Expert quantum evidence in a world of fixed costs
A fixed costs regime without suitable fail-safes in place for the provision of expert evidence will be particularly harmful for SMEs, family businesses, and the self-employed, explains Richard Formby
The prospect of fixed recoverable legal costs for all civil litigation claims, of a reasonably substantial quantum level, is now squarely on the horizon. While already an objective for clinical negligence claims (said to be up to £250,000, but time will tell as to the level), the fixed costs 'debate pot' was stirred in January 2016 by Lord Justice Jackson to include all civil litigation in his speech at the Insolvency Practitioners Association Annual Lecture, entitled 'Fixed Costs: The Time Has Come'.
His proposals, setting out very specific financial dynamics for what was termed a 'complex grid of fixed recoverable costs', were, reportedly, greeted with hostility from many quarters (no surprise there). In May 2016, Jackson LJ clarified that his proposal was never intended to be a 'final blueprint' but rather was meant to be 'a good starting point for debate'.
This debate continues, and the whole topic of fixed recoverable costs is, at the time of writing, shifting ground, with delays to the clinical negligence fixed costs consultation and an apparent desire from some quarters to have a similar fixed costs structure across civil litigation (rather than different versions for different areas of litigation).
But as the topic moves forward through consultation, debate, and finally regulation, no matter where the bar on the size of claims and
the precise costs numbers end up, it appears inevitable that in due course we shall be faced with two worlds of civil litigation: one governed by a 'grid of fixed costs' (of some sort) for claims up to a certain level, and for more substantial claims a 'costs budget' regime with the boundaries of recoverable costs tailored to each of these higher-value cases.
It is inevitable that there will be varying views on what are 'acceptable' and 'workable' fixed costs and, likewise, what is an appropriate case value bar to separate the two worlds of litigation within the multi-track. However, it seems that fixed recoverable legal costs will ultimately be the way of litigation going forward for a significant tranche of the civil litigation market.
Provision for expert evidence
As an accountancy expert regularly instructed in an array of both commercial and injury-based claims involving small and medium-sized businesses (SMEs), family businesses, and self-employed traders, I am concerned that there should be suitable fail-safes in place. These need to ensure that there is adequate provision for expert evidence, or alternatively allowable disbursement costs for taking appropriate professional advice, to enable the proper formulation and advancement of claims.
I have observed over recent times a harsh attitude under the costs budget system towards the use of quantum experts (my area of expert work) in reasonably complex cases. This has been noticed particularly with injury claims but also with other commercial disputes. I have often seen legal advisers in somewhat of a quandary when it comes to advancing claims that involve smaller businesses and the self-employed, in anything other than the straightforward loss quantum situations.
While yet to be determined, it seems to me inevitable that permission to use expert evidence on quantum matters on claims falling within the new 'fixed costs' regime is likely to be very restricted. The problem is, however, that for those bringing claims, the need to quantify the loss doesn't go away merely because expert evidence is refused. The claimant solicitor is faced with having to plan the litigation, advise on the prospects of the claim, and advise on quantum - for what may be complex litigation cases being run at a fixed cost. This assumes that the claimant doesn't just agree to foot the bill for all necessary costs irrespective of what they can ultimately expect to recover, which may be a commercial decision that some will take.
A claim for up to £250,000 (if that becomes the fixed costs level) to an SME, a family business, or a self-employed trader can be a very significant sum of money. The outcome may well be life changing - and have implications for not only the claimant, but also for their family and those they employ.
As an illustration, take the situation of a family business that was, say, developing an internet trading platform which has failed due to technical faults for which it wishes to claim recompense.
If that small business has to fight its case against a large defendant (say a telecoms plc) with an array of in-house technical expertise, accountants, and legal resources, where does it even start if permission is denied, or severely restricted, for expert evidence? Likewise, what about an injury claim that centres on a change to the trade of a small business (for example, a self-employed trader) that has been thwarted by some tortious act?
As an accountancy expert, it is more often than not the case that one needs to delve behind the historical annual accounts prepared for regulatory purposes and interrogate the accounting evidence (i.e. trading transaction records) so as to prepare careful analyses of sales, costs, and so on, which is then compared against other evidence and claim-related assertions. Such an exercise takes time and inevitably has a cost implication, but without such investigation and analysis it is often impossible to demonstrate 'on a balance of probabilities' that an index event has caused this or that financial loss. From my position as an expert witness or adviser, any drive towards 'simplified litigation' that does not provide for suitable fail-safes (whereby, for example, appropriate expert evidence is permitted)
is of concern.
Given the environment of ever-increasing cost pressures on those with conduct of claims, and now with the prospect of fixed recoverable costs for a tranche of cases whose losses can, in many regards, frequently be as tricky to quantify as their higher-value cousins, it seems to me that an early (as might be possible) evaluation of the quantum evidence is likely to be an astute move. Not only will a preliminary review and advice on quantum from
an expert assist with effectively managing the risks
of litigation, but ultimately it also makes good business sense.
It seems to me that, in appropriate cases, consulting an accountancy expert at an early
stage is going to be helpful with planning the advancement of a claim. Even at a most basic level, it may identify whether the case falls above or below the magical bar (of £250,000, or whatever
it is eventually set at).
I am aware of many lawyers who have experienced at case management conferences over the past couple of years an environment of hostility to the use of expert evidence, which I know has been particularly frustrating for them. The solution for many has been to instruct me as an expert adviser to gather quantum evidence and prepare complex loss calculations with explanatory notes and so on, and then recover the cost of this exercise on the basis that it represents work the lawyer would otherwise have undertaken, often at similar cost but with fewer specialist quantum and accountancy-related skills.
Going forward, while the use of an expert quantum adviser in the manner described may be a solution for cases falling into the 'costs budget' regime for which permission to use expert accountancy evidence is denied, where does that leave the lawyer with a case that falls (perhaps only just) into the 'fixed costs' regime? Unfortunately,
in the absence of suitable fail-safe provisions, it appears that the answer will be: with a claim that is poorly quantified (and all of the issues that
flow from that) or a claimant suffering the unrecoverable cost of investing in appropriate quantum advice.
Given the important contribution that SMEs, family businesses, and the self-employed make to the economy, let us hope that their particular needs are suitably accommodated when it comes to the rules and guidance for the quantification of losses in claims falling into the category of 'fixed cost' litigation. SJ
Richard Formby is an accountancy expert witness, partner at Monahans Chartered Accountants, and head of forensic services at MHATags: