16 July 2013Print This Post

Top costs QC warns solicitors over proportionality traps

Kain: poll found delegates sceptical that judges will take hard line

Solicitors must warn clients that uncertainty over proportionality under the Jackson reforms means judges can pull numbers from thin air and defendants will therefore query costs routinely, according to a leading barrister.

Meanwhile, the judge in charge of implementing the reforms has stressed that flexibility around requests to courts for time extensions has already “gone out of the window” and the hard line being taken in an attempt to reduce wasted costs has surprised the profession.

Explaining the problems with the new primacy of proportionality in the assessment of costs at last week’s IBC Costs conference on the Jackson reforms in London, the chair, Nick Bacon QC of 4 New Square chambers, a member of the Civil Procedure Rule Committee, said the absence of guidance on proportionality left “huge uncertainty”.

In a year or 18 months from now, when post-1 April 2013 cases come up for assessment, paying parties will “be using this rule on every single occasion they possibly can because it provides them with a huge benefit”, he said. The potential for costs orders being reduced by a large amount meant defendants would as a matter of course seek to persuade judges to consider a proportionate figure, he predicted.

Mr Bacon continued: “The question that remains is how is the judge going to arrive at the figure that he decides is proportionate… On the face of it a judge who decides that the costs are disproportionate can pluck a figure from the air to provide a figure which is proportionate… So you are at complete mercy of the court and different judges are going to say different things about that proportionate figure.”

Solicitors should ensure their retainer letters make it clear to clients that old assumptions about the likelihood of costs recovered no longer apply, said Mr Bacon. “You have got to tell the client now that there is a lot greater chance of not recovering your costs.”

He also raised the question of the practicality of proportionality being applied at budgeting hearings, especially when the parties had a radically different view of the claim’s value. A case in which he was involved had defendants who argued a claim was worthless, while the claimants said the same claim was worth £100m. The judge had refused to approve a budget in those circumstances, he reported.

Also, Mr Bacon said he was concerned about cases that began at, for instance, £100,000, but settled for £10,000 or £20,000. There were “loads” of such cases, he said. When assessed for proportionality, the costs “would exceed the ultimate settlement, but they don’t exceed the original claim”. Lawyers needed to be “very careful about pleading [such cases] in the first place, because you could end up in a bit of a pickle on proportionality”, he advised.

Speaking earlier, Sir Vivian Ramsey, the judge in charge of implementing the reforms, told the conference that the new rigidity of the court on matters of time extensions had meant that, for example, when experts’ reports were not served on time, parties would have to proceed regardless.

He said: “If you want to come before the court either for relief of sanctions or anything else, you have to justify your position… It may be that you’ve got some excuse but you’ve broken a court rule, order, or practice direction. That is taking people by surprise because they say ‘oh come on, it’s only a couple of weeks’…

“You won’t get it now, generally – you have to comply with the rules… And that is having quite a major effect as people suddenly realise that there is actually a change in the way that the court deals with it.”

He also expressed personal support for hybrid damages-based agreements (DBAs).

Elsewhere at the conference, leading costs lawyer, Michael Kain, representing the Association of Costs Lawyers, polled the 40-strong audience’s attitudes to Jackson and associated issues. He found that 57% believed the judiciary would not “have the courage to implement” the strict regulations of the reforms, but 73% thought there would be a “third costs war”.

At a session on DBAs, commercial litigator Graham Huntley, founding partner of Signature Litigation, raised the spectre of the Senior Court Costs Office (SCCO) intervening to assess the fairness and reasonableness of DBAs.

Since they would be considered contentious business agreements they were open to review by the SCCO, and uncertainty about how the office would treat DBAs meant there was a risk it would “rewrite the amount the solicitor gets”. Mr Bacon agreed DBAs could be “unravelled” by the SCCO.

Hardeep Nahal, a litigation partner in the London office of US firm McGuireWoods and a member of the Civil Justice Council working party on the Jackson reforms, said solicitors should protect themselves as much as possible by explaining the implications of a DBA transparently to the client.

By Dan Bindman

Tags: