The client, Mr Minkin, was going through an acrimonious divorce from his wife when he instructed solicitors, Cawdery Kaye Fireman & Taylor (“CKFT”) to deal with his wife’s applications for injunctive relief.  CKFT provided the client with an estimate of costs of £3000 plus VAT of which £2000 was paid on account. However, barely two weeks later, after the case took an unexpected turn, when his wife moved out of the former matrimonial home and let it to tenants, the solicitors rendered an interim bill for £5472.50.

Mr Minkin was “shocked” and refused to pay the bill, also complaining that none of the issues upon which they had been instructed had been resolved by the time that the bill arrived. The client wanted his litigation resolved but the solicitor would not take further action until the client put them in further funds. He did not do so and the solicitors sent him a further bill for the work in progress.

The client requested a detailed assessment of the bills. At first instance, Master O’Hare in the Senior Courts Cost Office made a determination that the solicitors were in breach of their retainer in not performing the ‘entire contract’, the solicitors were not entitled to payment and also awarded Mr Minkin the costs of the detailed assessment of over £17,500 – over three times the amount of the solicitor’s original bills!

That decision was upheld on appeal, Coulson J adding that it could not be said the Master was wrong, as the client had reasonable justification for withholding further money, as the costs estimate had been exceeded substantially and the solicitors knew he had limited funds. The solicitors had breached the contract and it was a repudiatory breach, which terminated the contract.

The Court of Appeal disagreed and concluded that Cranston J had gone too far in his interpretation of the solicitor’s Terms of Business. Lord Justice Ward said that the client had been told on more than one occasion that the effect of non-payment would be that the solicitors would not do any further work. The client’s refusal to pay was not reasonable in light of caveats contained in the Terms of Business regarding fee estimate, and it was not reasonable to expect the solicitors to wait for a costs order to be made against Mrs Minkin before they were paid.

The Court of Appeal also said that the solicitors did not terminate the retainer but suspended operation of it pending receipt of monies on account of costs and because the client never paid any further monies, the suspension remained. The client’s language that he had lost confidence in his solicitors’ ability to represent him was effectively telling the solicitors that they were “fired” and they were therefore entitled to payment of the sums as assessed by Master O’Hare.

This case highlights common problems experienced between a solicitor and their own client, which ultimately was decided on its own facts, and the particular Terms of Business agreed between the two. It serves as a reminder for solicitors to manage their client’s expectations and ensure that fee estimates remain under constant review.

Case reference: Cawdery Kaye Fireman & Taylor v Gary Minkin [2012] EWCA Civ 546

In addition to making it difficult for a solicitor to claim more than the cost of preparing written advice for the court in infant approval cases,  Lord Justice Patten’s judgment in Dockerill and Healy v Tullett and related appeals has left  a number of issues unresolved.

Following the rulings, straightforward low value infant claims which settle before proceedings will escape the small claims track and predictive costs regimes.  However claimants who have their costs assessed should expect a less favourable outcome than predictive costs, not more.

Unless the Civil Procedure Rules Committee steps in, costs in such cases will remain at the discretion of the judge and the only predictable outcome is that judges will still be unpredictable.  Further questions remain such as the CFA funding of these cases, whether ATE insurance is recoverable and what the reasonable cost of a medical report might be.

Whilst the judgment will be welcome news for motor insurers, the remaining uncertainties are still likely to result in satellite costs litigation until a longer term solution is found.

The judgment contains further bad news for claimant solicitors in the related Tubridy appeal as Patten LJ ruled that if a solicitor wants to send counsel to an infant approval they do so at their own expense and should not expect the insurer to pay.

The case, Debbie Letts v Royal Sun Alliance, involved a Road Traffic Accident claim in which, although liability was admitted, the Defendant alleged the Claimant was unhurt because it was a low velocity impact resulting in only minor damage to the Claimant’s vehicle.   The Defendant’s two pre-issue offers were ‘derisory’ and ‘incoherent’ and the Claimant issued proceedings on the day the protocol period expired.

A settlement was subsequently reached with an agreement by the Defendant to pay costs but the insurer did not offer to pay any more than predictive costs on the grounds that the Claimant had issued proceedings prematurely. The Claimant disagreed and referred to the Defendant’s LVI argument which she said would have been maintained in any event.

Whilst the Court was critical of the Claimant’s decision to issue proceedings when she did, a Costs Officer and a Costs Judge in turn declined to assess the costs in accordance with the fixed regime, although the bill was nearly halved.

Remaining dissatisfied, the Defendant appealed further to the High Court and sought to use the predictive costs regime as a cap on reasonably recoverable costs where proceedings had been issued prematurely. Mr Justice McKay dismissed the appeal, upholding Master Leonard’s robust assessment without artificially capping the Claimant’s costs.

Joe Dowley commented: “The case delivers a salutary lesson to insurers, in the effect of raising an LVI defence and not following through with it and the importance of making any offers to settle both realistic and clear”.

After five years as a personal injury solicitor, Emilie transferred her legal skills to working as a costs litigation specialist with Masters Legal Costs Services LLP.

Commenting on her appointment with Cost Advocates she said: “After several years working as a costs litigation specialist, in particular in personal injury, complex commercial and high profile media disputes, I am delighted to be joining the Cost Advocates team and working with some of the UK’s leading insurance companies.”

Martyn Hardy, Managing Director at Cost Advocates, comments: “Emilie’s experience will undoubtedly prove invaluable to current and potential new clients. Her remit will include working on a mixture of high value complex cases, advocacy and client training.”

The case
In early 2009 two infant claims following an RTA settled for £750 prior to proceedings. The claimants applied for an assessment of costs and the first Judge (DDJ Ford) said predictive costs applied. On the Defendant’s appeal, HHJ Oliver Jones QC said it was neither small claims nor predictive costs, for the reason that all claims under CPR Part 8 are treated as allocated to multi-track and therefore the costs are to be assessed in accordance with CPR Part 44.5.

HHJ McKenna handed down Judgment on 7 April 2011 saying the correct approach, in line with O’Bierne v Hudson (at para 11) is to look at each item of costs, decide whether that item was necessary, but in light of the fact that had the claim been brought by an adult, the small claims track costs regime would have applied. The judge should have asked himself whether each of the steps taken by the solicitor were necessary to be taken by a solicitor, in a case which would otherwise be covered by the small claims track.

The Claimant was not happy with the Judgment and appealed to the Court of Appeal. The appeal was joined with another case of Macefield v Bakos, which was a similar issue and Tubridy v Sarwar which only concerned Counsel’s fees in a predictive costs matter.

Concentrating on the issue in Dockerill and Macefield cases, the Court of Appeal mostly upheld the decision of HHJ McKenna. Patten LJ has said that infant claims for £1,000 or less in damages, which are subject to CPR Part 21 and Part 8 for approval, cannot be subject to small claims in Part 27 because Part 8 claims are deemed to be multi-track and cannot fall under CPR 45 Part II (fixed recoverable costs) because damages are under £1,000. Costs should therefore be assessed on the usual basis under Part 44.5.

The correct approach to the detailed assessment
Having reached that conclusion, what is the correct approach to the detailed assessment? The starting point is the order. In both cases, the order provided for costs on the standard basis, so the Court’s obligation is to see whether the costs claimed were proportionately and reasonably incurred, and are proportionate and reasonable in amount. In principle, therefore, no categories of costs are excluded from being claimed by a claimant. However, the Court recognised that it would be wrong for a claimant to recover more by way of costs for settling a claim pre-issue than letting it run its course and then settling after allocation. Patten LJ said the Court should take into account the size and complexity of a claim in undertaking a detailed assessment, and the fact that the normal track for a claim under £1,000 is the small claims track will be “highly material to a consideration of whether it was proportionate for the claimant to have employed a solicitor to handle the approval proceedings beyond providing a written advice on the merits of the settlement in accordance with the Practice Direction” (para 37).

The Court accepted the ability of a paying party to challenge not only the amount and reasonableness of any particular item, but also whether it was proportionate and reasonable to have instructed solicitors to act generally in the approval proceedings (para 38). The cases of Lownds and Voice and Script are authority for that proposition.

In Dockerill therefore, Patten LJ said “…what he ought to have done was to ask whether the damages claim and therefore its compromise was sufficiently complex as to have justified the engagement of solicitors beyond the production of a report on the merits of the settlement or in respect of any other step in the proceedings and to have scrutinised the bill on that basis” (para 43).

The rationale behind the Judgment is summed up well at para 45 where Patten LJ states “…to apply a normal multi track assessment of costs in all such cases seems to me to run contrary to the purpose of CPR 45.7(2)(d) which must, in my view, have been intended to allow the court to apply a less generous regime to approval applications based on small claims”. He anticipates that solicitors may be discouraged from taking on small claims – cue the claimant solicitor lobby shouting “Access to Justice”. Any difficulties caused will need to be resolved by the Rules Committee.

Opinion
In my view, the practical effect of the Judgment is that in the majority of infant (or patient for that matter) cases for damages of £1,000 and under that are issued for approval, unless there are special reasons to do otherwise, the claimant should not recover more by way of costs than the reasonable cost of the solicitor preparing a written advice on the settlement. However, the uncertainty of a line by line assessment is likely to lead to a variety of outcomes on detailed assessment.

Other notable absences from the Judgment include whether it might be reasonable for a solicitor to undertake the limited amount of work recoverable on a CFA and if so, how will a ‘win’ be defined? Is an ATE policy premium recoverable? What approach should be taken to the cost of medical reports? Is the small claims limit of £200 reasonable or should it be £465 in accordance with AMRO?

The battle may be over but the war is certainly not.

What about attending the approval hearing?
This is covered in the Tubridy part of the Judgment and whilst this was a case to which fixed recoverable costs under Part 45 Section II applied (damages were £2,100), I cannot see any reason why the same principle would not apply to cases under £1,000. The Defendant objected to a separate disbursement for Counsel attending the approval hearing (even though it was only £201.25 including VAT). The sum was allowed at the first instance, and on the first appeal, but the Court of Appeal disagreed and disallowed it. Patten LJ concludes at para 56: “Many of these cases do not involve difficult issues and can be dealt with shortly on the basis of the written advice on the merits. In such cases the convenience of having counsel attend the hearing has, I think, to be borne by the solicitors as part of their costs just as they would have to meet the costs of instructing a local agent”.

In summary
Insurers should benefit from lower costs claims in infant cases but the amount costs remain subjective and satellite costs litigation will continue until either industry agreement is reached on a fixed or predictive amount to apply to such cases or the Rules Committee steps in.

Whilst the Government’s response may have been lacklustre, I can’t help but feel it was the sensible route to take. The aim of the reforms is to get fair compensation for genuine claimants, but given the uncertainty and onerous investigations entailed in Employer and Public Liability cases, it was difficult see how fixed costs could have been implemented in a blanket way.

In my opinion, that aim is better served by a tightening of protocol across all claims and dispute handling in the County Courts and a phased implementation of changes to speed up the process.

These reforms are just one step forward in Jackson’s call for clarity and simplicity on legal costs and, whilst this received a blow earlier this month with the announcement that implementation of the Legal Aid, Sentencing and Punishment of Offenders Bill was to be delayed until to April 2013, the outcome of the Insurance Summit does offer some hope.

Promises made by David Cameron include tackling soaring legal costs by reducing the £1,200 fee that lawyers can earn from small value personal injury claims and a commitment to implementing the Jackson reforms that will see ‘no-win, no-fee’ reformed and referral fees banned.

An overview of the Government’s response to the County Courts consultation includes plans to:

Simplify the majority of cases
Increase the limit of ‘small claims’ from £5000 to £10,000 with a view to increasing it again to £15,000 subject to evaluation. All small claims will be automatically referred to the small claims mediation service, although mediation will not be mandatory. Cases proceeding to court will not need comprehensive legal preparation.

Modernise and streamline the county court system
A single county court will be introduced. This clears the way for all claims to be handled electronically at modern centralised business centres and to then be allocated across neighbouring courts according to demand. Some administrative work will move from judges to administrators, leaving judges to concentrate on making good decisions rather than managing cases. Restrictions will be lifted on High Court judges sitting in county courts while waiting to take cases in the High Court.

Improve the enforcement of court decisions so that more creditors receive what they are owed
For example where a court-ordered payment instalment plan is already in place, creditors will also be able to apply for an order to secure an unsecured debt. This would stop certain instances where a debtor might benefit from the sale of a property without paying off the debt. However, for their protection, debtors will no longer be at risk of losing their home over consumer credit debts of less than £1000.

Free up the High Court to deal only with necessarily complex cases
The level below which non-personal injury claims cannot be heard in the High Court will be raised from £25,000 to £100,000. The outdated value of property above which equity cases need to be referred up to the High Court will be raised from £30,000 to £350,000, reflecting the rise in house prices since the level was last set in 1981.

Extend a web-based scheme which controls legal costs for the majority of personal injury cases
The costs are pre-set in a way which encourages early settlement. Following evaluation of its current use in road accident cases worth compensation of up to £10,000, the scheme will be extended to road accident cases worth up to £25,000 and also to employer and public liability personal injury cases.

Cost Advocates, which assists some of the UK’s top companies to reduce their legal costs expenditure, will be working with AIRMIC to highlight the importance of greater scrutiny of legal costs to its members.

Martyn Hardy, Managing Director at Cost Advocates, said; “Over the years we have worked with a broad range of the UK’s largest companies helping them minimise their liability and spend on legal costs.  From the work we have already done in the self insured market we know there is a definite need for costs savings, which deeper scrutiny of their legal costs could bring. We hope that our acceptance as a Preferred Service Provider will raise the awareness of how to save money on legal costs to AIRMIC members, especially given the economic pressures businesses are under at the moment.”

John Hurrell, Chief Executive of AIRMIC said; “We’re delighted to welcome Cost Advocates as a Preferred Service Provider.  At a time when companies are under increasing pressure to find cost savings and the cost of litigation continues to rise, this will be an important area of focus for many of our members.”

The case, Solomon v Cromwell Group, saw the claimant’s solicitors argue that, where cases were concluded by acceptance of a Part 36 offer, they were not restricted to fixed recoverable costs as laid out under Part 45, but rather could claim ‘reasonable costs’ provided for by Part 36.10.

On 19 December, the Court of Appeal handed down its judgment that fixed recoverable costs are ‘reasonable’ and that they could not claim more than was laid out under Part 45 Section II unless the parties contracted out of it.

This is welcome news for industry as, had the judgment gone the other way, insurers would have been penalised for settling prior to proceedings with a Part 36 offer.  It would have removed the certainty of costs that Part 45 provides and removed the ability of an insurer to properly protect itself against adverse costs, going against the whole purpose of the pre-action protocols and the Civil Procedure Rules.

Detailed assessments are expected to reveal a trend for some claimant lawyers to maximise their costs, either by billing more hours or increasing their hourly rates – in order to claim the maximum fee.

Rigorously resisted for fear of a flood of dubious litigation, contingency fees were one of the key areas in Lord Justice Jackson’s reforms. He has proposed allowing them, so long as  safeguards are put in place, including requiring an independent solicitor’s counter signature and raising the cap from 25% to 35%.

Our justice system has traditionally taken a loser pays approach, with the ability to recoup fees from the losing party, giving lawyers a clear incentive to focus on truly meritorious cases.

We have shied away from the situation in the US where some lawyers pursue a portfolio of cases, even if many have little chance of success, on the chance of getting an occasional huge settlement. Their contingency fee system ties lawyers’ compensation to the value of the settlement – creating an incentive to make the litigation as expensive as possible.

Jackson’s aim is to avoid the situation in the US where it costs so much to successfully defend even a frivolous case, defendants will opt to settle for “nuisance” value payments.

The hope is that tribunal case rulings will protect the industry from a sudden hike in claimant costs. Insurers and lawyers alike will watch this space with keen interest.

Leigh Day’s £105m costs will be reduced significantly on preliminary issues, after the Court of Appeal overruled a decision by The Senior Costs Judge not to assess every item on the Bill.  The decision was made on the basis that his approach to ‘proportionality’ did not in fact go far enough; referring to Lord Justice Jackson’s recommendation that “proportionality should prevail over reasonableness”.

However, whilst the Court of Appeal is currently constrained by the decision in Home Office v Lownds* from 2002 (which said that if the costs appear disproportionate at the outset, the Court must apply a two stage test of necessity and reasonableness in respect of every item when assessing a bill), the comments of The Master of the Rolls will give the Civil Justice Council, which is currently working on a new definition of proportionality, plenty to think about.

The litigation, the subject of a 2009 BBC Newsnight programme, concerned the controversial ‘dumping’ of toxic waste and the injuries caused to local residents.  The litigation settled in September 2009 with Trafigura agreeing to pay damages of £30m, with claimants awarded approximately £1,000 each. Costs were awarded against Trafigura and Leigh Day served a bill of costs totalling £104.8m.

This move unequivocally attests to the strong judicial support for the system reforms advocated both by Lord Justice Jackson and Lord Young.

The new definition of proportionality due this year may well go further than the current test in Lownds, meaning that claimants will have to think very carefully about incurring costs which exceed damages, as even if the costs are necessarily and reasonably incurred, they still might not be allowed.

The Court of Appeal further added to the woes of claimant lawyers, by ruling that the costs incurred in setting up and maintaining funding arrangements for clients, should not be paid by the unsuccessful party, as it has no direct bearing on the litigation.