KainKnight InBrief issue 24

Issue 24 | Jan 2016

COSTS

IN BRIEF The New Legislative Landscape

Embracing

Task Based Billing

With the amount spent on legal services seemingly increasing year after year, there has understandably been a renewed focus upon the management of legal services, with the goal -- at a minimum -- of understanding and predicting the costs associated with legal services, and hopefully controlling and possibly reducing the costs associated with legal services. Task-based billing is one tool that companies often employ to understand and manage the amounts spent on legal services.

As an attorney with more than thirty years of experience in complex commercial litigation (I am vice-chair of the Commercial Litigation Department for the US law firm Cozen O’Connor), and more than twenty years’ experience assisting companies in managing their litigation and providing expert opinions on the reasonableness of legal fees (I am also the chair of Legal Fee Solutions LLC), I have witnessed the evolution of invoicing in the United States from shockingly sparse cover letters for “services rendered” issued only at the conclusion of an engagement, to the current system favoring detailed, monthly

invoices providing task-based and activitybased billing data for each timekeepers’ efforts.

This decades-long transformation has had its share of pitfalls and exercises in futility. With task-based billing now becoming common in many practice areas in the American legal market, and starting to expand to the European legal industry, companies now have the ability to accurately track and assess the legal services they purchase, and quantify the different discrete tasks encompassed within different types of engagements. This ability to track and quantify the discrete tasks involved with various legal services provides a foundation for different litigation management initiatives, can enhance the predictability of spending for legal costs on different matters, and can lead to significant and substantial savings.

It is useful to understand the history of taskbased billing to understand how task-based billing achieves these goals.

In the mid-1990s, a tripartite effort from the American Bar Association, the American

Corporate Counsel Association, and a group of major corporate clients and law firms coordinated and supported by Price Waterhouse LLP developed a budget and billing system designed to provide clients and law firms with meaningful cost information on legal services.

Inside this issue 02

Task Based Billing – Bruce Meckler

05

Software and Expertise

06

Insolvency Practitioners’ fees

09

Solicitors Act 1974

02 | Kain Knight InBrief

The resulting “Uniform Task Based Management System” or “UTBMS” is a series of Phase, Task and Activity codes used to classify and quantify legal services performed or services to be performed by law firms and vendors. Phase codes represent broad categories or groups of tasks that are likely to occur chronologically or to be logically grouped for analysis together (e.g., L200 “Pre-Trial Pleadings and Motions” and L300 “Discovery”). Tasks codes represent individual tangible or intangible work efforts included within a given Phase (e.g.,L240 “Dispositive Motions” and L330 “Depositions”), while Activity

codes represent a description of effort or contribution that the individual timekeeper contributes to the task (e.g., A102 “Research” and A103 “Draft/Revise”). While the UTBMS originally developed task-based codes sets for matters involving litigation, bankruptcy, counseling, and transactional matters, other codes sets have been developed for matters involving e-discovery, governance risk and compliance, patent and trademark, knowledge management, and workers’ compensation.

Current best practices in the United States suggest that timekeepers refrain from

block-billing (allowing each discrete task to be individually presented rather than lumping multiple tasks into a single blockedentry), that timekeepers record their time in tenths-of-an-hour time increments (or less) on a real-time or daily basis (to promote accuracy in timekeeping, avoiding rounding, and avoid after-the-fact reconstructions of timekeeping), and that timekeepers assign a task/phase and activity codes to each and every time entry. While this process requires more effort than block-billing, the time spent task-based billing provides tremendous analytical data to billing attorneys and inside counsel alike.

When assessing the pitfalls and failures of task-based billing, the adage “garbage in, garbage out” comes to mind. More precisely, if the goal of a useful task-based billing system is to provide metrics and data about historical, current, and future legal spend, great thought and consideration must be given to designing a reliable, useable, and potentially-customized task-based code set that can and will reliably capture data in the first instance, and allow comparative evaluation for future matters down the road.

Matter Identification While basic and fundamental, the first step in implementing a successful task-based billing program is the creation of discrete matters. This is critical to avoid the jumbling of data from multiple cases to a “general” billing matter, particularly where the law firm represents a client in multiple litigation and/or transactional matters crossing a diverse spectrum of specialties.

Stringent and early matter identification is essentially a pre-code that funnels data along the proper route.

Communicating Expectations Once inside and outside counsel agree upon a uniform or customized code set, it is imperative that the client’s and billing partner’s expectations regarding the use and application of the code set is communicated to all approved timekeepers. For example, certain phases should be off limits to certain timekeepers, as a client should not expect a paralegal to invoice any efforts to the “Analysis/ Strategy” phase code, nor should a client expect a partner to invoice time to the “Document/File Management” phase code. I also find that certain codes can become undesirable “catchall” buckets.

For example, Phase code L190 “Other Case Assessment, Development and Administration” often proves to be a surprisingly-populated bucket that masks and under-reports efforts associated with more discretely-described phases and tasks. Communicating the expectation that the L190 phase code is disfavoured (or better yet, prohibited) can go a long way to providing more meaningful data.

Enforcing Task-Based Billing In my attorneys’ fee practice, I often observe sets of invoices where timekeepers task-based coded each entry, but upon inspection, the codes have been inconsistently and illogically applied, rendering analytics of the data useless.

Initial invoices should be reviewed to test the accuracy of timekeepers’ task-based coding selections, and deficiencies and expectations should be swiftly and clearly communicated.

Analyzing Task-Based Billing Task-based billing allows clients and billing partners to assess and quantify the legal spend associated with discrete tasks and phases within each matter. This process may include high-level analysis of legal spend incurred on particular tasks, predictive forecasting of expected monthly

burn rates absent alternative resolution, or involve comparative scrutiny of specific timekeeper’s efforts, efficiency, and utilization. Granular analysis can focus on the amount of time devoted to intra-firm communications, the extent of strategic analysis versus discrete tasks, or the extent of non-attorney time in comparison to attorney efforts.

Kain Knight InBrief | 03

Customization

Avoid Over-Customization

Matters involving complex, multijurisdictional litigation are particularly well-suited for-code set customization or personalization. Such matters typically involve multi-year retentions and high timekeeper utilization rates (e.g., the lead associate on a complex litigation matter might be expected to bill 75% of his or her time to the matter over a long period of time), thus breeding familiarity with customized codes. Useful customized codes tend to be associated with unique sub-tasks. For example, rather than rely solely on the L320 “Document Production” task code, where partners, associates, paralegals, contract reviewers, and support staff could be expected to incur significant

The onus placed on timekeepers to record their efforts in 6 minute increments and to

fees, implementation of a set of customized codes for first level review, second level review, and privilege review could better track and predict legal fees associated with these sub-tasks. Likewise, matters covered by insurance policies, or matters generally involving legal fees that will be paid by a third-party payor, often involve issues of allocation whereby work associated with certain claims or activities is reimbursable, while others associated with other claims or activities is not. Such matters demand customized codes allowing for the precise quantification of phases and tasks in order to alleviate coverage and reimbursability determinations.

code those efforts based on tasks, phases, and activities can be burdensome, particularly where the timekeeper represents multiple clients utilizing varying code sets. The “U” in UTBMS stands for “Uniform,” and the UTBMS code sets are designed to promote familiarity for clients and law firms alike. A timekeeper working on matters for multiple clients might possess multiple code sets, resulting in coding variations for similar activities. Thus, customization should be limited to those matters where timekeeper utilization will be high and long term, and customization should be reserved for truly unique phases and tasks for which the client identifies a need for quantification and analysis.

Benefits of Task-Based Billing The benefits of a reliable and successful task-based billing program are many and diverse. In the first instance, the mere process of requiring a timekeeper to record task-based billing entries forces the timekeeper to query whether the activity itself is properly billed (perhaps that time spent over the Xerox machine should not be borne by the client). Also, the process

provides data evidence of a timekeeper’s efforts that is more readily digestible than a line-by-line review of the underlying activities, allowing the billing partner, clients, and third-party reviewers the opportunity to glean a snapshot picture of the timekeeper’s role, utilization, and efficiency. While every case can present its own host of unique factors, knowing how much a motion to dismiss historical costs, or how much trial preparation may cost for an anticipated one-week trial, can assist law firms in budgeting future matters or even presenting clients with settlement strategies based on anticipated spend. Task-based billing codes can also simplify the bill review process.

Resulting invoices organize attorney time according to the nature of the work performed by task code, and outside counsel can provide narrative summaries of the tasks performed in a particular billing cycle and even anticipated tasks for the next billing cycle. Finally, clients and in-house counsel can compare law firms’ efficiencies on similar tasks, realize legal spend savings in light of improved efficiency, and, perhaps most importantly, improve predictability for their legal budget.

Task-Based Budgeting Task-based budget is an emerging best practice whereby outside counsel assigns expected hours for each timekeeper to the task-based code set, and then multiplies those hours by the approved hourly rate for each timekeeper to achieve a total value for the phase or task. The process is then repeated for all phases within the litigation and all anticipated tasks within each phase to reach a grand total for the overall litigation.

The principal benefit of the UTBMS budget model is that it literally compels outside counsel to contemplate in detail the road map for the engagement and to assign hours, timekeepers, and appropriate hourly rates to each project necessary to conclude the litigation successfully. Task-based budgets are useful to the client in deciding litigation strategies and selecting counsel, and provides a benchmark for measure law firms’ performance and efficiency in achieving clients’ objectives.

It is not rare or uncommon to encounter a host of pessimistic views about the benefits and burden of task-based billing. In the United States we have grown accustomed to the demands of the system, and those of us specializing in litigation management and attorneys’ fee disputes embrace the rewards that task-based billing can offer.

04 | Kain Knight InBrief

BRUCE R. MECKLER LEGAL FEE SOLUTIONS LLP Bruce serves as the Chair of Legal Fee Solutions LLC. He is also a shareholder of Cozen O’Connor, P.C. At Cozen O’Connor, Bruce is Vice-chair of the Commercial Litigation Department and a Member of Cozen’s Board of Directors and Management Committee. Prior to joining Cozen, Bruce was a founder and co-chairman of Meckler Bulger Tilson Marick & Pearson, LLP. Bruce began his career as a prosecutor in the State’s Attorney’s Office of Cook County, Illinois as an Assistant State Attorney.

Since then, he has been providing clients and the legal community with litigation and counseling services for almost three decades. As an active litigator, Bruce’s personal practice consists of high profile, complex commercial, insurance, reinsurance, criminal (white collar crime) and professional liability litigation. Bruce also serves as counsel to a number of Fortune 500 companies. As Chair of Legal Fee Solutions, Bruce serves as an attorneys’ fee expert and has testified before numerous state and federal tribunals on dozens of occasions. Bruce has conducted or supervised hundreds of legal bill review audits involving billions of dollars in legal fees. Bruce also assists corporations with managing their litigation costs in complex litigation, and often assists in resolving fee disputes between counsel and clients. He has also led numerous related corporate and governmental investigations involving issues ranging from financial fraud and malfeasance to alleged abuses in governmental hiring. Bruce also previously served as Special Counsel for the United States before the Iran-United States Claims Tribunal in the Hague.

Bruce currently serves as a gubernatorial appointee on the Judicial Inquiry Board for the State of Illinois. This nine-member

board investigates and prosecutes allegations of judicial misconduct or incapacity against active Illinois state court judges -- reviewing complaints, determining if an investigation is appropriate, determining which matters will be prosecuted before the Illinois Courts Commission. Bruce previously was a long standing appointee to the Illinois Supreme Court’s Standing Committee on Professional Responsibility, advising the Illinois Supreme Court on the ethical rules governing attorneys for the State of Illinois.

Kain Knight InBrief | 05

Software and Expertise

is the Solution

Effective management of litigation costs was a key focus of Lord Justice Jackson’s reforms to the Civil Procedure Rules (CPR) back in 2013.

There has no doubt been a sea change in litigation costs management since 2013 and this seems set to continue with the introduction of the new Bill of Costs (BoC).

The BoC will come in voluntarily from October this year and then it is envisaged that it will become mandatory in many circumstances from 1 April 2016.

From 2013 one major change was the requirement to prepare and submit costs budgets (Precedent H) early in court proceedings for agreement or approval by the court. Costs budgets must detail all the costs that are expected to be incurred in taking / defending the claim up to trial. The costs must be proportionate to the matter in dispute. At the end of the trial, the costs judge will use the budget to help determine what costs are recoverable. If the budget is exceeded or there is a failure to prepare budgets properly it can mean that recovery of legal costs is restricted - even if a party is successful in the claim. It is therefore now critical that accurate budgets are created and that costs incurred as the matter progresses are monitored against the agreed budget.

The best starting point to creating budgets that are realistic and can be supported in court is by using software to build up a data base of the actual costs of like matters and using that. Costing expertise can then be used to assess this data in the light of the current matter and adjustments can be made accordingly.

Litigators and their clients have gradually been coming to terms with the fact that costs budgeting in multi-track cases is not going away. Further, the impetus for change and a key recommendation of the Jackson

Report is the introduction of the new BoC. The BoC is a fundamental change to the “old” style bills and structured in a phase, task and activity format with the purpose of making it transparent, user friendly and providing the necessary comparison with the Precedent H budget.

In the Guidance to the new BoC it strongly recommends that law firms use the new J-code time recording classification system (as used in the bill) as soon as possible.

Currently very few law firms time record using the J codes. J codes are seen as overly complicated to implement. This will probably be a major stumbling block for the new BoC. Many firms have started recording their time by the phases required in the Precedent H and will therefore potentially be reticent to impose a further new more complex system on their lawyers.

The Guidance also goes on to say that IT should be developed to enhance the “user experience” and that “IT skills will be brought to bear in developing more user friendly and instantly informative reports than those available within the Hutton Committee’s basic, universal spreadsheet format of necessity, albeit at a cost for users”.

There is resistance to the new BoC as some commentators see it as over complicated and unworkable. Technology can solve this problem whereby time recording and other relevant data can be entered into a system which then automatically produces the BoC and other reports saving many hours of manual time in entering the data directly into spreadsheets. There will inevitably be an interim period whereby firms are not using the J codes and the software will need to be flexible to assist in this. Cost lawyers using such software together in conjunction with their own expertise will need to be able to add, correct and manipulate the data, however this process will be fundamentally quicker and more accurate than starting with an empty spreadsheet.

Kain Knight has partnered with LHQ software to offer “Konnect powered by LHQ”. LHQ provides market leading software for budget creation, monitoring, matter pricing and profitability analysis and Precedent H production. Once the new Bill of Costs has been agreed with LHQ, this will also automatically be produced.

KK provides many years of experience and specialist skills in all aspects of legal costing work.

LHQ and KK together as “Konnect powered

by LHQ” welcome and embrace the changes brought in with the Jackson Reforms and the new Bill of Costs. Konnect will provide a cost efficient and streamlined solution to all the latest litigation costs challenges using LHQ’s very latest technology with Kain Knight’s detailed knowledge and expertise of all aspects of legal costs. Konnect will provide the answer to what most law firms see as the inextricable problems imposed by the new costs regime.

Arabella Musson Business and Product Development LHQ Software

06 | Kain Knight InBrief

Insolvency

Practitioner

Fees

In 2010 the Office of Fair Trading (“OFT”) undertook a review into the corporate insolvency market. One of the areas they focused on was the fees of insolvency practitioners (IPs).

The OFT report argues that fees paid to IPs are 9% higher when unsecured creditors bear the costs of the insolvency process than when secured creditors are not paid in full thereby retaining an economic interest. The suggestion being that secured creditors will generally play an active role in monitoring the progression of an insolvency process and in agreeing IPs fees, often applying discounted panel rates or negotiating fee caps when facing a loss. The route to the OFT reaching the 9% figure is a logical one but according to the UK insolvency trade body, The R3 data presents a correlation rather than a casual relationship between fees charged and creditor class. Although the data only shows correlation, the OFT report argues that the ‘overcharge’ results from lack of unsecured creditor participation and control over the fee setting process.

The report came to the conclusion that unsecured creditors were insufficiently represented and protected in the process of monitoring the fees of IPs. Under the review, it is clear that one of the OFT’s key distinctions is between cases where secured creditors are paid in full and those where they are not. The report argues that where secured creditors are paid in full, IP fees are less constrained and returns are therefore smaller for unsecured creditors. It concluded that use of formal mechanisms for unsecured creditor engagement is limited and that unsecured creditors therefore ‘remain unable to constrain IPs’ fees and actions’.

The report ultimately lead to the introduction of the Insolvency (Amendment) Rules 2015 (IAR 2015). This came before Parliament

on 3 March 2015 mainly in order to regulate more tightly how IPs charge remuneration.

The provisions under these Rules only came into force on 1 October 2015 and the new legislation has been supported by an updated Statement of Insolvency Practice 9 issued by the professional bodies responsible for the regulation of IPs. R3 has argued there is a range of effective mechanisms open to unsecured creditors to engage in the insolvency process, however unsecured creditors frequently fail to take advantage of them. Often cost or a lack of information is cited as a reason for not using these opportunities for involvement.

However, recent changes (introduced in April 2010) do facilitate cost-effective ways of participating, and enable creditors to require more information from an IP about the basis for their fees.

Unsecured creditors often claim that there is no point in getting involved in the insolvency process because the level of debt they are owed is relatively small, and because they are unfamiliar with the process. However, HMRC debt generally accounts for 24% of total unsecured debt, and the department will often be the main unsecured creditor in an insolvency case. Another significant unsecured creditor is the Redundancy Payments Office (RPO) – again part of a Government department.

While R3 understand sthat certain unsecured creditors may find it difficult to engage in insolvency - due to lack of experience, size of debt or lack of

familiarity with the process - it is hard to believe that Government departments cannot do so and are therefore disenfranchised.

In most corporate insolvencies, HMRC and the Redundancy Payments Office do engage with the insolvency process - most usefully through voting by proxy, occasional attendance at meetings and often proposing modifications, however the Crown departments have often been reluctant to intermeddle in IPs fees. R3’s experience does not therefore tally with the OFT’s view that large and frequent creditors like HMRC ‘suffer to some extent from the same problems of co-ordination as smaller unsecured creditors…often have a lack of understanding and information and are frustrated by procedural difficulties’.

According to R3, the position of unsecured creditors in the priority order (as set down by statute) is the main reason behind their lack of confidence in the insolvency process, and their feelings of alienation and discontent.

Unsecured creditors’ claims certainly fall far down the priority order when an insolvent business’s assets are distributed (subject to their participation in the ‘Prescribed Part’ which will entitle them to up to 20% of net floating charge realisations). In the majority of cases, there is simply not enough money to provide unsecured creditors with a return at all (because in an insolvency there is rarely enough money to meet all claims), and certainly not enough to provide them with the kinds of returns that creditors higher up in the priority order would receive. The crux of unsecured creditor engagement is likely to correlate to the level of returns they stand to receive. This is a function of the statutory order of priority and no amount of regulatory change is capable of remedying this; it would require a change to the law, which R3 believes would have an enormously detrimental effect on the lending climate in the UK.

Intention The intention of the legislation is to provide greater transparency to unsecured creditors and provide greater control over the fees charged by IPs. The legislation also seeks to encourage higher levels of creditor engagement in the fee approval process, whilst also giving creditors early warning in situations where costs are increasing beyond the original estimates.

Kain Knight InBrief | 07

Requirements

costs forecasting

There is now a requirement for IPs to provide costs forecasts in advance to creditors before having the basis of their fees (charged on a time cost basis) approved from 1 October 2015.

1

2

IPs will need to provide a written ‘fees estimate’ for their remuneration together with details of the expenses they consider will, or are likely, to be incurred. This is to include details of the work to be undertaken, the hourly rates charged and the time anticipated for each part of the work.

Within periodic progress reports, IPs must now report to creditors setting out whether, at the date of the report, their fees/expenses have exceeded, or are likely to exceed, those estimates given before the basis of their remuneration was set, and if so, why.

3

If the fee/expense estimate is to be exceeded, creditor approval must be sought in the same way as the original estimate was approved.

4

If it is proposed that a fixed fee or percentage of asset realisations is used as a basis for remuneration, instead of a fees estimate on a time cost basis, the IP must still provide creditors with details of anticipated expenses. No creditor approval of these expenses is required although they will still need to be referred to in subsequent progress reports.

It is up to the IP to propose the basis of his or her remuneration at the outset of the case. In most cases, fees have been calculated by reference to time costs based upon hourly rates charged in 6-minute units. The legislation also provides for IP’s to charge remuneration based upon fixed fees or as a percentage of asset realisations.

A likely development from the new rules is IPs choosing a combination of bases to reflect the different aspects of the case, for example book debt recoveries on a percentage basis and investigatory work charged by reference to time costs. The estimate will need approval from the majority of creditors voting on the fee estimate resolution.

08 | Kain Knight InBrief

Challenges

Conclusion

There is no doubt that providing an estimate of fees prior to the commencement of an insolvency process and without full knowledge of the Company’s affairs may prove challenging.

The insolvency profession overseas a wide range of cases from multi-jurisdictional Administration appointments such as Lehman Brothers to small Creditors Voluntary Liquidations, frequently with realisable assets of less than £10,000. Providing an estimate of fees across this spectrum of appointments may well prove difficult and may result in the need to regularly revert to creditors to adjust the original estimates. This may increase the costs of the process in terms of reporting and compliance.

Legislative changes to encourage the engagement of creditors in the insolvency process are welcome although this does not necessarily sit well alongside moves to dispense with creditor’s meetings, which have traditionally been a forum for creditor engagement, whilst providing an opportunity for creditors to put questions to directors on the collapse of the company.

It should be noted that prior to the introduction of the new Rules, creditors would have ordinarily voted on the basis of the office holders’ fees prior to the appointment and creditors would have the opportunity to challenge fees under Rule 4.131 of the Insolvency Act 1986. However, this part of the legislation was often overlooked and hence this mechanism was infrequently used.

Part of the duty of officeholders is often to undertake an investigation into the reasons behind a company’s failure and report on matters of misconduct to the Insolvency Service.

Such investigations serve public policy and often do result in a financial benefit to creditors. A concern is that the new legislation may lead to creditors limiting fees, particularly where there is little likelihood of a return to creditors, to the extent that nominal asset cases become uneconomical to administer.

Meet

Far from overcharging, it is worth noting that in many cases - where realisations are relatively low - IPs do not receive enough money to cover the costs of the work they carry out.

In certain instances - where realisations are very low indeed they remain entirely unpaid. The Companies House data used by the OFT shows that in around 80% of cases, IPs were not paid in full; and in 7% of cases, IPs did not receive any fee at all. This situation is highly anomalous - in no other industry or profession is it relatively accepted practice for professionals not to be paid for work they have completed.

The Rules are new territory for both insolvency practitioners and creditors. The impact on the insolvency profession and creditor engagement is uncertain, although it will certainly add a further layer of regulation to insolvency administration which many practitioners feel is unnecessary given the legislation already in place. One outcome may be that insolvency practitioners will need to seek the assistance of the Courts where fee approval from creditors cannot be obtained or where extensions beyond capped fees are not approved, but only time will tell.

Andy Pear

Andy Pear is one of the founding partners of BM Advisory. The firm was established in March 2011 as part of City accountants, Beavis Morgan, and now operates from five offices across the UK. Prior to establishing his own practice, Andy was a director at one of the largest listed accountancy firms and now has more than 25 years experience in all forms of financial restructuring, insolvency and recovery. This also includes complex insolvency litigation and an increasing number of cross-border cases.

Andy is a Chartered Certified Accountant, Licensed Insolvency Practitioner and a

member of the Turnaround Management Association. Over the past fifteen years he has also acted in an advisory capacity for members of the Asset Based Finance Association and the practice has significant experience in working with the asset based lending community.

BM Advisory LLP specialises in providing restructuring, recovery and insolvency solutions for businesses and individuals, delivering tailored advice with the aim of preserving stakeholder value. Led by hands on partners with an in depth understanding of the issues that can impact upon business performance and success, the BM Advisory team has a proven track record of finding innovative solutions, improving business performance, advising individuals and restructuring businesses in times of distress.

Kain Knight InBrief | 09

A ssessments: Solicitors Act 1974

Queen Victoria still reigns!

Working out who has won in a Solicitors Act Assessment:

Fresh Guidance The Law. It is well known that in proceedings under the Solicitors Act 1974 between solicitors and their clients, the successful party when it comes to working out who must pay the costs, is governed by the “one fifth” rule - section 70(9). If the bill is reduced by one fifth or more, the solicitor pays, otherwise the client does so unless there are “special circumstances” under section 70(10) which justify a different order.

The Issue What faced the Court of Appeal in Bentine v Wilsons Solicitors LLP (2015) 6 Costs LO 779 was whether costs charged for work which the solicitors had no instructions to undertake, were to be counted when the Court calculated by how much Wilson’s bill had been reduced. Re Taxation of Costs : in Re a Solicitor (1936) 1 KB 53 had said that they should not : costs incurred outside of the solicitor’s retainer were not to be brought into account under the one fifth rule.

The Facts The Solicitors billed Miss Bentine £144,837.70 and the Master assessed the costs at £94,933.94 holding that “ ...the costs disallowed for want of retainer should not lead to a reduction in the invoiced costs included in the one fifth calculation..”

Of that figure, the “want of retainer” costs were £7,050 for work carried out when Miss Bentine lacked capacity to give instructions and £24,860 for costs incurred when the parties were in dispute after her retainer with the firm had ended. Thus with a 36.5% reduction achieved, the client appeared to have won by a wide margin, albeit that “special circumstances” were later certified for awarding Miss Bentine only 60% of her costs of the proceedings for having taken “an expensive and tortuous course” in the ten day assessment.

Not so if the “want or retainer” costs were left out of the calculation. If Re a Solicitor applied, the value of the bill referred for assessment was £112,927 so the disallowance was just 16% and the Solicitors had “won” under the one fifth rule.

That was what Proudman J decided on appeal because as a “mere” puisne Judge, she could not decide that Re a Solicitor was per incuriam (by mistake). Nonetheless she held that there were special circumstances for not disturbing the Master’s order (the Solicitors had insisted that they were entitled to the want of retainer costs), so their appeal was dismissed.

Re Clark (1851) to the rescue Next to the Court of Appeal. Talk about rabbits and hats!

After submissions had closed, researches on behalf of Arden LJ unearthed Re Clark, an authority decided just 14 years into Queen Victoria’s reign which had laid down clearly that following the 1843 Solicitors Act, the distinction between costs disallowed for want of retainer and other costs no longer existed. Every reduction counted in the one fifth calculation so re a Solicitor has been wrongly decided and Miss Bentine thus won handsomely under the one fifth rule as the Master had found.

Where next?

If in any doubt about the Solicitors Act, take advice and call in the experts at Kain Knight. A short article such as this cannot do justice to the detail of the case, but Bentine illustrates the importance of the Act and just how easy it is to come a cropper in the most unpredictable of circumstances.

10 | Kain Knight InBrief

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The new service from Kain Knight Konnect is a unique offering in the industry in its pairing of legal costs expertise and efficient software. It enables Kain Knight to deliver its services effectively as an in-house resource. We can construct the budget using LHQ real-time across the internet – with Counsel/experts all able to join a conference/telephone conference and see the budget as it is populated.

the budget, therefore giving extra security to the budgeting process.

Once set Kain Knight can remotely monitor the budget using LHQ to retrieve data from the client’s PMS and then apportion against

To find out more please contact: Nicholas.clark@kain-knight.co.uk

Kain Knight fee earners can monitor budgets under a traffic-light regime, with email alerts should a client’s budget approach its phase total.

Clear, on demand & bespoke to you.

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