What next for civil costs?
Lawyers have always been fair game for press and public alike. Whilst politicians in the wake of the scandal about MPs’ expenses rightly head the list of people for whom few have much time or respect, lawyers are probably not much further down the list together with estate agents and HMRC. The pay of criminal lawyers has long been a good source of government propaganda about how much the state pays in criminal legal aid, when the names of those barristers who have earned hundreds of thousands out of the public purse are published annually in the press. Invariably a few days later, following complaints by the Bar, a footnote appears in the offending broadsheet clarifying that the hundreds of thousands in question cover several years’ work, include VAT at 20% and exclude chambers’ expenses. In civil costs, the perception is that the hundreds of pounds per hour charged by solicitors goes straight into their pocket, with recognition seldom being given to the enormous level of overheads which must be met in order to run an efficient firm before the solicitors in question are paid a penny.
Without expecting any sympathy from the press and public, the lot of civil lawyers deserves a fair hearing in the light of recent developments. The reasons for this statement have their origins in the latest utterings by the government and by the senior judiciary about controlling costs. To put matters into context, Sir Rupert Jackson’s report into civil costs was published six years ago and his recommendations are still being implemented. Cases in point are costs budgeting and most recently, the implementation of the “new” electronic bill (more of which below). However, before either of these have had any real chance to work, the government has announced (per Health Minster Gummer) that it intends to impose fixed costs in clinical negligence cases worth less than £250,000 by 1 October 2016, Sir Rupert has recommended fixed costs in all multi-track claims up to £250,000 in his speech to the justice committee of the House of Commons on 23 February 2016, and the Lord Chief Justice, Lord Thomas, has said that “we must start again on civil justice” and that Sir Rupert’s proposal about fixed costs “ought to expand”.
Contrast that with another speech given by a judge who spends a significant part of his judicial day fixing costs budgets under CPR 3.12 et seq. Two days after the Thomas outpourings, Master Cook made a powerful and well reasoned speech at a seminar hosted by 7 Bedford Row, in which he expressed his view that it was “profoundly worrying” that the government planned to impose fixed costs in clinical negligence cases as early as this October, even though public consultation, which the Department of Health had indicated would take place, has yet to materialise. Giving examples all-too-familiar to costs judges on detailed assessments involving costs payable by the National Health Service, Master Cook pointed to the manner in which the NHS drives up costs by refusing to disclose documents, declining to respond promptly to claimants, failing to admit liability, opposing applications to make payments on account of costs and objecting to split trials.
As to the Jackson proposal for fixed costs in clinical negligence actions up to £250,000, Master Cook could not accept that these represent “low-value” claims and that for the present, fixed costs should not extend beyond claims worth £50,000 without first engaging in proper scrutiny of the effects. In his view:
“What I find particularly concerning is how the NHSLA’s concern over disproportionate costs in lower value claims, that is claims valued at £25,000, has morphed into a proposal to fixed costs in cases up to £250,000.”
This also applied to Sir Rupert Jackson’s call for the widespread adoption of fixed costs:
“My own view for what it is worth, is that if this change is to come about, it must apply to all civil litigation; it must be gradual; we must start by extending the low value Part 45 scheme to all claims, including the fast track; there should be gradual extensions of fixed costs from £25,000 to £50,000 to say £150,000 and such extensions should be made in the light of experience; suitable uplifts must be agreed in difficult and complex claims such as clinical negligence, possibly in conjunction with some form of accreditation scheme; alternatively, there must be some flexibility in rates (judicially controlled in the difficult and complex cases); and there must be a robust and predictable mechanism to update rates paid to lawyers linked to actual costs… in the real world… unless fees are set at a level which make it economically viable to take on such claims, people will be denied representation… In my opinion a period of calm is called for before more radical change. We do not have a system of justice that is worthy of the name unless people can get effective redress.”
(Out of interest, in the Jackson grid in which the proposed costs are set out, some striking figures appear. After all the hullabaloo about proportionality, in a claim worth £25,000, band 1 would permit the winner to recover £18,750 plus VAT and if one was to take to assume that the loser had spent an equivalent sum, the overall costs would be nearly double the amount in dispute. At the other end of the scale, band 4, which covers cases worth £175,001 to £250,000, the allowance would be £70,250 plus VAT, so again, taking the loser’s costs into account, the overall cost would outweigh the amount in issue. That all said, the proposed figures have come in for much criticism, not least because no indication has been given about how they have been reached and they are also considered to be inadequate.)
The main complaint in relation to all three proposals is that in the aftermath of the Jackson Report, firms of solicitors, counsels’ chambers and even experts have had to take account of costs budgeting which has added another layer of costs to the overall expense of litigation. With the requirement in the multitrack to produce budgets for work to be taken prospectively after the first case management conference, how to record time has assumed a new degree of importance.
The Jackson concept is the use of “J” codes whereby the time spent by fee earners on a case is recorded electronically by reference to each phase, task and activity using appropriate J code. Thus at any moment in the case, it will be possible to print out a costs budget or a bill for detailed assessment without the need for what Sir Rupert described as “a Victorian Account Book”, being his description of the traditional form of bill still in use.
The new model bill of costs became available for the first time on 31 July 2015 and has been accepted in the Senior Courts Costs Office since 1 October 2015. However, the take-up has been sparse, indeed, at the date of this bulletin, only one electronic bill has been lodged. The reason for this may be the reluctance of the profession to invest in software to enable bills to be prepared from the J codes. Whilst J codes are not intended to be, nor will they ever be mandatory, where case management systems have properly recorded time using J codes, the intention is that Precedent H for costs budgeting and the bill of costs for detailed assessment can be automatically generated.
So much for the theory. How will J codes work in practice? It will be essential to record time accurately using the correct J codes. However, there are over 1000 different permutations, so fee earners will need a good working knowledge of the way in which each task phase and activity inter-relate. To ensure accurate costs budgets and bills, ongoing matters will also require accurate costs auditing to ensure that time is recorded correctly and, indeed, to make certain that all work undertaken has been recorded.
As to cost, whilst larger firms have already started investing in the necessary software, many small and medium firms do not have the same resources in order to carry out an expensive overhaul of their case management systems. However, with budgeting assuming such importance, the need to monitor each phase closely to ensure that a budget has not been exceeded, or where it has, to highlight the relevant areas, is itself becoming a significant factor in the conduct of litigation.
Back to the lot of the civil litigator. On the one hand, the Jackson reforms are imposing requirements on lawyers to invest heavily in costs management systems for the purposes of costs budgeting and the production of electronic bills for detailed assessment in multitrack cases. On the other hand, there is the three pronged demand from the Minister, Sir Rupert Jackson and the Lord Chief Justice for fixed costs to be imposed in cases worth up to £250,000, beginning with clinical negligence in seven months’ time. Will the trio pay any attention to Master Cook’s speech? With costs budgeting, J codes and the new bill scarcely out of the starting blocks, why the indecent haste to impose fixed costs before the outcome of Sir Rupert’s reforms become clear? Those firms who are yet to make the investment in the J Codes software may be wise to ask “Is it worth it if fixed costs are just around the corner?” In addition to Master Cook’s misgivings, the downside of being too hasty will likely be that (1) meritorious cases will not be taken on because they cannot be completed for the fixed costs and if they are, the client will be jettisoned mid-claim and/or (2) the client will stand to lose a sizeable chunk of his/her damages to meet the shortfall between the fixed costs and the actual cost and (3) the service that the client receives will be all the poorer and there will be pressure to “settle low” because the recoverable costs will not be sufficient to enable the solicitors to go on with the claim. Another fine mess.
The headnotes and full texts of the cases below are available to online subscribers at www.costslawreports.co.uk.
NEW! Costs Law Reports 2016/1
Milton Keynes NHS Foundation Trust v Hyde  1 Costs LR 1: Conditional fee agreements; transfer from legal aid to CFAs before discharge of certificate where increase in limitation insufficient to bring case to a conclusion; whether “topping up” rendered the CFA is unenforceable under ss 10(1) and 22(2) Access to Justice Act 1999.
Clutterbuck and Paton v HSBC plc and Others  1 Costs LR 13: Costs of discontinuance under CPR 38 on the indemnity basis: principles applying where the discontinued action contains allegations of fraud.
Sinclair and Another v Dorsey & Whitney (Europe) LLP and Others  1 Costs LR 19: Striking out a claim for failure to comply with an order for security for costs: relief from sanctions under CPR 3.9.
Solicitors Regulation Authority v Spector; Solicitors Regulation Authority v The Solicitors Disciplinary Tribunal and Spector  1 Costs LR 35: Solicitors Act 1974 s 47(2); tribunal’s discretion to make costs order.
Garnat Trading & Shipping (Singapore) Pte Ltd v Thomas Cooper (a Firm)  1 Costs LR 45: Variation of a conditional fee agreement: whether provisions which offended against s 58 Courts and Legal Services Act 1990 could be severed so that the CFA was not rendered unenforceable for want of compliance with that section.
C&S Associates UK Ltd v Enterprise Insurance Company plc  1 Costs LR 61: Preliminary issues: costs of an expert’s report served by the claimant for which no permission had been given for the inclusion of a lengthy section: order that whatever the future course of the case, the claimant would bear 100% of the costs of the report and 80% of the costs of preparing bundles of bundles containing the report.
Mohidin and Others v Commissioner of the Police of the Metropolis and Others  1 Costs LR 71: Proceedings for false imprisonment, assault and exemplary damages: contribution to the defendant’s costs to be made by third parties under Civil Liability (Contribution) Act 1978: proportionality where costs significantly exceed damages.
Sugar Hut Group Ltd and Others v AJ Insurance Service (a Partnership)  1 Costs LR 109: CPR 44.2, court’s discretion as to costs; CPR Part 36; mischaracterisation of the claimant’s conduct as a reason for disallowing costs.
Jockey Club Racecourse Ltd v Willmott Dixon Construction Ltd  1 Costs LR 123: CPR 36.17, indemnity costs; validity of CPR Part 36 offer where it did not relect a possible outcome but was made purely for commercial reasons.
Global Flood Defence Systems Ltd and Another v Johan Van Den Noort Beheer BV and Others  1 Costs LR 137: CPR 45.31(1)(a), scale costs for claims in the Intellectual Property Enterprise Court.
PM Law Ltd v Motorplus Ltd and Another  1 Costs LR 143: CPR 3.4(2), application for an order striking out certain paragraphs in the Particulars of Claim; CPR 24.2, application for summary judgment.
Grant and Tickell v Ralls and Others  1 Costs LR 185: Proceedings for a declaration for wrongful trading pursuant to s 214 Insolvency Act 1986: application for an order that the former directors contribute to the costs and expenses of the administration and subsequent liquidation of the company.
Costs and Fees Encyclopaedia updating
The Insolvency Proceedings (Fees) (Amendment) Order 2015, SI 2015/1819, has amended the Insolvency Proceedings (Fees) Order 2004 with effect from 16 November 2015, affecting fees B1, B2, W1, W2 and the definition of appropriate deposit. Updated pages are now available for printing out and adding to your Costs and Fees Encyclopaedia: Pages 329 to 333
The Legal Services Act 2007 (Claims Management Complaints) (Fees) Regulations 2014 have been amended by the Legal Services Act 2007 (Claims Management Complaints) (Fees) (Amendment) Regulations 2016, SI 2016/92, with effect from 29 January 2016. Updated pages are now available for printing out and adding to your Costs and Fees Encyclopaedia: Pages 349–352
Costs Law Reports Online 2016/1
Van Oord UK Ltd and Another v Allseas UK Ltd  1 Costs LO 1: Part 36 offers; whether Part 36 offer made by defendant in counterclaim is to be treated as a claimant or defendant offer in terms of costs consequences; indemnity costs.
Ghising v Secretary of State for the Home Department  1 Costs LO 17: Conditional fee agreements; recovery of a retrospective success fee for work undertaken where the claimant’s application for legal aid to cover an appeal was still to be decided by the Legal Services Commission.
R (Davies) v Royal College of Veterinary Surgeons  1 Costs LO 31: CPR 44.2, court’s discretion as to costs.
R (Baxter) v Lincolnshire County Council  1 Costs LO 37: Liability for costs in the Administrative Court where parties have settled their differences in an agreed order excluding the costs: determination of costs by the single judge on the papers.
Lewis and Others v Ward Hadaway (a Firm)  1 Costs LO 49: Striking out under CPR 3.4(2): whether payment of incorrect court fees amounted to an abuse of the process of the court and if not, whether summary judgment should be granted in favour of the defendant where striking out would be a disproportionate sanction.
IG Index Ltd v Cloete  1 Costs LO 79: CPR 3.4(2)(b) application to strike out claim.
Crooks v Hendricks Lovell Ltd  1 Costs LO 103: Costs consequences of Part 36 offer; CRU.
R v Jagelo  1 Costs LO 133: Remuneration under the Litigator Graduated Fee Scheme: whether in relation to the appellant’s claim for payment for considering pages of prosecution evidence, the court was bound by the decision in R v Furniss  1 Costs LR 151 and if not whether it should follow Furniss in any event.