Litigation Cash Flow Boost from Appeal Court

Cash flow is king, as the saying goes. Cash flow is even more critical than profit because although a business may be able to show a profit on paper, if the expected payments from clients or customers fail to come in on time, a business can be in serious trouble.

The implications for firms involved in long-running litigation are even greater when the risk is that a solicitors’ firm will not see much of a proportion (if any) of their costs from the losing party for a lengthy period of time. Yet there is existing authority to the effect that solicitors engaged and protracted litigation may be entitled to expect an adequate cash flow – as recognised in a significant ruling of the Court of Appeal.

The recent ruling in HI v Hull & East Yorkshire Hospitals NHS Trust, is extremely welcome news for firms and their accounting departments as the courts are now recognising the importance of cash flow for solicitors’ firms; and the implications for solicitors and potential clients of not making an interim costs order in certain circumstances. Following this ruling in a long running clinical negligence action, the claimant lawyers can now be paid £150,000 by way of an interim payment towards their costs.

What’s the background?

Switalskis acted for the claimant who had suffered catastrophic injuries at birth in October 2007. In December 2012, the High Court approved a liability settlement awarding 90 per cent of the value of claim and made an order for costs – with the expectation that quantum would be assessed by early 2017. However, it is now expected to be 2022.

A further costs payment has since been by the defendant (£165,000 went to Irwin Mitchell where the relevant fee-earner had originally been working; and £50,000 to Switalskis where she now works taking the claimant’s file with her). However, Switalskis was refused a further payment on account of costs by the district judge.

At issue on appeal was whether the court had power under the Civil Procedure Rules (CPR) 44.2 to make an order for the payment of costs in the circumstances of the case; and if it does, an order for a payment on account of such costs. The district judge refused to an order on the basis that “the proper course is for the Claimant to follow Detailed Assessment of his liability costs in line with the order already made”.

However, the High Court overturned that decision and the Court of Appeal upheld its ruling, refusing the Trust’s appeal.

In the High Court, His Honour Judge Robinson differentiated between the making of an order for payment of costs to date in respect of an issue which is still proceeding, and making an order for costs in respect of an issue which has concluded. He ruled that the provisions in CPR 44.2 were wide enough to allow the court to make an order for costs as sought by the claimant.

He said the district judge had erred in ruling that the claimant’s correct course was to follow detailed assessment of his costs in line with the 2012 liability costs order made. Furthermore, HHJ Robinson pointed out that the additional amount sought was only a very modest payment on account of costs which were almost certain to be recovered. There was no risk of overpayment.

He stated: “Failure to ensure adequate cash flow during the period of inevitable delay may lead to the perverse and undesirable consequence that solicitors are unwilling to take on case such as this at an early stage. It is in everyone’s interests to determine liability as early as possible. But, if the consequence is that solicitors must then fund the quantum investigation for 10 years or more, they may not be anxious to take the case on early.” The Trust appealed unsuccessfully

The Court of Appeal identified five critical features in this case:

  1. There was an acknowledged 90 per cent liability;
  2. The claim was very large and will far exceed the interim payments already awarded (the claimant had already received £1.2m on account of damages and the final award was likely to be a lump sum in excess of £3m);
  3. There will be an exceptionally long time before quantum can be finalised;
  4. There has been no Part 36 offer; and
  5. There was effectively no risk the claimants would not recover costs in future.

The key point was whether there was a risk of an overpayment of costs by the Trust should the order be made (there wasn’t). The court said this was a “proper case” for such an order and agreed with the reasons formulated by HHJ Robinson

Critically, Irwin LJ stated: “It seems entirely proper to me to order interim costs payments with a view to the cashflow of solicitors in very long-lasting litigation, where very significant liability has been conceded. That must particularly be so in the case of specialist solicitors who may be facing such problems in a range of cases.”

That said, it is worth noting that he acknowledged that in cases such as this, a key consideration is to preserve security for the defendant so that there is no appreciable risk of a need to repay costs paid on an interim basis. However, in this case it was right to make the order.

What does this mean?

The ruling is undoubtedly to be welcomed by solicitors involved in long-running litigation, particularly those acting for personal injury claimants where the issue of liability has been settled. Firms can now take some reassurance that they should not shy away from taking on such cases because they have serious concerns that recovering their costs in successful cases could prove costly and time-consuming.

The fact that the critical issue of cash flow for law firms has been acknowledged by the Court of Appeal is highly significant; and by extension, it means access to justice for the seriously injured and the vulnerable has been offered an important safeguard.

 

 

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