Undamming Cash Flow

Cash flow has always been key to a successful legal practice, just as it is in any business. In these financially strained times, it is important to get the cash flowing as early as possible.

Cash flow is the life blood of any business, but high-end litigation can see fees (cash) tied up for years, particularly when acting under a CFA, that does not allow for interim billing.

With assessment proceedings taking months if not years to conclude, it is important to get the cash following as soon as is possible.

The best course of action is to have an agreed interim payment on account of costs set out in the final Order as this avoids argument and delay in receiving payment, as the interim should be paid alongside the damages.

The first point at which an interim can be requested, is if liability is agreed or Judgment is ordered.

If you are requesting an Order that liability costs, be paid forthwith, specify the amount within the Order. It can often be preferable to have a reasonable payment on account of costs agreed at this stage than to have an order for assessment of liability costs, as assessment of those costs will take time.

If there is a natural break in the proceedings, for example if a claim is put on hold, whilst a Claimant reaches a specific stage in their recovery, there is the option to request a payment on account of costs. Though you will be expected to justify the sum requested.

If neither of these options apply, you will be requesting a payment of account of costs at the conclusion of the matter. It is preferable to have a payment on account of costs written into any final Order and PIC would recommend this is done whenever possible.  If the agreed sum appears to be low when full consideration is given to the costs, a further payment can always be requested.

A Paying Party is generally aware of their liabilities and are willing to engage with reasonable requests for payments on account of costs (it is in their interests to do so, to reduce accumulating interest). However, if nothing is set in the Order and an agreement cannot be reached with the Paying Party a formal Application can be made to the Court, though this cannot be made until formal assessment proceedings are commenced and this will delay the receipt of any payment.

How much to ask for?

When calculating what sum is reasonable to request for an interim payment on account of costs, we increasingly need to deal with two elements of costs separately, the incurred costs and any budgeted costs that are subject to a Costs Management Order.

In respect of incurred costs, the primary authority is still Cleveland Bridge v Sarebs (UK) Ltd [2018] EWHC 827 in which 70% of the incurred costs in the budget were allowed. It was commented that each claim is of course case specific. It is therefore not as simple as calculating 70% of the WIP figure, consideration needs to be given to the rates likely to be recoverable and whether there are any elements of unrecoverable time that would impact recovery. The Costs Budget on file is therefore an important factor as it may be possible to justify higher than 70%, just as a lower percentage may be more reasonable, though 50% should be considered a minimum.

With regards to Budgeted costs an earlier decision of Coulson J was upheld that 90% of the budgeted costs was reasonable. This means 90% of the budgeted costs incurred and is not as simple as calculating 90% of the Approved Budget figure. As many budgeted claims will settle before the Trial Preparation or Trial phases are engaged, it would therefore be incorrect to seek 90% of those costs on account as this work was not done. Consideration needs to be given to work undertaken and the work incurred in each phase of the Budget.

When negotiating costs, PIC will routinely request an interim payment when the Bill is served either formally or informally. PIC can provide advice on figures for inclusion in Orders and if details are provided, we can engage with the Paying Party to agree an interim payment before the Bill is finalised and served.

Securing cash flow relieves financial pressures and it is then far easier to take a robust position on assessment of your costs if a significant percentage of those costs has already been secured.

James Peters, Costs Lawyer, Partners In Costs Ltd

TEL: 01302 244414

Email James.Peters@pic.legal