Legal Report - Legal surgery

Kingsley Hayes highlights a case which shows why satellite litigation on costs should be avoided

The long awaited decision on Garbutt v Edwards on 25 October in the Court of Appeal suggests that claimants should not be held to ransom over cost estimates.

The judgment states that "the appropriate way of dealing with the failure of the receiving party's solicitor to give his client a proper estimate as to cost is through the development and adaptation of the established processes and principles of the assessment of cost."

The appeal to dismiss the claimant's costs, resulting from omission by a claimant solicitor to give his client an "ongoing" costs estimate, has failed.

The claimant's solicitor's obligation to provide a costs estimate is regulated by the Solicitors Costs Information and Client Care Code ("the Code"). These Regulations exist as a fundamental legal principle governing this area of costs law. That is (a) the indemnity principle and (b) the obligation on the senior partner of the receiving party's firm, to sign, as correct, the certificate of accuracy. This affirmation is on the formal Bill of Costs and is therefore, a very onerous duty indeed.

Garbutt v Edwards is a good example of how satellite litigation on costs is unnecessary and should be avoided where ever possible.

In an effort to limit such unnecessary litigation, predictive fee costs were introduced into the road traffic accident environment to limit the impact on court resources caused by arguments on legal costs that in some cases have lasted up to year following settlement of the original claim.

Two years on the costs process has improved dramatically; both the insurer and the legal team can now accurately forecast the value of legal costs, the average lifespan of a claim has reduced substantially, saving adverse pressure on all parties and more importantly, resources are now more readily available to concentrate on the claimant.

However, putting aside issues surrounding the conditional fee agreements, there is a growing opinion that legal costs are still far from predictive. Even though predictive costs appear to set unambiguous ground rules, insurers and solicitors continue to challenge the ability to recover costs.

Moving forward, can we realistically extend the scheme to cover claims over £10,000 when these challenges persist?

We have found the need to argue a growing number of cases that highlight the unpredictability of settling costs.

Cook v Graham, for example, demonstrates how appreciating the basic principles behind the scheme would alleviate unnecessary conflict and help limit a sometimes protracted process for all those involved.

The claimant in this case was involved in a road traffic accident and made a claim for damages. Liability was not in dispute and the solicitor for the claimant successfully recovered damages for personal injury, the policy excess and the claimant's insurer's outlay. Settlement was agreed pre-issue subject to payment of the predictable costs.

Insurance excess
The insurers paid predictable fees at the base rate of £800 plus 20% of general damages. They refused to pay the balance of the 20% due on the insurance excess and the insurer's outlay.

It was argued that predictable costs should not be paid on heads of special damage not in dispute and in particular in relation to the insurer's outlays.

Part 8 proceedings were issued for the balance of the costs due.

It was ordered that the defendant pay the balance of the predictable fees, stating that the scheme provides for costs to be paid to a solicitor for agreeing and recovering damages.

The heads of loss in this case, were losses included in the claimant's claim by the solicitors. It was stated "if the claimant's solicitors played no part in agreeing the damages then they would not ...be part of the agreed damages".

In addition, the costs of disbursement are also being challenged, specifically around medical report fees. In the judgment of Moss v Campbell, for example, the district judge allowed for agency fees in obtaining a medical report in predictable cost cases.

The parties Moss v Campbell were involved in a road traffic accident on 4 May 2004.

The claim for damages was agreed and paid without proceedings issued.

Agreement was reached in relation to the solicitor's profit costs and success fee.

The only outstanding issue between the parties was the recoverability of "the cost of obtaining a medical report".

The defendants argued that an element of the fee claimed was not payable by them as it was a medical agency fee and the medico-legal expert instructed charged defendant insurers a lesser fee when instructed by them.

It was argued that the element of the fee that was payable to an agency was not a disbursement and was therefore not payable.

The agency fee of £85 was reasonable and proportionate because the overall fee claimed for the medical report of £195 was also reasonable and proportionate.

The use of medical agencies in personal injury litigation was increasing and a recent meeting in November 2004 chaired by the Civil Justice Council clearly envisaged the use of medical agencies to continue.

Under CPR 45 the court retained an element of discretion in the amount of a disbursement which was payable and as long as the disbursement was reasonable and proportionate it would be paid irrespective of the breakdown as between the expert and the medico-legal agency.

Encouraging progression
A success fee on the claimant's costs of the Part 8 proceedings was assessed at 100% in accordance with KU v Liverpool City Council [2005] EWCA Civ 475. CA [27 April 2005].

Where are we now?
The predictive cost regime still faces challenges before it can be called a true success. Even though we are seeing encouraging progression across the costs process, there is still room for development and greater co-operation between insurer and solicitor.

We are witnessing a settling in period for predictive costs, and improvements in relationships between solicitors and insurers have enhanced the process. With the Association of Medical Report Associations campaigning to introduce a parallel cost and payment structure with predictable costs for obtaining medical evidence, large insurers are spearheading the insurers' adoption of this new structure with the co-operation of solicitors.

An aim in a true insurer-legal relationship is to not lose the focus on the claimant and recognise the impact of ongoing and unhelpful cost arguments.

By understanding the principle of predictive costs and continuing the steps made towards a stronger insurer-solicitor relationship, accurate advice and regular communication can help alleviate the continued costs challenges and help predictive costs fulfil its potential.

There is no reason why, when it has reached full potential it cannot be expanded not only across road traffic accidents but other areas of law for the benefit of insurers and solicitors alike. IT