An imminent root and branch review of the costs system and an overhaul of ‘no win, no fee’ agreements, with Justice Secretary Jack Straw threatening to cap success fees, could change the landscape for costs draftsmen.

Sir Rupert Jackson, recently promoted to the Court of Appeal, is to head the review, which will cover issues such as contingency fees, cost-shifting rules, proportionality and fixed costs. He will report back to the Master of the Rolls Sir Anthony Clarke by the end of 2009.

Lord Justice Jackson will be able to draw on new research by Senior Costs Judge Peter Hurst and Professor Richard Moorhead of Cardiff University that found that contingency fees could operate effectively in England and Wales with or without cost-shifting, though there is a risk they may narrow access to justice, particularly for low-value cases (see [2008] Gazette, 30 October, 1).

But central to the review will be the question raised by Clarke at the last Association of Personal Injury Lawyers annual conference: ‘Do we spend too much time and money assessing costs?’

Wendy Popplewell, chair of the Association of Law Costs Draftsmen (ALCD), has already set up a costs committee to put forward its ideas, under the chairmanship of ALCD president Matthew Harman.

‘We are the people at the coalface dealing with costs day in and day out, so we see what works and what doesn’t,’ says Popplewell. ‘I don’t think enough time is spent assessing costs. It is a fundamental check on the reasonableness of the costs, particularly for individuals and non-lawyer clients.’

Popplewell has her own firm, Equity Law Costing, and works in-house for a magic circle law firm. ‘If the review recommends doing away with fee-shifting and inter partes costs, then we would have to diversify,’ she says. ‘But there will always be solicitor and client costs. When fixed fees were introduced for family legal aid a lot of work went, but then we had more work on conditional fee agreements (CFAs) so I am not pessimistic about the future. We are expanding and have just opened an office in London.’

The ALCD’s vice-chair Iain Stark, of Suffolk-based Stark Costing Services, says the profession has been ‘through the mill’ over the last four years. ‘Predictive fees killed off a lot of work,’ he says. ‘Then we had the advent of the ludicrous legal aid reforms, which killed off other work. Now there is talk of doing away with CFAs and introducing contingency fees.

‘But our profession is reactive. When one door closes, another opens. There is talk of cost-capping, but a new mini-industry has developed dealing in case management summary assessments.’

For Harman, the costs committee will give the ALCD the chance to put forward members’ views without being ‘self-serving’. He is partner at the mixed practice Matthew Harman & Partners, though he mainly does claimant work. He says Jack Straw’s criticism of legal aid lawyers at the Labour Party conference was ‘a bit rich, when the one area of legal aid which could have been made to pay – personal injury – was withdrawn. It wouldn’t have been rocket science to have adjusted the system so that it remained viable’.

Straw also used the conference to warn that he may cap success fees in CFAs because of the ‘scandalous’ way some solicitors were ramping up fees. Stark says these attacks ‘are in no way fair’.

‘A few bad cases, such as the miners’ compensation, plus the bad publicity over the claims management companies, have detracted from the benefits CFAs have brought in terms of access to justice.’

But CFAs also brought a huge amount of satellite litigation. While practitioners say the costs wars have calmed down, there is concern that AXA’s move to recover £60m losses associated with after-the-event (ATE) insurance policies – taken out on claims it argues were not properly vetted – could turn out to be ‘son of TAG’ (see [2008] Gazette, 17 July, 1).

Gary Knight, former ALCD vice-chair and director of national law costs practice Kain Knight, believes AXA is likely to be the last of the big challenges. ‘There is currently an uneasy truce,’ he says. ‘The message should be that technical challenges have no place in the courts anymore. If the costs are unreasonable, address them through detailed assessment. However, there are very inventive defendants who are always looking for ways to challenge the validity of agreements. So, while we won’t see an end to the costs wars, I think there will be minor skirmishes in future, rather than the battles of the past.’

Coming of ageFor costs draftsmen, the last two years have been exciting as their 770-member association, which celebrated its 30th anniversary last year, was given ‘authorised body’ status and made the profession’s frontline regulator.

In a further sign of their coming of age as legal professionals, about 250 fellows of the association have undertaken further training to become costs lawyers, which gives them their own rights of audience – previously they were granted rights as temporary employees of the solicitors instructing them.

It also gives them the right to conduct costs litigation, which means they are able to act directly for the public. They will also be able to hold client accounts once the new ALCD rules are approved by the Ministry of Justice (MoJ).

Rob Carter, chair of the Forum of Insurance Lawyers costs committee, is senior partner of Peterborough firm Carters. He says: ‘By bringing costs draftsmen further into the system, they have become less controversial and more regulated. When the costs wars broke out, there was a wild-west feel to it, but now costs draftsmen are seen as part of the landscape rather than interlopers.’

Popplewell is disappointed that the MoJ has yet to approve the ALCD’s rules. ‘One of the reasons why we wanted the title "costs lawyers" was because members of the public don’t know what we do,’ she says. ‘Now we can be instructed directly by the public we are looking at how to promote ourselves once the rules are approved – but it is difficult because it is very expensive.’

She adds that, while the new rights will promote greater access for individuals, such as those in dispute with their solicitors over their bill, ‘it shouldn’t put solicitors’ noses out of joint too much because they have always palmed costs off onto costs draftsmen’.

Success feesThe other key step in the recognition of their role came with the Court of Appeal decision in Crane v Canons Leisure [2007] EWCA Civ 1352, that the fees of external costs draftsmen can be considered as profit costs by the instructing solicitor, rather than as disbursements, and therefore attract a success fee.

Popplewell says the decision validated costs draftsmen as bona fide fee earners doing solicitors’ work. Knight agrees: ‘It crystallised the argument that drawing a bill and dealing with costs is proper fee-earning work. As a firm, we don’t seek to recover the success fee from the solicitor, so they get a windfall. However, it is also a useful marketing tool because we can say to solicitors that it pays them to instruct us, as they not only get our fees back but they can also retain the success fee on our work.

‘The downside is it has led to some of the larger PI firms setting up their own cost departments, because the charge-out rate is significantly higher than the base costs of employing the costs draftsmen, plus they get to keep the success fee.’

Harman says some solicitors may see Crane as an opportunity to make money. ‘But it is a risky decision to set up a whole department, with all the inherent costs, on the basis of one court decision when these things have a habit of changing round.’

National firm Colemans-CTTS set up its own in-house drafting team last year. Costs lawyer Tracy-Anne Ayliffe, an ALCD council member, heads the team of four, based in the firm’s Manchester office, and is responsible for all civil costs.

The decision to set up the team was not influenced by Crane, she says, but by the advantage of having costs experts in-house. ‘We not only work for our own fee-earners, but we are also looking to take on work from other law firms, insurers and individuals.’

She says the costs review is unlikely to be as damaging to costs draftsmen as some fear. ‘When the Civil Procedure Rules came in, the drafting world thought we had no jobs ahead. But costs have just got progressively more complex and more heavily fought over than ever. But I cannot imagine the review embracing US-style contingency fees. What we do need is more clarity and more workable guidelines.’

Over the last year, according to Knight, costs draftsmen have been moving towards charging hourly rates, generally capped at 6.5% of the solicitors’ profit costs, excluding any success fee.

He says they usually act under the solicitors’ CFA with their client, but it is possible that costs draftsmen may consider entering into CFAs, either with solicitors or individuals. ‘I have never been a subscriber to the idea, but I would look into it if clients wanted it,’ he says.

For Harman the pressure is not so much on costs as on speed. ‘Solicitors want you to turn the work round very quickly to help their cash flow,’ he says.

However, Stark says he is increasingly being asked to accept fixed fees. ‘On the defendant side, I will get a phone call saying there is a case in Oxford which is likely to take five hours and the job will pay X,’ he says. ‘If the money is right, I take it. The profession has to change. If you are defending a bill, you can’t gauge how much time will be required. But if you are attacking a bill, you ask the questions so you know what it is going to take. So you end up doing a lot more fixed fees, which is like taking a brief fee. But if you hold yourself out as an advocate, that is the right thing to do.’

When it comes to fees, the ALCD is consulting its members on whether or not to apply to be graded in the Supreme Court Costs Office guideline rates for summary assessment of costs.

Popplewell says: ‘I am totally on the fence about this, which is a bad place to be. Some members feel it would give them a good starting point if they were graded, possibly at grade B or C depending on the complexity of the matter, while others fear that they could be given their own, lower grade.

‘The problem is some judges think we don’t have the offices or sophisti­cated equipment that solicitors do, therefore we don’t have the same fixed costs and so they are not allowing us reasonable hourly rates.’

Harman is ‘totally opposed’ to ALCD members having their own grade. ‘I am a cynic and I think that this would only be a disappointment to us. The court should look at what is appropriate for the job. Most of our work is grade D, but if it is a massively complicated five-day assessment hearing, the correct grade would be C, if not B’.

Stark also has strong views on grading. ‘I would hate to be banded as a C or D – it is comparative to the office cat and a newly qualified solicitor,’ he says. ‘What it would say is that my 22 years of experience count for nothing. The only thing we would gain from being banded is profile.’

For Popplewell, there are other interesting developments on the horizon. The Legal Services Act holds out the possibility of partnerships under the alternative business structure provisions, while a new pro bono measure came into force last month (see Benchmarks). If a costs draftsman does some work pro bono, the court can order the losing side to pay the fees they could have charged to charity. ‘I think that is an excellent idea,’ says Popplewell, ‘and I shall be championing it during the coming year.’

Grania Langdon-Down is a freelance journalist