InBrief Issue 19

COSTS IN BRIEF JACKSON REFORMS | SPECIAL EDITION 02 | K ain Knight appoints new CEO 03 | C ollateral Damage(s) 05 | Provisional

assessment limit increased to £75,000 06 | Q .O.C.S.- The Final Frontier 08 | Relief from Sanctions the Epilogue 10 | Proportionality - Out with the old and in with the new!

“Costs lawyers delivering results” ISSUE: 19 | APRIL 2013

02 | KAIN KNIGHT INBRIEF | JACKSON REFORMS SPECIAL EDITION

KAIN KNIGHT APPOINTS NEW CHIEF EXECUTIVE OFFICER Legal costs firm Kain Knight, market leaders in the legal costs industry, has appointed Peter Petyt as its new Chief Executive Officer to implement the firm’s new growth plan. He will assume his role from 1 April.

Peter Petyt, a former Corporate Finance Partner at accountancy firm MHA MacIntyre Hudson in London, will be focusing on business development both nationally and internationally, the introduction of new services which complement Kain Knight’s existing skillsets, and consolidation opportunities in what is a highly fragmented market.

Since 2001, Peter has been a Corporate Finance specialist, working with a number of leading UK accounting firms, including Pridie Brewster, UHY Hacker Young and BTG McInnes, as well as the Corporate Finance and Consulting division of BDO in Bahrain. Most recently he has been the head of Corporate Finance at MHA MacIntyre Hudson in London. Prior to this Peter spent time in industry where he focused on business development and M & A for several UK SME companies.

Peter is a former Deputy Chairman of the Corporate Finance Faculty of the Institute of Chartered Accountants of England and Wales and is co-founder of the Middle East Network of the Faculty.

One of Peter’s first moves has been to strengthen Kain Knight’s Board of Directors. He has appointed Nick Hood and Jonathan Metliss as Non-Executive Directors. Nick Hood is a Chartered Accountant and former Insolvency Practitioner, and Jonathan Metliss is a solicitor and a senior consultant at law firm Davenport Lyons. Both have a wide circle of relevant contacts and strong experience in growing professional practices.

Commenting on the appointment of Peter Petyt, Michael Kain said: “ I am delighted to announce the appointment of Peter Petyt as our new Chief Executive Officer.

Peter’s is a new role for Kain Knight, and his appointment is vital to our growth plans. In the coming months we will be broadening our range of services, enhancing our technical capabilities and back office functions, and bringing some welcome innovations to a market that is still getting to grips with the Jackson reforms. The post-Jackson world of costs is facing a massive shake up, with the impact most felt by smaller firms of costs draftsmen and single operators. Commercial clients will look for a full professional service that only larger firms like ours can provide.”

Peter Petyt commented: “ I am delighted to be joining Kain Knight, which has played a leading role in establishing and developing the specialist legal costs market over the past 35 years. It is a role which will allow me to leverage my business development and financial experience from the last 25 years and my extensive range of contacts in the legal sector. It will be a privilege to lead such a strong team as we work with our clients to take full advantage of the new civil costs landscape post the far-reaching Jackson reforms.”

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Michael Kain, the founder of Kain Knight, remains as Chairman, and will continue to work full time focusing on key client relationships and large commercial cases.

PETER PETYT NEW CEO OF KAIN KNIGHT

KAIN KNIGHT INBRIEF | JACKSON REFORMS SPECIAL EDITION | 03

COLLATERAL

DAMAGE(S) The first I heard of damages-based agreements (DBAs) was many years ago when I borrowed £100 off a ‘bloke down the pub’. He assured me that our AGREEMENT was BASED on the fact that if I did not pay him back my face would suffer untold DAMAGES.

Since that unfortunate incident, you could write what I know about DBAs on the back of a postage stamp.

Having extensively researched the position my knowledge can now be encompassed in a book the size of War and Peace. That’s not strictly correct, it’s probably about the size of my self-penned helpbook ‘The John Staab Guide to a Long and Happy Marriage’ (both the book and the marriage were extremely brief).

DBAs, a contingency fee in all but name, are to be allowed as of 1st April 2013. That is to say, the solicitor will be able to retain a percentage of the damages obtained on behalf of the client.

For personal injury cases contingency fees will be capped at 25% of the damages. For Employment Tribunal cases the cap is 35% (as before) and for all other cases 50%.

However, and this is probably the most controversial aspect of the new rules in relation to DBAs, the Indemnity Principle will still apply.

If the Claimant is successful his costs, to all Costs Lawyers delight, are assessed in the usual way.

However, if the percentage contingency fee agreed with the solicitor is higher than the assessed figure, the client will have to pay the shortfall to his solicitor from the damages.

On the flip side of this, if the percentage contingency fee agreed with the solicitor is lower than the assessed figure, the Defendant’s liability is limited to the level of the contingency fee only and they will consequently benefit greatly. The client would get to keep all his damages and it will only be the poor solicitor who loses out.

Let us consider a couple of scenarios: 1) Damages are £100,000

The contingency fee is 25% – £25,000 The costs are assessed at £20,000 The client loses £5,000 of his damages 2) D amages are £100,000 The contingency fee is 25% – £25,000 The costs are assessed at £30,000 The Defendant’s liability is capped at £25,000 The Claimant does not lose any of his damages The Solicitor loses out on £5,000 and only obtains £25,000 This throws up an interesting conundrum.

The advantages to a solicitor may be significant where a matter settles early and the damages are high. However, the client may not be too happy to lose a significant amount of their damages when the matter did not last that long. However, the reverse may be true if damages are low and the matter drags on and goes to trial – as seen above, the solicitor may lose out.

This could lead to a possible conflict of interest between the solicitor and the client. That is to say, a client might be inclined to run a matter to trial knowing his costs are effectively capped. Slightly more worryingly, his solicitor might be ‘tempted’ to advise a client to accept an early offer even though the solicitor may suspect that the client might get more if the matter proceeds to trial. However, I doubt this very much knowing that solicitors are officers of the court and always act in the best interests of their clients.

In any event, it could be more War than Peace between solicitor and client. And it might take more than the application of a postage stamp to heal the wound.

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JOHN STAAB COSTS LAWYER

04 | KAIN KNIGHT INBRIEF | JACKSON REFORMS SPECIAL EDITION

BOB HOPE OR

NO HOPE!

On the 1st April 2013 the Government will introduce the first of a series of rules intended to control the costs of litigation. One of the cornerstones of these changes is the introduction of costs management or better known as costs budgeting.

Michael Kain says “At the moment my company have about 20 to 30 Court appearances per month. Under this budgeting program that could increase to 500 to 600 and this is only within our Company.”

In all multi tracks cases that are commenced after the 1st April both parties will have to prepare a detailed budget of costs incurred to date and all future costs.

Party’s that do not comply will be penalised if they do not comply. Every budget will have to be approved by a Judge.

It may be a great idea in theory but in reality it is unlikely to work, not because of a lack of good intentions on the part of the parties but simply because the judges will just not have the time. Unless MICHAEL KAIN the Government are prepared to throw some serious CHAIRMAN money at this project the whole civil Court procedure KAIN KNIGHT GROUP is likely to collapse. Justice will be a thing of the past. No one will have the time or energy to litigate but perhaps this is what the Government intended.

Now here’s the rub. The Government have reduced the number of Courts and the staffing in all Courts as all part of the cut backs, yet the Government expect Judges to deal with all of these cases.

Michael Kain a Costs Lawyer with Kain Knight who specialising in litigation costs says “In my area we used to have five Courts, Bishop’s Stortford, Hertford, Harlow, Cambridge and Chelmsford. Today we just have Cambridge and Chelmsford. On top of that they have reduced the Court staff by a third. If that was not bad enough they are increasing the small claims level which will mean that most claims under possibly £15000 will be dealt with by the parties without legal representation and this will eat up the Court time.”

At the moment only about 5% of costs disputes ever see the inside of a Court as most cost disputes are settled. Under the new regime every multi track case will have to be approved by a judge, not once, not twice but up to ten occasions.

The judges are to be given one day’s training (again, lack of resources) and will now have to deal with all of these additional budgets.

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Now here’s the rub. The Government have reduced the number of Courts and the staffing in all Courts as all part of the cut backs, yet the Government expect Judges to deal with all of these cases.

COMMENTS FROM COUNSEL If costs budgeting works, this will be the best part of the reforms.

The award for the worst part is shared between the DBA Regulations and the rules introducing QOCS; both have unintended consequences and uncertainties that are likely to lead to years of satellite litigation.

ANDREW POST QC, HAILSHAM CHAMBERS

KAIN KNIGHT INBRIEF | JACKSON REFORMS SPECIAL EDITION | 05

PROVISIONAL ASSESSMENT LIMIT INCREASED TO £75,000 KELLY STEDMAN Despite the £25,000 recommended limit significant amount. It is not clear from the rules or practice directions as to how (or when) the new COSTS LAWYER in Lord Jackson’s Report, and the Pilot

Scheme which ran at such level from October 2010 in Leeds, Scarborough and York, the new practice direction 14.1 has tripled this figure and set the limit for provisional assessment at £75,000.

This comes into play for any Detailed Assessment Proceedings commenced on or after 1st April 2013.

proportionality test will be applied. As it is not down to the Judge to recalculate the Bill he/she will not know the level of costs allowed until the parties have calculated the effect of any reductions. Neither the rules nor practice directions provide for the Court to have any further opportunity to review proportionality once the final figures are known.

One of the intentions of provisional assessment is to The procedure for provisional assessment is set out in help speed up the assessment process. The practice direction states that the Court will use its best endeavours CPR 47.15 but, to summarise, provides for the Court to undertake a provisional assessment upon receipt of to undertake the provisional assessment in 6 weeks which the receiving party’s N258 and supporting documents is far quicker than you are currently likely to receive a date for detailed assessment. However, it will be interesting which, of course, include the paying party’s Points of to see how it works alongside the practice directions Dispute and the receiving party’s Replies. Any Part 36 which place greater emphasis on the Points of Dispute Offers made in respect of costs must be sent to the and Replies being short and concise. As there will be Court in a sealed envelope clearly marked. The Court will not award more than £1,500 to any party in respect no opportunity to expand upon, explain a point further or, in the case of a paying party, respond to the receiving of the costs of provisional assessment (although it is not entirely clear whether this sum includes the Court party’s reply, the Points of Dispute and Replies will surely need more information, not less, to enable the fee or, indeed, what the Court fee will be).

Court to fully understand the arguments presented.

Following the provisional assessment the Court will This is particularly relevant with the increase to return the Bill with the Court’s decisions noted upon £75,000 as the bill is likely to present more complex it. Within 14 days the parties must agree the total sum arguments than one totalling less than £25,000. due. If the parties are unable to agree the arithmetic they must refer back to the Court for a decision on the I am hopeful that for my clients a potential benefit is that it should put the pressure on parties to put basis of written submissions. If either party wishes to forward their best and final offers a little earlier in challenge any part of the provisional assessment they must file a written request for an oral hearing within 21 the assessment proceedings (as opposed to the day days of receipt of the Bill. If no such request is filed and before any Detailed Assessment Hearing). Instead, served within that period the provisional assessment is such offers will need to be made before the N258 is submitted. Therefore, if a matter has any possibility binding. The party to request the oral hearing will pay the costs of such hearing unless they have successfully of settlement it should settle sooner and with costs secured an adjustment by 20% or more in their favour. amounting to far less… …I am, however, ever the optimist!

With the increase to £75,000, this could well be a

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COMMENTS FROM COUNSEL Mandatory costs budgets could be the most effective measure in cutting costs, particularly in high-cost litigation, but it will also bring (i) increased hearing time, (ii) applications, and (iii) challenges, which in low-cost litigation could cause a disproportionate effect of its own.

Conversely, DBAs shift the burden of costs rather than reduce them, risking access to justice.

SHAMAN KAPOOR, BARRISTER, TEMPLE GARDEN CHAMBERS

06 | KAIN KNIGHT INBRIEF | JACKSON REFORMS SPECIAL EDITION

Q.O.C.S. THE FINAL FRONTIER Fatal Accidents Act 1976 or which arises out of the Firstly, can I say that I am not a Trekkie, although naturally I respect those that are. death or personal injury and survives for the benefit One of my first impressions was that Q.O.C.S. was something that either Doctor Who or Captain TJ Kirk were required to confront in their ongoing battles so in tribute to William Shatner, an episode of the programme may have started: Q.O.C.S. – The Final Frontier Stardate: 1st April 2013 These are the voyages of the costs profession.

Its mission: to explore strange new worlds, to seek out new life and new civilisations and to boldly go where no man has gone before.

This may be slightly dramatic and designed to get the reader interested at an early stage, but there may be some semblance of accuracy to this opening paragraph.

A few months ago I was asked by Michael Kain to look into Q.O.C.S. I did what anybody does when asked to look into something a little different and I Googled it.

One of the first posts I came across was the Queensland Omnibus and Coach Society. This ignited a childhood memory in that when I was four or five I always used to insist that my father drove home past the local bus garage so I could conduct my first ever survey as to the number of buses that were in the garage.

A double decker bus always got an extra mention.

Having returned to the present I quickly established that I was not to look into the history of a bus company from Australia but I was required to look into Qualified One-way Costs Shifting (Q.O.C.S.).

I write this article shortly after the publication of the revised Civil Procedure Rules and accompanying Practice Directions. Although there are no anticipated last minute changes to the regulations governing Q.O.C.S., I think it is fair to say that the profession is still a little uncertain as to the future and it will not be until “J Day” (as someone referred to it in a recent article I read) that we can be sure where the immediate future lies.

Q.O.C.S. is an approach to civil litigation funding that prevents a defendant from recovering its costs from an unsuccessful claimant. The trade-off with Q.O.C.S. is that although defendants will be unable to recover their own costs even if successful, save for limited circumstances, they will benefit from other interlinked costs measures set out in LASPO and the amendment to the Civil Procedure Rules and Practice Direction such as ATE insurance premiums and success fees no longer being recoverable by the claimant.

Q.O.C.S. apples to proceedings which include a claim for damages for personal injuries, a claim under the

of an estate by virtue of section 1 (1) of the Law Reform (Miscellaneous Provisions) Act 1934.

Q.O.C.S. does not apply to applications for preaction disclosure or where CPR 44.17 applies which is the transitional provision which confirms that Q.O.C.S. is not applicable in proceedings where the claimant has entered into a pre-commencement funding arrangement such as a Conditional Fee Agreement entered into before 1 April 2013 with a success fee and/or ATE insurance premium or a CCFA where work was undertaken prior to 1 April 2013.

Q.O.C.S. protection will be lost by the claimant in three differing circumstances: 1. The claimant fails to better a Part 36 Offer; 2. The case has been struck out on the basis of no reasonable cause of action or an abuse of the court’s process or the conduct of the claimant or a person acting on the claimant’s behalf and with his or her knowledge is likely to obstruct the just disposal of the proceedings; 3. The claim is found to be fundamentally dishonest on the balance of probabilities.

Orders for costs made against the claimant as a result of their failure to better a Part 36 Offer may be enforced without the permission of the court but only to the extent that the amount in monetary terms of such orders does not exceed the amount in monetary terms of any orders for damages and interest made in favour of the claimant. Therefore, in simplistic terms if the defendant makes a Part 36 Offer of, say, £25,000.00, the claimant rejects the offer and progresses the matter to Trial and is awarded damages of say £20,000.00, the defendant will be entitled to recover costs for the relevant period post offer but these costs will be limited to £20,000.00, being the amount of damages recovered by the claimant.

In light of this provision therefore, it is presumed that defendants will make early (and well judged) Part 36 Offers to ensure a degree of costs protection.

Naturally, if the claimant receives nothing by way of damages, or the defendant succeeds in defending liability in a split trial for example, the claimant’s liability for costs is nil unless of course the court finds that the claim was “fundamentally dishonest”.

Orders for costs made against the claimant may be enforced to the full extent of such orders without permission of the court where proceedings have been struck out on the grounds that: (a) the claimant has disclosed no reasonable grounds for bringing the proceedings;

KAIN KNIGHT INBRIEF | JACKSON REFORMS SPECIAL EDITION | 07 (b) t he proceedings are an abuse of the court’s process; or

section 1 (3) of the Fatal Accidents Act 1976 (other than a claim in respect of the gratuitous provision of care, earnings paid by an employer or medical expenses); or

(c) the conduct of (i) the claimant or (ii) a person acting on the claimant’s behalf and with (b) a claim is made for the benefit of the claimant the claimant’s knowledge of such conduct is likely other than a claim to which this section applies. to obstruct the just disposal of the proceedings. Where paragraph 2 (a) applies the court may, subject This would not appear to be a particularly significant to Rule 46.2 make an order for costs against a person, sea change from the current position regarding strike- other than the claimant, for whose financial benefit out proceedings. the whole or part of the claim was made.

Orders for costs made against the claimant may be enforced to the full extent of such orders with the permission of the court where the claim is found on the balance of probabilities to be fundamentally dishonest.

The Practice Direction to 44.16 (1) states: (a) t he court will normally direct that issues arising out of an allegation that the claim is fundamentally dishonest be determined at the trial; (b) w here the proceedings have been settled the court will not, save in exceptional circumstances, order that issues arising out of an allegation that the claim was fundamentally dishonest, be determined in those proceedings; (c) where the claimant has served notice of discontinuance the court may direct that issues arising out of an allegation that the claim was fundamentally dishonest be determined notwithstanding that the notice has not been set aside pursuant to Rule 38.4; (d) the court may, as it thinks fair and just, determine the costs attributable to the claim having been found to be fundamentally dishonest.

Therefore, the level of costs the defendant can recover is not governed by the recovery by the claimant. It is merely a question of a level of costs that a court feel is “fair and just”. Again, this is probably not a significant departure from the current position, however it does raise some possible issues that may require clarification by the courts to include:

The Practice Direction gives examples of subrogated claims and claims for credit hire. It further states that “gratuitous provision of care” includes the provision of personal services rendered gratuitously by persons such as relatives and friends for things such as personal care, domestic assistance, childminding, home maintenance and decorating, gardening and chauffeuring.

It goes on to say that the court will usually order any person other than the claimant for whose financial benefit such a claim was made to pay all the costs of the proceedings or the costs attributable to the issues to which 44.16 (2) (a) applies or may exceptionally (that word again) make such an Order permitting the enforcement of such an Order for costs against the claimant and again the court may, as it thinks fair and just, determine the costs attributable to claims for the financial benefit of persons other than the claimant. Therefore, again, this is not subject to a cap on the level of damages recovered.

That is Qualified One-way Costs Shifting as it stands today. Tomorrow it may change.

For example, it may encompass other forms of litigation. Mr Justice Ramsay suggested at the Expert Witness Institute Annual Conference last year that it was likely that Q.O.C.S. would spread to other parts of the system but that it was likely to be means tested.

What is fundamentally dishonest?

Lord Justice Leveson has already indicated that the government needs to introduce Q.O.C.S. for media litigation.

Does this differ from just being dishonest?

Will it spread to professional negligence litigation?

What are exceptional circumstances?

Will it relate to group actions?

Again, it is unclear as to how the defendants will proceed. Does it, for example, mean that there will be greater surveillance evidence used, not only to disprove the claim but to ensure a degree of costs recovery for the successful defendant?

There are many potential changes afoot and naturally we will keep you fully informed of any updates and any repercussions on Q.O.C.S. as and when they occur.

Finally, orders for costs made against the claimant may be enforced up to the full extent of such orders with the permission of the court and to the extent that it considers just where: (a) t he proceedings include a claim which is made for the financial benefit of a person other than the claimant or a dependant within the meaning of

Finally, I can also confirm that the Queensland Omnibus and Coach Society have since 1996 been actively recording, conserving, restoring and providing access to Queensland’s passenger transport history…

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…to be continued.

RICHARD BANKS COSTS LAWYER

08 | KAIN KNIGHT INBRIEF | JACKSON REFORMS SPECIAL EDITION

RELIEF FROM SANCTIONS

THE EPILOGUE From 1 April 2013 the procedure for dealing with relief from sanctions such as the strike-out of a claim for noncompliance with a court order will change.

This flows from Lord Justice Jackson’s consideration of case management decisions in his January 2010 report on costs in civil litigation. He said that:

Applications for relief from sanctions have accumulated considerable case law and have often called for extensive analysis of a party’s case and a lengthy hearing which was frequently followed by a time consuming appeal. As in the case of CIBC Mellon Trust -v- Stolzenberg (Sanctions: Noncompliance) [2004] EWHC Civ 827 the Court appeared to feel obliged to follow the CPR 3.9 procedure which required consideration of all the relevant factors and especially those expressly listed in the rule. Lord Justice Jackson’s first blow to attempt to redress the balance was seen in the Court of Appeal decision of Fred Perry (Holdings) Limited -v- Brands Plaza Trading Limited and Others [2012] EWCA Civ 224 when he stated:

“…courts at all levels have become too tolerant of delays and non-compliance with orders. In so doing they have lost sight of the damage which the culture of delay and non-compliance is inflicting on the civil justice system. The balance therefore “ There is a concern that relief against needs to be redressed”. sanctions is being granted too readily at Relief from sanctions applications until the end of the present time. Such a culture of delay March 2013 are governed by the terms of CPR and non-compliance is injurious to the civil justice system and to litigants 3.9 “(1) On an application for relief from any sanction imposed for a failure to comply with any rule, generally” and confirmed that “litigants practice direction or court order, the court will who substantially disregard court orders consider all the circumstances including: or the requirements of the Civil Procedure (a) the interests of the administration of justice; Rules will receive significantly less (b) w hether the application for relief has been indulgence than hitherto”. made promptly;

(c) whether the failure to comply was intentional; (d) w hether there is a good explanation for the failure; (e) the extent to which the party in default has complied with other rules, practice directions, court orders and any relevant pre-action protocol; (f) whether the failure to comply was caused by the party or his legal representatives; (g) w hether the trial date or the likely trial date can still be met if relief is granted; (h) the effect which the failure to comply had on each party; and (i) the effect which the granting of relief would have on each party.”

From 1 April 2013 CPR 3.9 is being changed to:

“ On an application for relief from any sanction imposed for a failure to comply with any rule, practice direction or court order, the court will consider all the circumstances of the case so as to enable it to deal justly with the application, including the need – (a) for litigation to be conducted efficiently and at proportionate cost; and (b) to enforce compliance with rules, practice directions and orders.”

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KAIN KNIGHT INBRIEF | JACKSON REFORMS SPECIAL EDITION | 09

COMMENTS FROM COUNSEL I think that the abolition of inter partes recovery of success fees and ATE premiums will reduce the costs of litigation. The encouragement of damages based agreements will increase the costs of litigation by creating expensive satellite litigation between solicitors and clients who believe they have overpaid, including allegations of regulatory breaches, undue influence, other arguments in contract, negligence and equity.

JOSHUA MUNROE, BARRISTER, HAILSHAM CHAMBERS

There appears to be a clear change in emphasis with the wording of the new rule CPR 3.9. The Court of Appeal’s guidance in Fred Perry (Holdings) Limited -v- Brands Plaza Trading Limited and Others (ibid) that there should be no tolerance of a party who fails to discharge their obligations under the CPR to frustrate the litigation process is now embodied in the CPR (Amendments) Rules 2013.

In the short term, the transitional arrangement will also need to be borne in mind by parties:

“ The amendments made by … these Rules do not apply to applications made before 1 April 2013 for relief from any sanction imposed for a failure to comply with any rule, practice direction or court order”.

In costs matters, applications for relief from sanction are most frequently seen where a party has failed to provide notification to an opponent of the potential exposure to additional liabilities in a claim or the requisite documentation to justify a claim for additional liabilities upon commencement of detailed assessment proceedings. A situation could conceivably arise that a receiving party’s failure to provide notification of a CFA with a potential claim

for a success fee in relation to a matter issued some years ago will be dealt with under the new stricter CPR 3.9 test from 1 April 2013.

The new procedure gives a defaulting party far reduced scope to take advantage of a list of extenuating circumstances. The focus on robust case management with stricter enforcement of court orders and rules should allow cases to be dealt with more efficiently, or at least that is the theory behind the new CPR 3.9, and no doubt there will be defaulting litigants who will seek to test the judiciary’s resolve from 1 April 2013.

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Firms of solicitors and costs practitioners will undoubtedly have to manage cases appropriately and efficiently to avoid falling foul of the court’s new approach to strict case management.

JOHN IVORY COSTS LAWYER

COMMENTS FROM COUNSEL The Jackson reform that at a stroke reduces costs is the abolition of the recoverability of success fees and ATE premiums. The latter have frequently risen to 6 figures (and beyond) and the former in the most basic of RTA cases have allowed up to doubling of profit costs.

The reform where the jury is out is costs management. That will take up time and money at an early stage when most cases will settle well before the budget really kicks in. Another example of unnecessary front loading.

SIMON EDWARDS, BARRISTER, 39 ESSEX STREET

10 | KAIN KNIGHT INBRIEF | JACKSON REFORMS SPECIAL EDITION

PROPORTIONALITY

& IN WITH THE NEW! OUT WITH THE OLD With the introduction of the Jackson Reforms on the 1st April 2013 comes a proposed new application of the test of Proportionality in respect of legal costs.

Somewhat unhelpfully the recently published Court Practice Direction provides no guidance as to how the test of proportionality will be applied on Detailed Assessment post 1st April.

From as long ago as the year 2000, solicitors and Costs Judges alike have been grappling with the “two stage” test of reasonableness and necessity where it was found on a detailed assessment of costs that the costs claimed within a particular Bill were disproportionate to the matters in issue between the parties. This colloquially become known as the “Lownds” test. Generally the application of the “two stage” test has been viewed by many as somewhat of a damp squib.

It has been said that proportionality should theoretically, at least, be dealt with by Judges as part of the Costs Management process thereby negating the need for this issue to be argued at a Detailed Assessment.

From 1st April 2013 comes a far more stringent test comprising factors different to those currently enshrined in CPP 44.5(3) - often referred to as the seven pillars of wisdom (now 8 pillars). Whilst these pillars remain under the new CPR 44.4(3) there is also an additional set of factors the court must consider when assessing costs on the standard basis and these are enshrined within the new CPR 44.3(5) wherein costs will be considered proportionate if they bear a reasonable relationship to: (a) the sums in issue; (b) the value of any non-monetary relief in issue in the proceedings; (c) the complexity of the litigation;

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(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.

If the courts were to adopt this approach this would make the task of accurately assessing where one’s claim for costs may end up after Detailed Assessment infinitely more difficult than before.

Lord Justice Jackson’s suggestion was that where costs claimed are considered disproportionate courts would first make an assessment of reasonable costs, on a line by line basis, and then stand back and consider whether the reduced total figure is proportionate. If the total figure is not considered proportionate, the court would then make a further reduction. As to what further reduction this may be is a matter of debate. This has been referred to as the “longstop” test. This proposal has not been specifically provided for within the amended CPR. If the courts were to adopt this approach this would make the task of accurately assessing where one’s claim for costs may end up after Detailed Assessment infinitely more difficult than before.

Whilst transitional arrangements have been put in place for work undertaken now but assessed post 1st April 2013, only the brave will think that Judges up and down the land will not at least have the new test in the back of their minds when it comes to the assessment of costs post the big bang date.

What is altogether more worrying is that with the introduction of Provisional Assessment on all costs assessments post 1st April where Bills of Costs totals less than £75,000, the parties are completely in the hands of the court in this regard there being no scope, at least at first instance, for oral submissions on the point.

Solicitors therefore will not have the opportunity to ask Master, “You found my clients costs to be disproportionate and have reduced my client’s Bill of Costs by an additional £10,000.Can you please advise me as to what element of the work I undertook I should avoid next time round?” .

KAIN KNIGHT INBRIEF | JACKSON REFORMS SPECIAL EDITION | 11

COMMENTS FROM COUNSEL

The best move was by defendant insurance industry to propose one way cost shifting, and for it thereafter to be accepted by Jackson; also one way costs-shifting is qualified with more exceptions than claimants may realise. The worst move has been the drafting of the CFA and DBA regulations.

SIMON BROWNE QC, TEMPLE GARDEN CHAMBERS

Are we likely to see “padded out” Bills of Costs detailing the minutae of a case in the hope this may sway a District Judge in the receiving party’s favour?

On the other hand, Points of Dispute, which should no longer (in accordance with the revised Court Practice Direction) quote “chapter and verse” are likely to need some level of detail in the hope they can sway the Distict Judge back the other way.

What seems clear in the new landscape is that solicitors will find it increasingly difficult to justify a claim for costs which is significantly in excess of the level of damages recovered.

It may take some time for matters to settle down and perhaps longer for there to be clear judicial guidance on how the test should be applied in practice.

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There remain unfortunately, as with so many of the Jackson reforms, more questions than answers…

CHRISTOPHER BUTLER COSTS LAWYER

We expect there to be, at least at the outset, a fair degree of satellite litigation with disgruntled solicitors heading off to the appeal courts having had their costs slashed by their local court.

There are also highly likely to be more applications for indemnity basis costs awards as the work undertaken would then be exempt from the new test.

COMMENTS FROM COUNSEL The best of Jackson – the one which will achieve its aim will be the abolition of recoverability of additional liabilities. The rightness of it may be disputed, but it will do what it intends. The worst – the failure to properly implement Damages Based Agreements – a sadly missed opportunity.

ROGER MALLALIEU, BARRISTER, 4 NEW SQUARE

12 | KAIN KNIGHT INBRIEF | JACKSON REFORMS SPECIAL EDITION

MEET THE TEAM:

VICKI KAIN HR MANAGER AT KAIN KNIGHT BISHOPS STORTFORD Despite being born into the industry with a father often referred to as “the Godfather of Costs”, Vicki surprisingly wanted to be a tennis instructor after spending most of her youth on the tennis courts. Upon leaving college in 1997 she realised it wasn’t as much fun standing in the cold coaching as it was playing and so she decided it was time to get a real vocation. She started her working life as an administrator / typist for M B Kain & Co in the City Road office dealing with Kennedys Solicitors. In between taking time off for independent travel and working in the Fetter Lane office, she eventually settled back in Bishops Stortford working for Kain Knight and thereafter Law Costs Solutions as a Law Cost Draftsman for small PI and RTA matters.

On a personal note, Vicki enjoys a challenge and tries to incorporate her love of travel with her love of sport. Last year she undertook the 4 day gruelling trek of climbing Machupicchu in Peru and this year she will be attempting to run the London Marathon.

Who knows what 2014 may bring…

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In 2011 Vicki undertook the necessary qualifications to become an Associate member of the Chartered Institute of Personnel Development (CIPD) and as of April 2013 has been appointed Director of Human Resources and Personnel.

Disclaimer

US

HEAD OFFICE:

ALSO AT:

1, 2 and 4 Priors London Road Bishop’s Stortford Hertfordshire CM23 5ED

Carpenters’ Hall 1 Throgmorton Avenue London EC2N 2JJ

Tel: 01279 755552

Tel: 0203 215 1011

Tel: 01227 786499

Fax: 01279 755936

Fax: 0207 374 6265

Fax: 01227 786665

DX: 50405 Bishop’s Stortford

DX: 138760 Cheapside 2

DX: 5310 Canterbury

Consistent with our policy when giving comment and advice on non-specific issues, Kain Knight cannot assume legal responsibility for the accuracy of any particular statement. In the case of specific problems it is recommended that professional advice be sought from your normal contact.

Regis House 9, Dane John Works Gordon Road Canterbury, Kent CT1 3PP

www.kain-knight.co.uk

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