Law v Liverpool City Council


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In the course of writing a forthcoming Update: Costs for the Solicitors Journal, concerning naming the wrong defendant in a CFA, I was considering the case of Law v Liverpool City Council [2005] EWHC 90020 (Costs) which deals with this issue. Although unreported, this case usually has the date of judgment being recorded as 10 May 2005 (including on Bailii and in the Senior Court Costs Office’s case summary No 23 of 2007). This is hardly surprising as that is the date that appears on the approved judgment itself.

However, the judgment itself, in turn, refers to the case of Brierley v Prescott [2006] EWHC 90062 (Costs). Having appeared for the defendant in that matter I can confidently state that the date of that decision was 2006. So how did His Honour Judge Stewart QC manage to comment on a 2006 case in 2005?

I’m sure there’s a hilarious joke about time travel to be made there.

I’ll let you know if I come up with anything.

Oh, no. Wait…

How about:

On the back of this decision, the judge was elevated to a Lord. A Time Lord.

No? Oh, well. Please yourselves. 
 

Implementing Jackson


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I mentioned the other day that things seemed to have gone rather quiet on the question of whether the Jackson Costs Review will be implemented.

By a happy coincidence, an article by Dominic Regan in New Law Journal investigates how the courts are already starting to do this by stealth (my word, not his). 

One example given of this is the recent decision of the Court of Appeal in L G Blower Ltd v Reeves (reported within Gibbon v Manchester City Council [2010] EWCA Civ 726) which recognises that although the case of Carver v v BAA Plc [2008] EWCA Civ 412, concerning beating Part 36 offers by a narrow margin, is binding on them, for all practical purposes it can generally be ignored. 

How long before the Court of Appeal suggests that Lownds v Home Office [2002] EWCA Cic 365 no longer needs to be applied quite in the same way everyone else thought it did and disproportionate costs really should be disallowed?

Success fee trickery


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My further adventures into the outer limits of the legal costs world continues with another idea inspired by Kevin Dutton’s book Flipnosis.

Readers will be familiar with the tactic of retailers selling goods at £9.99 or £9.95 instead of £10, in the hope that we will consider this to be more of a bargain.

Although there are a number of possible explanations put forward for why this might work, one of the most convincing is that put forward by Chris Janiszewski and Dan Uy from the University of Florida.

They undertook experiments where a group of volunteers were told to imagine they were buying an item at a particular retail price. One group were told the price was $5,000, a second that it was $4,988 and a third that it was $5,012.

They were then required to guesstimate the wholesale cost to the retailer.

Those who were given a price tag of $5,000 estimated wholesale prices significantly lower than those given more precise figures. Further, those given the $5,000 label were more likely to estimate the wholesale price in round numbers.

Dutton summarises the conclusions of Janiszewski and Uy as to why this should be as follows:

“To explain their results, Janisewski and Uy speculate as to what the brain might be doing when it calculates such differentials – the precise anatomy of the comparison procedure. Or, more specifically, its units of measurements. Could it be that these units of measurement are variable, and contingent on certain characteristics of the initial price? Let’s say, for example, that we go into a shop and spot a clock radio on display for £30. On seeing the radio we might well think to ourselves: that radio is really worth around £28 or £29. Whole numbers. On the other hand, if we see it retailing at £29.95 we might still believe that its worth less than the asking price – but the yardstick we use to evaluate the disparity is different. This time its intervals are smaller. Rather than thinking in whole, round pounds we think, instead in loose change. We consider, perhaps, £29.75 or £29.50 as the “true” wholesale value – less of a differential than if we were thinking in whole numbers. Which makes it more of a bargain.”.

To test their theory, Janisewski and Uy did a real-life study comparing the asking prices of houses with the amounts they actually sold for. Just as they had predicted, those who put their houses on the market for a more precise sum (eg $596,500 as opposed to $600,000) got consistently closer to their asking price than those who sold their houses for a round-number. When there was a slump in the market, those houses priced in round-numbers depreciated more than the “precisely-tagged” homes. This happened over a time-span as short as a couple of months.

So, what lessons are there here for solicitors, law costs draftsmen and the like?

If this theory is correct, and a costs judge on detailed assessment is faced with a non-fixed success fee in a public liability claim of, for example, 80%, what might he allow if he considers the amount claimed too high? It seems likely the reduction will be in round numbers and a figure of 60%, 50% or 40% might be allowed.

On the other hand, what might be allowed if the success fee was claimed at 79%? A figure much closer to the “asking price”, say 75%?

A second reason why such an effect might be seen, and this is simply my own theory rather than backed up by empirical evidence, is that a figure of 79% has, assuming it has not simply been produced by the ready-reckoner, the appearance of being carefully, and in some obscure sense “scientifically”, calculated. On the other hand, an 80% success fee looks somewhat arbitrary with no more than a round-number in its favour.

Based on the above theories, I would put good money on solicitors who set their success fees at 79% recovering more, on average, than ones setting their success fees at 80%.

Costs judges need to be on their toes not to be caught out by this little psychological trick.
 

Grade C fee earner?


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I have a bill of costs which utilises various hourly rates for the “Grade C”, “Grade A” and “Costs Draftsman”. However, the bill fails to comply with Costs Practice Direction 4.5:

“The background information included in the bill of costs should set out:

(2) a statement of the status of the solicitor or solicitor’s employee in respect of whom costs are claimed and (if those costs are calculated on the basis of hourly rates) the hourly rates claimed for each such person.”

Therefore, at an early stage (July 2009), I requested details of the names, qualifications and PQE of each fee earner. The claimant’s “law costs specialists” subsequently gave the names of the various fees earners and indicated which of them they classified as Grade A or Grade C. Oddly, there was a total failure to deal with the question of qualifications or PQE.

The matter drags on and Points of Dispute are served in September which repeat the request for details of the qualifications and PQE of the fee earners.

Replies are served months out of time in December.

These Replies give the date of qualification of two of the fee earners (the Grade As) and state in relation to the other three fee earners that they “do not have the qualifications however all have the relevant experience to claim a Grade C Grade.”

Grade A and B fee earners are defined as follows:

A – Solicitors with over eight years post qualification experience including at least eight years litigation experience.

B – Solicitors and legal executives with over four years post qualification experience including at least four years litigation experience.

A Grade C fee earner is defined as: “Other solicitors and legal executives and fee earners of equivalent experience”.

The Guide to Summary Assessment of Costs (page 1494 of the White Book 2010) states: “Whether or not a fee earner has equivalent experience is ultimately a matter for the discretion of the court.”

More specifically, the Guide states:

“Unqualified clerks who are fee earners of equivalent experience may be entitled to similar rates and in this regard it should be borne in mind that Fellows of the Institute of Legal Executives generally spend two years in a solicitor’s office before passing their Part 1 general examinations, spend a further two years before passing the Part 2 specialist examinations and then complete a further two years in practice before being able to become Fellows. Fellows have therefore possess [sic] considerable practical experience and academic achievement. Clerks without the equivalent experience of legal executives will be treated as being in the bottom grade of fee earner ie. trainee solicitors and fee earners of equivalent experience [Grade D].”

So, a FILEX has six year’s experience and academic achievement under their belt. Those without this should be treated as Grade D. There may be arguments as to whether seven or eight year’s experience is sufficient to amount to Grade C status without having passed the exams required of a FILEX.

I advised my instructing solicitors to raise a formal Part 18 Request to drag a proper answer out of the other side.

The response that has just been received is that the experience of the unqualified fee earners is: six years, five years and two years respectively.

The first two fairly obviously aren’t the equivalent of a FILEX.  Although the first has the equivalent experience, just, neither has undertaken the academic training.  But what about the third?

Two years. Unqualified.

On what parallel legal costs world does that equate to the equivalent of a qualified solicitor or FILEX?

At what stage does wishful thinking concerning the rates that might be allowed move into outright fraud?
 

Jackson Report – Calm before the storm?


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The government seems to be keeping fairly quite as to its plans as to whether to implement any of the Jackson Costs Review, other than a passing reference by justice minister Lord McNally in the context of defamation claims where he said the government would consider the report on civil costs by Lord Justice Jackson before deciding what action to take.

For those optimistic that the Report will be quietly shelved and that there are too many interested parties who would be upset by implementation, remember that one of the very first acts of the new government was to scrap HIPs.

This decision will reportedly lead to 10,000 job losses with many of those having recently paid around £10,000 each to train as inspectors.

Don’t assume that the new government will take a more sympathetic view of those who might be adversely effected by some of Jackson’s more radical proposals.

Guideline Hourly Rates confirmed


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The Master of the Rolls has considered a ‘Conclusions Report’ from the Advisory Committee on Civil Costs, and has accepted the recommendation that the interim Guideline Hourly Rates (GHR) should be accepted as the final hourly rates. The interim hourly rates came into effect on 1 April 2010, having been set pending the Committee’s further investigations of some unresolved issues.

The Committee will continue to keep the GHR under review, and anyone in a position to provide information to the Committee is invited to send it as soon as possible and in any event by the end of December.

The Report from the Advisory Committee on Civil Costs (see link) makes for very interesting reading and their views can be contrasted with those I expressed in previous posts concerning the discrepancy between claimant and defendant hourly rates and the ongoing referral fee debate.

The Committee, if I have understood properly, attribute the higher hourly rates charged by claimants’ solicitors compared to defendants’ solicitors, in personal injury claims, as being "entirely accounted for by extra marketing costs/referral fees" that claimants’ solicitors have to incur.  It is then accepted that the work of claims management companies generates claims that otherwise would not find their way into the system.  I have previously questioned whether this view is accurate. 

It may be possible that CMCs help generate some additional claims for relatively trivial injuries that otherwise would not have been brought.  However, whether this is a "good thing" for society, given the cost of these extra claims must be met ultimately by the public, is doubtful.  There was no shortage of claims before the existence of CMCs and when solicitors were banned from advertising and there is no reason to suppose that those with serious injuries would not continue to bring claims in the abscence of advertising on daytime television.

Referral fees add an additional unnecessary cost into the system that does no more than divert a relatively fixed number of claims from the solicitors the claims might otherwise have made their way to, to those solicitors prepared to pay the highest referral fees.

The Report refers to a report by Moulton Hall Ltd into referral fees that found: “On average the number of PI cases conducted per annum by firms paying referral fees was one hundred times that of those which are not paying. There is very little work available in the PI market unless it is paid for”. 

The Advisory Committee on Civil Costs appears to have confused this conclusion with the idea that referral fees create one hundred times more claims than would otherwise exist.

Valid order for costs


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The New Law Journal recently contained a useful reminder that an agreement for the payment of costs in a Tomlin Order must be contained within the main body of the order and not in the schedule.  Of course, if you’ve read page 138 of Civil Costs – Law and Practice you’d already know this.  Or, you may have found out the hard way when your request for a detailed assessment was refused on the basis that your order was defective.

Jackson Report – Kerry Underwood responds


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Now that we have all had a chance to fully consider the Jackson Costs Review, the Legal Costs Blog has approached some of the “great and the good” in the costs world to ask them to share their views with us.

First up is Kerry Underwood, senior partner with Underwoods Solicitors, Chairman of Law Abroad and recognised expert on litigation funding issues.

TALKIN’ ‘BOUT JACKSON

In Jackson, Johnny Cash sang of “talkin’ bout Jackson ever since the fire went out”.

Many of us think that maybe the fire is the best place for this report.

Indeed rumours of a Cappelo/Jackson job swap are being well-received by lawyers and football fans alike.

So why has the report met with a reception as affectionate as that greeting the returning England World Cup team?

Its headlines have been about banning referral fees and abolishing the recoverability of success fees and after-the-event insurance premia, but those issues have been the subject of fierce debate for years and the proposals are nothing new; they represent a reversion to the pre-2000 position.

If one judges the report on its new proposals it is illogical and internally inconsistent and many of its recommendations are unworkable. It shows signs of having been completed in a hurry, with spelling errors and mistakes of grammar.

Let us look at some specifics.

Contingency fees

The report recommends that contingency fees be allowed in civil litigation but that “costs should be recoverable against opposing parties on the conventional basis and not by reference to the contingency fee”.

What on earth does a contingency fee where you still get conventional hourly rate costs from the other side achieve that a conditional fee agreement does not achieve?

It is pointless. The other side pay as usual. The client pays to his or her own solicitor an extra fee related to damages. That is precisely what happens when the client pays a conditional fee success fee capped at 25%.

It achieves no change in behaviour. The benefit of contingency fees is that there is an incentive to settle very quickly; same fees – less work. Indeed the danger is of rapid under-settlement. To maintain the old “how thick is the file” basis of recovery from the other side is self-defeating and shows a failure to understand the point and psychology of contingency fees.

Lord Justice Jackson also recommends that such agreements be invalid unless the client has received advice from another solicitor.

Why the need for independent advice? This means a conditional fee agreement with a 25% damages capped success fee can be signed there and then but a 10% contingency fee agreement is subject to the client going to see another solicitor. In the average English town you will be lucky to find one solicitor who understands contingency fees, let alone two.

So, my firm agrees to carry out a piece of work on a 20% contingency fee basis. My client takes it to our competitor down the road who says to my client:

“No you must not sign that, 20% is far too much. I will do it for 15%.”

Client returns to me to get me to approve that solicitor’s 15% etc, etc.

Is this now to happen with cars? Is a Mercedes dealer to refer a customer to another Mercedes dealer to check that the price given by the first one is acceptable?

Can the second dealer undercut the first dealer and so on and so on?

Why trust heavily regulated, disciplined and insured professionals less than a car-dealer?

I support strongly the concept of contingency fees but this proposal is illogical and unworkable – like the 4-4-2 system.

Third Party Funding

The lack of a coherent approach is shown clearly in relation to third party funding.

At present a client’s success fee is paid by the other side but the third party funder’s fee is paid by the client.

If the client is to be the payer in any event then an informed decision needs to be made in each case between these two methods of funding.

For example in what looks like a safe case the client may feel better off with a Third Party Funder taking 20% of any damages and agreeing to pay the solicitor in the event of defeat. The potential loser here is the solicitor who will receive no success fee but face no risk.

These will be difficult calls and the tension between non-recoverable success fees and third party funding has not been fully considered.

In the pre-2000, pre-recovery days there was no third party funding and so the issue has not arisen.

Supposing a third party funder was to advertise that it would back any viable road traffic accident case in return for 10% of damages.

What would the solicitor’s duty then be?

To limit their own success fee to 10%?

Solicitors are subject to all of the professional discipline that Third Party Funders are not.

Third Party Funding in an age of non-recoverability of success fees risks a re-run of Claims Direct and the Accident Group.

Unfortunately this chapter also deals with Maintenance and Champerty and even more unfortunately recommends retaining the rule, and even more unfortunately that the rule should be abrogated for third party funders.

So, a qualified extremely heavily regulated, insured solicitor who agrees to indemnify his or her client against an adverse costs order breaks the rule;

In Dix v Townend [2008] APP.L.R 06/30, Deputy Master Victoria Williams, Costs Judge, controversially ruled that solicitors who agreed to indemnify their client against the other side’s costs are acting unlawfully by reason of champerty and thus are entitled to no costs at all. However, such a retainer is not unenforceable or illegal by reason of ss 23 and 26 of the Financial Services and Markets Act 2000 as an unauthorised contract of insurance.

A voluntary coded (weren’t they discredited 30 years ago) unqualified Third Party Funder Claims Management Company Alternative Business Structure is free from such restriction.

Why?

Because “A number of respondents pointed out that abolishing the common law doctrine of maintenance could have unintended consequences”.

Well, that could apply to any proposal ever made anywhere. That is the problem with unintended consequences – they are just that – unintended.

The independent advice rule for contingency fee agreements is not to be applied to third party funding agreements.

So, solicitor and client are considering possible methods of funding and narrow the options down to:

(a) Conditional fee agreement

(b) Third Party Funding

(c) Contingency fee agreement

In each case the take will be 25% of damages.

Conditional fee agreements are notoriously complicated and for the client, in spite of what is in the report, the percentage take is not limited to 25% of damages. That is the limit on the success fee. Solicitors can still take extra costs by way of the difference between solicitor and own client costs and recoverable between the parties costs – see my book No Win No Fee No Worries 2nd Edition.

Third Party Funding agreements are much more complex – trust me I have just drafted one and the solicitor can, and indeed often will, act on a conditional fee agreement in a third party funded case. Thus the client risks a double dip into damages with both the third party funder and the solicitor taking a cut.

Contingency fees by contrast are beautifully simple and 25% means just that – no extra, no solicitor and own client costs, no nothing except the clear percentage figure. That is why clients love them so much. There is a nice short simple agreement, written by me in the Law Society Practical Precedent book.

So what is the recommended regulatory proposal?

Separate advice needed for contingency fee agreements but not conditional fee agreements or third party funding!

I couldn’t make this up!

One-way costs shifting

The proposal is that in personal injury cases the claimant will have no liability to the defendant in the event of losing, but the defendant will continue to pay the successful claimant’s costs in the usual way.

The report says that there needs to be deterrence against bringing frivolous claims or applications and incentives for claimants to accept reasonable offers.

If the claimant fails to beat the defendant’s offer then the existing consequences as set out in CPR 36.14(2) will apply, that is that the claimant will pay all of the defendant’s costs from then on, the assumption being that the costs in respect of the pre-offer period plus the damages recovered by the claimant will provide sufficient funds for the claimant to pay the defendant’s costs.

This is where the whole scheme breaks down. The claimant will have no after-the-event insurance to protect him or her against the adverse costs consequences of failing to beat a Part 36 offer as recoverability is to be abolished.

In a footnote on Page 191 Lord Justice Jackson says:

“It has been suggested to me that such a regime is open to abuse by defendants, in that they could make an offer of £10 in every case. In my view, a stratagem like this would be doomed to fail. A miniscule (sic) offer is in effect no offer. Furthermore if the claimant loses on liability (as opposed to recovering damages lower than the amount of a Part 36 offer), he or she does not acquire any funds out of which to meet an order for costs.”

That appears to suggest, although it is not clear from the report, that a claimant who fails to beat a defendant’s Part 36 offer only has to pay the defendant a maximum of what they have recovered from that defendant.

This has bizarre consequences.

A claimant brings a perfectly reasonable claim and the defendant offers £10,000 and the claimant rejects that offer and goes to trial and recovers £9,000 plus pre-offer costs of say £3,000. The claimant is at risk of paying £12,000 and getting nothing for a perfectly valid claim where he or she was no doubt told that because of one-way costs shifting he or she was not at risk of paying costs.

Another claimant brings a very weak claim. The defendant has a choice

(i) make no Part 36 offer and defend the claim; or

(ii) make a Part 36 offer.

In (i) the defendant is on a hiding to nothing – no offer – no costs payable at all by the losing claimant, because of one way costs shifting.

In (ii) the defendant is forced to make an offer to inflict a potential costs penalty on the claimant, but what a Pyrrhic victory that is.

The claimant can accept the offer and thus get compensation where he or she should not get compensation.

If the claimant does not accept the offer and goes on to lose at trial the defendant gets nothing as there is no damages or costs fund for the claimant, out of which to pay the defendant.

So, quite simply, the weaker your case the greater the costs protection!

Recently I delivered a series of lectures for Central Law Training in relation to the Jackson Report. I put to the delegates a case scenario under the existing scheme and under qualified one-way costs shifting.

The case scenario is that you act for a claimant and the case is worth £100,000 at full value and you are very likely, but not certain, to win.

What level of Part 36 offer has to be made before you advise the client to accept?

Different solicitors had different views but £75,000 to £90,000 was the band with a concentration of around £80,000 to £85,000.

I would not disagree.

Same scenario, but the new regime, so no after-the-event insurance protection against failing to beat a Part 36 offer, and indeed no recoverable after-the-event insurance at all.

Everything due from the defendant goes in to the pot from which the defendant can get post Part 36 costs back.

You incur £10,000 disbursements pre Part 36. The client has not paid for these and cannot afford to. If the Part 36 offer is not beaten then apart from the existing risks that the client and the solicitor run the solicitor now faces losing £10,000 cash that he or she has actually paid out, because there is no insurance to cover it. (Under the current system in the event of a win, but a failure to beat a Part 36 offer, the other side’s costs would be paid up by the insurance and thus the defendant would have no need or right to offset against money due to the claimant for pre – Part 36 work and disbursements).

Now what Part 36 offer has to be made before you advise the client to accept?

Now the band was £35,000 to £50,000 with a concentration around £40,000 to £45,000.

Again, I would not disagree.

So precisely, my Lord Jackson, where do the words “Access” and “Justice” come in?

The Jackson Report is as useful as the England midfield. I know. I have had the misfortune of reading and lecturing on this miserable publication AND being in South Africa and watching every minute of England’s dismal performance.

Jackson and Capello. Sounds like a law firm. Looks like a circus.

Personal injury claims rise


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Recently I questioned the accuracy of the oft-repeated claim that the compensation culture was a myth.  The basis for this claim was the Better Regulation Task Force report on the “compensation culture” back in 2004 that reached this conclusion on the back of the fact that the number of claims was down.

Recent research has shown a 32% increase in the number of personal injury claims launched in the High Court between 2006 and 2008.  At the same time, the Association of British Insurers has said they have detected insurance fraud rose 17% between 2007 and 2008. 

Still a myth?