Paramount Legal Costs Ltd Newsletter Issue 3

IS S U E T HR E E

PARAMOUNT LEGAL COSTS

WELCOME TO ISSUE THREE OF OUR QUARTERLY E-NEWSLETTER Welcome to the 3rd edition of our e-newsletter!

Steven Holmes from Armstrong Watson has written an article for us this quarter.

He highlights that even though there has been a dramtic increase in legal practices incorporating, there are also some complex issues to understand before making that decision.

Robin Dunne has also written an article on Clarification and Confusion and highlights the cases of Denton v T H White and Coventry & Ors v Lawrence & Ors. Our own fantastic team have also been busy again this quarter. Claire our Head of Care & Family has written an article ‘An Introduction to High Cost Case Plans’.

This article really helps clarify the process and what the LAA require from you in order to gain payment from them. Claire has also writen an article on the case of London Borough of Bexley -v- V & Ors [2014] EWHC 2187 (Fam) (16 June 2014) case law.

Julie, our in-house Costs Lawyer and senior member of our private client department, has also writen a couple of articles regarding recent case relating to Court of Protection matters.

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Both Tom & Suzanne have now started their ACL training and attended their induction afternoon in London at the start of the month. We are very proud of them for making the decision to do this and are excited to help them on their journey to become Costs Lawyers.

Our next edition will be out at the start of December and will include our annual Christmas quiz. As always the prize will be delicious handmade chocolates from a local company, Saunders. So make sure you don’t miss the next edition!

As always we hope you enjoy reading this e-newsletter and if you would like to get in touch we would welcome any comments or suggestions that you may have. Please click here to email me.

CONTENTS Page 2 Clarification and Confusion:

the senior courts give with one hand and take with the other.

by Robin Dunne Page 3 Clarification and Confusion Continued Case Law

by Claire Robson Page 4 An Introduction to High Cost Case Plans

by Claire Robson Page 5 Case Law

by Julie Fitzpatrick Page 6 Why Are So Many Law Firms Incorporating Their Pracices

by Steven Holmes

Paramount Legal Costs Ltd | September 2014

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CLARIFICATION AND CONFUSION: The senior courts give with one hand and take with the other

BY ROBIN DUNNE Denton v TH White [2014] EWCA Civ 906 The issues surrounding the criteria for granting relief from sanctions under the new rule 3.9 has been at the forefront of every civil litigator’s mind in the past months.

Following Mitchell the courts embarked upon a series of decisions which had the effect of tearing up the consensual approach of the CPR; parties lost trust and good will was thin on the ground. Opportunistic points were taken and many clients lost out.

The combined appeals in Denton was the Court of Appeal’s chance to clarify the law. It is important to note that nothing in the Denton judgment overturns the Mitchell decision, which the court explicitly states was correct. What actually happened was that all of us (judges and lawyers) interpreted that decision incorrectly(!)

Denton is an exercise in clarification rather than a mea culpa.

What this means in practice is that the tests in Mitchell are abandoned in favour of a new three stage test: 1.

2.

3.

Was the breach serious or significant?

What was the reason for the breach?

Taking all of the circumstances into account, should relief be granted?

The first hurdle, at stage one, is the most important. If the breach was not serious or significant then the court will not spend too much time on the other tests. Conversely, even if the breach was serious and there was no good reason for the breach, the court may still grant relief pursuant to the third test. The criteria listed in r. 3.9 are important, but not the only considerations that should be taken into account when the third test is considered.

What is the practical effect of this? In essence, it means that we are back to the pre Mitchell days.

There is no doubt that the new 3.9 was designed to toughen up the rules, nor is there any doubt that a breach that has a serious effect on the litigation (and in particular delays or imperils the court timetable) may well result in refusal of relief. However, there will be cases where the

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breach is considered serious and there is no good reason for it but, using the third test, relief is still granted.

This is helpful to the extent that lawyers are more able to properly advise their clients as to whether an application for relief should be contested.

There is still the problem that concepts such as ‘serious’ and ‘significant’ are rather nebulous and necessarily fact specific but, this aside, the clarification is welcome.

What is essential is that lawyers appreciate the costs warning given at the end of the Denton judgment. Clients must be told that unreasonably resisting an application for relief will result in them paying the costs of such an application (despite being the ‘innocent party.’) Put simply, if the breach is not serious or significant then consent to relief should be given, failing which costs sanctions may well apply.

Finally, judges should be reminded, at the directions stage, that Denton reminds them to make court timetables realistic. If this happens then the necessity for relief from sanction applications will be diminished. Of course, nothing in Denton removes the requirement for lawyers to keep on top of the timetable and to ensure that requests for extensions of time are made before any breach. As always, an application for an extension of time is far better than an application for relief.

Coventry & Ors v Lawrence & Ors (NO. 2) [2014] UKSC 46 Just as the dust settled following the Denton decision, the Supreme Court gave judgment in Coventry. Nobody expected this decision and no one is quite sure why it has been given now.

Coventry no. 1 was a nuisance case which resulted in the awarding of damages of £10,350.

The second judgment was concerned with the costs of that action. The receiving party claimed a 100% success fee and costs totalled over £1m (of which, 60% was payable inter-partes.) The court found the level of costs ‘disturbing.’

The paying party argued that the recovery of the additional liabilities inter-partes was a breach of their Art 6 rights. They no doubt

Robin Dunne is a barrister at Clerksroom specialising in costs and litigation funding, personal injury and enforcement.

If you have any questions about this article please contact Robin at: Tel: 0845 083 3000 Email: dunne@clerksroom.com Visit the website

made this submission more in hope than expectation but, to the surprise of all, the argument was received favourably. The court declined to award payment of the additional liabilities and adjourned that issue in order to consider whether a declaration of incompatibility would be made. Due to the profound implications of such a declaration, the court invited the Attorney General and other interested parties to intervene.

Lord Neuberger, who gave the judgment, has chosen a very odd time to make these comments. Leaving aside the fact that post 1/4/13 additional liabilities are no longer recoverable inter-partes, it is strange that he did not make such comments during all the costs cases he decided in the court of appeal (including Motto v Trafigura, where costs totalled over £100m, including a 100% success fee and an ATE policy costing £9.6m.)

Paramount Legal Costs Ltd | September 2014

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CLARIFICATION AND CONFUSION CONTINUED

Once the court’s comments were digested, paying parties began to seek adjournments of the assessment of additional liabilities. These applications have been largely rejected for the very good reason that, if the rules regarding recovery of additional liabilities are declared incompatible with the ECHR, the proper avenue for redress would be to claim against the government.

paying parties if the court allows the case to be re-opened.

There is a further argument that could be raised by paying parties, namely that the threat of a 100% success fee (were the claim to proceed to trial) led them to settle claims which they would otherwise have fought.

As it stands lawyers must wait and see what the Supreme Court decide.

In the current climate, such uncertainty could hardly be less welcome.

However, if there is a finding of incompatibility the courts should refuse to award the payment of additional liabilities inter-parties in on going assessments, despite the fact that solicitors and their clients had contracted to litigate the case on that basis (following the law as it stood at the time.)

“AS IT STANDS LAWYERS MUST WAIT AND SEE WHAT THE SUPREME COURT DECIDE.....SUCH UNCERTAINTY COULD HARDLY BE LESS WELCOME” The result of the decision would therefore be that, going forward, parties would not be able to recover additional liabilities inter-partes.

Those parties who have paid out sums in respect of additional liabilities could seek to re-open those cases or alternatively make a claim against the government.

Were a declaration of incompatibility made it would have profound consequences. No doubt the government is horrified at the prospect of paying parties (insurers for the most part) seeking back the huge sums paid out in costs since the Access to Justice Act was implemented. Even more concerning is the prospect of clients having to return money to

CASE LAW

BY CLAIRE ROBSON

LONDON BOROUGH OF BEXLEY -v- V & ORS [2014] EWHC2187 (FAM0 916 JUNE 2014) This case related to Public Law proceeding in which the matter had been listed for a directions hearing due to the failure of the Local Authority (London Borough of Bexley) to comply with directions set out in the Order of 12 May 2014.

The Local Authority failed to file their evidence and failed to request a further extension to file their evidence. After being chased by the parties and the Court the Local Authority eventually filed their evidence on Saturday 14 June, with an explanation subsequently being given that an extension had not been sought as it was not known when the Local Authority could comply.

In his Judgement The Honourable Mr Justice Keehan referred to the cases Re W (A Child) [2013] EWCA 1177 and A Local Authority v DG[2014] EWHC 63 (Fam) and concluded that the

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failure of the Local Authority was stark, that the hearing would not have been required if the Local Authority had complied with the Orders and that it was right that the hearing was listed to address those failings. The Local Authority were therefore Ordered to pay the costs of the hearing and also the costs of a transcript of the Judgement.

Please click here to read the full Judgement.

Paramount Legal Costs Ltd | September 2014

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AN INTRODUCTION TO HIGH COSTS CASE PLANS

BY CLAIRE ROBSON

Under Public Funding Certificates, High Cost Cases come into effect when the total costs of a case are estimated to exceed £25,000.00. It is important for Solicitors to be aware of their on-going costs and to register a case as High Cost when the costs are still under £25,000.00 but the future costs are estimated to go over £25,000.00. A date will be given by the LAA when the matter has been acknowledged as a High Cost Case and costs before this date will be referred to Pre-Contract Costs and cost after this date as Post-Contract Costs.

Solicitors need to note that the Pre-Contract Costs will be limited to the cost limitation of the Public Funding Certificate at the date of registering therefore it is important for Solicitors to incrementally increase their cost limitation up until registering the case otherwise costs will be limited.

Once a matter has been registered then Solicitors have 4 weeks to submit a Case Plan outlining their Pre-Contract costs and future estimated costs. The High Cost Cases Unit have 2 different types of Case Plans Solicitors can use which are the Fully Costed Case Plan and the Care Case Fee Scheme Case Plan (formerly known as an Events Based Case Plan).

The Fully Costed Case Plan shows a breakdown of Pre-Contract Costs and then stages are included which show estimated costs for future hearings/work which has been timetabled by the Court. These future costs include Solicitor’s costs, disbursements and Counsel’s fees.

Solicitors need to note that when a case becomes a High Cost Case it then falls outside of the Fixed Fee and FAS Schemes therefore Solicitor’s costs are calculated at the appropriate publicly funded hourly rate.

A Care Case Fee Scheme Case Plan is based on payments made for each Event within proceedings. An Event for a Solicitor is any hearing day and Advocates’ Meetings timetabled by the Court. Solicitors will be paid an Event fee for each of these, with differing

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Event Fees being claimable based on whether the main hearing is up to and including 10 days or 11 days and over and which Court the matter is currently in. A main hearing is a Fact Finding hearing and/or Final Hearing. (For Counsel it is different in that Counsel is paid FAS/FGF fees for main hearings up to and including 10 days and then an Event Fee for main hearings over 11 days).

Within the Care Case Fee Scheme Case Plans there are also 3 different versions and these are the newly introduced Solicitor Advocates Care Case Fee Scheme (where Solicitors undertake the majority of the hearings), the Single Counsel Care Case Fee Scheme (where Counsel undertake the majority of the hearings) and QC/Two Counsel Care Case Fee Scheme (where authority has been given for either a Leading and Junior Counsel or two Junior Counsel to attend the hearings).

Again it is important to remember that although under the Care Case Fee Scheme costs are paid as Events fees, within the Case Plan template there is a place to include an estimate of Solicitor’s PreContract Costs at the appropriate publicly funded hourly rate. This allows the High Cost Cases Unit to check that Solicitors have not exceeded their cost limitation at the time of registering the matter.

Claire is the Head of our Care & Family department she is also an affiliate of Resolution.

If you have any questions about this article please contact Claire at: Tel: 01228 815396 Email:

claire.robson@paramountlegalcosts. co.uk

If appropriate to your case, the Care Case Fee Scheme Case Plans are a much simpler way of estimating future costs and, according to the LAA, a much quicker way of having a High Cost Case Contract agreed by the LAA. These Case Plans do not require files to be fully costed on a Claim 1 but at the end of proceedings a Claim 1 is still required, though limited to pages 1, 2, 6 & 7.

Further guidance on High Cost Cases, Case Plan templates and Case Plan cover sheets can be found here

Paramount Legal Costs Ltd | September 2014

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CASE LAW

BY JULIE FITZPATRICK

N & ANOR -V- E & ORS [2014] EWCOP 27 (15 AUGUST 2014) This judgment related primarily to the costs of the proceedings in the Court of Protection and, in particular, whether the Second Respondent should be made to pay her own costs or whether they should be assessed and paid from the estate.

The Applicants (E’s children) applied to the court for, and were subsequently granted, an order to inter alia suspend the powers of the Second Respondent to act as an attorney under the Lasting Power of Attorney executed by E on the grounds that she had physically, emotionally and financially abused E. The Applicants invited the court to make no order as to costs in respect of the Second Respondent’s costs.

Senior Judge Lush ruled that it would be appropriate to apply CoPR 2007 rule 156 as the starting point to the costs of the proceedings, namely that, where the proceedings concern property and affairs the general rule is that the costs shall be paid by E or charged to her estate. The

court may depart from this rule if the circumstances so justify. Rule 159 which describes the circumstances in which the court may depart from the general rule, refers to the conduct of the parties before and during the proceedings. As regards the Second Respondent’s conduct before the proceedings, Senior Judge Lush found that the allegations that the Second Respondent had physically, emotionally and financially abused E had not been put to proof, and that her conduct during the proceedings had been satisfactory and she had done what was required of her. He therefore ordered that the costs of all parties be assessed on the standard basis and paid from E’s estate.

Please click here to read the full Judgement.

If you have any questions about this article please contact Julie at:

G (ADULT), RE [2014] EWCOP 5 (10 JUNE 2014) An application made by Associated Newspapers Limited (ANL) seeking to be joined as a party to the proceedings in the Court of Protection Re G (Adult), London Borough of Redbridge v G and Others [2014] EWCOP 1361 was dismissed and the parties were given permission to make written submissions on costs. The local authority and the Official Solicitor, as G’s litigation friend, both sought an order that ANL pay their costs of the application.

Sir James Munby, President of the Court of Protection, identified that the proceedings concerned G’s personal welfare and therefore the costs of the application were governed by CoPR 2007 rules 157 and 159. Where proceedings concern personal welfare the general rule is that there will be no order as to costs of the proceedings or of that part of proceedings that concerns personal welfare. The court may depart from this rule if the circumstances so justify.

Sir Munby found that it was right to depart

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Julie is our Costs Lawyer and Senior Civil and Family Costs Draftsman. She specialises in Court of Protection and Probate matters.

from the general rule given that ANL’s application was misconceived and that it failed completely but it did not mean that ANL should necessarily have to pay all the costs. He named three factors which justified his conclusion, namely the public importance of the issues, the stance adopted beforehand in particular by the Official Solicitor and the fact that he did not see why ANL should be required to pay two sets of costs. ANL were ordered to pay 30% of the costs of the local authority and 30% of the costs of the Official Solicitor.

Tel: 01228 815395 Email: julie.fitzpatrick@paramountlegalcosts.co.uk

Please click here to read the full Judgement.

Paramount Legal Costs Ltd | September 2014

IS S U E T HR E E

WHY ARE SO MANY LAW FIRMS INCORPORATING THEIR PRACTICES

BY STEVEN HOLMES

Legal practices have been able to incorporate since the early 1990s, but in the last couple of years there has been a dramatic increase in those doing so. Lawyers have some awareness of the benefits of incorporating, but there is also added complexity; therefore it is a decision that shouldn’t be made until you understand all of the connotations and you can make an informed decision.

The main reasons why so many law firms are incorporating include • the changes in taxation status of fixed profit partners • the decreasing rates of corporation tax • the need to retain more working capital • the opening up of the legal market to non lawyers Tax is often a key reason why a practice might incorporate. The tax savings are generated in two two key areas.

Firstly, a corporate practice can generate significant tax savings compared to an income tax perspective. A shareholder will typically receive a salary set at a level where no National Insurance or income tax is paid, and then receive a dividend on top of this which is effectively tax free up until an individual’s basic rate band. What helps the tax savings of a Limited company is that in a partnership you pay tax on all of your profits, where as in a company you simply pay the lower level of corporation tax on your profits and then income is only taxed as it is drawn, this allows for much more flexible tax planning.

Secondly, you can sell the goodwill of the partnership to the company and only pay capital gains tax at 10%. This amount can then simply sit in your loan account with the newly incorporated company and be drawn down tax-free whenever you want, or your cash flow allows.

The owners of the business will now be employees and therefore covered by employment law.

Partners (shareholders) joining and leaving the business will need to be considered – who will buy the shares? How will the shares will be valued? Will goodwill be included in the valuation? All of this should be included within a properly drafted shareholders’ agreement.

One of the larger, often not considered, aspects of incorporating a legal practice is the SRA administration. There are two different types of form to be completed, one of which requires completing twice (for the COLP and the COFA). Alongside these you must also submit such things as forecasts, business plans, continuity plans and shareholders’ agreements. This can be quite a large admin burden and increase costs on a legal practice incorporation compared to incorporation of a non SRA regulated business, these complexities must be considered from the outset.

Steven has worked in tax since 2005 and is a Chartered Tax Adviser. He specialises in helping owner managed businesses If you have any questions about this article contact Steve at: Tel: 0113 2211 300 Email: steven.holmes@armstrongwatson.co.uk Visit the website

Speaking in general terms, incorporation is a good thing for solicitors, so it is no surprise that incorporating is very popular, however each practice must consider their own situation to decide whether it is right for them. Businesses should not just look at the potential tax savings and immediately jump into incorporating; all of the above issues need to be considered. I would always recommend speaking to somebody with experience of helping lawyers through this process as their experience can be vital in reaching the correct decision for your firm.

What surprises me about so many business incorporating is that it isn’t straight forward.

Consideration must be given to some of the complexities which will arise, and these should be considered against the tax savings.

Such things as the businesses cars will need to be considered, accounting for these was previously straight forward, now any cars left in the company will be considered company cars and generate a benefit in kind.

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Paramount Legal Costs Ltd | September 2014