THE CLINICAL NEGLIGENCE SECTOR LEGAL COSTS SUMMER 2017, UPDATED MARCH 2018.

THE CLINICAL NEGLIGENCE SECTOR (Clin Neg)- SEPTEMBER 2017.

UK pays out twice as much in Clinical negligence as US, per capita, despite NHS being ranked highest in quality and US healthcare lowest, of 20 healthcare systems.

 INTRODUCTION

Jim Diamond has spent over 30 years in the law with most of the time working in legal costs. Jim Diamond has worked in both sectors of the Personal Injury market place, including 4 years in-house for one of the biggest Defendant insurance law firms and ran a Claimant Costs Company for 5 years; cases ranged from road traffic accidents to clinical negligence cases, costs disputes ranged from hundreds to millions of pounds. Overall he has worked on approximately 1,000 PI files.

This report looks at the history of the  Clin Neg cases and the potential catastrophic effects on the NHS of Clin Neg cases in future unless the system changes.  The NHS is the Titanic post hitting the iceberg with very few life boats left. Think that is a dramatic statement, well spend 10 minute reading this report.

A CURVE BALL -100,000’s over charged in last two decades.

I have no agenda, I am not politically motivated, I do what I think is right. Over last two decades I have produced reports and stats on the legal costs system in the UK.  I was asked by the Law Society of England and Wales in 2013, to write the “Tool Kit on Costs Management”.  I presume they believed I was a leading expert in the field of legal costs and costs budgeting.

My first article was published in 1998 edition of Legal500. The article questioned the legality of law billing practices in the 90’s. I for example, questioned how internal photocopying was being claimed on almost all legal bills as a disbursement.  This was an overhead of the legal practice, so unless in exceptional circumstances it should not have been charged to clients. A minor point, one may say, but an indication of the arrogance of law firms billing polices. They honestly believed that as everyone else was doing it, so could they.

The Law Society of England and Wales (“Law Society”) published The Price and Service Transparency Toolkit -7th December 2016, http://www.lawsociety.org.uk/support-services/advice/articles/price-and-service-transparency-toolkit/, which finally dealt with this issue conclusively.

 

Page 5, refers to SRA Handbook-Code of Conduct

(1.21) ensuring that disbursements included in your bill reflect the actual amount spent or to be spent on behalf of the client”.

To which the Law Society, then list such items, which should NOT be described as disbursements i.e.

“Administration charges such as postage and photocopying”.

 

What a shame it took The Law Society, nearly two decades to agree with my view on this issue.  What a disgrace 100,000s of people have been charged for this unlawfully.

Introduction-   “The Costs War”

 Lord Justice Jackson, published his report on the costs of civil cases in 200?

 https://www.judiciary.gov.uk/wp-content/uploads/JCO/Documents/Guidance/jackson-vol1-low.pdf

On page 27, under heading Costs War, he states:

“The “Costs War” has been raging for well over two decades between the Claimant Personal Injury (PI) law firms and the Defendant insurance companies”.

The foundation of the “Costs War” can in fact be traced back even further, to the mid-1970s. The Claimant PI law firms in those days were the traditional High Street legal practices, offering a broad range of legal services with very few having more than 10 partners. The Defendant law firms were usually bigger and dealt almost exclusively with insurance clients. The Claimant law firms saw themselves as “freedom fighters” against the dominant and oppressive position of the corporate insurance companies with deep pockets and a win at all costs mentality.

Scale items of legal costs for successful litigants were still in force until during the 70’s and only replaced in 1986 when the brave new world of discretion on legal costs was introduced. It took 13 further years for Lord Woolf to establish his reforms to the civil legal system, especially his radical and what turned out to be disastrous changes to legal costs.

The best example of the “Costs War” following the introduction of Woolf LJ’s reforms concerned two cases which on technical arguments went all the way to the House of Lords (namely, Callery v Gray [2001] EWCA Civ 1117and Hollins v Russell [2002] EWCA Civ 718) which allegedly involved  over 200,000 cases involving legal costs of over £1 billion.

This period also saw the growth in the claims management sector. The birth, and death of the biggest two claims management companies, Claims Direct and The Accident Group.  In a few years from start to their demise, they both revealed the best and worst of the personal injury sector. Access to Justice for the lay person, grow and profit for the business of law.

Although some of the reforms to the procedure on legal cases were a success in general Lord Woolf’s reforms were a disaster on legal costs and specifically the PI industry as a whole. Pre Woolf hourly rates for PI lawyers were in the £100-£150 bracket for the Claimant sector with the Defendant sector lower as the insurance industry had substantial buying power over their panel members. Post Woolf and over the next 10 years rates, increased and with “No Win No Fee agreements” becoming the industry norm. In simple terms these allowed Claimant PI law firms to claim up to 100% on top of their standard hourly rates. Straightforward road traffic cases saw law firms claiming up £200 per hour as their basic hourly rates with success fees added as high as 100%. Gross hourly rate of £400 per hour for simple PI claims was being claimed at the start of the 2000s. The Clin Neg sector took this system to the extreme with basic hourly rates for partners in central London law firms claiming up to £400+, add success win fee of 100% gross hourly rates were being claimed at over £800+. (JDHS –The Lawyer 2010).

https://www.thelawyer.com/issues/20-september-2010/crunch-busting-magic-circle-ups-fees-by-half/

The Claimants also took out insurance policies to protect them from legal costs of the Defendants on unsuccessful cases. These policies for run of the bill PI cases were effectively small but far higher in Clin Neg cases. A recent decision in the SCCO (Mitchell v Gilling-Smith [2017] EWHC B18 (Costs) saw the costs judge allow an after the event insurance  premium of £10K on a Clin Neg case payable by the NHSR in a case were damages claimed in region of £200K.

The “Costs War”, has seen a huge growth in claims and size of law firms on both sides of the fence. The top law firms in both sectors are now multi-million-pound businesses. The rewards are huge so by the time Lord Justice Jackson was appointed in 2008, to review the civil costs system both sides were entrenched in financial self-interest. Jackson LJ’s review took 5 years to fully implement and resulted in back tracking on a number of Lord Woolf important introductions in his reforms. Specifically, Jackson LJ abolished the additional liability concept in PI cases.

The Jackson reforms were introduced in April 2013, but cases signed up before this date, of which there are thousands, will still be able to claim these additional liabilities for years to come. There is no specific data on the consequences of additional liabilities to the PI market as a whole, but there is little doubt that since their introduction in 1999 such cases will have cost the NHS service billions of pounds.

Clinic Negligence Cases “Clin Neg”

I have to be frank, my research into Clin Neg sector, has even staggered me in regard to figures for damages and legal costs.

In the NHSR (formerly known as the NHSLA) its 2015/2016 annual report stated;

http://www.nhsla.com/AboutUs/Documents/NHS_Litigation_Authority_Annual_Report_and_Accounts_2015-2016.pdf

It would need up to £56.4 billion to cover existing and anticipated liabilities (recent reports have suggested this figure could be in fact be as high as £65billion).  This figure is the equivalent to almost half the NHS’s annual budget, which was £117.2 billion in 2015-16.

The provision has increased significantly from £28.6 billion over this one financial year. By far the most significant factor has been the change in the long-term discount rate (“Ogden Rate”)  set by HM Treasury from +2.2% to minus 0.8%. This change accounts for £25.5 billion of the total increase in the provision alone.

The NHSR received 10,965 new clinical negligence claims in 2015/16, compared with 11,497 received in 2014/15. In the same period, they received 4,172 new non-clinical liability claims, typically employers’ and public liability claims, compared with 4,806 in 2014/15. The number of new clinical negligence claims fell by 4.6% on last year and the number of new non-clinical claims fell by 13.2%. Nevertheless, 15,137 claims is a significant number and represent a challenge for the NHSLA.

In 2008/09 that figure were only 2,373.

The Defendant (Market sector)

 It is far easier to criticise the Claimant market sector, the sensational comments of “Ambulance Chasers” and “greedy lawyers” continually scream out from the public and press alike.  But reality and in my practical experience, shows me all sectors in the industry have issues.

Over the last 3 decades, the contentious work in Clin Neg has been outsourced to the Defendant insurance sector. This sector has consolidated into less approximately 15 law firms. These law firms go through a panel process to remain a contracted supplier. The start of the 2000s saw some of these firms offering fixed hourly rates no matter what level of fee earner dealt with the work. The commercial sector attempted this “Blended Rate” approach at the start of the 90s, which proved unworkable. The tendency was to keep lower grade fee earners on cases when at times higher grade fee earners would have been more efficient. Also, a cynic may say, that this also gave rise to an increase use of counsel, as their hourly rates were not included in the blended rate calculations. Also a partner may charge 2x or 3x what a junior lawyer charges, but his or her wisdom may far outweigh these simple economics. What is relevant is these major Defendant law firms are now substantial legal practices with revenue running into multi-million pounds. Jackson LJ’s approach to costs management was well versed in his Interim Report, published in June 2009. There seemed to have been little initial appetite to embrace these reforms and develop budgeting/costs management into an efficient way of from both Claimant and Defendant sectors.

I met the former CEO of the Medical Defence Union (MDU) in about 2011, at a Civil Justice Council forum. I explained my views to her that an early budget of the likely costs of defending a Clin Neg case could be hugely beneficially in streamlining the process. I was subsequently invited to present my Legal Costs Budget software program to them. The program was developed to produce costs budgets for the various stages of a case. The software included a personal injury function.  I attended the MDU’s offices, to be met by a junior member of their staff. He explained there was no one else available and meeting rooms were full. He invited me to do my presentation at a coffee bar around the corner from their offices. The MDU did not take up my offer of my software!

The following year The Law Society of England and Wales (“Law Society “) request that I produce a “Tool Kit on Costs Management”.  The Tool Kit was published in November 2013 and remains on the Law Society’s library as an industry standard

http://bookshop.lawsociety.org.uk/ecom_lawsoc/public/saleproduct.jsf?catalogueCode=CMBT001 .

Part of The Tool Kit I developed, included the budget software I had previously presented to the MDU in that coffee bar around the corner form their offices. MDU was offered my budget software for FREE.

In 2017 there are changes planned for the Clin Neg market place, with the Health Secretary, Jeremy Hunt MP, as reported in The Law Society Gazette;

https://www.lawgazette.co.uk/news/nhs-litigation-authority-rebranded-to-focus-on-early-case-settlement/5060366.article

“That the NHS Litigation Authority is to get a new name (NHS Resolution) and a new mission – to settle negligence cases early rather than fight them. Hunt, in the House of Commons, said: ‘I can inform the house that the NHS Litigation Authority will radically change its focus from simply defending claims to the early settlement of cases, learning from what goes wrong and the prevention of errors.’

The NHSR at the end of 2016, developed mediation schemes following what they describe as a successful pilot scheme”.

https://www.lawgazette.co.uk/news/nhsla-confirms-mediation-service-after-pilot-success/5059084.article

Two-year contracts were awarded to the Centre for Effective Dispute Resolution, Trust Mediation, and Costs Alternative Dispute Resolution. The NHSLA did not reveal the value of the contracts but said it had secured the ‘highest quality mediation services for the NHS at the lowest possible cost’. The outcome of this scheme will shape Clin Neg cases in the future. However, I am concerned this just amount to window-dressing as a case referred to on social media last month from a Claimant solicitor acting on a Clin Neg case against the NHSLA stated:

“Dealing with a low-value medical negligence claim at the moment.

Invited the Defendant to settle prior to issue for £12,000 with costs at £5,500. 

Total outlay, therefore, being £17,500.

Offer rejected and no counter offers were forthcoming.

Forced to issue proceedings. About to go to CCMC and Defendant has now offered £7,500 and our costs are now £16,000.

Total outlay, therefore, being £23,500. Offer is unlikely to achieve a settlement.

Just an example of many occasions where Defendants drive up the costs of litigation, not the Claimant.

Really hoping that the reformed NHSR  considers cases like this more carefully”.

Claimant (Sector)

 Why not just “kill off” this sector as they are all “ambulance chasers” and “money grabbing lawyers”.

Well this approach has one fundamental flaw.  Who will represent anyone with a legitimate claim!

Whilst the “Costs War” has raged for coming up to two decades the general public still needs a legitimate, cost effective, efficient legal service to protect their rights.

An individual without this, even in the world of “Google Lawyers” will have, in most cases very little chance of being successful and even less chance of achieving the right damages without proper legal assistance.

So far as the problems this sector has, well we have discussed as above the problems created by Lord Woolf’s reforms and now being reversed by the Jackson LJ reforms. But other basic fundamental problems are still not being dealt for example, hourly rates for Clin Neg cases.

In 1993, in   case of Re A Company, the Central London Law Societies  produced a set of statistics to show the court hourly rates allowed to the successful law firms and payable by the losing side was wholly inaccurate and was damaging the legal system. In ball park figures the courts were allowing  for Central London law firms between £80-£100 per hour. This equated to about one-third/one quarter of the actual hourly rates charged to clients by the most of the top London law firms.  Overnight after the success of Re A Company hourly rates claimed by winning law increased substantial. The  central London law firms could no claim rates of  up to £171 per hour for a partner. They could add percentage uplifts to these figures. In my personal experience I saw cases in which uplifts of 200% were awarded by the court. So that’s £171 per hour plus a further 200% of this figure for case running from 80’s to early 90’s.

So started calculations on hourly rates through regional Law Societies around the country to show the courts hourly rates allowed by them was out of kilter to the commercial world of running a legal practice. However, High Street law firms working in the civil legal aid system for clients were doing this work at varying hourly rates depending on the classification of the work.  At the start of the 90s basic preparation work was ranging from £40-£60 per hour and items such as travelling and waiting were less than £30.

Move on a decade or so and the courts produced guideline hourly rates for law firms around the country based on the firm’s geographic location.

The present rates are set out in the following  report

https://www.gov.uk/guidance/solicitors-guideline-hourly-rates

The highest hourly rate is £409 per hour for a solicitor and legal executive with over 8 years’ experience working in central London. The lowest hourly rate is £111 per hour for a trainee, paralegal or other fee earner in any location in England and Wales.

These guideline rates do not differentiate between complex commercial cases or ordinary PI cases.

Here lies this fundamental problem, namely in a large percentage of PI work including Clin Neg cases, the processing of documents, administrative work should not be charged at anything close to these hourly rates, if at all.

The Lawyer Magazine, in September 2010, produced the following article on hourly rates, upon receipt of the (JDHS”)

https://www.thelawyer.com/issues/20-september-2010/crunch-busting-magic-circle-ups-fees-by-half/

“The most staggering figure within Jim Diamond’s 2010 hourly rates survey was ­highlighted earlier this year by Lord Justice Jackson’s review of civil litigation costs. This revealed that some London-based clinical ­negligence lawyers earned as much as £900 an hour for advice. Compare that with the hourly rate paid to junior doctors, who work up to 60 hours a week for less than £20 an hour”.

Claimant clinical ­negligence lawyers argue that the figure includes a success fee, which is only included when cases are won under the conditional fee arrangement regime.

 Under proposals put forward by Jackson LJ, the recoverability of the success fee would be abolished and the hourly rate cut dramatically. But claimant lawyers warn this could have the unintended effect of blocking access to justice because lawyers would be more choosy about the cases they take on.

 “We just wouldn’t be able to afford it,” one litigator claims. “The success fee pays for cases we lose.”

But Jackson LJ has rejected such a notion.

 “No evidence has been produced during the costs review to demonstrate that success fees at the levels currently charged are ­necessary to cover the cost of ’lost’ cases,” he has stated.

 The review is currently being considered by the Government and changes are likely to be made to the system Lord Woolf introduced in 1999 – but it will not happen without a fight. The days of the £900 hourly fee look to be numbered.

2017 statistics –UPDATE- 

 https://www.lawgazette.co.uk/news/claimant-legal-costs-edge-towards-500m-for-nhs/5062017.article

The Law Society Gazette ran the story on the publication of the July 2017 statistics;

“Sharp rise in claimant costs for medical negligence cases is likely to swell calls for action to restrict legal fees. While the number of clinical negligence claims brought against the NHS in 2016/17 fell 2.5% year-on-year, claimant legal costs rose 19% from £418m to £498.5m. Defence costs increased by 5% to £125.7m, according to NHSR’s latest annual report.

 The organisation, which replaced the NHS Litigation Authority in April, received 10,686 claims in the year, down from 10,965 the previous year. Claims numbers are now down 10% over the past three years.

 However, the overall costs of clinical negligence payments continued to rise, by 15% to £1.7bn in 2016/17. The increase, at a time when claim numbers fell, was explained by payments on claims from previous years.

 Damages paid to claimants tipped over the £1bn mark in 2016/17, rising from £950.4m to £1.083bn. Damages made up 64% of the overall cost of claims, the same figure as in 2015/16.

 The increasing costs involved in handling clinical negligence claims will fuel calls for curbs on the costs available to lawyers, with the government currently considering a fixed costs regime”.

The report does, however, note that the percentage of claimant costs in relation to damages, for claims worth less than £100,000, fell during the year.

The average claimant legal costs for these cases were 53.45% of the damages received, down from 54.83% in 2015/16. The percentage had previously risen every year since 2004”.

The Courts

One cannot look at the problem without referring to the present court system. The Guardian reported in February 2016, that a further 86 courts in England and Wales were to be closed over a period of 18months;

https://www.theguardian.com/law/2016/feb/11/ministry-of-justice-close-86-courts-england-wales

A quite astonishing number, especially in comparison with the massive increase in court fees the year before. They rose as much as 600 per. To issue a claim for £200,000 the court issue fee alone is £10,000. Should not this have a completely opposite effect, in that this proposed extra revenue should enable further courts to be opened? Clearly not, and the system is grinding to a halt with one set of courts in the South East of England announcing in 2015, that they had such backlogs that correspondence would now take 10 weeks to be replied too. A disgrace and an embarrassment to the UK legal system was complete when in mid-2017 according to latest published figures HMCTS turns in £100m civil justice ‘surplus’ as fees add up.

“Fee income from civil courts reached almost £800m in the last financial year, new figures have revealed. The annual report of HM Courts and Tribunals Service, covering the year ending March 2017, states that the service brought in £186m from family justice fees charges and £602m from civil justice fee charges”.

Claims management companies (CMCs)

CMC’s have earned a staggering £6bn+ in the past decade, according to figures published by the  Claims Management Regulator (CMR) have shown. The  anniversary report to mark 10 years of regulation stated; of the over £6b turnover ,  £2.8bn was generated in the PI sector.

https://www.gov.uk/government/publications/claims-management-regulator-10th-anniversary-report

Kevin Rousell, head of management at the CMR  stated; he was “pleased to have had the opportunity to play a role in trying to bring order to and raise standards in an industry often likened to the wild west, at least initially, and to help ensure consumers with valid claims were helped and not hindered in obtaining appropriate redress”.

United States Clin Neg sector.

We are accustomed to hearing reports of huge damages payouts in the US legal system; however few are aware that more than 30 States have some form of caps on damages for clin Neg cases. California has for example legislation on Clin Neg cases. The Medical Injury Compensation Reform Act (MICRA) of 1975, was upheld again in November 2014, keeping a $250,000 cap on non-economic damages in medical liability lawsuits.

https://wire.ama-assn.org/ama-news/medical-liability-damages-cap-upheld

The information on the entire market place is also of interest with Forbes in article on Medical Negligence in the US that

“In 2012, over $3 billion was spent in medical malpractice payouts”.

https://www.forbes.com/sites/learnvest/2013/05/16/10-things-you-want-to-know-about-medical-malpractice/#79d5fe1d416b

By 2016, this figure had risen to $3.9 billion. (£2.9billion) A report produced by Diederich Health care, provided stats on payments out on a State by State basis;

http://www.diederichhealthcare.com/the-standard/2016-medical-malpractice-payout-analysis/

Compare these stats to those for the NHS in 2016. Total payments made were £1,488.5 million, for a total UK population in mid-2016 of 65.5m.

A staggering indictment of the problem, when the NHS is paying out nearly 50% of what the whole of the US is paying out on clin neg cases but with a population of almost 5 times the UK (2016 -323.1m in 2016) .

Conclusion

In a decade or two, we will be walking past derelict hospitals which we can inform our children/grandchildren that these are the mausoleums of what was the National Health Service. One of the greatest achievements of modern UK society.  A free service that each and every one of us used directly or indirectly. We can tell them we were constantly humbled by the sheer professionalism, hard work, and dedication of the majority who work within the NHS. But we will have to tell them that part of the “ice-berg” problem was the damages and legal costs of clin neg cases. We are all to blame if we do not change this up and coming disaster for all of us. We are on last life boat status so whatever needs to be done needs to be done NOW!

UPDATE 20th March 2018.

Tool Kit on Costs Management

The Law Society of England & Wales in January 2018, pulled the 2013, “Tool Kit on Costs Management on basis it was out of date. There are discussions about the possible updating the tool kit.

LEGAL COSTS UPDATE NEWS-SUMMARY

S v Barnet and Chase Farm Hospital NHS Trust, AH v Lewisham Hospital NHS Trust and Y v Doncaster & Bassetlaw Hospitals NHS Foundation Trust

https://www.lawgazette.co.uk/practice/irwin-mitchell-loses-270k-costs-battle-after-moving-clients-to-cfa/5065330.article

Defendants (NHS) objected after Irwin Mitchell had switched three clients, with claims against different NHS trusts, from legal aid funding to conditional fee agreements in March 2013.

The judge said that in each case, the claimant’s litigation friend was not told by solicitors that moving to CFA funding would result in them losing the benefit of a 10% uplift in damages.

Chief Executive Helen Vernon said the decision shows how important it is for claimants to be properly informed when it comes to their legal costs. ‘Having detected this issue and taken the decision to challenge it through the higher courts, we were able to save significant sums for the NHS whilst ensuring that claimants receive the compensation they are entitled to.’

JIM DIAMOND COMMENT.

This judgment will/would have huge consequences on the Personal Injury market place, specifically the clinical negligence/insurance worlds. Irwin Mitchell is one of the biggest providers of legal services in this sector with a turnover in excess of £200million. https://www.irwinmitchell.com/newsandmedia/2017/august/irwin-mitchell-reports-235m-revenue-during-year-of-significant-progress-jq-161831)

If the court had allowed these fee arrangements, then there is little doubt that 100s /1000s of similar cases would have followed. As these 3 cases alone demonstrate the “EXTRA” legal costs amounted to £270K. The potential losses to the NHS could have been in the £10m/£100m+ .

BELOW ARE EXTRACTS FROM THE JUDGMENT –

https://resolution.nhs.uk/wp-content/uploads/2018/03/Surrey-v-Barnet-and-Chase-Farm-Hosps-NHST-and-Ors-Approved-Judgment.pdf

In Surrey, the relevant solicitor was Ms Stanford-Tuck. She made a witness statement in which she explained why she had advised the switch from legal aid to a CFA-lite. That switch was made at a time when judgment for damages to be assessed had already been entered against the defendant; and no Part 36 offer had been made. Her main point was that there was no guarantee that the LSC would increase the reserve to a sufficient level to fund the assessment of damages hearing. However, she gave no details of what costs had been incurred, what the authorised costs limit was, what further costs needed to be incurred, and how the LSC had reacted to requests for an increase in the costs limit. In short, her discussion was at a very high level of generality.

She also made the extraordinary point that: “There was a risk to the client that there may not be sufficient funding to cover the cost of our work in the future and my client could be exposed to make up the shortfall of any costs not recovered from the Defendant.”

If that was the advice that she gave her client, it was also seriously misleading. It amounts to saying that a legally aided client must make up the shortfall in his own solicitors’ costs if they are not recovered from the other side. But that amounts to “topping up” which is unlawful: Access to Justice Act 1999 s 10 (1) and s 22 (2); LASPO s 23; s 28 (2). On one reading of her evidence the amount of that shortfall might have been as much as £150,000.

If the client was advised of a very substantial potential liability that was in fact unlawful, then he has been misled into making a decision based on deeply flawed advice to the effect that he was exposed to a substantial financial risk which was in fact non-existent.

Although this was one of the reasons that Master Rowley gave for his decision, Foskett J did not refer to it. Having stated the main reasons for the switch, Ms Stanford-Tuck also said that there were “other general considerations” to be taken into account. Among these was the point that legal aid does not protect a client’s damages from the effect of failing to beat a Part 36 offer, or adverse interlocutory costs orders. However, although these risks were mentioned, she gave no consideration to the likelihood of any of those risks eventuating, on the facts of the particular case. 36. Master Rowley was not impressed with Ms Stanford-Tuck’s reasoning. He found at [74] that the solicitors had no concern that they would not recover their fees to date, even though they had ignored the costs limitation imposed by the LSC. At [75] he dismissed the argument based on the alleged bureaucratic approach of the LSC. At [82] he held that the risk of legal aid being withdrawn was fanciful; and the costs limitation was not problematic. He considered at [76] that the strongest reasons for the change in funding were the shortfall issues. There were two potential points about shortfall. One was the risk of failing to beat a Part 36 offer. The other (which he described as modest) was the operation of the LSC’s statutory charge. 37.

In AH the relevant solicitor was Ms Cumberland. She made two witness statements. In her first witness statement she drew attention to the fact that although breach of duty had been admitted, causation had not; and that the bulk of the claimed damages was dependent on a favourable finding on causation. She said that there was no guarantee that the LSC would increase the scope of the costs limit; and that the LSC might have taken a different view on the merits of the claim. She also said that she had been involved in cases where the legal aid certificate had been discharged. She, too, said: Judgment Approved by the court for handing down. Surrey v Barnet & Chase Farm Hospitals NHS Trust & Ors “There was a risk to the Claimant that there might not be sufficient funding to cover the costs of the legal work necessary in the future and the Claimant could have been expected to make up the necessary shortfall of any costs not recovered from the Defendant.” 38. Just as in the case of Ms Stanford-Tuck, this amounted to a suggestion of illegal “topping up”. And as in Surrey, it appears that the client was being advised of a substantial financial risk that was in reality non-existent. This, too, was seriously misleading advice.

Her second witness statement did not correct it. This is not a feature upon which Deputy Master Campbell commented. Mr Williams tried to explain away the references by both Ms Stanford-Tuck and Ms Cumberland to “topping up” as no more than muddled expression; but I do not think that there is any getting away from the impression that that advice must have made on the client in each case. However, like Ms Stanford-Tuck, Ms Cumberland also said that there were “other general considerations” to be taken into account. In words which were almost identical to those in Ms Stanford-Tuck’s witness statement, she referred to the risk that if the defendant made a Part 36 offer, which the claimant failed to beat, the claimant would be liable to pay the defendants costs incurred thereafter, and that those costs could be set off against any costs otherwise recoverable by the claimant, or even against the damages themselves. But as in the case of Ms Stanford-Tuck there was no evaluation of the risks themselves. 39. In Yesil the reasons for the change were set out in a witness statement made by Ms Rowland, the solicitor handling the case. That witness statement was made after Master Rowley’s decision in Surrey, so Ms Rowland eschewed those reasons which he had held to be bad reasons: in particular the suggestion about “topping up”. She said that she had calculated costs incurred so far at legal aid rates as £92,000 as against a costs limit of £94,000. Her perception, therefore, was that the costs were close to the limit. She asked the LSC for an increase in the limit to £240,000 to cover the full costs of the action. The LSC replied that it was “inevitable that you will be recovering your costs inter partes from the other side.” However, the LSC did not refuse outright. Instead it said that if costs could not be contained within typical limits it would require a ”fully costed costs plan”. That would have given a likely maximum of £189,000. 40. Ms Rowland also mentioned the possibility of a Part

“… I find myself entirely in agreement with Master Rowley in Surrey’s case. It is for the claimant on a standard basis to show that the decision to switch funding, at the time it was made was a reasonable decision to take. The limited evidence before the court to explain the decision was based on an erroneous premises that the cost limit was shortly to be reached.

Further, the solicitors have produced no evidence either by way of file notes, copy letters or even a witness statement from the client as to the advice tendered. In my judgment, the decision to switch was not self-evident or transparent.” (Emphasis added) Judgment Approved by the court for handing down. Surrey v Barnet & Chase Farm Hospitals NHS Trust & Ors 47.

What was common to all three cases was that the claimant’s litigation friend was not informed by the solicitors (apparently through oversight) that one consequence of the change from legal aid funding to CFA-lite funding was that the claimant would lose the benefit of the 10 per cent uplift in damages mandated by Simmons v Castle. As I have said, although DJ Besford mentioned this point in Yesil, it does not seem to me that it formed any part of his real reasons for disallowing the success fee and the ATE premium. By contrast in both Surrey and AH, this point was a critical factor. Each of the costs judges in those two cases held that it was impossible to say what decision would have been made if that information had been given. There was therefore a doubt about whether the decision was reasonable, which had to be resolved in favour of the paying party. The success fees and ATE premiums were therefore disallowed.

There are two interesting paragraphs in the lower court decision by Master Jason Rowley

http://www.civillitigationbrief.com/2015/09/04/costs-cfas-additional-liabilities-and-going-outside-public-funding-2-surrey-v-barnet-chase/

Ms Stanford-Tuck’s evidence

Ms Stanford-Tuck is a solicitor at Irwin Mitchell and had conduct of this case in the early part of 2013 when the relevant events occurred. She relates that in February 2013 all “case handlers” were asked by partners in Irwin Mitchell to review their legally aided cases in light of the forthcoming changes being brought into effect by the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (“LASPO”). There was a concern that existing clients might potentially be adversely affected by the provisions of LASPO.

It is clear from Ms Stanford-Tuck’s statement that the approach to the Commission was galvanised by the initiative of the partners at Irwin Mitchell to review cases on which legal aid certificates were in existence. The terms of the letter, which appear to me to be written in sufficiently general terms as to have been drafted in a pro-forma fashion, do not suggest that the exceeding of the costs limitation was a matter of concern in itself; merely it bolstered the case for a change in funding for the future. There is no indication in the witness statement or the letter that the costs in this case had got away from the fee earner and the situation needed to be remedied.

The legal industry needs to wake up and smell the f….king coffee!

100,000’s of clients over charged £100+millions over the last two decades.

MASTER ROWLEY in Breyer Group PLC and Ors v Prospect Law Limited (26 July 2017, unreported), disallowed “administration costs”, even though they were set out in the retainer as specific items a law firm could charge the client, however these items were disallowed on the costs assessment as they were described by the Master, as “overheads” of the law firm.

http://www.associationofcostslawyers.co.uk/%2fNews/rowley-one-fifth-rule-applies-to-amount-claimed-not-billed

I have no agenda, I am not politically motivated, I do what I think is right. Over last two decades I have produced reports and stats on the legal costs system in the UK.  I was asked by the Law Society of England and Wales (“Law Society”) in 2013, to write the “Tool Kit on Costs Management”.  I presume they had faith in my experience as a leading expert in the field of legal costs and costs budgeting.

My first article was published in the 1998 edition of Legal500. The article questioned the legality of law billing practices in the 90s. I for example, questioned how internal photocopying was being claimed on almost all legal bills of major law firms as a disbursement.  This was an overhead of the legal practice (unless in exceptional circumstances) and should not have been charged to clients. A minor point, one may say, but an indication of the arrogance of major law firms’ billing polices. The Law Society of England and Wales (“Law Society”) published The Price and Service Transparency Toolkit -7th December 2016, http://www.lawsociety.org.uk/support-services/advice/articles/price-and-service-transparency-toolkit/, which finally dealt with this issue conclusively, they state:

Page 5, refers to SRA Handbook-Code of Conduct

(1.21) ensuring that disbursements included in your bill reflect the actual amount spent or to be spent on behalf of the client”.

To which the Law Society, then list such items, which should NOT be described as disbursements i.e.

“Administration charges such as postage and photocopying”.

What a shame it took The Law Society and now the judiciary nearly two decades to agree with my view on this issue.  What a disgrace 100,000s of people have been over charged for photocopying and such other “administration costs”  under the heading of disbursements. Ballpark figure this is approx. 2-3 per cent of the majority of solicitors’ bills. This could amount to £100s millions of overcharging over this period. Putting this into context, turnover for the top 100 law firms for 2016, was £20billion.

https://www.thelawyer.com/issues/online-october-2016/uk-200-top-100-make-20bn-first-time/.

 

UPDATE ON THE COSTS OF THE JERSEY INQUIRY

 

The Jersey Evening Post published a front page article on  3 July 2017, in regard to the lack of costs controls on the Inquiry.

The Times picked up the story a day or so later stating:

Jersey investigation ‘allowed legal costs to spiral’

https://www.thetimesbrief.co.uk/users/39175-the-brief-team/posts/18270-abuse-inquiry-cleared-of-failing-to-investigate-own-sex-assault-claim

Legal costs for the inquiry into allegations that children were abused in care in Jersey were allowed to spiral out of control, an expert complained as the investigation published its findings yesterday.

Jim Diamond, a prominent costs lawyer, criticised the inquiry for allowing legal costs to balloon to £23 million, four times the initial projected figure. “I think some serious questions need to be asked,” Diamond told the Jersey Evening Post.

The newspaper reported that Eversheds Sutherland, the transatlantic law firm, was “one of the main recipients” of the legal costs because it provided solicitor services to the inquiry.

Further background on the issues:

I was asked by the former President of the Jersey Law Society, in late 2012, to draft a report for consideration to bring Jersey in line with the Jackson LJ reforms (subsequently introduced in April 2013). One of the main changes was costs management of civil cases. The former President then asked me to be one of the main speakers at Jersey’s Law Society’s first ever costs conference in Feb 2013. So the powers that be were well aware of my work on budgets and costs controls in early 2013.  Senator P.M. Bailhache, accepted an invite to the costs seminar, but unfortunately he did not attend.  He  did request and receive the conference notes.

Senator P.M. Bailhache, views on the costs of the inquiry as discussed in the states chambers 24th March 2015, are below:

The Chief Minister recently reminded me that, in discussion before project 118 was lodged in 2012 when we had been advised that the costs of the inquiry would be no more than £6 million, I predicted that there would be no change from £20 million, and that has proved to be correct. Now that we are all better informed about the scale of the task laid down in the terms of reference, my view has changed and I should be surprised if the final costs was much less than £50 million”.

 

STATES OF JERSEY REPORT ON CHAMBERS DEBATE TUESDAY, 24th MARCH 2015

Background—

Discussing the  legal costs in the Historic Children’s Inquiry in The  States of Jersey Assembly (i.e. Parliamentary Question Time). The initial budget was £7m and the costs are now expected to exceed £20M

Below are 3 quotes from states members:

Page 72-  Deputy J.A.N. Le Fondré:

I am reminded of a discussion or a meeting, I think between the Chief Minister, possibly the Minister for Treasury and Resources, and myself and I think there was a representative – I will think of the name – I think it was Jim Diamond Consulting Limited many years ago. I do not know if the name is quite right, but that particular individual had a reputation and a career in analysing and digesting legal costs and the legal profession did not like him very much because he had some success. All I would suggest, perhaps to the Chief Minister, is perhaps

page-82   Deputy P.D. McLinton of St. Saviour:

I am going to mention this and I am very pleased that Deputy Le Fondré mentioned already, Jim Diamond, a costs lawyer, who has been described as a pioneer of legal budgeting, who I would suggest may be employed by the Island to go over our legal bill with a fine toothcomb. He may be able to claw-back some of the money for our Island while still enabling the inquiry to do its valuable work. It is our perfect right to get the best value for money and, I believe, on his track record, he may be the very man for the job. I only mention him in this debate because his name keeps coming up off the record and, though it is already on the record, I want to make sure it is really on the record.

Page 86-Senator A.J.H. Maclean:

How I could do that as chairman of my Scrutiny Panel? I am going to be in a lot of trouble. Who quite rightly pointed out … what has not sprung out of my mind is Mr. Diamond who, of course, is a cost control lawyer that Members will have heard mention before and I think some of the work he has carried out in the past, or indeed there are other similar individuals in firms, are those that we need to focus attention on in order to ensure that services that are being procured are done so in an efficient and an effective manner. I think at the very heart of the problems that we see before us in 87 terms of controlling costs have been the fact that quite rightly this has been an independent inquiry set up; independence is obviously critically important.

http://www.statesassembly.gov.je/AssemblyHansard/2015/2015.03.24%20States%20-%20Edited%20Transcript.pdf

 

How the Law Society of England and Wales control external legal costs!

 

In the IN THE COMPETITION APPEAL TRIBUNAL June 2016

http://www.catribunal.org.uk/files/1249_Socrates_Judgment_CAT_10.pdf

In the matter of:

SOCRATES TRAINING LIMITED –v- THE LAW SOCIETY OF ENGLAND AND WALES

Brief:

In this costs capping hearing, The Law Society of England and Wales, sort costs in excess of £637,000 (on reduced hourly rates of city law firm, Norton Rose Fulbright) in regard to a claim against them of £500,000.

The Law Society’s costs were subsequently capped at £350,000.

 BRIEF FACTS OF CASE.

In the present case, the claimant is an SME with an annual turnover of some £750,000.

The claim alleges an abuse of dominant position by the defendant, the Law Society, and seeks an injunction and damages. The part of the case that is subject to the FTP by order of the Tribunal is limited to the injunction claim. If an abuse is established, then the question of damages has been split off for a subsequent trial outside the FTP. However,

it is relevant to note that the damages are quantified in the claim form at £112,500, on the basis that by reason of the conduct complained of the claimant has lost the custom of some 75 firms who would spend some £600 each for two and a half years. In pure financial terms, as a competition action this is not a large claim. Of course, if an injunction were not granted after trial, the ongoing loss would be greater, so it may be said that the value of the claim is not limited to the damages to trial but extends several years into the future. Even so, it is hard to see that in broad terms it is over £500,000.

 Costs Capping Application.

Both sides have put in costs budgets as directed. The claimant’s budget is in the total sum of some £220,000, which includes almost £56,000 for an expert economist. The defendant’s budget is a little over £637,000, including a little over £33,000 for an expert economist.

The Law Society, having initially instructed a well-known firm of solicitors in Birmingham, then changed to instruct a major firm in the City of London. Mr. Scott, a partner in the Law Society’s current solicitors, explains in his witness statement and as I accept, the solicitors have reduced their fees below their usual commercial rate. However, even with this reduction the charge amounts to £395 an hour for the partner and £315 an hour for a senior associate. I note that the trainee solicitor is charged at £150 an hour.

Specific Issues on the Budgets

(1) So far, this case has involved the preparation and then amendment of a defence, which was drafted by counsel, attendance at one case management conference and consideration of issues concerning disclosure, but not any actual disclosure. I find it surprising and certainly not reasonable that the solicitors have spent 450 hours since being instructed on the 25 April 2016 at a cost of almost £140,000.

( 2) I note that the fees for preparing witness statements are calculated on the assumption that each of the four witness statements would be 30 pages in length. Even on that assumption, I do not think it is reasonable or necessary for the partner to devote 40 hours to reviewing those witness statements, and reviewing the statements of no more than three witnesses from the other side, when the other members of the team are also devoting 235 hours to this task.In addition, there is a charge of £16,000 for counsel’s work under the same head.(

(3) Given that the expert economist is charging the fees of some £33,000 for his or her work on the experts’ reports, which I do regard as reasonable, it is not, in my view, reasonable or necessary for the solicitors and counsel to incur further fees of over £50,000 in connection with the preparation of the expert’s report, which, of course, has to be prepared by the expert not by them, and then consideration of the report produced by the other side’s expert. Some expenditure of time on that is clearly justifiable, but, in my view, not this much.

(4) For the solicitors to charge over £103,000 for trial preparation and attendance at a three to four day trial – all that, of course, quite apart from counsel’s fees –seems to me excessive. I should observe that it is, of course, the claimant’s solicitors, not the defendant’s solicitors, that will be preparing the trial bundles and this is not a case where those bundles will comprise many thousands of documents.

 

Conclusion:

Standing back, on the material now before the Tribunal, in my judgement the appropriate figure for a cap on the claimant’s recoverable costs from the Law Society is £200,000, and the appropriate figure for a cap on the Law Society’s recoverable costs from the claimant is £350,000

Questions for The Law Society Gazette

THE LAW SOCIETY GAZETTE 

“Don’t sneer at solicitors for not publishing prices”

 The above article (link below) appeared in The Law Society Gazette, 13 April 2017, under the heading:

https://www.lawgazette.co.uk/comment-and-opinion/dont-sneer-at-solicitors-for-not-publishing-prices/5060666.article

The introduction of the article stated;

“It should be self-evident why solicitors cannot be more open about their prices.

They are not retrograde obstructionists, running scared of scrutiny and determined to keep clients in the dark.

They simply cannot set and publish prices for many complex pieces of work when there are so many differentials involved. To paraphrase one American, there are too many ‘known unknowns’ at play here.

There will be strands of work where firms can offer guidance, perhaps a price range, to let consumers know where they stand.

But to require them to be specific and commit to prices for clients yet to even get in contact is a road to ruin – or at least unpaid bills and the small claims court.

There may well be other industries where prices are fixed and on show. But the law is not a ‘fruit and veg’ stall – it is a dynamic and difficult sector, with feet-dragging opponents, and unpredictable and sometimes costly pitfalls along the way”.

The article then continued to express concerns that the SRA “is being leant ” – The word leant on was in bold and linked to an article published in the Law Society Gazette dated 15 December 2016 –in regard to The Competitions Marketing Authority’s (“CMA”)  Report on the legal market place under the headline : Firms must publish price information- https://www.lawgazette.co.uk/practice/cma-report-firms-must-publish-price-information/5059157.article

It is not for me to comment on, if the CMA/others are “leaning on” the SRA as I am sure the CMA/others and the SRA will reply to this article in due course. What is relevant is the CMA conducted extensive research into the legal market place in 2016. Concluding that transparency on fees/costs is a major issue. The Law Society and specifically the regulation team did participate in this research process, in fact attending the CMA’s round table meeting in September 2016. The Law Society’s regulation team members sat on the same table at this meeting with representatives of the Legal Ombudsman, Ministry of Justice and others.

The direct/indirect result of this process led the Law Society to draft; The Price and Service Transparency Toolkit,  ( see link below) which  was published  the week before the CMA report was published.

http://www.lawsociety.org.uk/support-services/advice/articles/price-and-service-transparency-toolkit/

The introduction stated:

“Price and service transparency is not about providing more information, as too much can cause confusion. The key is to provide the right information which allows those seeking legal services to assess the value of the service”.

Page 5- Stated:

Disbursement is a well understood term in the legal world but it may not be a familiar term to clients. Disbursements are defined by the Solicitors’ Accounts Rules 2011 (SAR) as

“any sum that you spend or are going to spend on behalf of your client or trust, including any VAT element12”.

The SRA is clear that a firm’s overheads are not considered to be disbursements13. The following should not be described as disbursements:

  • annual subscription costs and transaction fees for using online solutions to manage business processes,
  • telegraphic transfers,
  • administration charges such as postage and photocopying

The bottom item in my professional opinion covers the majority of bills submitted to clients by law firms in England & Wales.

Let’s  make this simple, the SRA and the Law Society have now categorically stated that law firms CANNOT charge as disbursements –

“ administration charges such as postage and photocopying”.

I have raised this specific issue with the Regulatory Team, of the Law Society. I met them at the CMA Round table meeting last September and subsequently at their offices in Chancery Lane in November 2016. So they know my views on this subject.

The Law Society Gazette as the mouth piece of the legal profession must now clearly state that these overheads are not chargeable to the client.

 

 

 

JERSEY STATES DEBATING LEGAL COSTS

STATES OF JERSEY OFFICIAL REPORT TUESDAY, 24th MARCH 2015

Background—

Discussing the  legal costs in the Historic Children’s Inquiry in The  States of Jersey Assembly (i.e. Parliamentary Question Time). The initial budget was £7m and the costs are now expected to exceed £20M

Below are 3 quotes from states members:

Page 72-  Deputy J.A.N. Le Fondré:

I am reminded of a discussion or a meeting, I think between the Chief Minister, possibly the Minister for Treasury and Resources, and myself and I think there was a representative – I will think of the name – I think it was Jim Diamond Consulting Limited many years ago. I do not know if the name is quite right, but that particular individual had a reputation and a career in analysing and digesting legal costs and the legal profession did not like him very much because he had some success. All I would suggest, perhaps to the Chief Minister, is perhaps

page-82   Deputy P.D. McLinton of St. Saviour:

I am going to mention this and I am very pleased that Deputy Le Fondré mentioned already, Jim Diamond, a costs lawyer, who has been described as a pioneer of legal budgeting, who I would suggest may be employed by the Island to go over our legal bill with a fine toothcomb. He may be able to claw-back some of the money for our Island while still enabling the inquiry to do its valuable work. It is our perfect right to get the best value for money and, I believe, on his track record, he may be the very man for the job. I only mention him in this debate because his name keeps coming up off the record and, though it is already on the record, I want to make sure it is really on the record.

Page 86-Senator A.J.H. Maclean:

How I could do that as chairman of my Scrutiny Panel? I am going to be in a lot of trouble. Who quite rightly pointed out … what has not sprung out of my mind is Mr. Diamond who, of course, is a cost control lawyer that Members will have heard mention before and I think some of the work he has carried out in the past, or indeed there are other similar individuals in firms, are those that we need to focus attention on in order to ensure that services that are being procured are done so in an efficient and an effective manner. I think at the very heart of the problems that we see before us in 87 terms of controlling costs have been the fact that quite rightly this has been an independent inquiry set up; independence is obviously critically important.

http://www.statesassembly.gov.je/AssemblyHansard/2015/2015.03.24%20States%20-%20Edited%20Transcript.pdf

 

 

DECHERT-v-ENRC

Dechert -v- ENRC – 27.1.2017

http://www.bailii.org/ew/cases/EWHC/Costs/2017/B4.html

The above case has received substantial coverage in the legal press. The global legal costs run to over £15m+. Well it was going to happen some time, i.e. the courts or the regulators getting a grip of the mess in the legal profession of lack of budget information/accuracy/updates. Advocating on this issue for over 2 decades.  I wrote an article called Budget based billing in 1999, published in Legal 500.The whole purposes of my work on the Tool Kit on Costs Management published by the Law Society in 2013 was to give the legal profession, specifically the small law firms the tools to be able to provide budgets/costs information/updates to their clients. As it sold a grand total of 2 in 2016, I suspect not! The legal profession has buried its preverbal head in the sands.  Well wake up and smell the coffee, if legal costs, as in this case can end up in court because of lack of budget information/accuracy/updates wait till the rest of the world catches on.

The judgment  in this case runs to over 100 paragraphs. I have picked out the 2 paragraphs as a stark warning to the legal profession that the courts will not tolerate the BAD old ways of budgets/client transparency.

 51              Mr Gerrard’s view that the work was difficult to predict is prevalent in every estimate that he has given. But any such difficulty is in my view wholly insufficient to cover the gap between the estimates and the reality. Mr Gerrard’s phrasing is redolent of costs estimates from ten or more years ago where a solicitor would routinely say that the costs to be incurred were impossible to predict. As recorded above, Mr Gerrard referred in his first estimate to the need for efficiency, careful consideration and intelligent targeting of time and resources. He indicated that the claimant would be kept informed of the likely costs as the matter progressed. The discrepancy between that approach and the reality of brief estimates only produced reactively, and which were invariably underestimates, is vast.

52.               The work carried out in this case straddles the period of the review of Lord Justice Jackson. The need to improve the prospective understanding of costs through budgeting was writ large within that report and given prominent publicity. In that environment, it is simply not sufficient for a solicitor to provide an early estimate which is then not updated for a considerable period. I have already commented that the original estimate made seemingly unrealistic assumptions on the work that would be required and in my view it was almost inevitable that it would be exceeded once the investigations had begun.

 Paragraph 34.An example given of actuals/budget figures.

 Monthly estimate for 2012 April to August  between £350K to £400K.

Actual Costs 

May £696K

June £492K

July £596K

Aug £622K.

 Monthly estimate for 2012 September –  Dec £530K -£560K.

Actual costs

Sept £784K

Oct  £1.35m

Nov £1.14m