Costs update Adam Burrell Costs Team Leader, BLM Birmingham. Victoria Cargill Head of Costs, BLM Manchester

Transcription

1 Costs update 2008 Adam Burrell Costs Team Leader, BLM Birmingham Victoria Cargill Head of Costs, BLM Manchester

2 Hourly rates Methodology Before the CPR Although we are in 2008, any discussion about hourly rates starts with a history lesson. Before the CPR hourly rates were split into A and B factors. A was the hourly rate based on expense of time calculations. Local Law Societies conducted surveys of salaries and firm running costs and the local court issued guidelines as to what would be allowed. B was the mark up, or care and conduct uplift. This was a percentage increase of the A rate allowed by the court in accordance with the so-called seven pillars of wisdom. These are now included in CPR 44.5 as: i. The complexity of the matter ii. The novelty of the questions raised iii. The skill, labour, specialised knowledge and responsibility involved iv. The number and importance of the documents prepared and perused v. The place where and the circumstance in which the work was done vi. The amount or value of any money or property involved and vii. The importance of the matter to all the parties. Most cases were awarded a 50% mark up but if the claim was complex, of a high value or unusual the mark up could reach 200% as it was not capped. Mark up above 100% was rare. The current position The CPR brought to an end the common use of the A and B system. Global hourly rates were adopted with a notional 50% care and conduct B factor incorporated. The Supreme Court Costs Office (SCCO) began publishing guideline hourly rates for use by courts in summary assessments splitting rates into four grades: Grade A - solicitors with over eight years post qualification experience including at least eight years litigation experience Grade B - solicitors and legal executives with over four years post qualification experience including at least four years litigation experience Grade C - other solicitors and legal executives and fee earners of equivalent experience Grade D - trainee solicitors, paralegals and fee earners of equivalent experience Originally, these rates were increased biannually but from 2006 onwards these rates have been amended yearly in line with the retail price index. It seems that expense of time calculations have become a thing of the past as courts use the guidelines when conducting summary assessments of costs. They are also used as a reference point for detailed assessments but the SCCO has not published guideline rates specifically for detailed assessments. Costs update 2008_ARB_VQC_1108 2

3 The application of guideline rates After the introduction of summary assessment guideline rates, it became common place for solicitors to request, and recover, more than the guideline rates, especially at detailed assessment. The central argument is that the guidelines are exactly that. They are not mandatory and should only be applied at summary assessments. There was some debate as to whether the A and B method remained valid. The High Court considered this in Higgs v Camden & Islington Health Authority [2003] EWHC 15 (QB) and confirmed that the method was not manifestly inappropriate, suggesting that the practice will, in time, diminish. At the time, some commentators suggested Higgs confirmed that the A and B method had survived the CPR. It should be appreciated that the High Court s decision was that the costs judge had not reached the wrong decision based on the evidence before him. In that sense, it may have been a different result if the costs judge had only adopted the A and B method. Higgs is best considered as confirmation that the A and B method is useful starting point, but nothing more. More recently, Master Gordon-Saker, determining an appeal from the Principal Costs Officer in Holliday v E C Realisations Ltd [2008] EWHC (costs) stated at paragraph 22: I suspect that now, nearly nine years on, it may be time to bury concepts such as expense rates, mark-ups, A figures and B figures, for we must now have sufficient experience of the single hourly rates that have been claimed and allowed since Regional costs judge Duerden recently wrote an article stating that the guideline rates have no place in detailed assessments and should not be referred to in points of dispute. This mirrors Master Gordon-Saker s point made in Melladay v Park Street Properties (Lincoln) Limited, SCCO, 21 st October 2004 that the guideline rates are not designed for detailed assessment and are broad approximations only. Significantly, Master Rogers, the costs judge in Higgs, appears to have abandoned the A and B method in Woolley v Haden Building Services Ltd [2008] EWHC (Costs). Master Rogers specifically refused to deconstruct the hourly rates with reference to the guideline rates on the basis if he did so, a significant and unreasonable A and B method uplift would in effect be allowed. The Master stated that to carry out such an exercise was the wrong approach. The danger for the paying party Without using the guidelines as at least reference points, paying parties are left with uncertainty. Especially in higher value and complicated matters, the A and B method is a perfectly sensible and legitimate method of deconstructing the hourly rate claim. This unpredictability is heightened away from the SCCO where detailed assessments are often carried out by relatively inexperienced Deputy District Judges or District Judges who will not have the experience alluded to by Master Gordon Saker above. It seems strange that in the current climate of seeking to increase predictability, something as basic and fundamental as the hourly rate calculation appears to be more unpredictable that ever. The possible influence of concerns for compliance with European competition legislation and the function of the guideline rates, something that has been mooted in the last 12 months, cannot explain the reluctance to uphold a tried and tested method of allowing the paying party and the court to ensure the hourly rates being claimed are reasonable. In practice, there is little option but to continue to refer to the guideline summary assessment rates as a useful starting point and to factor in sensible increases depending upon the specific facts and complexities of the case, when formulating an offer. Costs update 2008_ARB_VQC_1108 3

4 Location The wraith challenge A common and useful argument employed by paying parties when challenging hourly rates is the location argument, often referred to as the Wraith challenge. Put simply, Wraith v Sheffield Forgemasters Ltd [1998] 1 WLR 132 stated that where solicitors in the claimant s own locality could have done the work at lesser hourly rates when compared with the rates actually claimed then the reasonable local rate should be allowed. For example if the claimant lives in Doncaster but the solicitors are based in Central London, the argument will be that a reasonable rate for Doncaster should be allowed. A number of factors should be taken into account. These factors mirror the seven pillars of wisdom, but also include any dissatisfaction with original solicitors, advice received as to whom to instruct and what was likely to have been known about the fees charged by his instructed solicitors compared with the fees of solicitors in the client s locality. When bringing a Wraith challenge, paying parties would often submit evidence concerning the availability of local solicitors to the claimant and demonstrate that these solicitors were capable of carrying out the type of work in question. This was to counter the claimant s arguments that they were instructed as they were specialist in a particular field. In an important development, the High Court have recently diluted the paying parties burden to produce such evidence in the matter of A v Chief Constable of South Yorkshire Police [2008] EWHC 1658 (QB). This was a civil action against the police and it was contended that the paying party had failed to demonstrate in fact that local solicitors were available at the appropriate time with the same level of experience as the more expensive instructed solicitors. Teare J found that the paying party could simply draw on the costs judge s experience that less expensive solicitors were capable of conducting a particular type of litigation in the claimant s locality. This is a good decision for paying parties and should make it easier to succeed on Wraith challenges. Outsourcing The growing practice of claimant s solicitors off-shoring aspects of a case, in order to reduce costs, has brought the appropriate rates for this work into sharp focus. Elements of cases, such as quantum negotiation or assessing special damages, will be sent off-shore. When it comes to recovering the work the solicitors will charge for the time spent at the conducting fee earner s rate. As we will see when looking at success fees, this practice is allowed by the court but paying parties are paying for the work at vastly increased rates which is putting a further strain on the system. It is perhaps a difficult question where work is being carried out in another country, at a reduced costs to the firm, what the reasonable hourly rate should be. If firms offshore fixed costs type work, this is perhaps less relevant, although might need consideration when any fixed costs scheme is revaluated. What next? We are currently waiting for the outcome of a consultation on hourly rates and there is a possibility that reduced guideline summary rates will be published. One idea being discussed is the possibility of a grade E rate, to apply to the increasing number of non-qualified staff and offshored. Whatever the outcome, paying parties should continue to raise challenges to rates by submitting arguments concerning the complexity of issues involved and be ready to make sophisticated arguments in relation to rates. Costs update 2008_ARB_VQC_1108 4

5 Success fees Over the last year, a number of technical issues have bubbled to the surface with the Court of Appeal considering such things as discounted Conditional Fee Agreements (CFAs), the application of success fees on external agents fees and the operation of the fixed success fee regime. This trend is continuing as by the end of the year the High Court, with the Senior Costs Judge sitting as an Assessor, will have heard the appeal from Master Campell s SCCO decision in Forde v Birmingham City Council. This will deal with the application of retrospective success fees and the possibility of running technical challenges to so-called new style CFAs. Discounted CFAs An attractive funding arrangement for paying parties, a discounted CFA provides for a discounted hourly rate whatever the outcome. In the event of a win, which could be defined as achieving a favourable costs order, a higher hourly rate and a success fee can be claimed. In Gloucestershire County Council v Evans [2008] EWCA Civ 21, such CFAs were endorsed as lawful. To the client requiring bulk legal services, such an agreement achieves certainty as to the costs of those services, enabling accurate budgeting. It also creates an incentive to both the client and the provider to achieve the win as it maximises the costs recovery from the losing party. The claimant s argument that the application of a success fee on the higher hourly rate was unlawful, and in the alternative, should only be on the lower hourly rate, failed. Success fees on agents fees The decision In contrast, the decision of Crane v Cannons Leisure [2007] EWCA Civ 1352, is not good news for paying parties as it provides for the recoverability of excessive success fees on work not undertaken by solicitors themselves. It was found, firstly, that work done by costs consultants was a profit cost and not a disbursement, as it was the type of work that the solicitors were retained to do and they had not relinquished control or responsibility for it. This entitled the solicitor to charge a success fee on the work undertaken by the costs consultants. Dissenting, Lord Justice Kay considered the allowance of a success fee on work that the solicitor had not undertaken to be simply unjust. Secondly, the success fee on such work was the same as the success fee for the substantive action despite the clearly reduced risk. Lord Justice May commented that the claim for costs was for ten times the damages, due in part, to the inadequate scope of the small claims track. The decision highlights the importance of skilful handling of detailed assessment proceedings to provide protection against the increased potential liability of such proceedings to paying parties, but perhaps more significantly, Crane will provide further impetus for claims reform generally. The impact The problem with this decision, other than defendants are now paying success fees on elements of work they never have before, is that the definition of agency work was so broad that the case has much wider implications. Any work that could be carried out by a solicitor can be classed as agency work. Therefore work which is currently outsourced could attract a success fee. At the moment firms use agents for a variety of work, the most common being obtaining medical evidence, site inspections and taking witness statements. With the Crane ruling, a solicitor can Costs update 2008_ARB_VQC_1108 5

6 instruct an agent to take a witness statement at 25 per hour. The agent spends two hours on the case and invoices the solicitor for 50. As this work could be done by the solicitor when the bill is drafted his costs draftsman classes this as chargeable time and includes it at a rate of 200 per hour plus a success fee of 25%. Work that has costs the claimant 50, will costs the defendant 500. As defendants we need to be aware of this trend and bring it to the attention of the courts, the CJC and the rules committee and be ready to take the point at detailed assessment. It may be that a well argued case can change everything. Fixed success fees The loophole in the rules In the past year we have seen the negative impact of fixed success fees. The decision in Lamont v Burton [2007] EWCA Civ 249 has highlighted the flaw in the system. In Lamont, the claimant failed to beat the defendant s part 36 offer at trial. The defendant argued that this meant the claimant hadn t been successful at trial and should recover a success fee of 12.5%, rather than 100%. On appeal it was held that the rules were clear and as the matter concluded at trial a success fee of 100% must be allowed. The claimant was penalised by only recovering their costs to the date of the expiry of the part 36 offer and that was the only remedy available. Lamont has lead to a number of claimant firms pushing all their RTA cases to disposal hearing in order to recover the 100% success fee. Some firms are offering to make up the shortfall in damages themselves, which is a breach of the Law Society code of conduct. The problem facing defendants is that there is no way to stop cases running to court. If you make a reasonable part 36 offer it will still be rejected if it amounts to less than difference between the claimant s solicitors recovering a 12.5% success fee or 100%. The solution? The case of Carver v BAA PLC [2008] EWCA Civ 412 offers some hope. In this case the claimant beat the defendants part 36 offer by 51. The defendant successfully argued that the fact that their offer was only beaten by such a low amount proved that the claimant had gained no real benefit from pursuing the matter to trial. The court limited the claimants costs to when the original offer was made. Whilst Carver will not mean that you avoid paying a 100% success, if you make strong offers early enough in the case, preferably pre-issue, you have the opportunity to limit the claimant s costs and lower your overall outlay. If it is a road traffic accident case you could, potentially, limit the costs to fixed recoverable costs with a 12.5% success fee. The rules committee are looking at the wording of CPR 45 and we hope that this is changed to close this loophole. Costs update 2008_ARB_VQC_1108 6

7 Estimates The courts powers It s now accepted that costs are not something dealt with at the conclusion of a claim but are an integral part of how a claim is managed. The old attitude of sort it out at detailed assessment is over and we must be aware of how our behaviour in handling claims influences the level of costs you will be faced with at the end of the matter. Estimates are one of the best tools we have to assist with this. Since the inception of the CPR the requirement to provide costs estimates has been a part of the rules. It has taken a while to see any benefit of this but in 2005 the costs practice directions were changed to given guidance on the use of estimates. There are two main aspects to the amended costs practice direction concerning estimates. Firstly, if a receiving party s bill of costs differs from an estimate provided by more than 20%, the bill of costs must include an explanation. Secondly, the costs practice direction introduces a principle of reasonable reliance requiring a paying party who intends to claim that an estimate has been reasonably relied upon. Reasonable reliance Where a paying party can demonstrate that an estimate has been reasonably relied upon and, as a consequence, certain steps or actions have taken place that might not have otherwise, the Court can have regard to it when considering the reasonableness of the costs. The Court of Appeal, in Leigh v Michelin Tyre Plc [2004] 1 costs LR 148, have stipulated that an inadequate estimate is not a cap on costs, an inadequate estimate can have catastrophic consequences as to the amount that will be recovered. In Tribe v Southdown Gliding Club [2007] EWHC (costs), a claim for costs of some 250, was reduced to 70, on this basis. For a paying party, being able to establish reasonable reliance on an estimate much lower than a costs finally claimed can be an important weapon. The recent case of Woolley v Haden Building Services Limited [2008] EWHC (costs) examined the possibility of reasonable reliance being established by paying party setting reserves based upon an estimate given at allocation. The decision, that on the facts of the case reasonable reliance was not established, highlight the difficulty paying parties have in demonstrating reliance based upon the setting of reserves. It suggests that paying parties should be alert to significant changes and require updated estimates, to a certain extent doing the receiving parties job for them. How to make the most of the rules In order to get the best out of the rules you need to be aware of the estimates at every stage of the litigation. Costs estimates are required at allocation and listing questionnaire stage. The court can order that estimates be filed at any stage. As defendants we need to lead by example. The estimates we file must be accurate. If the claimant changes their case by making new allegations or bringing in fresh medical evidence we should amend the estimate and put the claimant on notice that our costs will increase. Costs update 2008_ARB_VQC_1108 7

8 When we receive a costs estimate from our opponents you are informed and, if necessary, we let you know if you need to amend your reserve. We need to consider whether the estimate of costs changes our attitude to the case. Is it low enough to make a 50/50 case worth the risk of running? Is it so high that it makes the case uneconomic to continue? Or is it so unrealistic that you feel you can place no reliance on it whatsoever? If it is the first scenario a copy of our advice and a note of any subsequent discussions will help convince the court that the estimate should not be exceeded. If the claimant has confirmed that the estimate is accurate you may consider putting them on notice as to why you are continuing with the case. When dealing with a case you settle due to a high estimate let the claimant know why you are compromising the claim and let them know that the issue will be raised at detailed assessment. This will make it easier to raise proportionality and conduct issues. If you have a completely unrealistic estimate your first step is to ask the claimant to confirm that it is accurate. It may be incorrect as these mistakes can happen. If they stand by the estimate raise the issue at the next CMC. Ask the court to consider the estimate and provide guidance on whether they think that it is proportionate and reasonable. The court do have the power to cap costs at a CMC but rarely do so. It does not hurt to have it on record that you have made the request. If some time has passed since the estimate was provided ask for directions that further estimates are served. Even if the court fail to grant the order the evidence of your interest in costs throughout the case will be invaluable at detailed assessment. Ó Berrymans Lace Mawer 2008 O:\CLAIMS REVIEW 2008\PAPERS\FORMATTED\PAPERS FOR MANCHESTER E BULLETIN\12_COSTS UPDATE 2008_ADAM BURRELL_VICTORIA CARGILL.DOC Costs update 2008_ARB_VQC_1108 8