Mission creep: the death of costs in civil litigation

This is hardly an exposure of the truth, but civil litigation lawyers are being forced into a corner whereby costs will only be borne by their client.

By this I mean – win or lose – the claimant will foot their own bill. This will become more apparent once there is blanket application of QOCS.

The root cause

Most likely this can be traced to the Tories since 2008-2009.

Legal aid changed after Labour’s massive changes in the late 90’s, with the removal of green slips which were replaced with CFA’s (it’s more technical than this, but it is also correct on the whole and too boring to explain in length).

As the recession struck Europe our government sought ways of making cutbacks.

The litigation spend of government (particularly through its various wings such as the NHS and underperforming local authorities) was identified as an expensive area. As such it was targeted for change.

As legal spend went up (see most recently the NHSLA costs here: http://www.lawgazette.co.uk/news/nhs-litigation-spend-shows-poor-care-hunt/5044332.article) the government realised that it faced huge numbers of claims as it was always named as a defendant.

Insurance backing is expensive. Zurich stepped into the shoes to face a certain number of local authority claims, however most areas of the government and NHS are “self-insured” (read: uninsured) when facing claims.

Changes

This could be a long and detailed booked but for the purpose of a blog post I have limited them to some key changes:

Capping of fees according to the allocated track of a claim started the curtailing of costs.  The ceiling has increased and shows no sign of stopping.

The next tranche of changes saw the removal of 100% success fee uplifts that could be charged (largely against the government) in almost all CFA cases.

This was married up with a change to track valuation and “proportionality” arguments alongside Precedent H to keep everybody in line over costs.

What’s next?

In the next couple of years changes will be attempted by the government to remove cost being payable to another side. Any lawyer costs will be “solicitor-client” costs with possibly some recoverable disbursements from the defendant. The government want those bringing cases to court to pay their lawyer from their damages.

Why?

1. To act as a barrier and encourage fewer claims (notably against the government/public purse) to be paid

2. They can get away with it – the public hates lawyers due to the misrepresentation of them all being Fat Cats

3. Insurers have a real hard-on for this idea and they definitely have the government’s ear

What is inevitable?

LIP’s galore. It will end ugly.

(Also the smart lawyers will go offshore, in-house, or work purely for banks and insurers – the even smarter ones will go and work in the banking industry and make a fortune).

Over and out.

Legal Orange

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My sympathy for defendant costs draftsmen

As a scumbag claimant it pains me to show any form of sympathy for the defendant side of the profession (actually, my dark secret includes a certain amount of defendant work – doing both side keeps you somewhat level headed).

With the above said, I do not envy defendant cost draftsmen when they have to negotiate costs at the end of a dispute. This is particularly relevant where settlement is reached at trial or a LONG way into the lifecycle of a claim.

Normal scenarios

Typically a defendant/paying party will have done 1 of 4 things:

  1. Settled on best terms – i.e. early settlement.
  2. Had a strategy assessing the risks and outlined when settlement was likely to breached (e.g. following disclosure of something your client wanted to hide, or upon receipt of expert evidence).
  3. Fought the claim to trial and lost.
  4. Trundled along hoping for the best and settled very late into proceedings when confronted with the difficult position they found themselves in.

Draftsmen are fine with 1 and 2.

The first method is pretty easy. It’s relatively cheap. The fight is based on quantum-only with discounts for solicitor-client costs and some “padding of hours” that has resulted in over-billing.

The second method is also ok. The papers normally show the strategy adopted by the client. This is normally a more thorough approach to handling defendant claims. The fee earner may have sensibly realised that the claim is (i) finely balanced and may tip against their client on one or more items in directions; or (ii) they realised that they would lose but adopted some robust tactics to try and bat it away (e.g. a tricky Part 18 request, or they ran a genuine limitation defence that could not be sustained).  A draftsman will be able to reconcile the steps taken by the claimant and the strategy taken by the defendant – i.e. they were put to certain types of work and you can distinguish between the costs that are payable and those which are not.

It is when number 3 come about that a draftsman faces increased challenges.

Loss at trial

This can be a shocker if the Part 36 protection is not achieved.

A draftsman will need to address each and every stage of attacking the bill from the cradle to the grave. It may be an uphill task particularly where costs budgeting has taken place, especially if the costs have been rubber stamped at a Costs and Case Management Conference.

This leaves the main arguments that tend to (but are not limited to):

  • Excessive time recording for tasks and duplication/unnecessary activities
  • Fee earner seniority for certain tasks (e.g. using Grade A fee earners for entire disclosure exercise rather than reviewing disclosure prepared by Grade C’s)
  • Solicitor-client costs that cannot be billed to the paying party
  • Certain disbursements that may not be recoverable (e.g. a shadow expert of the claimant’s single expert)

A skilled draftsman will still be able to chip away at the total bill as presented. A saving of say 30% on the bill would be a decent result, based on a “normal” bill without any time dumping by the claimant.

The ditherer

Costs draftsmen hate this type of settlement of a claim. This tends to be where a defendant fee earner has been out of their depth and/or misjudged the claim since it first landed on their desk. This is generally due to negligence. It frequently raises its head in firms that do not have an arrangement with Chambers to get Counsel on board for a second opinion (Here is a hint to these idiots – get Counsel to provide a short or narrow advice on the claim aspects when settling the Defence. You can get a decent steer from your barrister and, just as importantly, rely on their professional indemnity insurance. That said, there is still no valid excuse for not knowing the law.)

What normally happens is the ditherer will have been identified as being out of their comfort zone at an early stage in the claim. The claimant’s solicitor will then line up tried-and-tested techniques and put them into effect. It does not make pretty viewing.

The claimant’s solicitor will request a number of documents and information with the threat of applications. Some applications will be made; often handled by consent, and others will be sent in draft. The trick is to set deadlines that are missed. Remember, sending a draft application is a great technique as you can recover the cost of it, but avoid the risk of issuing (and potentially losing and paying costs) at Court.

As the defendant’s solicitor does not want to let the other side “know” (in their head they are oblivious to the fact it has already been established) they will play along with the game. Instead of this, they are like a dog chasing a stick when they should be standing their ground and being robust enough to respond with observations like “actually, you don’t need that” and “that’s a ridiculous request, make your application and attach a copy of my long and detailed letter addressing your intended application to your N244”.

The draftsman is in a difficult position as the chronology of the claim normally sees:

  • A lot of pre-litigation work incurred due to the defendant requesting information/documents which are then placed on file but not used to make a strong Part 36 offer to prevent the claimant issuing
  • A reactive approach – only challenging the evidence presented to them, rather than gathering their own evidence
  • Pre-action disclosure application or a threat for the same
  • Long pleadings
  • A rubbish defence
  • A reply to defence (which is normally valid)
  • Part 18 request (due to the rubbish defence)
  • A fight over directions as by this stage the defendant is getting nervous and lashing out as a defence mechanism to cover up their shortcomings
  • CMC costs – including potential application costs such as due to a refusal to mediate (Master Ungley / Master Jordan orders)
  • Costs budgeting
  • Disclosure (an area of major £££)
  • Application(s) relating to shoddy disclosure
  • Lengthy witness statements
  • Expert report(s)
  • Pre-trial review
  • Settlement negotiations (also known as “PANIC – IMPENDING TRIAL AND CROSSING MY FINGERS AND HOPING IT AWAY HASN’T WORKED!!!”)

Draftsmen who inherit these cases are really between a rock and a hard place.

Under the old regime of success fee uplifts, they could make the bill reductions look very impressive by negotiating a 100% uplift down to 50%. This slashed the bill even if most of the base cost time was reasonable.

Now that a lot of firms are not charging success fees, it means that draftsmen are limited in their arguments (see above regarding number 3 – loss at trial).

It puts them in a hard situation. Even chipping away at the bill cannot get away from paying a lot of valid stages of the claim. It is hard to challenge litigated claims if low amounts of time have been spent on activities/stages. It is normally at the pre-litigation stage with the countless “file reviews” where the fluffy time recording is carried out. With Court Directions it is very focussed and you will rarely succeed with arguments about unnecessary tasks if the claimant merely works their way through the Directions as handed down (with interim applications for non-compliance).

So what happens?

The poor suffering draftsmen settle on best terms. They generally strike a deal.

However, the fee earner will blame the draftsman as they have normally underestimated the reserve for their (insurer) client; and the draftsman will have to bite their tongue. If they grass up their solicitor client for being negligent then it will be a political disaster as they will get blacklisted by that firm/department; but likewise it is bad because if they bite their tongue then the client will think that both the solicitor and the defendant let them down. This could affect them if they are a panel firm.

The advice? You are a firm, not the Bar. Draftsmen do not have the cab rank rule, so when you identify a troublesome (read: negligent) defendant solicitor, then make a mental note of their name and refuse instructions to prevent a repeat incident.

Over and out.

Legal Orange.

Costs at the lower end of the market

The title is a polite way of an introduction to funding arrangements in volume work (aka the claims “factory” approach).

Overview of the department set-up

Normally a partner heads up this type of department with a small number of solicitors/FILEXs and a large paralegal volume.  The expected lifecycle of a paralegal in this situation is around 60-70% annual rate of attrition.

Work is separated according to value and seniority. The partner will work on high value work that tends to be funded by hourly rates, whilst the solicitors tend to assist the higher value work and run multi track claims independently.

Paralegals will be allocated small claims, with a couple of the higher-skilled paralegals being permitted to run fast track cases under supervision.

Funding

The partner will normally bring in fees based in claimant and/or defendant hourly rate work from insurer clients.

Solicitors will share some of the hourly rate work by carrying out tasks on the partner’s files, but the remaining files will be CCFA “no win no fee” funded.

Paralegals will run solely CCFA based files.

So how did the CCFAs make money before the Jackson reforms?

Firstly it is important to know that CCFAs are used with insurer clients in these types of departments.

Before 1 April 2013 the success fee uplift and small claims track at £5k allowed departments to make up the shortfall when a claim did not succeed. i.e. they could take the hit with the uplift for those claims that went nowhere.

This enabled the firm to run a higher number of costs bearing fast track cases. With more claims in the track, and success fee uplifts, there was no need to bill the insurer.

Some firms had a CCFA “full” and a CCFA “light” which essentially was this:

- CCFA “full” – a traditional no win no fee scenario with an uplift for cases that you considered had 51%+ prospects; and

- CCFA “light” were cases where the claim did not reach the 51%+ threshold but the evidence to date justified making further enquiries as it was reasonable to establish a couple of matters before taking a view on whether the case would be taken on a full CCFA or abandoned. An example would be interviewing witnesses or checking on a contract that was in effect. For these type of cases there would be a capped fee charged to the insurer client if the claim did not succeed (e.g. £1,000 regardless of how much time was spent on the file).

How have these departments adapted to the Jackson reforms?

In short, the insurers are now having to pay for instructing firms.

No firm in their right mind would demand that the insurer client pays the success fee. A 100% uplift could extinguish the damages! However there are a couple of ways of going about payments:

1 – a capped success fee uplift charged to the insurer. For example the insurer client pays 10% of “time on the clock” using a reduced hourly rate. A worked example of this would be a £40,000 multi track claim that settles with 60 hours on the file. The hourly rate used of £125 on the 60 hours and a 10% success fee would see a fee charged to the insurer of £750.00.

2 – a rebate to the insurer. This is a fixed fee paid by the insurer for each instruction depending on value (e.g. £100.00 for small claims; £500.00 for fast track and £1,000.00 for multi track). If the claim succeeds then the fee is paid back to the client for fast track and multi track claims. This means the firm always gets paid for each instruction. There is normally a kickback to the insurer with such arrangements; for example the insurer can profit share with the firm paying back a percentage at set amounts. For instance the firm may agree to pay the insurer client 10% of profits on their files once they have struck a certain figure (e.g. profit costs of £500,000 or £1,000,000.) This allows the insurer to recoup some of the payments they make on small claims.

3 – damages based agreements. This is normally used for “banded” cases. Examples would be cases that have the following ranges and percentages:

  • Cases up to £1,000 – 50% of damages billed as costs;
  • Cases up to £2,500 – 33% of damages billed as costs;
  • Cases between £2,501 – £5,000 – 25% of damages billed as costs; and
  • Cases between £5,000 and £10,000 – 15% of damages billed as costs.

Any key things to know?

Insurers hate paying out in these scenarios so do not invoice them for work. The best way to go about this is to reduce their damages and take your money for costs at source when you receive the settlement cheque.

This way you avoid the insurer reporting on their “legal spend” for that year. It allows them to maintain the revenue stream as purely incoming monies.

Over and out.

Legal Orange.

Fixed costs proposed for cases up to £250k

Right… so let me explain the basic proposal:

- Fixed costs for small claims up to £10k

- Fixed costs for fast track claims up to £25k (i.e. 2.5 times the above)

- Fixed costs for multi track claims to go up to £250k? (i.e. 10 times the above)

You wot!!?

The gulf between small claims and fast track makes sense.

I still feel that it was ok when small claims were set at £5k (particularly when you understand the average 2nd hand car market sees a lot of £5k-£10k value cars and a certain amount of building contracts are also between the £5k and £10k range), but the difference between tracks as it stands can be tolerated. It’s a difference of £15k, which in “litigation terms” is not that much.

The jump from fast track fixed costs at £25k to fixed costs for multi track up to £250k does seem to be a stretch at a ten-fold increase.

So what will happen?

Claimant solicitors will adapt their tactics to the changes.

The provisional changes are said to cap costs in percentage terms to the value of the claim.

- pre-lit settlement at 10%

- post-lit but pre-allocation at 15%

- to trial at 40%

Interim stages likely to apply in and around allocation and pre-trial review / pre-trial. (say 20% and 30% respectively but this is all open to consultation and final decision).

Where there are reasonable prospects of success the Claimant will be encouraged to litigate at the earliest opportunity. Once there is a slip by a defendant (within a protocol or the practice direction for pre-action conduct) then the Claimant will issue. As long as they can justify issuing (say a failure to comply with a deadline) then it automatically entitles the Claimant to an additional 5% of costs.

Why?

Because in litigation departments the solicitor hates having to bill the client for “solicitor-client” costs. (The issue over complaints relating to these costs is for another blog but the summary is: clients hate paying, solicitors hate having to handle these complaints as they are irrecoverable costs, and cost assessment is a pain in the backside for claimants – but this is all for another article).

If claimants can charge more to a defendant than to their client then they will do this!

Any other important points?

A large number of cases settle around the following times:

(1) After the first CMC when the Judge gives the sides a dosage of reality about the claim

(2) Either just before or soon after exchanging disclosure when one side has to put their cards on the table in full and disclose something which undermines their position

(3) Witness statement exchange when people either do or do not have the courage to sign a statement of truth

(4) Expert reports or joint statement of experts – this is frequently the case where there is medical evidence in PI claims or engineering evidence for construction claims.

Bearing the above in mind, if the trends outlined remain to be in play, then most cases will settle with claimants entitled to between 20% – 30% of the value of the claim.

So what is weird about the proposal?

A claim that slips into the fast track, at say £30k, would only see costs awarded at 10%. This arrives at £3k. With this being the case it would be better to value the claim at £24,999 and then settle it pre-lit with the defendant. This would then allow you to have the costs to be assessed if not agreed. On hourly rates this could give you (subject to proportionality) a return far in excess of £3k.  You could sell this to the client by highlighting the £5k they lose in damages would outweigh potentially paying £7.5k in extra legal costs (I use this on the basis of £12.5k likely to be the limit of proportionality of a £24,999 value claim).

Any other comments

If counsel fees are to be included within the limit of damages then this will result in some interesting observation of how the Bar will respond. Their funding arrangements may need to be altered to suit the new regime.

I am also looking forward to the full consultation and proposal with a particular eye on the effect of Part 36.

Over and out.

Legal Orange.

Remedies for clients but an apparent lack of remedies for the profession when things go wrong

Clients generally want money when they come to us. Naturally there are a number of different departments that also serve client needs, but that goes beyond the scope of this article. The point is that what our client wants is normally what they receive after our initial advice. The bulk of our clients walk away with a financial remedy (not 100% – we’re not perfect!)

The challenge we generally face is with the defendant’s representative. This is “par for the course” as we expect them to defend a claim and employ various defendant tactics. This is acceptable.

What is not acceptable are 2 other hurdles which impinge upon litigation.

(1) County Court staff; and

(2) Telephone hearing providers.

1. County Court Staff

The Courts make mistakes. An awfully high number of errors. This frequently results in telephone calls, letters and applications to get a claim back on track. Not all of these are recoverable from the defendant and it is unfair to bill the client.

Recourse to the Central Funds is hardly ever sought or received. Firms know it is a waste of their time. Sadly, there needs to be some form of Ombudsman to cover HMCTS errors of this nature. It is fair that complaints are dealt with by the Court manager (normally ending up with the highest ranking Judge). The common result is that the Court rectifies the mistake quickly. The financial remedy is rarely, if ever, addressed.

This is something that needs to be sorted out.

2. Telephone Hearing Providers

Too many telephone conferences experience technical faults and have to be relisted. This is generally through BT Legal Connect.

Their staff appear to be friendly Gloucester folk, and they are very civil and polite.

However their technical issues are too frequent. I am aware they will have a good argument to make that they cannot control other networks they connect to for the Court and 2 or more representatives.  I find it unconvincing as they are not dealing with mobiles in the wilderness. They are nearly always connecting landlines to Chambers (Judges and Counsels’ chambers).

When a conference is adjourned and re-listed then it incurs another brief fee or hourly rate(s) piece of work. Cost go up and you cannot recover this from the Court or the telephone provider.

If this happens, as it does so on too many occasions, there should be a report by the telephone service provider explaining the technical issues behind the call. If the fault is found to be due to “their end” then the costs of the relisted hearing should fall to them. They are taking around £40 + VAT for each hearing so it will cut into their profits but not wipe them out (they are making a packet). Once every 6 months these figures could be audited and reported back to the MOJ/other relevant parties who decide on panel service providers for telephone hearings.

Over and out.

Legal Orange.

Claims involving 2 protocols – que?

Apologies for the blog as it has been created on a phone as opposed to a laptop…

So we have a buildings claim that appears to straddle both:

1. The Construction and Engineering Pre-Action Protocol; and
2. The Prof. Neg. Pre-Action Protocol.

Expert evidence shows that the design calculations and general design (in light of Building Regs) by engineers and architects were pretty bad and this was made worse by the building works carried out by contractor tradesmen.

We have sought to engage all parties but it’s turning into a nightmare.

Architect and engineers both seem pretty nervous. They know that the design calculations and general compliance with building regs are not in their favour based on accepted practice. They are looking to get out of it as cheaply as possible (i.e. desktop assessment of their plans/numbers combined with validation of quantum).

The contractors however realise that there is far more subjectivity in assessing the standard of their works. Plus, although they won’t get home by placing blanket reliance on the design documents, they are aware that they are probably not our client’s chief target. I foresee a contribution of circa 20-33%.

The prof neg claim is going ok but the construction dispute is turning out to be a right pain. The contractual chain and factual matrix is beyond silly. And the number of 9% – 12% uplifts included for non-value added parts is staggering. The documents are almost swamping one of our secretaries. This was just voluntary disclosure as well; I hate to think how many disclosable documents exist.

Truthfully though, we need claims like these to avoid everything being placed into a portal. Thank goodness the MOJ will never truly understand contract and nuisance claims and try to put them into a fixed fee portal!

Over and out.

Legal Orange

2 Costs & Case Management Conferences – still no assessment of budgets

I won’t name the Court, but it has a football team that was in the Premier League during the 90’s and the Championship in the 2000’s.

Round 1

Claimant had a favourable expert report that had not been disclosed but the contents paraphrased to the 2 Defendants. First Defendant was main contractor and Second Defendant was their sub-contractor.

First Defendant was a party to the contract and had both advised on design and undertook some works. The Second Defendant purely carried out some works which fell short of a reasonable contractor (you’ve worked out by now my client is the Claimant).

Both Defendant solicitors tried to join forces but one clearly led the other. They wanted to get in their own expert and have my client’s expert report “kicked out” with costs.

We wanted to get mediation and a stay to try and spell out just how much their clients were in the hole.

Judge decided that 90 minutes was not long enough to go over cost budgets and directions.

Directions were all in line with ours, save for we agreed to disclose our client’s favourable report with both Defendants allowed to put questions to the expert.

Interim period

The expert batted away the questions put to him.

Despite repeated open and w/p letters inviting both Defendants to ADR, this was not taken up.

Round 2

The Judge was furious about both Defendants refusing ADR. They had to file witness statements within 14 days of the relisted hearing explaining why they were so intransigent.

Costs were parked AGAIN, and not discussed, due to the hearing length. By this stage we took the hint that the Judge didn’t want to discuss costs at all and the case should settle.

Directions were set down with very tight timeframes towards trial.

The First Defendant after the hearing started to realise the costs were reaching damages if it reached trial. They are likely to put forward an opening offer.

If it reaches Pre-Trial review, it will be interesting to see what the Judge has to say about there having been no assessment of costs budgets at the previous 2 hearings.

Over and out.

Legal Orange.