Ahmed v Aventis Pharma Ltd

The recent case of Ahmed v Aventis Pharma Ltd [2009] EWHC 9052 (Costs) dealt with two small issues but both ones of interest.

Firstly, following the decision in Crane v Canons Leisure Ltd [2007 EWCA Civ 1352, where solicitors outsourced the job of sorting and summarising medical records they could treat this work as forming part of their profit costs rather than being treated as a disbursement, and thereby make a profit on this work.

The second issue considered whether photocopying charges were recoverable. CPD 4.16(5) states: "The cost of making copies of documents will not in general be allowed but the court may exceptionally in its discretion make an allowance for copying in unusual circumstances or where the documents copied are unusually numerous in relation to the nature of the case".

Master Gordon-Saker dealt with the matter in this way: "Photocopying charges will generally only be allowed where they are exceptional, otherwise they are considered to fall within the solicitor's overhead. To my mind what is exceptional will have to be measured by the facts of the particular case. In a case where the profit costs are less than £7,000 it would be unusual to see the generation of 2,540 photocopies. Accordingly I would view this as exceptional and allow the sum of £154.80 claimed as a disbursement". This is no doubt correct. What might be considered exceptional in a low value matter may not be exceptional in a substantial piece of litigation.

Costs draftsman - A secure career

I recently came across a job advertisement for a trainee costs draftsman with the following wording: "Are you seeking a career option that is secure? Would you like to work in a niche market? Would you like to work in the field of Law Costs?".  Secure?  Have I missed something?

Have defendants been stitched up?

Before defendants get too excited about the positive recommendations that appear in Lord Justice Jackson's final report on his Review of Civil Litigation Costs it is time for a reality check.  The first point to note is that we do not know which, if any, of the proposals in the report will be implemented or when this might happen.

Secondly, we do know that the new claims process for low value RTAs is due to be launched in April. Now at the time of writing, unless I have missed something, the actual rules have yet to be published.  This is worrying with the start date so close.  Jackson LJ clearly has doubts about the scheme which he expressed in his report: "I have two concerns about the new process in its present form. My first concern is the sheer complexity of the process. Over 80 pages of new material will be added to the rule book, in order to deal with the simplest category of litigation which exists, namely low value RTA claims where liability is admitted. I fear that collectively these procedures might possibly open up a new theatre for the costs war."

Much has been made of the fact that the level of fixed fee is set below the average amounts recovered by claimant lawyers under the current rules.  Good news for defendants.  But, and it may be premature to start looking for problems before we have seen the final rules, one issue looks likely to cause defendants problems unless expressly dealt with in the small print of the new rules.

Under the current predictable costs regime, recovery of costs is governed by the level of damages actually agreed.  If a case settles at a level within the small claims track the predictable costs scheme does not apply.  However, under the new claims process the fixed fee of £400 for stage one, providing notification of the claim to the defendant, is payable at the point when liability is admitted.  At this point there will be no medical evidence.  The scheme is only meant to apply where the personal injury element of the claim is at least £1,000.  The Ministry of Justice's report recognises that some claims may be valued at the outset as having "reasonable prospects" of exceeding £1,000 but it later becoming clear that they do not.  At that stage the claim will leave the process.  However, I can see no mention of defendants getting their £400 back.  Am I being incredibly cynical in thinking that there will be a very high number of claims that claimant lawyers value as having reasonable prospects of recovering over £1,000 only for these claims to undergo a surprising downwards revaluation or even disappear entirely after the £400 has been paid?  There is no time limit under the scheme for obtaining a medical report and defendants may only discover several years down the road that they have been stitched-up in tens of thousands of claims.
 

Legal costs case law

BAILII is a wonderful, and free, resource and contains a section specifically devoted to recent costs law decisions.  These are usually mirrored in the excellent, free, Senior Courts Costs Office website transcripts section.  The downside with these sites is that the first does not provide case summaries and the second provides summaries for some cases but in another part of the website and those are not linked to the full judgments.  Further, with neither of these sites is there a way to obtain notification of new decisions.

Lawtel is a subscription service.  It does provide cases summaries and has some interesting decisions not reported elsewhere.  However, this service suffers from two problems (I am not talking now about their bizarre pricing structure).  It has a very useful daily update service that notifies of relevant new court decisions.  Unfortunately, the updates only seem to include recent decisions as opposed to older cases that have only just been added to Lawtel's database.  Therefore, even if one subscribes to the updates, one can miss important and interesting decisions.  The only way to make sure that other cases have not been reported is to search through the whole database.

The second problem with Lawtel is that it does not report many of the cases that appear on the Senior Courts Costs Office site.  One is therefore stuck with having to visit that site on a regular basis to check for new cases and to skim read them to know what the case is about.

Surely there could be a one-stop solution to keeping up to speed on all costs decisions.  Sadly, time constraints do not enable me to offer such a service.  There is a ray of hope on the horizon to this problem and I'll provide more information on this shortly.

Notice of funding problems

I previously reported on the important changes to the rules concerning notice of funding (see link).  I understand that at a recent Civil Justice Committee meeting these rules were discussed.  It was reported that some firms are experiencing difficulties in implementing the new rules and concerns were expressed about satellite litigation and the draconian sanctions imposed by the rules.  (I find it somewhat hard to understand why the new rules should be more difficult to follow or be viewed as more harsh than the previous rules.)

However, of more interest is the fact that the Committee was of the view that the change was introduced without proper consultation as part of the changes made following the MOJ's consultation concerning controlling costs in defamation claims and it was not clear how the change came to apply to all proceedings.  Apparently the Committee was looking to see if the change could be revoked.

VAT increase and solicitors' bills of costs

A number of visitors to the Legal Costs Blog have been searching for clarification of how the change in the VAT rate impacts on solicitors’ fees and how VAT should be dealt with when drafting bills of costs.  This post will try to cast some light on the issue.  The main sources of information on this point are the not overly helpful HMRC website (see link) and the far more helpful VAT practice note on the Law Society website (see link).  The examples below are partly based on those given in that practice note.  The notes states: “the Law Society will not accept any legal liability in relation to” its practice notes.  The same applies here.

This guidance is concerned with the limited issue of the appropriate rate to be claimed between the parties in civil litigation claims.  Entirely different rules may apply in other situations.  This is an idiot’s guide designed to be as easy to understand as possible (no use of terminology such as “basic tax point”).

Prior to 1 December 2008 the VAT rate was 17.5%.

Between 1 December 2008 and 31 December 2009 VAT was reduced to 15%.

VAT returned to 17.5% on 1 January 2010.

In a number of situations a solicitor can elect whether to charge VAT at 15% or 17.5%.  However, we are concerned with the position of costs recovery between the parties.  The Costs Practice Direction reads:

“5.7      Where there is a change in the rate of VAT, suppliers of goods and services are entitled by ss.88 (1) and 88(2) of the VAT Act 1994 in most circumstances to elect whether the new or the old rate of VAT should apply to a supply where the basic and actual tax points span a period during which there has been a change in VAT rates.

 

5.8       It will be assumed, unless a contrary indication is given in writing, that an election to take advantage of the provisions mentioned in paragraph 5.7 above and to charge VAT at the lower rate has been made. In any case in which an election to charge at the lower rate is not made, such a decision must be justified to the court assessing the costs.”

It is hard to imagine a situation where a receiving party would be able to reasonably elect the higher rate.  We will therefore proceed on the basis that the lowest rate available is the rate that should be claimed in an inter partes bill of costs.

Example 1

Solicitor instructed in relation to personal injury claim.  Instructions received and retainer commences in January 2009.  The claim concludes in December 2009.  Costs payable by the other side.  VAT should be claimed at 15% throughout.  (This assumes the bill of costs was also drafted in December 2009.

Example 2

Solicitor instructed in relation to personal injury claim.  Instructions received and retainer commences in January 2009.  The claim concludes in 2010.  Costs payable by the other side.  VAT should be claimed at 15% on the work carried out before 1 January 2010 and 17.5% on the remainder of the costs.

Example 3

Solicitor instructed in relation to personal injury claim.  Instructions received and retainer commences in January 2006.  The claim concludes in December 2009.  Costs payable by the other side.  Costs are not agreed or assessed until April 2010 and further work is undertaken with regards to that.  Provided that no interim invoices have been raised or payments received over the entire course of the matter, which would be the case if there was a conditional fee agreement, then VAT should be claimed as follows:

·        17.5% in relation to the period from January 2006 to 30 November 2008

·        15% in relation to the period from 1 December 2008 to 31 December 2009, and

·        17.5% in relation to the period from 1 January 2010 to April 2010

If an interim invoice was raised during the course of the matter, then the rate to claim will be the same as that on the invoices issued.

Example 4

The Law Society’s practice note gives an example where the facts are similar to Example 3 above but each party is to pay their own costs.  If an invoice is raised in January 2010, the practice note claims that all work done prior to 1 January 2010 can be charged to the client at 15% including the work done prior to 1 December 2008.  It seems a strange anomaly, if correct, that the pre-1 December 2008 rate retrospectively increases on an inter partes bill but not on a solicitor own client invoice.  Most bills drafted in 2009, at least in CFA cases, claimed VAT at 15% throughout even if the claim had started pre-1 December 2008.  Any VAT experts out there should feel free to comment (just don't get too technical).

Disbursements

The rate of VAT claimable in respect of disbursements will depend on the date on which the invoice for the disbursement is issued, regardless of when the disbursement was incurred.

Counsel’s Fees

It appears that the same rules apply as for solicitors’ fees.

At the end of last year I began to see a number of bills of costs where VAT was claimed at 15% but on the basis that if costs were not agreed and/or paid by 1 January 2010 the rate would increase to 17.5%.  There appears to be no basis for this suggestion.

Now lets all hope that they stop messing about with the rates.

Legal Costs Conferences

Given the current economic climate, the prices being charges by some legal training conference providers looks rather optimistic, but there is certainly some competition emerging in relation to pricing.

The IBC Solicitors' Costs Conference 2010, on 26th January, is priced at between £599 and £799 depending on when you booked (with a 20% discount for ALCD members).  CLT's Solicitors Costs Conference 2010, also on 26th January, is £395 for CLT subscribers, ALCD and APIL members or £495 otherwise.  This year they were, at one stage, offering a very attractive two for the price of one offer.  Butterworth's Costs and Litigation Funding conference, at the end of last year, was priced at £499.  If you don't mind a trip to Liverpool, the Liverpool Law Society's Costs Conference, on 16th March 2010, looks very good value at £199 for members and £249 for non-members.

In light of the Jackson Report, many may be wondering whether they will still have a job working in the field of legal costs and may decide none of these are worth the time, let alone the money.

Jackson Costs Report - The Dawn of a New World

Many working in the legal costs industry will have gone to work last Thursday, the day Jackson LJ published his final report on his civil litigation costs review, wearing brown trousers.  Most of them will have been spending the weekend updating their CVs.  Those who thought the final report would probably turn out to be something of a damp squib will have had the shock of their lives.

From the perspective of the majority of those working in the costs industry this was about as bad as it could have been.  Short of recommending a total change from the current system to contingency fees, or a total end to costs shifting, it is hard to imagine how much worse it could have been.  This is not to suggest that any of his proposals are wrong given the scope of his remit. 

The majority of those reading this who currently work in the costs industry will be earning a living doing something entirely different in 2-3 years time.

The starting point, if you haven’t done so already, is to read the Final Report (click link) itself.  There are helpful summaries on pages xvi-xxiv and 463-471.  The legal, insurance and mainstream press has been busy writing about the report and a selection of articles can be found read here: Law Gazette, Solicitors Journal, New Law Journal, The Lawyer, The Times, Telegraph, Guardian, Insurance Times and Post Magazine.

For a useful introduction to the recommendations in the report, New Law Journal’s webcast on the final report can be found here: Jackson Webcast.  The New Law Journal was busily promoting this webcast last week and it seems they did a bit too good a job of it as the massive demand for the webcast caused their system to crash.    

So, let’s have a look at some of the key proposals and see what kind of an impact these will have on the legal costs industry:

• Fixed costs for all stages in all personal injury fast track matters. - This is the big one.  This change does not require primary legislation and is therefore all but certain to happen.  Jackson LJ wants the new regime in place by October 2010!  Yes.  That quickly.  Fast-track personal injury work (with the limit now being £25,000) accounts for the vast majority of the civil costs work out there.  This will mean the end, at least in their current form, for most volume legal cost firms.  Although there will be a run-off period for existing claims, for fast-track matters this will not be long.  Firms are going to be starting to plan their redundancy programmes now.  Firms will be looking for mergers and management buy-outs for what remains of these businesses, if anything.  To make matters worse for employees, many of these firms will have no incentive to retain quality staff and will look to maximise profits for the short run-off period.  Await news of big changes to bonus structures. 

• An end to recovery of success fees and ATE premiums between the parties. -  Although this will not have a direct impact on the nature of the work out there, it is likely to have two indirect consequences.  Many claimant lawyers will feel unable to charge their clients success fees if these cannot be recovered from defendants.  Even if they do feel able to charge success fees, the proposed new cap on success fees will dramatically reduce the amount lawyers can charge.  This may have an impact on the willingness of firms to accept risky personal injury claims.  Any reduction in new claims being accepted will mean a future reduction in costs work.  Secondly, it has been the amounts at stake as a result of the recoverability of success fees and ATE premiums that has done much to increase the importance of legal costs in litigation and generate the need for specialists.  Once additional liabilities are removed from inter partes bills, the amounts at stake will appear much more modest.  Lawyers and insurers may feel much more comfortable negotiating costs in these cases and not feel the need to involve costs experts.

• Even if recovery remains in place, Jackson LJ not only wants to reverse the decision in Crane v Canons Leisure Centre [2007] EWCA Civ 1352, which allowed success fees to be claimed on work done by external costs draftsmen, but he wants recovery of success fees to be ended entirely in detailed assessment proceedings.  In recent years, detailed assessment proceedings have often been more profitable than the substantive litigation itself.  This will end and there will be less incentive for claims to be pushed to detailed assessment.

• Jackson LJ wants new software developed that will enable time to be recorded on case management systems in such a way that schedules of costs and bills of costs can be generated automatically.  Yes, you did read that correctly.  The traditional job of a law costs draftsmen, drafting bills of costs (as the name implies), is to end.  The bread-and-butter work for claimant costs firms will disappear.  This proposal would take some time to put into place, and faces a number of problems, but does not make for happy reading.

• Lengthy points of dispute and replies have become an industry in their own right and generated much work for the costs world.  Jackson LJ wants a radical change in approach and these pleadings to be much shorter.  Interestingly, the new model points of dispute (page 556 of the Report) are very similar to the kind I have been producing for years.  This recommendation is more one of guidance as to what the courts will expect to see rather than a fundamental change in the rules.  Although this change anticipates an actual amendment to the Costs Practice Direction, we can expect judges to want parties to implement the spirit of this change immediately.  Receiving parties will have to think carefully before preparing optional replies unless there is a point of principle arising or positive concessions are being made.  If they carry on producing replies along current lines they are unlikely to recover the costs of the exercise.  You heard it here first.

• There is a proposal for a pilot scheme of a provisional assessment procedure for bills up to £25,000.  If fast-track cases become subject to fixed costs, this proposal is unlikely to impact on a large number of cases.

• Jackson LJ recommends the introduction of qualified one-way costs shifting (in simple terms it means that defendants in personal injury claims will not normally be able to recover their costs when they win a case except where the defendant has succeeded on its Part 36 offer).  This will mean an end to the need for defendant bills of costs in most cases where a defendant wins on liability.  It will mean an end to the need for losing claimants to challenge such costs.

Are there any crumbs of comfort to come out of the report?  Not many.

• The introduction of rules for costs management in cases is proposed.  At one stage it was hoped in certain quarters that this idea would generate significant new work and keep experienced costs specialists busy.  However, it is proposed that it will generally be in the discretion of the judge as to whether to order costs management and it is unlikely that it would be adopted much beyond the type of case that is currently considered appropriate for costs capping orders (ie virtually none).

• Judges will be given a bit more discretion as to the circumstances where they are meant to summarily assess costs.  Basically, if they don’t want to, they don’t have to.  However, given fast-track cases will be caught by the fixed costs proposals this is only going to have limited impact on costs work levels.

• The radical proposals for “proportionality” (which I’ll discuss in more detail on another occasion) seems certain to generate a flurry of satellite litigation initially, but this will probably be short-lived.

Don’t start complaining as to why you weren’t warned about all this before.  Given Jackson LJ’s opening comments to his Preliminary Report were: “My final report will generate protest from at least some directions and quite possibly all directions. … The personal injury litigation industry is populated by numerous interest groups and middlemen, all of whom have to meet their overheads and make a profit on top. If any layer of activity can be removed from the process … it may be thought that this will serve the public interest”, it should have been obvious what was coming.  I warned as much in a previous post (click link) and a recent article I wrote for the Solicitors Journal (click link).

If there is any comfort at all from this report it is that it may help separate the wheat from the chaff in the costs world.  For too long this has been an industry largely populated by poorly trained “costs muppets”.  With only a small number of higher value claims remaining in the system post-Jackson, it is to be hoped that those who survive are the genuine experts and what was an industry will become a true profession.

For the rest, happy job hunting.

Legal costs sense at an insane price

Amazon are taking pre-publication orders for Dr Mark Friston's Civil Costs: Law and Practice (see link) at the discounted price of £56.25 (with free postage).  This would be an insanely low price for any legal text book. I really can't believe that the price is so low for this book.  Don't be fooled into thinking the low price means you won't get something of serious substance.

Jackson Costs Report - The Headlines

So, are the proposals contained in the final Jackson Report as dramatic as some were expecting?  Oh, yes.

These include:

• Success fees and after the event insurance premiums to be irrecoverable between the parties (this would mean the end for most ATE insurers);
• To offset the effects of this for claimants, general damages awards for personal injuries should be increased by 10%;
• Referral fees should be scrapped (this would mean an end for claim management firms);
• Qualified ‘one way costs shifting’ – claimants would not usually be liable for a defendant's costs if a claim is unsuccessful (as long as they have behaved reasonably), removing the need for after the event insurance (and the need for some costs drafting work);
  
• Fixed costs to be set for ‘fast track’ cases (those with a claim up to £25,000) to provide certainty of legal costs (this would mean an end for many costs negotiators and costs draftsmen);
• Allowing lawyers to enter into contingency fee agreements, where lawyers are only paid if a claim is successful, normally receiving a percentage of actual damages won.

Final Jackson Costs Report published

The wait is over and the report has been published: Final Report (click link). 

New bill of costs format

I previously commented (see post) on the possibility of a new bill of costs format emerging as a result of the Lord Justice Jackson's Civil Litigation Costs Review.

The Senior Courts Costs Office Costs Practitioners Group recent minutes (see link) provided an update:

"Proposals for a new format for bills of costs
As a result of the seminar, a working party comprising Master Simons, District Judge Besford and Mr Harman had been set up to look into the format of bills of costs and how improvements could be made. They had consulted with the Costs Judges, the Association of Law Costs Draftsmen and the Regional Costs Judges, who had all provided feedback. The conclusion they had reached, which was to be their recommendation, was that the items claimed as part of the Documents item in a bill of costs should be subdivided according to subject matter, instead of being listed in chronological order. For example, there should be separate subheadings to show the time spent on preparing pleadings, witness statements, preparations for trial etc. This had been put to the firms who prepared software for bills of costs, who saw no problems with this format. The meeting welcomed this proposal as an improvement on what we presently have. However, Mr O’Riordan spoke up on behalf of those who thought that this improvement should go further: the “block time” method could be applied to the whole bill, thus doing away with the need to count individual letters, emails and telephone calls. Where most time was now recorded by solicitors on computerised time sheets, he thought it an anachronism that individual letters, which were sometimes little more than a couple of lines, should be remunerated as a 6 minute unit, when the time sheet would record the actual time spent in any event. Master Simons said that it was the intention of the working party to recommend that email communications were dealt with in this way, but that for routine letters, he felt that showing the total amount of correspondence with a party (i.e. by letter count) was still a useful way of determining whether the amount of work done with that party was reasonable and proportionate or not."

This recommendation seems likely to be accepted by Jackson LJ.  And the waiting is almost over...

Responses to Jackson Costs Review

It is obvious how much work has been put in by Lord Justice Jackson and his team in relation to his preliminary report on his Review of Civil Litigation Costs and his forthcoming final report (due for publication on 14 January 2010). However, others have also put a lot of time and effort into this process.  The preliminary report generated a large number of responses from interested parties who produced detailed submissions in the hope influencing the final report. 

To recognise that work I have put together links to a number of these responses.  These can be viewed here: Jackson Costs Review.  The list is not complete and was based on a trawl of the internet and some other investigations (but does include the response from Gibbs Wyatt Stone).  I will be happy to add others if you send me a link or a copy of the document.

Jackson webinar

As the excitement about the publication of Lord Justice Jackson's final report on his Review of Civil Litigation Costs builds to an uncontrollable frenzy, an event to place in your diary is a live webinar panel discussion on the key proposals in the report on the same day as publication (14 January 2010) over at the New Law Journal website.  Apparently all you need to do is visit www.newlawjournal.co.uk just before 1pm on 14 January 2010 and follow the link.

Legal costs and referral fees

The Law Society recently announced a change of policy with a call for the reintroduction of a ban on referral fees.  The Legal Services Board said it will look at this issue as priority.

The subject of referral fees is not, in theory, one directly related to legal costs but does seem to keep cropping up.  I first became aware of the issue in the context of the sadly missed Claims Direct and Accident Group schemes.  Readers will recall that these schemes, and other similar ones, required payment by the solicitor of an "investigation fee" in respect of each case referred.  These fees were then claimed by claimant solicitors as a disbursement.  I remember the countless arguments I used to have with claimant solicitors (often senior partners) who claimed, despite all the evidence to the contrary, that these were not thinly disguised referral fees.  Such fees were indeed subsequently held to be unlawful (and therefore irrecoverable) referral fees in the Claims Direct Test Cases - Tranche 2 [2003] EWHC 9005 (Costs) and Accident Group Test Cases [2004] EWCA Civ 575.  I was always somewhat surprised that when the referral fee ban was lifted claimant solicitors didn't start to try to start slipping these fees through again in their claims for costs, but this didn't seem to happen.

Another link between referral fees and legal costs has recently come to the fore in relation to claims that the former drives up the latter and whether this is the explanation for the 20-35% gap between the amount charged by claimant and defendant lawyers (see article).  This same issue has been highlighted by Lord Justice Jackson in his review of Civil Litigation Costs.

The impact of any return to a ban on referral fees will be entirely dependant on whether it is properly enforced; something which never previously happened.

Guideline Hourly Rates 2010

Will there be an increase in the Guideline Hourly Rates for 2010?  The latest news is that the Master of the Rolls has decided to wait until after publication of Sir Rupert Jackson's report of his review of Civil Litigation Costs before deciding whether to make any changes to the current Guideline Hourly Rates. That report is due to be published on 14 January 2010.  My prediction: no change.

Click image to enlarge:

www.qccartoon.com

A worrying legal costs development

The decision in Crane v Canons Leisure [2007] EWCA Civ 1352 means that solicitors can outsource work but then charge for this work as though they had done it themselves (with a higher hourly rate than that paid to the agent) and claim a success fee on top.  Therefore, in the case of detailed assessments, solicitors can outsource the bill drafting and advocacy at a rate of, for example, £100 but then claim a rate of, for example, £130 plus a success fee of up to 100%.

Lord Justice Jackson's preliminary report on his Review of Civil Litigation Costs quoted the view of FOIL that this decision was "iniquitous and further increasing costs".  Jackson LJ viewed the decision as an example of the rules creating "windfalls for claimant lawyers" and raised the possibility of reversing this decision through primary legislation.

It is therefore unfortunate that news emerges of a change to the way barristers' fees can be treated.  According to a recent report in the Law Gazette, solicitors will for the first time be able to profit from instructing barristers following rule changes agreed last month by the Bar Standards Board.  It will enable a relationship with solicitors that will allow the solicitor’s firm to treat the barrister’s fee as a cost that they can mark up when billing the client to generate a profit (and therefore, equally, an unsuccessful defendant).  Previously a barrister's fee was treated as a disbursement.

Traditionally, outsourcing certain work to barristers has been one of the few factors that works to limit the level of legal costs incurred.  It is not uncommon to see a barrister in a claim charging an hourly rate of, say, £150 while the instructing solicitor is charging £250 per hour plus a 100% success fee (ie £500 per hour).  If it becomes common practice for counsels' fees to have a mark-up added this will be a worrying legal costs development.  Just as others are looking to reduce the disproportionate level of legal costs incurred in litigation, so the Bar has taken a step in the other direction.  This looks likely to lead to the next round of the costs war.