The lobbying over the Government's proposals to slash RTA portal fixed fees has thrown up some interesting arguments. The Law Society has waded into the debate to argue that there is “substantial evidence” that the RTA portal fee should go up by £100, rather than down by £700.
The Law Society has based this on its law management section’s financial benchmarking survey which put the median cost of an employed fee-earner at £40,860, median support staff costs at £12,624 and the median spend on non-salary overheads per fee-earner at £37,992, meaning a break-even point of £97,348 per annum.
“It would be usual to calculate that a fee-earner’s billable hours at 1,100 per annum. This would result in a break even hourly rate of £88 approximately (i.e. £97,348/1,100). This is cost only and does not allow for any profit. Using a mark up of 50% (which brings a rate of return on investment of 33%), the corrected rate would be £132 per hour.”
It calculates that the proposed two-stage fee of £500 is “unjustifiable and will be unsustainable” as it equates to a rate of £50 per hour on the basis of 10 hours’ work – which is what surveys estimate an average portal case takes to complete – or less than four hours’ work at £130, which the society calculated as the correct rate for solicitors handling this work.
It said: “It would be impossible for solicitors to undertake every claim properly in accordance with the RTA protocol and their professional conduct requirements in this amount of time. To do so will result in consumers receiving a less than adequate service… It is likely that such rates will result in many solicitors simply being unable to carry out the work.”
At the same time research has suggested that the cost of acquiring personal injury cases is around £700, whether through the payment of referral fees or through own marketing costs.
This raises a number of interesting issues:
1. Firms currently undertaking this work recover fees of £1,200. From this amount an average figure of £700 is paid to acquire the case, leaving a balance of £500. The Law Society claims it is “impossible for solicitors to undertake every claim properly” for fees of this level based on 10 hours' work.
2. One possibility is that firms undertaking this work are making enormous and unsustainable losses. If so, why they continue to pay large referral fees or marketing costs to acquire such loss-making work would appear to be something of a mystery.
3. Alternatively, it may be that firms are able to make a profit undertaking this work because they handle it in a fraction of the 10 hours estimated as being necessary. That would suggest either that the 10 hours figure is a significant over-estimate or that firms handling these claims are cutting so many corners that there must be wide spread negligence throughout the legal profession.
4. Another possibility is that the Law Society’s financial benchmarking survey bears no relationship to reality for firms handling this work. I rather suspect that there are armies of paralegals handling these claims who earn a fraction of the £40,860 median salary quoted, have virtually no support staff to speak of (and certainly not costing the equivalent of £12,624 per fee earner) and who would struggle to understand what the £37,992 on non-salary overheads is spent on (certainly not free chocolate Hobnobs).
In costs law you can be sure of only one thing: If something looks like a duck, swims like a duck and quacks like a duck, it’s probably not a duck.
Following on from my recent post as to When is an RTA not an RTA?, the decision of Costs Judge Master Campbell in Schneider v Door2door PTS Ltd  EWHC 90210 (Costs) is worth reviewing. The issue being:
“did the Claimant, Mrs Schneider, suffer injury in a road traffic accident, in which case her costs are limited to those fixed under the recoverable costs regime in CPR rule 45 Part II; or are they ‘at large’ because the accident was an accident, but not a road traffic accident and accordingly her costs are recoverable without limit, subject to being proportionate and reasonable?”
The facts were that the claimant was offered transport by an NHS Trust after a hospital appointment. Following the appointment the claimant was waiting with another patient. Transport was provided by the defendant. The claimant was informed by the defendant that the steps at the side of the transport vehicle were not working. They were supposed to unfold so that the patients could use them to gain access to the vehicle. Instead, the defendant offered the claimant a steep ramp which was for wheelchairs or passage through the central part of the vehicle. She chose the latter. She was holding on to two contact points (one of which was a handle). She placed her foot high up and this was on the floor of the vehicle. As she transferred weight onto the right foot, she felt her hip dislocate.
The subsequent claim for damages against the defendant for negligence succeeded with a costs order in the claimant’s favour.
The claimant’s bill of costs sought a total of £22,982.91 including VAT and disbursements, whereas it was the defendant’s case that the costs should be limited to those payable under the fixed costs RTA regime in CPR 45 Section 2, so that no more than £800, plus 20% of the damages calculated at £1,000 and a success fee of 12.5% plus VAT together with a reasonable sum for the disbursements listed in CPR.45.10 (2), would be payable.
The rules state, so far as relevant:
"In this Section –
(a) 'road traffic accident' means an accident resulting in bodily injury to any person or damage to property caused by, or arising out of, the use of a motor vehicle on a road or other public place in England and Wales;
(b) 'motor vehicle' means a mechanically propelled vehicle intended for use on roads; and
(c) 'road' means any highway and any other road to which the public has access and includes bridges over which a road passes."
It was common ground that the transport vehicle belonging to the defendant was a "motor vehicle" within the meaning of CPR 47.7(4)(b) and that at the date of the accident, it was parked on a "road" within the meaning of sub-section (4)(c).
Following the Court of Appeal’s reasoning in Dunthorne v Bentley & Hume (Administrators of the Estate of Diane Elizabeth Bentley) and Cornhill Insurance Plc  P.I.Q.R. 323, the Master concluded:
“Whilst I accept in layman's terms that it might appear to defy logic were I to find on the facts of this case, that a road traffic accident could have taken place when, at the moment of injury, (1) Mrs Schneider was not the owner of the vehicle, (2) she was not inside the vehicle, (3) she was not the driver of the vehicle, (4) the vehicle was not in motion and (5) the vehicle was not in collision with Mrs Schneider or another vehicle, it is clear from Dunthorne that for a road traffic accident to occur, the tortfeasor's vehicle does not need to be moving, nor must it be involved in a collision. On the contrary, in Dunthorne the Court of Appeal held that a road traffic accident had occurred through Mrs Bentley's use of the car, even though at the moment of injury, it was stationary, undriveable and she was moving away from it. It follows that simply because the mini-bus had not commenced its journey, nor had it collided with another vehicle or pedestrian, that no road traffic accident could have taken place*. As was the case in Betty Green, I consider that use of the minibus occurred when Mrs Schneider placed her foot on the floor and her hands on the holding contact points, one such point being a handle. From that moment, she was engaged in an act or mode of "using" the vehicle and contrary to Mr James' submission, in my judgment, what Mrs Schneider was not doing was simply putting herself into a position so that she could use it and that that use would not start until she was safely in her seat and the mini-bus had set off. Far from being a "causal concomitant", in my judgment, her injury arose out of her use of the contact points and vehicle floor which were causal to the injury Mrs Schneider suffered.”
[*I think this should read: “It does not follow that…”]
The claim was therefore deemed to be an RTA under the rules. As the claim settled for £5,000, the costs fell within the fixed recoverable costs regime in CPR rule 45 and were limited accordingly.
Jonathan Djanogly has confirmed that the Government intends to reduce the fixed fees in RTA claims once the ban on referral fees comes in.
Can we also expect a reduction in Guideline Hourly Rates, which haven’t been increased this year?
A nicely balanced piece on the subject of RTA claims was published in the Daily Mail.
Back in January 2010, I raised some concerns about the upcoming new RTA claims process. I wrote:
“Much has been made of the fact that the level of fixed fee is set below the average amounts recovered by claimant lawyers under the current rules. Good news for defendants. But, and it may be premature to start looking for problems before we have seen the final rules, one issue looks likely to cause defendants problems unless expressly dealt with in the small print of the new rules.
Under the current predictable costs regime, recovery of costs is governed by the level of damages actually agreed. If a case settles at a level within the small claims track the predictable costs scheme does not apply. However, under the new claims process the fixed fee of £400 for stage one, providing notification of the claim to the defendant, is payable at the point when liability is admitted. At this point there will be no medical evidence. The scheme is only meant to apply where the personal injury element of the claim is at least £1,000. The Ministry of Justice's report recognises that some claims may be valued at the outset as having "reasonable prospects" of exceeding £1,000 but it later becoming clear that they do not. At that stage the claim will leave the process. However, I can see no mention of defendants getting their £400 back. Am I being incredibly cynical in thinking that there will be a very high number of claims that claimant lawyers value as having reasonable prospects of recovering over £1,000 only for these claims to undergo a surprising downwards revaluation or even disappear entirely after the £400 has been paid? There is no time limit under the scheme for obtaining a medical report and defendants may only discover several years down the road that they have been stitched-up in tens of thousands of claims.”
Now, FOIL is reported in the Law Society Gazette expressing the following concerns:
“FOIL also blamed claimant lawyers for causing delays in the portal process, and called for time limits to be introduced for claimants between stages 1 and 2.
It added that insurers should not have to pay stage 1 costs until after completion of the second stage, to avoid payments being made on cases that are not progressed beyond stage 1.”
It seems as though my concerns about the risk of legal costs leakage have proved to be justified.
Lisa Wright, barrister at 4 King’s Bench Walk, recently wrote a couple of interesting articles in the New Law Journal (18 February 2011 and 15 & 22 April 2001) on costs in RTA infant approval hearings.
The second article dealt with costs under the new fixed costs regime under CPR 45.27 to 45.40. The article, when considering hearings to assess damages, stated:
“Where the defendant is ordered to pay the claimant’s stage 3 costs, the court can order the stage 1 and stage 2 costs to be paid. CPR 45.38 does not provide for this, however, it is presumed that the court can make such an order given that in adult claims, such costs are paid at the end of each stage (paras 6.18 and 7.61 of the Protocol).”
The fact that CPR 45.38 “does not provide for this” picks up on the point I identified when the draft rules were first released (see New RTA scheme rules and win a bottle of champagne). Given the rules were introduced back on 30 April 2010, would it not make more sense for the rules to be updated to fill this lacuna rather than expect judges to have to make it up as they go along?
At this year’s Association of Costs Lawyers’ National Conference, one of the guest speakers, a regional costs judge, observed that the introduction of fixed fees for fast-track personal injury matters was not something that those present needed to be concerned about as most fast-track matters were currently dealt with by way of summary assessment.
The logic was presumably that costs lawyers did not currently see much fast-track costs work as this was dealt with by way of summary assessment at the conclusion of a trial and the introduction of fixed fees would therefore make no real difference to costs lawyers’ workloads.
It is noteworthy that even a judge with a genuine interest in legal costs related matters should have reached this conclusion. This is much the same mistake that Lord Woolf made with his civil justice reforms. He assumed that the costs of preparing for trial would have to be incurred at some stage in any event and it therefore made sense for such costs to be incurred at an early stage in the hope that this would increase the likelihood and speed of settlement. What he overlooked was the fact that the vast majority of cases settled pre-trial and often with limited disclosure. His front-loading of case preparation meant that a large amount of expensive work is now unnecessarily incurred.
Members of the judiciary, inevitably, only see the cases that are litigated and assume that these are typical with a large number of these making it all the way to trial. In reality, of course, the vast majority of cases settle pre-proceedings. For litigated matters, most settle well before trial. Even for those cases that do run close to trial, a high proportion still settle before they actually reach the door of the court. None of these cases are dealt with by way of summary assessment. For all these fast-track claims it is necessary for someone at the receiving party’s end to quantify the costs that have been incurred and then for someone at the paying party’s end to scrutinise the costs claimed. Some of those cases will make it all the way to detailed assessment.
For most law costs draftsmen working in the personal injury field, fixed costs for the fast-track is indeed something to worry about.
One of Jackson LJ's proposals is for fixed costs for all stages of all fast-track matters. He concluded that this would produce savings in its own right as:
"Claimant solicitors will no longer have to maintain documentation required for costs assessment"
This is presumably on the basis that it will not be necessary to time record with fixed fees for fast-track matters.
However, won't solicitors still have to time record pre-allocation as they won't know which track a matter will be allocated to? The injuries may be more serious than first thought. Even if the claimant is happy to run the case on the fast-track, the defendant may raise issues, such as alleging fraud, that takes the case away from the fast-track. Even if allocated to the fast-track, the matter might be re-allocated at some future date.
Litigation Funding recently reported on the Motor Accident Solicitors Society annual conference which had heard of problems concerning uncertainty surrounding the RTA claims process. These included whether bus passengers or multi-vehicle accidents are in the process.
It’s a while since I looked at the rules in any detail but what is there to suggest that such claims even might be excluded from the process?
Dr Christopher Hodges and Professor Stefan Vogenauer of Oxford University have just published a major international study into litigation funding and costs.
The project has already proven influential in contributing to the Review of Civil Litigation Costs in England and Wales conducted by Lord Justice Jackson earlier this year. The authors go on to recommend that, “If governments wish to deliver wider access to justice in those cases where proportionate cost is particularly important, they should introduce tariffs for lawyers’ fees, introduce efficient case management techniques in the civil courts, and devise alternative pathways for dispute resolution that deliver cheaper or more efficient solutions.”
The full report is available here: Report.
The predictable costs regime allows for costs in excess of fixed fees to be allowed in certain circumstances under CPR 45.12(1):
“The court will entertain a claim for an amount of costs (excluding any success fee or disbursements) greater than the fixed recoverable costs but only if it considers that there are exceptional circumstances making it appropriate to do so.”
The issue of what amounts to “exceptional circumstances” was considered in a recent case by District Judge Wyatt in Carlon v Domino's Pizza (Birmingham CC 27/8/2010) (judgment available on Lawtel).
The case was a relatively routine fast track road accident case except for the fact that the claimant was a minor and an initial psychological assessment suggested that the accident may have been responsible for the claimant developing anorexia nervosa and further investigations were undertaken.
The judge concluded that:
“I have come to the view that the element of the possibility that there was a connection between her eating disorder or its exacerbation and this accident is and amounts to in itself exceptional circumstances. … [T]he possible connection to a severe eating disorder, particularly one that led to a prolonged period of inpatient treatment, was something that took this case well outside the normal range of orthopaedic and psychological consequences of a road accident that would be otherwise likely to fall within the fast track regime.”
The judge was reinforced in his view by virtue of the fact the claimant was a child and it was appropriate to fully investigate this element.
Costs in excess of fixed costs were therefore allowed.
On the face of it, this decision cannot be criticised. An eating disorder caused by an RTA must be ““exceptional circumstances”. There is, however, one further element that does not appear to have been argued before the judge.
Upon further investigation the treating psychiatrist was unable to directly attribute the onset or acceleration of the eating disorder to the accident. The claim therefore settled for £3,950 with, presumably, no element to reflect the eating disorder.
This raises an interesting issue of law and one in which there appear to be two schools of thought.
The first one is that the reasonableness of work claimed is to be judged as at the date it was undertaken. Hindsight should not be applied (Francis v Francis and Dickerson  P 87 at 91.). The legal representatives would have clearly been negligent not to explore this issue (although that might be regarded as being a solicitor/own client problem) and therefore acted entirely appropriately investigating the issue further. The additional costs incurred should be allowed to reflect this “reasonable” work even if it did not result in higher damages being recovered.
The second school of thought, and one that has found increasing favour in recent years, is that a party may be deprived of costs in relation to a head of claim on which they have lost and regardless of whether they were “unreasonable” in pursuing that head:
• In AEI Ltd v Phonographic Performance Limited  1 WLR 1507, Lord Woolf MR stated at 1523H:
“…it is no longer necessary for a party to have acted unreasonably or improperly to be deprived of his costs of a particular issue on which he has failed.”
• Referring to this judgment Longmore LJ, in Summit Property Ltd v Pitmans (A Firm)  EWCA Civ 2020, at paragraph 16, approved this view and went further:
“In my judgment, it is also no longer necessary for a party to have acted unreasonably or improperly before he can be required to pay the costs of the other party of a particular issue on which he (the first party) has failed. That is the substance of what the Master of the Rolls was there saying.”
• In Dudley Fleming v Chief Constable of Sussex  EWCA Civ 643, Potter LJ observed at paragraph 36:
“The principles are too well known to require to be set out in detail. The pre-CPR working rule to be found in the judgment of Nourse LJ in Re Elgindata Ltd (No 2) 1 WLR 1207 was modified by the observations of Woolf Lord in AEI Rediffusion Music Ltd v Phonographic Performance Ltd to the effect that it is no longer necessary for a party to have acted unreasonably or improperly to be deprived of his costs on a particular issue on which he has failed.”
• In the case of Shirely v Caswell  1 Costs LR 1, Chadwick, LJ, giving the judgment of the Court of Appeal, stated:
“The costs of issues abandoned, or not pursued at trial, ought, prima facie, to be disallowed against the party incurring them on an assessment of the costs of that party by the costs judge - because, again prima facie, they are costs which have been unnecessarily incurred in the litigation.”
In this case the claimant was awarded additional costs (ie non-fixed costs) in relation to work undertaken pursuing a potential head of claim that was then abandoned (ie the eating disorder).
There remains a tension in the authorities as to the correct approach to the “blameless”, but ultimately unsuccessful, claimant who fails in relation to a specific head of claim.