Jackson, Costs & Funding:

Jackson, Costs & Funding: Attract & Retain Clients, Increase Billable Hours, Maximise Profits A CPD-accredited Seminar from 1 Mark Beaumont London office 1

Topics The Jackson Reforms Costs Management Hourly Rates Solicitors Obligations (ATE Insurance & Funding) Funding & Retainers: The future of CFA s Damages Based Agreements (Contingency Fees) Invoicing & the Indemnity Principle Third Party Litigation Funding Legal Expenses Insurance Case Law update Q&A 2 Jackson The Present (1) Parliament Legal Aid, Sentencing and Punishment of Offenders Act 2010-12 received royal assent on 1 May 2012 Abolition of recovery of success fees and ATE premiums; Regulate success fees by introducing a cap of 25% of damages in personal injury cases; Payments on additional amounts to successful Claimants; The extension of contingency fee/damages based agreements beyond employment matters. 3 Jackson The Present (2) The MOJ Pilots: Practice Direction 51D Defamation Proceedings Costs Management Scheme (extended to 30 September 2012); Practice Direction 51G Costs Management in Mercantile and TCC Courts (extended from Birmingham, implemented on 1 October 2012); Practice Direction 51E County Court Provisional Assessment Scheme (Leeds, York & Scarborough, extended to 30 September 2012). 4 1

Jackson The Present (3) The MOJ Consultation: Solving disputes in the county courts: creating a simpler, quicker and more proportionate system RTA portal scheme to increase to 25,000 following a full valuation of the existing scheme and impact assessment; Introduction of a similar scheme for employer s liability, public liability and low value clinical negligence claims; Consider the extension of fixed recoverable costs to all Fast Track claims (no plan for increase in Fast Track value); Extension of Small Claims limit from 5,000 to 10,000 (increasing to 15,000 following a review of he first increase?) No increase to personal injury limit in the Small Claims Track; Single County Court replacing the current County Court structure. 5 Jackson The Future (1) Master of the Rolls 14 th Lecture in the Implementation Programme 11 May 2012 A Costs Council Constant monitoring of developments Alternatives to Hourly Billing Including Fixed pricing Contingency Fees Solicitor charges a portion of the damages and if that sum exceeds what would be recoverable under a normal fee agreement, the client bears the difference 6 Jackson The Future (2) Master of the Rolls 15 th Lecture in the Implementation Programme 29 May 2012 The proposed new CPR.r.44.4(5) 44.4(5) Costs incurred are proportionate if they bear a reasonable relationship to: (a) the sums in issue in the proceedings; (b) the value of any non-monetary relief in issue in the proceedings; (c) the complexity of the litigation; (d) any additional work generated by the conduct of the paying party; and (e) any wider factors involved in the proceedings, such as reputation or public importance. 7 2

Jackson The Future (3) Costs Management 8 New proposed CPR.r.3.11 to 3.18 and PD 3E; All Multi Track cases commenced after 1 April 2013: County Court; Chancery or QB Division of High Court (not the Admiralty or Commercial Courts); Court manage both the steps taken and the costs to be incurred; Budgets must be exchanged in all cases, within 28 days of any defence; Failure to file a budget can be treated as having filed a budget comprising only applicable court fees; Jackson The Future (4) Costs Management The Court can make a costs management order: Record the extent to which the budgets are agreed between the parties; In respect of budgets which are not agreed, record the courts approval after making revisions; i Budgets may be revised but Courts will not depart from an approved budget without good reason; Costs Management Conference (tel-con or writing) Stay within (20% of) budget, win and recover fees in entirety: Safetynet Security LTD v Coppage (2012) EWHC B11 9 Costs Management Sylvia Henry v News Group Newspapers Ltd [2012] EWHC 90218 (Costs) Claimant Solicitor (acting on CFA) lost out on 292,701 (plus uplift). Claimant: Senior Social Worker at Haringey Council. Subject of defamatory articles in The Sun concerning the death of Baby P. Libel claim settled shortly before trial with the payment of a substantial sum in damages to the Claimant, a Statement in Open Court and a prominent apology in The Sun. The Claimant was entitled to recover her costs on the standard basis. The case was one of the first to be dealt with under the Defamation Proceedings Costs Management Scheme, set out at Practice Direction 51D. In this case, both the Claimant and the Defendant exceeded their budgeted costs. Most significantly however, the Claimant exceeded her budgeted costs for disclosure by 76,306 (the original allowance was 11,250) and for witness statements by 216,404 (the original allowance was 12,487). 10 3

Costs Management (2) Sylvia Henry v News Group Newspapers Ltd [2012] EWHC 90218 (Costs) Disclosure budget: 11,250 Actual spend: 87,556 Witness Statements: 12,487 Actual spend: 228,891 The court stressed that the provisions of the Practice Direction were in mandatory terms: each party must prepare a costs budget or revised costs budget; each party must update its budget; solicitors must liaise on a monthly basis to check that the budget is not being, or is likely to be, exceeded. Claimant s solicitors had not kept the parties updated. Accordingly, since the Defendant was unaware that the Claimant s budget had been significantly exceeded, the parties were no longer on an equal footing The purpose of the Costs Management Scheme was lost. 11 This decision was despite the Defendant s conduct of the litigation (mounting a vigorous and lengthy defence which was amended four times, and serving ten lists of documents) had had a major effect on the way in which the Claimant had pursued her case, and that consequently the Claimant would otherwise have been able to make a very good case on a detailed assessment for the costs claimed. Tactical Use of Costs With the introduction of Costs Management Orders, we will see a rise in: Costs Capping Applications CPR 44.18, Mr Justice Eady Peacock v- MGN Limited [2009] EWHC 769 QB Security for Costs Applications CPR 25, CA Evans LJ Fernhill Mining Ltd v Kier Construction Ltd (unreported) 27 Jan 2000 12 Provisional Assessment The Provisional Assessment Pilot Scheme. Running in Leeds, York and Scarborough County Courts since October 2010. Provides for inter partes bills with base costs of up to 25,000 to be assessed by a District Judge on paper. Avoids a costly and time-consuming detailed assessment hearing. To be extended nationally from April 2013. 13 4

Hourly Rates Initial CFA / Client Care Letter Provision for Review Point of Update Inform the Client 14 Guideline Hourly Rates (2010) A B C D London 1 409 296 226 138 London 2 317 242 196 126 London 3 229-267 172-229 165 121 National 1 217 192 161 118 National 2 201 177 146 111 15 Which Guideline Rate to Use? Where is the Claimant based? Wraith v Sheffield Forgemasters [1998] 1 ALL ER 82 For receiving parties the location of your practice is a ceiling, but the claimant location is the key 16 5

CPR 44.5(3) The Seven Pillars of Wisdom (3) The court must also have regard to (a) the conduct of all the parties, including in particular (i) conduct before, as well as during, the proceedings; and (ii) 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 the 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; and (g) the place where and the circumstances in which work or any part of it was done. 17 Hourly Rates (Case Law) Most case law in this area is from Personal Injury & Clinical Negligence cases. They ve been using CFA s for years and are used to finding the limits of recoverable hourly rates: Choudhury v Kingston Hospital [2006] SCCO Ref: PR 0508374 Higgs v Camden & Islington Health Authority [2003] EWHC 15 (QB) 18 Solicitors Code of Conduct Are you meeting your obligations to your client? 2.03(1) (d)(ii) discuss whether the client's own costs may be paid by someone else (g) discuss with the client whether their liability for another party's costs may be covered by insurance Do you discuss Funding Options & ATE Insurance with all your clients? Adris & ors -V- Royal Bank of Scotland & ors [2010] EWHC 941 (QB) 19 6

Solicitors Code of Conduct(2) Are you meeting your obligations to your client? SRA Code of Conduct 2011 (OFR came in on 6 th October) Chapter 1: Client care Fee arrangements with your client IB(1.13) IB(1.16) discussing whether the potential outcomes of the client's matter are likely to justify the expense or risk involved, including any risk of having to pay someone else's legal fees; discussing how the client will pay, including whether public funding may be available, whether the client has insurance that might cover the fees, and whether the fees may be paid by someone else such as a trade union; 20 OFR = Outcomes-focused regulation IB = Indicative behaviours Solicitors Code of Conduct(3) Are you meeting your obligations to your client? Adris & ors -V- Royal Bank of Scotland & ors [2010] EWHC 941 (QB) A solicitor is under a duty to advise its clients on the availability of After the Event insurance. Further, if a solicitor fails to provide such advice its clients are unable to take effective decisions and the solicitor is therefore acting without instructions. A non party costs order was made against the solicitor in this case, and it will be liable for costs on a joint and several basis with the Claimants against whom any costs order will be made. 21 To the extent that the Claimants pays any costs at all, they would be wise to consider a professional negligence claim against the solicitor. Retainers Options What are you trying to achieve with your retainer? Private Paying Clients: Hourly Rate Good for your Cash Flow Often bad for your Clients Restrict your Hourly Rates ( and no Success Fee) Restrict what you can charge for? 22 7

Retainers Options (2) Conditional Fee Agreements (CFAs) Because your fees are conditional, you are taking a risk. Better for Clients: They pay nothing. Bad for your Cash Flow (and( you don t get paid if you lose) ) Great when you win: Hourly Rates (plus a Success Fees) Tactically useful Pressure Opponent Recover all your time from your opponent is there a better option? 23 Discounted CFA s Standard CFA = No win, no fee Discount CFA = No win, some fee Charge your client one hourly rate if you lose (say 200 per hour) but reserve the right to charge them 350 per hour if you win...and recover a success fees of up to 100% (for now) 24 Discounted CFA s (2) Solves the cash flow problem of CFA s Becomes a Business Development tool Gives you access to higher hourly rates (and success fees) Allows you to recover much more billable time Increases the recoverability of your Client s costs Your opponent will only know you re on a CFA Non-recoverability of Success Fee will not affect the win rate of a Discount CFA 25 8

Invoicing Are you limiting your recovery? Indemnity Principle: you can only recover inter partes what your client is liable for So, what is your client liable to pay? Interim Invoice or Payment on Account Interim Statute Invoice? Monthly Interim Invoice what do your invoices say? 26 Are you a Winner? Standard Law Society Model Definition of Win: Your claim for damages is finally decided in your favour, whether by a Court decision or an agreement to pay you damages or in any way that you derive benefit from pursuing the claim. Make sure you win Get your enhanced hourly rate. What about the level of Success Fee? (Will this be recoverable?) 27 Contingency Fees / Damages Based Agreements DBA agreed at 25% of the damages recovered. Case settles for 100,000. inter partes recoverable costs assessed at 20,000. Ontario Model Personal Injury Cases Claimant s solicitor entitled to a fee of 25,000. Made up of the 20,000 costs and 5,000 from damages. The Claimant themselves keeps 95,000 of the damages awarded. 28 Success Fee Model In the same example the solicitor keeps the 20,000 recovered costs, and then takes 25% of the damages as a success fee. The lawyer receives 45,000 in total, with the client retaining only 75,000 of the damages awarded. 9

Contingency Fees / Damages Based Agreements Cap of 25% in Personal Injury Cases and 50% in other litigation. What fees fall within the cap? These may include counsel s fees, VAT, and the cost of the ATE premium. But there could be other fees that fall outside the cap, such as the share that a Third Party Funder may be entitled to. Adverse Costs Hodgson immunity for solicitors (as currently exists when acting under a CFA) will remain. (2) In some circumstance a solicitor might choose to be liable, or partly liable, for adverse costs in return for a higher contingency fee. Arkin principle will apply to Third Party Funders should a claimant lose (the third party funder s liability to pay adverse costs should be limited to the amount of funding which it provided in the case). 29 Third Party Funding Who pays your Discounted Rate on the CFA? It could be your client, or it could be a Third Party Funder. Why? Client pays absolutely nothing at all = Great business development tool You get the Funders view on merits of the case = Confidence in achieving your uplifted rate and success fee Major Financial Backing = Can have tactical advantages in cases where Defendant has virtually unlimited funds 30 Third Party Funding (2) Things to consider Claim for damages? Ratio of Costs to Damages How long will it take? Will there be someone there to pay at the end? 31 Does the Client have the money? Does the Defendant have far deeper pockets? Would the Client prefer not to take the risk? Could the Client spend that money elsewhere? Could it allow access to justice in some circumstances? 10

Legal Expenses Insurance Legal expenses insurance falls into two categories: Before the Event (BTE) Provide cover against the risk that a dispute commences at some time in the future and during the currency of that policy. These annual policies are typically designed to insure the cost of pursuing and defending litigation, as well as any Employment Tribunal awards. After the Event (ATE): Issued after a dispute has arisen. The insurance provides protection to the insured for their potential liability to pay their opponent s costs and their own disbursements (excluding Counsel s fees). 32 Legal Expenses Insurance (2) Section 29 Administration of Justice Act 1999 (AJA) Premium for an ATE policy can be recovered from the paying party. Part 43.1 of the CPR provides the mechanism for the recovery of the ATE premium as well as the success fee claimed in a Conditional Fee Agreement (CFA). In contrast, there is no entitlement to recover the cost of a BTE policy. Therefore ATE insurance became much more widely used following the introduction of the AJA because the cost of the premium was recoverable from the losing or paying party in civil litigation. By combining a CFA with an ATE policy, the client can be granted complete protection from any costs orders - the CFA covering the costs of the client s solicitor, and the ATE covering the costs of the opponent s solicitor. 33 Legal Expenses Insurance (3) What should you look for in a policy? Providing cover for opponent s costs and own disbursements (probably excluding Counsel s fees). Agreeing the policy limit at the outset of the policy, which can be increased as further information becomes available about the opponent s costs (for example from a CMC). Providing retrospective cover (cover for opponent s costs and insured s disbursements incurred from the beginning of the dispute, not just when the policy commences). Deferring payment of the premium until the conclusion of the action (premium only payable once costs have been agreed). Staged premiums: Modest premiums apply prior to litigation. Replaced by an increase in the premium in stages after the start of litigation until completion of the trial. Premium guarantee: If the premium is reduced on assessment will the ATE provider look to your client to pay any shortfall? 34 11

Legal Expenses Insurance (4) What if a client already has a BTE Policy? If it is a straightforward personal injury claim for less than 5k then it may be difficult to avoid using a BTE Policy. The typical issues that solicitors experience with add on BTE policies are that the Insurer exerts tight control over the conduct and costs of a case and the choice of solicitor. The policy limits provided by BTE insurance are rarely adequate for commercial litigation. Therefore, we suggest that if the solicitor is prepared to act under a CFA, it may well be in the client s best interests to recommend moving from their BTE to an ATE policy. Often, clients with a pre-existing BTE policy find that should a trial prove unsuccessful, they do not have enough cover to provide adequate protection for the opponent s costs. 35 Important Case Law Notification of Funding (N251) Kutsi v North Middlesex University [2008] EWHC 90119 (Costs) Part 36 offers Gibbon v Manchester City Council [2010] EWCA Civ 726 r.47.19 offers Rangos v Secretary of State for Business, Innovation and Skills [2012] ChD r.47.19 beaten by only a small margin after a lengthy and expensive detailed assessment. 36 Success Fees on Solicitor s Agents Work Nicholas Crane v Cannons Leisure Centre [2007] EWCA Civ 1353 (includes Costs Lawyer fees!) Any Questions? Mark Beaumont tel: 020 7758 2155 markbeaumont@justcosts.com 37 www.justcosts.com 12