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The Court of Appeal [2011] EWCA Civ 1150 [2011[EW]

The Court of Appeal headed by Lord Neuberger recently considered four issues in relation to costs and whether or not a successful party is able to recover those from their opponent. They were:

1.Should you recover the time that your solicitor has spent in advising you on No-Win-No-Fee Agreement from your losing opponent. He decided no.

2. Should you recover the time that your solicitor spends on dealing with your legal expense insurers during the course of the litigation from your losing opponent. He decided no.

3. If you do not follow the pre-action protocol and commence legal proceedings before the relevant period should you be penalised on your costs to be recovered from your losing opponent. He decided no, not always/necessarily.

4. Should you recover 100% success fee set by your solicitor at the onset when successful. He decided no, not always.

I set out below the Court of Appeal’s conclusions on each of these items:

1. Advising on a No-Win-No-Fee is part of our overheads

We as a firm do spend considerable amount of time on explaining the working of the No-Win-No-Fee agreement. Given the competition in the market and undertakings given by us that we will account to the you 100% of the damages, (whilst we are entitled to levy these costs which you can not recover from your losing opponent against you), we do not do so (as a gesture of good will and our commitment for having your interest at the heart of our service we provide). This is a significant element of our time and we do so as part of our service to the you.

2. Writing to your legal expense insurers is part of our overheads.

In the same way we also spend considerable amount of time during the course of litigation to report regularly to the insurers. In fact any legal expense policy taken out on your behalf requires reporting to the insurers on a regular basis particularly where there are significant movement which may impact upon insurers liability for your costs.

3. Protocol issuing of Court summons and penalty

Insurers often argue that you must follow the protocol (guidelines) and unless you do so you could be penalised on costs. In most civil actions there is now a protocol which parties need to follow before commencing legal actions. This is done so that parties can mediate or take a pragmatic view and settle the matter. If you as a Claimant prematurely issue Court proceedings without compliance of the pre-action protocol, you could be penalised in recovery of your solicitors costs. The Court of Appeal left this to be argued by the paying party before a Costs Judge and did not interfere with the decision of the Lower of Court.

4. Success Fee (mark up) that you can recover

When No-Win-No-Fee was brought in it was understood that solicitors would build up funds from recovery of success fee to enable them to take on riskier cases. Over the years the percentage of the success fee has been constantly reduced. As you may know in all road traffic accident claims unless the claim goes to trial you normally recover 12.5% of your base costs on top of your costs as a success if you win. In difficult cases such as these even here the Court of Appeal agreed with the Judge in reducing the success fee from 100% to 58%.

Again we would be entitled to charge you from your damages any shortfall in the success fee, but of course we do not do so and take that as a loss and consider it as part of our expense of running a legal practice.

On these issues the Court of Appeal found in favour of the insurers that all the time spent by a solicitor explaining No-Win-No-Fee agreements to the clients and legal expense insurers were for ultimately the need of the client to fund the litigation as opposed the actually funding of the litigation itself. The Court of Appeal therefore found that this should not be properly described as an interim cost incurred by the Client for the purpose of litigation. It was rather an expense which should be treated as part and parcel of solicitor’s overheads and expenses i.e. telephone bills and stationary.

The Judge has found that it was not unreasonable for the Claimant to have issued proceedings prematurely without compliance to the personal injury pre-action protocol, based on the individuals circumstances of the case. Moreover he had held that the failure to follow the spirit of any pre-action protocol did not have any significant effect on the level of costs incurred by the Claimants.

Hafezis Comments:

What the case of Yao highlights is that whilst our costs and hourly rate may seem high when you sign our Rule 2 and No-Win-No-Fee agreement we often do not recover for much of the time we record particularly when it comes to dealing with you, explaining the working of the No-Win-No-Fee agreement taking out the legal expense policy for you and reporting to your insurers once proceedings are issued.

It is important because different firms will have different approaches to the time that they spend. Most large firms have huge outgoings and I suspect put their fee earners under a strict regime to make sure that as little time is spent on explaining to you the working of the No-Win-No-Fee agreement, taking out the insurance policy or dealing with your legal expense insurers as this is not recoverable. This is one more reason why you may wish to consider a smaller firm who takes these issues and client needs seriously and would bear this as part of their overheads to ensure that you receive the best possible advice.

If you want to discuss any aspect of this article or any other information in relation to No-Win-No-Fee or legal expense insurers, please do not hesitate to contact us on 0207 377 0877.

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