Tip Two – Costs Budgeting and Proportionality
For many years I have provided costs training seminars to Solicitors. At the end of each session I will usually provide my “top ten tips”. Those tips are aimed at addressing the most common mistakes made by Solicitors whose main income is from inter partes costs.
Tip Two – Costs Budgeting and Proportionality
Take thirty Lawyers involved in personal injury litigation (say, ten Claimants, ten Defendants and ten Judges). Now ask them to explain what proportionality means (either under the old test, or the new test) and you will receive thirty different answers. Now, to be fair, the concept has been very poorly defined. But, most interesting will be the responses from the Claimant Lawyers. Most Claimant Solicitors, when asked to explain what proportionality means, will go great lengths to argue why the concept is far more than a mere comparison between costs and value (in fact most will not mention value as factor in the concept at all). And, that reticence is a very significant problem when it comes to recovery of their costs.
The majority of fee earners reading this article will be living off a main income from inter partes costs from personal injury and clinical negligence claims. Indeed, they will probably have no other income stream. And, because of that, I urge all my Solicitor clients to think very carefully at the outset of each new case with a view to avoiding doing work, and incurring costs, which cannot be recovered from the opponent if the claim succeeds. Most significantly, I want my Solicitor clients to avoid incurring disproportionate costs (which they will struggle to recover at the end of the case).
The above advice is, of course, nothing new. In Stevens v Watts (2000) Judge Alton explained that “in modern litigation, with the emphasis on proportionality, there is a requirement to make an assessment at the outset of the likely value of the claim and its importance and complexity, and then plan in advance the necessary work, the appropriate level of person to carry out that work, the overall time which would be necessary and appropriate to spend on the various stages in bringing the action to trial and the likely overall cost”. Those words were then quoted in Jefferson v National Freight Carriers and in Lownds v Home office.
For those who do not yet make any such early budget, and have buried their heads in the sand regarding proportionality, let me emphasise something practically obvious. It is my observation, from long experience that, once a Claimant Solicitor’s net base profit costs begin to exceed the damages recoverable in a run of the mill case, their percentage costs recovery from then on starts to drop like a lead balloon; and, quite quickly in fact, they will effectively be working for free (under their CFAlite, or other retainer which provides for no Solicitor/ own client costs recovery). Take a quick look at the WIP for the case you’re working on now, to see what your recoverable hourly rate is (still ok, or is it now zero?).
So what is a budget? Imagine you would like a new bathroom fitting at your home (a common scenario). You would start by deciding how much you can afford to spend on the project (none of us can afford to instruct a bathroom fitting company on an open-ended retainer, right?). Now, once you’ve decided how much you can afford, the next step is to have a meeting with a bathroom fitting firm to see what renovations can be made to your bathroom within your budget. A schedule of works and costs is then agreed, with contingencies for additional expenses that might arise as the project progresses, but which cannot be accurately predicted at the outset. As the project then progresses, there will be meetings between you and the bathroom fitters to discuss whether the project is still within budget. At the end of the project, everyone will be happy, because costs and expectations have been agreed at the outset and as the project has progressed.
Now, it is, in my humble opinion, a fool’s errand to try and accurately predict the costs in a large litigated case (a litigated case is far more complex than a new bathroom; but the concept is just the same). However, it is perfectly possible to make an estimate at the very outset of most new personal injury and clinical negligence cases as to what ball-park the likely level of damages will fall into. It is then perfectly possible to form a budget around that likely level of damages for the work to be done. Of course, you cannot predict just how the opponent in litigation will respond to the claim (hence the other factors besides value in the proportionality test), but you can make certain basic assumptions. The idea is then to, stage by stage, set out (with a view to preparing the case for trial and allowing some costs for settlement negotiations) the work and evidence that the case can afford with net base costs to trial not significantly exceeding the likely level of damages. For many, undertaking this task for the first time, will highlight their usual mistake of pressing “go” on their case management system and/ or running every case in the same way they always have done.
Forming the early budgeted case plan I have alluded to above, is best done by a Senior Fee Earner (a Partner perhaps) and a Costs Lawyer and shouldn’t take long. It is then good practice to send that budgeted case plan to your client, seeking their approval. And the costs of that exercise will be abundantly recoverable between the parties (because that is the very essence of what LJ Jackson and friends want you to do). That plan of action, or elements of it, can, and should, then be allocated to more junior fee earners as appropriate and proportionate. The budget should then be re-visited as the case progresses to see what, if any, revisions need to be made.