The Legal Costs Blog has been a bit quite over the last few days. This is because I've been on holiday in sunny Turkey. Indeed, I'm writing this post lying on a sun-lounger by the pool with the laptop precariously balanced on my stomach and with a drink on the table beside me with an extra long straw to avoid any danger of accidentally performing a sit-up.
However, my time has not been entirely wasted with my holiday reading material.
In a previous post I commented on the problem that costs judges face in that the only bills of costs they are likely to see are the most unreasonable ones. Reasonable bills almost invariably settle. Judges perception of what is “normal” is formed by the most unusual bills that come their way.
The following comes from Kevin Dutton's fascinating book Flipnosis.
Ask a colleague the following question:
How many litres of diesel does it take to fill up a jumbo jet? Is it more of less than 500?
Now ask another colleague the same question with a subtle twist:
How many litres of diesel does it take to fill up a jumbo jet? Is it more of less than 500,000?
Then ask each of them to give a concrete estimate of how many litres of diesel it really does take to fill up a jumbo yet.
Almost inevitably, the first person will give a lower estimate than the second person, and probably by a very large margin. The reason for this is something called anchoring. Both colleagues will quite literally use the numbers you put in their head (500 or 500,000) as their frame of reference – anchoring points – on which to base their judgements.
Dutton's books goes on to describe how this concept of anchoring influences even judges, as shown in a study by German psychologists Birte Englich, Fritz Strack and Thomas Mussweiler:
“The team took a group of experienced judges and asked them to read an outline of a case. The case involved a man who'd been convicted of rape. Once they'd familiarised themselves with the details, the judges where then divided into two groups. One group were to imagine the following: that while the court was adjourned, they received, in their chambers, a telephone call from a journalist. This journalist posed them the following question: Would the sentence be higher or lower than three years? The other group were presented with a slightly different scenario. They, too, were told that they'd received a telephone call from a journalist – only in this case the journalist would enquire whether or not the sentence would be higher or lower than one year. … [T]he average length of sentence handed down by the judges in the first group was 33 months. In the second, it was 25.”
Strangely, Dutton fails to follow this up by exploring the relevance of this concept to the world of legal costs and I will therefore have to take the baton and run with it.
One of the areas that my firm, Gibbs Wyatt Stone, specialises in is legal costs in catastrophic injury claims. Lets take a typical catastrophic injury claim (if there is such a thing) that settles shortly before trial. A bill of costs is presented claiming 150 hours on documents. Hopefully we can all agree that 150 hours is too much, although, depending on the facts of the case, this may not be outrageous for this type of claim. So what would a judge allow adopting a broad-brush approach?
With high value costs claims there is no real sensible way of dealing with the document time other than on a broad-brush basis. With the current bill of costs format, work done on, for example, drafting the claimant's witness statement, will often be scattered over various dates throughout the document schedule. Trying to deal with this on an item-by-item basis is a lost cause. When drafting points of dispute I will often try to total the time claimed to see how long has been spent on a specific task in total. If this totals, for example, 20 hours on the claimant's witness statement, then a judge can begin to consider whether this is reasonable given the length of the final statement. However, in general, a broad-brush approach to the document time is often the only way to sensibly proceed.
So, given my example of a total of 150 hours for such a claim, what can we expect the court to allow? Members of the judiciary who are reading this can play along at home. I'm going to suggest a likely figure of somewhere between, 120-130 hours.
Now, let’s play the game again with a case with the same facts but with a bill claiming 400 hours on documents. We all should be able to agree that this would usually be a silly amount of time. But what would the court allow? Acting for defendants, I would think I had done rather well if the court reduced this to 200 hours. That is not to say that I would consider 200 hours to be a reasonable figure but rather that, in my experience, it is very rare for a judge to reduce document time by more than 50%. I previously put this down to a reluctance on the part of judges to make a finding that virtually amounted to a finding of gross incompetence on the part of the solicitors (because the time spent was more than twice what a competent firm would have taken) or a finding of fraud (more time was being claimed than had actually been spent). I now think that the anchoring concept may be playing a part. The bigger the figure first claimed, the more likely it is that a large figure will be allowed. The amount claimed acts as the anchoring point in the costs judge’s mind.
The courts do appear to be willing to allow much higher overall figures on the most excessive bills than they ever would allow on the more reasonable ones. Ironically, the more reasonable the bill of costs presented, the less the firm will probably recover. The more outrageous the claim, the bigger the final award is likely to be. If costs judges and costs officers are likely to suffer from this problem, despite their experience, how much worse will this be for less experienced district judges? Other than the anchor of what is claimed, what do they have to help them determine what a reasonable figure is? Judges need to take an extra critical view of the largest bills and avoid worrying that they may be being too harsh simply because the size of the reduction looks very large.
Not all of the proposals contained in Lord Justice Jackson's Review of Civil Litigation Costs require primary legislation. One of the intriguing questions is the extent to which the judiciary will quietly introduce some of his ideas.
Andrew Parker, writing in the New Law Journal, said: "Anecdotally one or two County Courts are already taking steps to apply some of the ideas on fast track costs".
I haven't had enough cases proceed to detailed assessment yet to form any view. Have any readers begun to see Jackson influencing the courts already?
It is not unusual for me to make offers in relation to claimants' bills of costs that represents only a fraction of the amount claimed. However, from time to time the response I receive is not simply the inevitable one of displeasure but what appears to be a genuine reaction of incredulity. There appears to be total disbelief in relation to the figures I have put forward, particularly in relation to document time in high value claims. The claimant's lawyer takes the view that no solicitor, however good, could possibly be expected to undertake the work in so little time.
The problem that many claimant lawyers have is that their experience of what is "normal", in terms of time taken to run a claim, is often limited to no more than how long it takes them, or possibly some of their colleagues in the same firm, to run similar cases. They have no idea how other firms handle such claims or how quickly. If they spend 100 hours on documents for a certain type of disease claim they assume that is normal and reasonable. The fact that the majority of other firms, for a similar claim, might take, for example, 50 hours is something totally outside their field of experience.
On the other hand, as a defendant costs practitioner, I see large numbers of bills of costs from firms throughout the country. In my capacity as a manager, I have seen literally thousands more claims for costs beyond those I have dealt with personally. It is staggering the difference in the size of a bill from an efficient firm compared to those from inefficient firms. Before some readers start complaining that they should not be criticised for dealing methodically and conscientiously with their clients' claims and not cutting corners, my experience is that the best fee earners, in terms of the results they achieve for their clients, are very often exactly the same ones who produce the most modest bills. It is often those firms that are not real specialists (despite their claims to the contrary) who under-settle claims, take twice as long to achieve under-settlement, and then produce the highest bills. One of the obvious criticisms of the current legal costs system is that it not only rewards inefficiency but fails to properly reward the skilled lawyer.
I fear that there is a similar danger for costs judges. The bills that come before them are invariably the ones that are the most excessive. A paying party (or at least one with any sense) will not take to detailed assessment a bill that is broadly reasonable. Even where the bill is overstated by 10-25% it will usually be possible for the parties to agree a compromise. Therefore, the cases that come before costs judges are usually ones where the amounts claimed are more likely to be at least 25%+ over what a paying party knows to be reasonable compared to cases run by other firms. More often, the amount claimed is 35%+ over a reasonable figure. So what do most costs judges have to measure these claims against? Other excessive bills that have also been brought before them to be assessed. You can see the problem. Costs judges run the danger of coming to believe the excessive bills that come before them are typical. There should be some process whereby costs judges routinely have submitted to them the bills produced by the best claimant firms so that they have a yardstick of excellence against which to measure claims for costs.
Click image to enlarge:
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The matter concerned a claim where proceedings had been issued. The parties agreed that the proceedings should be stayed by court order to allow for the parties to complete the Pre-Action Protocol process. The period of the stay came to an end but neither party had applied to the court to extend the stay of the proceedings, despite the Defendant noting in correspondence that such an extension was needed. In the absence of a defence being filed by the Defendant, the Claimant, without any further reference to the Defendant, applied for and obtained judgment in default.
The Claimant subsequently agreed to have the judgment in default set aside by consent but claimed they were entitled to their costs of the application to set aside and should not be required to pay the Defendant’s costs of the application.
The judge, Mr Justice Coulson, accepted that the Claimant was technically entitled to enter judgment. However, the judge concluded:
“During the course of his helpful submissions on this point, Mr. Crangle went so far as to say that, if a claimant was technically entitled to enter judgment in default then he was entitled to do so, even if he knew that the defendant had a real prospect of defending the claim and therefore setting aside such judgment. I am afraid I do not accept that submission: it seems to me that it is contrary to the entire basis of the Civil Procedure Rules. If a claimant knows that, because of some technical glitch, he could enter judgment in default against the defendant, but that the defendant had a real prospect of successfully defending the claim (and therefore getting judgment set aside) then that claimant should not, at least as a general rule, enter judgment in default. If he does, it seems to me that he must face the costs consequences of that decision.”
This decision seems to be relevant in relation to default costs certificates. Although the gentlemanly thing to do where a paying party has not served Points of Dispute within time is to remind the paying party, it is common for the receiving party to simply proceed with an application for a default costs certificate without further reference to the paying party.
A default costs certificate can be set aside where “it appears to the court that there is some good reason why the detailed assessment proceedings should continue” (CPD 47.12). There is only limited case law on the issue of what amounts to a “good reason”. One useful starting point is Seray-Wurie v London Borough of Hackney
 EWCA Civ 909. The Court of Appeal, commenting on the decision of the Court below, said:
“When the judge considered the effect of the overriding objective, he said that there was a clearly articulated dispute about the amount of costs. For the purposes of this judgment he was content to assume that the council had been late in submitting its points of objection, but it did dispute them and there was clearly a dispute to be determined. The overriding objective necessarily implied that dealing with a case justly included actually dealing with the case. If the deputy judge had made any other order [to that setting aside the default costs certificate], he would have shut out the council entirely from pursuing the disputed points in relation to costs, and both sides agreed that the amount of costs were very substantial indeed. In these circumstances, whilst assuming that the disputed facts (some of which related to the hearing before the deputy costs judge) were found in the claimant’s favour, there was no possibility of any reasonable costs judge reaching any other conclusion. There was therefore no realistic prospect of an appeal succeeding. Permission to appeal was accordingly refused.”
Although each case will depend on its own facts, where an application to set aside a default costs certificate, supported by points of dispute, is filed reasonably promptly it is hard to envisage many situations where the Court will not set aside the certificate. In the past, where this happens, it would generally be accepted that the paying party should have to pay the associated costs. The decision in Roundstone Nurseries Ltd v Stephenson Holdings Ltd suggests that this may not be appropriate. If a receiving party has been too quick off the mark and failed to warn the paying party that they intend to apply for a default costs certificate, may they find themselves having to pay the costs of having it set aside?
You wait ages for an interesting legal costs decision from the Court of Appeal and then two come along together.
Both cases concerned a similar issue as to the extent of a costs judge’s discretion to limit costs in a manner that appears to go beyond a strict reading of the final costs order.
In Drew v Whitbread
 EWCA Civ 53 the claim had been allocated to the multi track on the basis of the claimant’s schedule of special damages. At trial the matter went into a second day and the judge limited the claimant’s damages to an amount within the fast track limit. The final order was that costs were to be assessed on the standard basis.
The District Judge ruled on commencement of the detailed assessment that costs would be assessed as if the matter had been allocated to the fast-track. This restricted the level of costs recoverable.
The Court of Appeal recognised that the case raised a number of points of principle:
“Where the trial judge has in a multi-track case ordered costs to be paid on the standard basis, to what extent is a costs judge free to rule that the case was in reality a fast track case and assess trial costs on a fast track basis? Is this a matter which a paying party has to raise before the trial judge or be precluded from raising the point thereafter? In particular should a party obtain a ruling from the trial judge as to whether a case should have been disposed of within a day when in fact it was not? If the costs judge is free to consider whether a case should have been allocated to the fast track, how should he or she approach assessment thereafter; can he or she simply say I am going to assess the costs of trial as if it was a fast track case or is it simply something to be taken into account when assessing the costs?”
The Claimant argued by reference to Aaron v Shelton
 EWHC 1162
that if a party wishes to argue that a case was, in reality, a fast-track case, and in particular that it was a case that should only have lasted a day, that must be raised with the trial judge, and if not raised with the trial judge cannot be raised with the costs judge.
The Court of Appeal rejected that approach:
“in fulfilling their different functions, the trial judge under 44.3 and the costs judge under 44.5 are enjoined to take into account many similar factors. That may mean that if a factor has been raised before the trial judge and the trial judge has ruled on that factor, that will bind the costs judge but (and it is important to emphasise this) more often than not the costs judge has material which the trial judge did not have, and thus will not be bound. But the notion that if a party has not raised a matter under 44.3 he should be precluded from raising it under 44.5 does not sit easily with the express provisions. … In my view it would not be consistent with the express provisions of 44.3 and 44.5 and with the court's duty to see that costs are proportionate and reasonable to preclude a party raising a point highly material to that question because it had not been raised before the judge under 44.3.”
It was doubtful that Aaron v Shelton
(see previous post) ever represented good law but it now entirely clear it does not. The Aaron Principle
has not survived.
The following guidance was given by the Court:
“In my view 44.3 and 44.5 are intended to work in harmony and it is intended that the parties' conduct (for example) may have to be considered under both. If what is sought is a special order as to costs which a costs judge should follow that obviously should be sought from the trial judge. If it is clear that a costs judge would be assisted in the assessment of costs by some indication from the trial judge about the way in which a trial has been conducted, a request for that indication should be sought. But none of this needs a rule as per Henderson v Henderson
that a failure to raise a point before the trial judge will preclude the raising of a point before the costs judge.
In this case the question of exaggeration was raised before the trial judge. He was expressly enjoined to take the possibility of exaggeration into account under 44.3(5)(d). That might have led to a special order for costs, e.g. that the claimant should only get 50% of his costs. But the fact that no special order has been made does not preclude the costs judge in assessing costs considering whether the conduct of a party should preclude an award of costs for some particular item. I can see no reason why the costs judge should not consider the effect of such conduct unless some specific finding of the trial judge binds him. Thus a view expressed that exaggeration was not such as to lead to a special order, ought not it seems to me to prevent a costs judge who must have regard to all the circumstances of the case, being entitled to assess what would have happened if a claimant had instructed his lawyers properly.
… in my view the costs judge was not entitled simply to rule that she was going to assess the costs of trial as if the case were on the fast track. To so rule does seem to me to rescind the Recorder's order. I cannot accept that in ruling as she did it can be said she was simply “assessing costs on the standard basis taking into account that the case should have been allocated to the fast track” which in my view is the permissible approach. It may in some cases be a distinction without a major difference, i.e. where a case has finished within a day and the sums awarded have fallen well within the fast track limits, but that was not on the face of it this case. This case had run into a second day due at least very arguably to the fact that liability was fought hard. Simply ruling that costs of the trial should be on a fast track basis may have meant that the costs judge gave no separate consideration to the question whether it was a trial that would always have been likely to run into a second day.
I accept that, if appreciating that the case had run into a second day, she had given reasons as to why it should not have done so, and that on that basis fast track trial costs was all it was reasonable for the paying party to have to pay, she could not have been faulted.”
So Aaron is completely dead and we now have the Drew Principle which allows conduct to be taken fully into account on assessment even where it has not been raised before the judge making the final order. Further, even where conduct has been raised before the trial judge, it can also be raised on assessment unless this would conflict with a specific finding by the trial judge. This is a very useful decision from a defendant’s perspective but I anticipate that it may create some practical difficulties for judges on assessment who will not now be able to avoid considering issues of conduct.
The case of O'Beirne v Hudson
 EWCA Civ 52 concerned the question of whether, where a case has been settled before any allocation by a consent order ordering costs to be paid on the standard basis, the costs judge is entitled to take the view that the case would have been allocated to the small claims track and thus that the paying party should only pay costs on the small claims track basis. This was a very similar issue to Drew
as it concerned the extent to which a judge on assessment can go behind a strict interpretation of the costs order.
The Court of Appeal ruled:
“This was a consent order providing for costs to be assessed on the standard basis; the addition of the words reasonable to my mind adds nothing to the order that costs were to be assessed on that basis. It certainly follows from that that the costs judge was not free to rule that the costs would be assessed on the small claims track basis and if and in so far as Judge Stewart might be understood to be saying that he was in my view wrong. But, and this is the critical point, in making an assessment the Costs Judge is entitled to take account of all circumstances (see CPR 44.5(1)), including the fact that the case would almost certainly have been allocated to a small claims track if it had been allocated. In so doing she would have regard to what could or could not be recovered if the case had been so allocated.
At that stage the Costs Judge must question whether, if it could have been fought on the small track, it is reasonable that the paying party should pay the costs of a lawyer. The Costs Judge would not be bound (as I think Mr Morgan's formulation would suggest) only to allow the costs as per a case on the small claims track but it would be a highly material circumstance in considering what by way of assessment should be payable.
I also accept that as Judge Stewart noted, a costs judge has no power to alter the order for costs made by the a judge, and thus make a direction from the outset where costs have been awarded on the standard basis that costs will be assessed on a small track basis. But what lay behind what Judge LJ said reflects what Lord Woolf was saying in Lownds and provided the Costs Judge does not purport to vary the original order or tie himself to assessing by reference to the small claims track it is quite legitimate to give effect as far as possible to the philosophy which lies behind the above statements. There is a real distinction between directing at the outset that nothing but small claims costs will be awarded and giving items on a bill very anxious scrutiny to see whether costs were necessarily or reasonably incurred, and thus whether it is reasonable for the paying party to pay more than would have been recoverable in a case that should have been allocated to the small claims track. Was it for example necessary to have had lawyers and is it reasonable for the paying party to have to pay for lawyers are questions that should arise where a claim should have been allocated to the small claims track.”
This might be thought to create something of an artificial distinction. A judge cannot simply apply the small claims track costs regime where the costs order is for costs on the standard basis. However, as part of the assessment process, the judge can disallow all the solicitor’s costs as being unreasonably incurred and thus limit the costs to what would have been recovered in the small claims track. Artificial or not, this is another good decision from a defendant perspective.
Taken together, these decisions considerably widen the scope for challenges on detailed assessment where the final costs order was not ideal and where issues of conduct had not been raised before the trial judge or incorporated into a final consent order.
At the end of a costs presentation I recently gave to some solicitor clients I was asked if the issue of proportionality was one that still carried any weight in legal costs disputes.
Given how central the issue of proportionality was meant to be when the Civil Procedure Rules were introduced, it is strange that this question even needs to be asked. However, it is one that is entirely legitimate to raise. As Cook on Costs 2009
states: “‘What is proportionality?’ is a conundrum the courts are still trying to solve”. In an effort to throw some light on the issue, I will let you have my thoughts on the subject.
The starting point is CPR 44.4(2): “Where the amount of costs is to be assessed on the standard basis, the court will –
(a) only allow costs which are proportionate to the matters in issue”.
In the early days of the CPR, defendants, naively with the benefit of hindsight, thought this meant what it said. Costs would not be allowed at a level that was disproportionate to the matters in issue. Therefore, for example, if there was a straightforward RTA claim with damages of £3,000 being recovered, if at the detailed assessment hearing the judge reduced the costs to £7,000 on the basis of what had been “reasonably” incurred, the judge would then stand back and make a further reduction to, say, £3,000 to ensure that the final amount allowed was “proportionate”. If only.
The correct approach was indentified by the Court of Appeal in Lownds v Home Office
 EWCA Cic 365:
“what is required is a two-stage approach. There has to be a global approach and an item by item approach. The global approach will indicate whether the total sum claimed is or appears to be disproportionate having particular regard to the considerations which Part 44.5(3) states are relevant. If the costs as a whole are not disproportionate according to that test then all that is normally required is that each item should have been reasonably incurred and the cost for that item should be reasonable. If on the other hand the costs as a whole appear disproportionate then the court will want to be satisfied that the work in relation to each item was necessary and, if necessary, that the cost of the item is reasonable.”
This test begs the question of what is the difference between “necessary” and “reasonable”. Surely costs that are not necessary will not be reasonable. Equally, costs that are not reasonable will not be necessary. It is the lack of any obvious distinction between the two tests that has led to the widely held view that “proportionality” is a dead issue. I have certainly routinely been in the Senior Courts Costs Office (as we must now call it) where, having heard detailed arguments as to whether the costs claimed are proportionate, the judge has given his decision and then commented, as an aside, that in his experience it will make little or no difference to what costs are ultimately awarded.
This problem, at least in part, appears to have been recognised by the House of Lords in Fourie v Le Roux
 UKHL 1 where Lord Scott of Foscote said:
“I think it needs to be understood that the difference between costs at the standard rate and costs on an indemnity basis is, according to the language of the relevant rules, not very great. According to CPR 44.5(1), where costs are assessed on the standard basis the payee can expect to recover costs ‘proportionately and reasonably incurred’ or ‘proportionate and reasonable in amount’; and where costs are assessed on the indemnity basis the payee can expect to recover all his costs except those that were ‘unreasonably incurred’ or were ‘unreasonable in amount’. It is difficult to see much difference between the two sets of criteria, save that where an indemnity basis has been ordered the onus must lie on the payer to show any unreasonableness. The criterion of proportionality, which applies only to standard basis costs, seems to me to add very little to the reasonableness criterion. The concept of costs that were unreasonably but proportionately incurred or are unreasonable but proportionate in amount, or vice versa, is one that I find difficult to comprehend.”
So is there any mileage at all in this issue from a paying party’s perspective?
It is clear that the judge at the outset of the detailed assessment must make a decision as to whether the costs overall are proportionate or not, assuming the issue has been raised. The judge’s decision is then meant to influence how he approaches the assessment itself on an item-by-item basis.
If the paying party persuades the Court that the costs are disproportionate, then there is some scope to use this finding to attack costs that might not otherwise be considered unreasonable. For example, an EL claim with a value at the lower end of the multi-track might have been handled by a Grade A fee earner. Depending on the facts of the case, this might not be “unreasonable”. However, the issue arises as to whether it was “necessary”. This is a far higher hurdle and the receiving party may struggle to show that it was a necessary step and that a Grade B or C fee earner could not have handled the matter. The Court may reduce the hourly rates accordingly. Equally, in a particular claim it may not be “unreasonable” to obtain an advice on quantum from counsel. Whether such a step was actually “necessary” is a different issue. It is important at the detailed assessment for the paying party’s advocate (whether costs draftsman
, costs counsel or other) to keep reminding the judge of his preliminary finding, where the costs have been found to be disproportionate, when dealing with individual items.
The fact that, at the first stage, the costs as a whole appear to be proportionate does not prevent the court from finding that individual items are disproportionate and applying the test of necessity to them alone (Giambrone v JMC Holidays
 EWHC 2932 (QB)).
Going back to the original question, the issue of proportionality can be a useful tool in nibbling at the edges of the costs claimed. However, it is important to understand that even where a claim for costs is ruled at the outset to be wholly disproportionate, at the end of the assessment the amount may still be allowed in full. Whether this is what those drafting the rules had in mind when they drafted: “the court will only allow costs which are proportionate to the matters in issue” is doubtful. It is this problem that I constantly struggle to explain to some of my solicitor/insurer clients who cannot understand why it may be necessary to offer a figure that is clearly disproportionate to the damages recovered.
The, now revoked, Collective Conditional Fee Agreement Regulations 2000 state:
“5. (1) Where a collective conditional fee agreement provides for a success fee the agreement must provide that, when accepting instructions in relation to any specific proceedings the legal representative must prepare and retain a written statement containing -
(a) his assessment of the probability of the circumstances arising in which the percentage increase will become payable in relation to those proceedings ("the risk assessment");
(b) his assessment of the amount of the percentage increase in relation to those proceedings, having regard to the risk assessment; and
(c) the reasons, by reference to the risk assessment, for setting the percentage increase at that level.”
In Various Claimants v Gower Chemicals (Cardiff County Court, 28/2/07) the paying party sought to argue that a failure to prepare a statement of reasons in accordance with Regulation 5(1) rendered the retainer invalid and all costs should therefore be disallowed. That argument was rejected on the basis that “the natural and ordinary meaning of the regulation is that there must be a provision in a CCFA that complies with the specification set out in the regulation. Regulation 5(1) does not additionally require that the prescribed provision must be performed”.Is that an end to the story? Not quite. The ever ingenious Gibbs Wyatt Stone recently acted for the Defendant in an EL claim (Middleton v Mainland Market Deliveries Ltd (Southampton CC, 20/10/09)). The Claimant's Bill claimed a 100% success fee on the basis that the fixed EL success fees had been applied to the case when the claim was accepted under the CCFA and the matter had settled at trial. In fact, the date of the accident was such that it did not fall within the fixed success fee regime. The judge accepted that fixed success fees did not apply as a matter of law and that the Court could not simply adopt the fixed success fee figures when assessing the success fee in this case (see Atack v Lee  EWCA Civ 1712).Costs Practice Direction 32.5(1)(b) requires a receiving party to serve with his Bill:
“a statement of the reasons for the percentage increase given in accordance with Regulation 3(1)(a) of the Conditional Fee Agreements Regulations or Regulation 5(1)(c) of the Collective Conditional Fee Agreements Regulations 2000. [Both sets of regulations were revoked by the Conditional Fee Agreements (Revocation) Regulations 2005 but continue to have effect in relation to conditional fee agreements and collective conditional fee agreements entered into before 1st November 2005]”
The Claimant in this case had served a document, prepared at the time the case was accepted, that gave a detailed analysis of the various strengths and weaknesses of this case and then stating that the success fee would be 27.5% if the claim settled pre-trial of 100% if settled at trial.However it was argued for the Defendant that this document did not properly comply with the requirements of 5(1)(c). That section required “the reasons, by reference to the risk assessment [emphasis added], for setting the percentage increase at that level”. Because the solicitors had simply adopted the fixed success fees, they had not undertaken the “risk assessment” required by 5(1)(a). Regulation 5 is a 3-stage process. To comply with 5(1)(c) requires the earlier steps to have also been undertaken. As such, it was argued there was a breach of CPD 32.5(1)(b) and that, by virtue of CPR 44.3B(1)(d)(i), the success fee was therefore not recoverable. This was a different argument to the one run in Gower Chemicals. That argument was based on there being a breach of the CCFA Regulations which rendered the whole retainer invalid and all costs being irrecoverable. The argument advanced in this case was not that there was a breach of the Regulations, but that there was a breach of the detailed assessment disclosure requirements and the success fee alone was irrecoverable.The judge accepted the Defendant's submissions and disallowed the success fee.If this decision were to be followed by other judges, a very large number of other cases would potentially be affected. A large number of “risk assessments” prepared in CCFA cases do not strictly follow the 3-stage process. Interestingly, there is a possible argument that the requirement to comply would have existed even if this was a fixed success fee case. The CCFA in place pre-dated the revocation of the Regulations (as most still do). There is nothing in CPD 32.5(1)(b) that disapplies the rule in fixed success fee cases. Although Lamont v Burton  EWCA Civ 429 and Kilby v Gawith EWCA Civ 812 are authority for the proposition that the courts have no discretion as to whether to allow fixed success fees, does this extend as far as overriding the disclosure or notification requirements? If a party fails to comply with CPD 19.4(1), for example, surely they can't recover the success fee notwithstanding that it is a fixed fee case. Does this also apply to CPD 32.5(1)(b) in its current form?In the same case, Counsel had entered into his CFA after liability had been admitted. The CFA did not put Counsel at risk in relation to Part 36 offers (despite his risk assessment being prepared on the mistaken basis that it did). Nevertheless, the fixed success fee figures had also been applied producing a claim for 100% as the matter proceeded to trial. The judge accepted that the success fee should be reduced to the 5% figure suggested in paragraph paragraph 24 of C v W  EWCA Civ 1459.Who says that legal costs isn't exciting?
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Most Conditional Fee Agreement (CFA) challenges follow a well-trodden path. However, occasionally a new variation arises where there is no authority directly on all fours. This happened in the recent case of Smith v Carpetright plc, heard by Regional Cost Judge Sparrow in Norwich County Court.
The Claimant had entered into a CFA with Godfrey Morgan solicitors. It was a condition of the, now revoked, CFA Regulations 2000 that for a CFA to be valid the solicitor must advise the client, before the CFA is entered into, whether they recommend a particular method of funding the claim and if they recommend a particular ATE insurance policy their reasons for doing so.
The CFA in question recommended an ATE policy with Amicus. Witness evidence was served during the detailed assessment proceedings that stated that this was the policy that was also orally recommended to the client. However, the CFA itself then went on discuss an Accident Line Protect insurance policy and stated that such policies are “only made available to you by Solicitors who have joined the Accident Line Protect Scheme”.
Gibbs Wyatt Stone acted for the Defendant and argued that there had been a breach of the Regulations in that it was inherently confusing as to which policy was being recommended (whether an Amicus policy or an Accident Line Protect policy) and that there had been a total failure to explain why the Amicus policy was being recommended, if it was, given the only details given had related to the Accident Line Protect policy.
The Judge held that there was real confusion in the written CFA as to what was being recommended and the likelihood was that anybody reading the CFA would consider that Amicus and Accident Line Protect were one and the same. Regardless of whether or not clear oral advice had been given, the Regulations required the advice concerning the ATE recommendation to be in writing and this had not been clearly done. This amounted to a breach which undermined consumer protection and was therefore a material breach. The CFA was held to be invalid and costs of over £90,000 were disallowed.
The Claimant is appealing this decision.
Lord Justice Jackson's Preliminary Report on Civil Litigation Costs (see previous post) focuses on the perceived problems that have arisen in recent years in relation to legal costs: “There is no doubt that litigation over costs has increased dramatically in recent years, and that this growth is one of the driving factors behind the present review. Whilst many such disputes concerned issues which would need to be resolved under any system which involves costs-shifting, the disputes over the enforceability of conditional fee agreements have generated more litigation, arguably to less useful purpose, than any other. … [L]engthy detailed assessment hearings (largely devoted to legal arguments about recoverability and other technical challenges) still abound. This continuance of technical battles, albeit on changing fronts, appears to be attributable to the huge sums of costs which are in play. Both in the field of personal injury and in other areas, the Costs War is still being fought with some vigour.”
The Report goes on: “Taken collectively, the law reports of the last decade present the unseemly spectacle of endless and expensive squabbles about how much money should be paid to lawyers. … The question must be asked whether the Costs War either serves the public interest or benefits the profession as a whole. If the answer to this question is no, then consideration must be given to what further measures (beyond those already adopted) should be taken in order to stamp out such litigation. … In commenting on the issues raised in Phase 1 of the Costs Review, Professor Ian Scott (general editor of the White Book) stated: ‘I do fear that the profession to which I belong has lost its soul and is far too preoccupied with making money. Further, I think it is capable by its actions of killing the goose that has laid the golden egg. Another thing I feel strongly about is the shocking squandering of scarce court resources on refereeing of disputes about costs’”.
In addition to some of the radical proposals for dealing with these perceived problems, such as increased fixed fees and an end to two-way costs shifting, a number of the options up for consideration include changes to the current detailed assessment process. Some of the problems and options highlighted by the Report include:
1. “The most frequently expressed view is that the costs of detailed assessment and the court fees charged for it are often disproportionate to the amounts at stake in the main proceedings.”
2. “What is required is a bill which gives relevant information to the court and to the paying party and which is transparent. The current form of bill makes it relatively easy for a receiving party to disguise or even hide what has gone on.”
3. “Whilst detailed points of dispute may be necessary in high value complex cases, there is no such necessity in low value, straightforward bills.”
4. “A major problem in the SCCO is the fact that many detailed assessment cases settle very late in the day when it is too late to appoint another case in place of the settled case.”
5. “If a matrix, scale or tariff is in place for fast track cases there is no need for points of dispute or any reply. Depending on the structure of the fast track costs scheme it may be possible to do away with detailed assessment of such cases altogether. In order to cater for exceptional cases there should be an escape clause enabling a receiving party [or paying party] who feels that the scale allowance is too low [or too high] to apply to the court for a detailed assessment subject to a costs risk, e.g., if the assessment does not result in an increase [or decrease] of 20% or more the party applying will bear the costs of the detailed assessment.”
6. “[I]t is suggested that the Costs Practice Direction should be amended to the effect that in fast track cases points of dispute should not extend to more than three pages. … In low value cases it may be possible to dispense with points of dispute altogether, or at least to limit them to points of principle rather than quantum.”
7. “There should be a requirement that the paying party should make an offer in respect of the costs at the same time as serving points of dispute. Where the points of dispute assert that no costs should be payable, eg because of a breach of the CFA Regulations, a provisional offer should be made on the basis that the preliminary issue is decided in favour of the receiving party.”
8. “There appears to be no reason why Part 36 should not apply to detailed assessment proceedings in the same way as it applies to the substantive proceedings. This would provide greater certainty than the present provision in the rules that any offer to settle ‘may be taken into account’.”
9. “For bills of up to say £50,000 it may be possible to have a system of provisional assessment whereby the costs officer considers the bill and supporting papers in the light of the points of dispute.”
10. The decision in Crane v Canons Leisure Centre  EWCA Civ 1352 may need to be reversed.
All these proposals are designed to reduce costs disputes and reduce the cost of costs disputes. None of this is good news for the average law costs draftsman or other costs professional.
One of the more niche topics that Lord Justice Jackson's Costs Review is examining is e-disclosure. This is a specialist area and I do not propose to comment on the issues and problems that arise. Rather, I would suggest that those readers who are interested in this topic visit The e-Disclosure Information Project website where there is detailed consideration of this area. There is also an interesting post on that site concerning legal costs and the detailed assessment process.
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