Now proportionality test bites in the Competition Appeal Tribunal

Law Society: case raises important policy issues

Law Society: case raises important policy issues

Proportionality has hit the Competition Appeal Tribunal as it capped a defendant’s recoverable costs at £350,000, compared to its budgeted costs of £637,000.

Tribunal president Mr Justice Roth said that where parties were of very disparate means, it may be necessary to limit what the bigger one received in costs if it won.

As reported in the linked story on Legal Futures, the case involves a competition law challenge to the Law Society’s decision to require firms that are members of its Conveyancing Quality Scheme to use its training to maintain their accreditation; previously other providers could offer it.

The judge put damages at £500,000 at the very most. The case has been allocated to the tribunal’s new fast-track procedure, meaning that the amount of recoverable costs has to be capped.

The claimant, Socrates Training, put forward a budget of £220,000, including almost £56,000 for an expert economist. It is handling the claim in-house, with limited external help from solicitors, and has instructed junior counsel Philip Woolfe of Monckton Chambers.

Having initially instructed an unnamed “well-known” Birmingham law firm, the society quickly turned to City giant Norton Rose Fulbright to handle the case. Roth J said Chancery Lane was “fully entitled to use a City of London firm”, but that did not mean the higher costs that resulted – with partner rate was almost double that of the Birmingham firm – should be carried by the claimant.

This was even though Norton Rose has reduced its fees “below their usual commercial rate”, to £395 an hour for the partner, £315 an hour for a senior associate, and £150 an hour for a trainee.

Roth J accepted that in the circumstances the Law Society’s lawyers would have more work to do on the case than the claimant’s, but in deciding what costs cap was appropriate, he started by looking at the budget.

“In terms of the modern approach to costs, the overall figure in excess of £600,000 is disproportionate for a case of this nature, where the trial is estimated to last three or four days.” He said the proportionality test in CPR 44.3(5) applied.

Commenting on some of the individual elements of the budget, Roth J said that spending 450 hours, at a cost of £140,000, in the two months since Norton Rose was instructed was not reasonable given the amount of work done to date – preparing and amending the defence drafted by counsel, attending a case management conference and considering, but not performing, disclosure.

Further, 40 hours of partner time for reviewing four witness statements – calculated on the basis they were 30 pages each – and up to three statements from the other side was neither reasonable nor necessary given that the rest of the team was devoting 235 hours to the task, plus a charge of £16,000 for counsel under the same head.

The judge was also not impressed that while the economic expert commissioned by the Law Society was charging £33,000 – a figure he considered reasonable – its solicitors and counsel had budgeted more than £50,000 for their time in connection with the report and also that of the other side.

Finally, the £103,000 budgeted by Norton Rose for trial preparation and attendance at a three to four day trial – before counsel’s fees were considered – “seems to me excessive”.

Putting it all together, Roth J estimated that if the Law Society was wholly successful and the claimant was held fully liable for its costs, the society’s costs would be reduced on a standard basis of assessment to “well below” £500,000.

He continued: “However, that is still an enormous potential liability to face a small company [Socrates has a turnover of about £750,000] if it is to bring a case which cannot be dismissed as fanciful…

“In particular, where parties are of very disparate means, it is important that those costs strike a fair balance between enabling access to justice for the claimant and providing a measure of protection to the defendant not only from unmeritorious claims but also from the burden of having to defend a claim which it is assumed for this purpose proves to be unfounded.

“That may mean that in some cases the amount is not the sum required to achieve justice only for the receiving party, but a limited contribution to that party’s costs.

“There is no magic formula which produces an objectively ‘correct’ figure. I have regard to the various factors which I have mentioned, including the fact that the claimant itself is prepared to spend over £200,000 on this claim. And, as I have said, I fully recognise that this case raises some important issues of policy for the Law Society in the way that it provides commercial services.

“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…

“I would observe that for most SMEs at the smaller end of the scale, and this is, as Mr Woolfe pointed out, a category that encompasses quite a range, to contemplate bringing a claim where the total costs risk is in excess of £0.5 million is a very substantial sum indeed.”

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