Costs budgeting here to stay

In a surprise development, Lord Justice Jackson, the architect of the costs budgeting regime, has come out in support of the retention, largely unchanged, of costs budgeting.

The one thing we can now be certain of is that the extension of fixed fees will come sooner rather than later. This would immediately:

  • Remove the need for costs budgeting in those cases and thus save court time avoiding the need for costs management hearings.
  • Ensure “proportionality” of the costs recovered.
  • Save further court time by reducing the number of provisional/detailed assessments.

I am becoming increasingly convinced that the total balls-up of the introduction of the Jackson reforms is a cunning plan to make fixed costs across the board inevitable.

Shock non-reduction in claim numbers post-Jackson

Another financial year passes and, regular as clockwork, the Association of Personal Injury Lawyers (APIL) release another misleading set of figures relating to claim numbers that totally misses the real story.

Regular readers will remember last year’s APIL story “that an information request from the Compensation Recovery Unit (CRU) has shown the number of whiplash claims has fallen by 29% in only four years.”

This has been trotted out again with it being reported: “the number of whiplash claims registered with the government has fallen by 23% since the Jackson reforms. A freedom of information request by the Association of Personal Injury Lawyers (APIL) found that a total of 376,513 claims, mostly following road collisions, were made during 2014/15”.

Jonathan Wheeler, APIL’s new president blogged: “Government figures tell us that whiplash claims have fallen over the last four years by more than a third – that’s almost 200,000 claims. A Freedom of Information Act request made by APIL shows that they have fallen by eight per cent in the past year alone”.

So what do the CRU figures actually show for the number of RTA cases registered to CRU for recent years:

2014/15           761,878

2013/14           772,843

2012/13           818,334

2011/12           828,489

2010/11           790,999

This shows a modest reduction of under 4% in RTA claims from 2010/11. Even from the peak of 2011/12, this is only an 8% reduction. If whiplash claims are declining, it must have strangely coincided with a large increase in non-whiplash claims. The far more likely explanation is that the same types of claim have (for unexplained reasons) been recategorised from whiplash to non-whiplash.

The real story from the latest CRU figures concerns the total numbers of new claims reported (RTA and non-RTA):

2014/15           998,359

2013/14           1,016,801

2012/13           1,048,309

2011/12           1,041,150

2010/11           987,381

The total number of new claims is virtually unchanged from pre-Jackson and, indeed, slightly up on 2010/11.

So, the real story is that, contrary to all the scaremongering that went on pre-Jackson, two full years post-Jackson there has been no massive drop in the number of claims being brought (the Access to Justice Action Group predicted a 25% drop). No doubt claimant solicitors are feeling the pinch in terms of profits post-Jackson, but access to justice (presumably claimant solicitors’ primary concern) has been maintained in personal injury litigation. And APIL has nothing to say on the subject as it fails to fit in with their access to justice crisis narrative.

Is VAT included in provisional assessment cap?

At the panel session of last week’s Association of Costs Lawyers’ Annual Conference I was surprised when one delegate seriously asked if the £75,000 figure for provisional assessment included or excluded VAT.

However, my gast was truly flabbered when Regional Costs Judge Simon Middleton expressed the firm view that it excluded VAT (meaning he provisionally assesses bill well in excess of £75,000) and none of the other panel members contradicted him.

His reasoning appeared to be by reference to the definitions under CPR 44.1:

“‘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”

As VAT is not mentioned, he concludes it is therefore not an item of costs.

If this is true, on what basis does a party who has a successful costs order in their favour recover VAT? Surely you would also need a specific order awarding VAT in addition to costs. Where a deemed order for costs is made (following acceptance of a Part 36 offer, for example) there would never be such an order for VAT in addition (CPR 44.9 is entirely silent as to any entitlement to VAT).

I’ve been known to advance some optimistic arguments in my time, but even I would struggle to keep a straight face defending Points of Dispute that read:

“The Defendant notes the claim in the Bill of Costs for VAT. The final order is: ‘The Defendant do pay the Claimant’s costs of this action to be assessed if not agreed’. There is no separate order for the Defendant to pay VAT and the Court accordingly has no jurisdiction to assess or allow VAT. Disallow VAT.”

It also makes a nonsense of certain parts of PD 44:

“2.2     The number allocated by HMRC to every person registered under the Value Added Tax Act 1994 (except a Government Department) must appear in a prominent place at the head of every statement, bill of costs, fee sheet, account or voucher on which VAT is being included as part of a claim for costs.

2.3       VAT should not be included in a claim for costs if the receiving party is able to recover the VAT as input tax. Where the receiving party is able to obtain credit from HMRC for a proportion of the VAT as input tax, only that proportion which is not eligible for credit should be included in the claim for costs.”

Why the express reference to VAT being included “as part of a claim for costs” and “included in the claim for costs” if VAT is separate from costs?

I also note that Cook on Costs 2015, that DJ Middleton co-authors, states:

“Form H also stipulates that certain costs are specifically excluded from the budget. These are set out on page 1 of Precedent H and are VAT (where applicable)…”.

Why would this need to be mentioned if VAT is not a head of “cost”?

I’m sorry, but VAT is an element of costs (CPR 44.1 containing a non-exhaustive list of elements included within the definition, not an exhaustive one) and the £75,000 provisional assessment cap includes any VAT claimed.

Costs Lawyer legal research

The Association of Costs Lawyers’ training material advises:

“Whilst it is acceptable to use the internet for legal research, this means proper legal research on sites such as Westlaw, Lexis, Bailii, et cetera; citing Google or Wikipedia and such as authority for any legal proposition is unacceptable”

I guess that still leaves the Legal Costs Blog as something of a grey area.

Guideline Hourly Rates for 2015, 2016, 2017…

The Master of the Rolls has announced guideline hourly rates (GHRs) are to be frozen at their 2010 levels indefinitely as there is no prospect of proper evidence being produced to justify a revision.

This may not be entirely bad news for claimant lawyers as it was widely anticipated any revision would be in a downward direction.

On the other hand, what role now for GHRs? Dyson statement noted:

“They remain an integral part of the process of judges making summary assessments of costs in proceedings. They also form a part, even if only a starting reference point, in the preparation of detailed assessments. They also provide a yardstick for comparison purposes in costs budgeting.”

Without any amendments to the published rates, over time they will inevitably be given less and less weight on assessment. Claimant solicitors will inevitably seek to argue the rates should be uplifted. They will face the obvious problem that they cannot simply seek to ask the court to increase the rates in line with inflation. That is the approach the Master of the Rolls has positively rejected. Further, the payment of referral fees was one of the justifications previously put forward in a GHRs review as to why claimant hourly rates were higher than those charged by defendants. With referral fees now banned, guideline rates are arguably to high. This was the logic used to reduce fixed fees in low value RTA claims.

The one inevitable outcome of all this is more uncertainty and more satellite litigation. If individual judges increasingly department from GHRs, but not based on any empirical evidence, how are parties to predict what might or might not be allowed? For all the flaws with GHRs, at least they provided a useful guide as to what the starting point. If this is lost, what is the alternative?

Lord Dyson’s answer, in part, is to continue pressing the government to extend the use of fixed fees. Solicitors may come to regret not taking part in the GHRs survey when they had the chance.

Drafting time

Further to my post yesterday, the time claimed for drafting the three virtually identical Notices of Funding was a total of three hours (one hour for each). Did you guess correctly?

Being charitable, I suppose it is possible the fee earner recorded the time as being 1 unit per notice. An inexperienced costs draftsman then misread the corresponding attendance notes as recording 1 hour per notice and failed to engage brain when drafting the bill to consider whether this was remotely realistic. The matter was then passed to a partner who was too busy to give even a cursory glance at the contents of the bill before signing the certificate of accuracy. At no stage was there ever any intention to defraud the defendant.

Other possible explanations are also available.

Drafting Notice of Funding

I’m currently dealing with a case where the claimants’ solicitors were acting for three claimants arising out of the same incident. Same fee earner dealing with each claim.

Notices of Funding were prepared; one for each of the three claimants, all on the same date. Each claimant had the benefit of a CFA and an ATE policy. The dates of the three CFAs were identical. The dates and details of the three ATE polices were identical other than the policy numbers. To make matters easier, the policies were not staged. Other than the name of the claimant and the date of the ATE policy, each Notice of Funding was identical.

Would readers like to take a guess as to how long is being claimed for completing these three notices (which were, of course, just standard N251 forms)? The answer is higher than you might suppose.

Answer tomorrow.

Naming wrong defendant in CFA

What are the consequences of naming one party as the opponent in a CFA but then succeeding in the claim against another party?

This is a long-running issue with various non-binding and conflicting decisions on the issue including Brierley v Prescott [2006] EWHC 90062 (Costs), Law v Liverpool City Council [2005] EWHC 90020 (Costs), Scott v Transport for London (2009) (unreported) and Brookes v DC Leisure Management Ltd & Anor [2013] EW Misc 17 (CC).

Deputy Master Friston has recently handed down judgment in another case addressing this issue in Hailey v Assurance Mutuelle Des Motards (SCCO, 2015). Although the facts of the case were rather unusual, the reasoning adopted is of more general application.

One more case to throw into the mix.

Defining “disease” claims

The dispute as to whether noise induced hearing loss (NIHL) claims are “disease” claims for the purposes of the fixed success fee regime stems from the complete failure to define “disease” in the Civil Procedure Rules. What is less obvious is whether this was a careless oversight or a deliberate decision.

Males J when faced with the issue of determining whether a certain condition was a disease, in the case of Patterson v Ministry of Defence [2012] EWHC 2767, held:

“Notwithstanding the objective of CPR 45 to provide a clear and certain test for the award of success fees, inevitably questions may arise as to whether particular conditions are to be characterised as ‘diseases’. When that occurs, and when the answer is not obvious, there is in my judgment no single test or definition which can be applied. In circumstances where the Rule itself provides no definition of ‘disease’, and where the dictionaries do not assist, it would not be practicable or sensible for the court to attempt to supply its own definition.”

Phillips J, in the recent case of Dalton v British Telecommunications plc, recognising he was taking the opposite approach to Males J, attempted to define disease:

“In my judgment consideration of the legislative history in this case strongly indicates that Parliament intended the term ‘disease’ in sections IV and V of CPR 45 to include any illness (whether physical or physiological), disorder, ailment, affliction, complaint, malady or derangement other than a physical or physiological injury solely caused by an accident or other similar single event. The provisions of section IV are therefore restricted to injuries caused by accidents (or other single events), preserving the long-established distinction.”

I take this to mean that under Phillips J’s definition:

  1. Symptoms caused by a single accident or event = injury
  2. Symptoms caused by more than one accident or event = disease

This would mean that if I bang my thumb with a hammer, I have suffered an injury. If I bang it a second time I am suffering from a disease.

With respect, that is nonsense.

Therein lies the difficulty with trying to provide a definition for disease. This is, in part, the very issue that arises in most NIHL claims. If my hearing is damaged as a result of an explosion in a factory, that appears to be clearly an injury. If my hearing is damaged as a result of a single acoustic shock caused by defective electrical equipment, that would also appear to be an injury I have suffered. Does it really become a disease if the hearing loss follows a number of minor acoustic shocks or exposure to a high level of noise over a prolonged period?

The rule makers may well have made a conscious decision not to define “disease” recognising the difficulties of the process.

However, if it has been intended that NIHL claims would fall within this category, it would surely have been preferable if Category C claims had been defined something along the following lines:

“‘Type C claim’ means a claim relating to a disease not falling within either type A or type B, including noise induced hearing loss claims”

That would have still left scope for some argument over more obscure conditions, such as in Patterson, but would have left the situation clear for most claims.

Costs Judge vacancies

The Judicial Appointments Commission is advertising for three Costs Judges (two immediate, one future vacancy).

So far as I can work out, in light of the retirements of Master Hurst, Master Campbell and, presumably, another Master in the not too distant future, this will not represent an increase in overall numbers. On the other hand, at least cuts to the court service have not led to a decrease in numbers.

I note the position is open to solicitors and barristers but still not Costs Lawyers. The level of knowledge expected is high: “Detailed knowledge of the law of costs and its application is required and this will be assessed as part of the selection process for these roles. As well as requiring knowledge of all aspects of costs law, Costs Judges need a general knowledge of all other civil, family and criminal law.  Typical civil cases will involve such diverse areas of law as defamation, clinical negligence, planning, personal injury, commercial law or marine law.”