UK: What Future For Costs Negotiators?

The case concerned the status of costs negotiators instructed by liability insurers to act on their behalf in relation to the question of costs. Costs negotiators have come to prominence recently and are typically paid by results in that they receive a percentage of the reduction in the amount of costs which they achieve on behalf of the liability insurer.

Any person may set themselves up as a costs negotiator without passing any examinations or joining a professional body. There is an Association of Law Costs Draftsman which requires its members to undergo training, to pass exams and to abide by a code of conduct.

On 5 November 2000 the Claimant was injured in a Road Traffic Accident. Proceedings were commenced and followed the usual course with Defence, allocation and listing before settlement was reached. It was not possible to agree the Claimant’s solicitor’s costs and detailed assessment proceedings were commenced on 29 January 2002. Points of Dispute were served and the issue of costs came before a District Judge. The solicitors for the Claimant raised the question of whether the costs negotiators appointed by the Defendant’s insurers had a right of audience.

(i) did costs negotiators have a right of audience in relation to the detailed assessment hearing ?

(ii) were the terms of payment to the costs negotiators champertous?

Counsel for the Claimant submitted that the costs negotiators did not have rights of audience in the detailed assessment hearing for three main reasons:

(i) they were not properly instructed as agents of the solicitor on the record and cannot be said to be in the "temporary employ" of the solicitors on the record.

(ii) the basis upon which they charge for their work (including attending hearings) is based on a illegal contingency fee agreement.

(iii) costs negotiators are not regulated by any professional body or organisation.

Rights Of Audience

Section 27 of the Courts and Legal Services Act 1990 deals with the rights of audience

"27. Rights of Audience.

(1) The question whether a person has a right of audience before a court or in relation to any proceedings, shall be determined solely in accordance with the provisions of this part.

(2) A person shall have a right of audience in relation to any proceedings only in the following cases:

(a) where –

(b) where –

(3) In this section –

"qualified litigator" means –

Section 119 of the 1990 Act deals with the interpretation as follows:

"Advocacy services" means any service which it would be reasonable to expect a person who is exercising, or contemplating exercising, a right of audience in relation to any proceedings, or contemplated proceedings, to provide;

"Litigation services" means any service which it would be reasonable to expect a person who is exercising, or contemplating exercising, a right to conduct litigation in relation to any proceedings, or contemplated proceedings, to provide;

"Rights of audience" means the right to exercise any of the functions of appearing before and addressing a court including the calling and examining of witnesses."

Note 47.14.7 "Rights of audience on detailed assessment" in the White Book was referred to. The note is as follows:

"In detailed assessment proceedings, rights of audience may be exercised by any counsel properly instructed by solicitors, any solicitor or employee of a solicitor representing one of the parties to the proceedings. If the party is legally represented costs consultants, costs draftsman and the like can only be heard on the basis that they are temporarily, and for the purpose of those detailed assessment proceedings, employees of the solicitors representing the party. The solicitors are responsible for the conduct of the detailed assessment hearing and cannot be responsible merely by instructing a costs draftsman."

A person is guilty of maintenance if he supports litigation in which he has no legitimate concern without just cause or excuse (see Chitty on Contracts 28th Ed [1999], Vol.1, para 17-050.) Champerty "occurs when the person maintaining another stipulates for a share of the proceeds of the action or suit" (Chitty paragraph 17-054). Because the question of whether maintenance and champerty can be justified is one of public policy, the law must be kept under review as public policy changes.

In Trendtex Trading Corpn -v- Credit Suisse [1980] 1 QB 629 at p. 663 Oliver LJ remarked :

"There is, I think, a clear requirement of public policy that officers of the court should be inhibited from putting themselves in a position where their own interests may conflict with their duties to the court by agreement, for instance, of so called "contingency fees".

The introduction of conditional fees shows that this requirement of public policy is no longer absolute.

The decision in Giles -v- Thomspon [1993] 3 All ER 321; [1994] 1 AC 142, makes it clear that, in any individual case, it is necessary to look at the agreement under attack in order to see whether it tends to conflict with existing public policy. At page 153, Lord Mustill said that "the rule, now in the course of attenuation, which forbids a solicitor from accepting payment for professional services calculated as a proportion of the sum recovered from the defendant … survives nowadays, so far as it survives at all, largely as a rule of professional conduct. With respect, this statement is not correct. The basis of the rule is statutory….".

The Court of Appeal went on to consider Rule 8 of the Solicitors Practice Rules 1990 which forbids the use of contingency fees. The court also considered Section 58 of the 1990 Act which deals with conditional fee agreements and the relevant Conditional Fee Agreement Regulations. Conditional fee agreements under section 58 embrace only agreements for the provision of litigation or advocacy services concluded by those with rights to conduct litigation or rights of audience.

Section 58 of the Courts and Legal Services Act 1990 evidences a radical change in attitude of public policy to the practice of conducting litigation on terms that the obligation to pay fees will be contingent upon success. This is now possible, subject to requirements imposed by that section. These requirements do not appear to mitigate the mischief that led to the banning of contingency fees – the undesirability of the interests of officers of the court conflicting with their duties to the court. Rather the requirements appear designed to protect litigants under conditional fee agreements who, when the section was first enacted, were required to pay any uplift out of their damages. Conditional fees are now permitted in order to give effect to another facet of public policy – the desirability of access to justice.

The cost negotiators were regularly instructed by the liability insurer. The cost negotiators were paid on the basis of a percentage of savings of costs achieved. Revised terms had subsequently been agreed that the cost negotiators were to be paid on the basis of a commission payable at a set rate provided that the cost negotiators achieved a monthly average gross saving of a given percentage of the claimant’s costs over a twelve month period for a guaranteed number of cases.

Upon receipt of the notice of commencement of assessment the panel solicitors wrote to the costs negotiators as follows:

"We enclose our file in relation to the above claim in accordance with [our liability insurers] protocol for the determination of third party costs.

We have told the Claimant’s solicitors that you will be dealing with costs …

At the conclusion of the matter we would be grateful if you would return the complete file, so that we may archive the matter, together with a short note stating the amount of costs agreed/assessed and conformation that the cost payment has been discharged."

There were also a number of attendance notes which it was argued demonstrated it was in fact the costs negotiators who were instructing the panel solicitors rather than the other way round.

It was submitted that it was simply a matter of construction of Section 27(2)(e). Master Hurst did not accept that the Section gave cost negotiators a right of audience. He held that the cost negotiators were employed by the liability insurers on the interpretation of the letters passing between the panel solicitors appointed by the liability insurers and the cost negotiators.

Therefore the cost negotiators were neither assisting in the conduct of litigation nor doing so under the instructions given (either generally or in relation to the proceedings) by a qualified litigator. Standing instructions from the liability insurers that all costs were to be dealt with by cost negotiators, and the letter from the panel solicitors, made it clear that the solicitors did not expect to hear further from the cost negotiators until the conclusion of the matter. The panel solicitors were not supplying any services to the Defendant and were merely allowing the use of their name in the detailed assessment proceedings.

Master Hurst did not think that there was anything inherently wrong in a requirement by an insurance company that, when costs come to be determined, a particular firm of costs draftsman should be instructed. However, those instructions must come from the instructing solicitors who have themselves been properly instructed and who are required to consider the claim for costs and advise the client.

It was accepted that the cost negotiators terms of remuneration amounted to a contingency fee agreement.

Counsel for the claimant relied on what the Master of the Rolls said in R (Factortame Ltd) -v- Transport Secretary (No.8) [2002] EWCA Civ 932; [2002] 3 WLR 1104:" 84. A contingency fee agreement which entitles those providing litigation services to a percentage of anything recovered may give rise to particular objection on the ground that it poses a temptation to act in an unethical manner to achieve the maximum recovery…"

Costs negotiators are unregulated, often not legally qualified and in the present case not members of the Association of Law Costs Draftsman. In this case the Defendant’s solicitors did not remain in control of the litigation.

It was not disputed that the agreement did not comply with the Conditional Fee Agreement Regulations 2000.

Further, cost negotiators were not subject to the supervision of a qualified litigator (see above) nor statutory safeguards.

Master Hurst indicated that arrangements of the type entered into with the cost negotiators give rise to concerns that the question of costs may be pursued over vigorously and therefore disproportionately and in breach of the overriding objective. Master Hurst thought this a very real concern and was one of the reasons why the control of those appearing before the courts is so rigorously controlled.

1. cost negotiators did not have a right of audience in relation to the detailed assessment hearing
2. The terms of payment to cost negotiators were champertous

It is very likely that the decision will be Appealed.

In the meantime it appears that panel solicitors will have to retain control of files where the only outstanding question is one of costs. The solicitor (or other qualified litigator) will have to instruct the costs draftsman and remain responsible for the conduct of the detailed assessment (including considering the claim for costs and advising the client). The costs draftsman will have to be paid an hourly rate or a fixed amount for attending the detailed assessment. Provided these requirements are complied with, problems of rights of audience and champerty should be avoided.