Hourly rate indemnity principle problems

A recent post commented on the potential problems caused by CCFAs which define “basic charges” along the following or similar lines:

“charges for work done by or on behalf of Smith and Jones Solicitors, calculated on the basis of the hourly rates allowable for the work in the court in which the claim in question is conducted or would be conducted if proceedings were to be issued”

I suggested “allowable” was meant refer to the Guideline Hourly Rates for the relevant court and that treating “allowable” as meaning whatever hourly rates it might be possible to persuade a judge to allow at the conclusion of the case would create all kinds of indemnity principle problems.

Of the various comments posted in response Jacques Hughes (whose contributions are always most welcome) stated:

“Why would the broader interpretation of ‘allowable’ create indemnity principle problems? ‘Work will be paid for by the hour at a rate to be determined by the court’ gives rise to no issues of uncertainty, any more than, say, a lease which provides that rents will be determined annually by a nominated surveyor”

I therefore thought it might be worth expanding on my thoughts.

As no more than an aside, given leases are presumably not subject to the indemnity principle, no such issue would arise with the wording of a lease drafted in such a manner. I would suggest that a lease that said no more than the rents would be those rents “allowable”, without further qualification, almost certainly would cause problems.

If such CCFAs are meant to mean “Work will be paid for by the hour at a rate to be determined by the court”, why do they not say that? At best this is sloppy drafting. However, if that is what they are meant to mean, there is a clear indemnity principle problem.

A bill of costs must be accompanied by a signed certificate confirming the accuracy of the bill, which has always been treated to mean that there has been no breach of the indemnity principle. If the appropriate hourly rate is to be determined by the Court at some future date, how can a bill be prepared, with accompanying certificate of accuracy, claiming a rate in excess of Guideline Rates? Or at Guideline Rates? Or below Guideline Rates? The hourly rates, on this reading of the CCFA, are entirely up in the air and yet to be determined. A properly drafted bill would need to leave all the figures for profit costs blank and simply detail the hours worked. Equally, it would never be possible to apply for a default costs certificate when dealing with such a bill. Unless and until the bill was assessed by a costs judge the amounts payable (under the agreement) would be unknown.

A second indemnity principle problem arises from the case of Customs and Excise v Vaz (1995) STC14 which made it clear that if the agreement between the client and solicitor is that the client is under no obligation to pay save and to the extent that the solicitor obtains costs from the other side, then, in fact, the client is under no obligation to pay at all and, pursuant to the indemnity principle, the solicitor cannot recover from the losing party. CFA Lites were first introduced by Reg 3A of the Conditional Fee Agreements Regulations 2000 (as amended), being an agreement in which the client was:

“liable to pay his legal representative’s fees and expenses only to the extent that sums are recovered in respect of the relevant proceedings, whether by way of costs or otherwise”

Under such an agreement, it would be permissible to set the hourly rate in the CFA at, say, £500 but in the event the Court only awarded £200, and that was the sum recovered from the other side, the client’s liability would be accordingly limited. This creates no indemnity principle problem as the client was potentially liable for £500 per hour, subject to that rate being recovered. Equally, if the Court allows £200 per hour but the paying party only coughs up half that amount, the client’s liability would be limited to £100 per hour. However, both these situations are quite different to a CFA specifying no rate at all.

A further difficulty with arguing that “allowable” is meant to mean ‘work will be paid for by the hour at a rate to be determined by the court” is the inclusion of the wording “calculated on the basis of the hourly rates allowable for the work in the court in which the claim … would be conducted if proceedings were to be issued”.

This clearly envisages a case settling pre-issue but a certain rate still being payable. If “allowable” in this context does not mean Guideline Rates, what does the reference to the court in which the claim “would be conducted if proceedings were to be issued” mean? This is particularly stark where the claim would have been conducted in the High Court if issued but where any assessment would be done in the Senior Courts Costs Office. Other than summary assessments, the High Court rarely assesses costs. What the SCCO may or may not allow is irrelevant if the reference is to the court in which the claim itself would have been conducted if issued.

I have no doubt that the intention of those who drafted such CCFAs was indeed to set the rates by reference to Guideline Rates. Now clever specialist costs counsel are required to try to escape the natural consequences.

One thought on “Hourly rate indemnity principle problems

  1. load of hot water this, does one not only need to establish an agreement to pay? the rate is irrelevant

Leave a Reply

Your email address will not be published.

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>