practising Application form needed to be completed before the end of 2016.
As usual, this contained a section asking about the source of instructions during the previous year (solicitor, non-solicitor, legal aid, non-legal aid, etc). However, this year, for the first time, rather than ask for the percentage of cases falling into each category, it asked for the actual number of instructions from solicitors and non-solicitors. This is no doubt as a result of the expectation of the Legal Services Board that the Costs Lawyer Standards Board better understand the nature of the work being undertaken by Costs Lawyers.
The odd thing about the application form was the way the question was worded asking for “the number of instructions you (not your firm) received from a Solicitor” and “Non-Solicitor”.
Like most costs firm, I suspect, the majority of instructions received by my firm are given to the firm rather than to any named fee earner. It is normally a question of internal case loads/convenience as to which fee earner then deals with the matter. Less often a new case will be marked for the attention of a particular fee earner but, again, may be allocated to another fee earner. Only occasionally is a new instruction expressly addressed to an individual (and, even then, will sometimes need to be reallocated, with the client’s consent, depending on existing commitments).
Given the question expressly excludes instructions received by the firm, the actual number for most Costs Lawyers (sole practitioners aside), is likely to be very small and largely meaningless.
It is perfectly possible that I have simply misunderstood what was wanted and the question was actually aimed at the number of cases where work was undertaken. However, if so, I suspect I was not alone in reading this differently.
Even if it was clear as to what was being asked, I am not sure how meaningful it is to know the number of cases where instructions are received and/or cases worked on. At least in the past, some Costs Lawyers dealing with volume, low value personal injury work might handle 100 new cases each month. In contrast, a Costs Lawyer who exclusively drafts bills in group litigation might deal with an average of less than one new matter each month. Equally, the volume of cases an in-house Costs Lawyer working in a busy legal aid practice will handle will be entirely different to a Costs Lawyer working for a City firm dealing with heavy commercial litigation. The number of “instructions” a Costs Lawyer receives may increase or decrease simply as a result of a shift in the type of work being undertaken. The number of actual cases is meaningless without any context.
Re-reading the form again, an earlier question does suggest this question was aimed at finding out the number of cases where work was undertaken (although not sufficiently clearly to be confident):
“If you worked for a firm of Solicitors during 2016 please state: What percentage of your instructions were from your employer client, ie where you worked on costs issues as a result of litigation on which your firm was instructed.”
I am fairly sure that this question is aimed at discovering the source of work undertaken by Costs Lawyers, rather than the nature of the instructions received. If that is so, then the use of the phrase “as a result of litigation” is clearly not meant in the proper sense of: has a matter become litigated (ie have proceedings been issued). If a Costs Lawyer employed by a firm of solicitors worked exclusively on personal injury claims handled by that firm, it would not matter what proportion of those claims were litigated or non-litigated (noting the majority of personal injury claims settle pre-proceedings). The expected answer would be 100% regardless.
But I am then struggling to understand what the phrase “as a result of litigation” is meant to signify. Is this meant to expressly exclude, say, non-contentious Court of Protection work? Instructions “from your employer client” is not necessarily remotely the same thing as instructions from your employer client “as a result of litigation”.
Although these questions are meant to assist the CLSB better understand the work undertaken by Costs Lawyers, I am not convinced the CLSB has properly understood what it was asking and has certainly not phrased the questions with sufficient clarity to be confident there will be any consistency in the answers received.
Independent economists have criticised the government’s planned personal injury reforms on the basis the reforms would benefit insurers at the expense of consumers and taxpayers.
The term “independent” is perhaps relative given they were instructed to review the reforms by the Law Society, Association of Personal Injury Lawyers and Motor Accident Solicitors Society. Here we see the same interesting phenomena that occurs in personal injury claims where the “independent” medical expert instructed by the claimant produces a report favourable to the claimant and the “independent” medical expert instructed by the defendant produces a report favourable to the defendant.
None of this is to suggest that the contents of the report are inaccurate or misleading, but it is doubtful the addition of the word “independent” adds anything. Frankly, the fact this review was undertaken by “economists” is not much of a recommendation itself given the recent accuracy of most economists’ predictions.
In any event, when in human history has a special interest group commissioned a report that reached a conclusion contrary to the interests of that group? If it has ever happened, the report never saw the light of day.
The run up to Christmas brought us a number of interesting costs developments.
A decision from Master Rowley in the Senior Courts Costs Office throws new confusion onto the issue of proportionality. In King v Basildon & Thurrock University Hospitals NHS Foundation Trust he expressly disagreed with the decision of Master Gordon-Saker in BNM v MGN that additional liabilities should be subject to the new proportionality rule.
This would be less of a problem if the appeal in BNM v MGN was to proceed in early 2017, as appeared to be the position until recently. The date for the hearing has now been pushed out to October 2017. We are now faced with the prospect of having to wait almost 4½ years from the introduction of the new proportionality test until any kind of guidance is given by the higher courts. This makes the comments of Lord Neuberger, made back in 2012, all the more farcical:
“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.”
Since when was it dangerous for litigants or litigators to know how the law was to be applied?
Having decided that additional liabilities were to be excluded from consideration of proportionality, Master Rowley found that base costs of £88,337 would “almost always” be proportionate for the type of clinical negligence case he was assessing that proceeded to a 3-day trial and settled for £35,000. However, he held that if additional liabilities had been subject to the new test, the total assessed costs of £234,000 would have been unlikely to be proportionate. This does rather beg the question as to where between £88,337 and £234,000 the tipping point is for damages of only £35,000.
I have not seen the full judgment, but the decision that £88,337 would “almost always” be proportionate for this type of case is not easy to understand. It is no doubt correct that the new proportionality test is not limited to consideration of the sums in dispute only, but also the value of any non-monetary relief, the complexity of the litigation, any additional work generated by the conduct of the paying party and any wider factors involved in the proceedings, such as reputation or public importance. In this case it appears that “complexity” was probably the only relevant factor (plus possibly conduct). However, this is the conceptual problem with these other factors. What additional amount in costs are proportionately incurred to reflect non-monetary factors? If this had been a routine personal injury claim that had settled for £35,000, what would have been the maximum proportionate figure? How much additional complexity is required to justify each additional £10,000 worth of costs?
I rather suspect that Master Rowley’s conclusion that base costs of £88,337 would “almost always” be proportionate to incur for a case such as this was based on his experience that this level of costs was not unusual for a clinical negligence that proceeded to a 3-day trial. If that is correct, it seems there is a distinct danger that pre-Jackson levels of costs will be taken as a bench-mark for what is proportionate. Surely the whole purpose of the new Jackson proportionality test was to stop previously disproportionate levels of costs being recovered, not to rubber-stamp similar levels of expenditure.
No doubt part of his reasoning mirrors his earlier proportionality decision in May v Wavell Group that:
“The proportionate amount of costs must inevitably be smaller for a case which concludes early than one which reaches a final hearing.”
Given King proceeded to a 3-day trial, this was no doubt a factor that influenced his decision that the costs here were proportionate. I am not sure this should be a relevant factor. It runs the danger of confusing what work was reasonable and necessary (the old proportionality test) with what total costs are proportionate. Inevitably, a matter that proceeds to trial will involve additional costs compared to one that does not, but that is simply part of the first stage of the assessment process. It is noteworthy that CPR 44.3(5) does not list the amount of work undertaken or the stage at which the matter settled as being relevant factors when considering whether costs are proportionate.
An excellent blog post from Kerry Underwood highlights the future problems faced by RTA lawyers as a result of the development of driverless cars. It is clearly correct that this will lead to a massive drop in the number of RTA accidents with a major knock-on impact on claims work in this area. As Kerry observes, this may make all the fuss about increasing the personal injury small claims limit and scrapping or restricting general damages claims in minor soft tissue injury cases entirely redundant.
Obviously, this will also be another nail in the coffin for those Costs Lawyers and law costs draftsmen who undertake the small amount of remaining work in this area. But this is just the tip of the iceberg. It will also have a dramatic impact on insurer claims handlers, car mechanics, car hire firms and medical agencies and experts, not to mention a welcome reduction in work for real doctors and nurses as a result of less RTAs.
Even this is likely to be overshadowed by the impact driverless cars will have on the 10,000s working as taxi and minicab drivers, couriers and delivery drivers (with a disproportionate impact on many of the more recent arrivals to this country).
And then we have the claims that robots will begin to take over the work of millions of workers in the next few years.
This may not be an entire disaster. Human history is a continuous story of new technology fundamentally changing the nature of employment. You may well have met someone called Fletcher but it is unlikely you have ever met anyone who makes arrows for a living.
Nevertheless, change invariably produces losers in the short term, whatever long-term benefits it may bring.
The majority of industry news concerning the costs profession comes from the pages of Costs Lawyer magazine and the Association of Costs Lawyers’ regular email bulletins.
Reading these gives the impression of a profession in glowing good health with announcements of firms opening new offices and regularly taking on new staff and recruiting key personnel.
It is understandable that costs firms wish to promote their good news stories.
It is therefore something of a change to see the Law Society Gazette announce a prominent costs firm with apparent cash-flow issues and the fact they have recently closed two of their four offices and reduced their headcount from 110 to 70.
This is hardly unique and the last year or two has seen a number of firms close offices, costs teams being disbanded and redundancies made. There has also been an increasing number of mergers and takeovers. One suspects a large number of these mergers/takeovers have been driven by the need to survive as opposed to being positive attempts to expand.
It is not clear to what extent this is hitting the pockets of individual costs lawyers or law costs draftsmen, although it will clearly be impacting on many who own their own costs firm. Given much of the reduction in workloads will have been from increases in low-value claims attracting fixed fees, one would expect these changes to have been initially felt by those less skilled costs workers who were probably the first to be let go. On the other hand, one reader recently suggested to me that the number of advertisements appearing in Costs Lawyer magazine for experienced costs lawyers (with corresponding salaries) has been declining and those jobs still being advertised are for more junior staff.
I wonder whether any of those who confidently predicted Jackson was nothing to worry about and suggested it would bring wonderful new opportunities are now starting to re-evaluate matters.
Traditionally, the law has avoided applying hindsight when assessing the reasonableness of legal costs that have been incurred.
However, when dealing with the issue of proportionality, hindsight has had a tendency to creep in. If a matter settles for, say, £100,000, the issue of proportionality at detailed assessment has tended to be viewed in light of the damages actually recovered. Many would argue, correctly, that this was the wrong approach. This is because of the Court of Appeal’s comments in Lownds v Home Office  EWCA Civ 365:
“the proportionality of the costs incurred by the claimant should be determined having regard to the sum that it was reasonable for him to believe that he might recover at the time he made his claim”
Since that decision in 2002, I am unaware of any detailed examination by the courts of what this actually means. This is odd because although a cursory consideration of the words used suggests this is no more than a restating on the traditional approach of not applying hindsight, even a moments proper thought reveals this passage to be so ambiguously worded as to be virtually meaningless.
Taking matters in turn, proportionality is to be judged by what it was reasonable for “him” to believe might be recovered. To whom does “him” refer? The claimant? Most claimants will have no knowledge of what a claim is actually worth or what they may recover, other than what they are told by their legal advisers. This is therefore presumably meant to mean what the claimant reasonably believes based on what his solicitor reasonably informed him the claim to be worth. But what of a case where the solicitor forms one view as to quantum but obtains an advice from counsel which gives a different figure? And what if counsel gives one advice but leading counsel is then instructed who gives another figure? Which of the various figures is to be used?
Secondly, what on earth does “might” mean in the phrase “might recover”? If I buy a lottery ticket, I might win the jackpot. Is it not reasonable to believe this “might” be the outcome even if it is spectacularly unlikely? Depending on what medical evidence subsequently emerges, and how well a claimant recovers from the initial injuries, the same claim “might” settle for anything from £100,000 to £5,000. Which end of that spectrum should be used when considering “might”? Is “might” to be interpreted as “possibly might”, “probably will”, “on balance will” or something else?
To top off one of the most carelessly worded sentences to appear in a modern judgment, what does “at the time he made his claim” mean? Is this at the time a letter of claim is sent, when there may be no medical evidence available and no real basis for forming a view on quantum? Is the claim “made” when proceedings are issued, when there may be medical evidence but it may be incomplete? The reality, of course, is that the value of a claim is potentially in a state of constant flux. Medical evidence will change, new evidence will emerge, an injured party’s condition may unexpectedly improve or deteriorate. It would be wholly unrealistic to fix the notional value of what a claim “might” be worth at some arbitrary point in time and for this to dictate the issue of proportionality regardless of future developments. In reality, if hindsight is not to be used, a judge on detailed assessment would have to undertake multiple retrospectives assessments of what it was or was not reasonable to believe the likely value of the claim was at any given point in time and then apply different figures at multiple different stages when considering what work was proportionate at that point. Perhaps it is unsurprising that most assessments under the old test simply focused on the level of damages actually recovered.
Watching the implementation process of the Jackson reforms has often been like witnessing a slow-motion car crash. It has certainly been in slow-motion, with his original report being published all the way back in May 2009 and his final report being published in December 2009, but with elements still to be introduced and practitioners and the courts still grappling with the basics of those already with us.
The interesting thing about all this has been that much of the undermining of the reforms has come not, as might have been expected, from a reluctant legal profession. Most problems have come from the judiciary.
Costs budgeting is an obvious example, with some sections of the judiciary trying to avoid the process entirely, others, at least initially, wrongly treating the exercise as mini-detailed assessments, others postponing the costs management process to such a late stage in the litigation that it has become irrelevant.
The latest example, I would suggest, is the decision by Regional Costs Judge Lumb in Merrix v Heart of England NHS Foundation Trust (Birmingham, 13/10/16).
The issue was summarised as:
“In summary, the Claimant receiving party submits that if her costs are claimed at or less than the figure approved or agreed for that phase of the budget then they should be assessed as claimed without further consideration. The budget fixes the amount of costs recoverable and the costs can only be reduced if the Defendant paying party satisfies an evidential burden that there is a good reason to depart from the figure in the budget. The Defendant paying party’s position is that the Costs Judge’s powers and discretion are not fettered by the budgeted figure for the phase but that the budget is but one factor to be considered in determining reasonable and proportionate costs on assessment.”
The “problem” that arises stems from the, apparently, clear wording of CPR 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.”
As always, the full judgment is essential reading to understand the decision reached. However, I hope I am not doing a disservice to the carefully reasoned judgment by suggesting in can be summarised as follows: A costs budget provides a cap as to the recoverable costs unless there is a good reason to allow a higher figure. To the extent to which a receiving party has incurred costs within that budget, everything is open to challenge in the normal way.
So how might this work in practice? A successful party has an approved budget of £80,000. They incur costs of £100,000. In the absence of a “good reason”, the costs will be capped at £80,000. However, the paying party is free to challenge the costs claimed in the conventional way. The £100,000 bill is reduced by a typical one-third to around £67,000. So, despite having an approved budget of £80,000, and incurring costs in excess of this amount, the receiving party’s costs are reduced to significantly below that budgeted figure.
It is difficult to see how this approach, if correct, is going to deliver the costs certainty to litigants that costs budgeting was intended to or how this will meaningfully reduce the number of detailed assessments.
And Lord Justice Jackson quietly wept.
During the heyday of the costs negotiating industry, the Association of Law Costs Draftsmen, as it was, held discussions with a number of the major costs negotiating firms to explore the idea of employees of those firms joining the Association. This was back at the height of the costs wars and before the introduction of the predicable costs regime when that part of “industry” was at its peak. The Association had a chance to become truly representative of a far larger proportion of the costs profession/industry than it then was. (At a rough estimate, it represented less than 10% of those working in costs.) I attended a joint meeting with other costs firm and representatives from the Association as I was, at the time, a senior manager with one of the major costs negotiating firms. Although the discussions were positive, nothing further happened.
When the issue was subsequently resurrected, I wrote to the Association and the letter was subsequently published in the ALCD Journal (see letter). This is all the way back in June 2003. In the event, the Association decided to maintain membership requirements and continued to limit membership to traditional law costs draftsmen.
Close observers of almost any organisation will notice the same debates are endlessly repeated every few years. (Back in 2011 I stood for election to the ACL Council with a manifesto including: “Make membership of the association something that all costs professionals aspire to and so increase our membership”.)
The latest issue of Costs Lawyer magazine includes the following from ACL Chairman Iain Stark:
“your elected members of Council, after a period of reflection, have determined that the Association as it currently stands is not in a position to respond to members’ needs going forward. The brief for the future must be to grow the membership and represent all those at the coal face of legal costs, funding and management, while not diluting the hard work undertaken to date to secure a regulated community.”
Here we are again, although against a very different background and outlook.
Growing the membership to represent a broader proportion of those working in the costs world is a very sound proposal. Indeed, it may be the only way for the ACL to survive if there is a major extension of fixed fees.
Nevertheless, I wonder if this particular ship has already sailed. Back in the day, the ALCD/ACL could have become a truly representative body of a large and thriving costs community and been an important lobbying body. Times have now moved on and even if it were possible for the ACL to sign up overnight all those working in costs and related areas (possibly expanding membership ten-fold or more) I doubt the ACL would be able to meaningfully influence the current direction of events. The Association of Personal Injury Lawyers has a membership of 3,800 but failed to stop the changes to recoverability of additional liabilities and will be equally ignored when it comes to the issue of whiplash reform and extension to fixed fees (however comprehensively its views are recorded by the powers that be).