Landmark cases overturn 25 years of legal costs law

Legal Business June 1998

 

 

 

According to James Diamond, the managing director of cost consultancy Legal Cost Services, 25 years of legal costs case law and procedures have been eliminated over the last two months by three landmark cases.

 

“If any in-house lawyer has been on business abroad over the last couple of months, they’ll be coming back to the biggest changes in the law on legal costs for a generation” he warned.

 

The most significant case for in-house lawyers is Thai Trading Co v Taylor. According to the Court of Appeal judgement there is nothing unlawful in a solicitor acting for a party to litigation agreeing to forgo all or part of his fee if he loses, provided he does not seek to recover more than his ordinary profit costs and disbursements if he wins.

 

Jeremy Morgan is a barrister at 6 Pump Court, which last month hosted two seminars on the impact of the new case law. He Commented “It’s a decision which reflects a change in public policy; the Court has decided to say there is no reason why there should be anything wrong in simple contingent agreements any more”.

 

Diamond believes this has changed the relationship between the business world and its lawyers. It is now possible for in-house lawyers to negotiate substantially reduced hourly rates, on the basis that successful solicitors should recover their profit costs and disbursements from the other side he explained.

 

Perhaps the case of greatest importance for the legal profession is The General of Berne Insurance v Jardine Reinsurance Management Ltd, which departs from over 20 Years of established practice on the calculation of legal costs. The old formula involved an assessment of the cost of the individual employed (factor A) plus a percentage to be added in ‘appropriate circumstances’ (factor B).

 

Diamond said that Factors A and B should be replaced by the end of the year, and a bill of costs is to be assessed on the breakdown of rates detailed in the client care letter or the contentious business agreement, thus removing the possibility of solicitors being able to recover an amount over and above the rate charged to the client.

 

Following the third case, Bailey v IBC Vehicles, it will be a disciplinary offence for solicitors to sign off a bill of costs if they are seeking to recover more than was agreed in the client care letter. This case will apply to in-house lawyers as much as to those in the private practice.

 

The Court also indicated that the letter or agreement should be attached to the bill of costs to avoid unnecessary litigation. This will have the effect of bringing the issue of rates to the market’s attention, Diamond believes.

 

“If the market place knows the rates individual lawyers have negotiated with their solicitors, in-house lawyers will be in a position to find out the rates agreed by their competition” he said.

 

Judge Michael Cook, the leading judicial authority on legal costs, recently said “hold onto your hats! The costs rollercoaster is gathering speed”

 

Jon Robins