Professional negligence update

The number of claims made against solicitors and/or barristers relating to their conduct of litigation has increased in recent years. These claims have tended to involve allegations that the lawyers involved made poor strategic decisions or gave negligent advice on settlement and/or the merits of the claim, as in
the cases of Levicom v Linklaters [2010] or
Langsam v Beachcroft [2012].

However, in light of the procedural changes implemented as part of the Jackson reforms and the stricter approach to compliance that followed the decision in Mitchell v News Group Newspapers Ltd [2013], complaints and claims made against solicitors about their failure to adjust to this new procedural landscape have emerged.

Missed deadlines

The Court of Appeal‘s decision in Mitchell has provided perhaps the greatest cause for concern
for litigators in the last 12 months. The outcome confirmed that relief from the sanctions resulting from a failure to comply with a court-imposed deadline could only be obtained in exceptional circumstances and dramatically curtailed the potential to mitigate the adverse consequences
of missing a deadline.

Many, particularly in the adjustment period shortly after the decision, feared that this would lead to an increase in the number of claims against lawyers arising from procedural failures.

However, more recently, there has been a significant move away from the strict Mitchell approach. In Hallam Estates v Baker [2014], Lord Justice Jackson himself encouraged a more measured approach to compliance, and, since
5 June 2014, the so-called ‘buffer rule‘ has been in operation, allowing parties to agree an extension of time for up to 28 days for any step in the litigation, provided that it does not put any hearing dates, such as a trial, pre-trial review or CMC at risk.

Further, on 4 July 2014, the Court of Appeal handed down its decision in three conjoined appeals (Denton v TH White Ltd and Anr, Decadent Vapours Ltd v Bevan and Ors and Utilise TDS Ltd v Davies and Ors [2014]), in which a new three-stage test was introduced, requiring those considering applications for relief from sanctions to take a more holistic approach.

While the new test appears considerably more balanced than the strict approach of Mitchell, the Court of Appeal has also made it clear that the old culture of non-compliance will not be tolerated, so there can still be no expectation of leniency in
the event of default.

Nevertheless, in light of Denton, it is now unlikely that the profession‘s fears will come to pass. While the consequences of missing procedural deadlines will, almost certainly, include claims against solicitors if default leads to the loss of a claim or financial constraints being imposed, the increased focus on compliance with deadlines, together with the emphasis on cooperation in agreeing extensions, is likely to ensure that fewer deadlines are actually missed in the future, and that such claims will therefore be few and far between.

The Jackson reforms, however, brought in a raft of changes, including the requirement for solicitors to prepare and file detailed precedent H costs budgets. This requirement may prove to be a greater source of claims against solicitors dealing with litigation.

Detailed budgets

The current rules require parties to prepare and file detailed costs budgets in all claims (save for a few relatively minor exceptions) commenced on or after 22 April 2014, where the sum claimed does not exceed £10m. Further, the court has the discretion to require costs budgets to be filed in any case, regardless of value.

The profile of the costs budgeting provisions skyrocketed with the Mitchell decision, which, of  course, dealt with the claimant‘s failure to file his costs budget on time, with the result that, if he is ultimately successful in his claim, he will be able to recover only his court fees and not the additional £500,000-plus in legal fees he anticipates the claim will cost.

Undoubtedly, this financial restriction will have led to, at the very least, a strained conversation with his solicitors and their insurers. Similar uncomfortable moments await any solicitor who makes the same error.

In addition to claims against solicitors who fail to file a costs budget at the appropriate time, we also envisage claims being made against solicitors who prepare costs budgets that do not predict the likely cost of the litigation with sufficient accuracy.

While there is limited case law dealing with the way in which costs budgets will be used when costs are assessed, it is likely that they will have a restrictive effect and that parties will find it very difficult to recover costs over and above those provided for in their costs budget. As Moore Bick LJ explained in Henry v News Group Newspapers Ltd [2013], a party seeking to recover their costs from the other side is unlikely to persuade the court that costs incurred in excess of budget are reasonable and proportionate.

In such circumstances, where a successful party is nevertheless left with a substantial costs bill because they have overshot their costs budget and are unable to recover their expenditure from the losing party, they will undoubtedly look to their solicitors (and insurers) for redress.

Because high-value cases are now caught by the requirement to prepare costs budgets, coupled with professionals adjusting to the new experience of crystal-ball gazing to determine overall costs from a relatively early stage in the proceedings, the risk of significant costs overshoots and attendant claims will probably increase.

The risk of a party exceeding its costs estimate (and subsequently making a claim against its solicitors) is compounded by the restrictions placed on the party‘s ability to update its costs estimates.

As you might expect, parties are allowed to amend their costs estimates in the event that a significant development occurs affecting the conduct of the case.

However, as was made clear by Coulson J in Murray & Anr v Neil Dowlman Architecture Ltd [2013], it will usually be extremely difficult to persuade a court that inadequacies or mistakes in the preparation of a budget should be subsequently rectified.

The courts will expect parties to undertake the budgeting exercise properly the first time around and, accordingly, it is unlikely that a solicitor will be able to mitigate any problems caused by filing an inadequate costs estimate. Therefore, solicitors who prepare inadequate costs estimates are not likely to be able to rectify the problem, with the consequence that a miscalculation is more likely to lead to a claim.

The complexity of the task facing a litigator is further compounded by the requirement for budgets to be ‘proportionate‘. From 1 April 2013, the overriding objective was amended so that the court is required to deal with cases justly and “at proportionate cost“. In Willis v MRJ Rundell & Associates Ltd [2013], Coulson J, having considered both parties‘ budgets, highlighted the need for proportionality.

On the basis that it was going to cost significantly more to fight the case than the claimant would ever recover in damages, he held that the budgeted costs were disproportionate and unreasonable and rejected both parties‘ costs estimates. Accordingly, a party faces sanction if their costs estimate is too high or too low and, having suffered as a result of this inaccuracy, will undoubtedly consider a claim against their (former) solicitors.

Complaints culture

In the near future, we would expect to see an increase in the number of claims brought against solicitors who have failed to comply with the procedural requirements provided for as part of
the Jackson reforms.

However, while a great deal of attention has been given to the consequences of failing to comply with procedural deadlines, it is our view that a greater number of complaints and claims will be made against law firms in relation to deficiencies in the preparation and filing of costs budgets.

Accordingly, firms should take steps to
minimise their exposure to claims of this nature
by establishing a group of lawyers within the firm specialising in costs and by increasing their use of information technology, to capture and share information relating to the costs of litigation across the firm.

In doing so, firms should be able to reduce the risk that they will fall victim to this new type of failed litigation claim. SJ

Sarah Clover, pictured, is a partner and Joseph Moore is an associate at Clyde & Co