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  EWCA Civ 547 the Court of Appeal held:
- 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.
- 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.
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  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.
The Ministry of Justice (MoJ) has announced its intention to implement Sir Rupert Jackson’s proposals for extending fixed recoverable costs to most cases worth up to £100,000.
However, rather than introducing a new intermediate track for cases worth £25,000 to £100,000, as Sir Rupert had suggested, it proposes extending the fast-track to claims worth up to £100,000.
The MoJ has accepted the fixed costs figures set out in the grid proposed by Sir Rupert in his 2017 report:
“Sir Rupert consulted with his team of 14 assessors, drawing on a breadth of views and experience, and brought his own expertise to bear in finalising the figures. As such, we consider that the figures have been devised with appropriate rigour and intend to implement them as he recommends.”
The MoJ has proposed an uplift of 35% on the fixed costs figure where a party succeeds on a Part 36 offer. This will replace an order for costs on the indemnity basis.
The intention is to make the extended fixed costs regime more watertight and thereby make escaping it harder. This will clearly require careful drafting.
In the event there remains a dispute as to the costs payable, and the matter has not gone to trial with the costs being summarily assessed, there will be a shortened form of detailed assessment, with a provisional assessment fee cap of £500.
If that was not enough, the MoJ has stated:
“It remains our intention to extend the areas in which costs are controlled in due course: such an extension could include extending FRC to further categories of claims, including claims of higher value, and controlling costs incurred before the first costs and case management conference, where cases are not otherwise subject to FRC.”
The matter is now out for Consultation, with closing dates for submissions by 6 June 2019.
A new pilot scheme starts on 1 April 2019 for a new Statement of Costs for Summary Assessment.
- Will run from 1 April 2019 to 31 March 2021.
- Applies to all claims, regardless of when “commenced” (presumably meaning when issued), that are subject to summary assessment.
- The two new forms that have been designed “may” be used during the pilot. It is therefore clear that use of the new forms is voluntary (although there does not appear to be anything to prevent a judge from making a case management decision requiring the use of the new forms).
Form N260A is designed for interim applications. Form N260B is designed for matters that have proceeded to trial.
Both forms require detailed document schedules. These “may” be created from electronic time records.
Both forms are available in paper/pdf form and in electronic spreadsheet form. Parties are free to use the paper/pdf version only.
Where the claim is subject to a costs management order, any party filing the N260B in advance of the trial must also file a Precedent Q (which shows a summary of the costs claimed compared to the last approved/agreed budget). Given summary assessment at trial is normally reserved for fast track matters, where there is no costs budgeting, it is not immediately obvious to me when this would occur. (The separate Capped Costs List pilot scheme provides for summary assessment at the end of trials limited to two days but expressly states costs management does not apply.)
For firms that are 100% confident that their fee earners are properly time recording by phase, activity, etc, there might be some time saving in preparing statements of costs using the new forms and inputting the data directly from case management software, but I suspect the overall take up will be extremely low during the pilot.
I recently looked at the case of Beardmore v Lancashire County Council where the court allowed recovery of medical agency fees (limited to £30 in addition to the direct costs) for obtaining medical records in an EL/PL Portal claim.
These records were presumably obtained by the medial agency from the GP/hospital under the Data Protection (Subject Access) (Fees and Miscellaneous Provisions) Regulations 2000 which prescribe a maximum fee by the holder of the medical records of £50 to include photocopying and postage for access to medical records.
The judgment in that case made no reference to the General Data Protection Regulation (GDPR), presumably because the records were obtained before this regulation came into force (on 25 May 2018).
Less than two weeks ago the Information Commissioner’s Office (ICO) posted a blog advising that it was reasonable for solicitors to use GDPR to obtain clients’ medical records. The GDPR provides that the holder of medical records must process a request for such records free of charge and within one month.
If solicitors can obtain medical records free of charge relying on GDPR, it is difficult to see how a decision could be justified to instead make the request under the Data Protection (Subject Access) (Fees and Miscellaneous Provisions) Regulations 2000 and incur a fee in the process.
If that is correct, there should, in future, be no claims by claimants for the direct costs of obtaining medical records in personal injury claims.
This, in turn, raises the question of whether the continued use of medical agencies for this task is justified. It might be argued that in non-fixed fee cases a medical agency can obtain the records more cheaply (at, say, £30) than if the fee earner undertook the task. It is less easy to see how this would continue to be justified in fixed fee cases where the medical agency work is clearly undertaking work that is of a fee earner nature.
Put another way, in Beardmore the judge concluded that the “appropriate measure for the disbursement recovery is the reasonable and proportionate cost of obtaining the medical records”. If the records can be obtained free of charge by the solicitors using GDPR, what justification is there for incurring any fee in a fixed costs matter? Expect pressure for CPR 45.29I (2) to be amended.
In Beardmore v Lancashire County Council (County Court at Liverpool, 1/2/19), His Honour Judge Graham Wood QC allowed the claimant to recover medical agency fees incurred in obtaining medical records in an EL/PL Portal claim despite the fact there is no express allowance for this in the CPR, unlike the RTA Portal rules.
A medical agency had been instructed to obtain the claimant’s medical records. The direct costs were £50 for the hospital notes and £10 for the GP notes. With a profit element on top, the claimant sought £96 including VAT in relation to each.
The defendant had argued that only the direct costs were recoverable.
The RTA Portal rules makes specific provision for the recovery of the medical agency fee as a disbursement of up to £30 on top of the direct costs (CPR 45.29I (2A)(c)).
HHJ Wood concluded:
“CPR 45.29I (2) allows for the recovery of a medical agency fee in this public liability case as a disbursement, and it is not excluded by the specific reference to the maximum recovery for the medical agency fee in RTA claims. In a public liability case, in my judgment, the appropriate measure for the disbursement recovery is the reasonable and proportionate cost of obtaining the medical records”.
In the absence of any evidence as to how the £96 figure had been arrived at, HHJ Wood allowed the same amounts as would have been recovered in an RTA Portal matter (ie the direct cost of obtaining the records plus £30 per set plus VAT).
A new Precedent R costs budget discussion report form has been produced that will come into force from 25 April 2019 (last page here).
In terms of changes to the current version:
- The form now includes incurred costs. This may, in part, have been to avoid confusion as to what figures were meant to be inserted into the “Claimed” column. I suspect the main reason was to emphasise that the court is meant to take into account incurred costs when considering the reasonableness and proportionality of all budgeted costs (as per PD 3E para.7.4).
- I am somewhat struggling to understand the final three columns on the form. Column K is presumably for the judge to insert the total that is being allowed for future budgeted costs. Columns L and M appear to be designed, in part, for the judge to insert comments on the costs claimed/allowed. This certainly makes sense in relation to commenting on incurred costs and is precisely what PD3E para.7.4 envisages. It can also be very helpful if a judge makes comments on the reasoning behind the estimated costs allowed. At detailed assessment, comments on the reasoning behind the figures allowed can greatly assist when determining whether there is a good reason for departing upwards or downwards from the budget. However, columns L and K are split between “Time (hours)” and “Disbursements”. This appears to run the risk of encouraging judges to focus on the “constituent elements” of the budget rather than, as per PD3E para.7.3, the “total figures for budgeted costs of each phase of the proceedings”.
- The “summary” box at the bottom of the form refers to “Post CCMC costs summary”. This appears to be predicated on the basis that the costs of the actual CCMC will be included under “Incurred costs”. This may help solve the problem of where to include the CMC/CCMC work within Precedent H. At the time the budget is completed this work (or at least the majority) will be estimated but by the time the budgets are actually approved will have been work that has been completed (and thus incurred). Hopefully, the Guidance Notes to Precedent H will be updated to clarify this.
The front page of the Precedent H form for costs budgets has a section at the bottom for completion of the costs of the costs budgeting process:
1% of approved budget or £1,000
I routinely see budgets served where this part of the form has been completed, calculated by reference to 1% or 2% of the total of the budget as drafted (incurred plus estimated costs). This is plainly incorrect.
PD 3E para.7.2 states:
“Save in exceptional circumstances-
(a) the recoverable costs of initially completing Precedent H shall not exceed the higher of £1,000 or 1% of the total of the incurred costs (as agreed or allowed on assessment) and the budgeted costs (agreed or approved); and
(b) all other recoverable costs of the budgeting and costs management process shall not exceed 2% of the total of the incurred costs (as agreed or allowed on assessment) and the budgeted (agreed or approved) costs.”
The first point to note is that the 1% and 2% figures are caps. There is no automatic entitlement to these amounts. To get the full amount of the cap, it must be shown that reasonable work on the relevant task was undertaken that equals or exceeds the cap.
Secondly, the fact that the part of the % that relates to incurred costs is calculated by reference to the amount eventually “agreed or allowed on assessment” means that at the time the budget is drafted (and at the time of the costs management hearing) it is completely unknown what figure will eventually be agreed or assessed in respect of incurred costs. This will only be discovered at the conclusion of the claim once the other costs have actually been agreed/assessed. It is therefore not possible to calculate the 1% or 2% figure at that stage as the amount used to calculate the figure has not yet crystallised.
Thirdly, even in respect of the estimated future costs, at best it is simply wishful thinking to believe that because the estimated future costs are £x that this amount will be approved in full. Any reduction by the court in respect of estimated costs will lead to a corresponding reduction in the amount allowed for the “budget drafting” and “budget process” caps.
Matters are not helped by the Precedent H Guidance Notes which state:
“Budget preparation: the time spent in preparing the budget and associated material must not be claimed in the draft budget under any phase. The permitted figure will be inserted once the final budget figure has been approved by the court.”
The reference to “inserted” is clearly intended to mean the amounts that will be inserted on the front page of Precedent H.
This is also simply wrong, because at the point the future estimated costs are approved by the court, the amount that may be agreed/assessed for the incurred costs will, again, remain unknown.
Precedent H itself is clearly defectively drafted. The 1% and 2% figures can never be inserted at the costs management stage and these elements should not be on Precedent H.
There exists something of a disconnect between how busy costs practitioners tend to tell you they are and what the market would suggest.
Certainly, most costs lawyers and costs draftsmen would have you believe they are very busy and business is booming. Sadly, the visible evidence suggests everything is not quite so rosy.
Just Costs has just gone into administration (effectively for the second time). This is reported to have led to 26 redundancies. But to put this into context:
- Back in December 2016, it was explained that Just Costs had “consolidated” from four to two offices and reduced its headcount from 110 to 70.
- In October 2017, when they emerged from their previous administration, via a CVA, it was announced that this would save 46 jobs.
- A few weeks ago it was reported they had 33 staff.
Legal Futures reported Nick McDonnell, a director at costs firm Kain Knight – and a director of the original Just Costs for two years to April 2017 – as commenting:
“The changes to the legal costs industry continue to hit some costs firms very hard. The issue isn’t so much attracting work but, particularly in the personal injury sector, there is an expectation to offer deferred payment terms. This can mean deferring payment on costs management and budgeting work, for example, for up to 12 months. This significantly affects a firm’s cash flow and the administration of Just Costs Solicitors is the latest example of this.”
Long established costs drafting firm Neat Legal Services went into administration in 2018.
Cost Advocates was another casualty, ceasing to exist in 2017.
There have been numerous other job losses, redundancies, department closures, office closures and (probably) forced mergers over the last few years.
One of the online comments posted below the Law Society Gazette news report on this stated:
“What you are basically seeing is the larger, badly run firms falling by the way side. Big is not beautiful any more and Just Costs was always a bad business model anyway. They will not be the last multi-office firm to go under this year. I am in the game and I hear rumours all of the time about other firms. This all started as a cottage industry 30/40 years ago and that is where it will end up – i.e., bespoke one man band experts rather than big firms with high overheads that they cannot sustain in this declining market.”
The White Paper Conference Company has lined up another excellent costs conference on Costs Litigation: Shaping New Law into Solution-Focused Answers for Your Clients on 13 March 2019. The speakers include: Regional Costs Judge Ian Besford, Alexander Hutton QC, Judith Ayling (39 Essex Street), Roger Mallalieu (4 New Square), David Marshall (Anthony Gold Solicitors), Alice Nash (Hailsham Chambers), Master Jason Rowley, and PJ Kirby QC.
Priced at just £249 plus VAT including lunch and refreshments. Book at: https://whitepaper.co.uk/conferences/costs19/ .