Following on from the decision in Kynaston v Carroll  EWHC 2179 there have been calls in certain circles for entity regulation of costs firms. Currently the Costs Lawyer Standards Board (CLSB) regulates only individual Costs Lawyers.
There appear to be a number of arguments being put forward as to why this needs to be done. Today I will focus on one limited aspect. As I understand the argument it goes something like this: Non-qualified costs draftsmen who are employed by a firm of solicitors may attend detailed hearings as they are employees of the firm. Such individuals are regulated indirectly by the SRA as the SRA regulates the firm. The CLSB does not regulate firms. If Costs Lawyers can delegate their rights of audience to non-Costs Lawyers there is no corresponding control over the non-regulated individual. We therefore need to regulate costs firms so all those wishing to exercise the rights given to Costs Lawyers are properly regulated.
This is, in my view, a misreading of the Legal Services Act 2007, which governs rights of audience.
Under the Act, there are two ways (so far as relevant) in which a person can exercise rights of audience.
The first is if they are an authorised person and therefore have the right themselves (eg solicitors, barristers, Costs Lawyers).
The second is where they are an “exempt person” for the purposes of Schedule 3. The relevant section reads:
“The person is exempt if –
(a) the person is an individual whose work includes assisting in the conduct of litigation,
(b) the person is assisting in the conduct of litigation –
(i) under instructions given (either generally or in relation to the proceedings) by an individual to whom sub-paragraph (8) applies, and
(ii) under the supervision of that individual, and
(c) the proceedings are being heard in chambers in the High Court or a county court and are not reserved family proceedings.”
The crucial part to understand is that you are only an “exempt person” if you are instructed and supervised by an individual who is an authorised person (eg a solicitor or Costs Lawyer). There is no right to appear by virtue of being an employee of a firm of solicitors. The Act is not concerned with entities but rather the rights being exercised by individuals.
Therefore, the head of an in-house costs department who is not themselves an authorised person has no “right” to appear at a detailed assessment hearing. They would need to be instructed and “supervised” by a person who was authorised, even if this was actually a junior Costs Lawyer in their costs department.
Equally, a senior litigation executive (who is not otherwise qualified) who heads a large personal injury department in a firm of solicitors has no “right” to attend a routine application being heard in chambers. They would need to be instructed and supervised by an authorised person, even if this was a newly qualified solicitor who works under them.
Again, even in light of Kynaston, an independent law costs draftsman has no “right” to attend a detailed assessment hearing simply because they have been instructed by a firm of solicitors. They need to have been instructed (and “supervised”, whatever that means) by an individual at the firm who is themselves an authorised person.
At this stage it becomes apparent that probably 50% of those who appear at hearings in chambers (including details assessment hearings) have no right to be there because they have not been instructed by an appropriate person, but are relying on the mistaken belief the right comes from being employed by or instructed by a firm of solicitors (that is the real rights of audience “myth”). I won’t even begin to explore the issue of how many would pass a test of whether they were being properly “supervised”.
However, the point is that Kynaston does not highlight a “problem” of how costs firms are not regulated. The Legal Services Act 2007 is about controlling individuals. When something goes wrong, the buck stops with the authorised individual who gave the instructions. Whether it is the solicitor who instructs an independent law costs draftsman, the solicitor who instructs an in-house costs draftsman or the Costs Lawyer who instructs a costs draftsman in their costs firm, the position is the same. The regulatory body, whether the SRA or CLSB, is there to hold to account those who have not exercised their supervisory duties properly. There is no need for an extra burden of entity regulation to be imposed. Those silly enough to delegate their own rights too freely will lose those rights (assuming the relevant regulatory body is doing its duty).
It is also a mistake to believe that if only individual Costs Lawyers are regulated by the CLSB it prevents any control over who the Costs Lawyer delegates their rights to. There is absolutely nothing to stop, and every reason to encourage, the CLSB from making orders in appropriate cases that prevent Costs Lawyers from instructing a named non-Costs Lawyer in relation to detailed assessment hearings (if it is decided a problem lies with the actions of a non-Costs Lawyer at a detailed assessment hearing). The SRA has similar powers in relation to making orders that no firm of solicitors is to employ named individuals. By this method unregulated individuals fall under the powers of the CLSB in so far as preventing “undesirables” from exercising the rights of audience given to Costs Lawyers.
There is also the danger of making a mountain out of a molehill over this issue. Kynaston appears to have been a case where the costs firm was acting for a party with no solicitor on record. If a solicitor had been on record then, as we now know, the costs draftsman could have been instructed by that solicitor and been an “exempt person”. Once we have fixed fees across the fast-track, are there really going to be many cases where costs draftsmen, or Costs Lawyers, are acting without a solicitor on record? Costs Lawyers’ rights of audience are unlikely to be needed very often in the future (other than some solicitor/own client work and those very few appeals undertaken by Costs Lawyers). For the majority of cases the “right” to appear is the same as has always existed for detailed assessment hearings (being instructed by a solicitor to appear at a hearing being heard in chambers).
There are other arguments for entity regulation which I’ll cover another day.