The costs war between claimant lawyers and the insurance industry has reached such a level that costs have become a practice area in their own right, Jon Robins reports

‘There is more talk about legal costs at the moment than there is about the law,’ reflects Sarah Cochran, resident costs expert at City firm Davies Lavery. Since the Access to Justice Act revolution – in particular, the extension of conditional fee agreements (CFAs) and allowing the recovery of success fees and insurance costs – a so-called ‘costs war’ between claimant lawyers and the defendant insurance industry has been waged.


‘I read as many cost cases these days as I do real cases,’ she adds. ‘There are new cases coming out every week.’


Therefore, it is unsurprising that costs in recent years have become a discrete practice area in their own right. ‘If firms don’t understand the mechanics of their costs, they have absolutely no chance of running their business,’ says costs expert Kerry Underwood, managing partner at Hemel Hempstead firm Underwoods. ‘It’s the equivalent of a fishmonger not knowing the price of fish. It’s as basic as that.’ Underwoods has just taken on Michael Cook – the author of Cook on Costs, as well as a former circuit judge – who will advise on costs as well as heading the firm’s family practice.


Mr Underwood says it is ‘absurd’ that law firms outsource their costs work to costs draftsmen, and he even reckons it is ‘a mistake’ to run a separate costs department. ‘For any business – whether you selling fish and chips or making screws – a full understanding of the mechanics of what makes money and what costs money is utterly crucial. It has always been a policy in my firm that fee-earners draft their own bills,’ he says.


Manchester claimant personal injury firm Amelans has been on the frontline of the costs war, and won a series of big CFA clashes in the courts – Callery v Gray, Sarwar v Alam and Ahmed v Powell – which have changed the legal landscape. Partner Andrew Twambley once memorably cast their firm as the Russell Crowe character Maximus to the insurance industry’s evil Roman empire in the hit film ‘Gladiator’.


The firm not only has its own costs team but it also has a dedicated costs expert charged with dragging recalcitrant insurers through the courts – Paul Kimber, a former UK judo champion better known as ‘Buddha’ to viewers of the BBC documentary series ‘No Win, No Fee’, which was set in Amelans’ offices.


However, the firm reports that the fighting is abating. ‘Every day when the nice young girl comes along with the debt list showing all the people who haven’t paid up, the list gets smaller and smaller because they are paying,’ Mr Twambley says. How many cases are contested? He reports that it is ‘very rare’ when costs are not disputed in a case, but adds that more often than not is ‘just an empty dispute’. Most defendant insurers now pay up within 25 days. ‘We can live with that,’ he says.


Mr Twambley reckons that one sign that sanity is beginning to prevail is the retreat of one of the major irritants in the post-Access to Justice world: costs negotiators – or ‘cost muppets’ as the solicitor would have it. These are the ‘unregulated, uninsured hermits that come out of the crap every morning, make a few phone calls then sink back into it,’ he says. As opposed to accredited costs draftsmen (see below), cost negotiators have been charged by insurance companies with the job of beating down costs.


‘Part of our aim of killing off the muppets was to bring the costs draftsmen back in,’ says Mr Twambley. In Ahmed v Powell, Senior Costs Judge Peter Hurst ruled that it was not appropriate to grant a right of audience for costs negotiators because they were operating under an illegal contingency arrangement, and they had been instructed by the insurance company as opposed to the defendant’s solicitors.


One costs negotiator says the value of cost negotiators is clear from the figures. He says: ‘The proof of the necessity of our involvement is reflected quite simply in the savings we make for our clients, which literally run into the tens of millions a year. I understand that some solicitors do get upset with what we’re here to do, because we are taking money away from them. But the fact of the matter is we are saving huge sums for our clients.’


This includes substantial sums made for its clients on files under the predictable costs regime. He says fixed costs are a mechanism that ought not to afford any sort of saving because solicitors should not be making excess profits.


Rob Carter, head of the Forum of Insurance Lawyers’ special costs group, maintains that many of the claimant lawyers who have been berating claims negotiators have been ‘overreacting’. He asks: ‘If these people are muppets, why are they causing the claimants such a problem? If anything they are a symptom rather than a cause of the problem arising from costs, because they were the first line of defence for insurers who felt that they were allowing costs to get away from them.’ However, Mr Carter, who is also senior partner at Peterborough firm Carters, agrees that there are many fewer unregulated negotiators than there were.


Ten years ago, Mr Carter says costs experts were confined to a few people in the then Lord Chancellor’s Department ‘and one or two other strange people’. He adds: ‘Now costs are something that everybody on either side of the divide in the personal injury market is aware of. Partly that is thanks to the Civil Procedure Rules having worked well so that costs stand out on the landscape as the last area where claimants and defendants are really not getting on.’



Unlike Mr Twambley, Mr Carter does not anticipate peace breaking out in the near future. He reckons the Civil Justice Council has done a good job, and points to the latest deal it has brokered on fixed recoverable success fees for employers’ liability disease claims (see [2005] Gazette, 7 July, 4). The Association of Personal Injury Lawyers is not so sanguine, describing the same scheme as ‘extremely disappointing’ insofar as the council has yet to determine what happens to exceptional, or test case, litigation.


‘But the question remains that there are a lot of personal injury [lawyers] out there seeking costs over and above what insurers feel that they ought to be paying,’ Mr Carter says. He points to recent concerns that the Office of Fair Trading has expressed about after-the-event insurance. ‘It’s not as transparent as the insurers would like, not by a country mile,’ he says. Apparently, the market has not changed much since the bad old days of the old Claims Direct when Judge Hurst ruled that only half of the original £1,250 ‘premium’ could be recovered.


Kathryn McCullagh set up what is believed to be the only costs specialist law firm in the country, McCullagh & Co in Peterborough, last May as a response to the Ahmed v Powell ruling. ‘It was about time that we all got our act together and made sure that the court was being properly serviced in this area,’ she says. The firm acts for defendant insurers, and Mr Carter is a consultant there. Ms McCullagh considers that there is still much uncertainty over costs. ‘The very routine cases and the very complex ones are still very much under the spotlight, whereas the middle ones are just flowing through nicely,’ she says.


But the courts are still more than capable of sending out shockwaves. Ms McCullagh points to the ruling in May of KU v Liverpool City Council [2005] EWCA Civ 475 in which the appeal court encouraged the use of two-stage success fees.


She also flags up Samonini v London General Transport Services [2005] EWHC 90001 (Costs) (19 January 2005), which takes the ruling of the appeal judges in Sarwar ‘one step further’. In Sarwar, the court ruled it necessary to consider the validity of legal expenses insurance before proceeding. ‘After Samonini, if legal expenses insurance isn’t available but a solicitor doesn’t make the proper investigation [as to its existence], that will make the CFA defective,’ she says. ‘If you are running a whole caseload on that basis and you haven’t done it properly, you are looking at bankruptcy.’


Is there a long-term future in a law firm that has an exclusive costs practice? Ms McCullagh believes that there is. ‘The firm will probably have to diversify but it will always have a costs consciousness,’ she says.


Jon Robins is a freelance journalist