Costs Estimates and Allegations of Fraud, Rhyl County Court

First of all....the Pier Hotel, Rhyl........luxurious, friendly and and exceptionally good value...... http://www.thepierhotel.co.uk/.  I cannot recommend it highly enough. The owners even managed not to laugh at my continuing footware fashion faux pas. Mind you, they've had Christopher Biggins stay during panto season, so they've had plenty of practice at not laughing.

The case -

Seven young men from Wrexham hire an MPV to visit a friend in Lancashire. Arriving back at Wrexham, the driver swerves to avoid a cat shaped thing in the road (possibly a cat?) and hits a parked vehicle. All six passengers have orthopaedic injuries. One injures his scrotum. Not entirely sure what he was doing at the time of impact....probably best not to ask. They instruct a small firm with two fee earners, both of whom are grade A. On their advice the claimants, very sensibly, make realistic part 36 offers before anything much has happened.

The insurers, LV=, think "staged accident" and instruct Keoghs in Bolton. Liability is denied and LV= are joined to the proceedings as 2nd Defendant. The Defence never actually asserts fraud, but the Claimants are put to proof, their veracity is questioned and the insinuation is pretty clear.

In the allocation questionnaire we mistakenly include profit costs only in the costs estimate.

The Claimants' ATE insurers, for understandable reasons, get a bit edgy and insist on the six claimants being seen in conference by Counsel, so that he can assess their credibility. They pass with flying colours.

In the meantime the case is allocated to the multi track, not because of fraud (as there was no specific allegation), but because there were six claimants and the case would go for more than a day. It is fairly certain though that the fraud innuendo was in the back of the DJ's mind.

Shortly after that LV= make part 36 offers at levels close to those of the Claimants.

Two main arguments on assessment. Firstly that the bill wildly exceeded the costs estimate, secondly that the case could have been dealt with by a grade C fee earner.

Costs Estimate

LV= had confirmed pre assessment that they had not relied at the time on the erroneously low estimate by way of setting a reserve. Instead they asserted that they "wished to rely" on the estimate at this stage in order to dispute the reasonableness or proportionality of the costs, i.e. taking advantage of the newer part of the Practice Direction [section 6.5A(2)(b)]. In the circumstances the Court found quite rightly that the guidance laid down by the Court of Appeal in Leigh -v- Michelin Tyre Plc [2003] EWCA Civ 1766, [2004] 2 All ER 175 applied, namely -

It is not a correct use of the power conferred by the Costs Practice Direction to hold a party to his estimate simply in order to penalise him for providing an inadequate estimate. So if -

• the paying party did not rely on the estimate at the time (e.g. by setting a reserve or deciding to fight a case that it may otherwise have settled) [and if they did, in my view there should be proper evidence not just an assertion]
• the Court would not have made different case management decisions had the figure been correct (e.g. it may have allocated to a different track, limited experts or imposed a costs cap)
• the costs claimed are otherwise reasonable and proportionate

There should be no reduction.

Grade of Fee Earner

We were not allowed grade A, but grade B on the basis of the following argument.

Firstly, Keoghs are specialist providers to the insurance industry. Their website indicates that they have the largest counter fraud services department in the UK, saving over £100 million last year on fraudulent claims. Their  motor fraud unit employs more than 120 people and is supported by a 30 strong "intelligence" team. They deal with more than 75% of the UK insurance market.

So, in our view, a grade C fraud specialist from Keoghs packs a bit more punch than a grade C from a High Street firm in Wrexham. Some grade C fee earners are more equal than others. Parity of arms, and so on.

That aside, accusations of fraud carry potentially very serious consequences. We have two cases at present in which an insurer (one an ATE and one a BTE) have refused indemnity on grounds that the insured has lied.  In both cases the solicitors are faced with a responsibility to discharge disbursements. In the BTE case they have significant profit costs for which, I suspect, they will have to whistle. There is a spectre of an application for a third party costs order...if the solicitors knew or ought to have known that the client was lying, are they not partly to blame.

So there is a need for a degree of experience to sniff out potential trouble, and to carry the can if and when things do go wrong.

On a final note, this is yet another case where the insurer has ended up paying far more than was originally offered. £45k offered, £46.6k allowed, close on £55k when assessment costs are taken into account. I am sure that overall there must be a net saving by Defendant cost negotiators, but it does make you wonder in some cases how they justify their approach!