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Risky bet

Posted by on 15th August 2022 in off-topic | 0 comments

Off-topic.

I am currently reading the diaries of my late aunt that were written in the 1950s.

Many of the entries relate to her husband visiting Wembley dog track and his relative success/failure in terms of the bets he placed.

Entry from 18 February 1952:

“Charles went dogging in the evening with unfortunate results.”

If written today, I wonder if this might have been phrased differently.

Departing from Guideline Hourly Rates

Posted by on 28th July 2022 in hourly rates | 2 comments

In Samsung Electronics Co Ltd v LG Display Co Ltd [2022] EWCA Civ 466 the Court of Appeal observed that a “clear and compelling justification must be provided” to depart upwards from London 1 Guideline Hourly Rates (GHRs) as “the guideline rates for London 1 already assume that the litigation in question qualifies as ‘very heavy commercial work’”.

The Court of Appeal has reinforced that message in Athena Capital Fund SICAV-FIS SCA & Ors v Secretariat of State for the Holy See (Costs) [2022] EWCA Civ 1061.

Lord Justice Males:

the appellants’ solicitors’ costs comprised £175,000 (including hourly rates charged well in excess of the guideline rates set out in Appendix 2 to the ‘Summary Assessment of Costs’ guide published in the White Book) … This court has recently held that, in the case of solicitors’ fees, if a rate in excess of the guideline rate is to be charged to the paying party, a clear and compelling justification must be provided: Samsung Electronics Co Ltd v LG Display Co Ltd [2022] EWCA Civ 466. No such justification has been advanced in this case.”

Lord Justice Birss:

“It may be worth emphasising one aspect. In my experience there has been a view that the previous set of Guideline Hourly Rates (before 2021) were not directed to the heaviest work such as takes place in the Business and Property Courts. In part no doubt this was because they were so out of date. Whatever the position was or was thought to be, it changed in the current set of Guideline Hourly Rates, which were approved by the Master of the Rolls in August 2021. As my Lord pointed out in Samsung v LG, the current set includes a band called ‘London 1’ which is a set of rates directed expressly to very heavy commercial and corporate work by centrally London based firms. I would add that the London 1 rates band in the current Guideline Hourly Rates is based on evidence from the Business and Property Courts themselves (see the Civil Justice Council’s Final Report of April 2021). Therefore the London 1 band is directly applicable to this case and so a justification for the much higher rates was needed.”

It remains to be seen as to how rigidly the courts will stick to GHRs when dealing with, for example, Manchester solicitors dealing with complex clinical negligence claims.

Separately, Lord Justice Males commented:

“It is a striking feature of the present situation, that although almost every possible point has been taken on both sides in the course of this appeal, there has been no challenge either to the appellants’ solicitors’ hourly rates or to the brief fees and other fees charged by their counsel. However, the costs payable by the losing party on the standard basis are limited to those which are reasonable and proportionate. Where the costs of the paying party are also disproportionately high, that can make no difference. In any event the court will scrutinise cost schedules in order to keep levels of recovery within reasonable bounds.”

In future, it may be no answer for a receiving party to argue that their hourly rates (or overall costs more generally) should be viewed as reasonable because they are similar to the paying party’s.

Costs seminar

Posted by on 22nd July 2022 in Legal Costs | 0 comments

Excellent costs update from Hailsham Chambers available to view:

Hailsham Costs Seminar

Includes very exciting news that Mark Friston’s latest edition of Friston on Costs may be with us soon.

Ideal length of retainer documents

Posted by on 27th June 2022 in CFAs | 0 comments

Part of my work involves drafting conditional fee agreements for solicitors and advising them on their other retainer documents, such as client care letters. Another part of my work involves advising lay client as to the retainer documents that they have been sent by their solicitors. This dual role gives me the opportunity to see a number of solicitor documents currently in circulation.

What is the ideal length?

The SRA has provided some guidance on the contents of client care letters.  (In a similar fashion, so has the Costs Lawyers Standards Board (CLSB).)

Among the key observations of the SRA concerning client care letters:

  • Some client care letters are clearly drafted with the aim of simply complying with the SRA obligations, rather than to provide information to clients in a user-friendly way.
  • Some are too lengthy with dense paragraphs and small font sizes, which makes finding key information difficult for clients.
  • It is important that client care letters are easy to understand, including by those with low literacy levels, in a state of emotional distress or for whom English is a second language.
  • The SRA checklist includes the question: “Is your letter concise?”.

One set of retainer documents I was recently sent to review, produced by a large personal injury firm, included a cover letter, a further letter explaining funding options, the firm’s Terms of Business, the conditional fee agreement, including its own further conditions, a privacy notice in relation to data protection issues and a guide to personal injury claims. Much of this was in small font and dense paragraphs. It ran to approximately 40 pages and 20,000 words.

What is the likelihood that the average client reads this, let alone understands it? What is the likelihood that the solicitors spent the necessary time to go through these 20,000 words with the client to ensure that the client properly understood what they had been sent?

Increasingly, the approach of the courts, to the extent to which there is a solicitor/own client costs dispute, is to give consideration as to whether or not there has been informed consent by the client as to what they are signing up to. So far as the courts accept that informed consent is relevant, what hope would the solicitors in this example have of persuading a court that such consent had been given, particularly when dealing with a less sophisticated client?

The CLSB guidance on client care letters contains the following advice:

“Some types of information are seen by clients as less relevant than others at the beginning of the legal process. These include terms and conditions of business, complaint information, data protection information and regulatory information. However, such information still needs to be provided upfront for a number of reasons. One important reason is that, in relation to clients who are lay individuals, the Consumer Rights Act 2015 creates a presumption that a contract term is unfair (and thus unenforceable) if it purports to bind a consumer to terms with which the consumer had no real opportunity of becoming acquainted before the contract was concluded.”

Is this presumption likely to apply to contractual terms hidden away in overly long retainer documents sent to unsophisticated clients?

The problem with much of the retainer documents that are sent to client is that they are much like the terms and conditions that appear when trying to install new software and where it is necessary to tick a box to confirm you have read and agree to the same. Everyone ticks the box, but we all know that the lengthy terms are never read.

Nowadays, large chunks of client care letters are made up of lengthy sections addressing, the largely pointless, General Data Protection Regulations (GDPR). Although it is mandatory that certain information is provided, it is questionable as to whether this actually needs to be contained within the client care letter itself (as opposed to, for example, a link to a web page).

A number of client care letters I have seen contain sections explaining how the firm in question is committed to promoting equality and diversity and will not discriminate on the grounds of race, gender, etc.  The SRA does produce separate guidance in relation to equality and diversity that suggests that firms should “put in place a simple but comprehensive policy statement about EDI for your workforce, clients and the people you deal with. This is likely to include information about your commitment to the principles of EDI as well as setting out any legislative requirements”.  It does not appear to be a requirement that such a policy statement is included within the client care letter itself. (Of course, this may be an example of the SRA facing both ways simultaneously. Firstly, it asks solicitors to ensure their client care letters are not too lengthy and do not focus on generic information, but simultaneously encourages them to include unnecessary box ticking information.)

It is clearly entirely appropriate that firms encourage equality and diversity and do not inappropriately discriminate. However, does providing a written statement along these lines really amount to anything more meaningful than the person who says: “I’m not racist, some of my best friends are black”? The proof of the pudding is in the eating, simply saying your firm does not, for example, discriminate on the grounds of disability does not make it so. Has a firm of solicitors ever secured a single extra client by having an equality and diversity section in their client care letter? Conversely, have they ever lost a client by omitting one?

There may be no specific answer as to the question as to how long retainer documents should ideally be, but I would suggest that the answer is almost certainly shorter than whatever you currently have.

Impact of inflation on costs

Posted by on 24th June 2022 in interest | 0 comments

A client recently asked me my view as to the impact of the current upsurge in inflation on cost matters.

These are my initial thoughts:

  1. Interest on unpaid costs currently runs at 8%. When the Bank of England base rate was very low, and inflation was very low, this 8% return on unpaid costs was potentially attractive to receiving parties (although this would have to be weighed up against cash flow issues). Now that inflation is running at close to 10%, the 8% rate is no longer particularly attractive as it fails to adequately compensate receiving parties from being kept out of money that is potentially due to them. It is possible, to the extent to which receiving parties give the matter any thought, that this may encourage some to try to settle costs disputes at an earlier stage.
  2. It remains to be seen as to whether the judgment rate of 8% is increased to reflect the current high levels of inflation. However, given that no attempt was made to reduce the judgment rate during the long periods of relatively low inflation, it may be that a similar approach of inaction will be adopted now. The argument on the other side is that a judgment rate well in excess of what would be commercially available to investors, and well in excess of the rate of inflation, was not problematic as the high judgment rate positively encouraged early settlement and/or sensible payments on account. Conversely, if the judgment rate is no longer even keeping pace with inflation, then it should be revised upwards.
  3. The current high level of inflation is likely to put pressure on those that set the Guideline Hourly Rates to increase these sooner rather than later, and it was certainly anticipated within the last rate review that these should be updated on a regular basis.

Law Society CFA unenforceable?

Posted by on 21st March 2022 in CFAs | 1 comment

Recent posts have looked at some of the drafting problems with the Law Society’s (old) model conditional fee agreement.

I am grateful to loyal reader of the Legal Costs Blog, Jacques Hughes, for pointing out the rather more significant problem in that all these agreements are probably unenforceable.

s58(1) of the Courts and Legal Services Act 1990 provides that:

“A conditional fee agreement which satisfies all of the conditions applicable to it by virtue of this section shall not be unenforceable by reason only of its being a conditional fee agreement; but (subject to subsection (5)) any other conditional fee agreement shall be unenforceable.”

By virtue of s58(4A) of the Courts and Legal Services Act 1990, additional conditions are applicable where the CFA includes a success fee and relates to proceedings of a description specified by order made by the Lord Chancellor for the purposes of the subsection.

The Conditional Fee Agreements Order 2013 specifies personal injury claims as being subject to those additional conditions.

s58(4B) of the Courts and Legal Services Act 1990 sets out those additional conditions:

“(a) the agreement must provide that the success fee is subject to a maximum limit,

(b) the maximum limit must be expressed as a percentage of the descriptions of damages awarded in the proceedings that are specified in the agreement,

(c) that percentage must not exceed the percentage specified by order made by the Lord Chancellor in relation to the proceedings or calculated in a manner so specified, and

(d) those descriptions of damages may only include descriptions of damages specified by order made by the Lord Chancellor in relation to the proceedings.”

The Conditional Fee Agreements Order 2013 sets out the description of damages at s5(2):

“(a) general damages for pain, suffering, and loss of amenity; and

(b) damages for pecuniary loss, other than future pecuniary loss,

net of any sums recoverable by the Compensation Recovery Unit of the Department for Work and Pensions.”

s5(1) of the Conditional Fee Agreements Order 2013 sets out maximum percentage:

“(a) in proceedings at first instance, 25%; and

(b) in all other proceedings, 100%.”

Personal injury solicitors should be familiar with all of the above. In simple terms, where there is a personal injury claim, the maximum success that may be applied to a CFA is capped by reference to certain elements of the damages awarded (basically general damages and past losses).  That cap is 25% of the relevant damages for claims at first instance.

So, how does the old model Law Society CFA deal with this:

Cap on the amount of Success Fee which you will pay us in the event of Success in proceedings at first instance

There is a maximum limit on the amount of the success fee which we can recover from you.

That maximum limit is 25% of the total amount of any:

(i)            general damages for pain suffering and loss of amenity; and

(ii)           damages for pecuniary loss, other than future pecuniary loss;

which are awarded to you in the proceedings covered by this agreement. The maximum limit is applicable to these damages net of any sums recoverable by the Compensation Recovery Unit of the Department of Work and Pensions. The maximum limit is inclusive of any VAT which is chargeable.

[The maximum limit includes any success fee payable to a barrister who has a CFA with us.]

However, this maximum limit applies only to a success fee for proceedings at first instance and not to a success fee on other proceedings (such as, for example, an appeal against a final judgment or order).”

In relation to proceedings at first instance, there is no problem with the wording. It clearly sets out the cap and that cap is consistent with the maximum percentage allowed by the Conditional Fee Agreements Order 2013.

Where does the problem arise then? This is in relation to “other proceedings”, most likely an appeal.

The model agreement expressly states that it covers:

“• Any appeal by your opponent.

• Any appeal you make against an interim order or an assessment of costs.”

It is therefore clear that the model CFA covers certain potential appeals (ie matters that will not be proceedings at first instance).

The wording of the model CFA simply states that the maximum limit (ie the 25% cap) “applies only to a success fee for proceedings at first instance and not to a success fee on other proceedings”. No alternative cap is provided for in the event the matter proceeds to an appeal covered by the CFA.

However, it is clear beyond doubt that the Conditional Fee Agreements Order 2013 does not simply set a cap in relation to proceedings at first instance.  It provides for a further cap of 100% “in all other proceedings”. Unfortunately, this further cap is completely omitted from the Law Society model CFA.

Does this matter if the claim does not proceed past proceedings at first instance? Most definitely. It was established long ago, back in the days of the Costs Wars, that the enforceability of a CFA was to be determined at the time it was entered into (see Garrett v Halton Borough Council [2006] EWCA Civ 1017).  The fact that the case in question may not have proceeded to an appeal does not alter the non-compliance with the relevant provision in the Conditional Fee Agreements Order 2013.

It is difficult to understand how this drafting error was originally made. I speculate, but it can be no more than that, that the drafter/s confused two different 100% caps.  The model agreement correctly set out the maximum amount of the success fee as a percentage of the basic charges:

“The Success Fee cannot be more than 100% of the basic charges in total.”

Did the drafter/s confuse that maximum amount (governed s58(4)(c) of the Courts and Legal Services Act 1990 and s3 of the Conditional Fee Agreements Order 2013) with the 100% cap on the amount of the success fee (calculated by reference to damages) which can be charged under the Conditional Fee Agreements Order 2013?  Did the drafter/s believe that specifying the 100% cap on the maximum amount of the success fee as a percentage of the basic charges amounted to compliance (as required by s5(1) of the Conditional Fee Agreements Order 2013) to specify the 100% cap on the success fee as a percentage of the damages for the purposes of “other proceedings”?

So far as I am aware, there is no reported (or even anecdotal) case where a challenge has been made to the enforceability of the Law Society model CFA agreement based on this potential challenge. This is surprising given how long the Conditional Fee Agreements Order 2013 has been in place.

I would estimate that approximately 80% of CFAs in personal injury matters are based on the Law Society model agreement or a slight variation thereof. In relation to the remaining 20%, I suspect that 90% of those have simply lifted the offending wording from the Law Society CFA and incorporated them into those agreements.

Remember, you read it here first.

Personal Injury Costs 2022 webinar

Posted by on 17th March 2022 in Legal Costs | 0 comments

Excellent Personal Injury Costs 2022 webinar from Andrew Hogan and Craig Ralph now available.

 

Recovering shortfall in costs from client’s damages

Posted by on 14th March 2022 in detailed assessment | 0 comments

During the rough-and-tumble of a typical detailed assessment hearing, where the judge will be making multiple ex tempore decisions, it is routine to hear criticisms of the amount of time claimed by the receiving party and/or criticisms of certain items that have been included within a bill of costs. It is much less usual to see such criticisms make their way into a reserved/reported judgment as such decisions are usually dealing with technical points of principle.

The reserved judgement of Senior Master Gordon-Saker in ST v ZY [2022] EWHC B5 (Costs) will therefore make awkward reading for Irwin Mitchell (“IM”), the solicitors concerned. The judgement was handed down, in part, expressly for release to BAILII (ie for wider reading).

The Court was dealing with a personal injury case where the successful claimant’s solicitors were seeking to recover a costs shortfall from the claimant’s damages.

The very fact that seeking such recovery was viewed as being unusual was highlighted:

“In the years since the 2012 Act came into force, some solicitors have sought to recover their success fees from their clients when acting for children or protected parties. In the Costs Office I am aware of only two firms of solicitors who, in such cases, regularly seek to recover the fees which exceed the basic charges recovered between the parties.”

In relation to the instructions that had been given to IM’s counsel in advance of the detailed assessment hearing:

“It was … unfortunate that on the day that the bill was listed for detailed assessment [IM’s counsel] told me that he had not been provided with the full set of IM’s papers in advance of the hearing, although the court had been provided with them electronically. On the previous two occasions when I have listed IM’s bills for detailed assessment under r.46.4(2), counsel had not been provided with the full set of papers. To misquote Lady Bracknell, once would have been a misfortune. Thrice begins to look like a policy.”

In terms of some of the items claimed within the bill, where any shortfall in recovery was being sought from the client:

“Quite why it would be reasonable to charge for even a junior fee earner to spend 48 minutes researching the APIL Guide to Fatal Accidents to see who can bring a claim for loss of dependency and then spend 30 minutes considering an internal guidance note on fatal claims by the costs management team is unclear.”

IM had been acting in relation to claims brought on behalf of various individuals in addition to the claimant (“C”). In terms of whether the bill had properly excluded costs relating to those other than the claimant:

“No particular thought would appear to have been taken to separate out the costs for which C is not liable.”

In relation to one of the main issues the Court was considering, namely whether costs in excess of the last approved cost budget were “unusual in amount”:

“I should add that I think it very surprising that a solicitor would not tell their client that the budget had been exceeded and that the costs in excess of the budget would not be recoverable. … Instead IM appear to have been happy simply to ignore the budget and incur costs which they would or should have known would not be recovered from the Defendant.”

Ouch.

Seeking costs from client in excess of approved budget – ST v ZY

Posted by on 7th March 2022 in detailed assessment | 0 comments

Given the Court of Appeal recently adjourned the case of CAM Legal v Belsner, we will have to wait some time for guidance from the higher courts on the issue of informed consent when deductions are made from damages in personal injury cases.

However, that has not stopped important developments elsewhere on the same issue and particularly where costs are incurred in excess of an approved costs budget.

CPR 46.9(3) incorporates an element of informed consent where solicitor/own client costs are being assessed:

“Subject to paragraph (2), costs are to be assessed on the indemnity basis but are to be presumed –

(a) to have been reasonably incurred if they were incurred with the express or implied approval of the client;

(b) to be reasonable in amount if their amount was expressly or impliedly approved by the client;

(c) to have been unreasonably incurred if –

(i) they are of an unusual nature or amount; and

(ii) the solicitor did not tell the client that as a result the costs might not be recovered from the other party.”

In ST v ZY [2022] EWHC B5 (Costs), the Court was dealing with a personal injury case where the successful claimant’s solicitors were seeking to recover a costs shortfall from the claimant’s damages.

At the outset, and during the claim, the claimant had been advised that there would be a shortfall in costs recovery. The claimant had also been given an estimate of the likely level of that shortfall. At the conclusion of the matter, that estimate proved to be broadly accurate. At this stage, it might be thought that the claimant must be taken to have given, at least implied, approval for those costs that were in excess of that which might be recovered from the other party.

The problem for the solicitors was that much of the shortfall was as a consequence of the costs incurred by the solicitors being significantly in excess of the last approved costs budget in respect of a number of phases. During the inter partes detailed assessment, the solicitors were unable to put forward a “good reason” to depart upwards from the last approved budget. This, in part, explained a large proportion of the shortfall in recovery from the other side.

The question was, in the eyes of Senior Costs Judge Master Gordon-Saker, had the claimant been properly advised that costs in excess of the approved costs budget were being incurred and that these were therefore unlikely to be recoverable from the other side? If not, were these costs “unusual” for the purposes of CPR 46.9(3)(c)? In the view of the Master:

“[The solicitors] submitted that ‘unusual’ should be read as being between solicitor and client. However that seems to me to ignore the purpose of the rule. To avoid the presumption the solicitor is required to explain to the client that the costs may not be recovered because they were unusual. ‘Unusual’ must therefore be read in the context of a between the parties assessment. …

Were the excess costs unusual in amount? In my judgment they were. In approving the budget at £53,401.72, rather than at £147,981.50, the court arrived at the figures which it considered would be reasonable and proportionate to take the case to trial. In respect of issue/statement of case, that reasonable and proportionate figure was exceeded by over 100 per cent. In respect of witness statements, the reasonable and proportionate figure was exceeded by over 400 per cent. In respect of ADR/settlement, the reasonable and proportionate figure was exceeded by over 150 per cent. These figures are so far over what they should be, and what the court has already decided that they should be, that they must be unusual in amount.”

The crucial problem for the solicitors was:

“I have found nothing to suggest that [the claimant] was told about the budget or about the effect of the budget.

To avoid the presumption applied by CPR 46.9(3)(c), the solicitor must tell the client that as a result the costs might not be recovered from the other party. That must mean as a result of their unusual nature or amount. Telling the client that some costs might not be recovered from the other side is not sufficient. [The claimant] should have been told that the budget was being exceeded by a wide margin and that, as a result, those costs might not (and, indeed, almost certainly would not) be recovered from the other side.

Accordingly, in my judgment, the costs in excess of the budget and in excess of the caps imposed by CPR 3.15(5) are to be presumed to have been unreasonably incurred.

I should add that I think it very surprising that a solicitor would not tell their client that the budget had been exceeded and that the costs in excess of the budget would not be recoverable.”

Conditional fee agreements – cap on success fee where terminated early

Posted by on 24th February 2022 in CFAs | 0 comments

Recent posts have looked at the problems that arise when a Law Society model CFA is terminated early.

A linked problem (though not specific to the Law Society agreement) is where the client moves to new solicitors part way through the claim.

A combination of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 and the Conditional Fee Agreements Order 2013 means that where “a conditional fee agreement” in a personal injury case provides for a success fee, that success fee must not exceed 25% of the damages (limited to general damages and past pecuniary loss).  It is important to note that the rule relates to an individual (“a”) CFA.

The rule is clearly designed to protect the client from having too much of their damages taken by way of the success fee.

However, if a client moves firm part way through the case, and both firms act under their own CFAs with success fees, there appears to be nothing to prevent each firm from recovering up to 25% of the relevant damages.  It is therefore crucial that a new firm of solicitors taking over a case from another firm fully advises the client that they are losing the benefit of the cap by moving firm.  Although the exact scope of a solicitor’s duties when advising a client before a CFA is entered into currently remains a grey area, the courts are likely to look to see whether there has been informed consent in this situation.

This problem of the 25% cap applying to the individual CFA, rather than the overall costs of the client, is not unique to this situation.  It would equally apply where a solicitor enters into a CFA with a success fee and counsel is then instructed to act under a separate CFA with a success fee.  I understand that, in reality, counsel is often expected to forgo any success fee in this situation.

It does raise the interesting prospect that a solicitor could choose to act under more than one CFA with the client to avoid the CFA cap.  For example, CFA 1 covers work up until track allocation and CFA 2 covers work thereafter.  There appears to be nothing within the legislation/statutory instrument to prevent the 25% cap being recovered under each CFA.  Needless to say, you are likely to be in a world of trouble if you try this without the client giving informed consent.  However, in a risky case it may be perfectly justifiable if the single 25% cap is inadequate to reflect the risk to the solicitor.