UNDERSTANDING AND REDUCING THE COSTS OF LITIGATION: EDUCATING YOUR CLIENT

November 17, 2013 · by · in Costs, Rule Changes

The previous post considered the case of Vitol Bahrain where the costs of the successful party on a one day application were reduced from £165,241.80 to £75,000. The amount of this shortfall highlights the need for the modern litigator to be aware of, and have strategies in place, to reduce the costs of litigation.

POST JACKSON LITIGATION

Even clients with the deepest pockets will start to question shortfalls of over £90,000 for a single application.  Part of the modern litigator’s role is to ensure that the client is aware of both liability to costs, but also the principle of proportionality.  Strategies will have to be agreed with clients  in order that costs can be kept in proportion.

REDUCING THE COSTS OF LITIGATION A BLAST FROM THE PAST

Below is a copy of an article I wrote for Law For Business in April 1991. That journal was aimed, directly, at the business reader and the aim of the article was to educate the business litigant about the costs of litigation.

I have reproduced it here, omitting only the sections about the “care and conduct” mark up for costs (now long-obsolete) and the problems of litigating against a legally aided opponent (although I am sure that similar points could be made in relation to Quocs).

THE CENTRAL POINT

The central point I sought to make in 2001 is, if anything, far more apposite today.   The modern litigator, particularly the modern litigation solicitor, has to educate the client about the costs of litigation. The most successful firms will be those that work with their clients to keep costs down, and in proportion.  This, in many cases, involves a clear dilate with the client and a process of education.

(I should point out that I was a solicitor when I write this article.  The reference to  the value of counsel was not self-serving – of course it remains extremely accurate).

UPDATING THE ARTICLE

Not only was this article Pre-Jackson, it was “Pre-Woolf”.  I suspect that, today, a large part of the process of reducing costs involves technology, not least in the process of e-discovery.  However technology cannot replace the basic role of education and the need to agree strategies to reduce costs.

WHAT ABOUT PERSONAL INJURY LAWYERS?

 Those litigators working with a client on a “one off” basis have a role that has major differences.  I plan to deal with this in a later post.

“UNDERSTANDING AND REDUCING THE COSTS OF LITIGATION

FROM LAW FOR BUSINESS – APRIL 1991 (Ed 186).

 “INTRODUCTION

Complaints about the costs of going to law have been made at least since the time of Shakespeare. The costs of litigation have always been a possible source of complaint – one commentator has compared it to standing in a shower tearing up £100 point notes; a more apt analogy may be standing in a long frustrating queue giving away blank cheques. Litigation is undoubtedly expensive and, despite recent attempts to simplify and speed up the process, it is likely to be a harrowing financial and commercial experience for the majority of commercial litigants.

HOW A SOLICTOR’S LEGAL FEES ARE CALCULATED

A solicitor’s fees are referred to as “costs”. These should not be confused with expenses paid out by the solicitor on the litigant’s behalf, such as court fees, which are referred to as ‘disbursements’. In litigation the solicitor’s charges are based on an hourly rate; and this will include not only the time spent dictating letters, telephone, etc. The amount of the hourly rate will depend on a number of factors, the main elements being the seniority of the person doing the work, the type of firm used and the geographical situation of the office. The differences can be enormous. For instance if you instruct a trainee solicitor in a provincial town the hourly rate may be £40.00 an hour or less, whereas if you instruct a partner in a City of London practice the hourly rate could be as much as £400- possibly more!

Most solicitors’ practices employ “time recording” which involves the lawyer keeping a record of every minute spent on a matter. This information is then fed into a computer which can, at anytime, calculate how much work has been done on a particular case and this calculation forms the basis of any interim of final bill to the client. …

YOU PAY FOR WHAT YOU GET

To many businessmen the hourly costs figures quoted in this article may appear excessive if not extortionate. However there is no doubt that if you want to litigate you will be paying your solicitor an hourly rate that is usually around or over £100,[that was the 1991 figure] and the more complicated and important the litigation the more the rate is likely to be. There may be a temptation when a dispute arises to delay going to a solicitor in an attempt to avoid the expense, or to choose a firm that offers the lowest charges. To delay going to a solicitor can often be like delaying in going to the dentist: you can suffer a lot of pain in the interim and the expense and agony is quadrupled by going late rather than earlier. The other analogy to dentistry is that if you had gone earlier the tooth could have been saved, and similarly in law early advice can lead to early settlement and the avoidance of costly mistakes.

With regard to choosing a firm with the cheapest charges this can be a false economy since, in commercial litigation in particular, you will need a firm with the resources and expertise to prepare your case for court. Nevertheless it is a matter of commercial common sense to seek to avoid the unnecessary running up of legal costs, and suggestions for reducing costs are made later in this article.

SOLICITOR CLIENT CHARGES

Even if you are awarded costs against your opponent and he pays then in full, your solicitor is likely to charge around a quarter to a third more than the costs you have recovered. This for many litigants is one of the hardest things to understand or accept. The main reason for this difference is usually that the hourly rates allowed by the courts on taxation do not reflect the hourly rates that are in fact charged by solicitors. Other reasons can be where the costs are really matters for which the loser should not pay; for instance, if the winner has insisted on telephoning his solicitors every day to demand an hour-long update, the solicitor is entitled to charge and be paid for his work, but the losing party is not expected to pay for any extraordinary charges that the winning party has run up.

Another important factor to remember is that you are always contractually bound to pay the costs of the action even when an order is made against your opponent. This means that if your opponent does not pay your legal costs in accordance with the court order you will have to pay them. The order for costs, however, can be enforced like any other judgment debt.

REDUCING LEGAL COSTS

It has already been stressed that it is unwise to make the reduction of costs your main priority in choosing your lawyers or in deciding how litigation should be conducted. Nevertheless there are a number of steps that can be taken to ensure that you are getting good service and value for money. These fall into two broad heads: choosing the right lawyers and helping in the conduct of litigation.

THE COST OF USING A BARRISTER 

It comes as surprise to many litigants that their solicitor will suggest using a barrister at the trial of the action even in those cases where a solicitor can appear, such as in the county court. It may come as a bigger surprise to find out how much a barrister will cost. The decision to use a barrister is one that a solicitor should take after consultation with the client in the High Court.

At present a solicitor cannot appear in most actions and therefore the use of “counsel” (the solicitors term for a barrister) is essential. The costs of doing so may seem large, but compare then with your solicitor’s charging out rates. A barrister’s clerk will arrange a fixed fee for the first day of a trial and then a lower amount (a refresher) for every day it continues. This rate covers all the preparation- which can take many hours in commercial litigation- travelling and the hearing itself. If you were to ask your solicitor his own charge for doing this you may be surprised to find that the cost of retaining a highly experienced expert barrister for the trial is cheaper than using a less experienced solicitor.

A businessman who wishes to keep a weather eye on the costs should perhaps query the use of counsel but never assume it is a more expensive option. It is true that barristers who regularly practice in commercial actions have a very high market value but you are usually getting what you are paying for, and the consequences of using a cheaper, but less expert barrister could be far more costly in the long term.

CHOOSING YOUR LAWYERS

Many commercial organisations have discovered that there are many advantages to having an in house legal department. The department is always on hand and understands the nature of the business and the pressures involved. The lawyers can advise at an early stage and hopefully prevent problems occurring rather than “fire fighting”, thus avoiding litigation as well as conducting it. The problem her is that good lawyers do not come cheap. It is also unlikely that even the most competent team of in house lawyers will have all the skills and expertise needed in the modern international legal world; also if your team spends its time advising it may not have the time necessary to conduct litigation.

One way around this dilemma is to retain outside solicitors in addition to the in-house lawyer. This could reduce costs in the long run since the in-house team can concentrate on the prevention of problems and if litigation does occur can do some of the time consuming groundwork of collecting statements and documents. The in-house lawyer can also keep a professional eye on the services of other lawyers in a way that it may be difficult for a businessman to do.

Hold a “”beauty contest

It is becoming increasingly common for commercial organisations to choose their lawyers, or even lawyers for specific tasks such as a property development, by inviting a number of firms to make presentations. These “beauty contests” usually involve a team of lawyers from the firm explaining the structure of the firm, its expertise and experience. The businessman will then select the firm, which has impressed the most. There can be no golden rules about choosing a firm in this way but some pertinent questions relating to costs in particular may be:-

  • Charging out rates : avoid a firm that will not tell you its hourly charge for each type of “fee earner”;
  •  Different level of expertise: in seeking to minimise costs as far as possible a firm should always ensure that work is delegated to the person with the appropriate degree of expertise. For instance, most debt collecting can be done by a properly supervised junior clerk using a computer system, while you would wish any major commercial disputes you have to be dealt with by an appropriately qualified and experienced solicitor. Ask about the range of expertise available in the office (this reflects the range of charges amongst other things) and also about levels of delegation and supervision.  
  •  Billing policy: most firms will now bill you at regular intervals throughout the litigation, usually quarterly but sometimes monthly. Check what the billing policy is to ensure that it is acceptable to you.

KEEPING COSTS DOWN IN LITIGATION

Remember time is money. Every time you talk you talk to your lawyer in person or on the telephone, therefore,

  • Prepare for each meeting, know beforehand exactly what you want to find out and what your lawyer wants; 
  • Take along any relevant documents, and have then indexed and paginated before you hand them over. It will undoubtedly be cheaper for someone in your organization to sort the documents into some kind of order than for your solicitor to do so; 
  • Consider preparing any statements of witnesses in advance of the meeting. These may not be adequate but if they cover some primary ground the lawyer can use them as a basic tool when interviewing the witnesses and thus save time; 
  • If asked for further documents or information try to supply them at once. Costs can be added to greatly if adjournments have to take place because one side has not yet had available all the relevant documents and statements.

 Is Litigation Worthwhile?

1. If you are a claimant ensure that the defendant is worth pursuing- does he have the resources to meet any judgment? If not, why litigate?

2. Consider “alternative dispute resolution”, which is a means of settlement by appointing an unofficial arbiter to discuss the matters with the parties and to make suggestions, which are not legally binding. It is often surprising how an informal discussion can lead to amicable solutions in actions where the parties were seemingly at loggerheads.

3. Never abandon the possibility of compromise- remember that you will never recover all your legal costs even if you win at trial.

4. If your opponent is legally aided consider the costs position very carefully; if you are a defendant give serious consideration to a payment in.

Communicate with your lawyers

1. Never be afraid to ask how much this is going to cost- you are the person paying for it!

2. Ask your lawyers to provide you with a running account of the costs at regular intervals.

3. Do not make the costs of the action your sole criteria, but ensure that your solicitor knows that (a) he does not have a blank cheque, and (b) that you want to be consulted about any expensive or unusual items of expenditure.

 Consider Legal Insurance

In the rest of Europe legal insurance is quite common. Why not consider insuring against the risks of litigation? There are a number of specialist insurance companies offering legal insurance to commercial organisations and the premiums are often surprisingly low – particularly when you compare them to a solicitor’s hourly charging rate!

If you do take out legal insurance, ensure that the policy allows you to have freedom of choice in your lawyers. The insurance company may recommend a highly reputable firm but it may have no experience of the type of litigation you are involved in or not be geared up for heavy commercial work. Legal insurance is a remarkably easy way of planning for legal expenses. Like most insurance you will begrudge paying for it until you need it, but it should be seen as an essential part of the overheads of very commercial organisation.

A CHECKLIST

1.  If in doubt call a lawyer in earlier rather than later. This can ultimately save time and money.

2. Deal with your lawyer as a fellow businessman/woman: prepare for meeting and have documentation readily available in an easily accessible form.

3. Choose your lawyers carefully. Ensure that the work is being done at a relevant level of expertise.

4. Find out charging rates in advance. Ensure that you get regular reports of the costs of litigation.

5. Consider retaining an in-house lawyer.

6. Consider negotiation or arbitration

7. Consider legal insurance

8. Only litigate if you are sure you have something to gain or protect, and when you are sure that your opponent is worth suing.”

IS THIS RELEVANT TODAY?

If anything the observations, including the need for the client to be informed, educated and involved, is far more important today.

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