Vulnerability & Costs in Civil Litigation
Why are we talking about this now?
Certainly for as long as I’ve been working in the civil costs arena (almost 26 years !) and for many years before that, a legal representative has been able to charge a client its legal costs provided they are reasonable; and where a client has brought a successful claim against a third party, that receiving party client can usually recover its reasonable costs from the unsuccessful, paying third party. Many involved in civil litigation will be familiar with the lacuna that exists between the legal fees (i) charged between a legal representative and its client (solicitor/client charges) usually on the indemnity basis; and those (ii) recoverable ‘between-the-parties’ usually on the standard basis. The practical effect of the interplay between solicitor/client costs on the indemnity basis and the recoverability of those costs between-the-parties on the standard basis is that there would tend to be a shortfall of around 20% between the two.
Some parties are ‘vulnerable’ which in turn may cause their legal representative to have to spend more time (and, therefore, generate more costs) by virtue of that client’s vulnerability. Suppose, for example, a client is blind, and it is necessary to ensure all advice and documentation is provided in braille format or, perhaps, a client is agoraphobic, and any in-person meetings require the solicitor to attend upon the client as opposed to vice versa; these are the types of things that would generate more costs. This is not merely theoretical. The Civil procedure Rules (CPR) recognise the potential increase in costs where a party is vulnerable and provides for specific consideration as to ‘proportionality.’ (more on that later). Accordingly, those additional costs would likely be regarded as being ‘reasonable’ meaning the 20% difference would still typically be present. In other words, where a client is vulnerable and that vulnerability has led to an increase in costs, the vulnerable party would not be prejudiced, or at any greater costs exposure, because whilst the reasonable solicitor/client would increase, so to would the reasonable between-the-parties costs.
That, however, may no longer be the case with the introduction of the post 1 October 2023 fixed recoverable costs regime (FRCs). Those recent changes to the law have created unintended (and some may say, intended) consequences such that vulnerable parties may have their access to justice restricted, and in turn are more likely to be penalised in costs, resulting in very real human rights concerns.
What do we mean when we say ‘vulnerability’ in the context of civil litigation?
This list is not exhaustive but even on the factors identified in CPR.r.1 PD1A s.4, it can be seen that ‘vulnerability,’ in the context of civil proceedings, is extremely broad and could encompass a wide range of party and witness characteristics. Such characteristics include:
- Age, immaturity or lack of understanding;
- Communication or language difficulties (including literacy);
- Physical disability or impairment, or health condition;
- Mental health condition or significant impairment of any aspect of their intelligence or social functioning (including learning difficulties);
- The impact on them of the subject matter of, or facts relevant to, the case (an example being having witnessed a traumatic event relating to the case);
- Their relationship with a party or witness (examples being sexual assault, domestic abuse or intimidation (actual or perceived));
- Social, domestic or cultural circumstances.
It would appear that because of the very broad scope of vulnerability, many legal practitioners do not yet seem to have introduced measures to routinely identify vulnerable parties and therefore any additional time spent. Costs generated by virtue of such vulnerabilities are rarely contemporaneously (or otherwise) captured and quantified, but arguably it is necessary to do so as they necessarily play into both the solicitor/client costs liabilities and any between-the-parties costs recovery.
What can legal practitioners do to embrace these reforms and ensure they act in their client’s best interests?
First, it will be necessary for firms to introduce procedures to identify a party’s or witness’ vulnerable characteristics. Whilst such procedures can clearly be implemented as part of a firm’s initial instruction-taking and file-set-up processes, it is crucial to appreciate that vulnerability may be something that is changeable, in that such factors may not be present at the outset but may develop over time. If one considers factors such as social or domestic circumstances or perhaps a developing physical impairment or health condition as part of the broad church, that is the exercise of considering ‘vulnerability,’ and it can be seen that these might be features that could appear further down the timeline of a case’s history. Accordingly, it would seem that firms should, not only have initial procedures in place to identify the existence or otherwise of a party’s or witness’ vulnerable characteristics, but that similar procedures should be revisited periodically throughout the case.
But what then? Upon identifying the existence of vulnerability, it will thereafter be necessary to ascertain whether its existence is likely to lead to additional work and, in turn, generate more costs. If the answer is yes, then one step towards achieving best practice in that regard might be to ensure any additional costs are separately identified and recorded. If those additional costs are by way of disbursements (for example, the vulnerability may require translation services perhaps because English is a client’s second language) then those are easily identifiable items. However, complexities arise where the additional work is a solicitor’s time. Absent separately identifying this additional time (and in turn, increase in costs) there is a risk that, whilst the solicitor/client costs might increase, they become potentially vulnerable in their recovery on a between-the-parties basis given they can, absent context and explanation (or be capable of being identified so that they might be explained) create an appearance of unreasonably high time spent and profit costs incurred.
In order to meet this challenge, one approach to best practice might be that solicitors begin to separately record any additional time costs. Just as one might separately record time with reference to litigation phases, as has been seen in costs budgeting, one might similarly identify and separately record vulnerability time costs. By carrying out such a practice, legal practitioners may better respond, for example, to a vulnerable party’s question “Why are my costs so high?”. Likewise, a legal practitioner may better respond to a between-the-parties challenge on a similar front, and, in this latter context, those separately identified additional costs would be better placed to meet a ‘proportionality’ consideration in a between-the-parties claim for costs. Indeed, in April 2021, the CPR at r.44.3(5)(f) introduced a direction that costs incurred are proportionate if, among other things, they bear a reasonable relationship to “…any additional work undertaken, or expense incurred, due to the vulnerability of a party or any witness.”
The rules from 1 October 2023 saw significant reform to civil litigation and particularly to the costs a successful party can recover in most civil claims with a value up to £100,000. The majority of such claims are now subject to FRCs which means that, irrespective of the costs that may have been incurred between solicitor and client, even where those costs may be higher due to a client’s vulnerability, the costs capable of being recovered between-the-parties is ‘fixed’ often by reference to a combination of a set, predetermined financial sum plus a percentage of any damages. Absent anything else and given one side of the costs fence is fixed, the solicitor/client shortfall will naturally become greater.
A procedure has been introduced to allow a party to recover greater costs than FRCs at the end of their claim where (i) the client is vulnerable; (ii) that vulnerability has led to additional work; and (iii) by reason of that additional work alone, the claim is for an amount that is at least 20% greater than the amount of FRCs; but (iv) 20% or more is not allowed on assessment the vulnerable party will most likely have to bear their own additional vulnerability-related costs and pay any adverse costs due to the ‘failed’ procedure.
This system was no doubt created in a genuine, good-faith attempt to address the issues that would otherwise exist as a result of the interplay between solicitor/client conventional costs and between-the-parties fixed recoverable costs. However, it creates a number of very serious concerns.
The fundamental concern in relations to costs is the level of additional uncertainty that applies only to a vulnerable Claimant for the entirety of their claim and until costs fall to be determined at its conclusion.
There are also broader access to justice concerns for vulnerable clients within the new fixed recoverable costs regime. As the procedure to recover vulnerability-related costs over and above FRCs seems burdensome and uncertain, it may reduce a solicitor’s appetite to act for such individuals.
What can a legal representative do when faced with the possibility of acting for a vulnerable Claimant?
Well, first, they could simply ensure that their letter of engagement/retainer/funding arrangement provides that the client is responsible for any additional vulnerability-related costs and, in the event that they are not recovered, notwithstanding the increased burden of the procedure, the vulnerable Claimant remains responsible for them. Whilst contractually, at least in principle, this would seem to be the ‘normal’ state of play, the result does seems very unfair and is wholly, commercially unattractive for firms wishing to offer their services to vulnerable parties.
Alternatively, a legal representative could agree to that ‘normal’ contractual position as a starting point but, in the event those additional vulnerability-related costs are not recovered between-the-parties, substantially or at all, the legal representative could agree to waive or absorb those additional costs. But this also becomes commercially unattractive for the firm and whilst some firms may be happy to do this on the odd occasion, those who regularly work in legal service areas where their clients are often vulnerable, this has the potential to become financially problematic which may result in such firms, reluctantly no doubt, exiting that market leaving vulnerable parties potentially unrepresented. Such a situation clearly creates fundamental issues of access to justice.
One of the other areas of concern is not knowing the state of a vulnerable Claimant’s additional costs liabilities until the end of a case;, this is clearly unacceptable. Whilst there is no express provision for this, legal representatives could seek to address these issues much sooner in litigation. They could foreshadow the fact that their client is vulnerable, that those vulnerabilities will lead to additional costs that would, ordinarily, not be recoverable between-the-parties under the fixed recoverable costs regime and invite an opponent to agree that fixed recoverable costs will not apply. Alternatively, they could invite the Court to manage the case, and perhaps allocate the claim to the Multi-Track so as to avoid the risks of prejudice that may arise from the fixed recoverable costs regime.
At this early stage, following the implementation of the post 1 October 2023 fixed recoverable costs regime, one thing does, however, seem clear…vulnerable parties seem to be more vulnerable as a result. Only time will tell as to the extent to which that may impact access to justice.
Author Nick McDonnell, Director and Costs Lawyer
