Monthly Archives: April 2011

After-the-event (ATE) premium

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A further definition from The (Alternative) Legal Costs Dictionary:

After-the-event (ATE) premium n. a sum of money paid or payable for insurance against the risk of incurring a costs liability in proceedings. The premium is rarely paid at the outset and usually not paid at all if the claim is unsuccessful. The amount of the premium payable is often arbitrarily concocted as the case progresses and subsequently adjusted to whatever figure the court arbitrarily allows. An amount which market forces have never knowingly influenced.

Relief from sanctions

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Lord Justice Jackson has decided that the recovery of success fees from defendants is wrong. The senior judiciary has agreed (see for example paragraph 39 of Sousa v London Borough of Waltham Forest [2011] EWCA Civ 194). The European Court of Human Rights has agreed (see MGN Limited v United Kingdom (Application No. 39401/04)). The government has adopted this view as official policy.

How likely is that an application for relief from sanctions, in relation to a failure to give proper notification of funding, will succeed in the current climate?

Costs Practice Direction – VAT amendments

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Amendments have been made to Costs Practice Direction, which came into force on 6 April 2011, which are made to clarify how VAT should be treated in relation to payments to a third party that are shown as disbursements by the legal representatives in bills of costs:

“Disbursements not classified as such for VAT purposes

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(1) Legal representatives often make payments to third parties for the supply of goods or services where no VAT was chargeable on the supply by the third party: for example, the cost of meals taken and travel costs. The question whether legal representatives should include VAT in respect of these payments when invoicing their clients or in claims for costs between litigants should be decided in accordance with this Direction and with the criteria set out in the VAT Guide (Notice 700) published by HM Revenue and Customs.

(2) Payments to third parties which are normally treated as part of the legal representative’s overheads (for example, postage costs and telephone costs) will not be treated as disbursements. The third party supply should be included as part of the costs of the legal representatives’ legal services and VAT must be added to the total bill charged to the client.

(3) Disputes may arise in respect of payments made to a third party which the legal representative shows as disbursements in the invoice delivered to the receiving party. Some payments, although correctly described as disbursements for some purposes, are not classified as disbursements for VAT purposes. Items not classified as disbursements for VAT purposes must be shown as part of the services provided by the legal representative and, therefore, VAT must be added in respect of them whether or not VAT was chargeable on the supply by the third party.

(4) Guidance as to the circumstances in which disbursements may or may not be classified as disbursements for VAT purposes is given in the VAT Guide (Notice 700, paragraph 25.1). One of the key issues is whether the third party supply (i) was made to the legal representative (and therefore subsumed in the onward supply of legal services), or (ii) was made direct to the receiving party (the third party having no right to demand payment from the legal representative, who makes the payment only as agent for the receiving party).

(5) Examples of payments under (i) are: travelling expenses, such as an airline ticket, and subsistence expenses, such as the cost of meals, where the person travelling and receiving the meals is the legal representative. The supplies by the airline and the restaurant are supplies to the legal representative, not to the client.

(6) Payments under (ii) are classified as disbursements for VAT purposes and, therefore, the legal representative need not add VAT in respect of them. Simple examples are payments by a legal representative of court fees and payment of fees to an expert witness.”

Paying “some” legal costs

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I mentioned the other day the poll of members of the public commissioned by Irwin Mitchell as part of their anti-Jackson lobbying.

One of the “results” from this poll was:

• Almost half (47%) say that they would be less likely to bring a claim for compensation if they thought they may have to pay some of the legal costs.

Like all these things, it depends quite how the question is phrased. And how much “less” is “less likely”?  Let’s remember, the proposal, which will now be introduced, is that in personal injury claims any success fee recoverable from the claimant will be capped at 25% of damages excluding future care and loss. So for a more serious injury with future care and loss of earnings, the choice a claimant may face is whether to pursue a claim that currently would allow them to keep £100,000 but would, in the future, allow them to keep £90,000. Are 47% of people really not going to bother bringing such claims in the future? Even for low value claims for general damages only, are people not going to bring a claim worth £2,000 if £500 will go to the lawyer in success fee? And, if they don’t, is society really going to be worse off?

However, in a press release following the government’s Jackson announcement, Andrew Tucker, head of Personal Injury for Irwin Mitchell, said:

“Our own research shows that just under half of people (47%) would not bring a valid claim for compensation if they thought that they would have to pay some of the legal costs”.

Since when did “less likely to bring a claim” become “would not bring a valid claim”?

More inaccurate spin, but this time too late to make any difference.

A wet lettuce leaf

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Dominic Regan, writing in the New Law Journal, on claimant lobbying over Jackson implementation :

“All the lobbying and meetings behind closed doors has had as much impact as a blow from a wet lettuce leaf upon Mike Tyson.”

Where did it all go wrong for the claimant lobby?

One problem is that much of the lobbying was so badly thought out. The next issue of Litigation Funding will be publishing an article of mine examining the vaguely farcical evidence produced by the National Accident Helpline in support of the current funding system.

Not to be outdone, Irwin Mitchell commissioned a poll from Populus among more than 2,000 members of the public “showing that key proposals mooted by senior High Court judge Lord Justice Jackson … have little support amongst the public”. The results showed:

• Four in five (82%) people think that the current ‘no win, no fee’ system is fair

• Almost three-quarters (73%) of people think that, if a claimant’s personal injury claim is successful, the defendant’s side should pay their legal fees

Now, members of the public are perfectly entitled to their views of the current system. However, one does have to wonder how many understand the current system or have read the 557 pages of the Jackson Report.

But let’s look at the headline figures from the poll.

So, 82% of people support the current system that makes the defendant pay the successful claimant’s legal fees. However, when asked the specific question of whether they favour a defendant paying a successful claimant’s legal fees, the number drops to 73%. At least 9% of people were happy to express a view on the current system despite clearly not having the faintest idea as to how the current system operates. I’m going to take a wild guess and suggest that the true number was somewhat higher and it was hardly surprising that no weight was given by the government to this kind of “research”.

Interestingly, the poll did not appear to have a question as to whether people approved of a system whereby an injured claimant could recover £2,000 in damages and the lawyer could routinely recover in excess of £25,000 in legal fees. It seems that this is the question that Lord Justice Jackson and the government did ask themselves and the answer was obvious.

Still, I’m sure Irwin Mitchell had the sense to commission this poll on a no win, no fee basis.

New 2011 Guideline Hourly Rates coming (sometime)

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At the Association of Costs Lawyers national conference Master Hurst explained that although an increase in the Guideline Hourly Rates had been planned, this was due to be linked to the average earnings index but unfortunately that index no longer exists and an alternative index was being sought.

It has now been announced:

“The Master of the Rolls has received a recommendation from the Advisory Committee on Civil Costs on an increase to the Guideline Hourly Rates for 2011. The rates form the starting point for judges carrying out summary assessments of costs in certain cases, on reasonable hourly rates for solicitors and legal executives of varying levels of experience.

The Committee has recommended an earnings related increase for 2011, but the Master of the Rolls has asked the Committee to seek additional information and provide further evidence to allow him to make a more considered decision.

In the meantime, and until further notice, the Guideline Hourly Rates for 2010 will continue to be applied.”

This is all well and good but we are now going to have a start date for the new rates other than January or April, unless it is suggested they should apply retrospectively.  Just one more thing to try and remember when reviewing Bills of Costs.   
 

Jackson good news

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Dominic Regan writing on Jackson implementation in the New Law Journal:

“The good news is that the government is not looking to increase the small claims limit of £1,000 in personal injury claims.  That is the end of the good news.”

 

 

New legal costs businesses

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Gibbs Wyatt Stone has just celebrated its fifth anniversary. (During that time GWS has gone from strength-to-strength … blah, blah, blah … growing reputation … blah, blah, blah … ever growing list of important clients … blah, blah, blah.)

Traditional wisdom is that the first year for any new business is the most difficult, and the period during which most fail, but if a business can reach the five years mark then it has very good prospects for the long term.

However, with recent announcements, I suspect the next five years are going to be just as “challenging” as the first five.

Interestingly, despite Jackson casting his shadow over the costs world, the last couple of years seem to have seen a very high level of new start-up costs ventures. Why should that be? Has it been wishful thinking that Jackson would not happen? Has it been an acknowledgment that Jackson would happen, the gravy train was about to end, but a hope to make as much money as possible before the end, with self-employment seen as the best opportunity? Has it been an acknowledgment that some firms were unlikely to survive – and would certainly not be continuing to pay generous wages before the end – and decisions have been taken to jump (into self-employment) before being pushed being pushed (into unemployment) in the hope of carving out a niche in the market ahead of Jackson implementation?

I’d be interested to hear readers’ views, although for once I think we’d all understand if these were anonymous.