Pre-action Conduct of Litigation

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1 Chapter 2: Pre-action Conduct of Litigation Outline 2.1 Introduction 2.2 Financing litigation 2.3 Pre-action protocols and the Practice- Direction on Pre-Action Conduct and Protocols 2.4 Protocols relevant to personal injury claims 2.5 Example checklist for initial interview with client in personal injury claim 2.6 Low value personal injury protocol claims 2.7 Pre-Action Protocol for Personal Injury Claims (the Personal Injury Protocol) 2.8 Compliance with the pre-action protocols when limitation approaches 2.9 Failure to comply with the pre-action protocols 2.10 Defendant s insurers and the Motor Insurers Bureau 2.11 Debt claims 2.12 Summary Aims of this Chapter This chapter will enable you to achieve the following learning outcomes from the CILEx syllabus: 2 Understand how civil actions are funded 3 Understand how to commence and defend actions in civil proceedings 2.1 Introduction This chapter considers the steps to be taken prior to the issue of court proceedings. The tasks that a solicitor undertakes on behalf of the client at the outset are particularly important. There is a great deal of work to do, particularly in personal injury cases, before a claimant s solicitor can issue proceedings. If this initial work is not carried out thoroughly and instructions are not taken fully, at best the solicitor could suffer the embarrassment of having to keep referring back to the client for simple details and information. At worst, the solicitor may have obtained only half of the information required and, if proceedings are issued on this basis, they may be struck out. Remember also that the court will expect the parties, in accordance with the overriding objective, to act reasonably and, in general, to try to avoid the issue of proceedings. It would not be in accordance with the ethos of CPR to issue proceedings without preaction work by both the claimant s and the defendant s solicitors. It may seem odd, but at the beginning of an action it is important to remind the client that the likelihood of reaching trial is not very high. The vast majority of actions settle before trial, and letters to clients should never be expressed in terms of when this matter goes to trial.... Trial is only ever a small possibility. 2.2 Financing litigation How a case will be financed is of crucial importance, both to the firm (as the method may influence how much and how quickly the firm will be paid) and to the client. There are a number of alternative ways through which litigation may be financed. UQ09 CLS 17

2 At the outset of the case the solicitor must discuss the issue of costs with the client. They should give the client the best information possible about the likely overall costs and should explain the client s potential liability for his own costs and for those of the other parties (e.g. if the client were to lose the case, the court may order him to pay the opponent s costs). LASPO 2012 introduced sweeping changes to the methods of funding civil litigation. These changes apply to solicitor/client funding agreements entered into on or after 1 April For several years there will remain cases funded under the agreements in place before 1 April In practice, a solicitor or paralegal practitioner, on receiving a file, will have to check the funding agreement in place to ascertain not only the method of funding (i.e. the type of funding agreement) but also which rules apply to it (i.e. those before or those from 1 April 2013). This manual will focus on current procedural law since April General costs rule in civil litigation The usual rule in civil litigation is that the unsuccessful party in proceedings is ordered to pay the successful party s costs (CPR r44.2(2)(a)). This is often referred to as costs following the event. It simply means that the costs liability shifts on to whoever loses and the losing party, therefore, pays the winning party s costs in addition to their own solicitor s costs. This gives rise to the expression that the loser pays twice. Unless costs are fixed under CPR, costs are awarded at the court s discretion, so the court may make a different order. The other side s costs generally have to be paid out of the losing party s personal resources. It may be possible for the client to arrange after the event (ATE) insurance to cover the liability to pay the other side s costs. There are a number of methods of funding a civil litigation claim: by retainer, under a conditional fee agreement, under a damages-based agreement, by public funding (this now has very limited application), or with a before-theevent insurance policy Retainer The traditional method, called a retainer, is for the client to pay the solicitor s costs of conducting the case at an agreed hourly rate. Charge-out rates are based on the salaries of the staff and fee-earners working at the solicitor s office together with an element representing the firm s profits. A common approach is to fix a single hourly rate for each fee-earner (or grade of feeearner) in the firm, taking these factors into account. In addition, the client will be expected to pay for disbursements. These are sums paid by the firm during the course of litigation in respect of experts and counsel s fees, the cost of making copies of photographs and similar expenditure. A client care letter, which should include the funding arrangements and, if possible, an estimate of the future costs, should be sent to the client in the early stages after the firm is retained. It is normal to ask for a sum on account of costs at this stage and it is sensible to agree to periodical billing of the client (which avoids the client being taken by surprise by a large bill at the end of the case and also assists with the firm s cash flow). 18 UQ09 CLS

3 There is a duty to keep the client informed about the level of costs incurred on his behalf. The retainer should be run in accordance with the SRA Code of Conduct (incorporated into the SRA Handbook in October 2011), or it could affect the whole validity of the retainer (meaning the firm may not get paid at all). If costs are fixed under CPR, the solicitor can only charge the client the prescribed fixed costs (see 2.6.4) Conditional fee agreements (1) General provisions The client and the solicitor s firm may agree to enter into a conditional fee agreement (CFA). The aim of these agreements is that the client will not have to pay anything to the firm acting for him (except disbursements in some cases) if the case is lost but, if successful, the firm will be entitled to charge the client at the lawyer s usual rate plus a percentage mark-up on this rate, known as the success fee. A CFA protects the client against liability for his own solicitor s costs if the claim does not succeed but does not protect against liability for the successful opponent s costs (under the costs shifting rule that effectively requires the losing party to pay twice (see 2.2)) or against liability for his own disbursements. In some cases the client will take out an insurance policy (ATE insurance) to cover himself for the potential liability of paying the opponent s costs and his own disbursements if he were to lose the case. CFAs are often referred to as no win no fee agreements because the combination of the CFA and ATE insurance effectively safeguards a claimant from liability for his own solicitor s costs and the opponent s legal costs if the claim fails. The success fee will be a percentage of the costs otherwise chargeable to the client and should be related to the risks involved in the litigation. (2) Requirements s58 Courts and Legal Services Act 1990 (CLSA 1990) states that a CFA must be in writing, not relate to criminal or family proceedings, the percentage of any success fee must be specified and must not exceed 100 per cent of base costs. There are different types of speculative funding available, but these are not considered on this course. References to CFAs on this course relate to CFAs with a success fee, which is the most common type of arrangement, especially in personal injury cases. For CFAs entered into on or after 1 April 2013, the success fee and any ATE insurance premium are deductible from the client s damages (ss44 and 46 LASPO 2012, which amend ss58a and 58C CLSA 1990). This contrasts with provisions before 1 April 2013 which obliged the losing party to pay the successful party s success fee and any ATE insurance premium. UQ09 CLS 19

4 (3) The success fee The success fee is calculable as a percentage of the costs chargeable to the client. The success fee is subject to a maximum limit expressed as a percentage of the winning party s damages and referred to as a cap. For personal injury claims the success fee is capped at 25 per cent of damages and for other claims the cap is 100 per cent of damages. The success fee applies to general damages and past losses, less benefits recoupable by the Department of Work and Pensions (it is not applied to future losses). Where a global offer of settlement is received from the opponent (i.e. one that includes future losses or recoupable benefits), the solicitor or legal executive needs to advise the client how they calculate general damages and past losses so as to calculate and advise whether there would be any deduction from the damages by way of the success fee, and whether the cap applies. (To provide some redress for the success fee being deducted from the claimant s damages, there has been a 10 per cent increase in general damages. The maximum success fee, as mentioned, is calculated by reference to the winning party s costs and capped at a specified percentage of the damages. This represents the maximum amount that the client might have to pay from his damages for the success fee. It is important to remember that the actual success fee to be paid is calculated by reference to the solicitor s base costs. An example is provided below. Damages agreed for personal injury claim: 20,000 Costs incurred (including VAT and counsel s fees): 8,000 Success fee (agreed between solicitor and client as 30 per cent): 2,400 (30 per cent x 8,000) The maximum success fee (capped success fee) that the client would be expected to pay from his damages is calculated by reference to the damages agreed between the parties or awarded by the court ( 20,000). Therefore, the success fee should not exceed 5,000 (25 per cent x 20,000). The solicitor s costs incurred total 8,000, 30 per cent of which is 2,400 and therefore within the maximum deductible amount (within the cap). Solicitor s total costs including success fee: 10,400 ( 8,000 payable from losing party and 2,400 payable from the claimant s damages) Claimant receives: 17,600 The success fee and children and protected parties The courts are traditionally reluctant to order a deduction of the success fee from damages for a child claimant or a protected party (where the claimant lacks mental capacity). From April 2015, CPR Part 21 indicates how and when the success fee may be deducted in these claims. Payment from the claimant s 20 UQ09 CLS

5 2015 Copyright CILEx Law School Limited All materials included in this CLS publication are copyright protected. All rights reserved. Any unauthorised reproduction or transmission of any part of this publication, whether electronically or otherwise, will constitute an infringement of copyright. No part of this publication may be lent, resold or hired out for any purpose without the prior written permission of CILEx Law School Ltd. WARNING: Any person carrying out an unauthorised act in relation to this copyright work may be liable to both criminal prosecution and a civil claim for damages. This publication is intended only for the purpose of private study. Its contents were believed to be correct at the time of publication or any date stated in any preface, whichever is the earlier. This publication does not constitute any form of legal advice to any person or organisation. CILEx Law School Ltd will not be liable for any loss or damage of any description caused by the reliance of any person on any part of the contents of this publication. Published in 2015 by: CILEx Law School Ltd College House Manor Drive Kempston Bedford United Kingdom MK42 7AB British Library Cataloguing in Publication Data A catalogue record for this manual is available from the British Library. ISBN

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