Faisel v Lancashire County Council – Administration of solicitors

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The other day I posted a link to a website showing some case summaries of various first instance decisions. One angry reader commented: “I’m surprised this is publicised on the blog as useful case summaries – will we now all be submitting every DJ decision and taking it as Gospel?”

I see no reason to interfere with the long-established tradition amongst law costs draftsmen and costs lawyers to treat a decision made late on a Friday afternoon by a Deputy District Judge, sitting in Worthing County Court, on the appropriate grade of fee earner to allow in a public liability tripping claim, as being binding on all other members of the judiciary for similar claims. Indeed, surely there is no need to even produce a copy of a judgment or transcript, one can simply tell a judge that: “Costs Officer So-and-So always allows me a rate of £200 per hour for this type of case” and the judge will be obliged to allow the same.

Of course, aside from the issue of whether first instance decisions are binding or not, there are often no higher authorities on a given issue of costs law. Therefore these decisions can often throw useful light on the various arguments that can be run, and a well delivered judgment can provide an extremely helpful summary of what can otherwise be quite complex issues.

With the above in mind, here is a link to the interesting decision in Faisel v Lancashire County Council, Preston County Court (25 May 2012) concerning the situation where the original firm of solicitors ceases to act following them going into administration. Where they are acting under a CFA, are their costs recoverable at the conclusion of a case? This issue usually comes down to a question of analysis of the terms of the CFA that deal with termination of the agreement before the successful conclusion of the claim and how the Court determines the agreement was ended.

Here the District Judge appears to have concluded, although not exactly expressing himself in these terms, that it was the decision of the Claimant to terminate the original agreement (notwithstanding the fact that the original solicitors were already in administration), and the terms of the CFA therefore allowed for the solicitors to recover their costs in this situation.

Thank you to Paul Tidman of County Cost Consultants for providing a copy of this judgment.

LASPO amendments overturned

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The government has, unsurprisingly, overturned all of the House of Lords amendments to the Legal Aid, Sentencing and Punishment of Offenders Bill and, in particular, the one that sought to exempt all EL industrial disease cases from the end to recovery of success fees and ATE premiums.

It is a perfectly arguable position to adopt that all claimants should be allowed to litigate entirely risk free and keep 100% of their damages. It is also perfectly arguable that injuries of a certain level of seriousness should be exempt (eg those that will, or have, resulted in death). However, the position of the House of Lords’ amendment to exempt all EL disease claims (and why not non-EL disease claims?) was neither rational nor consistent with whatever it was that was trying to be achieved (unless it was simply pandering to the trade unions).

Article on CFA challenges

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Readers of Solicitors Journal will know I contribute a regular costs column. Somehow I usually manage to find something new to write about that hasn’t already appeared on the Legal Costs Blog. As part of our Costs Law Articles Archive project I will be uploading some of these old articles over the coming weeks. First up is a discussion of the Tankard v John Fredricks Plastics Ltd [2008] EWCA Civ 1375 judgment and whether it would kill off CFA challenges.

In the article I wrote:

“Although a collective sigh of relief will have gone up from panel members of the ALP scheme the decision has done little or nothing to limit the scope for challenges to other schemes or introduce any greater certainty. Hollins introduced the vague (and often shifting) concept of the ‘material’ breach and Tankard has introduced the even more unhelpful ‘reasonable person’ test. Although this appears to represent a common sense approach it actually produces nothing but uncertainty.

If you asked the ‘reasonable person’ whether he thought that a scheme that provided only 1% of a firm’s revenue might affect the advice it gave then the answer would probably be no. If you informed the same person that an interest amounted to £50,000 a year you would possibly get an entirely different answer. Of course, it is quite possible that 1% of a given firm’s revenue is indeed £50,000 a year. Would two judges give the same answer to this set of facts? Equally, £50,000 for some firms really would be irrelevant but for others would represent the difference between profit and loss. This new test will mean that there may have been a breach of the Regulations by one firm when advising a client but no breach by the firm next door giving exactly the same advice on the same scheme.”

Having recently had a CFA challenge upheld on appeal, and with one or two others still in the pipeline, I am sticking by the view that Tankard did not kill off CFA challenges but simply made the outcome more unpredictable.

“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.

Retrospective revocation – Revisited

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The proposed amendment to the Legal Aid, Sentencing and Punishment of Offenders Bill that I discussed yesterday has been causing no end of fuss (understandably) with at least one expert commentator advising against signing a client up to a CFA until the Bill is in its final form.

However, further analysis of the proposed amendment has led most commentators to come round to the view that, if implemented, it will not render success fees irrecoverable if a matter is not settled prior to April 2013 (see this analysis for the current line of thinking). It appears that the amendment is actually intended to catch CCFA claims once the implementation date is reached. In other words, the amendment is necessary to stop success fees in CCFA cases being recovered where work begins after April 2013. It will not be possible, under this amendment, to claim a success fee is recoverable simply because the original CCFA pre-dates April 2013.

It does seem rather bizarre that it has only just been appreciated that CCFA cases might not have been caught by the Bill as originally drafted. (What else is being overlooked?)

As to this amendment, as I mentioned yesterday, “this could have been worded considerably more clearly”. I think we can all agree on that.

Date success fee recoverability will end

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One of the big issues concerning Jackson implementation is which date will be chosen for ending recoverability of success fees. Will it be by reference to the date of the accident date (as per the fixed RTA success fee regime) or the date the CFA was entered into (as per revocation of the CFA Regulations 2000)?

The Legal Aid, Sentencing and Punishment of Offenders Bill, as drafted, reads: “The amendment made [concerning ending recoverability] does not apply in relation to a success fee payable under a conditional fee agreement entered into before that subsection comes into force”.

With April 2013 likely to be the date of implementation, this would mean no recoverable success fee where the CFA is entered into after that date.

Well, at this point those of a claimant disposition may want to make sure they are sitting down before reading further. (If you think you look cool reading this on your ipad, standing up on the train, that image is likely to be shattered when you have to be helped up from the floor by your fellow passengers.)

Justice Minister Lord McNally has proposed an amendment that reads:

“Clause 43

Page 30, line 30, leave out from “not” to end of line 32 and insert “prevent a costs order including provision in relation to a success fee payable by a person (“P”) under a conditional fee agreement entered into before the day on which that subsection comes into force (“the commencement day”) if -

(a) the agreement was entered into specifically for the purposes of the provision to P of advocacy or litigation services in connection with the matter that is the subject of the proceedings in which the costs order is made, or

(b) advocacy or litigation services were provided to P under the agreement in connection with that matter before the commencement day.”

Although this could have been worded considerably more clearly, commentators (including APIL) have read this to mean that unless a costs order is obtained before April 2013, no success fee will be recoverable regardless of the date of the CFA.

Let me spell that out. If this amendment is passed it will mean that a claimant who is currently pursuing a claim under a CFA (or who enters into a CFA between now and April 2013) will not be able to recover a success fee from the defendant unless the claim is settled and a costs order obtained before April 2013.

Now, whatever the serious flaws to the current system, to retrospectively end recoverability would be surprising to all concerned. This issue has only just arisen, but some quick initial thoughts:

A claimant who has already entered into a CFA, under the current rules, would have had little, if any, interest in the setting of the level of the success fee. This is because they would have expected the success fee to be recoverable from the other side. Retrospectively ending recoverability would mean the client becomes liable to pay the solicitor the success fee from the damages recovered. Indeed, with many cases the damages will not be remotely sufficient to cover the success fee leaving a successful claimant positively out of pocket (remember, there will be no damages cap on the level of success fee with an existing CFA). The client would have been denied any opportunity to make an informed decision to try to negotiate the level of success fee with the solicitors or find solicitors who would charge a lower success fee (a central element of Jackson’s vision).

Solicitors who have CFA Lites would be unable to recover any success fee. Having promised not to charge the client more than is recovered from the other side, if recoverability goes between the parties it must equally go as with the client.

Standard Law Society CFAs inform the client: “If you win your claim, you pay our basic charges, our disbursements and a success fee. You are entitled to seek recovery from your opponent of part or all of our … success fee”. This advice will be, retrospectively, untrue.

If a solicitor gives this information to a client when entering in a CFA at any point since this amendment was proposed (apparently 7 March 2012), and this amendment is then implemented, it would almost inevitably make any such advice negligent and almost certainly prevent the solicitor recovering the success fee from the client. Given APIL are aware of this proposed amendment (see Tweet), it is hard to envisage how any proper advice given to a client since 7 March 2012 that fails to spell out the possibility of this retrospective change being made would not be negligent.

Why would any defendant settle a claim between now and April 2013?

I am aware that there is some frantic lobbying going on in the background to stop this amendment being passed but the practical implications of this are such that I am giving this 0% chance of being accepted. That assumes, of course, that those voting have any understanding of what they are being asked to decide and what the implications are. On second thoughts, I’m revising this and giving it a 50% chance of becoming law.

Other good news for claimant lawyers includes the proposal by Labour peers to halve the fixed fees solicitors can claim from the low-value RTA Portal (and that no increases to the fees may be made without a vote and approval of both Houses of Parliament) and the confirmation from the MoJ that they will extend the value of claims in the portal from £10,000 to £25,000 from April 2013.

Retrospective success fees

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Is it possible to recover retrospective success fees? Read my article on the subject in the Solicitors Journal.

Access to Justice Action Group explains

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I recently commented on the apparent contradiction between Andrew Dismore’s, co-ordinator of the Access to Justice Action Group, letter to the Guardian newspaper predicting that “there will be at least 25% fewer claimants” as a result of the proposed changes to the no win, no fee system and his other prediction, in relation to clinical negligence matters, that the proposed changes would lead to “an increase in the number of cases of 1/3rd”.

Andrew has kindly elaborated.

The prediction that there will be a 25% drop in overall claim number is reached by two routes, firstly, by making a comparison with the number of claims pursued in Scotland. In Scotland, additional liabilities are not recoverable from the other side. There are 25% fewer claims reported to the CRU for Scotland, on a pro-rata basis given the size of the population, compared to the number of claims brought in England and Wales. Scottish Sherriff Court starts compared with county court case numbers produces a similar disparity. It is therefore assumed that if recovery of success fees and ATE premiums ends here, it will lead to claims numbers reducing to a similar level as seen in Scotland.

Secondly, an analysis was undertaken of 69,000 claims pursued via a claims management company. New claims accepted by the claims management company are offered to different firms of solicitors unless and until one is prepared to take the case on a CFA basis. Of these claims, two-thirds were accepted by either the first, second or third firm to be offered the claim. The balance were accepted by the fourth to twenty-fourth firm offered the claim. AJAG predict that it is this one-third of cases that will be considerably less attractive once success fees and ATE premiums cease to be recoverable and therefore estimate that 25% of the total claims currently run will not be taken on.

Different considerations are thought to apply to clinical negligence claims, which represent a tiny proportion of overall claim numbers. Currently a high proportion of claims are accepted by solicitors but then turned down by either the Legal Aid Board or by ATE insurers, and therefore do not proceed. ATE insurers apparently turn down two-thirds of cases presented to them. This acts as a filtering process. If Legal Aid and recoverable success fees ends for these claims it will remove this filtering process and mean more claims are pursued. This will be exacerbated by Qualified One-Way Costs Shifting (QOCS). Without the risk of adverse costs it will encourage more claims to be brought that might not otherwise have been.

Andrew Dismore does not consider there to be a comparable ATE filtering process for most non-clinical negligence claims. Therefore the removal of recoverable ATE premium will not lead to a corresponding increase in other types of claim.

It is not believed that QOCS will lead to any corresponding increase in numbers in non-clinical negligence claims. This is because current Government plans are to allow recoverable ATE premiums in respect of disbursements for investigation expert reports in clinical negligence claims. That, combined with QOCS, means claimants in clinical negligence claims, can litigate with little risk. However, because there is no provision for the claimant’s own disbursements in failed non-clinical negligence claims, the impact of QOCS in that area will not remove the deterrent effect of this risk on claim numbers.

This is the analysis that leads to the conclusion that overall claims will reduce by 25% but clinical negligence claims will increase by 1/3rd.

The 100% succcess fee myth

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Three cheers for the National Accident Helpline.

Those probably aren’t words you expected to read on the defendant friendly Legal Costs Blog, but credit where credits due.

The National Accident Helpline (NAH) in their desperate lobbying to save their business model, as part of the consultation process into implementation of the Jackson Report, commissioned independent research by academics Professor John Peysner, Dr Angus Nurse and John Flynn from the University of Lincoln. Their report, Excessive & Disproportionate Costs in Litigation, “casts fresh doubt on current government proposals to reform the ‘no win no fee’ compensation regime”.

(The strange thing about reports delivered by independent experts is that they almost always manage to say what those commissioning the report wanted. Have you ever noticed how medical experts instructed by claimants always conclude that the injuries suffered by the claimant are so life-changing that the claimant will never be able to work again or lift anything heavier than a tooth-pick? On the other hand, the medical experts instructed by defendants invariably conclude that there is nothing wrong with the claimant that a strong mug of tea wouldn’t sort out.)

The corresponding press release stated:

“The University of Lincoln researchers examined data on more than 20,000 civil litigation cases and concluded that in certain cases defendant delay can be a significant factor in increased litigation costs and can cost up to six times as much as other causes of delay.

The findings suggest that defendant delays add unnecessary court costs to cases where there is a failure to reach settlement. If a case goes to court, claimants win 90 per cent of the time.”

Traditional wisdom as to cases that go to trial can be found in Master Hurst’s comments in Designer Guild Ltd v Russell Williams (Textiles) Ltd (t/a Washington DC) (No 2) [2003] EWHC 9024 (Costs):

“There is an argument for saying that in any case which reached trial a success fee of 100% is easily justified because both sides presumably believed that they had an arguable and winnable case.”

The courts are not meant to apply the benefit of hindsight when determining the reasonableness of a success fee (“when the court is considering the factors to be taken into account in assessing an additional liability, it will have regard to the facts and circumstances as they reasonably appeared to the solicitor or counsel when the funding arrangement was entered into and at the time of any variation of the arrangement” – Costs Practice Direction 11.7). However, the courts are often persuaded that an initial assessment that a case has no better than 50/50 prospects of success must have been an accurate assessment if the matter does then proceed to trial.

Now, based on this research, we know that cases that proceed to trial are not carefully balanced but only go that far because defendants fail to make proper admissions of liability in weak cases. Using the court approved “Ready Reckoner” to calculate success fees, for cases which proceed to trial if there is a 90% chance of success this justifies a success fee of only 11%. Even where the CFA is entered into after liability has been disputed by the defendant, we now know this means little or nothing. The defendant has probably made an inappropriate decision 90% of the time and the claim will still succeed.

This research also knocks on the head the argument that the “Ready Reckoner” method of calculating success fees is unduly harsh to claimant solicitors as it wrongly assumes that the costs earned in won cases will be the same as the level of costs in lost cases. The argument put forward by some claimant representatives was that explained in Smiths Dock v Edwards [2004] EWHC 1116 QB:

“Mr Morgan QC submitted that because most wholly unsuccessful cases reach trial whilst most successful cases settle before trial, there is a disequilibrium that should result in higher success fees.”

This argument was rejected in Smiths Dock with the Court approving the general use of the “Ready Reckoner”. The claimant argument does nevertheless seem to have been accepted as showing the “Ready Reckoner” did not produce “unfairly high” success fees.

However, we now have evidence, kindly supplied by NAH, showing that the “Ready Reckoner” figures are almost bound to be incorrect and rather than being too low are actually too high. If the vast majority of cases that proceed to trial are won by claimants, the fees earned in won cases will, on average, be higher than the work undertaken on lost cases. The “Ready Reckoner” assumption that “won” and “lost” cases are of equal value is mistaken, but not in the way claimant representatives have previously argued.

This research, if it is accurate, also undermines the assumptions that many ATE insurers apply in relation to staged ATE premiums and the individual “assessments” that some ATE insurers apply to the final stage (usually the pre-trial stage). In Rogers v Merthyr Tydfil CBC [2006] EWCA Civ 1134 the approach of DAS was explained:

“At Stage Three the risks involved vary significantly, and it was felt better to rate this element of the premium individually. DAS’s aim is to make sure that the trial premium is directly proportional to the risk involved, so that each case is individually underwritten, taking into account the merits and the estimated maximum loss figure (EML). In order to calculate the EML the claimant’s solicitor is asked to provide details of the disbursements he has already incurred and an estimate of his own side’s disbursements up to and including trial. He is also asked for an estimate of the opponent’s total costs and disbursements up to and including trial. The estimates provided in the allocation and pre-trial questionnaires are used when they are available.

The underwriter is then required to assess the risk and to apply a percentage in order to calculate the premium. In this case liability had been denied and there was no Part 36 offer. The prospects of success had been assessed by case handlers as ‘acceptable’, which in effect meant 51%. Mr Bellamy would not expect prospects of success to be rated much higher than this in a case about to go to trial where liability was still denied. Based on that information the underwriter applied a rate of 54% to the EML, producing a third stage premium of £3,510 plus IPT. The insurers expect to lose about half the cases which go to trial.”

The NAH research, if correct, shows that this assumption is fundamentally flawed. Instead of losing approximately 50% of cases that go to trial, the success rate is probably nearer 90%. The figures claimed from defendants by way of final stage ATE premiums are almost certainly too high.

The irony may be that research commissioned by NAH to support the current recoverability scheme has shown that the approach of the courts and ATE providers is fundamentally flawed and results in excessive costs being recovered.

[This post is based on an article that previoulsy appeared in Litigation Funding magazine.]

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Successful National Accident Helpline challenge

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Earlier this year I successfully argued that a CFA was unenforceable and the solicitors’ costs were therefore disallowed. The challenge was on the basis of the, now revoked, Conditional Fee Agreement Regulations 2000, in that the solicitors had failed to advise the client of the interest they had in recommending a particular ATE insurance policy.

The claim concerned the National Accident Helpline scheme. I am not aware of any reported decisions concerning this scheme and it may be that the outcome was fact specific.

The decision shows that Regulation 4(2)(e) challenges have not been killed off by the judgment in Tankard v John Fredricks Plastics Ltd [2008] EWCA Civ 1375. (That judgment simply muddied the waters.)

What I find interesting about this matter is how long it has dragged on for. This was a routine RTA claim resulting from an accident on 12 December 2003 which settled for £8,000. The claim settled on 21 February 2008. Detailed assessment proceedings were commenced on 3 March 2009 and rumbled on until judgment was handed down in relation to the preliminary issue of the enforceability of the CFA on 14 April 2011.

But did not end there.

The Claimant is appealing the decision of the Costs Judge and the appeal is due to be heard very shortly. (If the appeal is dismissed I will let you know. If it succeeds I will keep quiet about it and hope posterity records this as being an outright win on my part.)

Those concerned about the impact of the Jackson reforms can console themselves with the thought that there can be a surprisingly long run-off for even the lowest value claims.

The judgment can be read here: King v Thames Water Utilities & Transport for London.