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“Costs lawyers delivering results” ISSUE: 21 | MARCH 2014



TOP TEN TIPS PLUS ONE We are now well into the world of budgeting and what a learning curve it has been. Here are some practical tips. 1. You must comply. We are still seeing Solicitors failing to prepare budgets. Your costs will not be allowed if you fail to file and serve an appropriate budget on time!

8. Be extremely careful where there is a split trial. Make sure that the budget is absolutely clear if you are excluding the quantum section.

2. The statement of truth must comply with the rules.

9. Remember proportionality has to be considered at every stage.

3. We have found that it is good practice to try to agree with the other side the course the action is likely to take.


4. Make sure the budget is clear and, where appropriate, includes the statement and that it excludes VAT and additional liabilities. 5. Make sure you include contingencies. 6. Under the rules fees should go within the trial phase but we have found that where cases are settling on the door of trial the fee, although charged, is not recovered. Contrary to the guidance, therefore it may be appropriate to include a proportion of the fee under the trial preparation to mitigate this risk. 7. Make sure that you continue to review your budgets. Here at Kain Knight we review budgets every three months. Make sure you seek permission to amend the budget where there has been a significant change accompanied by a supplement statement.

10. Ensure that you place all of the correct work in the correct phase. For example not all of the work done prior to the issue of proceedings automatically goes into the pre-action phase. It should be placed according to the task.


11. Where there are other similar claims that have been issued separately, but have been joined for the purpose of the CMC/trial, separate budgets must be produced.


If in doubt contact your nearest Kain Knight professional!


QOCS – THE UPDATE The title is a little misleading. There is little to update. QOCS is defined in Parts 44.13 - 44.17 of the Civil Procedure (Amendment) Rules 2013 and Practice Direction Sub Section 12. I won’t repeat them here but would encourage all Practitioners to spend some time considering the issues raised and implications on individual claims. For those of you that are new to the profession or have taken a long sabbatical from law QOCS is an approach to civil litigation funding that prevents a Defendant from recovering its costs from an unsuccessful Claimant. The trade-off with QOCS is that although the Defendants will be unable to recover their own costs even if successful, save for “limited circumstances”, they will benefit from other inter related costs measures such as ATE insurance premiums and success fees no longer being recoverable by the Claimant where funding arrangements are entered into post April 2013. Parts 44.13 – 44.17 set out the “limited circumstances”. So where are we now?

One of those was in respect of media litigation and defamation proceedings. In response to my article, or more likely as a result of the recommendations of Lord Justice Leveson, the Government relented on their initial position and published a consultation paper on proposals to introduce QOCS in defamation and privacy cases to ensure people of “moderate means” were not put off litigation. The Government went on to indicate that the new regime would ensure access to justice is “as much a reality” for poorer litigants as well as the wealthy However, unlike its big brother scheme covering personal injury litigation, it is intended that parties should be “means tested” so that those of modest means should be entitled to full costs protection, a mid group with some means and who could pay something would be entitled to a part capped liability and those of substantial means would get no protection as they would not face financial hardship if required to pay the other side’s costs.

Not much further forward if truth be told. QOCS hasn’t affected the profession as significantly as other Jackson reforms such us budgeting and applications for relief from sanctions.

It would be open for the parties to agree the level of costs protection but if this could not be agreed then a Court would decide based on financial evidence provided.

Practitioners remain unclear as to what constitutes “fundamental dishonesty” (CPR 44.16(1)). For example, does it mean the whole claim is fundamentally dishonest, or just part of it? Does one unreasonable or sceptical head of special damage trigger the fundamentally dishonest test?

So we can say that QOCS is evolving, the landscape is continuing to change and who knows, this time next year when you read QOCS – Part 3 all will be clear…but then again …

Unclear, untested, unsatisfactory. Also, the relationship between QOCS and Part 36 remains uncertain. Some have said Part 36 principles render QOCS unworkable leaving Claimants potentially exposed to under settling claims or having to go to the expense of ATE insurance. So in summary, the Jury is still out on QOCS. There have been some developments. For those of you that enjoyed – or endured – my article in our InBrief magazine published around this time last year, you may recall I did highlight some questions being asked by the Judiciary at that time.

Unclear, untested, unsatisfactory.

Finally, one interesting and some would say mildly amusing point. J day came into effect on April Fools Day. The defamation consultation process was published on Friday 13th (September). At least someone somewhere has a sense of humour.


Unclear, untested, unsatisfactory.





The 39 Steps is a melodrama adapted from a 1915 novel by John Buchan and was made famous by Alfred Hitchcock’s 1935 film. It was Buchan’s first “shocker”, which he described as an adventure where the events in the story are unlikely and the reader is only just able to believe that they really happened. The 3.9 steps, which set out the approach the Court must take when considering an application for relief from sanctions, changed on 1 April 2013 and are currently the most important development in the Jackson reforms, even dominating the legal press more than the significant amendments to the rules governing the funding of claims and the abolition of additional liabilities. Jackson’s own “shocker” has caused many legal practitioners to wonder whether judgments in cases dealing with applications for relief from sanctions are truly believable. The old CPR 3.9 listed a number of factors which the Court should consider when considering an application for relief from sanctions. The new CPR 3.9 has created an emphasis on the need for litigation to be “conducted efficiently and at proportionate cost”, as well as stressing the importance of enforcing compliance with rules, practice directions and orders. Lord Justice Jackson sat on the panel in Fred Perry (Holding) Ltd v Brands Trading Plaza Ltd [2012] EWCA Civ 224 concerning a Defendant’s application for relief from sanctions for a string of procedural failures. The clear message was that “… litigants who substantially disregard court orders or the requirements of the CPR will receive significantly less indulgence than hitherto.” The “rigorous approach” was then specifically referred to by Mr Justice Coulson in Murray & Stokes v Dowlman Architecture Ltd [2013] EWHC 872 (TCC) when considering the circumstances when a costs budget can be revised where it was said that: “These amendments now place much more emphasis on the importance of complying with the orders of the court, rather than the previous lengthy “shopping list” of matters which the court was obliged to work through … the courts will generally be less ready than before to grant relief from sanctions for procedural defaults”. In Wyche v Careforce Group Plc (unreported QBD Commercial Court, 25 July 2013) Mr Justice Walker granted relief from sanctions where a Defendant had failed to provide electronic disclosure and a threat of an unless order, on the basis that unintentional and speedily rectified human errors could be excused.

This gave a glimmer of light to practitioners until the now infamous “Plebgate” affair and the landmark decision of Andrew Mitchell MP v Newsgroup Newspapers Ltd [2013] 6 Costs LR 1008. The Mitchell case was the Court of Appeal’s first decision as to the correct approach to the new CPR 3.9, in a matter where no adequate excuses for failure on the part of the Claimant’s Solicitors to file a costs budget led to the limit of recovery to court fees only. The application for relief from sanctions was denied at first instance and the Court of Appeal ultimately determined that the sanction imposed was proportionate. Extracts from the Mitchell judgment have been widely quoted but a key aspect of the guidance is that relief will usually be granted for “trivial” breaches and where the application has been made expeditiously. If the relief is not “trivial”, there must be “good reason”. Satellite litigation has ensued as parties seek to test the boundaries of the new strictures imposed. The Court of Appeal then flexed its muscles again in Bianca Durrant v Chief Constable of Avon & Somerset Constabulary [2013] EWCA Civ 1624 where the Judge’s decision to grant relief from sanctions for noncompliance with an order, where the grant of relief had resulted in the loss of the trial date, was overturned. It was held that the Judge’s exercise of discretion under CPR 3.9 had been flawed and further guidance was provided to ensure less tolerance with parties who did not abide with rules, practice directions and orders. Practitioners who felt constrained by the robust interpretation of CPR 3.9 breathed a little more easily following the judgment in (1) Mark Forstater, (2) Mark Forstater Productions Ltd v (1) Python (Monty) Pictures Ltd, (2) Freeway Cam (UK) Ltd [2-13] EWHC 3759 (Ch). In this case, the Second Claimant had notified the Defendant informally regarding potential exposure to additional liabilities but did not serve a formal Notice of Funding (N251). The Court granted relief to allow the Second Claimant to recover the additional liabilities from the date of informal notification as if a formal notice had been filed and served.


Non-compliance is not the sort suggested by Mitchell as being trivial”, and it was “clear that oversight, or human error, is no longer to be regarded as a good reason.”

However, Master Gordon-Saker in (1), Andrew Harrison (2), Elaine Harrison v Black Horse Ltd [2013] EWHC B28 (Costs) dealt with a similar argument for failure on the part of the receiving party’s Solicitors to serve a form N251 and with a lack of evidence to confirm service of a Notice of Funding. It was held that there was no good reason for failure to give proper notice and whilst the failure was not intentional, it was not trivial. The delay applying for relief from sanctions of some five months after service of the paying party’s Schedule of Points of Dispute highlighting the breach of the rules concerning adequate provision of notice was also criticised and no relief from sanctions was granted. Even the Costs Judges seem constricted by the rules, as evidenced in the judgment of Master Rowley in Long v Value Properties (13.01.14 JR 1306057) who proclaimed that the Court of Appeal’s “one strike and you are out” issue troubled him in a case where the receiving party’s Solicitors had failed to adequately serve their Statement of Reasons upon commencing Detailed Assessment proceedings. In his judgment, Master Rowley said he had no choice but to refuse relief from sanctions after the Mitchell case had provided judicial precedent. He said that the “non-compliance is not the sort suggested by Mitchell as being trivial”, and it was “clear that oversight, or human error, is no longer to be regarded as a good reason”.

More recently Linford Christie’s lawyers filed their budget a day late and were denied relief from sanctions. In Burt v Linford Christie (10.02.14 – 3BM90218) D J Lumb stated “leaving matters to the last minute is inconsistent with conducting litigation efficiently and the thrust of the new overriding objective of dealing with litigation justly and at proportionate cost.” To avoid further dramas going forward practitioners, Solicitors and Costs Lawyers alike need to fully comply with court orders, rules and practice directions or face the rigours associated with the 3.9 steps. The fat lady will not be singing on this issue for some time yet.




DAMAGE BASED AGREEMENTS HAS THEIR TIME ALREADY GONE? What is a Damage Based Agreement? Following the implementation of the relevant provisions of the Legal Aid, Sentencing and Punishment of Offenders Act 2012, DBA’s in commercial cases were permitted as of the 1st April 2013.


A DBA is a contingency fee arrangement whereby the client may agree with their lawyers that they will receive, by way of fees, a percentage share of the damages recovered from the opponent if the case is won. The DBA “may” provide that if the case is lost, the lawyer will receive no fees or only discounted fees (see further information below). It appears that to date across the profession the take up of DBA’s has been extremely slow perhaps due to the fact that currently costs recovery is entirely limited to the level of damages agreed or recovered.

What types of claims can use DBAs? DBAs have previously been allowed in employment claims but the change in the law saw their use extended to all claims, except for family and criminal matters.

The Success Fee The success fee is the percentage of damages which the lawyers would charge in the event that a claim is successful and damages are recovered from the opponent, either in Court or by way of settlement. The lawyers would agree with the client a definition of success that triggers the payment of the fee. A cap on the percentage of damages a lawyer may receive has been imposed by law for certain types of cases, as follows:

Commercial cases 50% - the cap is inclusive of VAT and Counsel’s fees but not other disbursements. Employment Tribunal cases 35% - the cap is inclusive of VAT but not Counsel’s fees or other disbursements. Personal Injury cases 25% - the cap is inclusive of Counsel’s fees and VAT and applies only to damages excluding future pecuniary loss.

What happens if the client wins or loses their case? If the client wins their case, they will be entitled to recover the damages and the costs awarded from the opponent in the usual way and the client will pay the lawyers the agreed share of damages as a success fee. However, this is subject to the “Ontario model” (taken from the system used in Ontario, Canada) which provides that the costs recovered from the opponent will firstly be applied as a slice towards the success fee and then any shortfall will come out of the damages. Using an example to illustrate, if damages were recovered of £1 million and it was agreed that a 40% success fee would be payable to the lawyers, the client would be liable for £400,000. If the costs awarded against the opponent were £300,000, the opponent would have to pay the full £300,000 which would be applied towards the success fee. The client would then have to pay the balance of £100,000 of his success fee out of its damages, meaning that the client would get to keep £900,000 of its damages. However, the client is not entitled to recover more in costs from the opponent than the client is liable to the lawyers by way of a success fee as the “indemnity principle” applies to DBA’s (see CPR 44.18(2) (b)).


a wind of change b With l o w i n g t h r o u g h t h e l e g al are DBA’S the an m e t s sw er sy t o l i t i g a t i o n f u n d i ng?

Therefore, using the above scenario, if the costs incurred in bringing/defending the claim were, say, £500,000 then the client could not in fact recover any more than £400,000 from the opponent by way of costs. The client would then pay the lawyers the £400,000 recovered by way of costs and the client would get to keep the £1 million damages. If the claim was lost, the client would pay the lawyers nothing and may be liable to the opponent for their costs (subject to obtaining After the Event Insurance). As an alternative to receiving no fee, it “may” be possible for instructed solicitors to agree terms of a DBA which allow the lawyers to charge a discounted fee in the event of a loss (possibly in conjunction with third party funding). However, the regulations governing DBAs are currently unclear as to whether or not lawyers are permitted to charge a discounted fee, or whether the DBA must be strictly “no-win no-fee”. It is hoped that this somewhat grey area will soon be cleared up. The issue is, as we understand it, currently subject to judicial consultation although no decision is imminent.

What cases are suitable for a DBA? Because of their nature, DBA’s are suitable only for Claimant cases with a significant monetary value or Defendant cases where there is a significant monetary counterclaim. A DBA is likely to be of particular interest to a potential Claimant (or a Defendant with a counterclaim) in a high value monetary dispute where there are good prospects of recovery of sums from the opponent.

After the Event Insurance In addition to entering into a DBA, a client may wish to consider ATE Insurance. If a client is involved in litigation, the client runs the risk if the case fails of having to pay the opponent’s costs. ATE Insurance is a form of legal expenses cover that insures the client against such risk. The premium for this cover is normally deferred until the conclusion of the case and would normally only be payable in the event of the case being won. If a case was lost, the client would not have to pay the premium as the insurer may meet the costs. It is important to note that if a client entered into a policy of ATE Insurance before 1st April 2013 and won the case, the premium would be payable, but this may well be able to be recovered from the opponent providing that notification had been provided as regards to this additional liability in accordance with Court Rules and in turn that the premium is in itself reasonable. If a policy of ATE Insurance was entered into on or after 1st April 2013, the client would no longer be able to seek to recover the premium from the opponent in the event of a win except in certain types of cases and therefore if the case was won the client would be required to bear the cost of any ATE premium. The cost of any ATE premium varies from case to case, but would be usually based on a percentage of the amount of cover required. The percentage would be determined by the risks of the case – the higher the risk, the higher the premium will be.

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So to conclude until such time that the DBA regulations are formally amended to allow for a form of “hybrid” arrangement it seems perhaps that DBA’s are not in actual fact the answer to the funding of litigation that Lord Justice Jackson was perhaps looking for.





Proportionality has always been a tricky subject. At my time of life, I question whether the size of my girth is proportionate to the rest of my body or if my receding hairline is disproportionate to my advancing years.


The new Proportionality test was introduced on 1st April 2013. Almost 10 months later many practitioners and even Judges are none the wiser as to the application of the new test, this is despite the costs world simultaneously considering the impact of Mitchell, costs budgeting and changes to relief from sanctions. Put simply, we are still waiting to see how all this will pan out.

Costs which are disproportionate in amount may be disallowed or reduced even if they were reasonably or necessarily incurred.

The initial concept of proportionality was introduced by the Woolf reforms. The approach dealing with this concept in relation to the assessment of costs was set out in the case of Lownds v Home Office [2002] EWCA Civ 365. Thus, the test became colloquially known as the “Lownds” test. This confirmed the application of the ‘two stage’ test whereby the Court would undertake an assessment of reasonableness and, possibly, 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.

A Mark II Overriding Objective has also been introduced under CPR 1.1 adding ‘proportionate cost’ to the overriding objective. This, theoretically and in the view of the judiciary, is something that should be dealt with by Judges as part of the Costs Management process and throughout the life of the claim – thus negating the need for this issue to be argued at Detailed Assessment.

The application of the two stage test has been viewed by many as somewhat of a damp squib. Moreover, Lord Justice Jackson’s view was that in considering reasonableness and necessity the Courts were following the old approach and considering reasonableness and necessity narrowly without the value of the proceedings or the ultimate stake in mind. Therefore, as part of the Jackson reforms a new, more stringent test was introduced. This new test included at CPR 44.3(5) states that the 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 (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 A more fundamental shift was included at CPR 44.3(2) where, on the standard basis, the Court will only allow costs which are proportionate to the matters in issue.

The Courts, unfortunately, have given no more guidance within the newly cast Costs Practice Direction and have removed the pre 1st April 2013 guidance.

Transitional arrangements were added via amendments to the statutory instrument whereby work undertaken prior to 1st April 2013 or cases issued prior to 1st April 2013 will be dealt with under the old test. However, only the brave should think that Judges will not at least have the new test in mind when it comes to the assessment of costs. In relation to the practical application of the test, Lord Justice Jackson’s suggestion was that the Court should first make an assessment of reasonable costs on an item by item basis and then the Court should ‘stand back’ and consider whether the reduced total figure is proportionate. If the Court considers the amount to still be disproportionate it could then make a further reduction. However, this approach has not been specifically provided for in the CPR nor has there been any binding case-law on the subject. This ‘longstop’ approach makes it very difficult for parties to consider what the outcome of any assessment is likely to be. A further issue that has probably stemmed the tide of any costs case-law in the area is the introduction of Provisional Assessment for all costs assessments post 1st April 2013 where the Bill of Costs totals less than £75,000. It is unclear what Judges will do without oral submissions on the point. This means that solicitors cannot find out what they should and should not have done in order to avoid the issue next time.




Many Bills will likely include much more detail regarding the ‘ins and outs’ of the case in order to sway a District Judge. Likewise, whilst Points of Dispute are now meant to be ‘short and to the point’ they are likely to include some level of detail in the hope of swaying a District Judge to undertake the new test on Proportionality. What is clear is that the philosophy behind the test implies that solicitors will find it difficult to justify a claim for costs which are significantly in excess of the level of damages recovered. However, as of yet, there has not been satellite litigation on the issue. This is likely due to the fact that many matters being assessed are not only being provisionally assessed but are also dealing with costs pre-1st April 2013. However, it is anticipated that there will be more satellite litigation especially where it appears to solicitors that ‘arbitrary reductions’ are made at the end of an assessment. It is also anticipated that parties will make more applications for indemnity basis costs awards in order to be exempt from the new test. At the moment it is a waiting game and it is clearly going to take more time than expected before further judicial guidance is given.


As to my girth, it’s more proportionate than a darts player, and my hairline is not quite as disproportionate so as to warrant a Bobby Charlton comb-over.


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WHAT HAVE WE LEARNED SO FAR? Almost one year on and I’ve been asked to write about my experiences so far with provisional assessments.


Let me firstly re-visit my article last year in which I expressed the same confusion as many as to what the £1,500 maximum amount allowed for costs of the provisional assessment included. This was thankfully clarified in the 66th update to the Civil Procedure Rules effective from 1st October 2013 when CPR 47.15(5) was amended to confirm that the £1,500 excluded Court fees and VAT. It does, however, still appear to include any success fees for which there are still many live cases in which success fees are recoverable from the paying party. One must also assume that any costs incurred in relation to Costs Only Proceedings are included, save for the Court fee. Therefore, whilst the clarification was welcome news, it still could have been better. I also suggested that the intention of provisional assessments was to help speed up the process. Practice direction 14.4(1) states that the Court will use its best endeavours to undertake the provisional assessment within 6 weeks which was far quicker than you would expect to receive a date for detailed assessment. I must firstly state that my experience to date is that the Senior Court Costs Office does appear to be achieving the 6 week timescale. However, my local County Courts are going well beyond such time. There is a matter currently in my office in which the request for provisional assessment was sent in early December and the provisional assessment is due to take place at the end of April, over 3 times longer than the suggested 6 weeks. Another aspect which I felt was a little unclear was how the Judge would deal with the costs of the provisional assessment when, upon conclusion of the paper exercise, they would have no idea what the costs had been assessed at and therefore whether any offers made had been beaten. CPD 14.3(d) states that the offers made must be filed with the court with the request for provisional assessment with those marked “without prejudice save as to costs” or made under Part 36 to be contained in a sealed envelope. I had wondered when the Judge would open this envelope. Despite seeing the outcome of several provisional assessments I was still

somewhat unsure about the procedure regarding this until I recently attended a seminar held by the Association of Costs Lawyers where Master Rowley gave an interesting talk which included the topic of provisional assessments. He made it clear that the SCCO do not open the envelopes containing the offers and upon conclusion of the provisional assessment summarily assesses the receiving party’s costs with reference to their statement of costs filed. He indicated that this was undertaken as the general rule still exists under CPR 47.20 that “the receiving party is entitled to the costs of the detailed assessment proceedings”. This appears to be a sensible approach as, whilst it is accepted that the Court can make some other order, by summarily assessing those costs at the same time as carrying out the provisional assessment you are ultimately saving further time and expense in having the Court have to decide the same point later. Whilst this is, again, the procedure in the SCCO I have not seen this in County Court provisional assessments. I do not actually know whether the Judge looked at the offers made and, as I was able to reach agreement in respect of both the liability for costs and level of the same, we did not need to return to the Court to decide on such issues. I previously commented that I was unsure as to how (or when) the new proportionality test would be applied. As the Judge does not recalculate the Bill he/she does not know the level of costs allowed until the parties have undertaken the relevant calculations and therefore cannot make any further adjustments in respect of proportionality. I am still somewhat in the dark over this point as none of the provisional assessments that I have seen as yet have dealt with the point, albeit this is probably as the majority of costs were incurred pre 1st April in any event. This is a point that will be up for discussion again at a later stage I am sure. One area that I have been pleasantly surprised about is that the SCCO still require the papers to be filed in support of the provisional assessment exactly as you would with a detailed assessment.


I expected the Courts to undertake the provisional assessment with reference only to the papers filed along with the N258. However CPD 14.2(2) confirms that paragraph 13 of the Costs Practice Directions applies (with exceptions) to provisional assessment and CPD 13.12 lists the papers to be filed which is, arguably, the entire file…….”(i) instructions and briefs to counsel arranged in chronological order together with all advices, opinions and drafts received and response to such instructions; (ii) reports and opinions of medical and other experts; (iii) any other relevant papers; (iv) a full set of any relevant statements of case; (v) correspondence, file notes and attendance notes”. The SCCO has confirmed that they do require the full file of papers and may order you to file them if you have not done so.

Whilst County Courts may not require the full file of papers, as was the case for detailed assessments, I do not understand why, when the practice direction provides for it, you would not lodge additional papers to support arguments contained within your Replies. I previously suggested that I felt the new procedure may force paying parties to put forward their best and final offers earlier on in assessment proceedings, as opposed to the day before the Hearing. Given that the majority cases I have dealt with for Bills under £75,000 have indeed settled prior to preparing the request for provisional assessment it appears that my optimism may well have been justified.





Nicholas began his career in the legal profession in 1990, having accepted a position as a barristers’ clerk immediately after leaving Maidstone Grammar School. Although he had earned a place at university, his parents were keen that he started to earn a living - as he will regularly cite. In his view, higher education back then was still for the exceptionally bright and the privileged few. He even just missed out on the ‘gap-year’ culture that took hold from the early to mid-nineties onwards – but he’s not bitter(!).

Quantum Costs went from strength to strength; it was only the implementation of the Jackson reforms that left Nicholas considering his future options – the best being to sidle up to a very big brother; and so in late 2013 Quantum Costs became part of the Kain Knight Group where Nicholas has been happily ensconced ever since.

Nicholas thoroughly enjoyed his years in Chambers – first with Atkin (a specialist construction set) where he worked hard and achieved the position of 1st Junior Clerk by the time he left 9 years later. He went on and took a senior position at 12 King’s Bench Walk before considering moving in to the fast-growing world of legal costs – setting up his own business in 2005.

Nicholas is the proud father of two boys: Fin and Jago; and is happily married to Michelle who works at Allen & Overy. In his spare time Nick obsesses over music and still collects vinyl records; he also enjoys riding and racing motorcycles, and keeps fit by Thai boxing.







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