The last increase in the VAT rate occurred on 4 January 2011. It is therefore surprising, to say the least, that some receiving parties appear to be still ignorant of the rules relating to work undertaken when the VAT rate was lower (15% or 17.5%). (Of course, it is perfectly possible that this is simply a wheeze to try to recover VAT at a higher rate and then pocket the difference between that actually charged.)
I’m not sure if Lord Justice Jackson has recently started taking backhanders from the Association of Costs Lawyers but, if so, I’d be happy to start contributing to the payments. How else to explain his proposals for the extension of fixed fees?
Payments are to be linked to one of ten different phases with endless scope for arguing it was premature to undertake a particular phase (eg Witness Statements), full payment for each phase is subject to it being “completed” (what does “completed” mean?), or 50% payment if a phase has been “substantially started” (what does this mean?). It would not be difficult for a costs firm to set up a business model offering to maximise solicitors’ recovery based on these proposals and charging on a contingency fee basis.
The real problem with these proposals, I would suggest, it not a practical one but, rather at a more fundamental level. (And I do not simply mean whether it is realistic or fair to try to have fixed fees at all.)
There are two basic approaches to recovery of inter partes costs. The first is to have a fixed fee system where the fees are fixed by reference to the nature of the litigation, or the complexity of the case, or the value of the claim, or a combination of these elements. Under this system, the actual work undertaken is irrelevant.
The second approach is to have a system which attempts to set the level of fees payable based on the amount of work actually done. This is the existing (if imperfect) hourly rate system we currently have (for those cases not already subject to fixed fees). The more work (reasonably) undertaken, the greater the payment.
Jackson LJ’s proposals run the danger of conflating the two different systems.
If we are to have fixed fees, why should it matter whether a solicitor has, for example, completed work in relation to witness statements, or substantially started work in relation to witness statement, or, indeed, done any work concerning witness statements? What does a fixed fee system partially based on the work actually done add to the supposed benefits (certainty, end to costs budgeting, end to costs disputes) of fixed costs generally?
There are, of course, potential advantages and disadvantages to having staged fixed fees.
On the one hand, if fees are not staged there is an incentive for solicitors to settle the claim as quickly as possible to maximise their profits. Speedy settlement is a good thing for clients. On the other hand, if they are not staged there is a danger claimant solicitors will under-settle claims in their haste to conclude matters. That is a bad thing for claimants.
If fixed fees are not staged there may be a risk defendants will fight cases for longer, or to trial, knowing there is no additional cost consequence (other than increased own costs). Conversely, where fixed fees are staged, there will be a clear incentive for solicitors to press on to the next stage of the litigation and secure the further payment. (How many thousands of hours of judicial time have been wasted hearing arguments over “premature issue” in predictable fee cases because of the incentive in tipping the case into litigation and therefore potentially recovering greater costs?)
It is far from self-evident that the latest proposals have been put forward having properly considered the advantages or disadvantages of linking the fixed fees to the actual work undertaken.
Lord Justice Jackson’s suggested rules and grid for introducing fixed fees for all claims with a value of up to £250,000 (which he suggested could be accomplished this year if the political will is there) rather has the appearance of being put out there, not necessarily with the intention it will be formally adopted in its current form but, rather, out of a sense of frustration at the lack of progress to date and is designed simply to start discussion on the issue.
It may, perhaps, therefore be unfair to be overly critical of the proposals in their current form. Nevertheless, let us take them at face value as they currently stand.
There appear to be two obvious problems.
The first relates to the decision that the grid of fixed fees should follow the ten stages set in Precedent H for costs budgeting. This is on the basis that: “Practitioners are now familiar with this structure and reasonably comfortable with it. Although ‘boundary disputes’ are inevitable in any structure, they will be reduced if we stick to the now established division of tasks”.
The Guidance Notes for preparing costs budgets state that the Pre-action phase should not include any incurred work relating to other phases of the budget. For example, if work is done in relation to witness statements pre-proceedings, that should go in the Witness Statements phase under “Incurred” costs, not in the Pre-Action phase. This is not an issue with costs budgeting as recording work under any particular phase does not trigger any payment. However, how does this work with the Jackson grid? In any case that settles pre-action in a claimant’s favour there will have been some negotiations, even if only a single offer and acceptance. Does this therefore trigger an entitlement to the whole Negotiations/ADR fixed fee in addition to the Pre-action fee? If so, why bother with a separate phase for Negotiations/ADR if it will always be triggered? Similar issues apply to phases such as Expert Reports or Witness Statements where some work may have been done pre-action.
The second problem, which does not appear to solve the first, is the proposed rule that: “The fixed cost is payable only if a work stage is completed. 50% of the fixed cost is payable if proceedings have been issued and the work stage has been substantially started”. What does this mean in real terms? If a case settles pre-action based on acceptance of an offer, it cannot be argued that the Negotiations/ADR stage has not been “completed”. However, some might think it strange that the same fee will be payable for a case that settles based on acceptance of a single offer pre-action and for a case that settles after proceedings have been issued, with years’ worth of negotiations, multiple JSMs and a formal mediation (even allowing for the fact that any system of fixed fees operates on a swings and roundabouts basis).
What, for example, does “completed” mean in the context of the Trial Preparation phase? If a party prepares trial bundles, briefs Counsel and summons witnesses but the case settles the day before the trial bundles were due to be delivered to Court, have they “completed” the phase. On one analysis, clearly not. Does this trigger only 50%? For claims in Band 4, this would reduce the fee from £7,000 to £3,750 simply because of one trivial step. However, once you start to introduce discretion into the process, the scope for satellite litigation spirals.
Again, what does it mean to complete the Expert Reports phase? If a claimant obtains one expert report and the case settles thereafter, it is difficult to see how this does not amount to completion of the phase. All work in relation to this phase necessary to conclude the claim has been completed. On the other hand, this is a world away from a case where both sides obtain multiple expert reports, there are joint reports, multiple conferences with experts and the experts attend trial. Same fee for both situations? Same fee for defendant if only the claimant has obtained a report? If not, where is the line drawn?
I rather fear the current proposals unnecessarily complicate matters. (Much the same mistake as was made with costs budgeting.)
Last Monday I attended a detailed assessment hearing concerning a bill totalling £93,000. The last offer made by the paying party, based on my advice, was for £27,500. The bill was assessed at £69,000. This proves what a terrible costs lawyer I am and how wholly unrealistic the offers are I put forward.
My opponent was junior costs counsel. This case also proves it is a mug’s game to instruct a costs lawyer to undertake advocacy when much better results would have been secured if my client had instructed costs counsel instead of me.
On Friday I attended another detailed assessment hearing concerning a bill totalling £383,000. The last offer made by the paying party, based on my advice, was for £175,000. The bill was assessed at £155,000. This proves what a brilliant costs lawyer I am, if, perhaps, rather overly cautious, and thus overly generous, when formulating offers.
My opponent was a top costs QC whose brief fee was over six time what I charged my client. This case also proves that my advocacy skills are up there with the top QCs and that instructing specialist costs counsel, rather than a costs lawyer, is a grotesque waste of money.
Monday’s case was before a Deputy District Judge whereas Friday’s case was before a Regional Costs Judge, which may or may not prove anything.
What both cases do prove is the spectacular unpredictability of the assessment process and the difficultly in trying to advise a client.
Costs Lawyer magazine recently published the predictions for 2016 of the great and the good in the profession. They also asked me. This was my contribution, written before Lord Justice Jackson’s latest speech:
“When I was asked this question last year, my prediction was that 2015 would be the year guidance would be given by the Court of Appeal on the new proportionality test. However, at the time of writing, we still have nothing from the High Court or above as to how proportionality is to be applied as part of the detailed assessment process. I was clearly wrong in my timings and can only hope we have something in 2016. I also repeat my previous prediction that what will ultimately emerge will be a fiasco and nothing close to what Lord Justice Jackson envisaged.
I also predicted that there would be calls for a massive extension of fixed fees as a consequence of the mess being made of Jackson implementation. Such calls have indeed been made (with proposals for fixed fees in clinical negligence cases and noise induced hearing loss cases amongst other things). Expect much more of the same in 2016.
This will be the year where the judiciary finally properly grasps the fundamentals of costs budgeting with sensible and consistent decisions being made at all levels. Resistance to costs budgeting will be overcome and all legal practitioners will acknowledge budgeting to be a useful tool to control disproportionate costs. Possibly…”
In Mansion Estates Ltd -v- Hayre & Co (A Firm)  EWHC 96 (Ch) His Honour Judge Saffman commented:
“in my view it would be wrong to assume that it is inherently more improbable that a professional person will be dishonest than anyone else. If ever such a view validly had traction, I do not think it can do so in the modern world.”
Although not a decision relating to costs, this must have equal applicability to the signature of accuracy to a bill of costs. There may once have been a stage when “the Court can (and should unless there is evidence to the contrary) assume that his signature to the bill of costs shows that the indemnity principle has not been offended” (Bailey v IBC Vehicles Ltd  EWCA Civ 566) but the world has now moved on from such innocent days.
Lord Justice Jackson has repeated his calls for an extension of fixed costs, this time with a recommendation it should apply to all claims with a value up to £250,000 and also produced a proposed matrix of the fixed costs that should be payable.
One of the reasons advanced in favour of an extension of fixed costs is:
“My impression is that the profession is now more willing to accept fixed costs than it was in the past. This is for two main reasons. First, such a regime would dispense with the need for costs budgeting, which not everyone enjoys.”
It is not entirely clear whether the irony is lost on Jackson LJ of justifying fixed fees as a way to avoid unpopular costs budgeting when costs budgeting one of the key Jackson reforms.
The ultimate irony is where this suggestion leaves the bulk of the Jackson reforms. Those reforms introduced a number of controversial measures (eg an end to recoverability of additional liabilities, Qualified One-Way Costs Shifting) and convoluted measures (eg costs budgeting, Qualified One-Way Costs Shifting (again)), in a report running to 557 pages, in an attempt to achieve proportionality (all at considerable disruption to lawyers and the courts in the implementation). A massive extension of fixed fees would make the majority of the Jackson reforms entirely redundant for the majority of cases (no costs budgeting, costs management, provisional assessment, new bill of costs, etc). Fixed fees across the board was always an easier (if not necessarily better) way to ensure proportionality than the bulk of the previous reforms already introduced.
Jackson LJ recommends that, at least initially, fixed fees are introduced for all claims up to £250,000:
“The first question is whether we should be fixing costs for all civil cases (like Germany and New Zealand) or just for the fast track and the lower reaches of the multi-track. This is a policy decision for others. I would favour the latter course (as recommended in my Final Report), but I acknowledge that some favour the former course. There are two particular reasons why I favour adopting the latter course: (i) Switching to a totally fixed costs regime for all claims, however large, would be too great a change for the profession to accept, certainly in the short term. The justice system only functions because of the high level of support which the profession provides.”
This is the first suggestion I have heard that any element of the Jackson reforms was ever meant to please the legal profession. It is difficult to believe that the final report would have remotely resembled its final form if that was what was intended. Secondly, if a proposal to extend fixed fees is now intended to attract a high level of support amongst the profession, surely this is being looked at the wrong way around. Fixed fees for all civil claims up to £250,000 will impact on the vast majority of claims, the vast majority of litigants and a huge proportion of the legal profession. Conversely, excluding claims above £250,000 will impact on a relatively small number of litigants and a small proportion of the legal profession. Not switching to a totally fixed costs regime for all claim will not lessen the impact for the profession as a whole, it will simply mean that the impact falls almost entirely on large parts of the legal profession whilst leaving other smaller parts almost entirely unaffected.
Surely it would make more sense to pilot an extension of fixed fees for cases worth over £250,000 only. We have repeatedly been told that City firms are much more experienced in providing their client with clear budgets and that legal costs are less of a concern for commercial litigators. If a pilot is a success, we can then extend it downwards.
I previously mentioned that the conflict in decisions as to whether fixed costs apply where costs are payable on the indemnity basis, when a claimant succeeds on a Part 36 offer, was due to be resolved by the Court of Appeal in February.
Kerry Underwood’s blog now reports that this case has settled. We are therefore left in the dark as to when fixed costs do or do not apply.
Hopefully this is a matter the rules committee will address as a matter of urgency. Given the benefit of certainty and the avoidance of further satellite litigation are lost if fixed costs do not apply, surely the answer would be to continue to apply fixed costs but with an uplift, say 10%, on the amount. This leaves all the benefits of fixed costs but with a costs incentive retained to the claimant to make a good Part 36.
The mandatory pilot scheme in the Senior Courts Costs Office for the new J-Codes based bill of costs format had been due to start in April but was then delayed until October 2016. It has now been announced that this date has also been abandoned for further consideration.
Part of the impetus for this appears to have come from the Law Society who wish to consult with their members. (The Law Society can hardly be blamed for this. Jackson only recommended a new software based bill of costs in December 2009 and so this will have come as quite a surprise to them.)
For the time being, we are left with a continuing potential gap between budgeted cases and bills of costs that do not properly reflect those budget phases. The recent “summary by phase” requirement is wholly inadequate as an interim measure.
The conspiracy to make the Jackson reforms unworkable continues.
Do fixed costs continue to apply if a claimant is entitled to costs on the indemnity basis? I am grateful to Gordon Exall’s Civil Litigation Brief for highlighting two conflicting decisions on this issue. This is now apparently due to be heard by the Court of Appeal in February.
Something has gone seriously wrong with the drafting of the rules that it can be anything other than 100% clear as to when fixed costs applies. It makes a mockery of the certainty that such a regime is designed to create.