Year-end settlements

This time of year results in 2 different scenarios. There is no “third way”. Fee earners will face either:

1 – The Christmas winding down season; or

2 – Settlements before 31 December

1. Christmas countdown

This tends to be the old school relaxation time. Many hours are skived through late arrival, long boozy lunches, client meetings and early finishes.

Perfect.

2. Last minute settlements

These tend to reflect the increasing trend of the last 5 years.

As insurers and banks increase pressure, principally to “put to bed” long running matters so they fall into the financial year (subject to theirs ending 31/12), the final 3 weeks of December see parties resorting to a commercial approach.

Global offers raise their head more so than Part 36 offers, as people look to wrap up damages and costs. The game playing is sometimes fun when an opponent refuses to show the science behind their offer (“divvy it up however you want it”).

Hints and Tips

  • Work on Christmas eve.  Just the morning will do. 2 settlements in the morning is achievable
  • Use the telephone
  • The above is repeated for emphasis – do not mess around with letters or emails – pick up the phone!
  • Make sure you have standing instructions from your client; do not be afraid to hassle them if you need to get a set figure to use
  • If you cannot agree something there and then with your opponent, attempt to fix them with an “agreement in principle” to hold over while you track down a client
  • Agree with your managing partner a list of files you intend to target and settle before year-end
  • Make sure that you have a bottom line for costs on each file you want to settle in the event that a global offer is received (agree this with your partner and have a written record of this on file)
  • Deliver good news by telephone to your client if you achieve a good result for them- you never know if they will send a nice bottle of something your way in the spirit of Christmas (you will not receive any January gifts!!)
  • Make sure the experts you frequently instruct bribe you with foodand drink in early December, to avoid this interfering with your year-end files

If you have not already carried out the above hints and tips, make this your Monday morning task.

Over and out.

Legal Orange

How to settle on best terms

I do a lot of claimant work. A lot. Some blogs include references to tactics and costs building. It is only right that I seek to repent for these sins by explaining how defendants can GENUINELY settle on best terms.

Rule 1

“Settle on best terms” generally means “Settle this claim in the cheapest possible way”. Only on occasion will there be a reputation/brand issue to take into account as part of “best terms”. Rule 1 in this situation is therefore to treat your client’s money as if it is your own.

Rule 2

Repeat rule 1 to yourself (kind of like Fight Club…) This converts to rule 2 as being: achieving settlement in the cheapest possible way taking EVERYTHING into account.

Rule 3 (aka “what is everything to take into account”)

Remember that your client foots the bill for 3 things within their total reserve: (1) C’s damages; (2) C’s costs; and (3) D’s costs. Remind yourself of this again. Defendants frequently overlook the last section and incur ridiculous fees generated by taking silly points and/or investigating irrelevant matters.

Rule 4

Remember the aim is to try and cap claimants on damages and their costs. Do not run up £10,000 of extra defendant costs on chipping the claimant’s damages down by £5,000. In this time the claimant’s costs will probably also have increased by £2,500 in fighting out the damages argument. As referred to above, during this time your own bill of defendant costs will have also moved upwards. Is it worth it? No. Explain to your client that the claim may be overstated, however it is more economic to pay the additional damages to avoid the client paying out more overall.

Rule 5

This is a difficult one to stomach. It often pays to admit liability. Be blunt. If your client is on the hook then write an open letter to the defendant stating liability is admitted and you will not be paying them a single penny from that point onwards in relation to their time recording in respect of liability.

Claimants love nothing better than a caveated quasi-admission. Liability being admitted subject to causation just means the following to the claimant:

THEY WANT TO SETTLE SO LET’S RAMP OUR COSTS UP AS THEY HAVE NOT MADE A CLEAR ADMISSION.

A number of County Courts have granted pre-action disclosure applications to our clients on quasi-admissions. The defendant finds no favour in drawing their quasi-admission to the Court’s attention. My favourite was the DJ’s exchange with an opponent:

DJ – “Is liability admitted or not?”

Opponent – “It is subject to causation, Sir”

DJ – “No, Mr [name withheld], it is a yes or no answer. I expect a yes or no.”

Opponent – “Sir, I cannot say that it is, but that it is subject to causation”

DJ – “I read that as a no. The applicant will receive their causation documents and costs assessed at £1,500″

From the above you will realise that once liability is admitted, the defendant can take some control over the presentation of the claim by the claimant.

Rule 6

Demand the quantum evidence in a set manner. If you think that only invoices are needed without anything further then ask for this only. State in open correspondence that you expect to be served with these documents and refuse to pay for any other costs incurred by the claimant relating to quantum (e.g. witness evidence on this point, or an expert’s report on quantum).

Once you have assessed quantum, if it is not overstated then pay the claim. If only a marginal or nominal amount is overstated then consider whether it merits challenging the payment, as the claimant may incur a lot more money in instructing an expert or counsel. The claimant may be at risk of not recovering the disbursement of instructing an expert/counsel, however is it worth taking the risk if your client has to absorb this fee? That’s your call.

Remember that your fees will be incurred in considering and dealing with all of this. If you need witness evidence from the claimant then demand it only covers certain points. If the background is well made out then ask for it to address only set points only. If you need an expert to assess them, try to arrange it so the claimant only has to attend on their own and meet with your expert.

Rule 7

Invite details of C’s costs and make a well calculated global offer. Claimants will take early-money at a lower amount to avoid WIP lock-up and the costs of provisional or detailed assessment This is particularly useful if you know the year-end date of the claimant’s solicitors’ firm!

Over and out.

Legal Orange.

Get a following early in your career

Life as a solicitor is normally split into 3 types:

(1) Those who do business development (“BD”)

(2) Solicitors that fee earn alongside BD

(3) Fee earners.

I have not included support staff and back-office as they are not expected to bring in business or fees (but nonetheless serve a very useful purpose).

Who is in each category?

Category 1 types, tend to be senior members of a team such as a partner.

Category 2’s are senior associates being lined up for partnership and trusted associates (some of whom do not have partnership ambitions but are willing to do BD so long as it is credited).

Those in category 3 tend to be junior members of staff. While a small percentage will be oddballs untrusted to meet with clients, as they gain experience their exposure to BD is likely to increase.

Category 1

These are the rainmakers. The pressure falls upon their head to “get the work in”. It is these people who are obliged to tease files out of clients. At most firms these have 10 – 20+ years of experience in the industry. Some may be senior lawyers, although others may include non-lawyers with a large following such as former insurers and bankers.

Category 2

As stated above, they are either on the partnership track or can be trusted to behave in front of the clients. Lawyers who are on the spectrum or socially awkward are overlooked.

Category 3

These are those who get to determine their own pathway. Such lawyers are likely to be in the 1-3 PQE range.

How to get your own following?

  • Produce high quality work;
  • Manage expectations;
  • Show commerciality;
  • Talk to the clients by telephone and avoid hiding behind emails;
  • Persuade category1 and 2 types of your ambitions to reach their level;
  • Shadow category1 and 2 types while they do BD;
  • Discuss non-law related subjects with potential clients when you do finally meet with them; and
  • Manipulate whoever authorises client-related expenses to ensure any entertainment you put on for clients is enjoyable

Over and out.

Legal Orange.

If you are lucky enough to get a hearing nowadays then use it wisely…

Recent judgments have shown the Court’s frustration with litigants who take up their resources.

In Bluewater Recoveries -v- Secretary of State for Transport it was very clear that a hearing on a preliminary matter (limitation) was unnecessary as the issues needed to be determined at final hearing. I am unaware if a memo has been distributed across the Courts because the tax tribunal also recently ruled that an application for a preliminary-issue hearing was unnecessary (about domiciled status) in Clifton Hugh Lancelot De Verden Baron Wrottesley -v- HMRC. You know it’s serious when the tax tribunal hands down a lengthy judgment on an interim application hearing!

This was followed up by the QBD in Hornsby-Clifton -v- Ministry of Defence where the court also decided there was no good reason why there needed to be a split trial to separate liability and quantum.

Is it just the higher courts taking this approach?

All of these very recent decisions reflect this writer’s day-to-day experiences. There is a general trend to push litigants away from Court and I am trying to impress this upon opposing parties who seem to be inserting split-liability trials or preliminary hearings into draft directions. The way of handling these is to refuse to agree to such directions and inviting the other side to make an application if they consider their client needs to have such an approach. Out of the last 5 I can recall, none have gone taken up this challenge.

At the last CMC I attended, the sitting DDJ explained how much time was taken up with handling family court issues. He then went on to observe that as this case involved a bank and an insurance company on opposing side’s, then one of the parties “had better come up with a clever reason” to persuade him that a low-end multi track needed to potentially have 4 hearings:

- Costs and case management conference;

- Preliminary hearing;

- Pre-trial review; and

- Final hearing.

We were then kicked in our backsides to mediation. 3 days following our tongue lashing a Part 36 offer was made and accepted. Hint taken.

What do we learn from all of this?

Aim for the fewest number of Court appearances you can get away with. It is clear that Judges have gotten wise to the old trick of forcing another side to settle in advance of the hearing as a negotiation tactic.

If you do require a preliminary hearing then make sure you have a solid case, and it is not just a “sh*t or bust” gun slinging approach. Take Counsel’s advice (hint: Counsel on a CFA whose payment depends on winning is most likely to give you solid advice on such an approach!)

Over and out.

Legal Orange.

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.