Michael Cook examines how the value element should be rewarded both in contentious and non-contentious costs against the backdrop of the Jemma decision

'What does the Law Society ever do for me?' is a frequently asked question from solicitors.

The topical answer is: 'Jemma.'

The Society obtained permission to intervene in the Court of Appeal on behalf of the profession in Jemma Trust Co Ltd v Liptrott [2003] EWCA Civ 1476.

Although the subject matter of this appeal was non-contentious probate costs, the judgments were concerned with issues fundamental to all costs, both non-contentious and contentious: how should the value element be rewarded, and why should there be a difference between the two regimes?

In respect of non-contentious costs, the Solicitors (Non-Contentious Business) Remuneration Order 1994 article 3(f) prescribes that one of the circumstances to be regarded in evaluating a solicitor's remuneration is 'the amount or value of any money or property involved'.

Quantification of contentious costs is governed by Civil Procedure Rule 44.5(3)(b) - the wording of which is exactly the same.

In other words, in both costs regimes the value element is one of the prescribed factors - known to their friends as the 'seven pillars of wisdom' - all of which are virtually identical for both contentious and non-contentious business.

In litigation, there has been increasing concern that in pursuit of the Holy Grail of control and certainty, the emphasis on hourly charging rates may ignore not only the value factor but all of the factors prescribed by CPR rule 44.5 other than the time spent.

Indeed, the Lord Chancellor's Department's consultation paper 'Controlling Costs', famously postulated that replacing expense rates plus mark-up with hourly charging rates would in effect remove the profit element from solicitors' bills.

The costs judge's decision in Jemma Trust was a step towards extending this insidious philosophy to non-contentious work.

The decision has been well reported.

Briefly, the costs judge took the view that solicitors' time recording is now so sophisticated that making a separate charge based on value, as recommended by the Law Society, is an anachronism.

The court held that he was wrong on two counts.

First, it is still appropriate for solicitors who are administering an estate to charge a separate fee based on the value of the estate, provided always that the remuneration is fair and reasonable in the light of all the circumstances.

Second, by disallowing a charge based on the value element and only allowing a miserly hourly rate, the costs judge had in effect failed to have any regard to the value element.

Apart from emphasising the need for a regressing scale in high-value probates, the decision did no more than affirm the status quo with some updating for inflation.

The wider interest lies in the judgments.

They demonstrated that in the quantification of solicitors' costs, the value element and the other prescribed factors are alive and well, whether or not the value element is rewarded separately.

Lord Justice Longmore did not consider it in any way decisive that, in an assessment of costs in contentious litigation, it is now usual to incorporate the value element of any money or property into the hourly rate.

There are significant differences in the circumstances in which charges are made for contentious and non-contentious business and the approach to such charges can properly differ even though the same factors fail to be taken into account.

In a litigation context, it may be difficult to say what the 'value' is, for example, in claims for declarations or injunctions.

A claimant's claim may transgress the bounds of permissible optimism even if it is expressed in money terms.

Moreover, the parties have to decide what hourly charging rates they intend to claim at the outset of contentious business, for several reasons.

Costs will usually be payable by one or other of the opposing parties, both at stages of the litigation (where the costs will be summarily assessed) and at the end (where there will be a detailed assessment).

Therefore, the charging rates to be claimed in respect of the costs payable by the opposing party will have to be known both for the summary and the detailed assessments.

And they will also facilitate settlement because the parties will be able to predict with reasonable accuracy what additional costs are likely to be incurred if the case proceeds.

Also, the court will ordinarily require the parties to give particulars of costs incurred and to be incurred at various stages of the proceedings for the purposes of case management.

The hourly rates to be claimed by one party from the other in contentious business can be adjusted retrospectively in the light of factors known at the time of the assessment.

By contrast, solicitors rendering bills to personal representatives over a period of time are not in the same position.

It may assist clients or other entitled persons to have the certainty of a charge embracing a separate value element (even if in monetary terms the appropriate charge by reference to value is small compared with the overall charge).

They will then know that the further charges for time will depend on the hours spent on the business, and that such further charges will exclude any element based on value.

Lord Justice Mance found the distinction between the two regimes difficult to rationalise and thought its primary reason was that it is generally more likely to be feasible to identify a value in non-contentious work (estate work in particular) than in contentious work.

This was not to his mind a real justification for charging non-contentious work on a dual basis of value and an hourly rate, but nor was it a justification for not doing so in contentious cases where the amount in issue is clear.

He concluded: 'The suggested difference between contentious and non-contentious work is not clear-cut and, in any event, affords no particular positive reason for calculating fees on a dual basis, rather than purely by reference to an hourly rate (allowing for the value in the uplift), as in contentious work'.

However, he expressed concern that 'one feature of hourly charging, for which even the most skilled costs judge may, I imagine, find it difficult to allow, is its propensity to reward "plodding" work, or - and this is, I suspect, as, if not more, relevant - its propensity to encourage and reward excessive diligence, whether by an individual or in the form of excessive deployment of man or woman-power'.

It is because of the concern expressed by Lord Justice Mance that the recognition of the importance of the value element in the quantification of solicitors' costs is to be welcomed.

Following the decision in Higgs v Camden & Islington Health Authority [2003] EWHC 15 QBD (16 January) that the costs judge was right to verify the hourly rate by reference to the A factor (expense) and the B factor (profit), Jemma Trust is further assurance that, despite the efforts of the number-crunchers, the assessment of solicitors' costs, contentious and non-contentious, is still a judicial exercise based on the 'seven pillars of wisdom', and not a Procrustean application of inflexible figures.

Retired circuit judge Michael Cook is general editor of Butterworths Costs Service and the author of Cook On Costs