The negative impact of the Jackson reforms continues apace.
Virtually simultaneous to the news about Just Costs, is the announcement that defendant costs firm Cost Advocates is to close at the end of the year.
As an example of the rise and fall of the costs industry, Cost Advocates’ story is, perhaps, even more dramatic than that of Just Costs.
Cost Advocates (then Cost Auditing) was purchased by outsourcing giant Capita in 2002 for an initial consideration of £4.9m in cash with additional deferred payments of potentially another £3m.
The inevitable post-Jackson shake down continues to make itself felt across the industry.
Back in December 2016, costs firm Just Costs Ltd entered into a company voluntary arrangement (CVA) due to significant debts including owing £781,758 to HM Revenue & Customs.
In a statement at the time, the firm said:
‘The business has traded profitably every year since our inception in 2006. We continue to do so and our forecasts moving forward show continued profitability. We continue to have the total support of our bank and funders. … We will be meeting our liabilities in full. … We are dealing with work of an ever-increasing value and complexity. It is business as usual.’
Presumably matters did not go quite as smoothly as anticipated as Just Costs Ltd has just folded, only to be reborn as Just Costs Solicitors Ltd by means of a pre-pack administration deal.
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.
The latest statement, explaining the CVA, states that it has saved 46 jobs.
It is clearly a good thing that so many jobs have been saved but 46 must be viewed as against 70 less than a year ago and 110 before that.
It must not be overlooked that these job losses have come about following just the first wave of the Jackson reforms, with the negative impact being felt largely in the fast-track arena. The next wave of reforms has yet to strike.
The Solicitors Regulation Authority has an online guide about Costs and Legal Aid for members of the public.
In relation to Conditional Fee Agreements, it states:
- “your lawyer will only get paid if the case is successful. If you lose your claim, your lawyer does not get paid”.
Am I alone in being concerned that the SRA appears to be unaware of discounted CFAs?
It then lists a number of bullet points as to what happens where a claim is run under a CFA and the claim is successful. The first of these is:
- “you receive 100% of any compensation awarded”
Where does this come from? There has never been a statutory or regulatory requirement that claimants keep 100% of their damages. True, in the past there were many firms of solicitors that made such a promise; but this was not an inherent element of a CFA. Post-Jackson, this is now relatively uncommon.
Further bullet points state:
- “the ‘success fee’ can be up to 100% of your lawyer’s costs, however in personal injury cases, this is limited to 25% of the damages awarded (excluding any damages for future care and loss),
- the losing side will have to pay your lawyer’s costs and any expenses that you may be liableto pay as part of your legal costs,
- you will however have to pay the success fee to your lawyer. It is therefore very important that your lawyer properly informs you at the very beginning of the success fee that will be payable if you win your case.”
Remember, this guide is for members of the public. How are they meant to interpret the contradictory statements that they will get to keep 100% of their damages but, in personal injury cases, may have to pay a success fee of up to 25% of their damages.
It is also fairly obvious that the SRA is unfamiliar with the concept of solicitor/own client costs.
If a solicitor produced a client care letter with so many misleading statements, they would rightly be hauled over the coals.
And this was produced by the body which is meant to police solicitors.
Last week’s annual ACL Conference saw speakers include:
Lord Justice Jackson
Senior Costs Judge Master Gordon-Saker
Costs Judge Master James
Regional Costs Judge Besford
Regional Costs Judge Lethem
Regional Costs Judge Lumb
Regional Costs Judge Middleton
Nicholas Bacon QC
Simon Browne QC
PJ Kirby QC
Andrew Post QC
Vikram Sachdeva QC
Dr Mark Friston
Professor Dominic Regan
There are clearly some outsiders who believe the ACL is getting something right.
Two of the Regional Costs Judges present told me they had taken Friday as annual leave so they could attend the conference. This suggests a number of possible things:
- The ACL Annual Conference is THE legal event of the year.
- The ACL Annual Conference is THE social event of the year.
- Some judges need to get out more. (To be fair, this conference is not so much the highlight of my social calendar, rather the only entry.)
The only body authorised to provide the Costs Lawyer qualification is ACL Training. This is wholly owned by the Association of Costs Lawyers. This is not a stich up but simply a reflection of the fact the demand for training has always been so limited that no other academic organisation would dream of trying to set up an alternative training programme and jump through the hoops required to obtain authorisation.
ACL Training has gone through a strange period.
Back in September 2014 it was announced, with some fanfare, that almost 200 students had signed up to the new training course to become Costs Lawyers. The exact number was, apparently, 189.
The number of new students for that year was always misleadingly high:
- There had been no new students enrolled the previous year as the course had been suspended whilst it was comprehensively redesigned post-Jackson. In reality, it was two years’ worth of students rolled into one.
- The figures included a number of experienced law costs draftsmen who had finally decided to make the jump to become qualified Costs Lawyers. This was, no doubt, partly in the belief that formal qualification would enhance employability in a post-Jackson world where the number of costs jobs was likely to decline.
- As this was shortly after the Jackson reforms had been introduced, this was in the rather artificial environment where costs budgeting was generating additional work but the adverse impact of Jackson had not yet started to work through into the system. In some quarters, during this brief period, it looked as though overall work levels might not drop. This no doubt encouraged some to seek qualification.
The recent edition of Costs Lawyer magazine records 97 students as having recently taken final year exams. This would be from the 2014 intake of 189 students. This suggests a very high level of drop-out/failure during the previous 3 years.
The post-Jackson environment is now taking its toll.
The number of new student for this year is 20.
Unsurprisingly, ACL Training is projected to start making significant losses over the next few years. It seems unlikely it can possibly continue in its current form.
One of the areas of costs I deal with arises from property damage claims; typically following fire, flood or tree root damage.
Although these claims are usually pursued in the name of the owner of the damaged property, in reality these are subrogated claimed being brought by the insurer of the property owner and seeking to recover the money they have already paid to the property owner to make good the damage done.
Unsurprisingly, the claimants’ insurers tend to instruct the firms of solicitors they already have working relationships with. Many of these claims are brought with the benefit of conditional fee agreements. There is often something rather tricksy about this whole process. These are claims that traditionally would have been resolved between the loss adjusters for the respective insurance companies with no legal costs incurred in the process. Instructing solicitors from the outset simply adds an unnecessary layer of costs to the process.
Nevertheless, given the solicitors instructed are usually insurer panel firms – familiar with the inflated costs claims presented by claimants’ solicitors in personal injury claims – one might hope that they would adopt a more sensible approach when submitting their own costs claims in these property damage claims.
In my experience, insurer panel solicitors are often the guiltiest of submitting grossly inflated, and barely plausible, claims for costs in these property damage cases. I have yet to decide whether this is due to:
- Deliberate dishonesty having found themselves on the end of a positive costs order and therefore trying to milk the other side for whatever they can get away with; or
- Evidence of spectacular inefficiency in the handling of relatively routine claims.
Either way, it does not seem the ideal way to promote the firms in question. If I was an insurer faced with these grossly excessive claims for costs from these firms, I would never dream of placing them on my own panel in the future. I would assume that if they charged me even half as much on a solicitor/own client basis that they would still be overcharging me by at least 100%.
Gordon Exall’s Civil Litigation Brief is simultaneously invaluable reading for all civil litigators and an example of what is currently wrong with the law.
The advent of the interweb, legal blogs and online resources such as BAILII, produces a continuous stream of new “reported” decisions on a daily basis totally unimaginable even 20 years ago.
On an application for relief from sanctions, for example, advocates are rarely content to simply address the court on the wording of the rule and the Mitchell/Denton guidance. The temptation now is for each party to produce a bundle of authorities on the point with each seeking to apply or distinguish the various decisions to the facts of the current case.
The issue of costs budgeting is no exception to the problem of proliferating “authorities”. Gordon Exall has put together an invaluable list of decisions on the issue of costs budgeting. Whether this trend should really be encouraged is, perhaps, a moot point. Nevertheless, in an age where one can virtually guarantee an opponent will seek to produce numerous authorities on any given issue, one must be prepared to fight fire with fire.
At some stage, most experienced lawyers are instructed to try to sort out the mess that another lawyer has created. Over the past couple of months I have twice been instructed to clear up problems created by defective retainers.
On both occasions, the source of the problem was firms of solicitors who have traditionally undertaken defendant insurer work but had looked to move into dealing with some claimant matters. They had wished to undertake this work on a CFA or CCFA basis but lacked previous experience of running cases with these funding models.
In the first case, they had attempted to draft the relevant retainer documents themselves (and inadvertently created an unlawful hybrid DBA). Such are the dangers of dabbling in something one is not an expert in.
In the second case, a CCFA had been set up between a firm of solicitors and a claims management company (CMC). The solicitors had sensibly, you might think, instructed a costs draftsman to undertake this work. The firm instructed appears to have been a very well known costs firm. I say this because the name of the firm appears twice in the body of the CCFA notwithstanding the fact that they are not a party to the agreement and where there is nothing in the agreement to suggest they will undertake any work in connection with the handling of the claims.
The agreement itself is so badly drafted that is it difficult to determine how the various clauses operate in practice or, indeed, how certain aspects of the agreement were even intended to operate.
Time does not allow me to list all the shortcomings with the agreement, but these key ones that stand out, and it is a remarkable drafting achievement for so much to have gone wrong in a relatively short document:
- Combined with the individual CFA each claimant was expected to enter into, the agreement was an unlawful hybrid DBA.
- The overall success fee payable to the solicitors would exceed the 25% cap on general damages and damages for pecuniary loss, other than future pecuniary loss.
- The CCFA creates an unlawful referral fee arrangement between the solicitors and the CMC.
- There is a breach of the indemnity principle.
- The CCFA states that the applicable hourly rate is set out in Schedule 1. Schedule 1 contains no hourly rate.
- The CCFA states the costs the solicitors will charge to the clients will be limited to the costs recovered from the other side. The individual CFAs with the clients makes the clients responsible for any shortfall in recovered costs.
- The CCFA refers to “Legal Representative”, being distinct from the solicitors or the CMC. The meaning of Legal Representative is not defined and is not remotely clear to whom it is meant to refer from the context.
- The CCFA refers to the solicitors’ basic charges as being “calculated for each hour that [the solicitors] are engaged upon Legal Representative’s costs action…”. Even if it was clear what “Legal Representative” referred to, it is impossible to tell what “costs action” is meant to mean in the context of this agreement.
The best guess that I can make is that the costs draftsman who prepared this cannibalised an existing CCFA that governed costs work, that their costs firm undertook, and has tried to adapt this to the requirements of the firm of solicitors but without a proper grasp of contract law, costs law, current regulatory requirements, basic drafting or the English language.
I have a case where a claim was brought against two Defendants. The claim succeeded against both Defendants.
The matter was subject to a Costs Management Order with the Claimant having a single approved costs budget in respect of costs concerning both Defendants (with no apportionment between work concerning one Defendant or the other).
The final costs order was simply that: “The Defendants shall pay the Claimant’s costs of the action” (ie the Defendants are jointly and severally liable for the Claimant’s costs, with no apportionment between work concerning one Defendant or the other).
What therefore possessed the Claimant’s costs draftsman to prepare the Bill of Costs such that for each relevant phase the Bill is split into three separate parts: one for “generic costs” that related to the work concerning both Defendants and two further parts that include the work specific to each Defendant?
The Bill therefore consists of 41 different parts when it only required 15. The task of comparing the costs claimed to the approved budget has been made more time consuming than necessary, as has preparation of the Points of Dispute and any subsequent detailed assessment hearing.
True it is that PD 47 para.5.8(5) requires:
“Where the bill covers costs payable under an order or orders under which there are different paying parties the bill must be divided into parts so as to deal separately with the costs payable by each paying party.”
However, that is clearly not applicable where, as here, the costs that each of the Defendants are required to pay are identical.
n Harrison v University Hospitals Coventry & Warwickshire NHS Trust  EWCA Civ 792 the Court of Appeal confirmed that a court, on detailed assessment, would not depart upwards or downwards from the last agreed or approved budget unless there was a good reason to do so. The battle has now moved on to the issue of what constitutes a “good reason”.
An interesting decision on this issue comes in the case of RNB v London Borough of Newham  EWHC B15 (Costs).
Deputy Master Campbell decided that there was a “good reason” where the hourly rates claimed in the agreed/approved budget were in excess of the reasonable hourly rates as determined as part of the detailed assessment process.
This decision is contrary to my understanding as to the judicial training for costs budgeting. The rules expressly state (at PD3E para.7.3):
“The court’s approval will relate only to the total figures for budgeted costs of each phase of the proceedings, although in the course of its review the court may have regard to the constituent elements of each total figure.”
and (at PD3E para.7.10):
“The making of a costs management order under rule 3.15 concerns the totals allowed for each phase of the budget. It is not the role of the court in the cost management hearing to fix or approve the hourly rates claimed in the budget. The underlying detail in the budget for each phase used by the party to calculate the totals claimed is provided for reference purposes only to assist the court in fixing a budget.”
It was generally understood that the purpose of these provisions was to set a globally reasonable and proportionate figure for each phase of a case. It was not to dictate how the work for that phase would then be undertaken.
For example, a budget might include 10 hours at £300 per hour by a Grade A fee earner for the witness statement phase, equating to a total of £3,000. If that figure is agreed/approved for the phase, it is then entirely a matter for that party as to whether the work is actually done by a Grade A fee earner in 10 hours, or by a Grade D fee earner charging £150 per hour who takes 20 hours on the task, or the matter is outsourced to Counsel who charges a fixed fee of £3,000 for completing the relevant work. So long as the work envisaged at the time the budget were agreed/approved is completed, and there is no breach of the indemnity principle, there should be no issue at the detailed assessment point as to recovery of costs. If the total claimed to undertake the budgeted work is within budget it should normally be allowed.
The cause of the problem in the RNB case is that if the defendant was unhappy with the totals claimed for any of the relevant phases in the claimant’s budget, they should not have agreed the same. This applies as much whether it is the time or the hourly rates claimed that is deemed excessive. Inevitably, this does create a problem. How does a party raise legitimate challenges to an opponents budget, in Precedent R or at a CCMC, where their concern is with the hourly rates being applied, rather than the time sought, if the court will not determine the appropriate hourly rate as part of the budgeting process? I have seen some parties attempting to agree the number of hours claimed within budgets but not the hourly rates. The difficulty with this is that PD 3E, para.7.10 states the making of a CMO “concerns the totals allowed for each phase of the budget”. Unless a total figure is agreed for the phase, there can be no CMO made on the back of that “agreement”.
The problem, so far as Deputy Master Campbell saw it, was:
“At the assessment hearing, I made reductions to the hourly rates claimed for the incurred costs to a level which has meant that the overall recovery by the Claimant for the period of work before the CMO has been reduced by significant amounts. Were that not to be reflected in the budgeted costs, that would mean that the Claimant will appear to recover an hourly rate as set out in Precedent H for the budgeted stage at a level that significantly exceeds the figure I consider to be reasonable and proportionate for the pre-budget stage. … If, (as it is the case), the hourly rate is a mandatory component in Precedent H which is not and cannot be subjected to the rigours of detailed assessment at the CCMC, it makes no sense if it is automatically left untouched when the rates for the incurred work are scrutinised at the ‘conventional’ assessment. …. Indeed, as Mr Clayton points out, it is only on that occasion that a paying party has an opportunity to challenge the rate and I agree with him for the reasons given above, that that is a ‘good reason’ to depart from the costs allowed in the Claimant’s last approved budget.”
This is a legitimate criticism of the whole costs budgeting process. One of the concerns when costs budgeting was first introduced was that judges would make rough-and-ready decisions in relation to setting costs budgets that resulted in figures that were higher than would be likely to be allowed under the scrutiny of a detailed assessment hearing. Parties would then be stuck with those excessive figures. However, although that may be a legitimate criticism of the costs budgeting process, it is difficult to see how that amounts to a “good reason” to override agreed/approved costs budgets.
Deputy Master Campbell took support for his approach from the comments made by the Court in Merrix v Heart of England NHS Foundation Trust  EWHC 346 (QB):
“As the notes to CPR 3.18 in the White Book reflect, the fact that hourly rates at the detailed assessment stage may be different to those used for the budget may be a good reason for allowing less, or more, than some of the phase totals in the budget.”
The flaw with this approach, I would suggest, is to focus simply on the hourly rate element of budgets. Although it is clearly correct that when approving a budget a court does not “fix or approve the hourly rates claimed in the budget”, it is equally true that the court is not meant to fix or approve the number of hours claimed within the budget. It is meant to do no more than approve “total figures for budgeted costs of each phase of the proceedings”. Neither the hourly rates nor number of hours set out are approved. If it is legitimate to reduce an agreed/approved budget because the hourly rate is too high, why not equally challenge the budget because the time claimed is too high for that phase? Would it not be an equally “good reason” to depart from the budget if the judge on assessment considered the time claimed in the budget to be too high?
The practical problem from this approach can be seen from the way many budgets are agreed/approved. A budget may be advanced that claims, for example, £20,000 for the disclosure phase based on 100 hours at an hourly rate of £200. The global figure for that phase may be reduced by agreement or court decision to £15,000, with no breakdown as to how that figure is arrived at. Can a party on detailed assessment challenge a claim for costs that comes in at £15,000 for that phase on the basis that the £200 per hour claimed is too high, even if the time claimed is only 75 hours (even though the £15,000 agreed/approved contained no figure for hourly rates)? What if the bill limits the hourly rate to £125 but now claims 120 hours work? Can a challenge be raised that the time spent was too long and higher than the original budget?
The proper analysis, I would suggest, is that an agreed/approved budget acts as a form of fixed fee for the relevant phase. So long as all relevant work for the phase has been completed (eg if a witness statement budget phase was based on there being three witness statements from each party, it would be necessary for those statements to have been completed and exchanged) and there is no breach of the indemnity principle, a party should be able to expect to recover the amount as set out in the agreed/approved budget (in the absence of some other “good reason” as to why this would be inappropriate).
When analysed properly, the RNB decision appears to be no more than saying budgets can be reduced on assessment simply on the grounds that the judge considers the constituent figures in the budget to be too high.
Deputy Master Campbell was canny enough to ensure his decision was not open to appeal by finding, in the alternative, that the overall costs (after the line-by-line assessment) were disproportionate but that a proportionate figure could be arrived at by reducing the hourly rates further:
“It follows that if I am wrong about ‘good reason’, the amount to be allowed on assessment must be adjusted by the application of CPR 44.3(5) so that the sum payable is the same as if the rates allowed for the incurred had been used to work out the amount to be allowed for the budgeted work.”
It therefore seems unlikely that this decision will be taken further. However, I rather doubt that the RNB approach will gain approval from the higher courts in due course.