Advising on success fees

Advising clients on the level of success fee that might be allowed in any given case is an inherently difficult task given the unpredictability of the courts. Another reason why it is difficult to advise is due to the method by which success fee are normally calculated. The courts generally accept, as a starting point, the "Ready Reckoner" (see for example paragraph 4 of Atack v Lee [2004] EWCA Civ 1712). This allows for a calculation that, based on the prospects of success fee in any given case, produces the correct level of success fee to reflect that risk. The difficulty with the figures produced by this method is that a tiny change in the prospects of success can produce a radically different success fee. For example, a case with a 50% chance of success produces a 100% success fee. A case with a 60% chance of success produces only a 67% success fee. Therefore even a very small difference in a judge's assessment of the prospects of success can radically alter the amount that can be allowed on a bill. How can one accurately advise a client as to what a judge is likely to allow?

Gibbs Wyatt Stone were instructed in relation to a case concerning a claimant who had tripped over a defective paving stone. This type of claim is generally recognised as not being straightforward due to the availability of a s58 statutory defence. However, the typical difficulty still arose as to what figure to recommend in relation to the level of success fee. In the event, GWS advised that the Defendant's offer of £14,500, made prior to a formal Bill being served, provided reasonable protection. A formal Bill was served and the matter proceeded to detailed assessment in the Supreme Court Costs Office. The matter was heard by Principal Costs Officer Lambert. He assessed the prospects of success at 65% and, using the "Ready Reckoner", allowed a success fee of 55%. Taken together with the other reductions made, the Bill of Costs was reduced from £35,150.50 to £13,991.83. The Defendant therefore succeeded on its offer and was awarded the costs of the detailed assessment proceedings.

The Claimant was unhappy with the success fee allowed and appealed to a Costs Judge. An odd aspect of appeals from a Costs Officer to a Costs Judge, in addition to there being an automatic right of appeal, is that such an appeal is by way of a complete rehearing rather than a straight appeal. This means that the Costs Judge will consider the matter afresh rather than simply decide whether to uphold or overturn the Costs Officer's decision.

The "appeal" was heard by Master O'Hare who decided not only that the Costs Officer's assessment of the prospects of success had not been unduly low but had actually been too high. He assessed the prospects of success at 67% and, based on the "Ready Reckoner", this reduced the success fee to 50%, which was what he allowed. The Claimant's appeal therefore not only failed but resulted in a further reduction to the amount which had originally been awarded. The Defendant was awarded the costs of the appeal.

Until fixed success fees are introduced for this type of case, costs draftsmen and other costs professionals will continue to struggle to advise their clients in these claims.

New Claims Process - Details emerging

Details are now starting to emerge as to the shape of the new Claims Process for RTA claims with a value of up to £10,000. Crucially, as reported in an article in the latest edition of New Law Journal, "three aspects remain confidential pending final consideration by stakeholders with the MoJ [including] the final cost matrix for the new work flow".

The article confirms that fixed costs will be payable at the end of each of the three stages of the process. Nice and simple then? Not quite. The article states: "New timelines for responses at each stage will govern the process. Failure to keep up with the timetable will result in the claim exiting from the fixed-cost process". Further: "Any other type of contributory negligence claim [except seatbelt issues] will be required to exit the system into the predictable costs regime". Yes, the predictable costs regime really has survived the new Claims Process.

So it now appears we will have three different costs regimes applying to low value RTAs: fixed fees for cases within the new Claims Process, different fixed fees (ie predictable costs) for cases that fall outside the Claims Process but settle pre-proceedings and standard basis costs (presumably covering those cases where liability is not agreed and proceedings are issued. Costs in low value RTA claims appear to be about to become more complex. How will these various regime's interrelate? (This is the question I raised in this post almost exactly one year ago.) We'll hopefully discover very shortly.

A further oddity is that "when estimating the value of a claim no account is to be taken of credit hire or vehicle damage costs". No doubt very sensible and this is clearly designed to avoid some of the excessive fees currently generated by "bent metal" claims. However, the predictable fee regime survives where these factors can be taken into account when valuing a claim. So credit hire and vehicle damage will count for one scheme but not the other. Are you keeping up so far?

To add to the fun we are told that "new Pt 36 sanctions are still being considered".

Existing methods of funding the claim such as BTE, CFA and ATE will continue to be available.

The new Claims Process contains a streamlined court assessment of damages and the presumption is that this will be a paper hearing. To "preserve the claimant's human rights" they can opt for an oral hearing. "Separate fixed costs have been agreed between stakeholders for either the paper or oral hearing". If the costs for the oral hearing have been fixed sufficiently high to cover the additional work that is required can we expect to see a surprising number of claimants opting for the oral hearing?

My prediction based on the information available to date: two years of costs chaos.

I'll comment further once more details become available.

Hailsham Chambers Annual Costs Group Seminar 2009

Hailsham Chambers have produced a podcast of their excellent Annual Costs Group Seminar. Highly recommended.

Annual Costs Group Seminars 2009 from Hailsham Chambers on Vimeo.

Jackson Costs Review – Part 6 – The Political Element

Lord Justice Jackson's Civil Litigation Costs Review (see previous posts) raises the possibility of radical changes to the current system. However, how likely is it that his eventual proposals will ever see the light of day?

One of the most likely proposals he will put forward is a fixed fee regime for all stages of fast track cases. This, of course, is something very similar to the Ministry of Justice’s previous proposals, in the consultation paper Case track limits and the claims process for personal injury claims, to introduce a new claims process for all personal injury claims, except clinical negligence, and introduce a fixed costs regime to cover such cases. In the event, that was largely abandoned with no more than a limited new scheme for lower value RTA claims proposed.

Why did the Ministry of Justice back-down on its own initial recommendations? At the time, Stephen Haddrill, the Association of British Insurer's Director General, commented: “And the exclusion of workplace-related claims, which take on average three years to settle, is illogical and bizarre. Trade union pressure must not be allowed to block change.” What is the interrelationship between trade unions and government policy? One theory is that the introduction of fixed fees to a wider category of claim and, in particular, EL claims would have had a downward impact on the fees that claimant solicitors were able to recover. If one accepts that a large proportion of trade union backed cases are “bought” by trade union panel solicitors, through referral fees paid to the trade union, any reduction in fee income would reduce the amount that solicitors could pay in referral fees. The trade union income generated by referral fees, and there is no reason to suppose this is not significant, enables trade unions to make political donations. These have traditionally been to the Labour Party. The (conspiracy) theory is that trade union pressure on the Government led to the change in policy. It would have been suggested that a move to fixed fees for EL cases would lead, indirectly, to a reduction in political donations to the Labour Party. The Legal Costs Blog is unable to comment on whether there is any truth in these allegations.

Is there any reason to suppose that the Ministry of Justice will change its mind, again, if Jackson LJ comes out firmly in favour of fixed fees for fast track claims when he publishes his final report in December? It seems unlikely. However, matters do not stop there. Jackson LJ’s final report is likely to be published shortly before the next general election. All the signs are that the new government will be a Conservative one. How willing will the Conservatives be to implement fixed fees?

There are three possible factors that will be at work. Firstly, a Conservative government is unlikely to have any reservations about introducing changes that might reduce a source of income to the Labour Party. Quite the reverse. Secondly, a Conservative government is likely to have some sympathy for insurers, and businesses that pay insurance premiums, who have previously been faced with disproportionate legal costs. Thirdly, any new government is going to face a serious public sector deficit and be looking for any areas where savings can be made. Any fixed fee regime is likely to reduce the total amounts paid out in terms of legal costs. This would have a positive impact on the budgets of the NHSLA, government departments and local authorities, all of which are funded directly or indirectly by the public purse. Jackson LJ’s final proposals, assuming they do include fixed fees, are likely to have a number of attractions to a new Conservative administration. The timing of the final report may be fortuitous for Jackson LJ.

Late settlements

Those of us who work in the legal costs world have countless stories of last minute costs settlements where the other side crumbles at the last moment. In fairness, both claimants and defendants are probably equally to blame. Naturally, the closer a matter gets to a final hearing the more it focuses the parties’ minds. The same behaviour can be seen in substantive litigation with door-of-the-court settlements. However, in costs matters, this problem is usually due to a failure by someone appropriately experienced to consider the merits of a case at an early stage. Instead, a proper analysis is often only undertaken very late in the day. The following recent example is by no means the worst case I have seen.

A personal injury claim was settled in June 2007 and the Claimant subsequently presented a schedule of costs totalling about £21,000. The Defendant offered £7,800 in August 2007. The Claimant made a counter-offer of £13,500 in September 2007. The Defendant made a final offer of £8,500 in November 2007 which was rejected. A Bill of Costs was served totalling about £23,000.

At this stage Gibbs Wyatt Stone were instructed to act for the Defendant. We advised against increasing the Defendant’s offer and drafted Points of Dispute requesting disclosure of the Claimant’s CFA. These Points of Dispute were served in December 2007. In January 2008 Replies were served which declined to give disclosure of the CFA. After further communications the CFA was eventually served in March 2008. It was clear that there were serious issues as to the validity of the CFA. Supplemental Points of Dispute were served in April 2008 challenging the validity of the CFA. The Claimant made a further settlement proposal of £12,300 in May 2008. In February 2009 the Claimant served Replies to the Supplemental Points of Dispute that claimed the CFA was valid.

In March 2009, having paid a court fee of £600 for the privilege, the Claimant requested a detailed assessment hearing. The Court issued directions requiring the parties to hold a joint discussion to narrow the issues. The parties undertook the joint discussion and prepared a joint statement identifying the issues still in dispute.

The Court listed the matter for a pre-hearing review in June 2009. Two days before the hearing the Claimant contacted the Defendant seeking to accept the Defendant’s offer of £8,500 made back in November 2007. After further discussions, settlement was agreed at £7,500 to allow for a contribution to the Defendant’s costs that had been incurred since the offer in November 2007. Once the Claimant had paid the court fee, their costs draftsman’s fees for preparing the Bill and the other costs incurred between November 2007 and June 2009, the Claimant probably recovered something in the region of £4,500 net as against the offer of £8,500 previously made by the Defendant.

Running a case all the way to assessment and losing is one thing but marching all the way to the top of the hill only to march back down again is less easy to understand.

Feel free to post your own favourite examples.

Jackson Costs Review – Part 5 – Small Claims Limit

Lord Justice Jackson's Preliminary Report on Civil Litigation Costs revisits the thorny issue of whether the small claims track limit for personal injury claims should be raised from £1,000 to £5,000 (or somewhere in between). APIL, not surprisingly, expressed concern to Jackson LJ if this was introduced: “APIL’s membership survey suggests that almost 70% of all personal injury work consist of claims with general damages of less than £5,000. Solicitors firms that currently specialise in low value personal injury claims (i.e. below £5,000) would face a significant loss of business if the upper limit for small claims was increased. APIL suggests that the effect of the increase in the small claims limit in terms of lost business would be particularly acute in firms that specialise in Road Traffic Accident claims. APIL maintains that such firms would be ‘decimated due to the loss of a significant amount of business’. The reduction in the number of personal injury firms would create access to justice problems”.

FOIL were reported as believing that the small claims limit for personal injury claims should be raised to about £2,500, so long as there is an overhaul of the fixed fees that go with the present regime.

The Ministry of Justice only very recently reviewed this same issue and decided against changing the limit. It is therefore fascinating that Jackson LJ is willing to reopen this can of worms. He is clearly prepared to consider all options, regardless of who he upsets in the process.