Hidden Costs Of Litigation

Most people should know that when they instruct a solicitor, it will cost them money. Solicitors charges are either calculated by way of a fixed fee, a percentage of damages or the estate, or by reference to time spent multiplied by an hourly rate. In addition, clients may be asked to pay for something called disbursements - fees paid to other people, usually experts, or court fees etc.

But litigation has further costs involved. When people ask me what are the chances of success, I normally tell them you have a good or bad chance, but litigation is uncertain. Why is this? Surely the law is straightforward? Guess again.

If a case goes to trial there are all sorts of things that can and will go wrong, not least you get the wrong Judge. Judges are supposed to be unbiased and fair but with the greatest respect to Judges, they have political views and opinions just like you or I.  One District Judge in the Midlands area still favours the solicitor firm where he undertook his training many moons ago, a Judge somewhere in the north clearly dislikes female advocates. I once lost an argument based on the fact that my argument was based on evidence from a barrister who practiced law in a rival chambers to that in which his daughter was a tenant. Some Judges are pro-claimant, others are pro-defendant.

Legal Lottery

So this then brings me on to the hidden costs.

These hidden costs of litigation affect businesses and people involved in litigation. They may not show on a business balance account in the same way as legal charges do, but they show in other ways:

• Time spent worrying
• Time spent by companies dealing with the dispute
• Sleepless nights
• Time spent providing and collating evidence, or attending solicitors
• Consequent disruption and possible loss of overtime/revenue/income
• Emotional strain and potential ill health
• Potential loss of business

The above is a bleak list, and so it is vital that when contemplating litigation, to collect and record as much information as possible. If you have had an accident, take photos as soon as possible of the accident site and injuries; if it is business related get as much information as possible about the dispute and the opponents finances and assets so that firstly your solicitor has sufficient information, and secondly, so you are not paying your solicitor to do this work at £180 per hour or so. And finally - choose a good firm of solicitors - not necessarily the cheapest, as the difference between a good solicitor and a bad one is the difference between a win or loss, or £1000s in compensation.

What is your time worth?

Some time ago there was a TV ad featuring BT and Gordon Ramsey (neither of which top my favourites list); which spelled out with fantastic accuracy the small-business dilemma. You might recall; it showed Gordon lying on the floor opening the back of his computer with a carving knife.

So, hands up - which business owners are guilty of doing something similar to this? I know I am.
In the ad, there is a great compounding of errors which includes ruining an essential business tool (the carving knife) and ruining another essential business tool (the computer) as well as the absurdity of the kitchen running out of control whilst Gordon messes up the computer.
It's OTT, but it is also very real.
Most small-business owners, asked to put a value on their time, will come up with a reasonable figure - say £2 - 500 a day - yet most of us will happily spend half a day doing what a professional could do in an hour - without collateral risk.  In the case of solicitors, the billable hour is rated at £111-500 or more in some cases. So why would a solicitor want to spend time on non-chargeable work?
To an extent this approach is encouraged in business literature; Duncan Bannatytne, for example states that the first thing he did was learn accounting 'to save paying for an accountant'. Thinking this through, why do you pay an accountant - there are basically 3 reasons:

1. As bookkeeper. So Duncan values his time less highly than the cost of a bookkeeper? Unless you genuinely enjoy pumping in figures whist Songs of Praise is on telly (and some people do), then this cannot constitute good use of time.

2. As auditor. This is not optional and has to be undertaken by an unrelated party so is not relevant.

3. As advisor/consultant. The results from this should be quantifiable, so there is a clear business rationale to employ or not employ the services of an accountant.

Additionally, amateur accounting, like opening a computer with a carving knife, can produce misleading - or just plain wrong - results, which in turn can lead to bad business decisions.
Don't get me wrong; it is an excellent idea for a business owner to understand accounts - they aren't just for Companies House and the Tax Man - management information (MI) is invaluable for business; learning accountancy will help you to understand and interpret the information which is provided.
But to save money on accountants - sorry worst reason ever.

So, in summary, solicitors should restrict their activities to profitable fee earning work.

Non-profitable work should be outsourced to someone who can do it cost effectively. I would suggest costs falls into this category. Our work is generally costs-neutral in that it generally costs you nothing to employ us. We can do the work quicker and more profitably, in general, than solicitors can.

Non-fee earner work should be outsourced to experts, such as accountants, practice managers, business development managers etc. Being in the legal sector for a number of years, we can certainly help out also on the business development front.

What Law School failed to teach you

Having spent some time with a number of solicitors at the excellent White Paper Conference at the delightful Gray's Inn, it was apparent to many attending that it was great to learn about changes in case law, Jackson effects, new best practices etc, but it would also be good to learn some of the basics about costs, case management and things that really should have been covered when learning to become a lawyer.

 

So, empowered by this I am setting forth on my quest and building on my well-received ebook - to educate the legal profession. It never ceases to amaze me that there are solicitors out there who do not know what a client care letter is, how they are going to be paid for their services, how to put a file together. What effect does failure to obtain an order directing that costs are to be assessed 'forthwith' have?

I would be bold and suggest that it would be better for all to not be embarrassed and accept we do not know everything. I will put my hand up and accept that there are areas of law that I do not fully understand, namely that relating to legal aid (which is why I employ an expert in the field to cover my minor inadequacies).

I recently received points of dispute claiming that my bill of costs was not in the correct format and that a success fee was not recoverable on the costs of preparing the bill. Needless to say, the solicitor in question will be receiving the benefit of my wisdom, when he is referred to CPR Costs Practice Direction where the format of a bill is explained, and KU v Liverpool City Council, in which the  Court of Appeal explained that the CFA covers the case until the conclusion, and that includes the Detailed Assessment hearing.

In order to assist my quest, I would be eternally grateful if anyone could forward details of what is covered / not covered when they undertook the LPC course and / or what details solicitors believe they should know about costs, but do not. A copy of the ebook to all respondents.

Pressure is counterproductive – it leads to resistance

Pressure is counterproductive – it leads to resistance