Solicitors Journal

30 October 1998

 

 

Legal costs dilemma

 

Madam – I have read with great interest the Opinion article on the Legal Costs Dilemma by Michael Bacon in your 25 September edition of SOLICITORS JOURNAL. I take a different view from Mr Bacon, and in fact believe the Chief Taxing Master should be applauded for the speedy production of the recent Practice Direction. In that it at least tries to clarify some of the confusion in relation to recoverable costs post ‘General of Berne’.

 

Lets start at the beginning; Leopold Lazarus v SoS for Trade and Industry, The Times 8 April 1976, used the expression A and B factors and for the first time used the expression ‘direct costs’.

 

The computation of the factor A figure involves an assessment of the reasonable direct cost, that is to say the grade of person, whom it was reasonable to employ at each stage; an approximate of the cost of employment of each individual by considering the number of hours for each of them to be reasonably engaged; and assessing a rate per hour sufficient to cover the salary and the appropriate share of the

general overheads of each such person. Factor B is assessed by adding a percentage to the factor A figure which is ‘appropriate in all the circumstances’. (The factors are set out in RSC Ord 62, App 2.)

 

The factor A figure was assessed by the taxing officer using his/her knowledge and experience of the average solicitor in the area concerned. Factor B was assessed by the taxing officer applying the RSC Ord 62, App 2, with the minimum allowance being 50 percent (Johnson v Reed Corrugated Cases Ltd [1992] 1 All ER 169). It is important to note that the allowance of factor A should not affect the allowance of factor B, ie factor A and B are to be dealt with on their own merits. Loveday v Renton and the Welcome Foundation Ltd [1992] 3 All ER 184, QBD.

 

Allowances by the taxing masters at the Supreme Court Taxing Office for factor A, rates for partners (in Central London Law Firms) from the mid eighties to the early nineties ranged from £80 - £100 per hour, hugely below the market rate of charges to clients. To compensate for this, the practice developed whereby the claims for the factor B continually increased. Factor B figures were regularly claimed at 100 per cent plus; I have personally dealt with taxations where factor B was awarded at 200 per cent.

 

In the early nineties the Central London Law Society did a survey of its members and calculated the factor A figure allowed by the Taxing Masters was approximately 50 per cent of the true factor A figures.

 

Re A Company (No 004081 of 1989) was the first case to argue successfully the Central London Law Society’s survey. Factor A effectively increased overnight by up to 75 per cent. Factor B stayed about the same. Here start the problem. If I am claiming pre- Re a company (No 004081 of 1989) factor A rate of say £90 per hour and factor rate B of say 125 per cent, my global rate claimed is £202.50 per hour. However if I am claiming post Re A company (No 004081 of 1989) factor A rate of say £160 per hour and factor B rate of say 125 per cent, my global rate claimed is £360 per hour. If the actual rate to the client was under £300 per hour, common sense dictates I cannot claim a global rate of £360 per hour. Wrong! This could and did happen, as long as a solicitor could show that the total amount actually assessed by the Taxing Master did not exceed the amount billed to the client. This can be described as the ‘old Indemnity principle’ Gundry v Sainsbury [1910] 1 KB 645 and subsequently British Waterways v Norman (1993 22 HLR 232 DC).

 

However the ‘new Indemnity Principle’ following the cases of The General of Berne Insurance v Jardine Reinsurance Management Ltd, 12 February 1998 and NRG and Bacon and Woodrow (a firm) 21 April 1998 now looks at recoverable costs on a component parts/item by item basis. Add these to the recent decision in Bailey v IBC Vehicles Limited 25 March 1998:

 

States Ord 62, r 29(7) c iii requires the solicitor who brings proceedings for taxation to sign the bill of costs. The signature is no empty formality… The signature of the bill of costs under the rules is effectively the certificate by an officer of the court that the receiving party’s solicitors are not seeking to recover in relation to any item or more than they have agreed to charge their client under a contentious business agreement.

 

The only common sense way, in my opinion, of drafting bills of costs, is on the basis of a gross hourly rate for the respective fee earner, the bill of costs divided into appropriate sections each and every time a fee earners rate changes. To try and draw bills of costs with factor A plus factor B becomes farcical particularly for commercial matters. Take one case I recently dealt with in which global rates agreed between solicitor and client for lower grade fee earners were in fact below the factor A figure for the area where the work was done. If I use factor A plus factor B I would have had to put factor B at a negative figure to comply with ‘General of Berne.

 

Any solicitor claiming non-existence of a CBA or r 15 letter I believe could well fall foul of the Professional Conduct Rules in relation of providing clients best information on costs. Likewise in-house lawyers, whom most of the relevant parts of the practice direction exclude, if they have an internal system of hourly rate one can only presume this cannot be exceeded as it could breach the indemnity principle.