“No” to entity regulation for costs firms

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Today I continue my examination of the calls for the Costs Lawyer Standards Board (CLSB) to introduce entity regulation of costs firms, in light of the decision in Kynaston v Carroll [2011] EWHC 2179.

There appear to be two further arguments as to why entity regulation is required.

The first one is that if Costs Lawyers can delegate their rights of audience to non-Costs Lawyers there is a danger that many costs firms will decide there is no need, or advantage, to employing a large number of Costs Lawyers. They will only need one Costs Lawyer per firm to enable them to exercise all the rights of Costs Lawyers. The number of those paying for a Costs Lawyer practicing certificate will rapidly decline and a disproportionate burden will be carried by the few remaining. (It would be pure speculation as to how many of those who recently joined the Association of Costs Lawyers joined on the back of rights of audience concerns pre-Kynaston.) Therefore we need entity regulation to cover the costs of Costs Lawyer regulation.

This argument, I suspect, places too much weight on the advantages that come with Costs Lawyers’ “rights”. There are a significant number of Costs Lawyers who work in-house for solicitors. They have never needed Costs Lawyer’s rights (beyond possibly costs appeals, which I doubt are utilised other than in the rarest of cases). Equally, there are those who do only Legal Aid work and never use their “rights”. Costs Lawyer status must therefore be viewed by many as having a value beyond the rights that come with it.

In similar fashion, the number of practising solicitors continues to spiral ever upwards despite much of the work done by solicitor firms not being regulated work and despite the fact that much litigation work is indeed done by unqualified paralegals acting under the supervision of a single qualified solicitor. Again, the perceived benefits of being a qualified solicitor appear to go beyond the rights that go with it.

Now that Kynaston has established that detailed assessment hearings are “in chambers” and anyone may attend if properly instructed by an authorised person, the rights of audience that come with Costs Lawyer status are of limited value. That is increasingly going to be the case once fixed fees are extended across the fast-track. The rights of audience “right” is of limited value where the same right can be exercised via ones instructing solicitor. The “problem” is not the fact that Costs Lawyers can delegate to non-Costs Lawyers, it is rather the ability of solicitors to delegate rights of audience to those who are themselves unqualified.

People will retain, or aspire to, Costs Lawyer status, or not as the case may be, regardless of whether Costs Lawyers can delegate some of their individual rights. Whether the other benefits of Costs Lawyer status are sufficient to be attractive (or are available at a proportionate cost) is another issue.

The other argument, with which I have rather more sympathy, is that it is “unfair” for one costs firm to employ one Costs Lawyer and then for that individual to delegate his rights of audience to another ten costs draftsmen, but only pay one practising certificate fee, whilst another costs firm’s fee earners are all Costs Lawyers each paying a full practising certificate fee. Although there are a number of arguments in response to this point, the simple one is that it does not require entity regulation. Some Costs Lawyers clearly do “delegate” their rights to a number of other costs draftsmen. There will be plenty of others who do not. It should be a relatively simple task for the CLSB to request data at the time of practising certificate renewal as to which individuals delegate and how often. (As officers of the court they can be trusted to provide this information accurately.) A simple formula could then be produced that imposes a higher practising fee on those who most delegate their rights (with a corresponding reduction for those who don’t).

The last thing a profession that is about to rapidly shrink needs is an extra layer of unnecessary regulation.

“No to entity regulation” says this Costs Lawyer.

LASPO lackadaisical logic

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One of the problems with CPR 45.23 and the fixed success fee regime for EL disease claims is the Scope and Interpretation section which states it applies where:

“(b) the dispute relates to a disease with which the employee is diagnosed that is alleged to have been contracted as a consequence of the employer’s alleged breach of statutory or common law duties of care in the course of the employee’s employment”

The difficulty is that it does not define “disease”. It may not seem like much of a problem for well recognised industrial diseases but it does create difficulties at the margins. For example, what about post traumatic stress disorder following an injury? Disease or not? Arguably assistance can be found in the Pre-Action Protocol for Disease and Illness Claims which states:

“This protocol is intended to apply to all personal injury claims where the injury is not as the result of an accident but takes the form of an illness or disease. … Disease for the purpose of this protocol primarily covers any illness physical or psychological, any disorder, ailment, affliction, complaint, malady, or derangement other than a physical or psychological injury solely caused by an accident or other similar single event.”

It is arguable though that one should not be used as an aid to construction of the other.

Now let’s look at the recent amendment to the Legal Aid, Sentencing and Punishment of Offenders Bill recently voted through by the House of Lords:

“Exception for industrial disease cases

The changes made by sections 46, 48 and 49 of this Act do not apply in relation to proceedings which include a claim for damages for a disease, condition or illness (whether or not resulting in death) resulting from any breach of duty owed by an employer to an employee.”

Firstly, what the hell is a “condition”? A broken finger is a condition. It is rather less obviously a disease. What is intended to fall within the definition of “condition” that is not also a disease or illness? If nothing, why has it been included?

Secondly, what is the significance of proceedings which “include” a claim for damages for a disease, condition or illness? The fixed success fee regime requires the dispute to relate to a disease that has actually been diagnosed. This amendment only requires the proceedings to “include” a “claim” for a disease, condition or illness. What is to stop a Claimant making a claim for a broken finger (assuming this sloppily drafted amendment has not already exempted such claims from non-recoverability) but including a claim for vibration white finger and therefore arguing the success fee remains recoverable? The amendment contains no requirement the disease element succeeds, that it followed any kind of diagnosis or was even realistically arguable.

Fun and games all round if the House of Commons doesn’t knock this amendment on the head.

LASPO loopy

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One of the amendments to the Legal Aid, Sentencing and Punishment of Offenders Bill voted through by the House of Lords is that the proposal to end recovery of success fees should not apply in industrial disease claims:

“Exception for industrial disease cases

The changes made by sections 46, 48 and 49 of this Act do not apply in relation to proceedings which include a claim for damages for a disease, condition or illness (whether or not resulting in death) resulting from any breach of duty owed by an employer to an employee.”

So, a reasonably well paid engineer who suffers minor hearing loss at work will be able to keep 100% of his damages but a single mother with young children to support who suffers catastrophic injuries following an RTA may lose 25% of her general damages and past losses.

What is fair or rational about making EL disease claims a special case?

New Guideline Hourly Rates?

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I note the suggestion that trainee solicitors could be paid as little as £2.60 an hour in their first year under an amendment to the Solicitors Regulation Authority’s proposals for ending the minimum wage.

Presumably we can then expect a corresponding decrease in Guideline Hourly Rates for trainee solicitors to, say, £10 per hour. This should still give firms a reasonable profit margin. Obviously Guideline Rates ranging from £90-138 would be totally unsustainable with pay rates of £2.60 per hour.

Detailed assessment and rights of audience

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One of the controversial forthcoming changes to the CPR concerning detailed assessment proceedings is to scrap the current CPR 47.18 and 47.19, concerning liability for detailed assessment costs, and substitute these with:

(1) The general rules about costs contained in Parts 36, 43 and 44 apply to the costs of detailed assessment proceedings, as if “claimant” means receiving party and “defendant” means paying party.

(2) The court will summarily assess the costs of detailed assessment proceedings at the conclusion of those proceedings, unless otherwise ordered.

Unless the court otherwise orders, interest on the costs of detailed assessment proceedings shall run from the date of the default, interim or final costs certificate, as the case may be.”

Now, I, along with other members of the Association of Costs Lawyers, must have missed the consultation document that went out when these changes were first proposed. If I had seen it (and surely they didn’t just press ahead without bothering to consult those people who will have to work with this) there would have been a long list of problems pointed out.

However, putting to one side some of the theoretical problems, there is one rather glaring practical difficulty.

The Statement of Rights, which governs the rights of a Costs Lawyer holding a current practising certificate, says it covers:

“Rights of audience in all proceedings being conducted under Parts 43-48 of the Civil Procedure Rules 1999 (“CPR”) and under Part 52 of those rules with regard to appeals from detailed assessment hearings before a High Court Judge or a Circuit Judge such rights to exclude an issue of entitlement to costs under CPR 44.3 and entitlement to a wasted costs order arising solely under CPR 44.14(1)(b) or CPR 48.7 other than in connection with proceedings commence [sic] under (vi) and (vii) below.”

So, it expressly excludes rights of audience as to “an issue of entitlement to costs under CPR 44.3”. (We’ll ignore for the moment that there is no obvious good reason for such a general exclusion.)

The new rule change means that Part 44.3 will apply to liability for costs of detailed assessment proceedings but a Costs Lawyer, who otherwise has rights of audience in such proceedings, will not have rights of audience in relation to this specific issue. So, exercising my Costs Lawyer rights, I will be able to appear in a detailed assessment hearing but at the conclusion of the same will be unable to address the Court as to which party should have to pay the costs of the hearing. (Thank God for Kynaston v Carroll [2011] EWHC 2179).

You couldn’t make it up.

No doubt the Costs Lawyer Standards Board and the Civil Procedure Rules Committee will wish to liaise before April 2013.

In fact, looking carefully at the wording of the Statement of Rights I am somewhat struggling to see how a Costs Lawyer currently has any automatic right to address a High Court Judge or Circuit Judge as to the costs of an appeal they are appearing in. Surely this normally falls under CPR 44.3. The court obviously has discretion and it would be bizarre in the extreme if a judge refused permission to the very same advocate who had previously been addressing the court as to the substantive appeal, but surely this issue should be covered by the Statement of Rights.

Surely the answer to this is to remove the words “such rights to exclude an issue of entitlement to costs under CPR 44.3”. If Costs Lawyers are deemed competent to appear on costs appeals then it is difficult to see why they are not competent to deal with CPR 44.3 issues.

The real rights of audience “myth”

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Following on from the decision in Kynaston v Carroll [2011] EWHC 2179 there have been calls in certain circles for entity regulation of costs firms. Currently the Costs Lawyer Standards Board (CLSB) regulates only individual Costs Lawyers.

There appear to be a number of arguments being put forward as to why this needs to be done. Today I will focus on one limited aspect. As I understand the argument it goes something like this: Non-qualified costs draftsmen who are employed by a firm of solicitors may attend detailed hearings as they are employees of the firm. Such individuals are regulated indirectly by the SRA as the SRA regulates the firm. The CLSB does not regulate firms. If Costs Lawyers can delegate their rights of audience to non-Costs Lawyers there is no corresponding control over the non-regulated individual. We therefore need to regulate costs firms so all those wishing to exercise the rights given to Costs Lawyers are properly regulated.

This is, in my view, a misreading of the Legal Services Act 2007, which governs rights of audience.

Under the Act, there are two ways (so far as relevant) in which a person can exercise rights of audience.

The first is if they are an authorised person and therefore have the right themselves (eg solicitors, barristers, Costs Lawyers).

The second is where they are an “exempt person” for the purposes of Schedule 3. The relevant section reads:

“The person is exempt if –

(a) the person is an individual whose work includes assisting in the conduct of litigation,

(b) the person is assisting in the conduct of litigation –

(i) under instructions given (either generally or in relation to the proceedings) by an individual to whom sub-paragraph (8) applies, and

(ii) under the supervision of that individual, and

(c) the proceedings are being heard in chambers in the High Court or a county court and are not reserved family proceedings.”

The crucial part to understand is that you are only an “exempt person” if you are instructed and supervised by an individual who is an authorised person (eg a solicitor or Costs Lawyer). There is no right to appear by virtue of being an employee of a firm of solicitors. The Act is not concerned with entities but rather the rights being exercised by individuals.

Therefore, the head of an in-house costs department who is not themselves an authorised person has no “right” to appear at a detailed assessment hearing. They would need to be instructed and “supervised” by a person who was authorised, even if this was actually a junior Costs Lawyer in their costs department.

Equally, a senior litigation executive (who is not otherwise qualified) who heads a large personal injury department in a firm of solicitors has no “right” to attend a routine application being heard in chambers. They would need to be instructed and supervised by an authorised person, even if this was a newly qualified solicitor who works under them.

Again, even in light of Kynaston, an independent law costs draftsman has no “right” to attend a detailed assessment hearing simply because they have been instructed by a firm of solicitors. They need to have been instructed (and “supervised”, whatever that means) by an individual at the firm who is themselves an authorised person.

At this stage it becomes apparent that probably 50% of those who appear at hearings in chambers (including details assessment hearings) have no right to be there because they have not been instructed by an appropriate person, but are relying on the mistaken belief the right comes from being employed by or instructed by a firm of solicitors (that is the real rights of audience “myth”). I won’t even begin to explore the issue of how many would pass a test of whether they were being properly “supervised”.  

However, the point is that Kynaston does not highlight a “problem” of how costs firms are not regulated. The Legal Services Act 2007 is about controlling individuals. When something goes wrong, the buck stops with the authorised individual who gave the instructions. Whether it is the solicitor who instructs an independent law costs draftsman, the solicitor who instructs an in-house costs draftsman or the Costs Lawyer who instructs a costs draftsman in their costs firm, the position is the same. The regulatory body, whether the SRA or CLSB, is there to hold to account those who have not exercised their supervisory duties properly. There is no need for an extra burden of entity regulation to be imposed. Those silly enough to delegate their own rights too freely will lose those rights (assuming the relevant regulatory body is doing its duty).

It is also a mistake to believe that if only individual Costs Lawyers are regulated by the CLSB it prevents any control over who the Costs Lawyer delegates their rights to. There is absolutely nothing to stop, and every reason to encourage, the CLSB from making orders in appropriate cases that prevent Costs Lawyers from instructing a named non-Costs Lawyer in relation to detailed assessment hearings (if it is decided a problem lies with the actions of a non-Costs Lawyer at a detailed assessment hearing). The SRA has similar powers in relation to making orders that no firm of solicitors is to employ named individuals. By this method unregulated individuals fall under the powers of the CLSB in so far as preventing “undesirables” from exercising the rights of audience given to Costs Lawyers.

There is also the danger of making a mountain out of a molehill over this issue. Kynaston appears to have been a case where the costs firm was acting for a party with no solicitor on record. If a solicitor had been on record then, as we now know, the costs draftsman could have been instructed by that solicitor and been an “exempt person”. Once we have fixed fees across the fast-track, are there really going to be many cases where costs draftsmen, or Costs Lawyers, are acting without a solicitor on record? Costs Lawyers’ rights of audience are unlikely to be needed very often in the future (other than some solicitor/own client work and those very few appeals undertaken by Costs Lawyers). For the majority of cases the “right” to appear is the same as has always existed for detailed assessment hearings (being instructed by a solicitor to appear at a hearing being heard in chambers).

There are other arguments for entity regulation which I’ll cover another day.

“Rights of audience myth” myth

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Costs Lawyer magazine has unsurprisingly been devoting quite a lot of coverage and comment to the case of Kynaston v Carroll [2011] EWHC 2179 (click to read judgment). This concerned the thorny issue of rights of audience at detailed assessment hearings.

The facts of the case, so far as relevant, are that an employee of a costs firms (who was not himself a Costs Lawyer or otherwise had his own rights of audience) was “working under the supervision” of a Costs Lawyer (who therefore did possess rights of audience) and attended a detailed assessment hearing heard in the Senior Courts Costs Office. The question that arose was whether the employee had the right to appear before the court.

Master O’Hare said “yes”. The other side sought leave to appeal, which was refused on paper as being “wholly without merit”. On the further oral application for permission to appeal Mr Justice Burnett again refused permission on the basis that “the arguments have no merit at all”.

In simple terms it was accepted that the employee of the costs firm fell within schedule 3 of the Legal Services Act 2007 and was therefore entitled to appear before the Court.

In the alternative, Master O’Hare had indicated that even if no such automatic right existed, he nevertheless had the power to grant such a right on a discretionary basis and would have done so. Mr Justice Bennett recognised such a power and made no suggestion it would be inappropriate to exercise it in detailed assessment hearings.

So we now know several things:

1. I was correct all along (smug mode) in my interpretation of the relevant act – see previous post on rights of audience.

2. Detailed assessment hearings are heard “in chambers”.

3. The term “in chambers” is not to be treated as meaning “in private”.

4. Costs Lawyers can, where there is proper supervision, delegate rights of audience (in detailed assessment hearings) to a non-Costs Lawyer costs draftsman.

5. There is no reason independent law costs draftsmen (ie non-Costs Lawyers who are not working in-house for a firm of solicitors) cannot appear in detailed assessment hearings where they have been properly instructed by a solicitor.

This decision has produced calls in some circles for entity regulation of costs firms (the firm in Kynaston not being regulated as the Costs Lawyer Standards Board only regulates individuals). I’ll discuss that issue tomorrow.

VAT rate on legal costs should be apportioned

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I continue to see, on a virtually daily basis, bills of costs and schedules that continue to wrongly claim VAT at 20% throughout despite the fact that some of the work was done prior to 2011.

How long will it take for all Costs Lawyers and law costs draftsmen to understand how this works? It’s not as though I haven’t written about this often enough.

Hopefully the decision of His Honour Judge Kay QC in Lloyd Fraser (Ply Chain) v Hutton (click for judgment) (13/9/11, Luton County Court) will help to reduce the scope for any argument on this subject.

The District Judge as first instance had allowed 20% throughout on the basis the solicitors were entitled to elect what rate to charge. Allowing the defendant’s appeal, and making reference to Costs Practice Direction 5.8 (which states: “In any case in which an election to charge at the lower rate is not made, such a decision must be justified to the court assessing the costs”) it was held:

“In my judgment the District Judge was obliged to have regard to the Costs Practice Direction. The argument was advanced that it was unreasonable for the receiving party here, the claimant’s solicitors, not to apportion. That decision, in the wording of the Practice Direction, must be justified. There was no attempt to examine what the justification was in this case for not apportioning to the lower rate. It was simply accepted as a right to do so because there was a power to elect.

He was not directed to the provisions of the Costs Practice Direction, and therefore did not direct his mind to that very argument. It is a point that seems to me properly taken on the appeal, and as I have heard Mr Astor, he is not suggesting that the argument itself is incorrect. There is no justification put before the court at the hearing before the District Judge, or now before me today, as to why the receiving party would be justified in not apportioning so that VAT is charged at the lower rate.

I am, therefore, satisfied that the District Judge was wrong in the conclusion the reached, and I allow the appeal.”

[As an aside, the copy of the judgment I have seen, and as linked to above, gives the claimant’s name as “Lloyd Fraser (Ply Chain)”. This doesn’t make much sense as an individual’s name and a quick Google search suggests this is possibly a typographical error and should read “Lloyd Fraser (Supply Chain) Limited”. Although the judgment refers to this being a “personal injuries action”, there was presumably, at least in part, a claim made on behalf of the named company. If that is so, and assuming the company was VAT registered, then no VAT should have been claimed in respect of any work done on behalf of the company in any event. Strange.]

Costs Lawyer Standards Board?

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Why do we get the plural “Lawyers” in “Association of Costs Lawyers” but the singular “Lawyer” in “Costs Lawyer Standards Board? They don’t call it the “Solicitor Regulation Authority”.

And surely there should be an apostrophe in there somewhere. Should it not be: “Costs Lawyers’ Standards Board”?

This is the kind of stuff that keeps me awake at night worrying.

Expert assistance in assessing costs

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CPR 48.6 allows for a litigant in person to recover “the costs of obtaining expert assistance in assessing the costs claim”.

CPD 52.1 states that those who qualify for the purposes of this rule will include a “Fellow of the Association of Law Costs Draftsmen”.

The problem with this rule is that most Fellows have been converted to Costs Lawyers over the last few years and the category of Fellow ceased to exist entirely as of 31 December 2011. (And there is now no such thing as the Association of Law Costs Draftsmen – now renamed the Association of Costs Lawyers).

Therefore, the rules as currently drafted refer to a category of lawyer that no longer exists and no longer allow for the recovery of costs that would otherwise have been recoverable. (The problem ceases to exist if a Costs Lawyer goes on record as acting for the litigant in person because they then cease to be a litigant in person. However, not all litigants in person may want this to happen and it potentially means that the costs of isolated work, such as a Costs Layer just drafting points of dispute, would not be recoverable by the litigant in person.)

The Civil Procedure Rules Committee are fully aware of this rather embarrassing oversight in failing to update the CPD and I am sure we can expect the words “Costs Lawyer” to be substituted in place of “Fellow of the Association of Law Costs Draftsmen” in the October 2012 CPR amendments even if, inexplicably, this has not made it into the April 2012 update.