Ian’s Top Ten Tips No. 9
Shortfall costs recovery in injury claims (a man’s got to eat!)
As the amount of between the partes costs work starts to dry up, I have been doing my homework and reading all about Solicitor and own client costs – and what a little gold mine this might be for Costs Lawyers if any Claimant injury Solicitors dare to dip their toe into this area of costs (a man’s got to eat you understand).
The weird world of the CFAlite
First, let me set the scene – because for the last fifteen years or so most injury Solicitors have been living in the weird world of the CFAlite. Remember, a CFAlite is a Conditional Fee Agreement where your client’s effective liability to pay costs does not extend beyond what can be recovered from his opponent in litigation.
The basic system of litigation costs, and costs shifting, we have in England and Wales is that – your client, the Claimant, agrees at the outset to pay your fees and any disbursements incurred. Any costs recovered from the client’s opponent in litigation then belong to your client so that he may then use those costs recovered towards payment of your Solicitor and own client bill.
Unfortunately, in this weird CFAlite world, for too long, Claimant injury Solicitors have been competing for new business but not on price. The only factor affecting the hourly rates Claimant injury Solicitors have been putting into their CFAlite retainers are the upper limits of what can be recovered on detailed assessment to satisfy the boundaries of the Indemnity Principle – and, indeed, some firms have seen fit to put hourly rates into their retainers which would make some London City commercial Solicitors blush. The position on the Defendant side of the injury fence is stark by contrast. Defendant injury Solicitors have had to compete for new business, usually from insurance companies, on price mainly and their hourly rates indicate what such injury work can be done for.
So where are we now? The position, following LJ Jackson’s “reforms” is that more and more Claimant injury Solicitors are starting to feel the pinch. The level of inter partes recoverable costs has been reduced and some Solicitor’s businesses have, over the last fifteen odd years, become used to operating on inter partes Woolf costs. Feeling the financial pinch, some firms of injury Solicitors are now thinking of charging their own clients for some, or all, of the shortfall of costs that cannot be recovered inter partes.
Shortfall Solicitor and own client costs recovery
Now this is as new to me as it is to most injury Solicitors, but as I indicated above, I’m getting myself ready (a man’s got to eat!). At the end of a successful injury claim the Claimant’s Solicitor, considering a Solicitor/ own client shortfall costs recovery, should first off deal with the inter partes costs recovery, holding sufficient damages recovered on account to cover any Solicitor and own client costs. Only after the inter partes costs claim has been concluded can the Claimant injury Solicitor then start to work out his own claim for unrecovered costs from his own client – and how much will those costs be?
The notion that you can simply send a one-page invoice to your own client asking him to pay everything else off your WIP sheet that couldn’t be recovered from the opponent is, in my opinion, nonsense. Why should your own client have to pay the fat that was trimmed off the inter partes Bill of Costs, or the costs that couldn’t even reasonably be included in the inter partes Bill of Costs?
The presumption is that Solicitor/ own client costs will be assessed on the indemnity basis (CPR 46.9 and PD 6.2). However, if the funding contract provides that your client will only be liable to pay your costs on a standard basis then that is that (and since there is, in theory at least, only one standard basis of assessment, I would say that once the Defendant has paid the standard basis costs on a file that is that as far as costs recovery of any kind is concerned). As we have found out from inter partes detailed assessments, the indemnity basis is often not the free-for-all it is fabled to be. I wouldn’t take anything for granted.
To recover shortfall hourly rates from your own client you must have, at the outset, agreed with your own client that your own hourly rates might be higher than those recoverable from the opponent in litigation. However, I don’t think, in terms of an ill-informed injury client, that necessarily means that those higher rates are recoverable even on a Solicitor and own client costs assessment. If your rates are unreasonable then they might be irrecoverable in any event (and, if your own hourly rates are ridiculous, there could even be questions raised about enforceability of the whole retainer where your client was ill-informed).
Unrecoverable/ shortfall injury success fees have been capped at 25% etc and that is that. Do bear in mind however, that if your shortfall success fee is unreasonable, you should not be trying to seek such shortfall recovery from your own client (see A & Anor v Royal Mail Group).
What about technical retainer style challenges? You’re not out of the woods here just because you managed to dodge the Defendant’s technical challenges about enforceability of the retainer etc. On a Solicitor/ own client assessment your client’s own Lawyer will not only have sight of the retainer documentation, but will also have the benefit of interviewing your client to see what advice, or lack of it, was provided at the time the funding contract was entered into. And there will be the Pilbrow v Pearless De Rougemont style arguments as well (did you tell your client that the conducting fee earner would be unqualified?).
Likewise, to the above, there will need to be advance agreement with your own client in place if you are to recover any disbursements or Counsel’s fees which can’t be recovered inter partes.
To recover shortfall time spent from your client I think there are two hurdles. Firstly, you must have advised your client at the outset that not all your time costs might be recoverable from the opponent and your client must have agreed to bear that shortfall. Secondly, those times spent must be recoverable under the indemnity basis of assessment. And this, it seems to me, is where problems might also arise:
- What if the client was a time-waster of one sort or another? I can’t see why these costs wouldn’t generally be recoverable, especially if you can show that you advised your client that their too frequent requests for updates, or lack of instructions, was causing unrecoverable costs to be incurred. Fair enough.
- What about travel to see your own client which isn’t recoverable inter partes? Again, I can’t really see many situations where this would not be recoverable from your client, provided that it was your own client asking for such luxury.
- What about excessive time? If this time wasn’t recoverable in the standard basis of assessment from the opponent, why would it be recoverable, even on the indemnity basis, from your own client? I’m not quite sure (?) and your own client would be well advised to dispute that.
- What about funding costs. They’re Solicitor and own client right? I am not so sure. These days I wouldn’t expect to be charged anything for agreeing terms of business or a quotation with anyone, so why should Solicitors be any different?
- In this new era, what about costs which exceed an agreed or approved costs budget phase? Given your duty to act in your client’s best financial interests (i.e. to maximise their net return after payment of any shortfall costs), you should have been monitoring the spend on the claim against each individual budget phase. You should have approached your own client before any particular phase ran out to agree the unrecoverable over-spend. I would say that, unless you have agreed, in advance with your own client, the unrecoverable spend over and above the particular costs budget phase, then such over-spend is not recoverable from your own client. Moreover, if I were acting for your paying client, I would be tempted to argue that you had breached your own duty of care to your client by failing to properly monitor the spend on the claim against that phase of the budget.
- What about administrative work done by the fee earner? More and more fee earners have become self-sufficient. The days when Solicitors and their Secretaries had clear rolls have become blurred – but the way in which Solicitor’s hourly rates are calculated does not seem to have kept pace with such changes. The “three-in-one” idea which came out of the Expense of Time investigations carried out long before the Woolf changes is still used by many Solicitors. But you can’t have the best of both worlds. You either charge a much lower hourly rate or you don’t try to recover time for Secretarial tasks. Such administrative work is therefore unreasonable if your hourly rate includes provision for support staff such as Secretaries.
- What about abuse of the 6 minute unit? Solicitors have become expert at splitting tasks into fragments and charging for each fragment as a rounded up 6 minute unit. This is one of the practices that has killed the golden goose and led to the introduction of fixed costs. Being a fair-trader is always the best way and this practice should stop here.
- What about costs incurred due to your delay in progressing the file, or some other failing on your part. Again, if I were acting for your paying client, not only would I dispute that time entirely but I would consider arguing breach of duty given that you now intend to charge the client for that shoddy work (clearly you haven’t acted in your client’s best financial interests).
- What about the advice you gave to your client about how the claim should proceed? You ought to have discussed with your client, given your duty to act in their best financial interests, what tactics were likely to result in the best outcome in terms of BOTH damages and costs recovery. What advice did you give the client about ADR, for example? With appropriate ADR the claim might have settled at an earlier stage and your client’s liability for shortfall costs might have been much less.
- It might well be that any fixed injury costs in this new era now represent the standard basis costs (they certainly represent a logical starting point). Did you form a costed plan of action to deal with the claim within the fixed costs budget? Did you inform your client at the stage when the fixed costs budget ran out? Did you explain to your client why you could not deal with the claim within the fixed costs budget? Did you agree a new budget (unrecoverable costs) for the continuing work? If you did not, then why would such costs be recoverable even on the indemnity basis? Are you in breach of your own duty of care to act in your own client’s best financial interests by not dealing with the claim within the predicted fixed costs budget? Again, I would be inclined to advice paying clients to dispute such shortfall costs, especially where the client was ill-informed.
- What about the estimate of costs you gave your client at the outset of the matter (see Wong v Vizards and all that jazz)? If your costs estimate to your own client was greatly exceeded, then you’re in trouble – and I mean TROUBLE because gaining the client’s business upon such misleading information is a criminal offence!
- Indeed, it seems to me that on a Solicitor and own client costs assessment arguments could be raised over most of the costs not recovered from the opponent under the standard basis of assessment.
And I thought we’d never had it so good when the Conditional Fee Agreement Regulations 2000 were repealed – maybe I was wrong?
I suggest Claimant injury Solicitors consider all this very carefully before randomly lumping all unrecovered costs into a Solicitor and own client Bill.
There hasn’t yet been the anticipated “race to the bottom”. That is, I have not yet seen Solicitors competing for Claimant injury business on price. However, I am sure it is coming and what are you going to do? I would like to think there are fair-traders out there who would be satisfied with the earnings from inter partes costs alone. We will see.
I will happily help any Claimant injury Solicitors set out their own shortfall, Solicitor and own client, costs claims properly and then justify or defend those properly claimed costs – but you’d better be quick because into the future I might just be acting for your client!