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THE CHARTERED INSTITUTE OF ARBITRATORSEAST ANGLIA BRANCHThe following are the notes of a talk given by Deryk Cumberland of Cumberland Costings to an evening meeting of the East Anglia Branch at the Jarvis Hotel, Hatfield on 25 February 1999. NOTES FOR SEMINAR What Are Costs? Lets start with Basics. 1. Solicitors Costs Solicitors costs include not only the solicitors time or profit costs in respect of his time spent in the conduct of a matter but also on any expenses incurred by him and that will include fees paid to Counsel for advice or for advocacy, for experts who may have been retained on behalf of a client and any other reasonable expenses i.e. travelling expenses, cost of photographs and the like. All of these items should be reasonably and properly incurred for the conduct of the case. It follows that the fees of Counsel, experts and other expenses are subject to the same scrutiny as the solicitors fees. Detailed fee notes in respect of all disbursements are essential to determine whether the fees are reasonable. Failure to provide details of time spent will inevitably result in a loss of fees. 2. Basis of Costs There are at present and will remain after Woolf two bases. Firstly there is the "Standard Basis" which entitled the receiving party to recover all costs reasonably incurred and which are reasonable in amount. Any doubts that may exist as to the reasonableness of those fees are exercised in favour of the paying party. Secondly there is the "Indemnity Basis" which entitled the receiving party to all costs incurred except insofar as they have been incurred unreasonably or in an amount which is unreasonable. Any doubts that may exist in relation to the reasonableness of those fees are exercised in favour of the receiving party. In exceptional circumstances an arbitrator may wish to impose indemnity basis costs. The exceptional circumstances should be explained in the award and should only be invoked in cases where it would be reasonable to penalise the paying party in this higher level of costs. Conduct may give rise to this level of costs. At present the assessment of the winning party's costs are dealt with in proceedings known as "taxation" (soon to be called "Detailed Assessment"). As these are proceedings which are conducted after judgment and dealt with by taxing officers who have had no contact with the proceedings which gave rise to the taxation it is encumbant upon the successful party to prepare a detailed bill of costs. THE BILL The bill is essentially in four parts. Firstly, there is an opening narrative outlining the nature of the proceedings, its outcome and any particular highlights or difficulties that were encountered. Secondly, there is a detailed chronology setting out various events that have occurred within those proceedings and, where appropriate, setting against them any fees incurred for example in relation to Counsel that have been incurred in conferences or advocacy at an interlocutory hearing. Thirdly, there is what is known as the Main Instructions Item which gives precise details of every meeting, letter and telephone conversation that has been had with various people during the course of the proceedings, whether they be the client, expert, witnesses and so on. All these items are charged at what is known as the solicitors "Expense Rate". The total time spent is then calculated by the expense rate to arrive at what is known as the "A" figure. Finally, there is the Solicitors Profit element which is applied to the Expense Rate. This is referred to as the "B" figure. In a normal run of the mill case the "B" figure this is normally 50% but if there are complexities and difficulties or substantial sums awarded in the proceedings then that figure could be increased. You will hear various rumours from solicitors and indeed costs draftsmen who claim they have recovered as much as 200% but I have yet to hear a Taxing Master admit to anything more than 100%. There has been a growing trend, particularly in the Patents Court to deal with costs at interlocutory stages on a summary assessment basis. A short bill is prepared by the party seeking the order for costs and subject to the view reached by the judge an order for the costs of that particular application is assessed on the spot and payable within a short period - normally 14 days. A recent practice direction has been published which becomes effective on 1st March 1999 which now makes this exercise fully operational in all divisions of the High Court and in all County Courts. Failure to comply with that direction will inevitably result in an adverse order being made against the applying party. Given that arbitrators have the power to award costs I do not foresee any difficulty in there being a summary assessment of costs from time to time should the need arise. I would anticipate that in normal cases the matter would proceed fairly smoothly to a final hearing at which costs would then be dealt with. It may be that one of the directions that the arbitrator would give would be to make a direction that the parties come to the final hearing with a bill so that the question of costs could be resolved. That would save the costs of a further attendance to resolve the costs issue. Conduct of the parties plays an important feature in dealing with costs. An arbitrator having heard the evidence before him and having had the opportunity to study the conduct of the parties he is obviously in the best position to deal with that aspect. To deal with the costs at the close of the arbitration obviously conflicts with Section 56 of The Arbitration Act regarding the withholding of the award pending payment of the arbitrators fee but dependent on how the matter proceeds if the arbitrator is to assess costs then he is plainly the best person to review the question of costs. This now means that the arbitrator will have to consider the detail of any bill that is produced to him. The Indemnity Principle It is vitally important to ensure that the "Indemnity Principle" is not breached by a solicitor who is seeking costs of the proceedings. The "Indemnity Principle" broadly speaking means that he cannot make a profit out of the costs that he is to be indemnified by his own client. The arbitrator should therefore investigate the question of the retainer that exists between the solicitor and his client. For this purpose it has long been good practice under the solicitors rules that a "care letter" is written to the client by the solicitor at the time of the solicitors appointment setting out clearly and succinctly the hourly rates that are being applied. Care should be taken to determine whether those rates are expressed as "Expense Rates" or "Charging Rates" The latter would include a profit element and one which could not be exceeded by a claim for a higher hourly rate or markup. In the absence of some clear terms as to the existence of the retainer then it may be advisable for directions to be given for production of relevant correspondence and to hear further submissions from both parties. Experience shows that many solicitors even in this day and age still fail to clarify the terms of their retainer and there are unfortunately some solicitors who will try and recover higher hourly rates than they have agreed with their clients, but these are matters that are never discovered until the question of costs has to be determined. It is vitally important that this aspect is dealt with carefully. There are also contingency and conditional fee agreements but there is still some confusion in this regard because the rules governing solicitors practices have not yet been amended to make these conditional fees lawful. It is vital therefore that any contingency agreement is looked at very carefully. Non legal arbitrators may find enormous difficult with this problem of the indemnity principle and it may be that the arbitrator would wish to seek some assistance, either from his own solicitor or a costs draftsman. The Act clearly provides for costs of an assessor to assist the arbitrator. Hourly Rates Just another word on Hourly Rates. Most solicitors supply information on a regular basis to their local law society who carry out their own surveys and feed this information to their local Courts. The Courts then determine what they consider to be a reasonable hourly rate and many Courts will publish those rates. These invariably are lower than a solicitor would normally charge his client but at the end of the day the test is one of reasonableness and this is where life can become very difficult because two people posed with the same problem will undoubtedly come up with different answers as to what is and what is not reasonable in a given set of circumstances. Within your own experience and expertise you will have knowledge of what some solicitors will charge and you can gauge the rates being claimed in a particular arbitration from your own experience or by consulting with your own solicitor or a costs draftsman. The location of the solicitor can be an important factor in determining the hourly rate. The real test is does it require a large city firm dealing with a small arbitration in Hatfield. Answer No! Therefore apply local hourly rates unless there are some very impressive argument for the justification of instructing a city firm. Litigants in Person Any person wishing to conduct litigation or arbitration without the assistance of a solicitor may do so. If a successful litigant has the benefit of an award of costs he will be allowed those costs "as would have been allowed if the work and disbursements of which the costs relate had been done or made by a solicitor" on the litigant's behalf together with any payment reasonably made by him for legal advice. The relevant legislation is the Litigants in Person (Costs and Expenses) Act 1975 and specify which Tribunal these provisions will apply. It is normally applied to the Supreme Court, County Court, House of Lords, Court of Appeal, Land Tribunal and any other Court or Tribunal specified in an order made by the Lord Chancellor. If the legislation permits then there is what is known as the Two Thirds Rules and the litigant may be allowed up to but not exceeding two thirds of the sum that would have been allowed to a solicitor in respect of any item of work done. If a litigant has suffered no pecuniary loss in relation to the time spent preparing for and conducting the proceedings then he should be allowed the current rate of £9.25 per hour in respect of time reasonably spent in the conduct of the matter. If the litigant in person is a solicitor acting in his own right then he is entitled to viewed as a solicitor acting on record. The Woolf Provisions As I am sure you will all know 26th April heralds the Woolf recommendations and the supposedly easy access to justice. Insofar as it relates to costs it appears to me to be very much old law dressed up with new language. The real differences seem to be the introduction on a wide scale of the summary assessment procedure and a change of name from the old taxation procedure which will now be called "detailed assessment". The main thrust of the Woolf recommendations in relation to costs is the question of proportionality. If costs are to be assessed on the Standard Basis the Court will only allow costs which are "proportionate" to the matters in issue. The basis of taxation remains as before. It does not appear as though proportionality is a consideration in an award of costs on the "Indemnity Basis". In deciding the amount of costs regard should be had to the conduct of all the parties including in particular conduct before as well as during the proceedings and the efforts that have been made to try and resolve the dispute. At this stage in the absence of rules being published it is very much a "wait and see" situation but as always common sense will hopefully prevail. Litigants in person under the Woolf proposals appear to be dealt with in exactly the same way as I have outlined above.
Copyright © 1999 Cumberland Costings 25 February 1999 |
times since 25 February 1999