Legal costs chaos


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Today is the last working day before the Jackson reforms kick in.

Over the last few weeks I’ve been busy speaking at various costs conferences, giving in-house seminars to solicitors, recording podcasts, writing extensively on the new changes and speaking to numerous costs judges, costs lawyers, law costs draftsmen and specialist costs counsel.

What has become clearer by the day is how much those at the coal-face of the reforms are struggling with the basics. And by “basics” I do not necessarily mean “simple”. Much of these reforms are tricky to get to grips with at even the most fundamental level with added difficulties caused by the transitional provisions. (See previous posts on issues such as Part 47.19 offers and costs estimates.)

I’ve spoken to specialist costs counsel who had not even seen the new practice directions, much less had a chance to master them.

At one conference I recently spoke at I very unfairly asked one of the costs judges from the Senior Courts Costs Office by what further margin after 1st April 2013 he would reduce a bill he had assessed at £100,000, applying the test of reasonableness and necessity, if the amount at stake was £25,000 and he was then to apply the new proportionality test. He candidly admitted he did not know. I am not surprised as no costs judge I have spoken to over the last year has been able to give me an answer to that question.

Judges have been given just 4.5 hours of training, a quarterly newsletter and a podcast to prepare.

The total spent on judicial training was around £114,000. Iain Stark, chairman of the Association of Costs Lawyers was quoted as saying:

“If you divide that by the number of judges it means we’ve spent around £150 on training each judge – I spend more on an MOT for my car.”

Chaos ahead.

Have a restful Easter break.

Negotiating legal costs


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Negotiating legal costs is a complex and subtle skill that takes years of experience to perfect. But for younger readers I now offer a master class in cost negotiating.

The following is taken from a genuine exchange of emails with a very well known firm of claimant lawyers. The underlying claim related to a case of food poisoning during a package holiday. Following settlement of the claim the Claimant’s solicitors presented a schedule of costs totalling £30,661.60.

I made my opening offer:

Without Prejudice Save as to the Costs of Detailed Assessment Proceedings

Dear Sirs,

I write further to the above matter where I have been instructed to act on behalf of the Defendant in relation to your claim for costs.

The Defendant offers £9,000 in full and final settlement (to include interest, where payable, and assessment costs).

I look forward to hearing from you.

Yours faithfully,

Simon Gibbs

Note the detailed reasoning for the reductions proposed and the extensive references to costs case law.

The Claimant’s solicitors responded:

Dear Simon

Thank you for your email and apologies for not responding sooner. I have been on annual leave for the last four weeks.

I note that you are instructed to deal with the issue of costs on behalf of the Defendant. I confirm that the Defendant’s offer of £9,000 is rejected. However, I put forward a counter offer of £23,000 in a genuine attempt to bring the matter to a close.

This offer is inclusive of interest, VAT and assessment costs. The offer will remain open for 21 days.

I look forward to hearing from you.

Kind regards,
X

At this stage any general members of the public reading this might be surprised that a firm of solicitors is prepared to write-off a quarter of their fees on the back of an offer without any explanation being given as to why the amount sought was deemed unreasonable.

Obviously, negotiating costs is a two-way process. My initial offer was obviously just a speculative opener and now I will need to move from that:

Dear X,

I write further to the above matter and your email below.

You offer is rejected.

Given the difference between the parties it does not appear that this matter is capable of agreement and I await sight of your Bill.

Please note I am authorised to accept service of Part 8 proceedings.

Yours sincerely,

Simon Gibbs

The Claimant’s solicitor, no doubt generally used to dealing with costs muppets who drip feed their offers responds:

Dear Simon,

Thank you for your email.

I note that our previous offer of £23,000 has been rejected and that you have requested a formal Bill of Costs. Whilst I am prepared to forward a Bill upon preparation, I would like to discuss whether you have any further authority to increase on your offer of £9,000. I appreciate that you are unable to agree £23,000, however, if you could confirm whether you will come up on £9,000, I am confident that we can agree something as I have authority to go down on the offer of £23,000.

If it is easier, I can give you a call and we can have a discussion in relation to the same?

I look forward to hearing from you.

Kind regards,
X

To which there is only one real answer:

Dear X,

Based on the limited information provided in your schedule of costs you have the best offer the Defendant is prepared to make at this stage. It is possible, though unlikely, that the Defendant may revise its position upon sight of a detailed bill.

If you have authority to come down from £23,000 then I suggest you let me have your best offer and I will, of course, give it proper consideration.

Yours sincerely,

Simon Gibbs

The Claimant’s solicitor obliges:

Dear Simon,

My best offer on this offer is currently £16,000. However, if you can arrange for the cheque to be dispatched to us within 7 days, I can agree £14,000 in an attempt to bring the matter to a commercial close.

I look forward to hearing from you with your thoughts.

Kind regards,
X

The “best offer” is £16,000 but they will take £14,000?

Obviously, at this stage my negotiating tactics are failing and I need to change my approach:

Dear X,

I write further to the above matter and your email below.

Although I appreciate the movement on your part, even your conditional offer of £14,000 is still more than 50% above my own valuation. Your offers are therefore rejected and I await sight of your Bill.

Yours sincerely,

Simon Gibbs

Funnily, the “best offer” has not actually been made:

Dear Simon,

Thank you for your email.

Would you accept £11,000?

Kind regards,
X

Never let it be said I adopt an intransigent approach to negotiations:

Dear X,

I write further to your email below.

The limit of my authority is £10,000. Please treat that as a Part 47.19 offer.

Yours sincerely,

Simon Gibbs

And finally:

Dear Simon

I accept your Part 47.19 offer of £10,000 to settle.

I look forward to receiving your client’s cheque for this amount within the next 21 days so that we can close our file of papers accordingly.

Kind regards,
X

How can a firm that has genuinely incurred costs of £30,661.60 (including paid disbursements) drop to £10,000 and still make a profit?

Of course, the negotiating stance adopted in this case will not be suitable for all matters. It’s often a case of horses for courses and “knowing your enemy”.

Equally, the real skill here, I would suggest, is not down to any clever negotiating tactics adopted but rather knowing the true value of the claim, making a sensible offer at the outset that would give good protection should the other side have prepared a bill and issued Part 8 proceedings as invited, and being confident enough to run the case to detailed assessment if necessary.

Costs estimates transitional provisions


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The other day I commented on the fact the amended costs rules do not appear to have a transitional provision concerning the removal of Part 47.19 offers. I am therefore grateful to Dominic Swallow for pointing out that this is actually tucked away in the Transitional Provisions to the Civil Procedure (Amendment) Rules 2013 at s 22(1):

“The provision made by rule 47.20(1) to (5) and (7) in the Schedule (liability for costs of detailed assessment proceedings) does not apply to detailed assessments commenced before 1 April 2013 and in relation to such detailed assessments, rules 47.18 and 47.19 as they were in force immediately before 1 April 2013 apply instead.”

So far as I can see, this provision is not contained within the body of the CPR or the Practice Direction to the new CPR 47 (concerning Procedure for Detailed Assessment of Costs and Default Provisions). Nor is it contained within the Transitional Provisions section of the Practice Direction to the new CPR 48. It was no doubt sensibly decided that practitioners would find it unhelpful for the transitional provisions relating to detailed assessment proceedings to be located in the same place and it would be far more sensible to scatter them randomly around.

Fortunately, District Judges undertaking provisional assessment hearings have all been given 4.5 hours of training, a quarterly newsletter and a podcast to deal with Jackson implementation and so they will all be fully up to speed with the contents and location of all the relevant rules and provisions.

So the new rules will not apply to detailed assessments “commenced” before 1 April 2013. This is very important as Part 36 will be incorporated into detailed assessment proceedings by CPR 47.20(4). That section is expressly excluded from cases where detailed assessment is commenced pre-1 April 2013 (AFD) by the transitional provision above. I therefore read that to mean that for cases where detailed assessment has already been commenced pre-AFD, a party cannot make a Part 36 offer (or repeat a previous offer as a Part 36 offer post-AFD) and expect it to have the effect of a valid Part 36 offer. This will create yet more confusion.

The new CPR 47.6(1) reads:

“Detailed assessment proceedings are commenced by the receiving party serving on the paying party-

(a) notice of commencement in the relevant practice form; and
(b) a copy of the bill of costs.”

and we should probably treat that as being the meaning of “commenced” for the purposes of the rules (although this could have been drafted more clearly).

It does still leave open a problem of “Part 47.19” offers made pre-AFD and where a notice of commencement has not been served pre-AFD. In that case I would suggest my previous analysis on the last post (and in the commentary section of the blog post) will apply.

Now we’ve cleared that up, lets move on to the next “missing” transitional provision.

The current Costs Practice Direction deals with the consequences of filing inaccurate costs estimates. CPD 6.5A requires a receiving party in detailed assessment proceedings, if there is a difference of 20% or more between the base costs claimed and those shown in an earlier estimate filed, to serve a statement of the reasons for the difference with his bill of costs. CPD 6.6 states that where there is such a difference and it appears to the court that the receiving party has not provided a satisfactory explanation for that difference, or the paying party reasonably relied on the estimate, the court may regard the difference between the costs claimed and the costs shown in the estimate as evidence that the costs claimed are unreasonable or disproportionate.

From AFD costs estimates are replaced by costs budgets and the new corresponding practice direction now has similar provisions relating to costs budgets as previously applied to costs estimates (where the court does not make a formal costs management order).

And what does the corresponding transitional provision say given the rules have removed any reference to costs estimates? Nothing, so far as I can see because there isn’t one.

What is a court meant to do if there is a 20% difference in an estimate, the receiving party has not provided a satisfactory explanation for that difference or the paying party reasonably relied on the estimate, and the costs fall to be assessed after AFD?

Was a conscious decision made to wipe the slate clean for misdemeanours made before AFD? Was the need for a transitional provision overlooked? Have I overlooked the relevant rule? Is it hidden away in Statutory Instrument 2013 No 650 for The Free School Lunches and Milk (Universal Credit) (England) Order 2013?

A free bottle of champagne to the first reader who can locate the missing transitional provision.

Part 36 offers in costs proceedings


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From 1st April 2013, Part 36 offers apply to detailed assessment proceedings.

A receiving party who makes a Part 36 offer that is not beaten at assessment (provisional or detailed) is entitled to a 10% uplift on the costs awarded.

Many claimant solicitors will be rubbing their hands in anticipation.

Whoa there cowboy.

Costs belong to the client. An award of the additional 10% is therefore an award to the client, not the solicitor. The solicitor has no right to retain the 10% uplift unless the retainer expressly allows for this. The current Law Society Model CFA certainly does not do this. Any solicitors caught sneakily pocketing the 10% uplift would be guilty of theft. I wonder if the new Law Society Model CFA, if and when it’s published, will deal with this.

Part 47.19 transitional provisions


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The new civil procedure rules, regulations, etc appear to have more transitional provisions than there are grains of sand in the Sahara.

Understanding not just the rules but also the relevant transitional provisions is crucial. (See for example how the transitional provisions treat the new proportionality test.)

Offers in detailed assessment proceedings are currently governed by CPR 47.19. From April Fools’ Day (AFD), Part 47.19 disappears and Part 36 applies to detailed assessment proceedings.

What do the transitional rules say about a successful Part 47.19 offer made before AFD where costs come to be assessed after AFD?

Absolutely nothing.

There is no corresponding transitional provision.

So what does a paying party who believes he has made a good Part 47.19 offer back in January do if the matter is not settled pre-AFD? Schoolboy Error No.1 is to repeat the offer as a Part 36 offer post-AFD. Acceptance of the Part 36 offer would immediately deprive the paying party of any right to any of their detailed assessment costs and would give the receiving party a right to all their assessment costs up to the date of acceptance (including those incurred after the reasonable offer was made).

A paying party is probably best to leave the offer in place.

The general presumption remains that the receiving party is entitled to their costs of the assessment proceedings. The new CPR 47.20(3) states:

“In deciding whether to make some other order, the court must have regard to all the circumstances, including—

(a) the conduct of all the parties;
(b) the amount, if any, by which the bill of costs has been reduced; and
(c) whether it was reasonable for a party to claim the costs of a particular item or to dispute that item.”

The paying party has to hope a court is persuaded that “all the circumstances” includes a successful Part 47.19 offer made pre-AFD.

But seriously? No transitional provision to govern this?

(See correction following this post.)

Costs Only Proceedings


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Part 44.12A Costs Only Proceedings is one of the costs rules that, after some initial teething problems, works very well. That hasn’t stopped the rules committee deciding to tinker. It’s not remotely clear why.

Gone is the old CPR 44.12A(2):

“Either party to the agreement may start proceedings under this rule…”

Why?

Does this mean paying parties can no longer get things going? If this was a deliberate decision, why was it taken? Are paying parties now unable to take any positive step to progress matters where a receiving party drags their heels?

Association of Costs Lawyers


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The May 2010 edition of Costs Lawyer magazine reported the chairman of the Association of Law Costs Draftsmen’s (as it then was) view that:

“Mr Stark is convinced that Associate and Fellow levels need to be abolished, so that there are either students or costs lawyers. He does, however, appreciate that this change is going to have to be sold to those Associates and Fellows who have no need for the rights costs lawyer status brings.”

In July 2010 the ALCD announced that the categories of membership would be reduced to two: Costs Lawyer and Student. Iain Stark, chairman of the Association wrote:

“the re-structuring of the membership is vital if the ALCD is to move forward as an approved regulator”

And so it came to pass.

I now note from the December minutes of the Council of the Association of Costs Lawyers that:

“ACL membership categories were discussed. There will be a complete review of the categories in April.”

I’m not sure if any consultation is proposed but I offer a modest proposal. A new category could be introduced for those law costs draftsmen who do not require rights of audience or the right to conduct costs litigation. They could be called, oh, I don’t know, lets say “Associates”.

 

Costs management


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Members of the Association of Costs Lawyers have received an invitation from His Honour Judge Simon Brown QC for their comments or observations upon costs management and its mechanics under the pilot scheme under PD 51G.

This pilot runs until 31 March 2013 and a final report will be published on 26 March 2013. Costs Lawyers are asked:

“Please do let us have your views on costs management, even if is at the 11th hour. Feedback can still be incorporated in the Final Report, on an anonymised basis, and might lead to further improvements of the costs management procedure.”

And there was me thinking a decision had been taken that costs management was already a good idea (except for large cases), new rules had been published and this was all due to start on April Fools’ Day. Silly me.

The invitation also asks for:

“Any views on the new definition of proportionality?”

That I’m happy to provide. It won’t work because the Court of Appeal will chicken out when the first case reaches them and they give us a meaningless new Lownds II test.

New proportionality test for costs


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When the new costs rules were first published the relevant transitional provision concerning the new proportionality test read:

“Paragraphs (2)(a) and (5) do not apply in relation to cases commenced before 1 April 2013 and in relation to such cases, rule 44.4(2)(a) as it was in force immediately before 1 April 2013 will apply instead.”

This caused two problems. Firstly, the phrase “cases commenced” was ambiguous. Secondly, it appeared to be retrospective in effect meaning the new test would apply in some case to work already undertaken.

This problem was, partly, recognised and it was announced that Richard LJ said the rule committee “acknowledged the force” of the Law Society’s argument and was to insert a further transitional provision within rule 44.3:

“to the effect that costs incurred in respect of work done before 1 April 2013 will not be disallowed if they would have been allowed under the rules in force immediately before that date”.

That would have meant all work done pre-April 2013 would be subject to the old test and any work done post-April 2013 subject to the new test.

We now have the Civil Procedure (Amendment No.2) Rules 2013 to deal with this. However, it does something totally different again:

“Paragraphs (2)(a) and (5) do not apply in relation to—

(a) cases commenced before 1st April 2013; or
(b) costs incurred in respect of work done before 1st April 2013,

and in relation to such cases or costs, rule 44.4.(2)(a) as it was in force immediately before 1st April 2013 will apply instead.”

It’s staggering that they have left in the ambiguous wording “cases commenced” (unless the Association of Costs Lawyers and the Costs Bar have been giving bungs to the committee to ensure the rules are as ambiguous and badly drafted as possible to generate as much satellite litigation as possible).

Nevertheless, from the context I am treating “cases commenced” as meaning “cases where proceedings have been issued” (how hard would it have been to use that wording?).

What this means therefore is that the old proportionality test will apply to all work done for cases where proceedings have been issued before 1 April 2013. Perhaps this is a cunning wheeze by the Ministry of Justice to generate a huge injection of cash as solicitors arrange to issue on everything before 1 April 2013.

I was going to start using the abbreviation JD (for Jackson Day) to describe 1 April 2013 but I’m decided AFD (April Fools’ Day) is more appropriate.

The following variations therefore apply:

  • All work done pre-AFD – Old proportionality test applied to all work.
  • All work done post-AFD – New proportionality test applied to all work.
  • Work done pre and post-AFD. Proceedings not issued – Old proportionality test applied to work done pre-AFD. New proportionality test applied to work done post-AFD.
  • Work done pre and post-AFD. Proceedings issued pre-AFD – Old proportionality test applied to all work.
  • Work done pre and post-AFD. Proceedings issued post-AFD – Old proportionality test applied to work done pre-AFD. New proportionality test applied to work done post-AFD.

Simple.

Part 36 offers and detailed assesment proceedings


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The Association of Costs Lawyers often used to have an examination question along the lines of: “There is no point in a receiving party making an offer to settle in detailed assessment proceedings. Discuss.”

The reasoning behind the question is that receiving parties currently have a presumption in their favour that they will be awarded their detailed assessment costs. Unless and until the paying party makes an offer that puts them at risk they can carry on regardless. If a receiving party does make a successful offer (usually by way of Part 47.19) there is no bonus (eg by way of enhanced interest or costs on the indemnity basis)) for making such an offer. All that is likely to happen is that the receiving party will be awarded their assessment costs; which is no more than the general presumption allows for in any event.

From 1 April 2013, Part 47.19 offers, as they now are, go. Part 36 will then apply. I have already written about one of the problems this creates and there are others. Nonetheless, Part 36 is here to stay.

The wording of Part 36 is changed slightly (eg “receiving party” substituted for “claimant”), but with the amended wording this is the position where a paying party makes a successful Part 36 after 1 April 2013 and that offer is not beaten at assessment:

“Costs consequences following detailed assessment

36.14

(1) This rule applies where upon completion of the detailed assessment –

(a) a receiving party fails to obtain an outcome more advantageous than a paying party’s Part 36 offer;

(2) … the court will, unless it considers it unjust to do so, order that the receiving party is entitled to –

(a) his costs from the date on which the relevant period expired; and
(b) interest on those costs.”

Subparagraph (a) is much the same as one would expect now (although “from the date on which the relevant period expired” may be worse than now where a successful offer may result in all detailed assessment costs being awarded to the Defendant). The only benefit to the current position is interest on those costs. This is likely to be of little extra incentive.

On the other hand, where the receiving party makes a successful offer and the matter proceeds to assessment:

“Costs consequences following detailed assessment

36.14

(1) This rule applies where upon completion of the detailed assessment –

(b) the outcome of the detailed assessment hearing is at least as advantageous to the receiving party as the proposals contained in a receiving party’s Part 36 offer.

(3) … the court will, unless it considers it unjust to do so, order that the receiving party is entitled to –

(a) interest on the whole or part of any sum of money (excluding interest) awarded at a rate not exceeding 10% above base rate for some or all of the period starting with the date on which the relevant period expired;
(b) costs on the indemnity basis from the date on which the relevant period expired;
(c) interest on those costs at a rate not exceeding 10% above base rate and
(d) an additional amount, which shall not exceed £75,000, calculated by applying the prescribed percentage set out below to an amount which is—

(i) where the claim is or includes a money claim, the sum awarded to the claimant by the court

Amount awarded by the court             Prescribed percentage
up to £500,000                                  10% of the amount awarded;
above £500,000 up to £1,000,000       10% of the first £500,000 and 5% of any amount above that figure”

Subparagraph (d)(i) appears to be drafted widely enough to cover a claim for costs. The successful receiving party therefore gets a 10% uplift on whatever the bill is assessed at plus the other benefits listed at (a) to (c). (Again, not clear how the judge undertaking the provisional assessment will deal with (a) or (c).)

Taken together, this change means a receiving party who makes a successful Part 36 offer will find themselves, on average, somewhere in the region of 15-20% better off at the end of an assessment than currently.

This change will act as a massive incentive for receiving parties to make sensible early Part 36 offers. The days of silly drip feeding of offers by receiving parties will hopefully end. (Yes, I know some paying parties are also guilty of this and the new rule does little to discourage this.) Claimant Costs Lawyers and law costs draftsmen who do not advise on sensible Part 36 offers at an early stage are likely to leave themselves open to negligence claims.

I will shortly be setting up shop as an expert witness to help deal with these negligence claims. I’ll need something to keep myself busy post-April.