Henry v News Group Newspapers Ltd

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I had a very interesting day at the IBC Solicitors’ Costs conference on Tuesday. I had been due to speak immediately after keynote speaker The Hon Mr Justice Ramsey. In the event, I swapped places with Master Haworth who needed to get back to court. This was a pity as it meant I didn’t get the chance to use the absolutely hilarious joke I had prepared about being grateful to Mr Justice Ramsey for agreeing to appear as my warm-up act. (When I say “hilarious” the term is perhaps relative. When I say “joke” the term is perhaps relative.)

Significant attention during the day was naturally focused on the Court of Appeal’s judgment relating to costs budgets in Henry v News Group Newspapers Ltd [2013] EWCA Civ 19.

This judgment has received significant attention with much of the initial commentary suggesting that costs budgeting has been torpedoed by this judgment before it has even been properly launched.

Iain Stark, chairman of the Association of Costs Lawyers, said:

“This judgment sends out completely the wrong message to anyone involved in litigation. The government has made it clear that it wants costs budgeting to help constrain the spiralling costs of litigation, yet the decision flies in the face of this intention. Not only does it undermine the government’s efforts, but it also gives licence to further undermine costs judges and places yet more burdens on them.

Rod Evans, president of the Forum of Insurance Lawyers, said:

“This is an extremely disappointing judgment. … We now have major concerns over the adherence to the new cost budgeting rules from the 1 April and what sanctions will be available to apply against those who don’t adhere. We are disappointed that the Court of Appeal has seemingly undermined the implementation of the Jackson reforms which are needed as a matter of urgency to tackle the current dysfunctional costs of civil litigation.”

Interestingly, the unanimous view of those speakers at the conference who commented on the decision is that this is potentially a significant misreading of the judgment which was very much fact specific and due to it being concerned with a case proceeding under one of the pilot schemes. Paragraph 28 of the judgment was identified as being the crucial one:

“In the light of the experience gained from those pilots the Rule Committee decided to adopt Sir Rupert Jackson’s recommendation that the management of costs by the court should in future form an integral part of the ordinary procedure governing claims allocated to the multi-track. Those rules, which will become effective from 1st April 2013, differ in some important respects from the practice direction with which this appeal is concerned. In particular, they impose greater responsibility on the court for the management of the costs of proceedings and greater responsibility on the parties for keeping budgets under review as the proceedings progress. Read as a whole they lay greater emphasis on the importance of the approved or agreed budget as providing a prima facie limit on the amount of recoverable costs. In those circumstances, although the court will still have the power to depart from the approved or agreed budget if it is satisfied that there is good reason to do so, and may for that purpose take into consideration all the circumstances of the case, I should expect it to place particular emphasis on the function of the budget as imposing a limit on recoverable costs. The primary function of the budget is to ensure that the costs incurred are not only reasonable but proportionate to what is at stake in the proceedings. If, as is the intention of the rule, budgets are approved by the court and revised at regular intervals, the receiving party is unlikely to persuade the court that costs incurred in excess of the budget are reasonable and proportionate to what is at stake.”

The consensus among the speakers was that the courts will adopt a very strict approach to costs budgeting in future and it would be very unlikely that costs greater than those set out in approved budgets will be allowed.

For what it is worth, I am inclined to agree with this interpretation. Parties are likely to find themselves stuck with inaccurate budgets where they have not sought the court’s permission for these to be amended well in advance of the budgets being exceeded. However, I am equally confident that this decision will be seen as giving a glimmer of hope to parties who have exceeded their budgets and they will argue their cases are sufficiently close to the facts in Henry such as the decision should be followed. This will inevitably generate satellite litigation even if, ultimately, such attempts are doomed to fail.

Provisional assessment

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The draft amendments to the CPR implementing Jackson state that provisional assessment will apply to all detailed assessment proceedings commenced in the High Court or a county court on or after 1 April 2013 where the amount claimed is £75,000 or less.

The court will not award more than £1,500 to any party in respect of the costs of the provisional assessment.

Even at Grade D rates that’s a maximum of a little under 13 hours work (rather less if the instructing solicitor has any input at a higher hourly rate and it is actually not clear from the draft rules as to whether the £1,500 is even meant to include any VAT). Not very much for what are sometimes fairly lengthy bills, particularly once additional liabilities are stripped out.

Efficiency will rule. There will be no room for protracted negotiations. Make your best offer at the outset.

Although, at that price it might be worth running rather more cases to assessment.

Bar’s new standard conditions of contract

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I note the Law Society has issued a Practice Note expressing a number of concerns relating to the Bar’s new standard conditions of contract.

Amongst the clauses the Law Society has expressed concern over is that which provides for any hourly rate agreed with the barrister to be subject to reasonable periodic review by the barrister and that entitles the barrister to treat an agreement as terminated if the solicitor does not agree to any variation of the hourly rate. The Practice Note states:

“There may well be obvious difficulties with this and you should discuss with your client whether they are content for this to be agreed”.

Isn’t this clause just typical of the arrogant toffs at the Bar who think they should be allowed to unilaterally impose any revised hourly rate they want and well done to the Law Society for sticking up for the little man.

Out of curiosity, readers might like to compare this clause to that within the Law Society’s own model Conditional Fee Agreement:

“We review the hourly rate on [review date] and we will notify you of any change in the rate in writing.”

The only thing the Law Society’s model CFA allows the client to do if they are unhappy with the new rate is to terminate the agreement.

You couldn’t make it up.

Mesothelioma, success fees and ATE insurance

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Another of the anomalies relating to the piecemeal introduction of the Jackson reforms is the treatment of those bringing claims for mesothelioma.

A policy decision has been made to postpone the end to recoverability of success fees and ATE premiums in these cases. The government explained, when announcing this decision: “Rather, we will implement the clauses in respect of those claims at a later date, once we are satisfied on the way forward for those who are unable to trace their employer’s insurer. The amendment commits the Lord Chancellor to carrying out a review of the likely effect of the clauses in relation to mesothelioma proceedings and to publish a report before those clauses are implemented.”

Putting aside any arguments as to whether this category of claim is sufficiently unique to justify this exception, the issue that arises is how this operates with the other reforms that are due to come into force in April 2013.

The Court of Appeal has announced that all personal injury claims settled after April 2013 (unless a CFA had been entered into and work commenced before that date) will attract a 10% increase in general damages. This is to compensate claimants for being unable to recover success fees after that date. It therefore appears that mesothelioma claimants will benefit from the 10% increase despite still being able to recover a success fee.

Qualified one-way costs shifting (QOCS) is also due to be implemented in April 2013 in personal injury claims. Although I do not believe the final rules have been published as yet, it seems unlikely that an exception will be made for mesothelioma claimants. QOCS is designed to compensate claimants for the fact they will be unable to recover ATE premiums in the future. However, mesothelioma claimants will still be able to recover ATE premiums. Although they will not need ATE cover in respect of losing on liability if they benefit from QOCS, they will be able to recover the costs of ATE cover to protect them against failing to beat Part 36 offers. Lord Justice Jackson’s view was that Part 36 offers should “trump” QOCS. It therefore appears that mesothelioma claimants will be able to recover the costs of ATE policies to protect them against the risks of rejecting reasonable offers in circumstances where other seriously ill claimants will not. It is not obvious why this should be necessary in the context of possible difficulties locating employers’ insurers.

Don’t get me wrong. I wouldn’t wish mesothelioma on my worst enemy and it may be thought that a modest increase in general damages and the occasional anomaly in their treatment is of limited consolation for sufferers and their families. I simply highlight this as being another example of what I am sure to be the unintended consequences of the piecemeal introduction of the Jackson reforms.

Bill of costs – estimated time

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With modern computerised case management systems it is bad enough to see any estimated time entries in a bill of costs but I have just received a bill where the time claimed for drafting the bill itself has been estimated.


New small claims limit

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The Ministry of Justice is consulting on increasing the small claims limit for RTA personal injury claims to £5,000. The theory being that these claims should be straightforward enough for litigations to act in person without the need for legal assistance and, correspondingly, without the need to incur legal fees (win or lose).

The Court of Appeal has separately announced that general damages should increase by 10% to compensate claimants from being unable to recover success fees post-Jackson.

If the Ministry of Justice does increase the small claims limit for RTA claims to £5,000 it will cover the majority of personal injury claims in this country. Claimants will therefore recover a 10% uplift in damages despite, in theory, no longer needing the services of a lawyer (obviously a debatable proposition) and therefore not having to pay any success fee.

Will the Court of Appeal then reverse its decision for small claim RTAs?

This is but one of the numerous problems being caused by the piecemeal introduction of Jackson and the Ministry of Justice exploring ideas never proposed by Jackson.

IBC Solicitors’ Costs Conference

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My diary is already starting to fill up with legal costs conference speaking engagements. First up is the IBC Solicitors’ Costs Conference 2013 on 29th January. I’m due to talk about the latest news on Jackson implementation. I rather suspect this task would be easier if the new rules had all been published, if various issues were not still out for consultation and if the government didn’t keep changing its mind as to implementation dates.

SG v Hewitt

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I note the Court of Appeal’s decision in SG v Hewitt [2012] EWCA Civ 1053 has begun to cause problems for the courts trying to determine in what circumstances the normal Part 36 rules should be disapplied. If only someone had been able to predict that this would happen.

On an entirely different subject, my Solicitors Journal article on SG v Hewitt and how this would generate satellite litigation is now available to read on the Costs Law Articles Archive section of Legal Costs Central.

RTA portal fees

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The lobbying over the Government’s proposals to slash RTA portal fixed fees has thrown up some interesting arguments. The Law Society has waded into the debate to argue that there is “substantial evidence” that the RTA portal fee should go up by £100, rather than down by £700.

The Law Society has based this on its law management section’s financial benchmarking survey which put the median cost of an employed fee-earner at £40,860, median support staff costs at £12,624 and the median spend on non-salary overheads per fee-earner at £37,992, meaning a break-even point of £97,348 per annum.

It states:

“It would be usual to calculate that a fee-earner’s billable hours at 1,100 per annum. This would result in a break even hourly rate of £88 approximately (i.e. £97,348/1,100). This is cost only and does not allow for any profit. Using a mark up of 50% (which brings a rate of return on investment of 33%), the corrected rate would be £132 per hour.”

It calculates that the proposed two-stage fee of £500 is “unjustifiable and will be unsustainable” as it equates to a rate of £50 per hour on the basis of 10 hours’ work – which is what surveys estimate an average portal case takes to complete – or less than four hours’ work at £130, which the society calculated as the correct rate for solicitors handling this work.

It said: “It would be impossible for solicitors to undertake every claim properly in accordance with the RTA protocol and their professional conduct requirements in this amount of time. To do so will result in consumers receiving a less than adequate service… It is likely that such rates will result in many solicitors simply being unable to carry out the work.”

At the same time research has suggested that the cost of acquiring personal injury cases is around £700, whether through the payment of referral fees or through own marketing costs.

This raises a number of interesting issues:

1. Firms currently undertaking this work recover fees of £1,200. From this amount an average figure of £700 is paid to acquire the case, leaving a balance of £500. The Law Society claims it is “impossible for solicitors to undertake every claim properly” for fees of this level based on 10 hours’ work.

2. One possibility is that firms undertaking this work are making enormous and unsustainable losses. If so, why they continue to pay large referral fees or marketing costs to acquire such loss-making work would appear to be something of a mystery.

3. Alternatively, it may be that firms are able to make a profit undertaking this work because they handle it in a fraction of the 10 hours estimated as being necessary. That would suggest either that the 10 hours figure is a significant over-estimate or that firms handling these claims are cutting so many corners that there must be wide spread negligence throughout the legal profession.

4. Another possibility is that the Law Society’s financial benchmarking survey bears no relationship to reality for firms handling this work. I rather suspect that there are armies of paralegals handling these claims who earn a fraction of the £40,860 median salary quoted, have virtually no support staff to speak of (and certainly not costing the equivalent of £12,624 per fee earner) and who would struggle to understand what the £37,992 on non-salary overheads is spent on (certainly not free chocolate Hobnobs).

Year of the Law Costs Draftsman

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Law costs draftsmen, costs lawyers and others working in the field of legal costs are set to have a great 2013.

This may sound counterintuitive given the Jackson costs reforms are being introduced this year but it is worth considering the facts.

Costs budgeting is set to be introduced in April. Overall this is bad news for costs practitioners. Costs budgeting produces a small amount of frontloading of costs work (preparing budgets and seeking the courts’ approval) which is more than offset by the loss of work at the end of the claim (drafting bills, points of dispute and replies, negotiating costs and attending detailed assessment hearings). However, given the life cycle of a typical claim, 2013 is likely to produce the additional work generated by costs budgeting without practitioners experiencing the corresponding loss of work at the end of a claim. Claims subject to costs budgeting are unlikely to settle this year.

Inter partes recoverability of success fees and ATE premiums is due to end in April. This is almost certainly likely to reduce the number of costs dispute. However, the change will not be retrospective and it is unlikely that the negative impact on cost work will therefore be felt this year. Again, the vast majority of claims where this is likely to be relevant will simply not have settled.

The extension of the RTA portal will have a dramatic impact on work volumes. But the news that implementation will not happen in April will again mean that the impact of this change will not be felt in 2013.

The really noteworthy factor to consider is the number of substantive claims that are likely to settle this year. Whereas claimants solicitors immediately see the additional work generated by new claims, those working in costs traditionally have to wait until the conclusion of a matter for it to produce any cost work. Recent years have seen an ever increasing number of new claims being brought. 2013 should see these figures translating into additional costs work.

This combination of factors should see a boom in 2013 for those working in legal costs.

2014 will be crap.