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.
The response to the Jackson reforms has taken the classic five stages of grief: denial, anger, bargaining, depression and acceptance (although not everyone has worked through all the stages yet).
When the original reforms were first published, back in 2010, many confidently predicted that the reforms would never come to pass (denial stage) and the report would quietly gather dust, particularly as this coincided with the new coalition government with many anticipating they would have more pressing matters to worry about than civil costs reforms.
The “new” proposals for fixed costs across the fast-track are, of course, no more than what had been proposed originally. The further proposals for fixed fees for most claims with a value of up to £100,000 are more significant and far reaching than originally proposed. It is certainly true that Jackson’s original report suggested the possibility of extending fixed fees further if his initial reforms were successful, but I suspect most observers anticipated that his original package of reforms would, if implemented, take sufficient heat out of the system such that further reform would be unnecessary. We therefore now find ourselves in a much “worse” position than expected from the initial Jackson Report.
The Association of Costs Lawyers seems to have been particularly susceptible to the denial stage of the grief process.
There do appear to have been some members who genuinely believed that the Jackson reforms presented all kinds of exciting opportunities for Costs Lawyers, including costs budgeting and (apparently) the project management of litigation. In reality, it was difficult to see that any new work generated could realistically compensate for the large volume of lower value work that would disappear. It is only from the perspective of positive denial that some of the ACL’s past decisions make any real sense.
There was, at one stage, quite a lot of discussion about the ACL going to university milk rounds to promote becoming a Costs Lawyer as a wonderful future career. Post-Jackson this was difficult to justify on any level. In so far as the ACL’s primary role is to promote the interests of its members, it was not obviously consistent with that role to encourage a new group of, potentially, better qualified new entrants to join the profession just as the existing work was likely to begin to dry up. Equally, it is difficult to see how the very uncertain outlook for the costs profession could ever be honestly presented as a golden opportunity for new graduates.
The ACL has traditionally been run through the hard work of members volunteering their time (with some invaluable paid support staff). It was therefore an odd decision, in light of Jackson and with future financial pressure likely if membership numbers started to drop as a consequence of the reforms, to take on, for the first time, a paid CEO and paid Policy Officer. (Both roles have now, perhaps unsurprisingly, been scrapped.)
Again, the decision to spend, apparently, £10,000’s on a new website for the Association (that, in terms of IT input, looks like a few hours’ work) is not one that made obvious sense in a post-Jackson world.
If some of these past decisions were made during a period of collective “denial”, we can perhaps hope that an element of “acceptance” will now come to pass (even if combined with “anger” and “depression”) and the Association can now consider what it’s future will be. It certainly cannot continue as though Jackson was something that happened to other people only.
Ancient Chinese curse: “May you live in interesting times”.
And so, Lord Justice Jackson has published his recommendations for extending fixed fees. The key proposals for extending fixed recoverable costs (“FRC”) to all fast-track cases, and a significant increase in fixed fees for the majority of claims with a value of up to £100,000, are no great surprise.
In more detail, he proposes:
- All recoverable costs in the fast track should be fixed, the figures should be reviewed every three years.
- A new ‘intermediate’ track with a streamlined procedure should be created for monetary relief cases above the fast track, which are of modest complexity and up to a value of £100,000.
- There should be a grid of FRC for intermediate track cases, the figures should be reviewed every three years.
- There should be FRC for (a) applications to approve settlements for children and protected parties and (b) costs only proceedings, in respect of intermediate track cases.
- Save as set out in recommendation (iv), Part 8 claims should be excluded from the proposed FRC regime.
- The Civil Justice Council should, in conjunction with the Department of Health, set up a working party to develop a bespoke process for clinical negligence claims up to £25,000, together with a grid of FRC for such cases.
- There should be a voluntary pilot of capped recoverable costs, in conjunction with streamlined procedures, for business and property cases with a value up to £250,000. If the pilot is successful, such a regime should be made available at the judge’s discretion for any suitable case in the Business and Property Courts or the Business and Property Lists of the County Court.
- For FRC cases, where a defendant fails to beat a claimant’s Part 36 offer, instead of indemnity costs applying in place of FRC, the claimant should be awarded a 30% or 40% uplift on costs. (This is what I suggested, although with a different level of uplift, 18 months ago.)
- A mediated agreement has been reached as to a new claims process for NIHL claims, with corresponding FRC, and this is endorsed.
- The Aarhus Rules should be adapted and extended to all judicial review claims.
- Costs management should be introduced, at the discretion of the judge, in ‘heavy’ judicial review claims.
Once the new reforms have bedded in, it is proposed that further consideration should be given to further extensions of fixed fees for other cases. It is proposed that this review should be after four years.
In relation to fast-track matters, they should be placed into four bands of complexity, band 1 being the least complex and band 4 the most:
- Band 1: RTA non-personal injury, defended debt cases;
- Band 2: RTA personal injury (within protocol), holiday sickness claims;
- Band 3: RTA personal injury (outside protocol), employers’ liability accident, public liability, tracked possession claims, housing disrepair, other money claims; and
- Band 4: Employers’ liability disease claims (other than noise-induced hearing loss, which is set to have its own dedicated FRC scheme), any particularly complex tracked possession claims or housing disrepair claims, property disputes, professional negligence claims and other claims at the top end of the fast-track.
The criteria to qualify for the new intermediate track would be:
- The case is not suitable for the small claims track or the fast-track;
- The claim is for debt, damages or other monetary relief, no higher than £100,000;
- If the case is managed proportionately, the trial will not last longer than three days;
- There will be no more than two expert witnesses giving oral evidence for each party;
- The case can be justly and proportionately managed under a new expedited procedure;
- There are no wider factors, such as reputation or public importance, which make the case inappropriate for the intermediate track;
- The claim is not for mesothelioma or other asbestos-related lung diseases;
- Alternatively, if the above do not apply, where there are particular reasons to assign the case to the intermediate track.
When will all this happen?
Firstly, it would need government approval and then go out for public consultation. Then the relevant Civil Procedure Rules would need to be re-written. There is no realistic prospect of this all happening by October 2017. April 2018 also looks optimistic. We are probably therefore looking at October 2018. In response to questions, Jackson indicated that the goalposts should not be moved mid-litigation. I would therefore anticipate that the trigger-date will be the date of issue (ie all claims issued on or after 1 October 2018).
In Azure East Midlands v Manchester Airport Group Property Developments Ltd  EWHC 1644 (TCC), a pre-Denton decision, it was held that a delay of two days in filing costs budgets in the context of a time frame of seven days was a “trivial” breach.
In Wain v Gloucestershire County Council  EWHC 1274 (TCC), again pre-Denton, the Court held that serving a costs budget served a day late was a “trivial” breach and an application for relief from sanctions was allowed.
In Utilise TDS Limited v Davies  EWCA Civ 906, another appeal heard at the same time as Denton and reported with it, the claimant failed to comply with an Unless Order by filing a costs budget 45 minutes late. The Court of Appeal held this delay to be “trivial”.
Most recently, in the judgment in Lakhani v Mahmud  EWHC 1713 (Ch), the defendant was one day late in filing its budget. The judge at first instance refused relief from sanctions on the basis the breach was “not a trivial breach. It is a serious breach.” This was a case specific decision and the full judgment needs to be considered to understand the reasons as to the conclusions as to the seriousness of the breach. However, on appeal the decision was upheld even if some doubt was cast on whether the original judge had correctly followed the sequence of tests as set out by Denton.
The problem with these decisions is that if the issue of whether a delay of one or two days is, or is not, a serious/trivial breach is a matter which is fact sensitive, it inevitably leads to parties who are in breach feeling justified in making applications for relief and the other side feeling equally justified opposing those applications. Satellite litigation prevails.
The current prediction is that Lord Justice Jackson will recommend fixed fees are extended to all claims with a value of less than £100,000. If this is true, and subsequently introduced, there are two obvious issues to comment on:
- Without undertaking a detailed statistical analysis, it is reasonable to estimate that a figure of £100,000 is likely to mean at least twice as much costs work will survive as if the figure had been set at the previously mooted figure of £250,000. That is a good thing.
- A number of costs firms appear to have muddled through the original Jackson reforms as a consequence of the additional work generated by costs budgeting compensating, in part, for the loss of other work. Fixed fees for all claims under £100,000 will coincide with costs budgeting being abandoned for this category of claim. This, combined with the other significant losses in work that will result from the extension of fixed fees, is likely to see civil costs work decline in volumes by 80-90% compared to current levels, and that is against the serious job losses that have already been seen. That is a bad thing.
An interesting recent blog post from Kerry Underwood discusses offshoring legal work.
He admits to a direct interest in this issue as Underwoods Solicitors offshore some of their work through their South African office and other firms have used this facility.
He also suggests:
“The same is true in relation to costs lawyers: why is it necessary to prepare a bill of costs here when it could be prepared for a fraction of that cost abroad?”
If memory serves me right, a few years ago a costs firm did outsource much of their work to Pakistan. It did not go well and the firm is no longer trading.
Of course, one example of offshoring not working is not evidence the theory is flawed. However, I believe part of the problem stemmed from the fact that the overseas costs draftsmen did not have access to the full files of papers. In theory, the relevant papers were meant to be scanned and sent over, but this no doubt proved impractical for larger matters.
Therein lies the problem so far as costs work is concerned. The majority of solicitor firms’ files are still, at least in part, paper based. Access to all relevant documents is essential to properly prepare a bill of costs. Unless, and until, firms move over to fully paperless offices it is unlikely outsourcing of costs work will catch on. By that stage, most cases will be subject to fixed fees in any event and the economies that might be achieved by offshoring volume costs work will no longer be available. There is likely to be limited demand for offshoring a relatively small number of higher value (and thus more important) costs matters.