Chapter 02: Considerations at the First Interview Including Funding the Claim PDF

Considerations at the First Interview Including Funding the Claim 15 CHAPTER 2 Considerations at the First Interview Including Funding the Claim 2.1 Introduction 15 2.2 Purpose of the first i...

Considerations at the First Interview Including Funding the Claim 15 CHAPTER 2 Considerations at the First Interview Including Funding the Claim 2.1 Introduction 15 2.2 Purpose of the first interview 16 2.3 Professional conduct 16 2.4 Funding 18 2.5 Case analysis 26 2.6 Viability and burden of proof 29 2.7 Interest 31 2.8 Foreign element and choice of forum 35 2.9 Alternatives to litigation 35 LEARNING OUTCOMES After reading this chapter you will have learned: what to consider when first interviewing a client how to advise a client about costs how to enter into a conditional fee agreement the different types of insurance cover the difference between a conditional fee agreement and a contingency fee the basics of Community Legal Service funding the effect of the Limitation Act 1980 why it is essential to identify all possible defendants and check their solvency the remedies available in a typical claim how to claim interest the factors affecting any choice of forum when and why the client might use ADR methods. 2.1 INTRODUCTION In Chapter 1 we looked at the five stages of a civil claim (see 1.3). Stage 1 – pre- commencement – is one of the key stages where you will be gathering evidence and establishing the facts in order to advise on viability. If any evidence or facts are overlooked, incorrect decisions could be made, and at worst this could result in the case being lost or costs being wasted. In Chapters 2 and 3 we discuss each step you will have to consider at Stage 1; not all will be necessary in every case, but you should always run through the checklist at 3.13 every time you open a new file. 16 Civil Litigation In this chapter we consider the first interview and the issues you will need to discuss with the client before proceeding to the detailed fact and evidence gathering phase outlined in Chapter 3. 2.2 PURPOSE OF THE FIRST INTERVIEW The first interview between the solicitor and client is very important from both parties’ points of view. The client will be anxious that the solicitor appreciates their problem, and will want to be assured that there is a satisfactory solution to it. The client is likely to be concerned about the potential amount of legal costs and will want some idea of the timescale involved. At the same time, the solicitor needs to be able to extract relevant information from the client in order to give preliminary advice on such issues as liability and quantum. A solicitor will need to: (a) identify clearly the client’s objectives in relation to the work to be done for the client; (b) give the client a clear explanation of the issues involved and the options available to the client; (c) agree with the client the next steps to be taken; and thereafter (d) keep the client informed of progress. As to (a), the scope of the work to be done for the client is formally known as the solicitor’s ‘retainer’, namely the work for which the client has retained the services of the solicitor. It is usual to refer to a client ‘instructing’ their solicitor on a particular matter. There is no comprehensive list of those matters that need to be dealt with at first interview because each case is different. However, the matters set out below should always be considered. 2.3 PROFESSIONAL CONDUCT A detailed consideration of this area is contained in Legal Foundations, Part II, Professional Conduct. The solicitor acting in civil proceedings must, in particular, have regard to the following rules of professional conduct. 2.3.1 Duty of confidentiality By para 6.3 of the Solicitors Regulation Authority (SRA) Code of Conduct for Solicitors, a solicitor is under a duty to maintain the confidentiality of their client’s affairs unless the client’s prior authority is obtained to disclose particular information, or exceptionally the solicitor is required or permitted by law to do so. It is important to note that the duty of confidentiality continues after the end of the retainer. If a solicitor holds confidential information in relation to a client or former client (A), they should not (unless appropriate safeguards can be put in place) risk breaching confidentiality by acting, or continuing to act, for another client (B) on a matter where that information might reasonably be expected to be material and client B has an interest adverse to client A. Ideally, therefore, before the first interview you should check that you do not have confidential information in respect of client A which you would be under a duty to disclose to the proposed new client B. 2.3.2 Conflict of interest By para 6.2 of the SRA Code of Conduct, a solicitor generally should not act for two or more clients where this would cause a conflict of interests. A conflict of interests exists if the solicitor owes separate duties to act in the best interests of two or more clients in relation to the same or related matters, and those duties conflict or there is a significant risk that those duties may conflict.  Considerations at the First Interview Including Funding the Claim 17 EXAMPLES 1. A firm of solicitors already acts for a client in negotiating with publishers for the publication of the client’s novel. The firm is now asked to act for a new client who alleges that the novel is plagiarised and breaches her copyright. As that is a related matter, there is a conflict of interest and the firm cannot act for the new client. 2. A solicitor is instructed to act by two partners in a firm which has been sued for damages for fraudulent misrepresentation. However, the allegation is that only one of the partners made the fraudulent misrepresentation. The potential conflict arises because there is a significant risk that the ‘innocent’ partner may have a claim against the ‘guilty’ partner for the same matter, namely if the fraudulent misrepresentation is established. 2.3.3 Money laundering Solicitors are subject to the money laundering legislation, and it is extremely important to ensure that adequate procedures are in place to check a new client’s identity – see Legal Foundations for further information. 2.3.4 Who is my client and am I authorised to act? A solicitor warrants their authority to take any positive step in court proceedings, eg to issue a claim form or serve a defence on behalf of the client (see further 5.4.6). So a solicitor must always be able to answer the questions posed above. EXAMPLE Assume you attend a new client called Mrs Freeman. She wants to claim under a contract she entered into with Megawindows (Mythshire) Limited. First, we need to ask: in what capacity are we acting for Mrs Freeman? Is she an individual who entered into the contract on her own behalf ? Was she acting as an agent for her principal? Is she a trustee acting on behalf of a trust? Is she, say, one of a hundred partners in a firm, and did she contract on behalf of the partnership such that the partnership is our client? Is she a director in a limited company, and did she contract on behalf of that company such that the company is our client? Secondly, if we are not acting for her as an individual in her own right, we need to consider whether she is the correct person to give us instructions on behalf of her principal, the trust, the partnership or limited company. Note that a solicitor may be ordered to personally pay the costs that are incurred where any steps are taken without authority, even if they do not know that they lack authority. For example, where the client gives instructions on behalf of a non-existent company, or is a person not properly authorised to give instructions on behalf of a company. If a solicitor receives instructions from someone other than the client, or by only one client on behalf of others in a joint matter, the solicitor should not proceed without checking that all clients agree with the instructions given. 2.3.5 Solicitor’s duty as an officer of the court As well as owing duties to the client, the solicitor also has an overriding duty not to mislead the court (see para 1.4 of the SRA Code of Conduct). The duty to the court means that the solicitor must disclose all relevant legal authorities to the court, such as statutory provisions or case law, even if these are not favourable to their case (see para 2.7). As an advocate, a solicitor is also 18 Civil Litigation under a duty to help the court achieve the overriding objective of dealing with the case justly and at proportionate cost (see 1.1.2.3). 2.3.6 Solicitor’s core duties The SRA Code of Conduct is based on certain mandatory Principles that are all-pervasive. So how might these affect a civil litigation practitioner? Table 2.1 flags up some possible examples. Table 2.1 Code of Conduct Principles Principle Examples of potential problem areas 1 Justice and the rule of law Client asks you to act illegally or not within the You must uphold the constitutional principle spirit of the CPR. of the rule of law, and the proper A court order or provision of the CPR conflicts administration of justice. with your duty to act in the client’s best interest. 2 Public confidence If you breach any of the other Principles. You must act in a way that upholds public trust and confidence in the solicitors’ profession and in legal services provided by authorised persons. 3 Independence Any arrangement for a third party to fund your You must not allow your independence to be client’s civil claim which imposes constraints compromised. on how you conduct the case that are beyond the legitimate interests of the funder. 4 Honesty You place yourself in contempt of court. You must act with honesty. 5 Integrity You use your position to take unfair advantage You must act with integrity. of a client, an opponent or a third party. You use your position unfairly to advance your client’s case. 6 Equality, diversity and inclusion If you unfairly discriminate by allowing your You must act in a way that encourages personal views to affect your professional equality, diversity and inclusion. relationships and the way in which you provide your services. 7 Best interests of clients A court order or provision of the CPR conflicts You must act in the best interests of each with this duty. client. Also see 2.3.2. PROFESSIONAL CONDUCT CHECKS TO MAKE BEFORE THE FIRST INTERVIEW 1. Confidentiality and conflict of interest Check name of client and opponent against existing and past clients. 2. Money laundering Check identity of client. 2.4 FUNDING It is very important on taking instructions to discuss costs with the client. The solicitor should give their client the best information they can about the likely cost of the matter. This includes advising the client on the different types of funding available.  Considerations at the First Interview Including Funding the Claim 19 It is often impossible to tell at the outset of a case, particularly one involving prospective litigation, what the overall cost will be. So the solicitor should provide the client with as much information as possible at the start and keep the client regularly updated. Unless a fixed fee is agreed, where the client is paying privately the solicitor should explain the potential steps in the litigation and the potential costs and agree a ceiling figure or review dates. The client should be told how the solicitor’s fee will be calculated, eg who is going to do the work and the hourly charging rate of that person. Often a payment on account will be required immediately, with interim bills delivered as the case progresses. The client should be advised of any foreseeable disbursements, such as court fees, barristers’ fees and experts’ fees. Normally a solicitor will only agree a fixed fee to take some specific step in the litigation on behalf of a client, for example to draft a court document or attend a hearing. In these circumstances, it is vital that the solicitor obtains all the relevant information in order to set the fee at a reasonable but remunerative level. If the solicitor fixes the fee too low, they will still be ‘obliged to complete the work, to the ordinary standard of care, even if it has become unremunerative’ (per Cranston J in Inventors Friend Ltd v Leathes Prior (a firm) EWHC 711 ). In the case, the solicitors agreed a fixed fee to briefly review and comment on the terms of a document without seeing that document. The consequences for a litigation solicitor who does not regularly give the client the best information then available about costs, can be seen in the case of Reynolds v Stone Rowe Brewer EWHC 497. There, a firm of solicitors was held to be bound by its original estimate of costs given to the client, because the firm failed to warn her that costs were increasing and that, as ultimately happened, the estimate would have to be revised upwards. See also Mastercigars Direct Ltd v Withers LLP EWHC 651. The solicitor should also consider whether the client’s liability for costs may be covered by existing legal expenses insurance cover (see 2.4.5), and whether the likely outcome of the matter justifies the expense involved by conducting a costs–benefit analysis (see 3.12). In addition, the solicitor should advise the client of the risk that the client may be ordered to pay the opponent’s costs if the case is lost. 2.4.1 Solicitor and client costs and costs between the parties In litigation cases, the solicitor should explain to the client the distinction between solicitor and client costs (ie, the sum the client must pay to their own solicitor) and costs that may be awarded between the parties in litigation. If the client loses the case, they will have to pay their own solicitor’s costs and normally, in addition, their opponent’s costs. Rule 44.2(2)(a) of the CPR 1998 provides that as a general rule the unsuccessful party in litigation will be ordered to pay the costs of the successful party. The opponent’s costs are not necessarily all the costs incurred by the opponent. The court will assess what costs the client must pay towards the opponent’s costs (unless there is agreement on this amount between the parties). The client will have to pay to their opponent only such costs as are ordered by the court or agreed between the parties. If the client wins the case, they will still have to pay their own solicitor’s costs. Indeed, if they are paying privately, they will usually already have paid these costs. The client will normally receive their costs from their opponent. Again, this will be an agreed amount or a sum assessed by the court. If the costs recovered are, as is usual, less than the costs paid, the client will have to bear the loss. A client should always be warned that even if they win the case, they may not recover any costs if, for example, the opponent goes bankrupt or disappears. Furthermore, even if successful, the court has the power to reduce costs to reflect any unreasonable conduct on the part of the successful party (Benyatov v Credit Suisse Securities (Europe) Ltd WL 00509179) (see also 14.3.3.6). 20 Civil Litigation Traditionally, solicitors have charged their clients on a time basis where the client is billed for the time spent dealing with their case. Until recently, contingency fees were unlawful for litigation work. Under a contingency fee arrangement the client only pays a fee if they are successful – often called ‘no win, no fee’. However, currently only two types of contingency fees are lawful. These are a conditional fee agreement (see 2.4.2) and a damages-based agreement (see 2.4.4). 2.4.2 Conditional fee agreements A conditional fee agreement (CFA) is defined by s 58(2)(a) of the Courts and Legal Services Act 1990 (CLSA 1990) as ‘an agreement with a person providing advocacy or litigation services which provides for his fees and expenses, or any part of them, to be payable only in specified circumstances’. Those circumstances are whether or not the client succeeds with a claim or, alternatively, successfully defends a claim. A CFA is an agreement under which the solicitor receives no payment, or less than normal payment, if the case is lost, but receives normal, or higher than normal, payment if the client is successful. Many think of CFAs as ‘no win, no fee’ agreements. However, whilst a CFA may amount to ‘no win, no fee’, it can equally be ‘no win, lesser fee’, or ‘win and pay usual fees’ or ‘win and pay increased usual fees’. The important point to grasp is that any fee payable is based on the solicitor’s usual hourly charging rates, and a fee payable on success is a percentage increase in those usual hourly charging rates up to a maximum of 100%. The fee is not based on the solicitor receiving any proportion of money recovered by the client (as to such a contingency, see 2.4.4). A CFA is enforceable only if it meets the requirements of ss 58 and 58A of the Courts and Legal Services Act 1990. These provide that a CFA: (a) may be entered into in relation to any civil litigation matter, except family proceedings; (b) must be in writing; and (c) must state the percentage by which the amount of the fee that would be payable if it were not a CFA is to be increased (the success fee). Where it is agreed that the solicitor should receive higher than normal payment if the case is won, the success fee cannot exceed 100% of the solicitor’s normal charges. This limit is set by the CFA Order 2013 (SI 2013/689), reg 3 (although note that different provisions apply to personal injury claims). EXAMPLE A solicitor normally charges £200 an hour. A 10% success fee would mean an additional £20 per hour. A 50% success fee would mean an additional £100 per hour. The maximum 100% success fee would mean an additional £200 per hour. Normal charge Success fee as Amount of Total hourly charge per hour percentage of success fee to client if client normal charges wins £200 10% £20 £220 £200 50% £100 £300 £200 100% £200 £400 When advising a client about a CFA, the solicitor should explain the circumstances in which the client may be liable for their own legal costs (and when the solicitor would seek payment) and their right to an assessment of those costs. In addition, the duty to act in the best interests of the client means that a solicitor should always check to see if the client has the benefit of suitable before-the-event legal expenses insurance cover (see 2.4.5 and the case of Sarwar v Alam). If such exists, then there is no need for the client to enter into a CFA. Likewise, a  Considerations at the First Interview Including Funding the Claim 21 solicitor must always be careful to ensure that any settlement achieved for a client under a CFA is in the client’s best interests and not made with a view to obtaining the solicitor’s fee. Normally, a CFA will cover all work done by the solicitors’ firm for the client over the five stages, apart from an appeal. This will include any charges incurred in enforcing a judgment (see Chapter 15). The CFA is usually worded so that the solicitors’ firm has a right to take enforcement action in the client’s name. An appeal will normally require its own risk assessment and so typically has its own CFA. 2.4.2.1 Drafting the CFA It is of course essential that the CFA is drafted carefully. Consider, for example, the importance of a clear definition of the term ‘win’. Does the client win if they succeed on all aspects of their claim, or is it enough that they recover some damages (even if they represent only a small percentage of the client’s claim)? The Law Society provides assistance in the form of a model CFA for personal injury cases, which can be adapted for other types of work. Precedents are also available in practitioner works. 2.4.3 The success fee If the client wins the case and their opponent is ordered to pay their costs, these cannot include the success fee. That will be payable by the client. It is therefore vital that the client is made fully aware of this before signing a CFA. The CFA itself should also be clear on this issue and so might read: If you win your claim, you pay our basic charges, our disbursements and the success fee. The amount of these is not based on or limited by the damages you recover. You can claim from your opponent part or all of our basic charges and disbursements. You cannot claim the success fee from your opponent. You are responsible for paying the success fee. Obviously, the CFA needs to define all the terms in such a clause. Whenever they enter into a CFA, the solicitor takes a financial risk. The solicitor who regularly acts on this basis will stay in business only if the success fees they recover on their ‘wins’ outweigh the fees sacrificed on their ‘losses’. It is therefore essential that before entering into a CFA or agreeing the level of the success fee with a client, the solicitor performs a thorough risk assessment. Relevant factors would include: (a) the chances of the client succeeding on liability; (b) the likely amount of the damages; (c) the length of time it will take for the case to reach trial; (d) the number of hours the solicitor is likely to have to spend on the case. The solicitor may need to spend some time gathering evidence and information about the client’s case before the solicitor can perform a full risk assessment. For example, it may be appropriate to obtain an expert opinion and/or interview witnesses (see Chapter 3). It is, of course, essential to discuss with the client what work will have to be performed before a decision can be reached about whether the solicitor is prepared to enter into a CFA, and how that work is to be funded. A solicitor should never arbitrarily set the level of a success fee. A proper risk assessment should always be carried out. But what if the client suggests a success fee well in excess of what the solicitor might set? Should the solicitor just accept that? The answer is no – and as you might expect, it is to be found in the SRA Code of Conduct. Principle 2 provides that a solicitor must act in a way that upholds public trust and confidence in the solicitors’ profession and in legal services provided by authorised persons. Principles 4, 5 and 6 respectively provide that a solicitor must act with honesty, integrity and in the best interests of each client. By para 1.2, a solicitor must not abuse their position by taking unfair advantage of 22 Civil Litigation a client. In addition, para. 8.7 requires a solicitor to ensure that clients receive the best possible information about how their matter will be priced. Rule 46.9(3) also means that if the court is required to assess costs in a case with a CFA, the success fee will be assumed (a) to have been reasonably incurred if it had the client’s express or implied approval, and (b) to be reasonable in amount if that was expressly or impliedly approved by the client. For example, in MNO (a Protected Party, by His Litigation Friend KLM) v HKC EWHC 2919 (SCCO), it was found that the Litigation Friend had given informed consent to the payment of a success fee out of damages. However, the court was not satisfied from the claimant’s solicitors’ documentation that there was informed consent as to the amount of the success fee. Can solicitors avoid the terms of the CFA by seeking to recover costs against their former client in reliance on an implied duty of good faith on the client’s part not to settle the claim on terms that were disadvantageous to the firm because it had no entitlement to payment under the CFA? No, held the Court of Appeal in Candey Ltd v Bosheh EWCA Civ 1103. 2.4.3.1 Funding disbursements and liability for the other side’s costs If a client with a CFA loses the case, they will not usually have to pay their own solicitor’s fees but will nevertheless be liable for their opponent’s costs including disbursements. In addition, the client will, during the course of the litigation, have to fund disbursements such as the fees of a barrister and expert witnesses, as well as items such as travelling expenses. Many CFA-funded clients are not in a position to pay these disbursements and/or may be concerned by the fact that they will not know until the end of the litigation whether they are liable to their opponent for costs and, if so, for how much. In such circumstances, the client may benefit from purchasing after-the-event insurance (AEI). This type of legal expenses insurance policy provides cover for the other side’s costs and the client’s own disbursements in the event of losing the case. The premium payable depends on the strength of the client’s case and the level of cover required. It may be possible to arrange a ‘staged’ premium, whereby additional instalments are paid if the case continues beyond certain defined stages. For example, in Rogers v Merthyr Tydfil CBC EWCA Civ 1134, the claimant had the benefit of AEI cover with a three-stage premium: namely, £450 was payable when the policy was taken out, a further £900 when proceedings were issued, and a final £3,510.60 just before the trial. A solicitor should discuss with their client whether insurance is appropriate before the CFA is entered into. There are several sources available to solicitors either online or through journals, which can help them find an insurance policy at a competitive premium. Of course, obtaining AEI insurance to cover the client’s disbursements in the event that they lose does not solve the problem of how those disbursements are to be paid for during the course of the litigation. There are various solutions – for example, some banks offer loans to fund disbursements. As far as counsel’s fees are concerned, counsel may be willing to enter into a CFA with the client. However, such an arrangement cannot be entered into with an expert witness. This is to avoid any possibility that the expert’s evidence, which should be impartial, will be influenced if they are instructed on a ‘no win, no fee’ basis. If necessary, many AEI insurers will arrange a loan to the client or the client’s solicitors to fund both the disbursements and the cost of the AEI premium. The loan may even be on terms that it is not repayable if the client loses. If the client wins, the interest on the loan is usually deducted from the damages recovered. 2.4.4 Damages-based agreement A damages-based agreement (DBA) is defined by s 58AA(3)(a) of the CLSA 1990 as:  Considerations at the First Interview Including Funding the Claim 23 an agreement between a person providing advocacy services, litigation services or claims management services and the recipient of those services which provides that— (i) the recipient is to make a payment to the person providing the services if the recipient obtains a specified financial benefit in connection with the matter in relation to which the services are provided, and (ii) the amount of that payment is to be determined by reference to the amount of the financial benefit obtained. What does that mean? Basically, if the client recovers damages, the solicitor’s fee is an agreed percentage of those damages. So, if the client recovers £100,000 and the DBA is set at 10% then the client pays the solicitor a fee of £10,000. A DBA is only enforceable if it meets the requirements of s 58AA(4) of the CLSA 1990. These are that the agreement: (a) must be in writing; (b) must not provide for a payment above a prescribed amount or for a payment above an amount calculated in a prescribed manner; (c) must comply with such other requirements as to its terms and conditions as are prescribed; and (d) must be made only after the person providing services under the agreement has provided prescribed information. Requirement (a) is clear enough but the other three requirements can only be found elsewhere. Currently that is in the Damages-Based Agreements Regulations 2013 (SI 2013/ 609) which provide as set out below. As to (b), the DBA must not provide for a payment above an amount which, including VAT, is equal to 50% of the sums ultimately recovered by the client. Apart from VAT, note that this cap is inclusive of any counsel’s fees but does not include disbursements for which the client remains responsible. The costs and disbursements may, of course, be recoverable from the opponent (subject to the indemnity principle and the usual rules of assessment: see Chapter 14). It should be noted that the cap does not apply to any appeal proceedings. So, what does this mean for the client? If damages are recovered, how much will the client actually receive? Regulation 4 provides that the client cannot be required to pay an amount other than the agreed fee net of the following: (i) any costs (including fixed costs: see 10.3.5) and counsel’s fees, that have been paid or are payable by another party to the proceedings by agreement or order; and (ii) any expenses incurred by the solicitor after accounting for any amount which has been paid or is payable by another party to the proceedings by agreement or order. Expenses in this context would include disbursements such as experts’ fees and court fees. EXAMPLE A client enters into a DBA with their solicitor. The DBA is set at 20%. After proceedings are commenced, the claim is settled. The client recovers damages of £250,000 from the defendant. As part of the settlement, the defendant agrees to pay £40,000 towards the client’s costs and expenses. Counsel was instructed in the client’s case and their fee was £5,000. The expenses incurred by the solicitor on behalf of the client (court fees, etc) totalled £14,500. In total, £290,000 is paid by the defendant. How will this be accounted for? 24 Civil Litigation The defendant paid £40,000 towards the client’s costs and expenses. So this will be used to meet the expenses incurred by the solicitor on behalf of the client totalling £14,500. That leaves £25,500. Under the DBA, the solicitor is entitled to payment of a fee inclusive of VAT of £50,000 (that is, £250,000 x 20%). How will that be paid? First, with the remaining £25,500 paid by the defendant towards the client’s costs. The balance of £24,500 will come out of the damages recovered by the client. The solicitor will, of course, be responsible for paying counsel’s fee of £5,000. From the damages award of £250,000, the client therefore has to pay £24,500 to the solicitor. So the client ends up with £225,500. As to (c), the terms and conditions of a DBA must specify: (i) the claim or proceedings or parts of them to which the agreement relates; (ii) the circumstances in which the representative’s payment, expenses and costs, or part of them, are payable; and (iii) the reason for setting the amount of the payment at the level agreed. As to (d), the Regulations currently cover only employment matters. The points made above (at 2.4.3) in respect of combining a CFA with AEI cover apply equally to a DBA. Similar considerations to setting a CFA success fee will also apply to determining the amount of a DBA. Is a DBA valid if it contains a clause which provides that the client must pay the solicitors’ normal fees and disbursements if they terminate the retainer prematurely? Yes, see Zuberi v Lexlaw Ltdb EWCA Civ 16. The case is also authority for the use of so-called ‘hybrid DBAs’. For example, a law firm may receive concurrent funding via both a DBA and some other form of retainer; this might consist of the DBA in the event of the claim’s success and discounted hourly rate fees in the event of the claim’s failure. Alternatively, a DBA might comprise one or other of the methods of funding for different stages of the legal proceedings. Is it possible for a defendant to enter into an enforceable agreement with their solicitors to pay them a percentage of such part of the sums or assets claimed from the defendant as the defendant has resisted paying or transferring to their opponents? No, as such an agreement is not a DBA (see Candey Ltd v Tonstate Group Ltd EWCA Civ 936). Note that slightly different provisions apply if the DBA concerns a personal injury claim or an employment matter. 2.4.5 Insurance The solicitor should always check to see if the client has the benefit of an existing legal expenses insurance policy (often called before-the-event insurance, or ‘BEI’) that might fund the litigation. Such insurance is commonly purchased as part of household or motor insurance policies. In the case of Sarwar v Alam EWCA Civ 1401, 1 WLR 125, the Court of Appeal laid down the following guidance: In our judgment, proper modern practice dictates that a solicitor should normally invite a client to bring to the first interview any relevant motor insurance policy, any household insurance policy and any stand alone before-the-event insurance policy belonging to the client and/or any spouse or partner living in the same household as the client. A solicitor should discuss with the client (at the first interview and, as appropriate, thereafter) whether the client’s liability for another party’s costs is covered by existing insurance (BEI), or whether specially purchased insurance should now be obtained (AEI).  Considerations at the First Interview Including Funding the Claim 25 Where BEI cover is not available, the client may wish to consider purchasing AEI even if the client does not fund the litigation by way of a CFA or DBA. As discussed at 2.4.1, one of the disadvantages of litigation is that if the case is lost, the loser will generally have to pay the winner’s costs, and this liability cannot be quantified until the end of the proceedings. By purchasing AEI, the litigant removes this uncertainty (provided the cover bought is sufficient). Given these advantages, a solicitor who fails to discuss the possibility of such insurance with a client at the outset of litigation may well be negligent and in breach of professional conduct. If a firm of solicitors advises a client on and/or arranges AEI cover for the client, the firm will be involved in the activity of insurance mediation, as to which see further Legal Foundations at 17.10. 2.4.6 Third party funding If a client is a member of a trade union or professional organisation, it may be possible to arrange for their union or organisation to be responsible for payment of their solicitor’s costs. Historically, the commercial funding of litigation has been unlawful. However, in recent years, private funding of large commercial claims has become accepted (see, for example, Arkin v Borchard Lines Ltd EWCA Civ 655). Section 58B of the CLSA 1990 makes provision for litigation funding agreements, but at the time of writing it is not in force. 2.4.7 Public funding In very limited circumstances, clients may receive public funding (legal aid) for civil litigation, and the solicitor should always consider whether this might be available. Most civil litigation matters within the scope of this book will not, however, benefit from public funding and what follows is, therefore, no more than a broad outline. Public funding for both civil and criminal matters is administered by the Legal Aid Agency (LAA). Public funding will not usually be available for cases that could be financed by a CFA. With very limited exceptions, claims in negligence for personal injury, death or damage to property (including intellectual property) are excluded. Neither is funding available for matters arising out of the carrying on of a business, including claims brought or defended by sole traders. In addition to these restrictions, public funding is only open to clients whose income and capital falls within financial eligibility limits. These limits vary, depending on whether the client is seeking full representation in proceedings or merely wants assistance from a solicitor to investigate a proposed claim. Furthermore, where the client is financially eligible and the claim is of a type covered by public funding, it will be offered only if a merits test is also satisfied. This involves considering the client’s prospects of success and applying cost–benefit criteria (ie, weighing the likely cost of the proceedings against their benefit to the client). Put simply, a client who has a strong claim that will not be expensive to pursue, but which would result in substantial damages, has a much better chance of securing funding than one whose prospects of winning are marginal or who wishes to pursue a claim that would involve costs that are disproportionate to its likely benefits. Where a party is in receipt of public funding, they may be required to make a contribution from their disposable capital or their income towards the costs. Where a contribution is required from income, this is payable on a monthly basis for as long as the case is funded by the LAA. Any change in the client’s circumstances must be notified to the LAA as it may affect the amount of the contribution or the client’s entitlement to funding. In David Truex, Solicitor (a firm) v Kitchin EWCA Civ 618, the Court of Appeal held that a solicitor must from the outset of a case consider whether a client might be eligible for legal 26 Civil Litigation aid. Why? First, it is quite wrong to incur substantial expenditure chargeable privately to the client if public funding is available. Secondly, a client will find it more difficult to change firms of solicitors if work has been done and a relationship built up before advice is given that a different firm could become involved. In this case, the Court observed that if the financial position of the defendant had been considered properly, and considered in the context of whether she might be eligible for public funding, the result would have been advice to go to a different firm offering legal aid at a very early stage. As a result, the claimant solicitors’ firm was negligent and was denied its fees. 2.4.7.1 The statutory charge Where a publicly-funded client recovers money as a result of the proceedings, they may have to repay some or all of their legal costs to the LAA out of the money recovered. This is known as the statutory charge, and it will apply only to the extent that the client does not succeed in recovering their costs from their opponent. The same principle applies where the dispute involves property rather than money. Any property that is retained or transferred to the client is subject to the statutory charge. The solicitor must ensure that the client has understood the statutory charge prior to accepting an offer of public funding. 2.5 CASE ANALYSIS As was indicated at 1.4, there are three key case analysis points – viability, liability, and quantum – which we would summarise in the following series of questions that need to be answered pre-action. 2.5.1 Liability What is the cause of action? Is there more than one? If so, analyse each independently and identify the relevant law. Establish the legal elements which must be proved for the claim to succeed. Your objective will be to identify evidence already available or that can be obtained in respect of each of these elements. Does it support the case, or is it adverse? How strong is it? 2.5.2 Limitation 2.5.2.1 Solicitor’s role From the outset, a solicitor must ascertain when the limitation period began and when it will expire. The matter must be reviewed continually in the light of any new facts. Careful diary notes must be kept, reminding the solicitor that time is marching on and the expiration of the limitation period draws closer. Proceedings must be issued before the limitation period expires, otherwise the solicitor is likely to face a negligence claim. Whilst it is always best practice to ensure that proceedings are started well before the limitation period expires, unfortunately some claim forms are sent, or delivered, to the court very close to the expiry date. In St Helens Metropolitan BC v Barnes EWCA Civ 1372, the Court of Appeal had to determine if proceedings had been ‘brought’ within the limitation period. The claimant’s solicitors had delivered the claim form to the County Court on the day prior to the expiry of the limitation period and requested that the claim should be issued. However, the claim form was not issued by the court staff until four days later. The Court held that the matter was resolved in favour of the claimant by PD 7A, para 5.1, which provides that: Proceedings are started when the court issues a claim form at the request of the claimant (see rule 7.2) but where the claim form as issued was received in the court office on a date earlier than the date on which it was issued by the court, the claim is ‘brought’ for the purposes of the Limitation Act 1980 and any other relevant statute on that earlier date.  Considerations at the First Interview Including Funding the Claim 27 If a party is using the e-filing service under the Electronic Working Pilot Scheme, limitation is governed by PD 51O and the claim form will be deemed issued when the relevant court fee was paid on the CE-file. The Limitation Act 1980 (LA 1980) (as amended) prescribes fixed periods of time for issuing various types of proceedings. This is important to a client because if this period of time elapses without proceedings being issued, the case becomes ‘statute-barred’. The claimant can still commence their claim, but the defendant will have an impregnable defence. If the defendant wishes to rely on this, it must be stated specifically in their defence (see Chapter 7). 2.5.2.2 Claims founded on contract or tort (LA 1980, ss 2 and 5) The basic rule is that the claimant has six years from the date when the cause of action accrued to commence their proceedings. In contract, the cause of action accrues as soon as the breach of contract occurs. This will be a question of fact, and you will need to check to see if case law has established when the cause accrues. For example, where services are supplied under a contract, the cause of action accrues when the services are completed. In Consulting Concepts International Inc v Consumer Protection Association (Saudi Arabia) EWCA Civ 1699, the claimant provided services to the defendant under a contract which provided that all invoices submitted by the claimant would be paid by the defendant within 90 days. The question for the Court was whether the claimant’s right to sue for non-payment arose for limitation purposes from when the services were completed or 90 days after submission of an invoice. The Court held that in the absence of a special term of the agreement to the contrary (see 2.5.2.5), a service provider’s right to payment arises as soon as the work is done. In tort, the cause of action accrues when the tort is committed. In the tort of negligence, as damage is an essential element, the cause of action accrues only when some damage occurs. This may be at a date considerably later than that when the breach of duty itself occurred. Like contract claims, it may be necessary to research any relevant case law. For example, in a negligent misstatement claim, the cause of action will accrue on the date the claimant sustains damage as a result of reliance on the advice (Forster v Outred & Co 2 All ER 753). This basic rule is modified in the case of certain specific types of claim. As to personal injury cases, see Personal Injury and Clinical Negligence Litigation. 2.5.2.3 Latent damage In a non-personal injury claim based on negligence, where the damage is latent at the date when the cause of action accrued, s 14A of the LA 1980 provides that the limitation period expires either: (a) six years from the date on which the cause of action accrued; or (b) three years from the date of knowledge of certain material facts about the damage, if this period expires after the period mentioned in (a). In theory, these rules could mean that a defendant is indefinitely open to the risk of proceedings being issued in latent damage cases. In order to avoid this, there is a long-stop limitation period of 15 years from the date of the alleged breach of duty (LA 1980, s 14B). This long-stop may bar a cause of action at a date earlier than the claimant’s knowledge; indeed, it may even bar a cause of action before it has accrued. 2.5.2.4 Persons under disability A person under a disability is either a child (ie, someone who has not yet attained the age of 18), or a protected party (ie, a person of unsound mind within the meaning of the Mental 28 Civil Litigation Capacity Act 2005 and who is incapable of managing and administering their property and affairs). Where the claimant is a person under a disability when a right of action accrues, the limitation period does not begin to run until the claimant ceases to be under that disability. See generally 5.4.1. 2.5.2.5 Contractual limitation In a contract case it is very important to check whether a contractual limitation period is specified in the contract. This is because any such provision is usually shorter than the statutory limitation periods referred to above, and the claim should therefore be commenced within the contractually specified period. For example, in Granville Oil & Chemicals Ltd v Davis Turner & Co Ltd EWCA Civ 570, proceedings had to be commenced ‘within 9 months from the date of the event or occurrence alleged to give rise to the cause of action against the Company’. 2.5.2.6 Summary Type of claim Statutory limitation period Contract (excluding personal injury) 6 years (LA 1980, s 5) Tort (excluding personal injury and latent damage) 6 years (LA 1980, s 2) Latent damage 6 years or 3 years from date of knowledge (LA 1980, s 14A) 2.5.3 Remedies There are a number of alternative remedies that a claimant can pursue against the defendant, assuming liability can be established. The most common remedy sought is damages. It is important to establish at an early stage what the client’s objective is. If the client has unrealistic expectations or requires a remedy the court has no power to award, you should identify and discuss this at the earliest possible stage. 2.5.3.1 Damages The rules as to quantum of damages in civil cases depend on the type of claim being pursued. As to claiming interest on damages, see 2.7 below. 2.5.3.2 Contract A claim for damages arises when one party to the contract has failed to perform an obligation under the contract. The purpose of damages in such a situation is to place the injured party in the position they would have been in if the contract had been performed properly. For example, damages can be recovered either for the repair of defective goods, or for repayment of the purchase price. In addition, there may be a claim for general damages in respect of physical discomfort and/or inconvenience. However, damages for injured feelings or mental distress are not generally recoverable. There is an exception where the subject matter of the contract was to provide enjoyment, peace of mind or freedom from distress, eg a contract for a holiday. In such cases, damages for mental distress and loss of enjoyment are recoverable. The test for the recovery of damages for breach of contract is that they must not be too remote from the breach. In other words, did the loss flow naturally from the breach, or was the loss within the reasonable contemplation of the parties at the time the contract was made as being the probable result of the breach?  Considerations at the First Interview Including Funding the Claim 29 2.5.3.3 Tort A claim for damages in tort arises where injury, loss or damage is caused to the claimant or the claimant’s property. The aim of damages is, so far as possible, to place the claimant in the position they would have been in if the damage had not occurred. Damages are therefore compensatory in nature and, as a result, the claimant can seek compensation for any direct loss and consequential loss, provided the rules on remoteness are not broken. The rules on remoteness require that in order to be recoverable the loss must be a reasonably foreseeable consequence of the tort. 2.5.3.4 Reduction in damages – duty to mitigate Any potential claim for damages for either breach of contract or tort may be reduced if it can be shown that the claimant has failed to mitigate their loss. In Frost v Knight (1872) LR 7 Ex 111 the court observed that this duty means looking at what the claimant ‘has done, or has had the means of doing, and, as a prudent man, ought in reason to have done, whereby his loss has been, or would have been, diminished’. So a claimant cannot recover by way of damages ‘any greater sum than that which he reasonably needs to expend for the purpose of making good the loss’ (Darbishire v Warran 1 WLR 1067). The duty arises only on the breach of contract or commission of the tort. If a defendant alleges that the claimant has failed to take all reasonable steps to mitigate the claimant’s loss, the defendant should raise that in pre-action correspondence (see Chapter 3) and state it in their defence (see 7.3). The burden of proof will be on the defendant at any trial. If, however, the claimant wishes to contest the issue properly, they should produce appropriate evidence: see Bulkhaul Ltd v Rhodia Organique Fine Ltd EWCA Civ 1452. 2.5.3.5 Debt A debt action is a particular type of contract claim. Instead of claiming damages for breach of contract, the claimant is claiming a sum which the defendant promised to pay under the contract. For example, in a sale of goods case, if the buyer wrongfully rejects the goods (and the seller accepts this as repudiation of the contract), the seller has a claim for damages for breach of contract. However, if the buyer takes delivery but then fails to pay then the action is for debt. The significance is that in the latter case the claimant has no duty to mitigate their loss. 2.5.4 Quantum When you have determined the amount the client is claiming (quantum), you will need to think about the evidence you have to prove the loss. As with liability, the claimant must prove each item and what evidence is currently available or may be obtainable. Are any figures or estimates available? Do any issues of remoteness or mitigation of loss arise? Do you need to take any steps to preserve evidence? If you have evidence which cannot be preserved (eg perishable goods), make sure you carry out any necessary tests/expert examination before it is too late; and where possible, offer your opponent facilities for inspection so that they can carry out their own tests. 2.6 VIABILITY AND BURDEN OF PROOF 2.6.1 Viability If your case analysis indicates that there is a legal basis for the claim and evidence to support the claim, there are a number of other issues affecting the overall viability of pursuing a claim against a potential defendant which need to be considered with the client at the earliest possible stage. Viability involves a number of issues of which the claimant needs to be aware, including: 30 Civil Litigation Who is the prospective defendant? Is there more than one possible defendant? Where is the defendant? Is the defendant solvent? Where are the defendant’s assets? What are those assets worth? Will the defendant be able to pay any judgment? What can the client afford to pay? Does the client have any suitable BEI? Is the case suitable for a CFA or DBA and/or AEI cover? Does the client qualify for public funding or require third-party funding? How much time and resources will the client have to commit to investigate and deal with the case? Does a cost–benefit analysis suggest the desirability of a quicker and cheaper solution than litigation can offer? 2.6.1.1 Identify all potential defendants and their status As we saw at 1.3.1.2 above, the general rule is that all persons to be sued should be sued at the same time and in the same claim. Your case analysis must identify against whom each cause of action lies. Very often there is only one potential defendant, but, for example, where an employee or agent commits a tort when acting in the course of their employment, it is usual to sue both the employee or agent and the employer. This is because the latter is vicariously liable for the former. Likewise, a consumer may, in certain circumstances, have a cause of action against both the retailer and the manufacturer of a defective product. Not only must you identify the prospective defendants, you must also ensure they are sued in their correct capacity. Broadly, you should consider if the potential defendant is an individual, a partnership or a limited company. Sometimes it is not as obvious as it seems. EXAMPLE Assume your client entered into a contract negotiated with a Mr Jones. We need to ask in what capacity Mr Jones acted. Did he act as an individual on his own behalf ? Was he acting as an agent for someone else and, if so, did our client know that? Is he one of, say, 10 partners in a firm called Jones & Co, and did he contract on behalf of the partnership? Is he a director in a limited company called Jones Ltd, and did he contract on behalf of that company? Just exactly with whom did the client contract? Will he end up negotiating with, and potentially litigating against, Mr Jones, Mr Jones’s principal, Jones & Co (a firm) or Jones Ltd? See further 5.4. 2.6.1.2 Defendant’s solvency There is little point in suing a defendant who is on the verge of either bankruptcy or liquidation. Enforcement of any judgment obtained would be impossible. If there is doubt as to the liquidity of the prospective defendant then further enquiries should be made. For example, if the proposed defendant is a company, a company search should be carried out. For an individual, a bankruptcy search should be done. In any case an inquiry agent could be instructed, although the costs of doing this must be considered. It may also be possible to use various Internet search engines to see if there is any relevant information about the proposed defendant.  Considerations at the First Interview Including Funding the Claim 31 2.6.1.3 Defendant’s whereabouts Clearly, the defendant needs to be traceable and their whereabouts known in order to communicate the claim and, if necessary, serve proceedings. Again, an inquiry agent may be able to help. 2.6.1.4 The claim itself This involves balancing the merits of the claim itself against the overall cost of pursuing it and the prospects of a successful outcome. The client may believe they have a good claim but will be concerned as to the costs of litigation. Finance has been discussed above (see 2.4), but the client must be advised at this stage on the law, and any possible defences to the claim should be anticipated. The client must be told of the overriding objective and the requirement in r 1.3 that parties must help the court further the overriding objective. A commercial client will also need to take into account what damage, if any, may be caused to its market standing and/or product image by pursuing a claim. 2.6.1.5 Alternative remedies The solicitor should consider whether there are any alternative remedies available to the client for resolving the problem and advise the client accordingly. For example, the client may wish to use one of the forms of alternative dispute resolution (see Chapter 4). 2.6.2 Burden of proof There are two questions of proof that need to be considered. 2.6.2.1 Legal burden The party asserting a fact must prove it unless it is admitted by their opponent. For example, a claimant who alleges negligence must prove all the elements of the tort (ie, a duty existed between the parties, the defendant breached that duty, and the claimant sustained damage as a result). Similarly, a claimant alleging breach of contract must prove that a contract existed between the parties, the defendant broke the relevant express and/or implied terms of the contract, and the claimant suffered loss as a result. What about a defendant? Whilst they do not have to prove their defence, any allegation of failure to mitigate loss (see 2.5.3.4) or contributory negligence will have to be proved. Note that as to contributory negligence, the defendant must also prove that the claimant’s failure was a contributory cause of the defendant’s damage: see Lewis v Denye 1 KB 540. 2.6.2.2 Balance of probabilities In civil cases, the claimant is required to prove a fact on a balance of probabilities. This simply requires the judge to be persuaded that the claimant’s version of events is more likely to be true than the defendant’s version. Your case analysis should enable you to take a preliminary view on whether your client will be able to discharge the burden of proof and succeed on liability and quantum. 2.7 INTEREST 2.7.1 Specified and unspecified claims for money The CPR 1998 provide no definition of a claim for a specified or unspecified sum of money. The N1A Notes for a claimant on completing the claim form (see 5.3.1 and the copy at Appendix A(1)) refer to a claim for a fixed amount of money as being a specified amount. On that basis, a specified claim is in the nature of a debt (ie, a fixed amount of money due and payable under and by virtue of a contract). The amount will be known already (from, say, an invoice), or it should be capable of being determined by mere mathematics (from, say, a contractual formula). Examples might include the price of goods sold, commission said to be due under express contractual terms or consideration said to have failed totally. 32 Civil Litigation If the court will have to conduct an investigation to decide on the amount of money payable, the claim is best seen as being for an unspecified amount, even if the claimant puts some figures forward for the amount claimed. For example, in a damages claim for breach of contract, the claimant might have had to repair or replace goods. Whilst a figure can be given for the cost of that, it will be for the trial judge to determine if it is reasonable. Thus, damages claims should usually be regarded as unspecified. What if a claim is a mixture of specified and unspecified amounts? For example, the recovery of consideration paid that has failed totally (a specified amount), plus damages for breach of contract (unspecified amounts). In these circumstances the entire claim is treated as an unspecified claim. 2.7.2 Entitlement to interest Pre-action, a prospective claimant can demand interest on a claim only if entitled to it under any contractual provision (including any provision implied by the Late Payments of Commercial Debts (Interest) Act 1998: see further below). Where the remedy sought by the claimant is either damages or the repayment of a debt, the court may award interest on the sum outstanding. The rules vary according to the type of claim. A claimant seeking interest must specifically claim interest in the particulars of claim. 2.7.2.1 Breach of contract including debt claims In contract cases, there are three alternative claims to interest: (a) The contract itself may specify a rate of interest payable on any outstanding sum. This will be the rate negotiated between the parties. The court will usually apply this rate. (b) It may be possible to claim interest under the Late Payment of Commercial Debts (Interest) Act 1998 (see below). (c) In all other cases, the court has a discretion to award interest either under sb35A of the Senior Courts Act 1981 (SCA 1981) in respect of High Court cases, or under s 69 of the County Courts Act 1984 (CCA 1984) in respect of County Court cases. The current rate of interest payable under either statute is 8% pa in non-commercial cases and, generally, 1% or 2% pa over base rate in commercial cases (see further 2.7.2.3). Since a debt claim is for a specified amount of money, interest must be claimed precisely, giving as a lump sum the amount of interest which has accrued from breach of contract up to the date of issue of the proceedings and a daily rate thereafter. In a debt claim, where s 35A of the SCA 1981 or s 69 of the CCA 1984 applies, the convention is to claim interest from and including the day after the last day payment was due. In a damages claim, the request for interest is not set out in detail as the claim is for an unspecified amount of money. EXAMPLE: SPECIFIED CLAIM You act for Mr Tibbs, a local builder. He is in dispute with one of his customers, Mrs Little. He entered into a written contract to convert her basement into a bedroom last year. He finished the work on 12 September this year but, despite reminders, Mrs Little has not paid him the contract price of £13,000. The written contract between Mr Tibbs and Mrs Little provides that interest is payable on late payment. This is due at the rate of 20% per annum from and including the day of completion of the works. If a claim form is issued this year on 31 October, how much interest should be claimed? Mr Tibbs is entitled to interest on £13,000 for 50 days (namely, 19 days in September and 31 days in October). For each day, he is entitled to interest of £7.12 (that is £13,000 × 20% ÷ 365; the answer of £7.1232876 is rounded down in the circumstances). So, on the claim form he should claim £356.00 by way of interest.  Considerations at the First Interview Including Funding the Claim 33 What if the contract did not provide for interest payable on late payment? Mr Tibbs would then claim interest in County Court (non-commercial) proceedings at 8% pa under s 69 of the CCA 1984. That would give him a daily rate of interest of £2.85 (£13,000 x 8% ÷ 365; the answer of £2.849315 is rounded up in the circumstances). Late Payment of Commercial Debts (Interest) Act 1998 This Act (as amended by the Late Payment of Commercial Debt Regulations 2013 (SI 2013/ 395) and the Late Payment of Commercial Debts (Amendment) Regulations 2015 (SI 2015/ 1336)) gives a statutory right to interest on commercial debts that are paid late if the contract itself does not provide for interest in the event of late payment. The term ‘commercial debt’ includes debts arising from the supply of goods and services. As the Act is only concerned with commercial debt, it does not apply to unspecified claims or a specified amount owed by a consumer. Interest under the Act can be claimed at a rate of 8% pa above the Bank of England’s reference rate on the date the debt became due for payment. The reference rate is the base rate applicable on 31 December and 30 June each year and will apply for the following six months. For example, if the base rate is 0.5% pa on 30 June, this is the reference rate for the period 1 July to 31 December, and so interest of 8.5% pa in total can be claimed under the Act. The interest accrues from the expiry of any period of credit under the contract. If the contract does not provide for any such period, interest can be claimed from 30 days after the latest of: (a) delivery of the bill; (b) delivery of the goods; (c) performance of the service. The parties may agree to extend the period from 30 days up to a maximum of 60 days. Any further extension must not be grossly unfair to the supplier. In addition to the debt and interest, the Act also provides for payment of a fixed sum of between £40 and £100 compensation for late payment, the amount varying according to the size of the debt. In addition, the supplier may also claim as compensation any ‘reasonable’ costs of recovering the debt that exceed the fixed sum. An example appears in the claim form at 7.2.1.6. 2.7.2.2 Tort The court has a general discretion to award interest on damages in any negligence claim. This power is derived from SCA 1981, s 35A in respect of High Court claims, and from CCA 1984, s 69 in respect of County Court claims. Generally speaking, if interest has been claimed properly, the court will normally exercise its discretion to award interest for such period as it considers appropriate. 2.7.2.3 From what date is interest payable and for how much? In a contract or tort claim for damages, from what date is the court likely to start an award of interest? In theory interest can be awarded from when the cause of action first arose (see 2.5.2.2). However, in practice, the award is normally made from when the loss is sustained (if this is later). Consider the facts in the case of Kaines (UK) Ltd v Osterreichische 2 Lloyd’s Rep 1. There, in June 1987 the defendants repudiated a contract to sell the claimants oil for lifting in September 1987 and payment in October 1987. As a result, the claimants contracted to buy the same quantity of oil at a higher price from another supplier but on exactly the same terms (lifting in September 1987 and payment in October 1987). In August 1987 the claimants issued proceedings. The Court of Appeal held that it was only in October 1987, when the claimants had paid the higher price, that the claimants had sustained any loss. 34 Civil Litigation Therefore, interest did not start to run on the damages until October 1987. So, the key is to work out carefully the date of loss. EXAMPLE In a negligent surveyor’s case, liability is established, and quantum assessed by the court as the diminution in value of the property, ie the difference between what the claimant actually paid and the value of the property in its true condition. Assume the diminution in value is assessed at 10%. When is loss sustained by the claimant? There are two dates to consider. First, when the claimant paid the deposit on exchange of contracts because he paid 10% too much and so was then out of pocket by that amount. (If a deposit of £25,000 was paid, the damages would be £2,500 plus interest from exchange.) Secondly, when the claimant paid the balance of the purchase price on completion, because again he had paid 10% too much and so was out of pocket. (If the balance paid was £225,000, the damages would be £22,500 plus interest from completion.) On both dates that money could have been in the claimant’s bank earning interest. See Watts v Morrow 1 WLR 1421. In a contract or tort claim for damages, how much interest is the court likely to award? Such an award is compensatory in nature. In Kuwait Airways Corporation v Kuwait Insurance Company SAK LTL, 16 June, Langley J stated that ‘[i]n principle interest is to be awarded to compensate the claimant for being kept out of the money from the date when it has been established that it was due to him’. In Tate & Lyle Food and Distribution Ltd v Greater London Council 1 WLR 149, Forbes J said: One looks, therefore, not at the profit which the defendant wrongly made out of the money he withheld – this would indeed involve a scrutiny of the defendant’s financial position – but at the cost to the [claimant] of being deprived of the money which he should have had. I feel satisfied that in commercial cases the interest is intended to reflect the rate at which the [claimant] would have had to borrow money to supply the place of that which was withheld. What is a commercial case? Generally, this is where all the parties are businesses and the claim is based on the transaction of trade and commerce, such as a business document or contract, the export or import of goods, banking and financial services, and the purchase and sale of commodities. Typically, non-commercial cases involve one party acting as a consumer, for example a prospective domestic house-buyer engaging the services of a surveyor. In non-commercial cases, the courts award interest at their discretion under s 35A of the SCA 1981 or s 69 of the CCA 1984 at 8% pa. Traditionally, in commercial cases, the award of interest has been at 1% or 2% over base rate. However, in Jaura v Ahmed EWCA Civ 210, the Court of Appeal held that it is permissible for a judge to depart from this conventional rate if it is necessary to reflect the higher rate at which the claimant had to borrow, eg if the claimant was a small businessperson who could only borrow from a bank at 3% pa over base rate. In Carrasco v Johnson EWCA Civ 87 at , the Court of Appeal gave the following guidance: (1) Interest is awarded to compensate claimants for being kept out of money which ought to have been paid to them rather than as compensation for damage done or to deprive defendants of profit they may have made from the use of the money. (2) This is a question to be approached broadly. The court will consider the position of persons with the claimants’ general attributes, but will not have regard to claimants’ particular attributes or any special position in which they may have been. (3) In relation to commercial claimants the general presumption will be that they would have borrowed less and so the court will have regard to the rate at which persons with the general attributes of the claimant could have borrowed. This is likely to be a percentage over base rate and may be higher for small businesses than for first class borrowers.  Considerations at the First Interview Including Funding the Claim 35 (4) Many claimants will not fall clearly into a category of those who would have borrowed or those who would have put money on deposit and a fair rate for them may often fall somewhere between those two rates. Evidence of the size and nature of the business awarded interest along with its borrowing rate will assist the court (MetalNRG plc v BritENERGY Holdings LLP EWHC 2531 (Ch)). As a general rule, unless a contractual term provides for it, an award of simple interest is made rather than an award of compound interest. In exceptional cases, such as a claim for restitution, compound interest may be awarded if that will achieve full justice for the claimant: see Sempra Metals Ltd v Inland Revenue Commissioners UKHL 34. 2.7.2.4 Key questions to be addressed The flowchart at Appendix C(4) highlights the following key questions that you need to address: (a) Pre-action (to be demanded in the letter before claim): is the claim based on a written contract that provides for the payment of interest? Is the claim for the payment of a commercial debt? (b) During proceedings (to be demanded in the particulars of claim): is the claim based on a written contract that provides for the payment of interest? Is the claim for the payment of a commercial debt? Is the claim (contract and/or tort based) proceeding in the High Court or County Court? Remember that a defendant might also be in a position to make a claim in contract and/or tort that includes interest. So, pre-action they might demand such in a letter of response (see 3.8.5) and during proceedings in a counterclaim (see 8.2.1). 2.8 FOREIGN ELEMENT AND CHOICE OF FORUM If a solicitor is instructed by a client who is based abroad, or is instructed to take proceedings against a party based abroad, one of the first things which must be considered is the question of jurisdiction – in which country’s courts can proceedings be commenced? This is usually determined by whether or not a claimant requires the court’s permission to serve proceedings outside of England and Wales (see further 5.5.7). The English courts can hear any proceedings if the claim form was served on the defendant whilst they were present in England and Wales (no matter how briefly). The defendant could then, however, object to the proceedings continuing in England on the ground that the English courts are not the most appropriate ones for resolving the dispute. So, if an English person has an accident in New York caused by the negligence of a local New Yorker, and then is able to serve the defendant with a claim form whilst the defendant is in England on holiday, the defendant could object to the proceedings continuing in England on the basis that New York state was a more convenient forum. 2.9 ALTERNATIVES TO LITIGATION There are several alternatives to court proceedings that may produce the remedy the client wants, possibly at less cost. These alternative procedures should always be considered at first interview and reviewed regularly. 2.9.1 Arbitration Arbitration is an adjudication operating outside the normal court process, by which a third party reaches a decision that is binding on the parties in dispute. Many business contracts contain an arbitration clause requiring the parties to refer their disputes to arbitration rather than litigation. In the absence of such a clause, the parties in dispute may agree to arbitration once the dispute has arisen, and may choose their own arbitrator with the relevant expertise. 36 Civil Litigation Arbitration itself is largely governed by statute, namely the Arbitration Act 1996 (provided the agreement to arbitrate is in writing). The main advantages of the parties agreeing to arbitration instead of litigation are that: (a) arbitration may be quicker than litigation; (b) the procedures are less formal and occur in private; (c) the solutions reached are often more practical than those a court has power to order; and (d) at the same time those decisions are binding on the parties. The winning party to an arbitration can apply to the High Court for permission to enforce the arbitration award as if it were a court judgment (Arbitration Act 1996, sb66). On the other hand, the main disadvantages of using arbitration are that certain remedies, such as injunctions, are not available and, depending on the procedures adopted, the dispute may not receive the depth of investigation it would have done in the courts. Further, it is not always necessarily cheaper than litigation. 2.9.2 Alternative dispute resolution Alternative dispute resolution (ADR) is a means of resolving disputes, normally by using an independent third party to help the parties to reach a solution. The third party will often suggest a solution to the parties but not impose one (known as ‘non-determinative ADR’). But sometimes the third party will impose a solution (known as ‘determinative ADR’). The decision to use ADR is voluntary; the parties choose the process and either of them can withdraw at any time before a settlement is reached. There are various types of ADR, such as mediation, expert appraisal or expert determination. Under the CPR 1998, the courts actively encourage parties to use some form of ADR. This is considered in more detail in Chapter 4. Can a court order that parties must use an ADR method? No, held the Court of Appeal in Halsey v Milton Keynes General NHS Trust EWCA Civ 576, 4 All ER 920. As Dyson LJ stated: It is one thing to encourage the parties to agree to mediation, even to encourage them in the strongest terms. It is another to order them to do so. It seems to us that to oblige truly unwilling parties to refer their disputes to mediation would be to impose an unacceptable obstruction on their right of access to the court. However, as to the costs consequences of unreasonably refusing to consider or use ADR, see 14.3.3.6. In Lomax v Lomax EWCA Civ 1467, the Court had to consider r 3.1(2)(m) of the CPR 1998, which gives the court power to ‘… make any other order for the purpose of managing the case and furthering the overriding objective, including hearing an Early Neutral Evaluation with the aim of helping the parties settle the case’. The defendant did not wish to engage in Early Neutral Evaluation (ENE), and at first instance the judge held that the court had no jurisdiction to order it without the consent of both parties. On appeal, the Court held that in the absence of any express reference to consent in r 3.1(2)(m), none was required and the court did have the power to order ENE. The Court distinguished the case from Halsey by virtue of the fact that ENE is itself a part of the court process, unlike mediation or other forms of ADR. 2.9.3 Trade schemes Some professional bodies and trade associations operate schemes under which a potential claimant may be able to pursue a remedy outside the courts. This is often cheaper and quicker than court proceedings.  Considerations at the First Interview Including Funding the Claim 37 2.9.4 Negotiating settlements A solicitor should always consider with the client whether it is possible to negotiate a settlement with the opponent. Negotiations should be commenced as soon as possible and a genuine attempt made to limit the areas of dispute between the parties. Once all reasonable attempts to settle have been exhausted, there may well be no alternative but to issue proceedings. However, the matter must always be kept under review, and the parties should make appropriate attempts to resolve the matter without issuing proceedings. Failure to do so may result in one or more of the parties being punished financially during litigation. Negotiations are considered in more detail in Chapter 13. 2.9.5 Insurance Many defendants to civil claims are insured. Drivers of motor vehicles are required by law to possess insurance that covers them for at least the minimum insurance (basically third party) under the Road Traffic Act 1988. Most professional bodies require their practising members to be insured against negligence claims by clients. The existence of insurers does not in any way affect the conduct of the proceedings, and the insurers are not a party to the claim as there is no cause of action against them. However, the majority of insurance policies require the insured to notify the insurers of any potential claim in order that they can consider taking over the claim on behalf of the insured. Where an insurance company is involved, the company, or its solicitors, will usually deal with any negotiations or subsequent court proceedings. In certain circumstances, a judgment against an insured defendant can be enforced against the insurers. Notice of the proceedings must be served on the insurers either before or within seven days of commencing proceedings to invoke these provisions. 2.9.6 Motor Insurers Bureau The Motor Insurers Bureau (MIB) operates two schemes which allow the victims of either uninsured or untraced drivers to recover compensation for certain losses sustained. The MIB is a scheme set up by the insurance companies and is also financed by them. 2.9.7 Criminal Injuries Compensation Authority The Criminal Injuries Compensation Authority (CICA) is a body set up by the Government to provide the victims of criminal acts with ex gratia compensation for any personal injuries sustained as a result of those acts. 2.9.8 Criminal compensation order The criminal courts have powers to order compensation in respect of any personal injury, loss or damage resulting from a criminal offence when imposing sentence at the conclusion of criminal proceedings. 38 Civil Litigation CASE STUDY: FIRST INTERVIEW CONSIDERATIONS FOR MR AND MRS SIMPSON Professional Conduct When Mr and Mrs Simpson made the appointment for the first interview with their solicitor, basic information, such as their full names, address, telephone number and Mr Templar’s details, would have been taken. This would enable checks to be carried out to ascertain whether the solicitors’ firm was acting or had acted in the past for Mr Templar. Obviously, if the firm already had instructions from Mr Templar to act for him in this matter, there would be a conflict of interest and the firm could not act for Mr and Mrs Simpson. But what if the firm had acted for Mr Templar in the past? Might the firm risk breaching the duty of confidentiality still owed to him? The answer might not be straightforward, as the confidential information held in respect of Mr Templar would have to be evaluated. If that information might reasonably be expected to be material to Mr and Mrs Simpson, such as Mr Templar’s financial position or his attitude towards settling litigation then, given that the parties have opposing interests, the firm could not act for Mr and Mrs Simpson. In our case study the checks reveal no problems. Moreover, Mr and Mrs Simpson provide satisfactory evidence of their identities so that the firm can complete its money laundering checks. Funding The solicitor must act in the best interests of Mr and Mrs Simpson, and that includes identifying the most cost-effective ways of achieving their objectives. They should be asked if they have any existing legal expenses insurance cover, and any policies should be checked. Enquiries should be made of any trade or professional organisations which might provide them with funding. Whether or not the firm acts under CFAs or DBAs or provides AEI, these options should be discussed. Eligibility for and availability of public funding should also be examined. For the purposes of the case study, assume that Mr and Mrs Simpson decide to instruct their solicitors privately. The solicitors provide them with full details in accordance with para 8.7 of the SRA Code of Conduct. Case Analysis See Appendix D(1). At this stage the facts as outlined by Mr and Mrs Simpson point to negligent driving by Mr Templar that has caused them loss. But will Mr Templar admit that? What evidence of quantum do they have? As the case progresses, we shall revisit the facts and evidence to see how the analysis develops. Note that in order to keep this case study a straightforward claim against one defendant, the potential liability of the claimants’ builders, if they did leave glass on the driveway, is ignored. We have set out below a few key factors addressed in this chapter that form part of the analysis. Limitation The claim is in the tort of negligence and the limitation period will start from the date when the damage occurred. Here that is the date of the accident, namely 2 August 2022. As there is no claim for personal injuries, Mr and Mrs Simpson will have six years (ie until 2 August 2028) to start proceedings.  Considerations at the First Interview Including Funding the Claim 39 Viability In this case we know the identity of the potential defendant, Mr Geoffrey Templar, and Mr and Mrs Simpson have contact details for him. These should be checked. If ultimately he cannot be located then he cannot be sent correspondence or later served with court documents. Can he pay damages and costs if these become payable? As the damage occurred whilst he was driving his car, he can claim under his car insurance policy (assuming he is insured). This should be checked and his insurer’s details obtained so that it can be notified of the claim. Jurisdiction As both parties are resident within England and Wales and the incident happened here, there are no jurisdiction issues in this case. Alternatives to Litigation The solicitor should consider with Mr and Mrs Simpson now and as the case develops whether any ADR method might be appropriate. Obviously, whether any method is viable will first depend upon Mr Templar also wishing to use it. See further Chapters 3 and 4. 40 Civil Litigation