THOROGOOD PROFESSIONAL INSIGHTS
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LITIGATION COSTS Michael Bacon
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A Thorogood Report
LITIGATION COSTS
Michael Bacon
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The author Michael Bacon read law at Cambridge University for three years and after a period of some 15 years in the commercial world he retrained to be a Law Costs Draftsman and is now a Legal Costs consultant with his own practice in East Anglia and London. He is a Fellow of the Association of Law Costs Draftsmen,a Member of the Academy of experts and a qualified mediator. Michael is a contributor to Greenslade on Costs, The Legal Aid Practice, The Litigation Practice, Personal Injury and Precedents, all published by Sweet & Maxwell. He is a joint author of Bacon & Bacon Assessment of Costs under the CPR, Second Edition 2001, published by EMIS Professional Publishing, and joint editor of Costs Law Reports with Judge Peter Rogers also published by EMIS Professional Publishing.He is a frequent contributor on costs to the Solicitors Journal.
Note Throughout this Report singular includes plural as necessary and male includes female as necessary.
Preface The intention of this Report is not to examine and recite the whole practice and procedure as to costs and their assessment under the Civil Procedure Rules (CPR) but rather to examine what stage has been reached in the implementation of the rules and their effectiveness in practice since their introduction in April 1999. In order to do this it has been necessary to pick and choose to some degree in order to highlight the areas where either there are perceived problems or where the new procedure is working efficiently and also those areas where a fair start has been made but there is room for further understanding and improvement in putting the rules and,importantly,the philosophy underlying them into practice. As a result there are areas of the CPR which are not dealt with specifically, such as Appeals, Orders for Costs, Fast Track and Small Claims costs, Legal Aid and Community Legal service costs and there are other areas which, although not always directly a part of the CPR changes, are nevertheless closely related to the control and transparency demanded by the politicians and others in relation to the costs of litigation. In examining the various aspects of costs,practical hints and comments have been included wherever possible and it is to be hoped that practitioners will find these valuable when dealing with costs problems now and in the future. Above all,there is much food for thought and assistance towards hopefully profitable practice. Michael Bacon
Contents
INTRODUCTION
1
FUNDING LITIGATION
1
3
The retainer ..................................................................................................5 Law Society Regulations ...............................................................................5 Charges and billing .......................................................................................7 Agreements for conducting contentious business .....................................14 Summary of points to consider ..................................................................17
2
OBLIGATIONS OF A SOLICITOR UNDER THE CIVIL PROCEDURE COSTS RULES
18
Reporting to the client ...............................................................................20 Obligations to others ..................................................................................22 Other obligations between parties .............................................................26
3
COSTS BUDGETING
27
Requirements .............................................................................................29 What is an estimate for CPR purposes? ......................................................29 When should an estimate be prepared? .....................................................29 Preparation of estimates .............................................................................31 How the courts view estimates ..................................................................36
4
RECOVERY OF COSTS
40
Summary assessments ................................................................................41 Summary assessments where an additional liability is claimed ..................52 Detailed assessments ..................................................................................53
5
BILLS OF COSTS
59
Requirements for the contents of a bill ......................................................61 Items listed in CPD 4.6 ...............................................................................63 What is or is not allowed ............................................................................64 Dividing the bill into different parts ...........................................................66
6
POINTS TO NOTE FOR THE PAYING PARTY
67
Summary assessment ..................................................................................68 General points ............................................................................................69 Commencement of detailed assessment proceedings ...............................70
7
OFFERS FOR COSTS
74
Costs of detailed assessment proceedings ..................................................75 Without prejudice offers for costs ..............................................................76
8
COSTS ONLY PROCEEDINGS
79
What are they? ............................................................................................80 The procedure ............................................................................................80 Problems and benefits with costs only proceedings ..................................81
9
LITIGATION COSTS BETWEEN SOLICITORS AND THEIR CLIENTS
83
Basis of assessment .....................................................................................84 Presumption as to unreasonableness .........................................................87 Conditional fee agreements carrying a success fee ....................................88
CONCLUSION
92
‘Reasonable’ costs .......................................................................................93 Benchmark costs ........................................................................................94 The pillars of wisdom .................................................................................96
APPENDIX
98
INTRODUCTION
Introduction Litigation costs can be traced back as far as 1163 when Richard of Anstey successfully recovered the estates of his uncle after five years of litigation and for which a very detailed bill was rendered.The first mention made of costs between parties, where one party has to pay the costs of another in litigation,is in 1531 when legislation enacted provided for the costs of the successful party to be assessed or taxed and provision was made for the execution for the recovery of such costs.Two centuries later fees were fixed for assessing bills of costs and in 1842 the office of Taxing Master was created which lasted until the introduction of the Civil Procedure Rules in April 1999, when the title was changed to Costs Judge.Along with these developments the business of costing legal bills gradually developed and became increasingly complicated.By the turn of the nineteenth century there were some 215 different items allowed in a bill of costs, which were calculated on the basis of the number of folios (72 words) in each document for which a claim for costs was made.Thankfully the system was considerably simplified firstly in 1979 and most importantly again in 1986 following a detailed study by the Horne Committee, which was composed of individual representatives from all involved in legal costs and who actually knew their business. In particular the bases upon which legal costs in litigation were to be calculated were reduced to two and the number of chargeable items in a bill was reduced to five main groupings. This remained the case until the introduction of the CPR in April 1999. Regrettably and unnecessarily so far as the new CPR were concerned,the rules relating to the final detailed assessment (previously known as ‘taxation’) were yet again revised but this time they were made more complex with time consuming requirements which served only to increase the cost of having bills assessed by the courts. There are signs that many more bills are being settled between parties without embarking upon the cumbersome and expensive processes required to bring the matter to a final detailed assessment before the courts. A new system of assessing costs of individual applications or trials lasting up to one day on a summary basis was introduced as part of the 1999 reforms and this, together with a system of allowing costs so assessed to be paid almost immediately, was one of the more positive aspects of the changes. Along with the changes came a revised set of bills of costs which initially were ill conceived and impractical.This resulted in revisions being made to them within one year resulting in recommended forms of bill which,with one or two exceptions,were virtually identical to those being used as a result of the Horne Committee recommendations.None of these changes appear to have been either necessary or desirable and although the original form of bill prescribed at the introduction of the CPR in April 1999 remains one of four alternative forms whose use is recommended,most experienced practitioners
1
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astutely avoid its use because it creates unjustifiably more work,which can result in VAT discrepancies and which make it far less acceptable to paying parties who need to have an overview of what is being claimed when presented with a bill of costs and in particular require to know the breakdown between VAT, profit costs and disbursements.As time goes by no doubt practice will indicate the most effective, economic and informative form of bill that should be used. It is against this background of a cumbersome and costly system for detailed assessment of litigation costs that the rules,generally for the regulation of civil proceedings in England and Wales,must be viewed because there is no doubt that the substantive changes to the general rules, as opposed to those relating specifically to the detailed assessment of costs,were far reaching and,although they are not operating quite as fully as their originators would no doubt wish, they are likely to change the fundamental way in which litigation is conducted. In particular the use of costs is becoming more and more significant in the conduct of litigation and there is little doubt that as the fundamental changes settle themselves in and their implementation is fully adopted by the courts and the judiciary, it will become even more so.This is considered in more detail in subsequent chapters. The purpose of this Report is to consider from the practitioner’s viewpoint the current state of costs, their importance and relevance to the litigation process as a whole and to suggest how best to take advantage of the myriad rules and regulations both now and in the future.
2
Funding litigation T H E R E TA I N E R L AW S O C I E T Y R E G U L AT I O N S CHARGES AND BILLING AGREEMENTS FOR CONDUCTING CONTENTIOUS BUSINESS SUMMARY OF POINTS TO CONSIDER
chapter
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Chapter 1: Funding litigation Whatever may be the moral objectives of practice as a solicitor one thing is certain – litigation must be paid for. It must be funded in some way.With the abandonment of legal aid in respect of vast tracts of litigation,the government introduced the Conditional Fee Agreement (CFA) regime in an attempt to replace legal aid funding in the majority of cases.This system is in its infancy and has hardly had time to settle down let alone to allow sensible appraisal of its success or otherwise but there are signs that in some ways it is inadequate both for the client and for the solicitor.The concept of ‘no win, no fee’ is on the face of it attractive but in practice it is clear that this attraction may be skin deep.There is,of course, more than one kind of CFA and the ‘no win,no fee’concept is not the only option. The ‘Thai Trading’ type CFA (sometimes known as ‘a discounted fee’), where the solicitor at least is paid something for his trouble in the event of a lost case, is more than likely the route which will eventually be adopted by solicitors and their clients in commercial cases since it has many attractions, not the least of which is a greater degree of certainty for the clients as to what they will have to pay their solicitor.But that assumes proper budgeting procedures,which at present appear to be sadly lacking in many solicitors’ practices. There are limited types of funding.Privately funded cases tend to be concentrated on commercial disputes; there is some Legal Services Commission funding but this is very limited; there is an ever increasing use of third party funders such as Unions or Insurance Companies many of whom are now seeking to insist that their solicitors act under some form of CFA and there is the vast range of cases, of which personal injury actions form a major part,where ‘no win,no fee’arrangements are the basis of the funding.Whatever the nature or the source of funding, it is essential for all practitioners to understand and put into practice the various requirements placed upon them in terms of their dealings with and obligations towards their clients.The days of simply agreeing an hourly charging rate with a client and running with his instructions after that until the end of the matter are fast diminishing. Clients are more concerned about the level of legal costs these days and are demanding more certainty than a simple hourly rate based retainer can give them. Consequently solicitors must begin to consider alternative forms of funding which may be more attractive to their clients.
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The retainer The authority of a solicitor to act for a client stems directly from the retainer with that client.The retainer may specify certain conditions,which limits the retainer. For example it may limit the solicitor’s instructions to one particular transaction or step in an action or it may limit the retainer financially by imposing a ceiling on costs,above which the solicitor is unauthorised to incur further costs without specific recourse to the client.It is vital at the outset that the basis of the retainer is made fully clear to the client and that confirmation is received from the client that the basis of the retainer is understood both in terms of how the client is to be charged and what work is covered by the retainer.It is therefore recommended practice that all retainers should be in writing and preferably that clients acknowledge their clear understanding of the contents of the retainer. At the very least clients should be encouraged to sign a copy of the retainer letter and return this to the solicitor.
Law Society Regulations There are much more specific obligations so far as costs are concerned which are placed upon a solicitor by the Solicitors’ Costs Information and Client Care Code 1999.This was made by the Council of the Law Society on 3 September 1999 under Rule 15 of the Solicitors Practice Rules 1990 and was made with the concurrence of the Master of the Rolls. It states that its main object ‘is to make sure that clients are given the information they need to understand what is happening generally and in particular on: (1) the cost of legal services both at the outset and as a matter progresses; and (2) responsibility for client matters’. The costs implications are of considerable significance.There is little doubt that there is an increasing awareness in the courts of the solicitor’s obligations under the Code and failure to observe its terms and conditions is more than likely to result in a diminution in some form of the costs to which the solicitor would otherwise have been entitled. In some cases, breach of the Code could result in the solicitor receiving no remuneration at all for his services.
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What is required? Paragraph 3 of the Code requires that the client must be informed about costs both at the outset and during the course of proceedings.In particular,costs information must not be inaccurate or misleading.The information must be given in such a way that the client is able to understand it so any specialised terminology (the Code cites ‘disbursements’ as an example) must be fully explained to the client. Information should be given orally and then confirmed in writing. Of special relevance to modern day litigation are the provisions in paragraph 4, which relate to the giving of advance costs information.The relevant sections of the paragraph are as follows: a)
The solicitor should give the client the best information possible about the likely overall costs, including a breakdown between fees,VAT and disbursements.
b)
The solicitor should explain clearly to the client the time likely to be spent in dealing with a matter, if time is a factor in the calculation of fees.
c)
Giving ‘the best information possible’ includes: –
agreeing a fixed fee; or
–
giving a realistic estimate; or
–
giving a forecast within a possible range of costs; or
–
explaining to the client why it is not possible to fix or give a realistic estimate or forecast of the overall costs,and giving instead the best information possible about the next stage of the matter.
d)
The solicitor should in an appropriate case explain to a privately paying client that the client may set an upper limit on the firm’s costs for which the client may be liable without further authority.Solicitors should not exceed the agreed limit without first obtaining the client’s consent.
e)
The solicitor should make it clear at the outset if the estimate, quotation or other indication of cost is not intended to be fixed.
It is evident that in practice many solicitors do not observe these requirements and those that do often do not make their position clear to the client.This is so in the case of estimates which all too often are given verbally or as an indication of the likely costs. It is essential that when giving an estimate, the figures are put in writing to the client and it is clearly stated that the costs indicated in the estimate do not represent a fixed quotation.Even if this is done,recent cases indicate that solicitors are more than ever likely to be bound by estimates given to clients unless there is full information given to the client when they change.
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The incidence of estimates is likely to increase as the CPR costs provisions are fully implemented by the courts. Although the Costs Code relates only to costs between solicitors and their clients,there are requirements in the Practice Direction Relating to Costs (CPD) for the production of estimates at any time during the proceedings at the discretion of the court and there are two occasions when estimates are obligatory – on the allocation questionnaire and on filing the listing questionnaire. Furthermore copies of these estimates must be served upon the client whenever they are produced.This makes the provisions of the Costs Code under the fourth item in (c) above difficult to operate since if the preparation of estimates of each party’s costs is obligatory during the course of proceedings, how can a solicitor claim to his client that an estimate for the same proceedings cannot be prepared? More information on the preparation of estimates can be found in Chapter 3. It is of vital importance to ensure that the client is kept fully up-to-date on costs matters ‘at appropriate stages’ throughout the proceedings. In particular if there is a change in the likely overall costs because of some unforeseen development in the action,a revised estimate should be prepared and given to the client together with an explanation of why the change has been necessitated. It matters not whether the revised amount is higher or lower than the original figure.This is provided for in paragraph 6(c) of the Code. Similarly if there is a change in the circumstances relating to the proceedings which is likely to alter the perceived risk involved or affects the original cost-benefit to the client of continuing with the proceedings, the client should receive a clear explanation which is then confirmed in writing. (Para.6 (b).)
Charges and billing These two factors are probably responsible for the majority of the difficulties that occur between solicitor and client when things go wrong in that relationship. Again the Costs Code sets out a clear position which all to often is not adhered to fully by many practitioners. The basis of the firm’s charges for any particular set of instructions or activity is fundamental to the solicitor’s retainer and ensuring that the client has fully and unambiguously understood and has accepted the basis of charging is essential to the solicitor’s ability to rely upon the terms of the retainer should it become necessary to do so.The burden of proof is on the solicitor to show that a retainer and its terms have been properly established. It is therefore important not only to set out the terms in writing as already mentioned but also to make full attendance notes and place them on the file of any discussions concerning the negotiating
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or explanation of the retainer with the client.Such notes should be made contemporaneously with the discussions and should not be made with hindsight or long after the event. Normally in litigation matters the basis of charging will be linked to time and an hourly rate for each fee earner will be established and set out clearly to the client. At the time this is done it is also very important to point out to the client the circumstances under which these rates may be increased.The fact that they may be increased must be communicated to the client when setting up the retainer. When the time comes to increase the rates,reference should be made to the term in the retainer allowing an increase and a statement of the reasons for the increase is also desirable. Although there is no specific requirement to this effect,it is sensible to agree any increases in charging rates or the basis of charging with the client before the changes are due to take place. It is not helpful to a solicitor’s cause in the event of subsequent dispute with the client if the solicitor unilaterally increases the rates or basis of charging and the client is simply informed that the increase has or is about to take place. The level of charging also requires careful consideration by the solicitor.There are presumptions as to reasonableness in CPR 48.8 (2) (a) and (b) which on the face of it appear to favour the solicitor.The effect of these two sub-rules is that costs are to be presumed to have been reasonably incurred or to be reasonable in amount if the costs were incurred with the ‘express or implied’approval of the client or their amount was expressly or impliedly approved by the client.However, warning bells were rung in the case of Macdougall v. Boote Edgar Esterkin (A Firm) [2001] 1 Costs LR 118 where it was held that these presumptions could only arise where sufficient information has been given to a client upon which he is able to make an informed decision as to the level of charging and whether it was reasonable and acceptable. It is useful to look at the facts of this case. In February 1994 solicitors instructed by Mr & Mrs Macdougall issued a bill which was charged at the rate of £300 per hour. More than 800 hours were claimed in respect of work carried out following successful hearings in both the Lands Tribunal and the Court of Appeal.In October,between parties,costs in the sum of £150,000 were agreed and paid by the losing party, the Wrexham Borough Council. This figure had been based upon an hourly rate of around £171.00.There was therefore a substantial difference between the solicitor client costs and those recovered inter parties.The solicitors issued proceedings for recovery of the difference and relied upon an agreement referred to in an attendance note of an hourly rate for the whole proceedings of £300.The attendance note related to a meeting held on 4 August 1992, which was after the Lands Tribunal hearing but before the Court of Appeal proceedings. Of the hours claimed some 596 had accrued by the time this meeting took place.
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Holland J.ruled that the quality of the ‘approval’,whether implied or express referred to in the Rule (in this case it was Order 62 Rule 15 which applied but the CPR equivalent is virtually identical for all practical purposes) by the client has to be such as to raise a presumption under the rule. At the meeting the clients had been told that a rate of £300 per hour would apply to all work on the case largely because the solicitors had been required to fund the action throughout and that in another case they were charging £225 per hour under circumstances where their client was paying on a monthly basis. On this basis they concluded that their charge of £300 was reasonable. It was also explained to the clients that as a general rule of thumb the differential between solicitor client costs and inter partes costs was between 25% to 30%.The judge concluded that this explanation was inadequate to make the approval of the clients ‘informed’ and gave the following reasons, which should be closely regarded by all practitioners when explaining to their clients the basis of an hourly charging rate: 1.
The explanation of the relationship between solicitor client costs and inter partes costs as given to the clients was ‘seriously misleading’.The rule of thumb hypothesis was wholly irrelevant to the prospective results of a party and party taxation (now detailed assessment) of a £300 per hour charging rate.
2.
The solicitors did not explain to the client what they were going to seek by way of a party and party-charging rate.
3.
The use of another case did not constitute any relevant yardstick and offered no pertinent information to the clients for the purposes of an approval decision.
4.
No proper attempt was made to calculate the effect of the lack of interim funding.The solicitors were correct to be concerned about this point but their arbitrary calculation by increasing £225 to £300 per hour resulted in an additional figure of £56,250 (assuming a total of 750 hours) being charged simply to compensate for the lack of funding.This was ‘fatuous’ said the Judge.
5.
It should have been possible at the meeting to have indicated how many hours had been clocked up to date and this, together with identification of the inter partes charging rate,would have thus enabled the client to identify how much shortfall there would have been at that time.
6.
There had been no attempt by the solicitors to raise as different issues the retrospective fixing of the solicitor client rate for hours previously to be remunerated as on taxation and the prospective fixing of an hourly rate for hours yet to come.
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The judge then fixed the rate for hours already spent up to 4 August 1992 at £171 per hour as had been claimed on the taxation and he assessed the reasonable rate for the subsequent hours to be £250 per hour. What rates should be charged? Much confusion has been created by the recommendation when summary assessments were introduced that rates should be expressed as a single figure per hour. For many years the formula known as the A + B formula had been in operation under which the starting point was the cost of the work done i.e. the expense rate applicable to each fee earner being charged on the case. Although statement of costs for summary assessment purposes and bills of costs for detailed assessment are now usually based upon one single charge rate per hour, the method of calculating that charge rate has not altered and indeed some costs draftsmen still, quite sensibly in my view, set out in the preliminary narrative to the bill the basis upon which the overall hourly rate has been calculated. The logical and recommended method of calculating a fee earner’s charging rate for any particular matter is to first ascertain what the cost of that fee earner is on an hourly basis.This establishes a minimum figure which must be charged in order to cover the cost (the ‘A’ figure).To this is added an appropriate additional figure which will vary according to the needs of the practice, its profit projections and the particular characteristics of the case in point (the ‘B’ figure).Whilst it is appropriate to calculate a fixed cost or expense rate which will not vary, it is not appropriate to apply a fixed hourly charge rate to each fee earner unless that fee earner is carrying out work which is entirely standardised and there are no characteristics reflecting differences between the cases being worked upon. The latter is most unlikely given the wide-ranging sets of facts upon which litigation is brought.If costing principles are properly applied it would be rare indeed for any particular fee earner to be charged out to clients at the same hourly rate throughout the year for all cases worked upon irrespective of the nature of the litigation and the characteristics of the cases being worked upon. There are factors in the CPR which should be applied when determining what the additional amount above the expense rate should be.These are found in CPR 44.5 and they more or less correspond to what used to be known colloquially under RSC Order 62 as ‘the seven pillars of wisdom’. If it were the intention to abandon the traditional and commercially sensible method of arriving at charging rates outlined above by replacing the A plus B figure with an overall combined single figure,there really would have been no need to have incorporated the Rule 44.5 factors into the CPR at all. As HHJ Michael Cook in his excellent book Cook on Costs points out,those assessing costs would not know how the overall figure had been arrived at,and would not then be able to reward skill,effort,specialised
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knowledge and responsibility nor take proper account of the importance, complexity,difficulty or novelty of the matter and ‘the quantification of costs would have taken a giant stride from being a judicial function to becoming a bureaucratic exercise’. The factors are: a)
The conduct of the parties, including in particular: –
conduct before, as well as during, the proceedings; and
–
the efforts made,if any,before and during the proceedings in order to try to resolve the dispute;
b)
The amount or value of any money or property involved;
c)
The importance of the matter to all parties;
d)
The particular complexity of the matter or the difficulty or novelty of the questions raised;
e)
The skill, effort, specialised knowledge and responsibility involved;
f)
The time spent on the case;
g)
The place where and the circumstances in which the work or any part of it was done.
A mention should also be made in the context of calculation of charges to a set of guideline charging rates which are published from time to time by the Supreme Court Costs Office (SCCO) which we are told are intended to assist the judiciary when carrying out summary assessments of costs. No doubt these are of some use but what really matters is whether the rate claimed is the reasonable one in the context of the case, its circumstances and complexities and the level of fee earner who is conducting it. Guidelines can only be one of many factors to be taken into the assessment equation if the assessment of costs is to remain a judicial rather than a bureaucratic function. In many cases the rates will be used to determine the level of costs payable by one party to another on the standard basis under a costs order but in view of the narrowing of the difference between the Standard Basis and the Indemnity Basis as a result of the CPR changes at least so far as reasonableness is concerned,their relevance may be recognised in assessments of costs between solicitor and client. In practical terms it will be imperative for solicitors to be ready to indicate how and why their charging rates differ from the guideline rates if these rates are the subject of challenge on a Solicitors Act assessment.
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Are there alternatives to hourly rate based charges? In terms of the management of the practice it will always be essential to establish the cost of the work done by the fee earners in the practice. If partners do not know how much must be earned to cover the costs of running the practice, financial failure is guaranteed. It is also logical to translate this overall cost into cost per hour rates for each fee earner and to establish how many hours each fee earner has to bill to cover his or her cost. Once that figure has been reached, the most logical way of calculating the basis of charging is to use an hourly-charging rate taking into account the factors mentioned above.There must be controls in place to ensure that time is fully and properly recorded if such a system is to operate effectively and it is necessary of course to ensure that as much justifiable and reasonable chargeable time is actually billed to the client.With proper systems installed in the practice, the progress of each fee earner’s billing and thus the profitability overall of the practice or an individual department within the practice can relatively easily be monitored and controlled over each year. But if the client is unhappy with an hourly rate/time based retainer,what alternatives exist which allow the practice to offer more flexible billing arrangements to its clients and yet still allow effective financial control enabling the right levels of profitability to be maintained? Experience,as so often is the case,from across the Atlantic may provide an answer. We are told by Steven Lauer (Conditional Contingent and Other Alternative Fee Arrangements, Monitor Press) that in 1993 90% of billing for legal services in the USA was based upon an hourly rate multiplied by the time spent. By 1998 this had fallen to 75% and it continues to fall.The range of fees outlined in this useful publication is wide indeed and although one or two kinds of alternative arrangements would not be allowable or enforceable in England and Wales as a result of the provisions of the Solicitors Act 1974 (for example contingent fees where the solicitor takes a share of the eventual spoils in an action), this list is worth examining. Fixed fees This is a fixed price for particular work carried out or to be carried out. Its use is envisaged by the Solicitors Act 1974, section 59 where remuneration by way of a gross sum is lawful. It has the advantage of certainty but for the solicitor it opens up a risk of under recovery should the task in hand be more complex or involve more work than at first envisaged.If a fixed fee is made subject to a formal contentious business agreement under s.69,it cannot be subject to detailed assessment after the event.The fee will not necessarily be dependent upon the amount of time that is likely to be spent on the matter but it will reflect the client’s perception of what is value for the particular task covered by the fee. Proper budgeting will greatly enhance the use of fixed fees and their marketing value to solicitors is considerable.
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Value based fees Such fees are particularly relevant to non-contentious business which should not be slavishly linked to time spent on the matter. (See Property and Reversionary Investment Corporation Limited v.Secretary of State for the Environment [1997] Core Costs LR 54; [1975]2 All ER 436.) They may be relevant in limited circumstances in litigation but it is likely that their use would be restricted to parts of the litigation only. For example a value fee may be negotiated in respect of conducting an appeal.The client calculates the value to him or his business if a successful appeal results;the solicitor estimates the total costs that he must generate to show a profit;a fee is negotiated based on the client’s value calculations which may well be more than the solicitor would have received through a fee which was based entirely upon time taken to complete the appeal.The fee is payable whether or not the appeal succeeds but because of the underlying nature of the fee,the perception of the client is one of reasonableness since it is the client who will have established the basis of the value fee prior to its negotiation. Even if the appeal is lost, the client will find it difficult not to conclude that the money was worth spending, assuming, of course, that there is no element of negligent advice involved! Task based fees These are still something of a novelty in the USA and are barely used in England and Wales.They have some attractions, however. Segments of litigation may be dealt with under task based fee agreements so that for example in a case where disclosure and all its aspects may be a considerable undertaking,the solicitor and client agree either a fixed fee for the work or the basis of a fee which is capped at a certain figure.Alternatively, they might agree that there be a fixed amount due for each witness statement taken,perhaps related to a standard time assigned for the task, which will represent a fair overall average, or perhaps related to the physical size of the statement itself in each case. Such fees again have the advantage of certainty and again their success so far as the solicitor is concerned depends upon careful budgeting and costs control within the practice.The need for a client to concentrate on the number of hours expended by the solicitor when a review of his solicitor’s invoices is undertaken is removed when task based fees govern the transaction. Other alternatives available in the USA are either illegal or unenforceable in England and Wales in respect of litigation work i.e.contingency fees,where a share in the proceeds of the litigation is the lawyers’ reward, whether it be expressed as a percentage or not;or hourly rate plus contingency arrangements where although the contingency element is much lower than in a full bloodied contingency fee, the contingency element is illegal in England and Wales.
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Agreements for conducting contentious business Contingent fees Contingent fees (now one form of conditional fee in England and Wales) allow for a normal fee for the particular set of instructions to be charged if the litigation is successful but for a reduced, discounted charge to apply if the litigation is unsuccessful. It is possible for the agreement to provide for no fee to be paid to the solicitor at all in the event of losing but no practitioner with the remotest business sense would entertain such an agreement.There are distinct advantages to both parties to such an agreement but, once again, so far as the solicitor is concerned his success so far as his practice is concerned will depend upon the ability to budget properly and to control costs within the practice.The advantages are that the client has absolute certainty as to the total downside costs of the litigation.For example,a piece of litigation may be conducted under a contingent fee agreement (it must comply with the Conditional Fee Agreement Regulations 2000) on the basis that £50,000 is payable if the litigation is successful, but £20,000 if it fails.The client who has entered into such an agreement knows that the most he or his company will be asked to find for litigation services will be £20,000. If he is successful, he will most probably be successful also in costs. A very large part of the £50,000 will be payable by his opponent in the litigation and,even if there is a shortfall,it would normally be less than £20,000;if he loses his fees are limited to £20,000. In the case of a commercial company, its Board will know, perhaps for the first time in its history, the total exposure in respect of its legal costs. From the solicitors’ point of view, providing a budget has been sensibly prepared,the firm’s costs should at least be covered in the event of failure of the litigation and it may well be that the fee received in the event of success would be higher than a fee based solely upon time spent on the matter. Conditional fees with a success fee These are regulated by the Conditional Fee Agreement Regulations 2000 and are usually referred to as ‘no win, no fee’ agreements.The effectiveness or otherwise of such agreements is very difficult to judge since they have been operating for only a limited amount of time but they have already generated a spate of litigation in which the insurance industry has been a prime mover.The political intention has always been that these kind of agreements should be substituted as an alternative to legal aid,which no longer exists for many aspects of litigation.It is usual and under some arrangements obligatory for success fee linked CFAs to be backed up with an insurance policy,called After the Event insurance (AEI),which usually covers the risk of the insured’s liability for adverse costs and for disbursements which, unless payable by the solicitor under the CFA, will be the responsibility
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of the client in the event of failure. It is essential to check the extent of cover in such policies and particularly whether there is any retrospective cover. Although these success fee linked CFA agreements are becoming commonplace, especially in personal injury cases,they do not favour the solicitor.In the first place it seems wholly uncommercial to expect no reward for hard work,which is what happens when litigation which is subject to a success fee linked CFA fails.The compensation for the failures is supposed to lie in the ability to charge success fees in the event of success.The success fee is calculated on solicitors’profit costs or what are now termed in the new world of the CPR,‘base costs’.They are limited to 100% of the profit costs but in reality courts will not allow such high percentages in all cases.We have already seen the Court of Appeal in Callery v.Gray [2001] 2 Costs LR declare that for modest personal injury cases such as road traffic accident cases a success fee above 20% would not be reasonable. Furthermore, the solicitor, who it must be remembered has taken a risk at the very outset by agreeing to enter into a CFA with his client, is further put at risk himself as to the success fee by the extraordinary provision in Reg. 3 (2) (b) and (c) of the 2000 Regulations that if the success fee is reduced by the court on a detailed assessment or on a summary assessment on the grounds that it was unreasonable (for the paying party to pay! ) in view of the facts which were or should have been known to the legal representative at the time it was set, the fee under the CFA itself must also be reduced. Apart from bridging the sanctity of the gap between solicitor/client costs and between parties’costs,which has remained in existence since inter partes costs were invented,this is a penalty which refuses to reflect the true risk entered into by the solicitor in the first,early stage of his instructions.Why anyone should be expected to run his professional life under such duress is incomprehensible. Although many practitioners have little choice at the present time, there is very little in my view to recommend the use of CFAs with success fees as a reliable source of income for litigators,unless the firm specialises in modest personal injury cases with minimal risk and it is able to attract this type of work on a volume basis. Section 59 Solicitors Act 1974 Finally,it is appropriate at this juncture to consider the much ignored provisions of s.59 of the Solicitors Act 1974 which specifically deals with Contentious Business Agreements between solicitors and their clients.Quite naturally all the emphasis is placed in practice by solicitors on the provisions and requirements of the Solicitors’ Costs Information and Client Care Code 1999 but there are advantages to be gained by making agreements with clients which not only incorporate the Code but comply strictly with the provisions of s.59.
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The section provides: 1)
Subject to subsection (2) a solicitor may make an agreement in writing with his client as to his remuneration in respect of any contentious business done or to be done by him (in this Act referred to as a ‘contentious business agreement’) providing that he shall be remunerated by a gross sum or by reference to an hourly rate, or by a salary, or otherwise, and whether at a higher or lower rate than that at which they would otherwise have been entitled to be remunerated.
2)
Nothing in this section or in section 60 to 63 shall give validity to: a)
any purchase by a solicitor of the interest or any part of the interest of his client in any action, suit or other contentious proceeding; or
b)
any agreement by which a solicitor retained or employed to prosecute any action or other contentious proceeding,stipulates for payment only in the event of succession that action, suit or proceeding; or
c)
any disposition,contract,settlement,conveyance,delivery,dealing or transfer which under the law relating to bankruptcy is invalid against a trustee or creditor in any bankruptcy or composition.
In the context of (2)(b) above, the Courts and Legal Services Act 1990 in s.58 allows the use of conditional fee agreements either with or without a success fee subject to the various conditions imposed by the Act and associated statutory instruments, particularly the Conditional Fee Agreement Regulations 2000. It will be seen that a s.59 agreement may be made in respect of work already carried out.The Costs Code appears not to appreciate this aspect of contentious business agreements since in paragraph 1(a) one of the purposes of the Code is to provide clients with information about costs ‘at the outset’.Clearly such information would not be given where a contentious business agreement provides for retrospective remuneration.There are many instances when such an arrangement could be favourable to both parties, particularly where the CBA provides for regular payments on account by the client. Once the litigation is completed, the parties would be able to agree a fair overall remuneration for the solicitor taking into account the work actually carried out and the results achieved. There are other positive aspects to entering into contentious business agreements. The effect of these agreements is explained in s.60 of the Solicitors Act 1974 but the principal consequence is that a detailed assessment under the Act cannot be carried out in respect of the costs under the agreement unless the agreement provides that the remuneration of the solicitor will be by reference to hourly rates. Another consequence is that the provisions of s.69 which allows an action to recover costs to be brought by the solicitor only after the expiration of one month after delivery of the bill do not apply to s.59 agreements.
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If it is decided to enter into a s.59 agreement it is strongly recommended that reliance is not placed upon a retainer letter as evidence of such an agreement. (There are various examples of letters annexed to the Solicitors’Costs Information and Client Care Code 1999 but there are no examples of formal CBAs.) The last thing either party will want if a dispute arises is lengthy argument and litigation to decide whether a valid CBA exists or not. A document should be produced which is entitled ‘Contentious Business Agreement under s. 59 of The Solicitors’Act 1974’ and the agreement should be signed by both parties so that there is not a shadow of doubt as to the intention of the parties to enter into the agreement.Whether or not a form of retainer letter referring to the formal agreement is also sent to the client dealing with other requirements of the Code is a matter of choice for the solicitor but it would in most cases be more sensible to ensure that these requirements (e.g. designation of person to whom grievances or complaints should be addressed;complaints procedure;estimates if appropriate;liability for other party’s costs etc.) are dealt with in the main body of the CBA itself. Certainty is vital so that should a disagreement arise between the parties at a later stage, their intention and the provisions of the agreement are clear and unambiguous.
Summary of points to consider At the very outset of instructions from a client: •
Consider the most suitable type of funding – fixed fee,CFA,contingent fee etc.
•
Carry out an initial costs estimate using identifiable assumptions
•
Calculate appropriate payment on account levels and frequencies
•
If an hourly rate is to be used as the basis for the remuneration,decide what should be the appropriate normal costs for the type of work envisaged
•
Decide whether a CBA is appropriate
•
Discuss all options fully with the client ensuring that he has a proper understanding of the possible alternatives
•
Prepare either a formal CBA or a detailed retainer letter incorporating the requirements of the Solicitors’ Costs Information and Client Care Code.
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Obligations of a solicitor under the Civil Procedure Costs Rules REPORTING TO THE CLIENT O B L I G AT I O N S T O O T H E R S O T H E R O B L I G AT I O N S B E T W E E N PA RT I E S
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Chapter 2: Obligations of a solicitor under the Civil Procedure Costs Rules There are various provisions imposing obligations to be found either in the Civil Procedure Rules (CPR) or the Practice Direction about Costs (CPD) which is linked to them.We are told that the CPD has the same force in law as the CPR although where there is contradiction or at least ambiguity between the CPR and CPD there has been no decision as to which should prevail. It seems that the CPR in any such case would be likely to prevail. As to the force of the CPR and CPD generally the case of General Mediterranean Holdings SA v. Patel [2000] 1 WLR 272; [1999] 2 Costs LR 10 is of importance.In this case an order for disclosure of privileged documents was sought in connection with wasted costs proceedings in accordance with CPR 48.7 which provided that for the purposes of the rule, a court may direct that privileged documents are to be disclosed to the court and, if the court so directs,to the other party to the application for an order for wasted costs.Toulson J.held that the rule was ultra vires and of no effect and that although the CPR were intended to introduce a radical new system of civil procedure, it was not the intention of Parliament when enacting the Civil Procedure Act 1997 (Schedule 1, paragraph 4 of which states that Civil Procedure Rules may modify the rules of evidence as they apply to proceedings in any court within the scope of the rules) to cut down the substantive right to legal confidentiality. But it is possible for the CPD to elaborate the meaning of a particular rule. For example, CPR 48.6(6)(b) provides that a barrister, solicitor, solicitor’s employee or other authorised litigator (see Courts and Legal Services Act 1990) who is acting for himself is to be treated as a litigant in person.The CPD at Part 52.5 draws attention to this rule and in effect alters it to the extent that ‘a solicitor who, instead of acting for himself, is represented in the proceedings by his firm or himself in his firm’s name, is NOT, for the purpose of the CPR, a litigant in person’. It is vital, therefore, that at all times the CPR and CPD are read in conjunction with each other since there may be important factors not mentioned in one which are mentioned in the other.
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Reporting to the client Although there are obligations placed upon solicitors under the Solicitors’ Costs Information and Client Care Code 1999, not only to ensure that clients are fully informed about costs at the outset, where appropriate, but also throughout the progress of the litigation to which the retainer relates,there are important requirements under the CPR to inform the client on certain matters. Notification of adverse costs order CPR 44.2 provides that where an order for costs is made against a legally represented party and that party is not there at the court when the order is made, the solicitor must notify the client in writing of the costs order no later than seven days after the order has been made.The CPD adds further to this simple obligation. It requires an explanation to be given to the client of why the order came to be made.It also clarifies the expression ‘client’,which includes a party for whom the solicitor is instructed to act,a party for whom the solicitor is acting or a party who is responsible for the fees of the solicitor.It is evident,therefore,that appropriate notice and an explanation may have to be given to more than one ‘client’ where, for example, a Union has undertaken to pay the fees of the solicitor on behalf of one of its members who is the individual actually involved in the litigation. In such circumstances, it will be necessary to inform both the Union itself and the individual litigant. It is possible that the court itself may make some form of order against a solicitor whom it considers has been responsible for the making of the adverse costs order at the time the order is made.If it does it will most likely be in terms which prevent the solicitor from charging the client for the work involved in the application which gave rise to the adverse costs order and it may order that the solicitor makes a contribution to the costs personally.In either event this should not preclude the need to inform the client.It is particularly important that the notification provisions in CPR 44.2 and CPD 7.1,and 7.2 are strictly observed where it is the client himself who has to pay any sum which has been summarily assessed under the adverse costs order.The client must have the opportunity to discuss the matter with his solicitor and to take advice as to any possible appeal even though the adverse costs order was made as a direct consequence of instructions given to his solicitor by the client.It also gives the client the opportunity to challenge the solicitor and/or the order if the client is of the view that his solicitor’s own conduct was the cause of the making of the adverse costs order. As is the case with many of the costs rules in the CPR there is no indication of the sanction to be imposed for breach of the rule. It appears that the court has a wide discretion but CPD 7.3 provides that the court may, either in the order
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itself or in a subsequent order,require the solicitor to produce to the court evidence showing that reasonable steps were taken by the solicitor to comply with the rule requiring him to notify and explain the adverse order to his client. It is entirely possible that conflict could arise between solicitor and client when the reasons for making the adverse costs order are in dispute.For example,there may be an adverse costs order as a result of failure on the part of one party to observe a time limit for producing further evidence or further disclosure.This may be simply because the solicitor did not action the matter fast enough or may even have failed to diarise it, or it may be that the client failed to provide the documentation requested in time. In any of these cases the cause of the failure to comply and therefore the reason for the adverse costs order can easily and readily be established but there will be situations where the reasons are the subject of dispute between solicitor and client.In such a case, the reason why the time limit was missed should therefore be ascertained as quickly as possible and it would be preferable for the court to give its attention to this before making the order but there is no obligation on it to do so. Provision of estimates filed at court Section 6.4(1) and (2) place an obligation on solicitors to provide estimates of costs, which are prepared and filed for the purposes of inclusion with an allocation questionnaire or a listing questionnaire, to their clients with a copy also. Although there is no similar provision in cases where estimates are prepared by order of the court, it is likely that the court will require the client to be served with a copy and, even if no such order is made, it would be good and proper practice to serve a copy on the client also.These provisions will in time surely have the effect of persuading solicitors to prepare estimates at the commencement of their instructions and update them on a rolling basis.To inform a client that it is not possible to prepare or give an estimate in the particular circumstances of his case (as envisaged by Paragraph 4 (c)(iv) of the Solicitors’Information and Client Care Costs Code 1999 in appropriate circumstances) is unlikely to impress a client who shortly afterwards receives a copy of an estimate prepared under rules of court! One point to note in connection with the giving of copy estimates is that the court estimate, which is also to be served on all other parties, must reflect the costs that are intended to be claimed should the party preparing the estimate eventually be successful in costs. In that case, the estimate should be prepared upon the Standard Basis whereas the client’s estimates of his own costs due to his solicitor will be calculated on the Indemnity Basis and it is important that solicitors make their clients aware of the distinction.
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CHAPTER 2: OBLIGATIONS OF A SOLICITOR UNDER THE CIVIL PROCEDURE COSTS RULES
Notification of challenge to a percentage increase under a CFA There are important obligations placed upon solicitors where a paying party seeks a reduction in the amount of a percentage increase (success fee) under a CFA in his Points of Dispute.In such circumstances and where detailed assessment proceedings have been commenced, the solicitor must inform counsel within 3 days if the paying party seeks to reduce a success fee charged by counsel and he must also within 14 days give his client a written explanation of the nature of the relevant point of dispute and the effect that it will have if it is upheld by the court but he need make such notification only in cases where he intends to seek an order from the court that the client should continue to pay any disallowed success fee.The notice must also explain to the client that he has the right to attend any subsequent hearings at court when the matter is raised and he must also inform the client (and,if appropriate,counsel) of the date of such hearings within seven days of receiving notice of the hearing from the court.
Obligations to others Obligations when acting under Conditional Fee Agreements The distinction made between CFAs which carry a success fee and those which do not in s.58 of the Courts and Legal Services Act 1990 (as amended by s.27 of the Access to Justice Act 1999) is of considerable importance when considering the obligations imposed upon solicitors under the CPR.In the CPR and CPD ‘success fees’ are referred to as ‘percentage increases’. Disclosure of information on detailed assessment There is a fundamental rule in CPR 44.3B(1)(d) which must never be forgotten. Its effect is to ensure that no success fee at all can be recovered in situations where the solicitor has failed to comply with either a requirement in the Costs Practice Direction (we have already seen that this is in fact entitled Practice Direction about Costs!) or a court order to disclose in any assessment proceedings the reasons for setting the percentage increase at the level stated in the CFA.This is a particularly harsh sanction but there appears to be no discretion allowed under the rules to alleviate it. No doubt a party who has been disallowed any success fee as a result of this rule will be able to apply for relief from sanctions under the various provisions in CPR 3 but even then there is no guarantee that he will be released from this sanction.
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The provisions of the CPD are to be found in CPD 32.4, 32.5 and 32.7.The first rule in sub-paragraph (c) and CPD 32.7 require the receiving party to serve upon the paying party ‘the relevant details of the additional liability’ when an additional liability is to be assessed.CPD 32.5 sets out what is meant by ‘the relevant details’.These are: a)
A statement showing the amount of costs which have been summarily assessed or agreed,and the percentage increase which has been claimed in respect of those costs; and
b)
A statement of the reasons for the percentage increase (i.e.success fee) given in accordance with Regulation 3 of the Conditional Fee Agreement Regulations 2000.
In order to ensure that this information is always notified in connection with detailed assessment proceedings, it is prudent to instruct the costs draftsman to include this information in the narrative at the beginning of the bill.There is no obligation to notify the paying party in this way – a separate letter could do it – but it is good practice to adopt the habit of including it in the bill so that the obligation to notify will never be overlooked. Costs draftsmen have a responsibility in this connection and should always raise the matter when drawing bills which claim a success fee. In this connection it must also be noted that ‘additional liability’ as defined in CPR 43.2(1)(0) includes an insurance premium so that the disclosure provisions apply also to After the Event insurance policies (ATE) and Before the Event policies (BTE) and the disclosure required in respect of detailed assessments in this context is set out in CPD 32.5(2).The information that must be provided is a copy of the insurance policy itself showing whether it covers the receiving party’s own costs, his opponent’s costs or both his own costs and his opponent’s costs;the maximum extent of the cover provided and the amount of the premium paid or payable. Although the latter figure will be part of the claim in the bill itself, it is suggested that all of the required information, including the amount of the premium, is set out at the beginning of the bill in the narrative section as mentioned above.
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Disclosure of information prior to and during proceedings CPR 44.3B(1) does not limit the obligations to the disclosure of information on detailed assessments discussed above. Under CPR 44.3B(1)(c), there are requirements on solicitors to disclose information about CFAs earlier than at the detailed assessment stage and, once again, failure to comply with these requirements can be fatal to the recovery of success fees and insurance premiums.The rule states that a party may not recover as an additional liability: c)
‘Any additional liability for any period in the proceedings during which he failed to provide information about a funding arrangement in accordance with a rule, practice direction or court order.’
This obligation refers to information required by CPR 44.15.In the first place anyone seeking to recover an additional liability must provide information to the court and to the other parties as required by any rule,practice direction or court order. (Sub-rule 1.) The information that must be provided is relatively small.In the case of CFAs linked to a success fee,there is no requirement to give details of the amount of the success fee; merely the fact that the party is instructing his solicitor under a success fee linked CFA. Similarly where an insurance policy has been taken out whether or not linked to a CFA, information is limited to the fact that such a policy has been taken out,the date it was taken out and the name of the insurer.Where the funding arrangement is one which involves an arrangement with a membership organisation to meet a party’s costs, the information required is the date and terms of the undertaking and the name of the organisation (known as ‘the relevant body’). Full details are contained in CPD 19.4 but the usual method of providing information is by means of a prescribed Form No.N251 which is reproduced overleaf.
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CPD 19.3 requires any change in the information already given to be notified if the original information has become inaccurate. Exceptions are where there is insurance cover unless that cover has been cancelled altogether or new cover is taken out with a different insurer, or where a further CFA has been entered into with an additional legal representative e.g.counsel.Once again Form N251 is the method used to notify the change of information. There are specific provisions also as to the timing of giving the required information. Initially information about funding must be given with the claim form, which is taken to include a petition and an application notice.If the CFA has been taken out before the issue of proceedings,it is with the claim form on commencement that Form N251 must be filed. Sufficient copies of the funding notice form should be sent to the court to enable it to serve the form on all parties, where it is the court’s responsibility to serve the claim form. If a defendant has entered into a CFA before filing any document, it is with the first document filed that the notice of funding must be filed; i.e. with the acknowledgement of service, the defence,or an application to set aside a default judgment or any other first application. In all other cases the notice of funding must be served within seven days of entering into the funding arrangement. The rules and practice direction themselves do not require notice of funding arrangements to be given before commencement of proceedings but it is recommended good practice to serve the notice as early as possible and indeed some protocols require this to be done at a very early stage. It cannot be stressed strongly enough that failure to disclose the appropriate information about funding arrangements at the appropriate times as provided under the rules and summarised above will result in any additional liability being lost altogether.
Other obligations between parties There are various instances under the rules and the practice direction requiring parties to supply information to each other.These are highlighted here but are considered in detail in the appropriate section later in this Report.They include the requirement to serve statements of costs for the purposes of summary assessments; the provision of estimates of costs at the allocation stage, listing stage or at any other time as ordered by the court; the procedure for exchange of Points of Dispute and Points of Reply once detailed assessment proceedings have commenced;and obligations of the parties in certain circumstances under the procedures for appealing against detailed assessments, which is now contained in CPR Part 52 with the exception of assessments carried out by authorised court officers, and which are not dealt with in this Report.
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Costs budgeting REQUIREMENTS W H AT I S A N E S T I M AT E F O R C P R P U R P O S E S ? W H E N S H O U L D A N E S T I M AT E B E P R E PA R E D ? P R E PA R AT I O N O F E S T I M AT E S H O W T H E C O U RT S V I E W E S T I M AT E S
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Chapter 3: Costs budgeting Without much doubt the most far-reaching and significant innovation introduced by the Woolf reforms so far as legal costs are concerned are the provisions relating to estimating costs.The full impact of these commercially sensible introductions has yet to be felt and,if those well meaning but misguided members of the profession who are now seeking to abandon centuries of tried and tested practice by abolishing the whole concept of between parties costs have their way,it may never be felt. However, since one of the fundamental pivots of Lord Woolf’s excellent revisions to the rules is the control of costs by giving the courts the power and the opportunity to make case management and other decisions which have the effect of limiting, reducing or imposing costs so that questions of, for example, proportionality,can be nipped in the bud before they cause a significant problem or injustice,it is to be hoped that the rush of enthusiasm towards American style contingency fees (a concept which has for ever been spurned by the civil justice system in England and Wales) will fade as quickly as it ignited.The direct result of adopting the USA system would be to give the control of costs back to a profession, who in the past had manifestly shown its ineptitude in effecting any form of self control over costs,and which would mean that all control over legal costs would be once again effectively lost. In any event, do those supporters of the percentage share of the damages really believe that the question of legal costs is irrelevant in settlements in the USA? The costs of course are fully taken into account when the parties eventually reach a settlement; they are not separately assessed it is true, but they form part of the settlement figure.They play a significant role in the negotiations even though it may seem to some that they are hidden from view and appear to have no place. It is better to have the costs out in the open from the very outset of proceedings in accordance with the intentions of the Woolf reforms and use them during the course of the proceedings to ensure that only reasonable and proportionate costs are expended on any particular case.
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Requirements The steps to be taken with regard to the preparation,serving and filing of estimates are contained not in the CPR themselves but in CPD Section 6,the whole of which is devoted to the subject. The section commences by stating the reasons why estimates are needed at all and it is here that the underlying philosophy of the Woolf reforms is revealed. The purpose of estimates is twofold.Firstly,they are a means of keeping the parties and their legal representatives informed about their potential liability in respect of costs. Secondly, they assist the court in deciding whether any order should be made,and if so what form the order should take,about either costs or case management.Thus,the underlying intention of the introduction of estimates into our civil justice system is to enable a control to be maintained over the level of legal costs by means of case management decisions and costs orders from the commencement right through to the conclusion of proceedings. In the past, prior to the introduction of the CPR, legal costs were only addressed in any serious and meaningful way at the conclusion of the matter. Costs were very much an afterthought, even though they were often a very expensive afterthought. Under the new regime, costs are considered in terms of their reasonableness and proportionality from the very beginning of the proceedings.
What is an estimate for CPR purposes? CPD 6.2 defines an estimate. It is an estimate of base costs (i.e. additional liabilities if relevant should not form a quantifiable part of the estimate) which have already been incurred, including disbursements. In other words, the first part of the estimate must show the actual costs to date.The second part of the estimate must contain those base costs which the party concerned intends to seek to recover from any other party if he is successful in obtaining an order for costs in his favour in the case.The first part is actual, the second part is estimated.
When should an estimate be prepared? The obligation to prepare an estimate is placed upon the parties at two stages in any proceedings.The first is at the stage when an allocation questionnaire is prepared so long as the claim is outside the financial scope of the small claims track; the second stage is when the listing questionnaire is prepared when the claim is on either the fast track, the multi track or is under Part 8.
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The court may,however,at any time or stage in a case order any party to prepare, file and serve on all other parties an estimate of base costs.CPD 6.3 makes it clear that the court may order the estimate to be prepared in such a way as to demonstrate the likely effects of giving or not giving a particular case management direction which the court may be considering. Examples given in the CPD include directions for a split trial or for the hearing of a preliminary issue.In such circumstances it is envisaged that the court has the ability to order in effect two estimates to be prepared;one showing the estimated base costs of proceeding down the route that the court is considering;the other showing the estimated base costs of continuing without any directions for a split trial or for the hearing of a preliminary issue.Once received,the court will be able to assess the reasonableness and proportionality of the different options and this additional input will greatly assist in determining which course to follow. In the case of court ordered estimates,the court may determine itself the period of time in which the estimate should be prepared. In the absence of any time limit being imposed,CPD 6.3 provides that the estimate should be prepared within 28 days of the date of the order. Although there are no other formal requirements under the rules to supply estimates, it is eventually likely to become standard practice for an estimate to be prepared at the very commencement of instructions and then updated and amended as the proceedings progress.Such a ‘rolling’budget system makes a great deal of sense and is akin to the budgeting process familiar to all aspects of commercial life. It ensures that the costs are monitored, and hopefully controlled, from the outset and the task of preparing court estimates or updates to private estimates will be made that much more simple if the habit of preparing a budget is adopted from the beginning.Updating a budget is significantly easier and less time consuming than preparing a budget at a particular point in proceedings from scratch,particularly when the content of budgets/estimates must show actual costs as distinct from estimated future costs. This practice should also have a beneficial effect by eliminating in most cases the need to enter upon the tortuous and expensive process of detailed assessment. If rolling estimates/budgets are prepared throughout and,if as seems likely in time, judges as a matter of habit order estimates to be prepared by all parties immediately before the trial itself, and assuming that the judge approves the estimates with or without adjustment,it would be a relatively short and uncomplicated step in most cases for the paying party to assess for himself the reasonableness of the actual trial costs.In such circumstances,the examination of the costs on a detailed assessment would appear to be superfluous.The parties should be able to agree costs without any further proceedings.
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BUDGETING
CPD 6.6 makes it clear that any estimates filed during the course of the proceedings will be relevant material to which the court may have regard when assessing the reasonableness of the costs claimed.It is evident that the closer to the conclusion of the proceedings an estimate is made,the more reluctant a court assessing the final costs payable will be in allowing an amount significantly higher than that shown in the estimate. Another occasion when estimates are required to be filed,which is often not always appreciated by practitioners,is where there has been a change to a funding arrangement (for example a variation of an existing CFA) and the information previously supplied in accordance with CPR 44.15 (1) is no longer accurate.If an allocation or a listing questionnaire has already been filed, a fresh estimate of costs must be prepared and filed with the notice of funding which is required to be served within seven days of the change in the funding arrangement on all other parties and filed with the court. In these circumstances, the advantages of operating a ‘rolling budget’ system are clear.
Preparation of estimates CPD 6.5 states that estimates should be ‘substantially in the form illustrated in Precedent H’.Following is an example of Precedent H.It follows a similar pattern to a normal bill of costs for detailed assessment but with less detail than is required in a bill. It is divided into two parts; the first dealing with the actual base costs incurred; the second dealing with the estimated future base costs. A note of the hourly rates utilised appears at the beginning of the first page and, where necessary and relevant, an explanation for the use of particular grades of fee earners may also be set out here. The actual chronology of the proceedings appears in the first part of Part 1 of the estimate whether or not there is a charge applicable to each entry.In the estimated section in Part 2 an attempt should be made to show what is expected to be the chronology since,as may be seen later in this chapter,an estimate consisting simply of figures is of little use to the court or anyone else.The assumptions upon which the figures are based are of vital importance, both when a court is considering the reasonableness of the estimate when it is filed and also when considering the reasonableness of changes in the costs claimed,in subsequent estimates or when a costs officer is considering the estimates as a whole on a detailed assessment. Any information which illustrates the basis upon which the particular estimate was made will be invaluable and chronological narrative showing what the compiler of the estimate expected to happen in the case will be immensely useful.
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The work carried out or proposed to be carried out does not have to be described in detail or scheduled as in a formal bill for assessment.The hours spent by each fee earner on each aspect including time spent on untimed telephone attendances and letters written is simply expressed as a total time figure.Thus under Item No. 9 the entry ‘Defendant and his solicitor’ has against it a claim for 2.5 hours and this will include all relevant attendances,whether personal or telephone,and letters written. Each Part of the bill is totalled and added to a summary which shows the totals of each Part added together to give the overall total estimate. The prescribed precedent,however,lacks one critically important element.Nowhere in the precedent is there space for setting out the assumptions upon which the estimated future costs have been based.As already mentioned,the omission of such information renders the estimate virtually worthless for practical purposes. If a judge is to base case management decisions on such estimates and control the costs in an action as is clearly envisaged by the rules, how can he possibly make any reasoned assessment without knowing the basis upon which the estimate and individual aspects of it have been claimed.It is asking the impossible.In commercial budgets the figures are always supported by reasoned narrative explaining how they have been arrived at or estimated and, whilst it would be unreasonable and probably disproportionate in costs terms to require lengthy,reasoned and finely argued dissertations supporting the estimated figures, it is undoubtedly essential to supplement the prescribed form with at least a list of assumptions made when compiling the estimate. Desirably there should be a document attached to the estimate stating the significant features involved in preparing the estimate.It is suggested that this commences with a very brief narrative setting out how far the action has progressed to date. It should then have another paragraph setting out, again briefly, the future steps that are envisaged.In the context of this,there should then follow a listing of the relevant considerations and assumptions that have been taken into account and utilised in arriving at the estimated future costs.These may include the following, although this list is not exhaustive: •
Number of witnesses of fact and how they have changed since the previous estimate
•
Number of expert witnesses with their disciplines and how they have changed since the previous estimate
•
Major documentation or disclosure that must be worked upon including variations or changes since the previous estimate, quantifying in each case e.g. pages, documents, files etc.
•
Use of counsel – why Leading Counsel or different counsel are necessary
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•
Need for conference(s) and how many
•
Use of different or additional fee earners or reduction in fee earners with reasons
•
Major changes in direction or tactics with reasons.
The crux of the whole business of budgeting or estimating is placing oneself in a position which enables figures prepared at any particular time to be justified on the situation appertaining at that time and so enabling reasoned justification for any dramatic or other changes to estimates and levels of costs in the future. If figures simply change with no explanation for why they were calculated at the level they were in the first instance or why they have necessarily had to change, practitioners can expect little sympathy from judges when making case management decisions based upon the estimates or from costs judges when assessing the reasonable level of costs in detailed assessments. There is little doubt that many litigation solicitors do not have the skills or training required to prepare meaningful estimates and the habitual recourse to the use of time recording systems as billing systems by the profession as a whole does nothing to improve the situation.If ever a partnership was needed between solicitors and their costs draftsmen,it is over the question of the preparation of reliable, meaningful budgets. Professional costs draftsmen, that is members of the Association of Law Costs Draftsmen, do have the training, experience and expertise to provide solicitors with litigation budgeting services and it is in this area in particular that the future lies for costs consultants.
How the courts view estimates Sufficient time has elapsed for one or two decisions involving estimates and their use to have emerged from the judiciary although it is likely that many more will be forthcoming over the months to come.There have been no decisions specifically on the adequacies or otherwise of the estimates themselves, at least not in the reported cases, but the powers of the courts to utilise estimates to control costs and the progress of litigation is just about becoming recognised and understood, some two and a half years after the introduction of the concept into the litigation process. It is likely to take more time for the practice of estimating to be generally adopted so that it will become a standard,common practice but there is little doubt that it will happen.
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One of the first mentions of the estimating process in the context of the CPR was the reference to the importance of the court’s powers by Lord Justice Mance in Solutia UK Limited (formerly known as Monsanto Chemicals UK Limited) v. Griffiths and Others [2001] 2 Costs LR 247.The case is an important decision on other grounds since it considered the question of proportionality and also the reasonableness of instructing distant (in this case London) solicitors but,having pointed out that the costs incurred were £210,000 against a recovery in the action of £90,000, he remarked: ‘It is to be hoped that subsequent to the Woolf reforms judges conducting cases will make full use of their powers under the practice direction about costs, section 6, which appears in the Civil Procedure White Book 43/PD006 to obtain estimates of costs and to exercise their powers in respect of costs and case management to keep costs within the bounds of the proportionate in accordance with the overriding objective.’ He went on to say that it was explicit in CPD section 6 that the amount of costs should play an important part,both in the court’s orders about costs and its orders about case management. In the same case, judgment was also delivered by Sir Christopher Staughton who referred to the court’s general powers of case management under CPR 3 and commented:‘So surely case management powers will allow a judge in the future to exercise the power of limiting costs, either indirectly or even directly, so that they are proportionate to the amount involved’. So far as the validity of estimates is concerned in the business of assessing costs, there are to date no cases which deal with the position between parties but, by analogy,it seems that the conclusions reached in two cases dealing with estimates between solicitor and client are relevant and point to the fact that estimates should be adhered to by those making them.In this context the need to set out the assumptions upon which the original and subsequent estimates were based becomes even more pressing. In Wong v. Vizards [1997] 2 Costs LR 46, the court considered the effectiveness of an estimate of total costs in the context of its subsequent enforceability against the solicitor who had delivered a bill in a sum which exceeded the original estimate. Mr Wong had been sent a letter on the subject of costs.It was in November 1993 and concerned the solicitor’s estimate of total costs on a worst-case basis if the matter went to trial, which had been fixed for July 1994. Mr Wong had asked for this costs information so that he could decide whether it was worth pursuing the matter to trial.The fee proposal covered the period November 1993 to the end of the trial in July 1994. It was in the sum of £9,955 profit costs and when adding disbursements,the amount reached £21,805 plus VAT of £3,815.87. A letter dated 3 December 1993 in respect of expert evidence added a further £1,500
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plus disbursements and VAT. The estimate was expressed to represent ‘the fullest extent of your liability to this firm for costs likely to be incurred now or in the future’.Two bills were rendered by Vizards to Mr Wong after the successful trial which totalled £45,849.34 excluding VAT. The second of these two bills was for work done from 20 October 1993 and it amounted to £32,015.93 including VAT. Mr Wong relied on the estimate and said that he should not pay any more than he had been told was the worst-case basis. In his judgment relating to this aspect of the case in which there were a number of Objections raised by Mr Wong,Toulson J. (as he then was) referred to the Law Society’s Guide to the Professional Conduct of Solicitors,7th edition at paragraph 13.07 which indicates that when confirming oral estimates,the final amount payable should not vary substantially from the estimate unless clients have been informed of the changed circumstances in writing.Taking that into account,the judge ordered that the amount to be allowed in respect of the solicitors’profit costs for the period from 26 November 1993 to the conclusion of the trial in July 1994 should be limited to £9,955 plus VAT, excluding counsel’s fees and expert’s fees. The more recent case of Anthony v.Ellis and Fairbairn (a Firm) [2000] 2 Costs LR 277 is even more of a stark reminder that estimates are taken seriously by the courts and that solicitors who give them must be prepared to be held to them. Here the solicitor gave an estimate in the sum of £2,500 to legal expenses insurers who were responsible for most of the costs in an action for negligence brought against two other firms of solicitors. The estimate was given in writing on 8 December 1997 and related to the cost of preparing a defence and counterclaim and the cost of counsel’s advice on merits and counsel’s charges for considering the defence and counterclaim.In the event the advice was unfavourable.The bill rendered by the solicitors was fractionally under £9,000. It was held that when asked for an estimate of total costs for the work,the insurers meant the total costs including counsel’s fees and profit costs and other disbursements.The solicitors argued that no one in their right mind would consider the sum of £2,500 sufficient to cover the work required. The judge said that it was certainly a gross under-estimate but was otherwise unimpressed with that line of argument.Citing the Wong case,where it was suggested that a margin of up to 15% above the worstcase figure was reasonable, Popplewell J. held that the estimate of £2,500 plus 15% was the maximum that should be allowed.In so deciding,the judge said that at no time were the insurers or the client informed that the estimate was likely to be exceeded and that it was incumbent upon the solicitors to keep the client well-informed at each stage where substantial sums were being incurred. In summary, it is vital that all estimates, whether between parties or those given to clients, are properly prepared with assumptions utilised clearly highlighted, then regularly reviewed and updated where necessary and that clients are immedi-
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ately made aware of any increases in original estimates as soon as they occur. Failure to observe these simple points of practice will attract a considerable risk of losing costs which may otherwise have been both reasonable in amount and reasonably incurred.
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Recovery of costs SUMMARY ASSESSMENTS SUMMARY ASSESSMENTS WHERE AN ADDITIONAL LIABILITY IS CLAIMED D E TA I L E D A S S E S S M E N T S
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Chapter 4: Recovery of costs There are two methods of recovering costs between parties, either by summary assessment of the costs or by detailed assessment. In the case of recovery of a solicitor’s costs against his client, detailed assessment following an application under s.70 of the Solicitors Act 1974 or, following the issue of proceedings for recovery of the amount(s) owing, there may be summary judgment under Part 24 either for the sum as claimed or for such sum as may be found due following a detailed assessment. In either case, detailed assessments assume great significance in the absence of settlement of the costs in dispute and it is necessary to understand fully the procedures required by the CPR in relation to these and the tactics that should be adopted.Summary assessments are equally important since they may be made in respect of any case at the discretion of the court and must be made in certain fast track cases.They may cover the whole of the costs of an action or simply the costs relating to a particular application notice or case management conference.
Summary assessments The CPD requires the court to consider whether or not to make a summary assessment whenever it makes an order about costs which does not provide for fixed costs.There are two occasions when the court is obliged to carry out a summary assessment. 1.
At the conclusion of a fast track trial. In this case the court will deal with the costs of the whole case.
2.
At the conclusion of any other hearing which has lasted not more than one day, in which case the court will deal with the costs of the application or the matter to which the hearing related.If the claim is disposed of at the hearing, the court will deal with the costs of the whole claim.
There is also a requirement that the Court of Appeal deals with costs summarily on appeals to which Paragraph 14 of the Practice Direction supplementing Part 52 applies, unless there is good reason not to do so.‘Good reason’ may be for example where the paying party shows substantial grounds for disputing the amount claimed or if there is insufficient time to deal with the question of costs.
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Where an application has been made and a hearing date fixed but the parties agree an order by consent without either party attending court,the consent order should contain either a figure for the costs agreed or it should state that there should be no order for costs. In the absence of agreement between the parties as to costs, the parties will have to attend the appointment but CPD 13.4 makes it clear that there is unlikely to be any award of costs to either party in respect of that attendance, unless good reason can be shown as to why the parties had failed to agree the costs.When costs are agreed and their amount is inserted as required in the consent order,the court is entitled to consider the amount of the costs to ensure that they are neither unreasonable nor disproportionate having regard to CPR Part 1 (the overriding objective).The judge will intervene only if he considers that the costs are so disproportionate that he considers it right to do so. (CPD 13.13.) Procedure Where a summary assessment is to take place CPD 13.5 sets out the following procedure: i)
It is the duty of the parties to assist the court in making the assessment.
ii)
Each party must prepare a written statement of costs if it is intending to claim costs on the hearing.This must state separately the number of hours claimed;the hourly rate claimed;the grade of fee earner;the amount and nature of any disbursement (excluding counsel’s fees for the hearing); the amount of solicitor’s costs for attending the hearing;the fees of counsel for attending the hearing;and any VAT. The statement must be filed with the court and served upon any party against whom costs are to be sought on the summary assessment, not less than 24 hours before the hearing. Failure to serve a statement of costs without good reason will according to CPD 13.6 be taken into account by the court in deciding what order to make about the costs of the claim, hearing or application and the costs of any further hearing that may have been necessitated as a result of the failure.Helpful clarification of this rather nebulous piece of drafting is to be found in MacDonald v.Taree Holdings Limited [2001] 1 Costs LR 147. In this case a statement of costs had not been served until the day of the hearing,the listing for which had been notified to the parties on 16 August 2000.The statement was not filed with the court.The District Judge refused to order any costs to Mr MacDonald who was successful at the hearing on the basis that the procedure had not been observed and that there was no reasonable excuse for this failure.The appeal was heard by Neuberger J.who concluded that where there had been a failure to comply with the CPD that failure should be taken into account but
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the court’s reaction should be proportionate.Where there was ‘mere failure’ without aggravating circumstances, the court should consider whether there has been any prejudice to another party.If not,he suggests that the assessment should proceed in the normal way. If it is decided that some prejudice has been caused, there would normally be three approaches: 1.
Give the paying party a short adjournment of say 15 minutes during which they can consider the schedule after which the assessment proceeds;
2.
Order that the matter be stood over to a detailed assessment in which case it may be appropriate to order that the receiving party pay the costs of that detailed assessment or at least make it clear that this option should be considered by the costs judge;
3.
Stand over the matter but order that the assessment be on a summary basis.
In using this option the judge felt that it would not be necessary to have a further formal hearing but that the matter could be dealt with by the parties sending in their submissions in writing and the decision given in writing. It would not be appropriate to deprive the receiving party of his costs altogether for mere failure to comply with the requirements. If there are aggravating factors, then it might be appropriate for the receiving party to be deprived of all or a part of his costs.The judge gave two examples of aggravating factors but stressed that there could be many more.The two he highlighted were where a party had been specifically asked for the schedule to be served in time and the court is satisfied that the failure to do so was deliberate; or where the party concerned could be shown to have a history in the case of failing to serve schedules and this had been specifically drawn to his attention. iii) It is suggested that the written statement of costs should follow as closely as possible the prescribed form for the purpose which is Form N260, which is reproduced on the following page. However, there are inadequacies about this form and these are dealt with below.
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iv) There is a certificate at the end of Form N260 which relates to the Indemnity Principle confirming that the costs claimed in the statement do not exceed the amount of costs that the client will have to pay.This would seem to be a particularly pointless requirement since the statement of costs figures must of necessity be only estimates and it is most unlikely that the solicitor will have either had the time or the necessary information upon which to be able to ascertain how much his client will eventually be charged. In any event, if there is an adverse costs order, it is likely that the client would have to pay nothing. It is also likely that the cost of working out the minutiae of the solicitor/client costs as against the standard basis between parties’ costs would be disproportionate to what is achieved by such an exercise. It is an example of how the ‘item by item’approach to the Indemnity Principle as first enunciated in General of Berne Insurance Co. v. Jardine [1998] 2 All ER 301; [1998] 1 Costs LR 243 can produce time consuming, expensive and sometimes illogical results.What happens,for example,where a solicitor has agreed with his client that he will charge a fixed fee for his services – it will be impossible for him to sign the required certificate.The sooner the Indemnity Principle is modified so as to reflect its interpretation through decades prior to the Berne decision,so that it relates to a global sum for the whole costs only,or,as some would suggest,it is abolished altogether,the better. The certificate understandably does not have to be signed by solicitors acting for LSC funded clients or where a solicitor employed by the litigant is acting.This would include solicitors in government departments and local authorities. CPD 13.9 provides that the court will not make a summary assessment of the costs of a receiving party who is an LSC funded client. v)
Where solicitors are acting under a CFA with an additional liability,the amount of that additional liability (e.g. the success fee) does not have to be disclosed in the statement. CPR 44.3A prevents the court from making a summary assessment of any additional liability under a CFA before the conclusion of the proceedings or that part of the proceedings to which the CFA or funding arrangement may relate. In such cases, the court is obliged to make a summary assessment of the base costs unless there is good reason not to do so. In practice, courts tend not to make summary assessments in such circumstances, although the practice may change as the rules become more familiar,but instead the costs are ordered to be dealt with by way of detailed assessment.It should be noted that CPD 13.8 prevents a court from making an order that a costs officer should carry out a summary assessment.If there is insufficient time in which to make the
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summary assessment on the day, the court must either fix a further hearing for that purpose or it will order detailed assessment of the costs. vi) When a summary assessment of base costs only has been made, all estimates and statements of costs will be kept on the court file.These will then be available for the detailed assessment at which the additional liability will be assessed at the conclusion of the matter. The assessment All too often there is very little time in which to deal satisfactorily with the summary assessment of costs and there is still considerable evidence that some courts are sending the task to the costs officers by way of detailed assessment. However, in many instances (and it is to be hoped in the future in the majority of cases) proper summary assessments are being carried out.In this context it is necessary to dwell upon the information required on Form N260 mentioned above. If fairness is to be given to each party,the court,it is suggested,has a duty to consider in some detail the statement of costs. Furthermore, in many cases the bare information in the statement expressed always in terms simply relating to the time spent,is hardly sufficient to enable the judge to make a fair and reasonable assessment.When the new procedure was first introduced,one set of counsel’s chambers indicated that they would expect solicitors to make available to those instructed to conduct summary assessments following a particular hearing, full details of the costs claimed, which in some cases they said should be in bill form.Whilst not suggesting that a full bill of costs is either necessary or realistic in costs terms for the purposes of supporting a claim on a summary assessment, there can be little doubt that the information sought by Form N260 is insufficient for other than the most elementary cases. It is recommended that details of the work done on documents is attached to the form by way of a schedule so that, where there is an apparently high time claimed globally on the form,the reasonableness of the claim may be ascertained and assessed by reference to the work actually carried out.Similarly,where there are a number of attendances on the client or others which have combined to provide a high global figure under the appropriate box on the form, an accompanying schedule should make it clear why the attendances were required and what transpired at each.The information does not have to go into minute detail but it should be sufficient to enable the reasonableness and proportionality of the costs claimed to be properly assessed.To simply state a certain number of hours in each case is patently insufficient.
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This view is supported by the comments of Jonathan Parker LJ in 1-800 Flowers Inc.v. Phonenames Limited [2001] 2 Costs LR 315: ‘In my judgment, it is of the essence of a summary assessment of costs that the court should focus on the detailed breakdown of costs actually incurred by the party in question, as shown by its statement of costs; and that it should carry out the assessment by reference to the items appearing in that statement. ‘In so doing, the court may find it helpful to draw to a greater or lesser extent on its own experience of summary assessments of costs in what it considers to be comparable cases. Equally, having dealt with the costs by reference to the detailed items in the statement of costs which is before it, the court may find it helpful to look at the total sum at which it has arrived in order to see whether that sum falls within the bounds of what it considers reasonable and proportionate. If the court considers the total sum to be unreasonable or disproportionate, it may wish to look again at the various detailed items in order to see what further reductions should be made. Such an approach is wholly unobjectionable.’ In the light of that judgment, it is clearly important to ensure that the court has before it full details of how the claim for the hours has been made up, particularly where the claim in global terms appears to be high. An explanation is essential if costs are not to be lost. The SCCO circulate from time to time a list of hourly rates which are intended to be guidelines for judges throughout the country in order to assist them in assessing the reasonableness of hourly rates.The problem with these is that there is a tendency to adopt them as set in stone when it is made absolutely clear that this is not the intention.There are many arguments for and against the use of any particular hourly rate and these arguments apply to the guideline rates as to any other rates claimed.They should be treated as they were intended to be,as guidelines and with caution.
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The current guideline rates are reproduced below. TABLE OF GUIDELINE RATES LOCALITY
GRADE OF FEE EARNER 1 £
2 £
3 £
4 £
Birmingham (inner)
158
158
123
80
Birmingham (outer)
131
131
103
73
Coventry, Rugby, Nuneaton, Stratford
145
135
114
80
Northampton
145
135
112
80
Nottingham City
150
140
110
84
Nottingham and Derby
140
135
104
78
Leicester
130
124
96
74
Lincoln
140
135
104
78
Stafford, Stoke,Tamworth, Shrewsbury, Telford, Ludlow, Oswestry, Kidderminster
130
125
100
78
Worcester, Hereford, Evesham, Redditch
140
130
114
80
Liverpool
160
150
130
100
Birkenhead
150
135
125
95
Leigh
160
150
130
100
St Helens
160
150
130
100
Southport
145
130
120
90
Wigan
160
150
130
100
Manchester Central
160
130
110
80
Oldham, Salford, Outer Manchester
160
130
110
80
Stockport,Altrincham,Thameside
160
130
103
80
Bolton, Bury
155
130
108.5
85
Preston, Lancaster, Blackpool, Chorley
140
130
125
85
Cumbria
150
140
125
81
Midlands
Northern Circuit
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1 £
2 £
3 £
4 £
Newcastle City Centre (2 mile radius)
160
135
115
85
Newcastle – all other locations
150
120
105
80
Teeside
150
120
105
80
Leeds
140
140
120
90
Bradford (Dewsbury, Halifax, Huddersfield)
140
125
110
80
Bradford (Keighley and Skipton)
140
125
110
80
Sheffield
140
125
105
75
130 120-130
80-90
North Eastern Circuit
Hull Grimsby
140-150 140
135
100
78
130-155 110-140 110-120
70-90
COSTS
Wales and Chester Circuit Chester and N.Wales Cardiff (Inner)
155
145
120
85
Swansea South,West Wales, Cardiff (Outer)
135
125
115
80
City of London
325
235
180
110
Central London
250
190
155
100
180-210 135-180
130
95
South Eastern Circuit
Outer London RCJ Oxford
155
135
120
85
Lewes
160 140-150
130
85
Kingston, Guildford, Reigate, Epsom
160
140
125
85
Luton, Milton Keynes, Aylesbury, Bedford, St.Albans, Hitchin, Hertford
140
120
110
85
Watford
150
140
115
90
Chelmsford North, Cambridge
160
145
125
90
Cambridge City Centre
165
150
130
95
Norwich
130
130
105
70
Chelmsford South
150
135
115
90
Croydon
170
150
130
90
Canterbury, Dartford, Gravesend, Medway, Maidstone
150
140
125
85
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1 £
2 £
3 £
4 £
Devon, Cornwall, Exeter
145
125
100
80
Bristol, Bath,Weston, Cheltenham, Gloucester and Trowbridge
155
145
125
80
Taunton and Yeovil
145
125
100
80
Swindon
140
125
110
80
Winchester and Hampshire, Dorset, Wiltshire and Isle of Wight
150
120
100
80
Western Circuit
COSTS
NOTES Grade 1: Practitioners (solicitors) with over 8 years Post Qualification Experience (PQE) Grade 2: Practitioners (solicitors and legal executives) with over 4 years PQE Grade 3: Other practitioners (solicitors or legal executives or other fee earners of equivalent experience) Grade 4: Trainees or para-legals or other fee earners of equivalent experience ‘Legal executive’ means a Fellow of the Institute of Legal Executives. In Central London it is recognised that the top grade guideline figure may not be the appropriate rate in certain complex,major commercial litigation and may be exceeded by a significant margin. In Outer London the wide range of rates suggested accommodates the fact that many sole practitioners and small partnerships practise in the area as well as very large firms and this factor should be taken into account when deciding what rate to allow.
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Summary assessments where an additional liability is claimed The existence of a CFA or other funding arrangement is not in itself a sufficient reason to decline to carry out a summary assessment of costs (CPD 14.1) and it has already been seen that the court may assess the base costs although the assessment of any additional liability must await the conclusion of the matter.Where orders are made before the conclusion of the matter,it is of course usual to make an order for the payment of costs following a summary assessment but where an additional liability is claimed, although the base costs may have been summarily assessed, no order for their payment will be made unless the court is satisfied that at the time the receiving party is liable to pay to his legal representative an amount equal to or greater than the amount of the costs which have been summarily assessed. Enter the Indemnity Principle once again since if the CFA is a ‘no win, no fee’ variety, it is unlikely that at an interlocutory stage any costs will be due between the receiving party and his solicitor under the CFA based retainer. In this context it is important that the certificate at the end of Form N260 is completed appropriately.The court may,however,order that any costs for which the receiving party may not in the event be liable be postponed in some way, or that the order shall not be enforceable until further order or that the amount assessed be paid into court. Much will depend upon the circumstances of the case as to exactly what the terms of such an order will be in each case. Where the matter has concluded, there are various options open to the court in relation to the assessment of the costs where there is a funding arrangement. CPR 44.3A sets these options out. It may: a)
Make a summary assessment of all the costs including the additional liability;
b)
Make an order for detailed assessment of the additional liability but make a summary assessment of the other costs; or
c)
Make an order for the detailed assessment of all the costs.
If the court adopts (b) above, it may state in its order the amount separately of (i) the solicitor’s costs, (ii) counsel’s fees and (iii) any other disbursements and it should in such cases also state the VAT payable.The statements of costs upon which the decision on summary assessment was based will be retained on file. When the court makes a summary assessment of the additional liability at the conclusion of the proceedings,this will include any additional liability on the base costs which have been summarily assessed earlier.
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When the court comes to assess an additional liability it is the duty of the receiving party to prepare and have available for the court a bundle containing the following: –
A copy of every notice of funding arrangement
–
A copy of every estimate and statement of costs filed by the receiving party
–
A copy of the risk assessment prepared at the time any relevant funding arrangement was entered into and on the basis of which the additional liability was fixed.
Detailed assessments The process leading up to detailed assessments has gradually become more complex over the years since the assessment (once known as ‘taxation’) system was admirably simplified by the Horne Committee in the mid eighties and with the added complexity has come the inevitable additional expense.Some commentators believe that costs have increased by at least threefold (some even say tenfold!) as a result of the requirements of the present procedure. It should be mentioned here that the Woolf reforms themselves were not directly responsible for these changes (the consultation document which preceded the reforms barely dealt with the question of detailed assessment) which were brought about by those in the SCCO and on the Rules Committee who thought that the opportunity should be taken to change the procedure in formal terms – it had already partly changed by the use of Practice Directions from the SCCO prior to Woolf – and it is now firmly embedded in the CPR and the CPD. One of the major differences between the new and the old procedure is that detailed assessment proceedings are no longer commenced by lodging a bill of costs, the order giving entitlement to costs and disbursement vouchers at the court.Instead, the proceedings are commenced by completing a form headed Notice of Commencement of Detailed Assessment Proceedings and serving this, together with the bill of costs and supporting documentation as set out in CPR 47.6 and CPD Section 32,on the paying party. This kick starts an automatic procedure which includes the preparation and service by the paying party of Points of Dispute within 21 days of the receipt of the notice of commencement,following which a further 21 days is allowed to the receiving party to prepare and serve Points of Reply, although these are not compulsory but may be prepared at the option of the receiving party. The object it is assumed of this exchange of what might be termed ‘assessment pleadings’ is to give the opportunity to the parties to try to agree as much as possible of the bill of costs. It is in this area that considerable costs can be generated since, despite frequent warnings from the Chief Costs Judge that
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Points of Dispute should be short and sweet (CPD 35.2 states that they should be ‘short and to the point’), practitioners invariably labour each point unnecessarily. A further problem is that CPR 47.14 (7) in effect obliges paying parties to take as many points as may be remotely reasonable since it provides that only points which are included in the Points of Dispute may be raised at the detailed assessment hearing unless the court gives permission.The paying party will have to be careful to strike the correct balance when making its points because it may be penalised in costs if it includes points which are subsequently held to have been unreasonable points to take but,since in most cases it will be the party responsible for the costs of the detailed assessment anyway, there is a strong incentive to include every reasonable point it can think of rather than exclude them because of the limiting factors in CPR 47.14 (7). There is a prescribed form of Points of Dispute known as Precedent G,an example of which is reproduced on page 55. Once this exchange of ‘pleadings’has taken place,the receiving party must prepare an annotated version of the Points of Dispute showing which points have been agreed and which points still remain in dispute.The receiving party is then ready to apply for a detailed assessment hearing which is done by completing yet another prescribed form entitled Request for Detailed Assessment Hearing in Form 258 which is reproduced at page 56.This is then filed with the court together with the long list of documents which the CPD at Section 40.2 requires to accompany the form.This is the first time that the court will have been involved in the proceedings unless there has been the necessity for some form of application prior to this stage.The list is not reproduced here but particular attention is drawn to the following: –
If there is a dispute in the points of dispute involving the Indemnity Principle,the receiving party must lodge any agreement,letter or other written information provided by the solicitor to their client explaining how the solicitor’s charges are to be calculated.
–
An estimate of the likely length of the hearing must be given at this stage.
–
A statement of the parties showing name,address,reference,telephone number and fax number if any.
Apart from these the documentation required is as one would expect comprising the order for costs,the notice of commencement,points of dispute and reply and counsel’s fee sheets and other disbursement notes. A close check should be made against the list in CPD 40.2 when applying for the hearing.
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It is also important that the time limit for requesting a detailed assessment is observed.The receiving party must apply for the hearing not more than three months after the expiry of the period within which detailed assessment proceedings must be commenced.That period is within three months of the perfected order and,whilst these time limits appear quite generous,a couple of extensions granted for service of Points of Dispute and/or Reply will soon eat into it.The date should be diarised at an early stage so that it is not missed. Tactics There is ample scope within the rules and CPD to take advantage of situations arising from a failure to comply strictly with the rules. One of the most effective is for receiving parties to apply for a Default Costs Certificate under CPR 47.11 in the event that Points of Dispute are not served in time or they are served late. In effect this means that in the absence of a good reason the receiving party will be able to obtain a certificate (equivalent to an order) to the effect that the costs as claimed in his bill must be paid. A paying party may of course apply to have the certificate set aside but it is more than likely that he will be penalised in costs if that application is successful and it is by no means a foregone conclusion that success will follow an application to set aside unless there is a very good reason for the failure to comply with the required procedure. Another very valuable tool given to receiving parties is the ability to apply for interim costs certificates.These are permissible under CPR 47.15 but they can only be applied for once the receiving party has applied for a detailed assessment hearing.They are made pursuant to Part 23. If, for example, the paying party has not challenged many aspects of the bill in his Points of Dispute, the receiving party can seek an interim costs certificate in respect of the amount represented by the items in the bill which are not disputed. It concentrates the mind of the paying party and ensures that the receiving party obtains at least some of its costs as early as possible.The court does have the power to order that the sum certified be paid into court rather than to the receiving party and it does not have to order the amount sought,even though that sum may have been agreed or,at least, not disputed. The assessment It is usually a fairly informal affair in the chambers of the costs judge or the district judge.It is vital for a receiving party to prepare fully for the hearing since whether or not he succeeds on the various items claimed in their bill will depend largely on being able to substantiate not only that time spent on the work has been done but that the time was reasonable and proportionate and that the work done was reasonable and proportionate.
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The Standard Basis of assessment is defined in CPR 44.4. It is the normal basis for the assessment of costs between parties and it provides that the court will not allow costs which are unreasonable in amount or costs which have been unreasonably incurred.The costs must also be proportionate to the matters in issue and where there is doubt about reasonableness or proportionality,that doubt must be resolved in the paying party’s favour.The definition is poorly drafted since in CPR 44.4 (2)(a) the court will only allow costs which are ‘proportionate to the matters in issue’ whereas when dealing with the question of doubt in CPR 44.4 (2)(b) the court must resolve any doubt that it has as to whether costs are ‘proportionate in amount’ in favour of the paying party. It is evident that costs may be proportionate in amount but there may be some doubt as to their proportionality in relation to the matters in issue, yet apparently where there is doubt in the latter case,the costs officer may resolve it either way.This is a small point but one which receiving parties may find of benefit to their case in some situations. Given this definition, the task of the receiving party is clearly to avoid any doubt being created at all in the costs officer’s mind.The paying party, if he has done his job properly, will attempt the opposite and try to create doubt through the points he has raised in his Points of Dispute.The single most important piece of armour in the receiving party’s weaponry is the attendance note which should be made contemporaneously,which should describe briefly the work carried out and which should be placed and left on the file for future reference.The most common reason why costs are reduced on detailed assessments is the lack of proper evidence to show the reasonableness and proportionality of individual items of work. Reliance upon a computer time recording system is unlikely to rescue a receiving party who has not kept proper attendance notes since the purpose of such systems should be for management and not for billing purposes and in any event,if there is no indication on the file itself of work done,the fact that it appears on a time recording system will not provide conclusive evidence that the work carried out was reasonable on the Standard Basis. The two golden rules for receiving parties must be: 1.
Keep well ordered files and properly completed attendance notes.
2.
Prepare fully for each point raised by the paying party for detailed assessment.
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Bills of costs REQUIREMENTS FOR THE CONTENTS OF A BILL ITEMS LISTED IN CPD 4.6 W H AT I S O R I S N O T A L L O W E D D I V I D I N G T H E B I L L I N T O D I F F E R E N T PA RT S
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Chapter 5: Bills of costs Prior to the reform of civil litigation practice and procedure,there were two basic forms of bill. One was a three-column bill (referred by those who recall the preVAT era as two-column bills);the other was a six-column bill.The latter was usually used to show legal aid costs separately from between parties costs but it was also used where there were perhaps two paying parties each responsible for different elements of the costs. On the left hand side of each form was a column headed ‘taxed off’and it was into this column that the costs officer would insert the amount by which he had reduced a particular item.The total reduction would be added up at the end and subtracted from the total of the profit costs in the summary to show the total profit costs allowed.To this would be added the VAT calculated at the appropriate rate,then the total disbursements,whose amounts would have been changed in the body of the bill itself by the costs officer if any reduction to them had been decided, would be added as would the VAT on those disbursements.The sum of these figures provided the total allowed.The system was clean, easy and quick to calculate. Driven only by what is considered to be a needless desire to change for change’s sake, the Costs Practice Direction when the new CPR first came into existence in April 1999,prescribed one single form of bill which consisted of two columns. Into one of these columns went all chargeable items whether profit costs or disbursements and alongside these on an item by item basis the VAT applicable to each. This proved to be an unmitigated and expensive disaster and reflects what can happen when people who are not experienced in the art (or is it a science?) of costs drafting undertake a task which requires detailed practical knowledge of the subject. Happily,when the CPD was revised,the July 2000 version contained no less than four suggested forms and the old format had been restored – almost. It would have been superfluous to examine the faults of the original two-column form had it been replaced by the revised CPD but unhappily the two-column version remains as an option to be used and,presumably because it was the originally prescribed form it is still used on many occasions.It must be said that if costs are to be controlled and the task of detailed assessment or indeed the examination of a bill with a view to attempting settlement without detailed assessment proceedings,no one should contemplate using this two-column bill form. It produces discrepancies on the VAT figure,it is a thoroughly messy document in practical terms to assess, it is impossible for a paying party to ‘get a feel’ for the costs by seeing at a glance
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how much the profit costs are for preparation overall or indeed the overall profit costs. Instead one has to hop about the bill form to extract this invaluable information.The fact that parts have to be used instead of the six-column format where LSC funding is relevant or where there is more than one paying party is an added misery.Instead of making the business of preparing bills,assessing them for negotiation purposes and using them on detailed assessments,more simple and effective, it has combined to make the task more complex and ineffective.Use of this form should be avoided and it is hoped that it will be consigned to the recycle bin on the next revision of the CPD. Examples of the prescribed forms of bill are shown in the Appendix. The absence of the ‘taxed off’or reduction in profit costs column in to be regretted but otherwise the formats are simple and convenient and easy to understand. They are referred to as Precedent A, Precedent B and Precedent C and they are distinguished only by the circumstances for which their use is prescribed.Precedent A is a standard bill in three columns which claims base fees and an additional liability. Precedent B is for use where an additional liability only is to be assessed and Precedent C is where both between parties’costs and LSC funded client costs are to be assessed (this is the six-column bill).
Requirements for the contents of a bill CPD Section 4 governs the form and content of bills. Every bill must contain a title page and as appropriate sections covering the following: a summary of background information which should be a brief description of the issues and outcome and of any peculiar,unusual or significant aspects which may be relevant to the assessment. It should not simply set out the procedural steps that have been taken up until the notice of commencement of detailed assessment proceedings, since the bill itself is in chronological form and these steps should be highlighted there whether or not they are also chargeable. A statement of the fee earners claimed for together with the hourly rates claimed for each must appear in this background information and also a statement concerning the Indemnity Principle (which keeps raising its wretched head) explaining briefly any agreement or arrangement between the receiving party and his solicitors that may affect the assessment.Although not specifically mentioned in Section 4 of the CPD, it is here also that it is suggested the relevant information about any CFA or other additional liability should be disclosed under CPD 32.4 and 32.5 although this may be done by letter separately.
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The next section in a bill is to set out the items of costs claimed under each heading provided by CPD 4.6 although it is clear that this list is not exhaustive. It would be an unhelpful bill indeed that did not recite the step-by-step progress of the action in its body.The direction states that the ‘items of costs’must be set out but it is common and good practice to set out all the significant steps taken in the action. For example, there may be many instances when a specific charge is not applied either because one is not appropriate or because there is no costs entitlement. Examples of the former are the date when witness statements are exchanged or when lists of documents are served; in the latter case there may be an application which has resulted in an adverse order for costs against the receiving party,so that costs relating to that application cannot be claimed against the paying party but nevertheless it should appear in the bill as a significant step but one for which no claim for costs is made.There are many such examples. Each item for which a claim for costs is made, whether by way of profit costs or disbursements, must be numbered consecutively. When claiming costs for hearings including case management conferences, the terms of the order made on each occasion, and especially the terms of the order for costs, should appear in the narrative to the claim. Similarly, bills which do not briefly state what subject was discussed at conferences with counsel are particularly unhelpful and will inevitably prolong the detailed assessment process prior to the actual hearing since the paying party is likely to query the need for the conference or consultation in the absence of any explanation in the bill.This also applies to telephone conferences for the same reason.It is the receiving party’s solicitor’s duty to obtain as high a percentage of the total costs for his client as possible and it follows that the more assistance that can be given by way of explanation of the different items in a bill, the less likely the paying party is to question the claim.
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Items listed in CPD 4.6 The CPD contains a series of headings under which claims for costs should be placed and these should be followed as closely as possible.They are not exhaustive although there are few, if any, other likely heads that could be adopted.They are: •
Attendances on the court and upon counsel.
•
Attendances upon and communications with the receiving party and, although not mentioned specifically, the paying party and his solicitors.
•
Attendances upon and communications with witnesses and expert witnesses.
•
Attendances to inspect any property or place for the purposes of the proceedings i.e. site visits.
•
Attendances upon and communications with any other persons, including offices of public records.
•
Communications with the court and counsel.
When using the above headings, if there are several individuals or organisations under one or more heads,the attendances and communications should be shown under each party and not globalised for all of them. In addition there are other items covering work done other than attendances etc.: •
Work done on documents, preparing and considering documentation, including that relating to pre-action protocols where appropriate, work done in connection with arithmetical calculations of compensation and/or interest and time spent collating documents.
•
Work done in connection with negotiations if not already included under any of the above heads.
•
Work done by local and London Agents including attendances upon and communications with them and by them.
•
Other work done which was incidental to the proceedings and which is not already covered in the heads listed above.
Communications in this context include letters written and telephone calls and e-mails. If these are of a routine nature, they are expressed as a single item e.g. ‘30 letters written’ or ‘26 telephone attendances’. In any case where the number of attendances or non-routine communications or items of preparation amount to 20 or more, the detailed information showing the date of each event and the details of each should be set out in a schedule. It is preferable to set out a separate schedule where necessary for each fee earner
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and it is unhelpful to set out these details for two or more fee earners of the same grade or level in the same schedule i.e.all work carried out by Grade 2 fee earners for example should not be set out in just one schedule;if there are three fee earners of the same grade,there should be three schedules.This is not a requirement under the CPD but it is good practice.
What is or is not allowed The CPD sets out certain criteria for the assessment of bills and those undertaking the preparation of bills should observe these.They are: 1.
Routine communications will usually be allowed in units of six minutes even though they may actually have taken less than six minutes.
2.
Routine letters received will not be allowed as a separate charge.The perusal of such documents is deemed to be included in the allowance of six minutes for the letter written.
3.
E-mails received by solicitors will not normally be allowed.
4.
E-mails sent by solicitors may in the court’s discretion be allowed if there is an actual time charge properly recorded for the e-mail and provided that the e-mail concerned amounts properly to an attendance.The court may also allow a sum in respect of routine e-mails sent to the client or others on a unit basis of six minutes each.
5.
Local travelling expenses will not be allowed to solicitors.What constitutes ‘local’is a matter for each court but the CPD states that as a matter of guidance local will generally be taken to mean within a radius of ten miles from the court dealing with the case at the relevant time.
6.
The cost of postage, couriers, out-going telephone calls, fax and telex messages will generally not be allowed.Exceptionally they may be allowed if the expenditure on them is particularly heavy or if there are unusual circumstances.
7.
The cost of making copies of documents will not usually be allowed but if the copying is exceptionally high in terms of the number of documents in relation to the nature of the case,the court may in its discretion make an allowance towards the cost. It is rare for all copying to be allowed and time spent by fee earners at the photocopying machine is also not allowed as reasonable.If discretion is sought to allow some copies, the total number of copies, their purpose and their cost must be stated in the bill. It is usual for courts to allow commercial rates payable to
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copying agencies when allowing any copying rather than the sometimes high charges per page made by firms. A good guideline is 10p per page as a maximum. 8.
Agency solicitor’s charges should be expressed as part of the solicitor’s profit costs and not as a disbursement. If they relate to attendance at a hearing,they should be shown under the claim for that hearing;if they relate to preparation, they should be shown under the item relating to work on documents; otherwise the costs should be shown under a separate heading relating to agents’ work.
9.
The costs of preparing a bill will be allowed.The hourly rate for the costs draftsman should be shown in the background narrative section at the beginning of the bill along with the rates of the other fee earners. Although some independent costs drafting firms charge on the basis of a percentage of profit costs,it is preferable if such computations are not claimed in the bill. In all but the smallest of cases, it is likely that an hourly rate based charge will be cheaper than a percentage based charge and this is particularly the case where the bill is for a significant amount.If,for example,profit costs were £900,000,a percentage charge of 6% would amount to £54,000.This represents a staggering 540 hours of work at £100 per hour, which is a reasonably generous allowance for costs draftsmen (although much depends upon the seniority and experience of the draftsman), and it is most unlikely that such a length of time could be justified as reasonable. Assuming six solid hours work per day,this means that in this example 90 days would have been spent on the preparation of the bill. A realistic time for a bill of this size is more like two to three weeks! As a general practice, the courts look at hourly rate based charges for bill preparation rather than percentages of profit costs.
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Dividing the bill into different parts Bills are sometimes required to be divided into parts.The situations where this is required are shown in CPD 4.2. In summary these are: •
Where the receiving party acted in person for part of the time covered by the claim for costs but instructed solicitors for the remainder of the time, the costs when acting as a litigant in person should be shown in one part and the costs incurred when represented by solicitors should be shown in a separate part
•
Where the receiving party has instructed more than one firm of solicitors during the course of the proceedings,the costs payable in respect of the periods when each solicitor was on the record should be shown in separate parts
•
Where a receiving party is funded by the LSC,there should be separate parts in the bill showing the period prior to the grant of the funding; the period during which the receiving party was a legally funded client; and the period following cessation of funding,assuming there are costs to be claimed at all these stages
•
If there has been a change in the rate of VAT during the period covered by the claim for costs,there should be a separate part showing the costs claimed at different VAT rates
•
Where there are orders for costs which are against different paying parties or in respect of different periods of the proceedings,separate parts should be used to show the costs liability of each paying party or for each specific period
•
If the claim for costs under orders in respect of which the receiving party requires to claim interest from different dates, the bill should be so divided into parts to reflect those orders and enable such interest to be calculated
•
If there are costs claimed which are payable only by the LSC as well as costs claimable between the parties, the six-column bill (Precedent C) should be used. It is possible for these costs to be shown in separate parts in a three-column bill but such practice tends to confuse and is not conducive to efficiency on detailed assessment when a particular charge is disallowed between parties but allowed against the LSC.
All bills must have a title page which must show the title of the action,the number of the action, the name of the party whose bill it is, recitation of the authority for the right to tax (usually a court order), the VAT number of the legal representative if VAT is being claimed in the bill,and details of all LSC certificates and authorities, amendment certificates, and limitations and conditions imposed at any time.
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Points to note for the paying party SUMMARY ASSESSMENT GENERAL POINTS C O M M E N C E M E N T O F D E TA I L E D A S S E S S M E N T P R O C E E D I N G S
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Chapter 6: Points to note for the paying party It has already been noted that the CPR and CPD bristle with time limits and it is important for a paying party to ensure that none of those which affect him are missed.Failure to observe time limits relating to costs and assessment procedure can be costly.
Summary assessment If it is intended to claim costs of a hearing which may be subject to summary assessment, ensure that a statement of costs is properly completed, served and filed at least 24 hours before the hearing or, alternatively, seek agreement to the costs claimed in the event that there should be an order in the paying party’s favour at the hearing. (For further information see Chapter 4.) Assuming the court allows sufficient time, if there are scant details about work done for which a claim for costs is made in the statement of costs of the receiving party, always seek to question the time whenever it is considered that the claim is unreasonable.If,for example,the receiving party has completed the statement of costs form and has simply inserted the number of hours claimed for work on any particular aspect and it is thought that the time is unreasonably high,ask the court to consider the reasonableness of the time in the light of the work actually done.Remember always that the assessment is usually on the Standard Basis under which doubt in respect of both reasonableness and proportionality must be resolved in the paying party’s favour. If no point is made, it will be difficult to establish any doubt. Where the receiving party is acting under a CFA, ensure that the court enquires whether or not there is a liability at that time on the receiving party to pay to his solicitor or other legal representative an amount equal to or more than the costs claimed.Seek a postponement of any payment in circumstances where the receiving party may not be liable.
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General points Once an order for costs has been made, ensure that the client is immediately informed so that the duty under CPR 44.2 is fulfilled. Not only must the terms of the order be explained to the client but also the reasons why the adverse costs order were made – see CPD 7.2. Diarise the date of the order since the receiving party has three months within which to commence detailed assessment proceedings. If proceedings have not been commenced within that period,the paying party has the option to take action himself by making an application to the court under CPR 47.8 requiring the receiving party to commence detailed assessment proceedings within such time as may be specified by the court.In such a case,it may be that no work on preparing the bill of costs has begun and an ‘unless’ order limiting the time within which the commencement of detailed assessment proceedings (which of course requires the service of a bill ) must take place could have the effect of disallowing all or part of the costs. In practice it is not always easy to decide whether to take action under this rule. Some believe that where there has been delay,to draw the attention of the receiving party to it by means of a CPR 47.8 application would only be to the receiving party’s advantage since the court might not make an ‘unless’order with any teeth. Others take the view that the order for costs against them is made and one day the liability will be realised so there is little to gain in remaining silent, particularly when the rules make it clear that in those circumstances the only penalty a court may impose is the disallowance of interest. On balance, it would seem that since there is specific provision in the rules for an unless order to be issued, there would be little point in exercising leniency in respect of the terms of the order unless the receiving party could illustrate some exceptional circumstances which have caused the delay.In the absence of anything exceptional,paying parties should take the bull by the horns and seek ‘unless’ orders with real teeth. For example, it would not seem unreasonable to seek an order that unless detailed assessment proceedings be commenced within 14 days of the order, the costs will be disallowed where there has been no excuse at all shown by a receiving party who has remained silent and who has done nothing since the order for costs to attempt to recover his costs.It is,of course,a matter for individual assessment by the paying party and his legal representatives in each case.
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Commencement of detailed assessment proceedings Once detailed assessment proceedings have been commenced by service of the form of notice,the bill and supporting disbursement vouchers,check that everything that should have been served has in fact been served.The documents required are set out in CPR 47.6 and CPD Section 32. Immediately write to the receiving party if anything is not served or there are irregularities in the form of notice of commencement, perhaps as to the time stated for serving points of dispute or the calculation of the total costs claimed, or in the bill itself. If the irregularities are of sufficient magnitude to render the commencement of the proceedings abortive, this should be communicated at once to the receiving party indicating that the proceedings are not accepted as having been properly commenced. Assuming all is in order, the paying party must then provide Points of Dispute within 21 days after service of the notice of commencement.If the bill is substantial it may be that this is insufficient time in which to prepare Points of Dispute in which case attempts should be made to obtain the agreement of the receiving party to a reasonable extension of time.If that is unreasonably refused,the paying party should apply to the court under CPR 3.1(2)(a) to extend the time. As mentioned already in Chapter 4,paying parties should be careful to avoid taking points for the sake of taking points against a bill although this must be balanced against the fact that only points mentioned in the Points of Dispute will be heard on the detailed assessment unless the court otherwise orders.The Points must be ‘short and to the point’ and, most importantly, where it is appropriate to offer an alternative figure to the amount claimed,that offer should be part of the Point in Dispute. Each item in the bill which is disputed must be listed, together with a brief statement of the nature and the grounds of the dispute.The paying party himself or his legal representative should sign the Points.They must not only be served on the receiving party but must be served on all parties to the detailed assessment proceedings. Apart from obvious questions of apparent overcharging or unreasonable time spent on any particular item,paying parties should include in the Points of Dispute appropriate queries where the receiving party is claiming an additional liability. For example,the paying party should seek information about other methods of financing that were open to the receiving party, whether the appropriate information was imparted to the receiving party by his solicitor before the CFA or alternative funding arrangement was put in place since that goes directly to the enforceability of the arrangement and thus the liability for costs under it.When requesting information in the Points of Dispute, paying parties should be aware of the provisions of CPR Part 18 and its practice direction which deal with requests for information,responses to requests and applications to the court in connection with requests
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for information. Under the old rules, jurisdiction was limited by RSC Order 62 strictly to costs matters but one of the significant changes brought about by the CPR was the ability of practitioners to utilise the broad scope of the Civil Procedure Rules in connection with costs related matters. If a receiving party so requests,the paying party must supply them free of charge with a disk containing the Points of Dispute,provided that the Points are ‘capable of being copied on to a computer disk’ and the request is made within 14 days of receipt of the Points of Dispute.The disk must be supplied within seven days of the request. (CPD 35.6.) If Points are not served in time, consequences will be severe unless the paying party takes action quickly. CPR 47.9 prevents the paying party from being heard on the detailed assessment proceedings.The paying party may apply to the court for relief but there will be a penalty in costs always assuming that the application is successful.The receiving party may apply for a default costs certificate as soon as the period of 21 days or any extension agreed or given has expired. If the paying party serves Points of Dispute out of time but before any default costs certificate has been issued,no default costs certificate may be issued by the court; otherwise a default costs certificate, which will give the receiving party his full costs, must be set aside.This is done by making an application to the court but under CPR 47.12(2) it will only be set aside if the court considers that there is good reason for doing so.The application by the paying party must be supported by evidence and by a draft of the Points of Dispute it is intended to serve if leave is given.One of the factors that must be taken into account by the court is whether the application to set aside the default certificate was made promptly. It is very important therefore for paying parties to react immediately it has been realised that they are out of time in serving their Points of Dispute. It is likely that if leave is given to set aside the default costs certificate and allow service of Points of Dispute out of time the court will make an order for costs against the paying party and it is also possible by virtue of CPR 44.3(8) that an amount on account before the costs are assessed will be ordered also. When compiling Points of Dispute,consideration of the following points may be relevant although this list is by no means exhaustive: •
Terms of the retainer between the receiving party and his solicitor – request a copy of the retainer to be placed before the court on the detailed assessment;
•
Check the authority under which the costs are claimed – this may be limited in some way either by issue, party or by period covered by the costs order;
•
Check the basis of assessment and that the bill reflects that basis;
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•
Consider the work done in terms of its reasonableness (particularly where the assessment is on the Standard Basis) rather than its necessity;steps in the proceedings may not have been strictly necessary but they may still have been reasonable;
•
Consider the level of fee earners and the hourly rates claimed in respect of each remembering that the appropriate rate is that relating to the area in which the work was done (in this context if it be the case that distant solicitors were instructed, consider whether that was reasonable);
•
Consider the number of hours claimed for attendances on the client and others and whether the bill explains why this time was reasonable; if not seek an explanation in the Points of Dispute;
•
Consider the number and the reasonableness of conferences;
•
Study the schedules detailing work done on documents and query any items which appear to be unreasonable;
•
Consider all disbursement invoices and seek breakdowns where none are provided,particularly where the fees are substantial,and check the work actually done by experts or others for whom a charge has been made, in order to be satisfied as to its reasonableness;
•
Ensure that there are no claims for photocopying or, if there are such claims that they are reasonable in the circumstances of the case;similarly charges for courier fees, postage and telephones should be resisted;
•
Check counsel’s fees for duplication of effort,for time spent (if no times are shown on fee notes for preparation, ask for this information) and for the level of fees, seniority of counsel, use of Leader or two counsel; ensure that Refresher fees are charged only on court sitting days (note the conclusions in Loveday v.Renton (No.2) [1991] Core Costs LR204; [1992] 3 All ER 184 on counsel’s fees);
•
Where an additional liability is claimed in the bill, check whether the required information has been given to the paying party about the CFA and concerning the reasons for the level of any success fee being claimed (see Chapter 2);
•
Always look at the total of the costs claimed and all aspects of the work actually done to determine whether or not they are proportionate by reference to the factors contained in CPR 1.1(2)(c).
PARTY
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The assessment The most significant factor for paying parties on detailed assessment is to have prepared thoroughly for the hearing. Each point which remains unresolved in the Points of Dispute should be addressed individually and necessary references made to the documentation to which an item relates or cases which have a bearing upon a principle to be used should be checked and noted. Above all it is important to adopt a positive approach supported by effective advocacy.Simply to state that a particular item is unreasonable without explaining why is of little value since the objective must always to be to create doubt in the mind of the costs officer.This is unlikely to be achieved without adequate submissions as to the reasons why the paying party considers the item to be unreasonable. Whenever there is an inadequate explanation by the receiving party, remember that it is in order for the paying party to ask the costs officer to refer to the relevant attendance note in the file itself. If there is an attendance note, the costs officer will be able to decide in most cases on the question of the reasonableness of the item in question; if there is no attendance note, there is immediately a question as to whether the work was reasonable either in the sense that it was done at all, what work was done or the time claimed for doing the work. Although the absence of an attendance note per se will not automatically create doubt, there will be a need for the receiving party to satisfy the court as to reasonableness in some positive way which would not be required were there an attendance note on the file. Ensure that a proper note is taken of the decisions made by the costs officer in case it should be decided to appeal.If it is clear at the time of the detailed assessment that an appeal on one or more decisions is justified,seek permission to appeal at that time.
73
Offers for costs C O S T S O F D E TA I L E D A S S E S S M E N T P R O C E E D I N G S WITHOUT PREJUDICE OFFERS FOR COSTS
chapter
7
CHAPTER
7:
OFFERS
FOR
COSTS
Chapter 7: Offers for costs One of the principles behind the CPR is that parties are encouraged wherever possible to make offers in the hope that the proceedings can be settled. Accordingly, there are situations throughout the rules where the opportunity to try to reach a settlement is encouraged and it is the practice of the courts also to encourage settlements. The use of Part 36 offers and payments is becoming more and more widespread and indeed this can be a useful tool to parties in many circumstances.This aspect of offers is not dealt with here in the context of costs but reference should always be made to the rules under Part 36 since successful offers under this Part can have dramatic repercussions on unsuccessful parties. The rules as to costs have their own self-contained section governing offers for costs in respect of bills of costs prepared by the receiving party.It is in CPR 47.19 and so far as the costs of detailed assessment proceedings are concerned, such offers can be tactically persuasive and overall extremely effective on many occasions.
Costs of detailed assessment proceedings Under normal circumstances a receiving party is entitled to the costs of the detailed assessment proceedings relating to the assessment of his claim for costs.But there are some circumstances under which this general rule does not apply.In the first place there are statutory provisions which may provide otherwise (e.g.the Solicitors Act 1974 (see Chapter 8) or the CPR themselves ) or there may have been orders made earlier by the court which deal in part with the destination of these costs. At the time of the detailed assessment, the court may make some other order as to the costs of the assessment but in so doing it must take into account the following: a)
The conduct of all the parties;
b)
The amount, if any, by which the bill of costs has been reduced; and
c)
Whether it was reasonable for a party to claim the costs of a particular item or to dispute that item.
It is in connection with (c) above that parties must think carefully when drawing bills of costs or when preparing Points of Dispute and not include in either items which could fall foul of this provision on the detailed assessment.
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Another point of practice which distinguishes detailed assessment proceedings from other types of proceedings is the question of summary assessment. Although the court will make a summary assessment of the costs at the completion of the detailed assessment, CPD 45.3 provides that neither party should file or serve a statement of costs of the detailed assessment proceedings unless the court orders him to do so. It seems that since the costs of the proceedings are inserted in the bill itself after they have been decided by the court, the usual summary assessment procedure does not apply. It is suggested that each party (the paying party only if he is intending to seek an order for costs) should bring to the court a summary of the costs to be claimed setting out the attendances, correspondence and preparation undertaken for which a claim is to be made to which the party will add the travelling time and the time at the hearing itself once the latter are known so that the costs officer can examine the claim for costs and make a decision in the light of the information supplied.
Without prejudice offers for costs These may be made in accordance with CPR 47.19. Most importantly under the Woolf revisions,either party may make such an offer. The offer must be in writing and it must be made ‘without prejudice save as to the costs of the detailed assessment proceedings’.The fact of the offer must not be made known to the costs officer until the question of costs of the detailed assessment proceedings falls to be decided. The effect of the offer is that the court is required to take it into account when deciding the destination of the costs of the detailed assessment proceedings. There is no time period under the rule within which the offer must be made but the CPD at 46.1 indicates that an offer by the paying party should usually be made within 14 days after service of the notice of commencement of detailed assessment proceedings.This seems a little curious and in practice is often not observed simply because it is not always prudent to commit a client to making an offer at this relatively early stage. It is more likely that the offer will be more realistically calculated once the paying party has had the opportunity of studying the Replies to his Points of Dispute, assuming that the receiving party provides them. The CPD recommends that if the offer is made by the receiving party, it should be made within 14 days after service of Points of Dispute.This is entirely logical.
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It is stated in the CPD that offers made outside these time periods ‘are likely to be given less weight’ by the court in deciding what order to make as to the costs of detailed assessment proceedings but it makes it clear that if there is a good reason for making the offer outside these periods, there should be no adverse penalty. Of particular importance are the provisions of CPD 46.2 which require the person making the offer to specify what is included in the offer and particularly whether it includes VAT, interest on the costs and the costs of preparation of the bill. It is difficult to see why the latter information is required since the preparation of the bill is itself a recognised item to be included in the bill in the same way as any other head of claim, yet it is not required to identify whether any of these other heads of claim are excluded in the offer.It may be that on the detailed assessment the amount claimed for preparation of the bill will be one of the items in the bill that is challenged either in whole or in part for a number of reasons but there appears to be no special reason why this should be treated separately for the purpose of a 47.19 offer for the costs. If nothing is mentioned about inclusion or exclusion of items,it will be presumed that the offer includes all.In practice it is recommended that interest is excluded from any offer.The entitlement to interest is statutory and,unless there are particular or exceptional circumstances relating to delay or conduct,there is unlikely to be any relief against interest granted so it is payable in the vast majority of cases.However,if it is included and on detailed assessment the costs are reduced to a point very close to the offer, the business of calculating the interest, which could make the difference between success or failure in beating the offer, is often an extremely time consuming and complex task. It is far simpler, and has no material detrimental affect, to exclude interest from the offer which should be restricted to the amount of the bill itself either inclusive or exclusive of VAT. Where an offer under 47.19 is accepted an application may be made to the court for a costs certificate in agreed terms or the bill may simply be withdrawn in which case no certificate will be issued and the payment of the costs due can only be enforced by an action in contract.Alternatively under CPR 47.10, the receiving party may discontinue the detailed assessment proceedings once agreement between the parties has been reached. Discontinuance must be in accordance with Part 38 except that if the discontinuance is prior to the request for a detailed assessment hearing, the receiving party may apply to the court for an order as to the costs of the detailed assessment proceedings. If, however, there has been a request for a detailed assessment hearing, the receiving party may not discontinue unless the court so orders although that does not preclude the withdrawal of the bill by the receiving party.
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Finally, if during the course of proceedings the receiving party claims that the paying party has agreed to pay costs but he has subsequently not paid them or has refused to join in a consent application for a certificate in the sum of the costs agreed as mentioned above (see CPD 36.1), the receiving party may apply under Part 23 for either an interim (where part of the costs only are involved) or a final costs certificate. Such an application must be supported by evidence. It is heard by either a costs judge or a district judge.A respondent to the application must file evidence in reply at least two days before the hearing.(CPD 36.3.)
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Costs only proceedings W H AT A R E T H E Y ? THE PROCEDURE P R O B L E M S A N D B E N E F I T S W I T H C O S T S O N LY P R O C E E D I N G S
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8
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8:
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Chapter 8: Costs only proceedings
What are they? They are a simple and sensible means of dealing with pre-action costs where the substantive claim has been settled by mutual agreement but the amount of costs cannot be agreed between the parties even though the agreement acknowledges that the proposed Defendant will bear the costs.Before the CPR came into force, this area of costs was one of the most difficult to resolve since there was no mechanism for dealing with such costs, which had to be obtained either by an action in contract or by the issue of proceedings when the damages in such proceedings had in reality been agreed. It had proved most unsatisfactory. Now under CPR 44.12A, a procedure has been put in place where an agreement has been reached between the parties as to the payment of costs but no agreement can be reached on the amount of the costs and no proceedings have been commenced. A Part 8 claim may be issued by either party in such circumstances. It must be accompanied by the agreement under which it is agreed that costs are payable. The court may make an order for costs or it may dismiss the claim and it must dismiss the claim if it is opposed.
The procedure It is important to follow the detailed procedure, which is set out in CPD Section 17 and which is as follows: •
The claim form must identify the claim or dispute to which the agreement relates;
•
The date and terms of the agreement upon which the Claimant relies must be stated in the form;
•
A draft of the order sought by the Claimant must be stated in the form or attached to it;
•
The form must state the amount of costs claimed and this basis of assessment (i.e. Standard or Indemnity basis).
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Evidence in support of the application must include all the relevant correspondence and documents on which the Claimant relies to prove the agreement of the Defendant to pay the costs. The order which will be made on the application, if successful, will be an order that the costs be the subject of a detailed assessment which will then be subject to the procedure in Part 47 and its associated practice directions. If there is an additional liability involved in the costs assessment, the court must have regard to the time when and the extent to which the claim has been settled and also to the fact that the claim has been settled without the need to issue proceedings. If the acknowledgment of service indicates an intention to defend the claim, the application must be dismissed but such prevarication by a defendant is to be frowned upon and will not meet with approval by the court if and when the matter eventually comes before it.There is nothing to prevent a claimant from issuing proceedings under Part 7 or 8 to sue upon an agreement made in settlement of a dispute under which a defendant has agreed to pay costs.
Problems and benefits with costs only proceedings If used properly this procedure is of immense benefit in achieving a quick solution to costs disputes in pre-issue cases, which account for some 95% of all personal injury claims but it is interesting to note that the Senior Costs Judge,Master Hurst, found it necessary in November 2000 to issue a few warning shots about the manner in which Costs Only proceedings were being conducted by some litigants. He claimed that the proceedings were being misused by both claimants and defendants contrary to the ‘overriding objective’ of the CPR and that this misuse was causing difficulties to district judges.The kind of difficulties referred to are the unhelpful attitude of claimants who give defendants limited time within which to pay the costs claimed (irrespective of whether they are deemed by the defendant to be reasonable or not) and at the expiry of that time, issue proceedings under CPR 44.12A. Conversely, defendants make unreasonably low offers and in so doing state that the offer is for the purpose of negotiation only and that they will not consent to Costs Only proceedings. Clearly such an attitude is contrary to the spirit and the intention of Rule 12A let alone the overriding objective. The Master stresses that the purpose of Costs Only proceedings is to provide a simple and convenient method of resolving the dispute over costs.The only issue to be decided by the judge hearing the Costs Only application is whether or not to order an assessment of the costs.The district judge should not attempt to make a summary assessment of the costs in such proceedings although he recognised
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that the procedure may be cumbersome for cases where the costs are small in amount and he confirmed that consideration is being given to introducing some form of short disposal system for such small cases. (See Law Society’s Gazette 15 December 2000 for full text of the Senior Costs Judge’s Guidance.) Much of the problems with Costs Only proceedings are common to other aspects of the costs rules and are founded upon the novelty of the new procedures.Some of these, including the rules relating to Costs Only proceedings, are quite new and some quite revolutionary in nature and it is inevitable that time will be needed for the judiciary as well as practitioners to become used to their operation and the way they should or should not be used. Costs Only proceedings, if properly and sensibly used,remain a valuable aid to parties in the resolution of costs disputes with the minimum fuss and expense.
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Litigation costs between solicitors and their clients BASIS OF ASSESSMENT PRESUMPTION AS TO UNREASONABLENESS CONDITIONAL FEE AGREEMENTS CARRYING A SUCCESS FEE
chapter
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COSTS
BETWEEN
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Chapter 9: Litigation costs between solicitors and their clients
Basis of assessment In general terms the rules as to costs and the costs practice direction apply to all costs whether between parties or specifically between solicitor and client. Thus the provisions as to conduct and the factors that must be taken into account on a detailed assessment of costs apply to all cases.But there are specific aspects which apply only to solicitor/client costs and not to costs between parties. The first of these is the basis of the assessment of costs and presumptions as to reasonableness of the costs between a solicitor and his client.The Indemnity Basis is the basis upon which solicitor/client costs are assessed (CPR 48.8(2)) and, so far as the aspect of reasonableness is concerned, there is no difference between the Indemnity Basis and the Standard Basis, upon which most between parties costs are assessed. However, the major difference between the two bases is that on the Indemnity Basis,CPR 44.4 (3) provides that the court will resolve any doubt in favour of the receiving party. One further significant difference between the two is that proportionality,which is so important a factor in determining between the parties costs on the Standard Basis, has no place in the assessment of solicitor and client costs although it is possible for a client to argue that the level of costs billed to him is unreasonably high,which might also amount to disproportionality. As a formal factor,however, in the assessment of solicitor client costs, proportionality is not part of the basis of assessment. Although there are no differences on the question of reasonableness, there are certain presumptions which are raised concerning reasonableness as applied to solicitor/client costs.These may be found in CPR 48(2).Under this rule,costs are presumed: 1.
To have been reasonably incurred if they were incurred with the express or the implied approval of the client; and
2.
To be reasonable in amount if their amount was expressly or impliedly approved by the client.
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It may be seen from these two presumptions why the retainer letter referred to in Chapter 1 is so important because on the face of it, if a client has been fully informed at the outset as to what work is to be undertaken by his solicitor and precisely what the remuneration for that work is to be based upon, the client is likely to find it difficult at the end of the matter to claim that he had not at least impliedly approved the arrangements and this is particularly the case where the solicitor has asked his client to return to him a signed copy of the retainer letter. A serious warning shot was, however, fired across this reasoning by the case of MacDougall v. Boote Edgar Esterkin [2001] 1 Costs LR 118.The circumstances in this case were that following successful hearings in the Lands Tribunal and then in the Court of Appeal, the solicitors for Mr and Mrs MacDougall rendered a bill on 3 February 1994. In October 1994 proceedings for the recovery of the costs claimed in the bill were issued. Between those dates the between parties costs in the successful proceedings had been agreed at £150,000.The original bill rendered was in the region of £203,314 so the solicitors claimed the difference between the inter partes costs and their bill which was £73,702.67. The solicitors contended that at a meeting on 4 August 1992, which took place when the Wrexham Maelor Borough Council, one of the parties to the original proceedings in respect of which the solicitors were instructed,had served Notice of Appeal against the decision of the Lands Tribunal, the costs were discussed and the solicitors put forward an hourly rate of £300 for work already carried out and for work to be done.A partner, Mr Barron, whose hourly rate had been claimed at £171 from the paying party, had conducted the matter and the £300 per hour discussed and agreed at the 4 August meeting related to his charges. It was explained that such a rate would never be recovered on an inter partes assessment.The agreement was confirmed by letter dated 29 December 1992 but Mr Macdougall said that the letter had never been received. He contended that the £300 per hour was agreed only for future work. The judge,Mr Justice Holland,concluded that for the presumption under the rules to be raised,the quality of the approval has to be such as to enable it to be raised. He spoke of ‘informed approval’ by the client as being necessary before the presumptions could be raised.The partner taking the principal role in the 4 August meeting, Mr Dennison, had explained to the clients that the £300 reflected the fact that there had been very little money on account, that in another case he was charging £225 per hour in connection with a specialist construction case which had taken 80% of his time and that there were agreed monthly payments on account made to him by that client and that the general rule of thumb was that a 25% to 30% reduction on solicitor/client costs could be expected on an inter partes assessment. He also put great store on the fact that Mr Barron had devoted a considerable amount of his time in the past on this case which, as in
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the specialist construction case just referred to,had meant that contact with other clients had slipped and that his ‘practice’had diminished as a result of the devotion to the case. The judge held that the presumptions could not be raised because the approval was not sufficiently ‘informed’. Amongst his reasons were the following: •
The explanation given to the clients of the potential relationship between party and party costs and solicitor/client costs was ‘seriously misleading’;
•
The solicitors did not specify what party and party rate they were proposing to charge (as distinct from the comparable case quoted by Mr Dennison);
•
The use of the other case quoted by Mr Dennison as a yardstick did not afford the clients pertinent information upon which to make an approval decision;
•
Although the lack of interim funding was a valid point, no attempt had been made to calculate its real effect and to take care of the problem by an arbitrary increase from £225 per hour to £300 per hour was ‘fatuous’;
•
Although by the time of the 4 August meeting it would have been possible to have quantified the number of hours already spent by Mr Barron and therefore give the clients a good idea of the level of costs incurred to date,no attempt was made to calculate this information.The clients were thus never given the opportunity to appreciate the retrospective significance of approval;
•
There was no attempt by the solicitors to raise as different issues the retrospective fixing of a solicitor/client rate for hours previously remunerated as on taxation and the prospective fixing of a charging rate for hours yet to come.
In the absence of informed approval the judge held that the presumptions could not be raised.The rate of £171 per hour was allowed prior to the 4 August 1992 and £250 per hour thereafter. This case illustrates the vital importance of observing the requirements to set out clearly costs information to the client at the commencement of instructions and throughout the proceedings whenever there is a change in the circumstances. (See Chapter 1.)
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Presumption as to unreasonableness Also contained in CPR 48.8 in paragraph (2) of that rule is a much ignored provision which can have the effect of disallowing a solicitor’s costs against his client. The rule is not new and was in existence for many years prior to the introduction of the CPR, although the wording of it was slightly amended as part of the Woolf revisions. It should be compulsory reading for all trainee solicitors! The rule provides that costs are to be presumed to have been unreasonably incurred if: 1.
They are of an unusual nature or an unusual amount; and
2.
The solicitor did not tell his client that as a result he might not recover all of them from the other party.
Obviously when the costs are incurred,the solicitor will not necessarily be aware that they may some time in the future be held to be ‘unusual’in nature or in amount nor will he necessarily know that they will not be recovered on a between parties assessment. In practice caution must be the watchword and whenever a solicitor is about to embark upon an item of work which could be unusual or he believes he may be about to be incurring costs which could be unusual in amount, he should immediately send off a letter to his client informing him of the proposed action and explaining that if the work is done or the cost incurred,the client may not in the future be able to recover the cost from the other party even if the client is successful in costs at the end of the proceedings.It is understandable why such a rule exists since the client should be given the opportunity to decide whether to take the risk of non-recovery but it is harsh in the sense that it places upon the solicitor the responsibility of assessing whether or not his crystal ball will show the item about to be incurred ‘unusual’ in nature or amount. If in doubt, write to the client. Much depends upon the court’s view of what is ‘unusual’ but the ordinary English meaning of ‘out of the ordinary’ would seem to be appropriate when assessing such matters. If the client has not been informed in such circumstances, the costs concerned will not be allowed to him.
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Conditional fee agreements carrying a success fee One aspect of the costs rules governing charges between solicitor and client is particularly disturbing. It was introduced as a result of the ‘no win, no fee’ legislation and it represents the first time that rules of court have automatically affected the agreement made between a solicitor and his client as to the basis of the retainer, which has through the years always been regarded as sacrosanct.This is the process whereby if a success fee is claimed from a paying party and on its assessment,the success fee is either disallowed or reduced on the grounds that it is unreasonable, the agreed success fee under the CFA made between solicitor and client is automatically itself reduced unless the court is satisfied that it should continue to be payable at the level originally agreed.This is a dangerous incursion of the inter partes costs regime into the solicitor/client costs regime and is one of the more unhappy aspects of the CFA regime. It is imposed by the Conditional Fee Agreement Regulations 2000 in Regulation 3(2) and the CPR simply governs the procedure and requirements for carrying it into effect.When considering the level of success fee payable by a paying party,the court must look at whether the fee is a reasonable one taking into account ‘in view of the facts that were or should have been known to the legal representative at the time it was set’ and, where this is properly taken into account by the court, perhaps there will not be too great a risk to solicitors who have accepted the risk based upon what is probably a first interview with the client. There is little doubt that paying parties may have good reason to complain about success fee levels in the light of the nature of the proceedings and the progress of them,for example whether liability was accepted at an early stage,but this will have occurred in most cases after the CFA between solicitor and client has been agreed.It would seem harsh for an agreement genuinely made between two parties in good faith at the very commencement of instructions to be reduced merely because the success fee agreed between solicitor and client may be unreasonable vis-à-vis a paying party,particularly since the agreement may have been made some time before any proceedings are issued,assuming that proceedings are ever issued. It should be noted that Regulation 3(2)(c) provides that the CFA success fee will be charged should a paying party and a client’s solicitor agree that a reduced success fee percentage should be payable by the paying party.Once again,it is surely unreasonable to penalise a solicitor who has genuinely entered into a CFA and properly calculated the risk at the time to be subsequently penalised because he agrees a reduction in the success fee to ensure a successful conclusion to negotiations on behalf of his client. In inter partes assessments there has always been a distinction between costs recoverable from a paying party and costs payable by a client since there may be many reasons why a particular item in an inter partes bill,which is assessed on the Standard Basis might be deemed to be unreasonable for the paying party to pay whilst not affecting the reasonableness of the item on the Indemnity Basis against the client.
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There are provisions under the rules for solicitors to apply to the court under CPR 44.16 in circumstances where a success fee has been reduced in whole or in part for an order that the disallowed amount should continue to be payable by his client.It is self evident that this process immediately invites conflict between solicitor and client and, although no evidence of what is happening in practice has yet come to light (perhaps because it is a little too early for the severe cases to have reached the stage where the matter may raise its head), it is quite clear that satellite litigation is a natural possible result of such an unwieldy and, in the writer’s view,unnecessary and unreasonable system.The rules set out the procedure to be followed and this includes adjourning the hearing at which the success fee is disallowed inter partes to enable the client to be informed.It cannot seriously be contemplated that a client,when faced with the possibility that his agreement with his solicitor is varied so as to reduce the total liability in costs payable to his solicitor will not wish to ensure that the success fee is reduced.This is his lucky day! On a summary assessment, if a success fee percentage is reduced the court will give directions in connection with the application by the legal representative for the disallowed amount to continue to be payable by his client. Alternatively, if the receiving party and all parties to the CFA consent to the court doing so and the receiving party is in court and the court is satisfied that the issue can be dealt with there and then,the court may decide whether or not the disallowed amount should continue to be payable by the client. On detailed assessment the situation is more complex and further responsibilities are placed upon solicitors.CPD 20.4 sets out the full procedure but important elements are: •
If the Points of Dispute seek a reduction in the success fees of counsel, the solicitor must within three days of service deliver to counsel a copy of the Points of Dispute and the bill of costs or the relevant parts of the bill.
•
Counsel then has ten days in which to inform the solicitor whether or not he accepts the suggested reduction or some other reduction and he may at the same time state any points in reply that he may have in which case the solicitor must serve them on the paying party or include them as part of the Replies to the Points of Dispute. If counsel does not adopt this procedure it will be assumed that he has accepted the reduction.
•
If the points of dispute challenge the solicitor’s success fee and the solicitor intends to apply for an order that the client should continue to pay the full success fee even though it may be reduced as between the parties, he must give his client in writing within 14 days of the service of Points
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of Dispute, a clear explanation of the nature of the relevant point of dispute and the effect that it will have if it is upheld in whole or in part by the court and of the client’s right to attend court on any subsequent hearing when the matter is raised. •
The solicitor’s request for a detailed assessment hearing must be accompanied by a certificate signed by him which states that the percentage increase in respect of counsel’s fees or solicitor’s charges is disputed; whether an application will be made for an order that the client should continue to pay any amount of the percentage increase which may be disallowed; that an explanation has been given to his client in accordance with CPD 20.5; and whether the client wishes to attend court when the amount of any relevant percentage increase is decided.
•
The solicitor must notify this client within seven days of receipt of the notice from the court of the hearing date for the assessment and he must also notify,where appropriate,counsel.Notices must be in writing.
•
If the receiving party and all parties to the CFA agree,and if the receiving party is present in court at the time and the court is satisfied that the issue may be fairly dealt with at that stage, the court may decide the issue as to whether the percentage increase disallowed should continue to be paid by the client without any adjournment.
A further curious example of the confused nature of the rules and directions relating to CFAs between solicitor and client occurs by the omission of any direction or rule relating to the detailed assessment of costs under a CFA between solicitor and client.Whilst such costs may fall to be assessed under s.74 of the Solicitors Act 1974 as may any other costs contained in a bill delivered by a solicitor to his client under certain circumstances,there are no specific directions as to how such an assessment should be carried out, for example the criteria to be considered when assessing the reasonableness of a percentage increase under a CFA.In contrast, CPR 48.9,which applies only where the parties have entered into a CFA as defined by s.58 of the Courts and Legal Services Act 1990 as it was in force prior to 1 April 2000, sets out detailed provisions as to the assessment of costs under such CFAs and the practice direction supporting this rule sets out those factors which are relevant to assessing a percentage increase.There is no corresponding provision in respect of CFAs which were entered into on or after 1 April 2000. It must be assumed that this has been overlooked and that where solicitors are faced with detailed assessments of such costs, they should in each case apply for directions as to how to proceed.This will not, however, alter the fact that the factors which the CPD states are relevant to the assessment of pre 1 April 2000 CFAs are not adopted as specifically relevant to post 1 April 2000 CFAs.
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Apart from the matters mentioned above, the CPR had little practical effect on assessments under the Solicitors Act 1974 which are largely governed by that statute and apart from minor amendments the practice and procedure for obtaining an order for detailed assessment of a solicitor’s bill has changed little.
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Conclusion ‘REASONABLE’ COSTS BENCHMARK COSTS THE PILLARS OF WISDOM
CONCLUSION
Conclusion As may be seen by the foregoing chapters a very considerable change has and is still taking place in the way litigation is conducted in England and Wales as a result of the Woolf reforms. It is still early days and it is clear that the new procedures are still bedding down and in some cases the full effect of the new rules has yet to be felt but overall the result to date has been extremely positive. It is likely that once practitioners become more accustomed to treating estimates or budgets as part of their daily litigation lives and the judiciary fully recognise the power that they have to control the progress and the costs of litigation, the situation will become even more ordered and streamlined and cost effective. It remains to be seen how the conditional fee sector will progress. It has its critics and it may be that insurance will gradually take over much of the ground assuming that the insurance industry designs suitable products for litigants. There remain one or two areas where further guidance or clarification is required.
‘Reasonable’ costs It has been seen that there is no difference between the Indemnity Basis and the Standard Basis so far as the question of reasonableness is concerned.Under each basis the court will not allow costs which are unreasonably incurred or unreasonable in amount.The difference lies in the question of doubt and the question of the proportionality of the costs. This begs the question that if it is assumed that proportionality is not an issue, when a court reduces an hourly charging rate as between a paying party on the standard basis and a receiving party,why should it not follow that the rate between the solicitor and the client should not also be reduced? Or, much more importantly, if the rate agreed between solicitor and client is reasonable so far as the solicitor and the client are concerned after the solicitor has observed the Costs Information and Client Care Code and the client has given his informed approval either explicitly or impliedly,under what authority is a costs officer able to reduce the hourly charging rate? Is it the case that there are two standards of reasonableness, one against the client and the other against the paying party? The rules do not indicate any such double standards.This could cause obvious difficulties for solicitors and clients and it remains to be seen how the courts would treat the question.Prior to the changes in the CPR and CPD the situation was adequately covered by the then definition of the Standard Basis which was to allow ‘a reasonable amount in respect of all costs reasonably incurred’.In other words the rules
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envisaged situations where even though costs incurred were reasonably incurred, the amount claimed for the work covered by the costs may not be reasonable and could therefore be adjusted either downwards or upwards.Conversely under the then Indemnity Basis ‘all reasonable costs’ were to be allowed as opposed to a ‘reasonable amount in respect of all costs reasonably incurred’.That is very different from saying that no costs which are unreasonable in amount or which have been unreasonably incurred will be allowed which is the present situation under the revised definition. The question may be raised in connection with the guideline hourly rates,which are reproduced on pages 49-51, because if they are followed by the courts (and there is evidence to show that they are being treated in some courts as tariffs rather than mere guidelines) and no rate above those guideline rates are allowed,it will undoubtedly cause difficulties vis-à-vis solicitors and their clients. If, for example, a properly constructed retainer provides an hourly rate of £250 for a partner in a particular matter and the guideline rate is only £180, it cannot necessarily be said that the £250 is unreasonable. If it is reasonable it must be allowed. If it is disallowed by the costs officer on the grounds that it is unreasonable,the client will in effect lose £70 per hour which may be enough for him to challenge the solicitor’s bill so far as the rate charged is concerned.Yet, if the Code has been properly followed and the client has had full opportunity to consider the reasonableness of the rate charged at the time the retainer terms were approved by him, it will be extremely difficult for the client to effect a reduction in that rate.Watch this space!
Benchmark costs This is another area of concern to all practitioners.The exercise is well underway to produce guideline ‘fixed’costs for different kinds of applications – a little akin to the American system of task based costing but not exactly the same. It is contended by the Supreme Court Costs Office, who were responsible for the abortive first attempt at prescribing a two column bill of costs, that guidelines are needed by the judiciary for the purposes of summary assessments of the costs in different types of hearing.So for many months now the architects of the SCCO have been compiling what appears to them to be reasonable costs for different kinds of application. Some of the examples that have been published but, it is stressed not yet implemented, are Part 8 applications under the Solicitors Act 1974. £462 excluding VAT for the costs of an applicant and £381 excluding VAT for a respondent assuming the application is in Inner Birmingham; ‘Simple applications without notice’such
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as to compel compliance with earlier directions,for abridgement of time,for permission to serve out of the jurisdiction or for permission to serve by an alternative method (all of which of course are quite different types of application lumped under the heading ‘simple’). £133 excluding VAT for the costs of an applicant in the Inner Birmingham area;and finally by way of a third example,a detailed assessment in family proceedings in Inner Birmingham of a bill of costs between parties not exceeding £10,000 in total shows the applicant’s costs at £487 excluding VAT and the respondent’s costs at £265 excluding VAT. In order to arrive at these figures which are to be used as benchmarks, various assumptions will have had to be made for example as to the appropriate level of fee earner to carry out the work,the time taken in preparation etc.and,whilst any attempt to save costs and to assist the court should be welcomed, it is questionable whether this is in fact a method of achieving those laudable objectives. It is the nature of costs that they are not the same for each case even though cases may be similar in nature and in their facts.The purpose of summary assessment statements of costs as already discussed is to show the judge exactly how the claim for costs has been calculated.Even the Senior Costs Judge has recognised that the assumptions adopted by the architects of this benchmarking scheme may not be appropriate in all cases and that ‘if the circumstances of a particular case take the proceeding out of that category, the benchmark figure will not be apt but it will still serve as a starting point from which the judge may arrive at an appropriate figure given the particular circumstances of the case’. Surely judges are capable over a period of time of assessing the kind of costs levels associated with different applications simply by their experience of dealing with the applications and their costs and looking at and taking notice of properly completed statements of costs? It does seem a superfluous additional burden to bring some hypothetical costs computation into the equation which may have no relevance to or bearing upon the actual costs in any particular case.The jury is still out on benchmarking. There is of course another aspect of such a system which relates back to the definition of reasonableness discussed above. If courts decide to adopt a benchmark cost as the appropriate cost to allow without proper recourse to why the claim for costs is made in the sum it is and the benchmark is less than the cost as between solicitor and client,the whole question of reasonableness of the one or the other comes once again into play with the danger that solicitors may be challenged by their clients and accused of overcharging them.Surely it is both more logical and fair to leave the system as it is and allow a summary assessment to be made on the actual merits of the case rather than on a man-made, theoretical guide.
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The pillars of wisdom A final puzzle remains to be clarified as a result of the changes brought into play at the same time as the CPR.This relates to the decision that in future it would be more appropriate to express charging rates as a global, all-in figure than as an expense rate plus a care and conduct uplift. It appears that the designers of the new system thought that the idea of solicitors having an uplift on their charges was inappropriate. Of course the fact that a single hourly rate is charged does not alter the fact in any way at all that the rate is calculated in sensible commercial terms by working out first the costs that are required to cover the costs of doing the work and then applying an appropriate uplift to take account of profit and other items.There is no difference whatsoever in substance although there is a difference in presentation.This change to the system has not been fully appreciated by those drafting the CPR and CPD since it is now very difficult to see how the various factors that must be taken into account when assessing the reasonableness of costs can in fact be taken into account other than in some global, almost artificial fashion. Under the A + B (that is A = expense rate and B = care and conduct uplift) system solicitors were able to be rewarded for good efficient work on complex matters and they could be penalised when their work was inferior or more time than was reasonable had been spent on modest matters.The B factor was a wonderful and true regulator. It illustrated very clearly that each case is different having its own peculiarities and circumstances which could be reflected in the level of costs claimed and allowed on assessments.The factors are those set out in CPR 44.5(3): •
The conduct of the parties including in particular the conduct before as well as during the proceedings and efforts made if any before and during the proceedings to try to resolve the dispute;
•
The amount or value of any money or property involved;
•
The importance of the matter to all the parties;
•
The particular complexity of the matter or the difficulty or novelty of the questions raised;
•
The skill, effort, specialised knowledge and responsibility involved;
•
The time spent on the case;
•
The place where and the circumstances in which work or any part of it was done.
With the exception of the factor relating to conduct which was introduced by the Woolf reforms and which is clearly capable of being applied to any aspect of the costs, all the other factors were incorporated in the list of factors that the
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court was required to take into account under the old A + B system when determining the uplift to be applied as Part B.In other words,the percentage increase over the expense rate could be calculated by reference to these factors so that if there were a particularly complex set of issues involving novel points of law, which required particular skill, effort and expertise on behalf of the solicitor conducting the matter and which were of critical importance to the client a relatively high B figure would have been allowed. Under the system where in the first place one has an overall charging rate and secondly the authorities are encouraging the use of guideline hourly rates, it is extremely difficult to see how any of the individual factors shown above could be utilised to change the rate of charging. In any event the system only worked properly prior to the Woolf rules because the Standard Basis allowed a reasonable amount in respect of all costs reasonably incurred and the computation of the reasonableness in terms of the amount was made at least in part by reference to these factors.Under the present system,there appears to be no such scope and it will be interesting to see how the courts eventually decide that these factors should be employed in the assessment of costs under the Standard Basis.The factors also, incidentally, apply to costs which are assessed on the Indemnity Basis. If these matters are the only ones relating to costs which remain to be dealt with or otherwise decided after such a fundamental change in our litigation practice and procedure, it can fairly be said that so far as the costs rules themselves are concerned,there has already been a commendable degree of success and,if they are allowed to operate as originally intended and the situation is not clouded by irrelevant considerations which are foreign to the established methods of assessment of costs,the benefits to both practitioners and to their clients will multiply and the main costs objective of the reforms, the control of litigation costs, will be achieved.
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