IN THE KINGSTON UPON THAMES COUNTY COURT

CASE No. KT903476

BETWEEN

MICHELLE JANE STRINGER

Claimant

And

SIMON COPLEY

Defendant

REASONS OF HIS HONOUR JUDGE MICHAEL COOK

FOR HIS JUDGMENT OF 17 MAY 2002

This is an appeal by the Claimant against a detailed assessment of her costs pursuant to an order of 5 December 2000. The appeal is about four discrete issues in respect of which permission to appeal was refused by the District Judge but granted by another Circuit Judge.

A disadvantage of costs appeals being governed by CPR Rule 52 is that the former procedure of obtaining the written reasons of the costs officer for his decisions on points in issue has gone, which means that unless the parties make verbatim notes of each of the cost officer’s decisions during the course of the assessment, it is necessary to incur the expense of obtaining a transcript of, the entire hearing. I have had the advantage of such a transcript on this appeal.

Hourly Rates

Although proceedings were not issued until July 1999 the work covered by the costs to be assessed commenced shortly after July 1996, the date of the road traffic accident which gave rise to these proceedings. Prior to the introduction of the CPR on 26 April 1999, it was the practice of the Surrey Courts in routine cases, such as this, to have a composite expense rate to cover all levels of fee earner, to which was to be added the appropriate mark-up for care skill and attention, usually 50%. The first ground of appeal is that although the District Judge was supplied with details of the routine hourly expense rates allowed by the Surrey Courts during the relevant periods in the litigation before 26 April 1999, he did not apply them. Neither did he apply the recommended hourly rates, which include markÑup, applicable after 26 April 1999. The relevant expense rates being allowed in the surrey Courts were £75 in 1996 and 1997 and £80 in 1999, prior to 26 April, to which was to be added an appropriate profit markÑup. It appears that no work was done in 1998. The ClaimantÕs bill was based on the normal routine rates with the usual 50% markÑup, resulting in hourly rates of £112.50 and £120.00 during the relevant years. The Defendant conceded £100.00 per hour for all three years. However, the District Judge allowed only £80 for 1996, £85 to 1997 and £95 for pre-26 April 1999 without any additional mark-up. The amounts allowed were not only considerably less than those claimed and conceded, they bore no discernable relationship to the prevailing composite routine expense rates prevailing in the Surrey Courts at the relevant time, and included virtually no profit mark-up. The District Judge did not explain how he arrived at his figures. In the circumstances I found that the District Judge was wrong in applying the rates that he did, and I substituted the rates contended for by the Claimant. The District Judge found that the appropriate level of fee earner was Grade 2 (now Grade B) for which the recommended routine hourly rate for the Surrey Courts after 26 April 1999 was £120, and I substituted this figure for the £110 allowed by the District Judge.

Witness Statements

Item 15 of the Bill was:

“Attending the Claimant and the Claimant‘s cousin (passenger) to take statements and preparation and drafting of the same.

Total time expended: 4 hours 30 minutes

£519.75

£ 90.96 VAT.

This work had not in fact been done by a fee earner in the firm of solicitors acting for the Claimant, but by the Litigation Support Agency whom the solicitors had instructed. The Litigation Support Agency had charged the solicitors £250 plus VAT not only for doing the work included in plan 15 of the Bill but also for attending at the scene of the accident, preparing a plan and taking photographs (including the cost of the film and processing of about £10) and preparing a locus report (a charge for none of which work, I observe, appears to have been included in the between-the parties bill). The District Judge was not informed how the time engaged of 4 hours 30 minutes was calculated, and neither have I. The Litigation Support Agency supplied a breakdown of the estimated time spent on the work in item 15, including traveling to Kent from High Wycombe, showing a total in excess of five hours. The actual calculations were not considered by the District Judge, because he disallowed the item in its entirety, and on this appeal I have been simply invited by the parties to say whether or not the District Judge was wrong to do so.

From the transcript of the hearing it appears that the view of the District Judge was that the charges of the Litigation Support Agency should be treated as a disbursement (although he did not in fact do so) and that the solicitors were not entitled to charge on the basis that the work had been done by a fee earner in their firm. He compared the employment of a support agency with going to a doctor privately, saying ‘You pay out a fee. What is the fee paid?’ However when the Defendants, as the paying party said they were prepared to pay £50.00 in respect of item 15, the District Judge responded that that seemed rather hard, and he allowed £75. How the District Judge arrived at that figure and whether it was intended to represent a fee or a Disbursement is fortunately no concern of mine, because the issue I am called upon to resolve is simply that of principle: were the solicitors entitled to treat the work done by their agents as though it had been done by their own fee earner and charge on this basis?

On the face of it, the District Judge’s reaction was understandable - why should a solicitor make a profit out of someone else’s work? The answer is that solicitors, as with most commercial enterprises, professional or otherwise, are doing it all the time. They make a profit out of those whom they employ. Otherwise what would be the point or purpose of having employees?

Most firms of solicitors employ qualified or unqualified fee earners for whose work they make an hourly charge to their clients, usually calculated on the cost of the fee earner to the firm, including his share of the overheads, together with an appropriate profit margin. It is a practice which has long been recommended and supported by the Law Society in its publication ‘The Expense of Time’ An increasing number of solicitors, rather than incur the overheads and Liabilities of employing fee earners, use outside agencies, as, of course, do many other businesses, to do work for them, but they nevertheless treat that work (for which they are ultimately responsible) as though it had been done within the firm. An historic example of this philosophy is for a firm of solicitors to pay counsel for his advice out of their own pockets, but to charge the client as though the solicitors themselves had given the advice. Another example is enshrined in paragraph 4.16(6) of the Costs Practice Direction which provides ‘Agency charges as between a principal solicitor and his agent will be dealt with on the principle that such charges, where appropriate, form part of the principal solicitorÕs charges’. The various threads of this philosophy were drawn together in the judgment of Mrs Justice Hale in Smith Graham (a firm) V The Lord Chancellor’s Department QBD [1999] NLJR 1443 when she held that a retired police officer not employed by the firm of solicitors who instructed him to carry out investigative work for them was not excluded from the definition of fee earner. She rejected the contention of the Defendant that the police officer as an independent contractor should be treated as a disbursement and not a fee earner. That Case concerned the assessment of costs under a legal aid certificate in criminal proceedings, but the principle and (philosophy are of equal application to privately funded civil work. Accordingly, I found the District Judge was wrong to have disallowed this item and restored it in full, the amount not being disputed.

Medical Agency Fee

In routine personal injury cases, where a medical report is required, it has become a common practice to instruct a medical agency to arrange a medical examination of the Claimant, to undertake the collation and obtaining of relevant medical reports, to arrange the appointment with the medical expert and the Claimant, deal with any cancellations or rearrangements, and to deliver the resultant medical report to the solicitors. Because of the specialisation, experience and expertise of the medical agency they are able to do this administrative work, at least as efficiently, expeditiously and economically as most firms of solicitors using their own fee earners. In the present case there were two medical reports on the Claimant each obtained through a different medical agency. The first was item 22 on the bill for which an invoice was rendered by Medico-Legal Appointments Limited for £140 in respect of the report of Dr Davies. The second medical examination was arranged by Medplan Medico-Legal Reports for which their charge for supplying a report from Mr. Muftah was £375 and appeared as item 35 in the bill. The District Judge allowed the charge of Medplan at item 35 in full, but cavilled at that of Medico-Legal Appointments Limited at item 22. On the face of it the only difference between the two invoices was that Medico-Legal Appointments condescended to particularity, while Medplan did not. The invoice of Medico-Legal Appointments revealed that the total of £140 comprised £90 Dr Davies’ fee together with a fee of the agency of £42.55, which with VAT of £7.45 conveniently rounded up to £50 a total of £140. According to the transcript the District Judge’s initial reaction was ‘it is the usual story, is it not? I [have] never allowed it in the past’. This appeal has been conducted on the assumption by both parties that by those words the District Judge meant that he was disallowing the agency’s fee on principle and it is on principle that I am invited to make a finding. From the transcript, it is not clear whether or not the District Judge did in fact disallow item 22 on principle. As I have said, he allowed item.35, to which the same principle applies, in full. He also may have distinguished between the two agencies because in his judgment he says ‘Muftah asked for the GP’s notes’ whilst in respect of Dr Davies the District judge recorded ‘All they did is give the name’. In any event, both parties wish me to make a decision on principle, and I am satisfied that there is no principle which precludes the fees of a medical agency being recoverable between the parties, provided it is demonstrated that their charges do not exceed the reasonable and proportionate costs of the work if it had been done by the solicitors. In view of my finding, both parties accepted that this item should be restored in full.

There are however two matters that concern me. First, although the District Judge allowed the charge of Medplan in full, neither

He, nor I, nor the paying party know how much of the sum of £375 was the doctor’s fee and how much were the charges of Medplan.

To demonstrate the point by taking an extreme, if the doctor’s fee were only £75 and Medplan’s charges £300, the total of £375 would undoubtedly be unreasonable and disproportionate. It does therefore seem to me important that, whilst there is much to commend the use of medical agencies, it is important that their invoices (or Ôfee notesÕ) should distinguish between the medical fee and their own charges, the latter being sufficiently particularised to enable the cost officer to be satisfied they do not exceed the reasonable and proportionate cost of the Solicitors doing the work. My second, and lesser, concern is that the invoice of Medico-Legal Appointments for £140 had concealed in it an element of VAT and I have doubts as to whether their account delivered in this way either amounts to a VAT invoice or is an appropriate way of dealing with VAT. The Medplan invoice made no mention of VAT, but perhaps this is because they are not registered for VAT.

I add as a postscript that in view of my finding in respect of the Litigation Support Agency, it would appear that the fees of medical Support agencies could also be treated as though the work had been done by the solicitors and charged accordingly.

Proportionality

The last ground of appeal is that the District Judge was wrong in his approach to the application of the requirement for proportionality, which resulted in him reducing the costs he would otherwise have allowed by some £300 plus VAT. In the present turbulent and controversial costs climate I would hesitate long before saying that anyone was wrong - or, indeed, right! - in their approach to proportionality, certainly before I had the temerity to overturn them on appeal. It is not, of course, a question of whether to substitute my discretion for that of the District Judge, but of whether I am satisfied that he was wrong in the application of the principle of proportionality. There were two aspects of his approach that caused me disquiet. First, his observation that for the recovery of £1,300, £5,500 had been spent on costs which ‘cried out for some adjustment on proportionality’. It was pointed out to the District Judge that the principle of proportionality had already been taken into account in reducing the figure of £5,500 to £2,728.82, of which only £1,600 was the solicitors profit costs.

The District Judge then concluded that £1,250 profit costs would be proportionate to the award of £1,300 damages, but he increased his figure of £1,250 to £1,300, thereby making the award of costs virtually identical to the amount of the damages awarded. The detailed assessment took place before the guidance given in Lownds V Home Office, (2002) EWCA Civ 365 and I am concerned that the approach of the District Judge may have resulted in a double reduction on the grounds of disproportionality, both in respect of the individual items in the bill and the resultant global figure. It is far from self-evident that profit costs of £1,600 are disproportionate to an award of £1,300, which itself was a 50% reduction on the grounds of contributory negligence of an award of £2,600 damages. Despite my concerns, I would not be minded to interfere with the reduction for that reason alone. However, it appears to me that a fundamental flaw in the District Judge’s decision is that he applied the test of proportionality to the whole of the costs awarded, whereas the principle did not apply to any costs incurred prior to the introduction of the CPR on 26 April 1999. As I have said, work was done and costs incurred in 1996, 1997 and the early part of 1999, none of which may be reduced on the grounds of proportionality. I considered whether I could support the District Judge’s finding by making some arbitrary apportionment of his reduction between preÑ and postÑApril 1999 work, but I think this would be neither practical nor appropriate, particularly in view of my doubts about the way in which the District Judge applied the principle of proportionality. Accordingly I allow the appeal against the reduction of the costs on the grounds of lack of proportionality.

The Claimant having succeeded on all four heads of the appeal, the costs followed the event and I ordered the Defendant to pay the claimant‘s costs of the appeal, which I summarily assessed.

11 June 2002

As a result of recent judgements, many of our solicitors recover our costs at a fee earners rate, as is set out within ‘Stringer V Copley’.

Legato Legal Services, Registered Address - 62 Newport Road, Cardiff CF24 0DF • Email: office@legatolegalservices.co.uk • www.legatolegalservices.co.uk

Registered in England & Wales No: 06242820 • VAT No: 263 4317 14