Summary

Where a solicitors partnership was dissolved and there were two large claims handling agreements outstanding, the correct method for dealing with work in progress was to: (i) consider them as a whole; then (ii) to establish the percentage of work that had been completed at the date of dissolution; and then (iii) calculate what percentage of the fee for that work when completed had been earned to that date. A suitable success rate would need to be applied to reflect the proportion of successful cases in which fees could be recovered and the same was likely to require adjustment over time. In relation to the cases under the later agreement it would be sensible to wait a year before the relevant calculations were made.

Facts

A trial concerning how to deal with and value work in progress following the dissolution of a solicitors partnership. The four claimants and the defendant were all former partners in Browell Smith & Goodyear, a firm of solicitors with offices in Newcastle and four other locations in the surrounding area, including Blyth. The partnership was declared dissolved on 14 March 2000 and directions given for the trial of issues relevant to its winding up. It was agreed that the net share or interest of the defendant would be acquired by the claimants at a value to be determined, which included the defendant acquiring the Blyth office where he had previously practised. The issue that remained for the court to decide was the appropriate method to be adopted for dealing with the work in progress for the purposes of carrying into effect the winding-up order. The majority of the firm's work at the date of dissolution related to its specialist practice in industrial disease and injuries claims, most of which was conducted on a "no-win, no-fee" basis. Some 16,000 odd cases were conducted in accordance with the terms of two claims handling agreements relating to: (i) vibration white finger injuries ('VWF') that was dated January 1999; and (ii) chronic bronchitis and emphysema ('CBE') that was dated September 1999; both suffered by miners working underground. The firm was also handling, as at the dissolution date, about 2000 other personal injury cases and a body of non-personal injury work, mostly a mixture of domestic conveyancing, crime and family matters.

Held

(1) The VWF scheme provided a simplified and fast track means whereby, broadly speaking, qualifying persons would obtain general damages on a tariff system and also special damages under certain heads. The cut-off date for claims was 30 September 2000 and there was a further agreement not to raise any limitation defence if, for any reason, a claim was rejected and litigation was begun within 12 months of rejection. Nearly 7,000 claims for VWF were being dealt with by the firm at the date of dissolution and recoverable costs for a successful claim ranged from #600 to costs being assessed on the standard basis, with the necessary increases for inflation. (2) The CBE agreement was more complex but its purpose also was to provide a speedy and inexpensive means of settling claims without recourse to litigation. It had a cut-off date for claims of 6 February 2001 with a further agreement not to raise a limitation defence if a claim was denied and litigation was begun within 12 months of rejection. Over 9,000 claims for CBE were being dealt with by the firm at the date of dissolution and the maximum costs recoverable if a claim were successful was fixed at #1,750 + VAT. (3) In determining the correct approach for dealing with the work in progress there were three particular considerations: (i) the method used had to be inexpensive and simple to apply. A review of each of the claims would be neither; (ii) the assessment was bound to be inexact because the work had not been completed and billed, but had to strike a fair balance between accuracy on the one hand and speed and simplicity of application on the other; and (iii) where genuine doubts existed as to what would happen in a given event, the benefit of the doubt had to be given to the party who was acquiring the work in progress and who would therefore have the task of completing it. (4) The approach of taking the lesser of cost and net realisable value would be rejected. Such an approach was derived from the true and fair value basis applicable for the purpose of assessing the taxable profits of an ongoing partnership, whereas the task in the instant case was to ascertain what the assets of the former practice were worth, including work in progress, with a view to establishing what the price was that the partners who intended to acquire, complete and take the benefit of the work in progress ought to pay to the partner who would not. (5) In the calculation of what, as between partners, was a fair or reasonable or equitable value to attribute to the assets of the former firm, it was inappropriate in the assessment of work in progress to ignore the value of the time that a partner had devoted to the work or to ignore the mark-up on costs represented by the partner's expectation of profit. (6) The correct approach for both types of claim was to consider them as a whole and then to establish the percentage of work that had been completed at the date of dissolution and then calculate what percentage of the fee for that work when completed had been earned to that date. A suitable success rate would need to be applied to reflect the proportion of successful cases in which fees could be recovered and the same was likely to require adjustment over time. (7) Given the fact that the CBE claims handling agreement was recently entered into it was sensible to wait a year before the relevant calculations were undertaken so that greater experience was built up in relation to dealing with those claims.

Judgment accordingly. Claimants to pay one-half of the defendant's costs with an interim payment of #15,000 within 14 days. Detailed assessment of costs.