Legal costs news update

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Post Magazine has reported that a delay to the approval of the draft rules for the new RTA claims process means that the previous April 2010 implementation date will be postponed by at least a month.  Hopefully the rules will be published long before that because I am meant to be speaking at a Central Law Training conference on this process on 12th March 2010.  It will be an interesting day if the rules aren’t out by then.

More bad news on the fixed costs front comes from the Gazette that reports the failure of agreement in relation to talks aimed at fixing costs for all fast track claims.  These talks were instigated by Lord Justice Jackson as fixed fees for fast track cases are likely to form a central part of his final report.  The failure of the talks is no great surprise given the Association of Personal Injury Lawyers is so strongly opposed to an extension of fixed fees and even walked out of the talks at one stage.  As I suggested in a previous post, before they rejoined the talks: "If they simply wished to scupper the mediation, it would have made more sense to continue to play along and undermine the process from within".  APIL will now no doubt claim that the failure of the mediation is evidence that, despite their best efforts, an extension of fixed costs is a bad idea.

Jedhead v Horsehair wigs

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A recent article in the Evening Standard (click link) newspaper reported on the spread of the “Jedhead”.  This is the sticky-uppy hairstyle sported by Jedward, the twins from the X Factor.  The article claimed the “style crosses boundaries of age, gender, sexuality and taste”.  I have no problem accepting the first three in the list but can’t accept the last.  All those sporting the Jedhead share the same taste: bad.

I have yet to see evidence that this hairstyle has infected the legal profession but a bottle of champagne to the first solicitor, barrister or costs draftsman who can produce a picture of themselves about to enter court displaying such a haircut. Horsehair wigs don’t count (unless heavily gelled and sticking up).

Market forces in setting hourly rates

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Lord Justice Jackson’s Preliminary Report on civil costs raises a number of concerns about whether any proper market forces operate in relation to lawyers’ hourly rates in personal injury claims:
"For the claimant personal injury market in particular, where the majority of work is conducted under conditional fee agreements, the chargeable hourly rate recoverable in costs assessments will usually provide the benchmark for the chargeable hourly rate to the client (in respect of base costs). Claimant solicitors in this sector tend to offer ‘no win no fee’ arrangements under which they seek to ensure that clients recover 100% of their damages with no deductions for costs. This necessarily has the effect of removing market forces that would otherwise apply from the sector. Solicitors’ charges are dictated by the level of costs recovered from the losing defendant rather than the lay client."
"Insurers consider that the hourly rates being paid to claimant solicitors are too high. There is a substantial discrepancy between the hourly rates of claimant solicitors and the hourly rates of defendant solicitors."
He also reported the views of the Association of Law Costs Draftsmen in relation to CFA funded claims: "There is no control over hourly rates in a situation where the clients are indifferent to the rates charged".
This is to be contrasted with a recent report in The Times:
“The ‘magic circle’ has lost some of its power: average hourly rates for London’s top commercial lawyers fell by a third last year as law firms offered substantial discounts after competition intensified in the downturn.”
This shows the impact that market forces, when available, can exert even in the field of legal costs.
It will be interesting to see what recommendations the Advisory Committee on Civil Costs makes in relation to increasing (or decreasing) the Guideline Hourly Rates in 2010.  When announcing the figures for 2009 they made clear that a more thorough review of the way rates were calculated was necessary and they hoped to have looked at these issues by 2010.  Combined with the publication of Jackson LJ’s final report, 2010 looks to be an interesting year for the legal costs world.

The legal costs song

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Surprisingly, legal costs is not a subject that many of the world’s great songwriters have chosen to deal with.  You can therefore imagine how exited I was to come across the following:

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Cheaper personal injury claims?

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Recent articles in the Law Gazette have expressed concern about the practice of “third-party capture” where insurers approach accident victims directly in an attempt to agree damages without the involvement of claimant solicitors. Claimant lawyers argue that insurers try to settle these claims below their true value and that without their involvement justice will not be done.

On a related issue, I recently came across an article by David Marshall that produced a number of statistics in support of the view that an increase in the small claims track limit would be a bad thing as less people would be willing to bring claims without legal assistance. One of those statistics was from a MORI poll that produced the finding that “73% of respondents said that they would be unlikely to be able to value a personal injury claim without a solicitor”. What jumped out at me from that poll was not the fact that 73% of the public thought they would not be able to value an injury but that presumably 27% of the public thought they would. One in four members of the public think they are a walking Kemp & Kemp! Even I would have to concede there may be a certain amount of naivety here, but I may be underestimating the intellect of the great British public.

Claimant solicitors naturally try to paint this as all an or nothing issue. Either a solicitor is involved in the claims process from start to finish, in which case the client can expect to receive proper compensation, or the poor client is left entirely to the merciless clutches of the evil insurer who will under-settle the claim.

Third-party capture cases are, by their nature, cases where liability is not in dispute and the insurer wants to settle as cheaply as possible (at least so far as the legal costs side is concerned). Let’s assume in this situation that a medical report is obtained from an independent medical expert (at the insurer’s expense). The Claimant completes a standardised form containing information of any financial losses and produces evidence in support. Assuming the medical expert does not recommend further investigation, at that stage the insurer makes an offer in settlement. The Claimant then takes the evidence gathered to date to a solicitor and asks whether the offer made is reasonable. No more than a very short written advice would be needed. If an insurer has offered £2,000, a Claimant will not want to know more than whether this falls within a reasonable range of what might be allowed at court. A client will not require a detailed “legal” advice quoting numerous authorities in support. How much would this cost? £100? £150? If solicitors did not think they could provide a short advice for that price I am sure the junior Bar would.

If the advice is that the offer is too low then the Claimant can be told what an appropriate settlement range would be an go back to the insurer with a counter-offer. If agreement cannot be reached then it would be reasonable at that stage for solicitors to become fully involved. Obviously, serious injuries would have to be dealt with in a different way, but the idea that the current system is the only way that claimants can recover an appropriate level of damages in low-value claims, where there is no dispute as to liability, is simply untrue.  (Even under the new claims process for low-value RTAs, solicitors will still recover costs of £1,200 for cases where there is no liability dispute and quantum is agreed without a hearing.

You’re unlikely to hear APIL making similar proposals for reducing legal costs.


Legal costs and the "corruption" of the current system

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Some of you may have already come across Colin Berry. His wife suffered serious injuries following two washing machines falling onto her from a height of 30 feet. (To have one washing machine fall on you may be regarded as a misfortune; to have two looks … etc.)

Mr Berry wrote on one website: “My main aim is to publish this case throughout from beginning to end, just to leave something to the society of the future to ponder on”. If future society ever stumbles on his various blogs and videos it will indeed have much to ponder.

This video gives his views on solicitors who overcharge, amongst other things. The section on legal costs starts (so far as there is any start or finish) about 11 minutes into the video.

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I hasten to add that the views expressed by Mr Berry are his own and not those of the Legal Costs Blog or anyone associated with it.

One-way costs shifting – The sting in the tail

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I recently received an email from someone who is writing an article for their university newsletter and wanted my views on the potential impact of the Civil Litigation Costs Review on defendant panel solicitors.  This is an interesting issue and one that, to be honest, I had not previously given much thought to.  Much of the Jackson Review, at least so far as it covers the type of work undertaken by defendant panel solicitors, is focused on controlling the costs that claimant lawyers incur, rather than those of defendants.  My previous posts on the subject have therefore focused on that aspect, rather than the impact on defendant firms.

Lord Justice Jackson’s Preliminary Report has, so far as is relevant, two main proposals.  These are the ones most likely to find there way into the final report. 
The first of these is extending fixed costs to all stages of the fast-track.  Although the Preliminary Report, so far as I can see, does not spell this out, it seems clear that it is intended that fixed costs would apply to claimant solicitors but not defendant ones.  If anyone is able to point me to something that suggests this view is mistaken, then please let me know.  This proposal would not, in itself, have any direct impact on defendant solicitors.  If my reading of the proposal is correct, and if only this change was made, it might lead to the strange outcome that defendant solicitors were able to recover more in costs than claimant solicitors.  That would be a first.
The more interesting issue is whether the extension of fixed costs would have an impact on claims behaviour which would, in turn, impact on defendant firms.  It is generally accepted that the introduction of the predictable costs regime encouraged some claimant firms to issue proceedings at the first opportunity to escape the fixed costs scheme (see page 126 of the Preliminary Report).  On the one hand, an extension of fixed costs might encourage some claimant firms to settle cases as quickly as possible, doing as little work as possible in the process, to maximise their profit margins.  This might reduce the number of issued cases and therefore have an adverse impact on the volume of cases being handled by defendant firms.  Conversely, some claimant firms might be encouraged to push cases to the next stages of the claims process to secure the fixed fees applicable to those stages.  This might, in turn, increase the volume of cases being dealt with by defendant firms.  Time will tell. 
If the claims process does become less adversarial, and claims settle more quickly and with less work, this may impact on what insurers are willing to pay defendant firms (much of the volume work currently being done under fixed fees agreements).  This may be of particular relevance for firms that offer claims management services for pre-litigation work.
The second major suggestion in the Preliminary Report is a move to one-way costs shifting (see previous post).  If Jackson LJ’s current thinking on this issue is correct (and this is a big “if”) this should be largely costs neutral from insurers’ perspective.  However, it might have an unintended consequence for defendant firms.  Traditionally, due to the downward pressure brought by insurers, defendant solicitors have charged ridiculously low hourly rates (I should know as this, in turn, impacts on what I can charge for defendant costs work).  In the past, defendant solicitors have therefore been able to only recover low hourly rates from their opponent when they secure a costs order.  However, in recent years there has been a growing trend for defendant firms to enter into discounted CCFAs.  Where the claim is not successfully defended the insurer will pay the typical low hourly rates (as before).  When a costs order is made in the defendant’s favour, the defendant firm can now (under the terms of the CCFA) recover costs from the opponent at the normal hourly rates appropriate for the case (usually Guideline Hourly Rates).  This has helped defendant firms in recent years to increase their profits.

However, if one-way costs shifting is introduced, defendant firms will be back to the position of only being able to recover the lower rates that insurers are prepared to pay (because there will be nobody else to pay).  Admittedly, it is only in a minority of cases that positive costs orders are secured by defendants, but defendant firms are likely to notice the difference when it comes to their bottom line.

Click image to enlarge:

qc mar 17 1998

Does proportionality still have a role in legal costs disputes?

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At the end of a costs presentation I recently gave to some solicitor clients I was asked if the issue of proportionality was one that still carried any weight in legal costs disputes.
Given how central the issue of proportionality was meant to be when the Civil Procedure Rules were introduced, it is strange that this question even needs to be asked.  However, it is one that is entirely legitimate to raise.  As Cook on Costs 2009 states: “‘What is proportionality?’ is a conundrum the courts are still trying to solve”.  In an effort to throw some light on the issue, I will let you have my thoughts on the subject.
The starting point is CPR 44.4(2): “Where the amount of costs is to be assessed on the standard basis, the court will – (a) only allow costs which are proportionate to the matters in issue”.
In the early days of the CPR, defendants, naively with the benefit of hindsight, thought this meant what it said.  Costs would not be allowed at a level that was disproportionate to the matters in issue.  Therefore, for example, if there was a straightforward RTA claim with damages of £3,000 being recovered, if at the detailed assessment hearing the judge reduced the costs to £7,000 on the basis of what had been “reasonably” incurred, the judge would then stand back and make a further reduction to, say, £3,000 to ensure that the final amount allowed was “proportionate”.  If only.
The correct approach was indentified by the Court of Appeal in Lownds v Home Office [2002] EWCA Cic 365:
“what is required is a two-stage approach. There has to be a global approach and an item by item approach. The global approach will indicate whether the total sum claimed is or appears to be disproportionate having particular regard to the considerations which Part 44.5(3) states are relevant. If the costs as a whole are not disproportionate according to that test then all that is normally required is that each item should have been reasonably incurred and the cost for that item should be reasonable. If on the other hand the costs as a whole appear disproportionate then the court will want to be satisfied that the work in relation to each item was necessary and, if necessary, that the cost of the item is reasonable.”
 This test begs the question of what is the difference between “necessary” and “reasonable”.  Surely costs that are not necessary will not be reasonable.  Equally, costs that are not reasonable will not be necessary.  It is the lack of any obvious distinction between the two tests that has led to the widely held view that “proportionality” is a dead issue.  I have certainly routinely been in the Senior Courts Costs Office (as we must now call it) where, having heard detailed arguments as to whether the costs claimed are proportionate, the judge has given his decision and then commented, as an aside, that in his experience it will make little or no difference to what costs are ultimately awarded.
This problem, at least in part, appears to have been recognised by the House of Lords in Fourie v Le Roux [2007] UKHL 1 where Lord Scott of Foscote said:
“I think it needs to be understood that the difference between costs at the standard rate and costs on an indemnity basis is, according to the language of the relevant rules, not very great. According to CPR 44.5(1), where costs are assessed on the standard basis the payee can expect to recover costs ‘proportionately and reasonably incurred’ or ‘proportionate and reasonable in amount’; and where costs are assessed on the indemnity basis the payee can expect to recover all his costs except those that were ‘unreasonably incurred’ or were ‘unreasonable in amount’. It is difficult to see much difference between the two sets of criteria, save that where an indemnity basis has been ordered the onus must lie on the payer to show any unreasonableness. The criterion of proportionality, which applies only to standard basis costs, seems to me to add very little to the reasonableness criterion. The concept of costs that were unreasonably but proportionately incurred or are unreasonable but proportionate in amount, or vice versa, is one that I find difficult to comprehend.”
So is there any mileage at all in this issue from a paying party’s perspective?
It is clear that the judge at the outset of the detailed assessment must make a decision as to whether the costs overall are proportionate or not, assuming the issue has been raised.  The judge’s decision is then meant to influence how he approaches the assessment itself on an item-by-item basis.
If the paying party persuades the Court that the costs are disproportionate, then there is some scope to use this finding to attack costs that might not otherwise be considered unreasonable.  For example, an EL claim with a value at the lower end of the multi-track might have been handled by a Grade A fee earner.  Depending on the facts of the case, this might not be “unreasonable”.  However, the issue arises as to whether it was “necessary”.  This is a far higher hurdle and the receiving party may struggle to show that it was a necessary step and that a Grade B or C fee earner could not have handled the matter.  The Court may reduce the hourly rates accordingly.  Equally, in a particular claim it may not be “unreasonable” to obtain an advice on quantum from counsel.  Whether such a step was actually “necessary” is a different issue.  It is important at the detailed assessment for the paying party’s advocate (whether costs draftsman, costs counsel or other) to keep reminding the judge of his preliminary finding, where the costs have been found to be disproportionate, when dealing with individual items. 
The fact that, at the first stage, the costs as a whole appear to be proportionate does not prevent the court from finding that individual items are disproportionate and applying the test of necessity to them alone (Giambrone v JMC Holidays [2002] EWHC 2932 (QB)).
Going back to the original question, the issue of proportionality can be a useful tool in nibbling at the edges of the costs claimed.  However, it is important to understand that even where a claim for costs is ruled at the outset to be wholly disproportionate, at the end of the assessment the amount may still be allowed in full.  Whether this is what those drafting the rules had in mind when they drafted: “the court will only allow costs which are proportionate to the matters in issue” is doubtful.  It is this problem that I constantly struggle to explain to some of my solicitor/insurer clients who cannot understand why it may be necessary to offer a figure that is clearly disproportionate to the damages recovered.

My intellectual property rights have been infringed

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I assume readers are familiar with search engines such as Google and Yahoo.

In addition to the ordinary search results they produce, they also also show sponsored links.  This works by allowing advertisers to purchase the right to have their advert displayed when certain keywords are typed into the search engine.  For example, a business selling designer goods might choose the keywords “designer goods” and “fashion”.

Louis Vuitton brought a case against Google complaining that adverts for counterfeit items popped up when internet users searched for the company and that this infringed their trademark rights.  They wanted to prevent others from being able to use their registered trademarks as a keywords. 

The case ended up being referred to the European Court of Justice.  The preliminary ruling was that there was no breach.

All very interesting, but what has this got to do with legal costs, I hear you ask?

I recently discovered that a Google search for Gibbs Wyatt Stone produces a sponsored link for an entirely different firm of law costs draftsmen (although I wouldn’t quite describe our services as being those of traditional costs draftsmen).  I suppose I should be flattered that our reputation is such that others hope to raise their own profile by association with our name.  However, I’m left feeling vaguely used and violated.

APIL does the Hokey Cokey on fixed fees

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I previously reported (see post) on the Association of Personal Injury Lawyers (APIL) walking out of talks on extending fixed costs in personal injury cases.  The latest news is that APIL is now back in.  APIL has explained its decision to rejoin the talks being due to the fact that the Civil Justice Council agreed to discuss matters of process, and not just the level of fixed fee, and that it had been offered the opportunity to make a final written submission on this issue to Lord Justice Jackson.  Nevertheless, APIL maintains it still has “profound skepticism” about the need to extend fixed costs.

In a further boost to Jackson LJ, the new Lord Chief Justice, in a recent interview with the BBC, expressed the hope that the cost of civil litigation would be "properly examined" following the publication of Jackson LJ’s report.  There is building up a virtually unstoppable momentum behind the idea that radical changes need to be made to control legal costs.  Whichever party comes to power after the next election (and at this stage it might be either the Conservative party or the Tory party) there is not going to be an injection of fresh public money to pay for the costs the current system creates.  Any change is going to be focused on limiting the costs that are incurred during the process or the costs that are recoverable at the end.

Click image to enlarge:

qc oct 7 97