Non-fee earners

So I am now at a different firm. My initial observation is that the fee earner to non-fee earning employee could present a barrier to profits and general morale.

There are 3 distinct types of non-fee earners.

(1) Support staff involving in the delivery of legal services (e.g. legal secretary, paralegal without a billing target);
(2) Support staff that help with the indirect delivery of services (e.g. Human Resources, Finance, IT); and
(3) People with long job titles and undefined roles.

The last category is a problem.

What’s the problem?

Employees involved in buzzwords such as “change management” and “excellence” are essentially only needed as long as there is a project to work on. Consequently this results in numerous projects as people seek to justify their existence at the firm.

Having attended a couple of meetings this week it was clear that the following is taking place:

- ongoing merger and acquisition activity (notwithstanding a number of mergers in the last 2 years).
– constant facility changes even though all the offices are suitable and either owned or leased on favourable rates.
– excessive internal system changes on IT. This may not seem an issue, but it is when I inform you that the case management system for file handling looks like it remains in the 1980’s, but the intranet and linked systems could rival Facebook! The priorities are all wrong.
– demands for management information and marketing data from departments who are aiming to invite your long standing clients to central events without your knowledge (we received a call about a key client being invited to a golf event when he hates golf – and we had to apologise and then berate the marketing assistant who failed to give us advance warning of invites).

What can be done?

Sadly, not very much. These people are well versed in justifying their job and overhyping the need to keep them around.

What will be done eventually?

Profits will be affected. The partners will then investigate and find out the lopsided fee earner to non-fee earner ration. The support staff will then need to be shredded.

Will I still be there at this time? Unlikely. It is probably 3-5 years away.

By this time, the ABS experiment will be a distant memory and a number of small niche firms will have been established (think on a chambers model) that have a high number of fee earners to support staff. The IT, compliance, etc will be outsourced and a number of people will rent small office space for most of the week and then work remotely from home on Fridays.

Word of warning – if you cannot explain your job in 1 or 2 words then it means you are probably one of the support staff I am complaining about.

Over and out.

Legal Orange

How do hourly rates convert?

So the hourly rate saga has all been a massive let down…

The rates need to increase. Incrementally is fine. In order to fend off those “self-serving” accusations, it is important for people to understand where these hourly rates go to; particularly in civil litigation practices.

But I thought all lawyers were loaded and get hundreds of pounds an hour?…

The majority of solicitors receive a fraction of the rate they are billed out. I imagine most will be in the region of £10 – £30 per hour. The issue is that people fail to realise the following points:

(i) A lot of firms work on CCFAs, and do not look to the lay client to make up any shortfall;
(ii) Success fee uplifts are in palliative health/runoff. The ability to subsidise is about to finish;
(iii) The money that eventually makes it through the door is apportioned to many things.

Where does the money go?

Profit costs, VAT and disbursements is the easy answer. However, it is important to see what the profit costs cover.

These end up being apportioned but there is still an outdated theory of the rule of thumb using the 1/3 – 1/3/ – 1/3 split. i.e. 33% goes to the partners, 33% to the fee earner and 33% overheads.

This no longer reflects where the money goes.

Profit costs need to cover:

- tax liabilities of the firm (this is more important than you realise);
– debt repayments / financing of the firm;
– PII cover;
– lease / mortgage payment;
– managing agent fees;
– insurance;
– security, including alarm systems;
– fee earner’s salary;
– maintenance of IT systems, including payments for licenses on case management software;
– support staff salaries;
– administrative overheads such as printing, scanning, telephones, fax, email systems, networks, electronic storage, physical file storage and archive;
– childcare voucher contributions (another expensive but little known payment);
– cleaners;
– training (including CPD, SRA training such as compliance, etc)
– non-fee earning activities in general such as conflict checks, compliance, risks, financial issues;
– client entertainment and travel;
– time on clients that you cannot recover such as putting on free training sessions;
– sponsorship and charity events that you are obliged to pay to give off a “we are not scumbags” image to the public;
– etc, etc

While a number of those listed apply to most businesses, a number of the more expensive costs are limited to law firms. People underestimate the tax that a firm pays on work in progress (“WIP”) which can cause it to drop into its overdraft a couple of times a year.

What the hourly rate now goes towards is the partners and overheads, with some left over for the fee earner. Overheads are increasing and financing of the firm is where things have changed.

So why does the hourly rate need to increase?

Because almost everything else has gone up since the rates were last approved.

I am not against a new category to cover paralegals. The trick they have missed is a failure to distinguish between paralegals. It could be a higher rate for paralegals with a post-graduate qualification and a lower rate for those who do not. If they want to really get into the details then there could be sub-categories of grade E that has rates for ILEX members (level 3 and/or 6).

What those setting the rates will not realise is that firms will always work around it. If they are limited to £75 per hour for paralegals then a firm will:

- hire a paralegal without a target;
– get the grade A/B/C fee earners to start a document and then log out after saving it;
– the paralegal will then log in and complete the document;
– the higher rate fee earner will finalise and approve the document;
– this work is then billed out at the higher rate;
– the paralegal has their performance measured on quality rather than fee income.

Yes it all seems wrong, but it is likely that the above is just one example of how firms will work around it. This is particularly likely in the paralegal factories.

Over and out.

Legal Orange.

A reminder of the need for good client reporting

One of the first thoughts on this topic may be “the clients don’t know what’s best for them -we do!”

You may be one of the rare 1% who this applies to. For the rest of us, we need to ensure our clients receive appropriate reports in order for us to take instructions.

The basics

  1. Know your client – if you don’t then take steps to know them!!  Once you have established what they want to achieve from their claim you can frame your reports towards this. Their eyes will be searching for the words that let them know: (i) where they are now; (ii) whether their end-goal is achievable; (iii) the steps they need to take to either reach meet their objective or accept it is not possible; and (iv) how much it is all going to cost and the approximate timescales involved.
  2. Use limited “legalese”. If you have a talented support staff member then ask them to apply their soft skills to the report. They may ask you the question to reword the report that a client may be too afraid to ask for fear of looking stupid.
  3. Explain the other side’s position in neutral terms. Just because the client is paying your bill, you are not obliged to take their side over everything.
  4. Remain consistent. Do not over-promise anything you cannot deliver.  This is a frequent problem for solicitors who are constant “pleasers” but always end up letting their client down. Tough love is never a weakness if your client needs to be told some realities. Managing expectations is key.
  5. Alert your client ASAP if they are likely to be liable, particularly in reference to the potential damages and costs exposure,  and identify a reserve that covers EVERYTHING. The breakdown of your final amount needs to show the science behind your calculations.
  6. Always mention funding and costs. This requires a separate section in your report. Do not dump them with a large bill at the end of the claim. You’re not a mechanic or a vet!!!
  7. Make recommendations and explain the reasons for this. Your client does not want to pay someone who sits on the fence. Treat the money as if it is your own. The client can normally work out what their options are, but they need to know what is most likely to succeed in Court, and whether it is worth it.
  8. Paraphrase wording where appropriate, but avoid the temptation to simply cut-and-paste Counsel’s opinion into a report and charge lots of money for this duplication.
  9. Enclose copies of documents such as Directions, applications, statements of case, etc.  It is surprising how many people will still provide an overview of a document as opposed to enclosing the same. It may surprise you what your client may pick up due to their intimate knowledge of their claim.
  10. End the report with an offer to discuss the report in more detail and invite any questions. Go a step further and record any dates of your unavailability and provide an alternative contact in the event they need to make urgent contact with your office.

The above seems like common sense, does it not?

Probably. You would be surprised how frequently it is not followed.

Get your templates in order. Frequently the preliminary report has a standardised format, such as the following headings:

  • summary
  • fact pattern or facts & evidence
  • liability or legal position
  • evidence
  • funding
  • recommendations or strategy/tactics

It is normally the interim update reports that lack a formal structure. It is worth updating your standardised documents to ensure there is consideration to all the relevant points to be addressed throughout the life of a claim. If your firm is wealthy enough to have Knowledge Management types of PSL’s then I would push this non-fee earning work in their direction.

What do you gain from client reporting?

When it is done correctly it can act as your roadmap to drive a claim forwards. It can provide you with direction to identify the key issues relevant to a claim. Remember to keep focus – it’s always easy to go off-piste during a claim that covers many years!

Over and out.

Legal Orange.

Denton appeals, etc – a return to Unless Orders

So we have all had our wrists slapped with Denton et al.

Apparently we didn’t understand the Mitchell decision and took tactical advantage of slips by our opponents, which clogged up the courts. It therefore interfered with the County and High Court Judges who were busy playing golf and moaning about the cuts to their pensions.

When I say the courts I of course mean the County Court in [location]. This rebranding being needed so that people will not realise their local court has closed during the next year or two as it will no longer be “[location] County Court”.

Enough musings, crack on with Unless Orders

Enough has been written about the Denton appeal. What needs to be established is how we are going to find the new way to gain an advantage over defaulting opponents.

Sadly, the new way means going back to the old way.

Unless Orders never really went away – they just went out of fashion with litigators.

Why should we go back to the old way?

Quite simply, to lay a trap.

A single breach of directions is unlikely to attract a strong penalty such as strike out.

LJ Jackson made clear in his Fred Perry judgment that it would take a number of defaults before sanctions kick in. Think of it like a 3-strikes-and-you’re-out approach. It is unlikely you will get a yellow and red card system (no more sport references please – Ed).

The way forward

(1) As soon as a breach occurs, make an application for an unless order. It is unlikely that you will need to focus too much on giving notice; the Directions Order is clear.
(2) Offer to handle your Unless Order application by consent – always do this! I repeat, ALWAYS do this.
(3) Get the consent order sealed for an Unless Order as quickly as possible. Harass the Court staff and ensure it is sealed immediately to get your 7/14 days clock ticking.
(4) If the opponent is in breach then assert their claim is struck out, as an automatic sanction built into the Order.
(5) If they then apply for relief from sanction, there will have been 2 breaches on their part, and their endorsement of the consent order will go against them. After all, you placed reliance on their consent and they should not have agreed to something they could not comply with.
(6) Should your opponent comply then at least you will have got some costs and set down a trap for future defaults. It is a points scoring opportunity after all.
(7) All of the above is in your client’s best interests. Should you win, then you maximise their costs recovery; and in the event you lose there is a strong chance of minimising their exposure to costs based on non-compliance arguments.

Over and out.

Legal Orange.

File Audits

Here is a little known fact for the general public, but is well known amongst solicitor firms.

File audits are a joke.

Unfortunately these purported file audits fail to conduct the sort of auditing one would expect.

Clients expect a file to be handled in a timely manner, with a proactive and commercial approach, pursued according to the correct law and CPR, that complies with both internal policies/procedures and aligns with industry practice.

Sadly the bulk of file audits involve a non-lawyer selecting an array of random files and then comparing the handling with a Service Level Agreement (with an insurer client) or the internal file handling process/procedure of the firm.

This can result in the most negligent lawyer passing a file audit.

How?

Even though the person may be wrong in law and horribly negligent, they may have done the following on the file:

- acknowledged instructions within 24 hours
– completed an initial report within 5 working days
– prepared the retainer or other funding arrangement on the file at the earliest opportunity
– taken instructions in a timely manner
– sent a letter of claim within X days
– etc, etc, (you get the drift)

These file audits do not identify where a lawyer has been negligent in law. I have seen examples of this where bog standard negligence and nuisance has been poorly pleaded when a Defective Premises Act claim was clearly available.

Further, they just record that a witness statement or proof of evidence has been taken and placed on file. It does not assess the strength of the evidence and relevance to the case. It just matters to the auditor that something has been placed on file.

Likewise, proactivity is assessed based on there being different types of telephone calls, emails and letters with the opposing side. It matters not one whit that you could be talking nonsense. It just needs a trail of paperwork to show endeavours to settle the claim are on file.

This seems wrong…

It is wrong. Unfortunately clients need to be aware that they are entitled to their file of papers upon payment of the bill (please do not argue with me over liens). They can then realise how some of their claims are handled.

The solution

Senior lawyers should be used to carry out file audits. Their experience would be invaluable. Those considering retirement or wanting to have a part-time gig would be well placed to assess the law and the handling of files. Sadly, the file audit companies have gone the same pathway of other businesses of hiring cheap youngsters who lack experience, when the job needs to be done by a wise old head.

Over and out.

Legal Orange.

E-Firms

As I have been waiting a long time for the next tranche of Court of Appeal decisions in relief, etc, rather than remain in abeyance, I thought it appropriate to discuss law firm structures going forwards.

This comes from a discussion over a lunchtime drink on Friday lunchtime. I would say this was an informal chat with some very commercially aware lawyers. The conversation was about e-firms.

These new models involve lawyers setting themselves up individually, with loose connections to a firm, and are on the increase.

When I was told about the figures behind this, it all became very appealing.

How does it work?

In summary, as readers have limited attention spans, this is my take on it:

  • Lawyers with a following sign up to become a member of a “firm”;
  • The firm is a Limited company and provides all your backroom support needs, PI insurance and regulatory functions;
  • You pay about 20% of your fee income back to the firm; and
  • The client’s retainer is with your firm and you are self-employed, which helps you to pay reduced income tax.

If you were to take across a number of staff members, such as a department with a number of client contracts, then you may seek to negotiate your contributions to 10-15% per person.

Will it catch on?

It is unlikely to catch on at the highest end (Magic Circle and Silver Circle) however the more specialist, niche and boutique types may decide it is for them. If they are in a traditional solicitor firm structure and billing a lot, then where a glass ceiling is apparent, there is great appeal to “eating what you catch”.

For example, a lawyer on £30k-£50k will typically have a target of anywhere between 3 or 4.5 times their salary (depending on factors such as marketing and other non-billable duties).  That person will have about a 1.25 * base salary cost to the employer to cover overheads and wages.   If this person hits their target then the firm will make a profit in the region of £100k-£150k.  At the most, this person may move through the ranks over time, moving from assistant, to associate, and then maybe up to associate partner, salaries partner, and on rare occasion they achieve equity partner.

Under the e-firm system, this person would be making about 80% (pre-tax) of what they bill. Suddenly they are doubling their salary, and possibly trebling it ,if they have a good year.

This sounds familiar

There is, of course, naturally those who will have picked up on the fact this all seems very much like a barristers chambers.

As they move towards direct access, we move towards their structure. Not because the professions are fusing, but because we want to maximise fee income.

Keep an eye on these e-firms. I have a feeling they could be the alternative option to an ABS.

 

Over and out.

Legal Orange.

 

Law and Tactics for Relief from Sanctions

Pre-Jackson and Pre-Mitchell, relief from sanction rarely turned your claim into a fatality.  The more senior practitioners will recall Biguzzi v Rank Leisure PLC (1999) and the flowery language of “abdication of justice”.

As the Jackson Report made clear, “Courts at all levels have become too tolerant of delays and non-compliance with Order. In doing so they have lost sight of the damage which the culture of delay and non-compliance is inflicting on the civil justice system. The balance therefore needs to be redressed”.

LJ Dyson at the 18th Implementation Lecture raised an important point that “…questions concerning relief from sanctions are not simply considered by reference to the immediate legislation but to the wider public interest… 3.9 is intended to eliminate lax application and any culture of toleration”.

Pausing on the above paragraph briefly, the “wider public interest” deserves to be amplified (I will come onto this later) and as Master of the Rolls, Judges will listen to these lectures as being an important source of law, at least for guidance on the new regime before it settles down into a trail of authoritative case law.  Further, this lecture was referred to in the Mitchell decision. It is important to note the “trip wires” referred to. Some commentators also attach importance to the ‘not exceptional’ reference regarding the Singapore approach (being the jurisdiction that Jackson is a massive supporter ).

Important points

1. The Overriding Objective.  This always prevails; and

2. CPR r 3.9. i.e. the new version.

Sanctions as a matter of failure

There has been some dispute over whether there are automatic strike outs as a result of a failure to comply with an Order.

Due to access to justice principles it is important to take a football analogy and view this as there being yellow and red cards. Alternatively, some may say that the court does not apply a “one strike and you are out” mindset.

The court will consider the appropriateness of a sanction with consideration given to the Mitchell approach.

Making an application

Suffice to say, the courts are not rubber stamping.

Based on the case law to date it is possible to make broad brush assertions about where CPR r 3.9 is likely to apply and where it is less likely to apply.

Failures where 3.9 is likely to apply

  • precedent H;
  • witness statement;
  • reliance upon written reports of experts;
  • service and amendments to statement of case
  • applications to set aside default judgment (NB:// CPR r 13.2 has its own criteria, and see Samara v MBI decision).

Failures where 3.9 is less likely to apply

  • Part 18 requests
  • Part 36 offers
  • Disclosure of list (and inspection)
  • Schedule of loss (and counter-schedule)
  • Reply to Defence.

A lot of whether 3.9 applies is still in progress.  In Mitchell, for example, at paragraph 34 there was mention of timetables being affected, and Porter Capital referenced this too. You can also look to the effect in Summit Navigation.

Case law post 1 April 2013

I have already written about the Fred Perry case that preceded the changes.

The first post-1 April 2013 (new regime) decision was really clear in Murray v Dowlman. The judgment’s important point to take away as “there had been no prejudice”.

Points of interest to the court

  • Triviality;
  • Promptness; and
  • Good reason.

Triviality

Harping back to Mitchell, the court stated that if there had been compliance then the Master would have given directions on the date set down for the hearing and the case would have proceeded in accordance with those directions towards trial.

What particularly aggrieved the court was that the failure to comply resulted in the following (at Para 39):

  • an adjournment was necessary;
  • a hearing was abortive;
  • to accommodate the hearing within a reasonable time, the Master had to vacate a half day appointment which had been allocated to deal with persons affected by asbestos-related diseases.

If you take anything away from this article it should be: the Court is going to be against your client if you take up excessive amounts of court resources.

Staying on the precise claims affected by Mitchell, people dying prematurely from asbestos-related diseases cannot afford the time to be messed around with delays.

Applying that around the country, if you are in a busy court which is swamped with (mostly family cases), then a major impact on their caseload is more likely to result in you failing. If however you are in somewhere like a quiet coastal court in remote Wales or similar where they are not inundated with litigation, you may enjoy greater success. 

What is relevant to trivial?

- the nature of the breach by a party;

- what the CPR provides for;

- the nature of the Court Order breached and the extent (e.g. minutes versus weeks);

- the knock-on effect of the breach; and

- any potential consequences on court resources caused by the breach.

Examples of trivial post-Jackson include:

Aldington v ELS – where there was a group litigation order and a fraction of the 150+ claimants could not sign their statement of case in time. The circumstances involved holidays booked in advance of litigation. Due to the low percentages in breach of the overall GLO, it was deemed trivial.

Bank of Ireland v Philip Pank - this came down to a certification of costs on a budget. There was a bun fight over the wording used, but the court treated the intention of the party in default as being to certify a budget, as opposed to failing to file and serve a budget. This was again, trivial.

Lakatami Shipping v Nobu - where due to the gamesmanship of the opposing party, there was a breach of minutes. The non-compliance was trivial as the opposing party suffered no prejudice (nor was any prejudice suggested).

Promptness

This is still a developing area, but I would stick to the general rule of thumb of default judgments.

Promptness means acting quickly. Hours or days may improve your chances, but weeks or months will not. It’s self-evident advice so I will stop here.

Good reason

The court will ask itself if the party in default has a good reason. This is normally where a default has occurred by circumstances outside of the control of the party in default, such as experts.

It is likely that this can be framed as the circumstances of the case.

Being honest, ‘trivial’ is still not clear (consequences? delay?) and ‘control’ of the parties remains ambiguous.

 

Strategy and tactics to apply to 3.9 applications

You can take away from various authorities certain points that you may rely upon. As readers may be applying or opposing applications, it is important to provide both sides (but not a balanced approach!!)

Durrant v CC of Avon and Somerset Police – here there was a breach of an unless order. This is a great authority to rely upon if there has been a breach of an unless order as that means the other side had enjoyed 2 bites of the cherry. (Think yellow and red card mentioned earlier).  You can emphasise the willingness of the court to intervene with litigation by referred to this authority.

Chartwell v Fergies – here the court provided an outline of what the claimant should have done. Here there was a breach on both sides therefore the court decided ‘a plague on both your houses’. Look to the CPR and witness statements in relying on this decision. It is a neutral decision due to both sides being in breach. You may want to rely upon this to ward off an application where you have been in breach, and they have also erred. It may be your pathway to a consent order.

Summit Navigation – here Mitchell was not applied in full vigour. You may emphasise that the missing of the deadline was not significant, i.e. the breach was trivial, and that the refusal to list a stay was considered unreasonable.

The best thing to do overall is to avoid getting yourself in breach in the first place, by setting a generous timetable at the outset regarding directions, such as using the buffer rule. I am told that the buffer rile is coming in on the 5th June 2014.  If there is a tight timetable then you will need consent to vary.

Top tips

- Serve whatever you can. I have already written about getting any old rubbish in. This will be your mitigation as you seek partial credit. You can always rely on this in your application to emphasise the efforts you made to comply.

- If your opposing party is to breach or has breached, then be silent! Let the clock start ticking on their breach and increase the time to increase your chances of winning on their failure to seek relief promptly.

- Take control of the timetabling.  Do not wait until your next hearing to try and remedy a default. If necessary, pester the listing officer at the court. The court hates lost hearings and would not want to lose the use of a CMC or PTR by hearing an application for relief from sanctions (remember the asbestos-related cases affected earlier??!!)  The opposing party will always rely upon Mitchell and emphasise the wasted costs due to the defaulter’s conduct. The Mitchell ‘factor’ will be the hearing date is lost.

- Depending on what side you are on, look at the costs. Some parties will argue that costs follow the event (correct!) but looking at Lakatamis, there is a costs aspect attached to it.

SO HOW DO I FRAME MY APPLICATION FOR RELIEF?

 

(1) Apply for relief from sanction pursuant to CPR r 3.9 and in the alternative the overriding objective.

(2) Lead with the overriding objective and then use 3.9 as your secondary position.