The law of privilege prevents a close study of the negotiation process in most cases. That is why everyone involved in litigation could benefit from reading the judgment today of Mrs Justice Slade in FPH Law -v- Brown  EWHC 1681 (QB) where the negotiation process is examined. A failure to reach a negotiated settlement on costs turned out to be expensive for the receiving party.
The claimants were bringing an action against the defendant who was a former partner in the claimant firm. The defendant left the firm taking certain files with him and giving undertakings as to the payment of costs. Those undertakings included providing the claimant with reasonable information about significant developments in the files.
One case settled and the defendant started the process of negotiating costs. the judge was concerned with a preliminary issue of whether the claimant firm of solicitors was able to claim damages for loss of chance (she held that they were). However I want to look at the negotiation process.
THE NEGOTIATION PROCESS (THIS DOESN’T END WELL FOR THE CLAIMANT)
The judge set out the chronology of what happened after the case settled and the defendant started to negotiate costs.
“9) On 30 March 2011 the Defendant served a bill of costs in the total sum of £84,050.72 which included both his own and the Claimant’s costs.
10) On 26 April 2011 Jarvis plc’s solicitors offered £55,000 in respect of costs. In their letter of offer to the Defendant the solicitors challenged the validity of the Claimant’s CFA by reference to Regulations 3 and 4 of the Conditional Fee Agreements Regulations 2000(“the Regulations”) and requested disclosure. The offer was rejected.
11) On 5 May 2011 the solicitors orally increased the offer to £64,000 and repeated their concern about the validity of the CFA. The Defendant rejected the offer. On 6 May 2011 the solicitors confirmed their offer of £64,000 in writing.
12) On 6 May 2011 the Defendant notified the Claimant that he had rejected both offers. He suggested a counter-offer of £77,000 with a view to settlement at £73,000. The Defendant’s letter to the Claimant made no reference to the solicitors’ challenge to the validity of the CFA.
13) On the same day the Defendant wrote to the solicitors asserting compliance with Regulation 4 of the Regulations but did not disclose any documents.
14) On 9 May 2011 the Claimants authorised an offer of £77,000 to settle the claim for costs.
15) On 10 May 2011 the Defendant made an offer to the solicitors of £78,000.
16) On 16 May 2011 the solicitors increased their offer to £70,000.
17) On 24 May 2011 the solicitors for Jarvis plc served their Points of Dispute which included a challenge to the Claimant’s CFA on the grounds of non-compliance with Regulation 4 of the Regulations.
18) The Defendant replied to the Points of Dispute on 7 June 2011.
19) On 12 July 2011 the solicitors served Supplemental Points of Dispute again asking questions pertinent to compliance with Regulation 4. On 27 July 2011 the Defendant answered the challenge that there was no provision in the CFA for the Claimant to increase their charging rates to Mr Douglas by writing that it states:
“The present hourly rates are:- making it clear that the rates quoted are current.
The Defendant wrote:
“The Claimant accepts that the agreement does not say for example, that ‘these rates may be increased’ etc. but the use of the word ‘current’ implies this.”
The Defendant disclosed two pages of the CFA.
20) The Bill of Costs served by the Defendant on behalf of Mr Douglas included an item of 6 minutes for preparing the CFA on 3 October 2003.
21) On 18 November 2011 at the hearing of the detailed assessment of costs, District Judge Smedley adjudged the CFA unenforceable for non compliance with Regulations 4(2)(c) and 4(2)(e)(ii) and accordingly disallowed all the Claimant’s profit costs. The District Judge made an adverse costs order against the Claimant in the sum of £5,000.
22) The Claimant issued proceedings against the Defendant on 4 February 2014.”
WHAT HAPPENED IN A NUTSHELL
- The bill of costs was for £84,000 (the receiving party would have accepted £73,000).
- The paying party made an offer of £70,000.
- The receiving party ended up with nothing except a liability to pay £5,000 in costs.
- The solicitor dealing with the case now faces an action by his former partners for failing to tell them of the points being taken in relation to the indemnity principle.
(There was no issue that the original decision of the District Judge, disallowing costs, was correct in law).
THE “RISKS OF LITIGATION”
If ever a case exemplified the term “risks of litigation” this one does. It was certainly a bold step to proceed to assessment when there was only £7,000 between the parties. The solicitor involved ended up considerably out of pocket (and it could get worse).