This blog is written primarily for managing partners of firms who provide legal services to consumers. The focus is on civil litigation, but what is said will also be relevant to non-contentious business and family matters.
There is now a real and growing risk that solicitors will face Part 8 claims from former consumer clients seeking solicitor and client assessments. This is for many reasons, but the most important is because there is now a nascent industry of costs practitioners whose business model is to help former clients to bring such claims. At present, that industry appears to be focussing on modest deductions from damages in civil litigation, but it is only a matter of time before it realises that there is low-hanging fruit to be had elsewhere.
The problems caused by such claims usually go far beyond the sums that the client seeks to recoup. This is because that industry’s modus operandi appears to be to eschew the use of complaints procedures and to engage in litigation almost as a first port of call. Such litigation is notoriously expensive. Moreover, the administrative burden that such claims impose can be substantial.
A changed climate
The focus of this blog is not on the way in which such claims can be managed, but on the way in which they can be prevented. Before that topic is addressed, however, it is worth noting that consumer clients are now treated more favourably than they were, say, five years ago. This is not only because of the effect of the legislation that gives domestic effect to the EU Consumer Rights Directive (2011/83/EU), but also because of subtle changes to the way in which judges are dealing with solicitor and client assessments. There is, for example, an increasing tendency to regard the various components of funding as a “package”, such that hitherto extraneous items for which the solicitor would have borne only a degree of responsibility (such as after-the-event (ATE) insurance premiums) are regarded as being actual disbursements and therefore very much the solicitor’s responsibility. Secondly, there is a noticeable increase in the willingness of the court to deny solicitors the benefit of the presumptions in CPR 46.9, this being on the grounds that the client was not sufficiently well informed to give the requisite approval. And thirdly, it is becoming relatively common for the court to find that series of invoices comprise a Chamberlain bill (that being a statute bill that is made up of many invoices and which is delivered only with the final invoice), thereby meaning that invoices that were paid months or even years ago are amenable to assessment.
The details of the above do not matter for present purposes, but the overall effect does: solicitors tend now to be very much on the hook for the whole of the package of funding that is offered to clients, and where the client is a consumer, the solicitor may have to justify every penny charged.
Information, approval and estimates
Whilst an obvious point, fees and disbursements should be reasonable, and where a client approves any expenditure, this ought to be in circumstances in which they have been adequately informed about that expenditure.
Informed approval is key. The majority of claims have at least an element of the former client contending that he or she was not given adequate information about the way in which the claim was funded. One could argue that the law has moved on since the days of Sarwar, Myatt and so on, in that solicitors should now not only give advice about alternative means of funding (that is, “funding advice”), but they should also give advice about alternative means by which legal services may be purchased (that is, “procurement advice”). If, for example, a solicitor is proposing to charge fixed costs plus a success fee, a consumer client should be given the option of paying a fixed price or privately by the hour, and they should also be told that other solicitors may charge a lower success fee or possibly no success fee at all. This will lead to some clients going elsewhere, but this would be a far better outcome than having those clients return some months hence with Part 8 claims.
These things mean that maximising turnover by steering potential clients away from before the event (BTE) insurers’ panel firms is now a highly risk-laden strategy, and this is true no matter how gently this may be done. The same is true of legal aid and trades union funding.
Instead of steering potential clients away from competitors, the better strategy would be to attract them for affirmative reasons. Within limits, there can be no objection to a firm selling itself on the basis that it adds value. Many firms would do well to take account of the global trend to eschew charging by the hour (known as “costs-plus pricing”) and look at value-based pricing instead. The doyen of value-based pricing in the US is Ron Baker of the VeraSage Institute; some of what he says will not apply in this jurisdiction, but his principle of “Goldilocks pricing” is well worth knowing about. John Chisholm is his Australian counterpart; his articles are well worth reading.
Mistakes ought to be avoided. In particular, informed approval should cover everything as opposed to only those monies that the client will actually pay. For example, if the solicitor intends to take recovered fixed costs in addition to, say, a deduction of up to 25% of the damages, the client must be told about both. Similarly, the reasons for setting a success fee must be explained in full (and this is especially important if the success fee is based on anything other than the risks in the individual case).
In view of section 50 of the Consumer Rights Act 2015, estimates must be accurate; written informed approval ought to be obtained in respect of any revisions. This is particularly true in family matters as the sums charged often far exceed the original estimate. It should be noted that section 50 of that Act provides that “anything said… to the consumer” may become a term of the contract if “it is taken into account by the consumer when making any decision about the service”, so it would be wise to keep a complete (preferably verbatim) record of all conversations with clients.
Contracts of retainer now need to be as close to bombproof as possible. Ideally, they ought to be either non-contentious or contentious business agreements (and in this regard, it should be noted that, contrary to popular belief, conditional fee agreements may also be business agreements). Whilst business agreements have their downsides, they are about as secure as a contract of retainer can get. If value-based pricing is used, it is generally easier to make use of business agreements.
If template retainers are being used that have not been reviewed in the light of the Consumer Rights Act 2015, they ought to be updated as a matter of priority. They should be checked and re-checked to ensure that they comply with the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 and the Provision of Services Regulations 2009. Useful guidance may be found in the Competition and Markets Authority’s Legal Services Market Study: Final Report (2016).
Atypical funding arrangements (such as novel forms of disbursement funding loans and litigation funding) are laden with risk in a consumer setting. They should form part of a package of funding only if specialist advice has been taken from somebody who understands both consumer law and costs law. Litigation funding agreements with consumers are particularly risky; indeed, for reasons that will be explained in a publication due to be released later this year (Friston on Costs, 3rd Edition), it is possible that they will become the next “PPI scandal”, so are best avoided.
Billing and invoicing
Most problems concerning billing arise where firms have inadequate policies concerning interim invoices. Firms should have a clear (and preferably written) policy that deals with whether interim invoices are interim statute bills or requests for payment on account. Unless an affirmative decision has been taken to deal with this on a case-by-case basis, then the position ought to be spelled out in the contract of retainer.
Billing procedures ought to be robust and incapable of repudiation. It is surprisingly common for former clients to claim not to have received statute bills, so it would be prudent to send them by Signed For First Class Post or by electronic means that abide by the principles of digital integrity and non-repudiation (which email does not even come close to doing).
Errors must be avoided. Common mistakes include sending invoices that are intended to be statute bills that include only deductions (and that do not include monies recovered from opponents). Whilst there is a paucity of modern authority on the point, there is Victorian and Edwardian authority that makes it clear that such putative bills would, in truth, not be bills at all. Another common mistake is sending a series of invoices without making it clear whether the statute bill is delivered at the end of the retainer or when each invoice is delivered.
As of 2014, the Legal Ombudsman (LO) has had the ability to review complaints regarding the amounts of costs. The LO generally has the ability to deal with such complaints in such a way that is fairer from the client’s perspective than the court (this being because the LO is not encumbered by the presumptions in CPR 46.9(3)). In any event, if the complaint is about a very small sum of money (as many are), it will often be commercially sensible to accept the complaint rather than run the risk of having to pay a “case fee” of £400. For these reasons and others, complaint procedures tend to be effective at resolving disputes. They have the additional bonus of being free from the client’s perspective.
As such, it is surprising that so many former clients eschew complaints procedures and plough ahead with (expensive) litigation. A cynic might say that this has more to do with recovering costs than with resolving the dispute, especially in view of the fact that the Legal Ombudsman Scheme Rules 2018 expressly preserves the right of a client to issue protective proceedings and then stay them by consent pending resolution of the complaint (see rule 5.7(f)).
In view of the above, solicitors may want to write into their complaints procedure a provision that says that if a client has a complaint about fees or disbursements, the solicitor will, at the client’s election and as of right, consent to any claim or assessment being stayed pending resolution of a complaint (including a complaint that has been referred to the LO). This may provide a degree of costs protection if a claim is pursued.
It is possible to write into a contract that the solicitor will be obliged to use a form of alternative dispute resolution (ADR). If this is done, regard should be had to the Alternative Dispute Resolution for Consumer Disputes (Competent Authorities and Information) Regulations 2015.
Handling of defended claims
This is simple: don’t. Solicitor and client litigation is fearsomely complex and attempts by non-specialists to defend claims usually lead to mistakes being made. Advice should be taken from a costs practitioner who specialises in such disputes, and this should be done at a very early stage. That said, it would be reasonable to take the following steps upon receipt of an intimation of a claim:
- Make an immediate without-prejudice-save-as-to-costs offer of ADR.
- State in open correspondence that the matter is being treated as a complaint and will be dealt with under the relevant complaints procedure.
And then do nothing until advice has been taken. In particular, requests for disclosure of documentation should be treated with caution.
Dr Mark Friston is a leading expert on the law of costs and advises on all aspects of costs and litigation funding.