MRO Fees are a disbursement & 25% markup is reasonable says SCCO
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The judgment of Senior Costs Judge Rowley has been provided in the conjoined case of JXX and HLA. The case considers key principles relating to whether a breakdown is required where a medical agency (or MRO) is used to obtain expert evidence. The importance of the hearing is exemplified by the fact that four KCs were engaged in the matter.
As Rowley states in his preamble, “the questions posed in these cases have been aired for more than two decades now without directly relevant High Court or higher decisions.”
Speed‑Read
For those wanting an executive summary:
a) An MRO fee is a disbursement and not outsourced solicitor work.
b) MRO fees remain recoverable in principle. Here the SCCO found that a markup of 25% was reasonable and proportionate. Rowley stated that a benefit of “a maximum recoverable percentage fee is that it can easily be stated on the MRO invoice”.
c) Election as to evidence upon a breakdown remains with the receiving party.
d) Where the evidence provided is limited, a cautious approach must be adopted. Where there is no evidence, the fee should be assessed on the basis of no MRO involvement.
e) There are no irrecoverable funding costs as part of an MRO fee.
f) The percentage markup should be on the entire expert fee rather than constituent elements.
g) The court can consider and assess what a reasonable MRO fee is.
h) The SCCO was not persuaded, based on the evidence provided, that using an MRO is necessarily cheaper than instructing an expert directly or that more favourable terms were available to an MRO.
i) The adverse impact on MROs was not relevant to a court of first instance.
Practical Implications
The decision in JXX and HLA is not binding, but it is arguably the most significant judgment to date on MRO fees and breakdowns.
It establishes—unless and until appealed—that MRO fees are not solicitor costs, but equally that without evidence (or where evidence is limited) any assessment of MRO fees should be undertaken with caution. The 25% benchmark offered by the SCCO will likely begin to bite in between‑the‑parties assessments and negotiations going forwards.
Some practitioners may wish to discuss the implications of this case with their MRO providers, specifically around terms.
A practical point remains that without detail of the split between expert and MRO charges, the percentage uplift will not be known. If the JXX / HLA approach is adopted—chiefly, that where no evidence is advanced the fee should be assessed on the basis of no MRO involvement—this could still see overall reductions to expert/MRO fees.
Further, where an MRO is charging above 25%, evidence will clearly be needed to justify the reasonableness of the fees at any between‑the‑parties assessment.
Questions remain around whether MROs are prepared to provide splits between expert fees and MRO fees and, perhaps more pertinently, whether 25% is a liveable markup. Here the general markups were between 20% to 104% for MAPS and 35% to 45% for Premex. Broadly, for both there is a prospective shortfall to be picked up by the Claimant or their solicitor unless the MROs are prepared to reduce their charges.
What is significant, though, are the conclusions around MRO fees as disbursements and the finding that there are no irrecoverable funding elements.
It should also be stressed that the decision is open to appeal and may not be the final word.
This decision moves the conversation forward but does not end it. On balance, the MROs are likely to be the happier of the parties, but there is significant nuance to be had.
Background
In the original decision in JXX, the SCCO held that it was up to the receiving party to decide whether to provide further information regarding the medical evidence fees, but that if they did not, the expert costs would be assessed on the basis of no MRO involvement. Our blog on the previous decision can be found here.
The Claimant in this matter elected to provide further information, with the case of HLA conjoined. The MROs involved were MAPS and Premex, both of whom became third parties. The Association of Medical Reporting Organisations (AMRO) was refused permission to join the proceedings.
In relation to both JXX and HLA, all costs were agreed save for the medical evidence fees.
Rowley remarked that despite the claims relating only to the MRO fees, “no fewer than 27 witness statements were served” with “no evidence […] served by the defendants”.
What Are the Fundamental Arguments?
The Defendants’ position:
a) In line with Stringer v Copley, the time spent by an MRO should be no more than that spent by the solicitor. The Defendants referred to this as the “Stringer Cap”. They relied on the fact that Judge Cook had described the need for the MRO to provide a separate breakdown in order to compare those fees with the fees of a solicitor.
b) They averred that the evidence provided by the Claimants was insufficient to demonstrate that the “Stringer Cap” had not been exceeded.
c) They did not object to the use of MROs in principle.
The Claimants’ position:
a) The MRO is a third party. Its approach is to apply a percentage markup rather than charge based on time spent.
b) MROs have never time‑recorded like a solicitor’s practice. Any comparison between solicitor time and MRO time would therefore be “entirely artificial”.
c) The MROs’ view was that “the court should look at the reasonableness of the aggregate invoice produced by the MRO rather than considering an artificial breakdown of the MRO’s fees separate from the expert’s own fees. Either such fees are reasonable and in which case they should be allowed, or if they are too high, an appropriate reduction should be made by the court.”
Is Using an MRO Cheaper Than Instructing Experts Directly?
One submission advanced was that Claimants had contended that using an MRO was cheaper than instructing an expert directly. The Defendants criticised this generalisation.
Rowley considered the evidence from both Premex and MAPS and was critical of Premex’s breakdown, given it had gaps and used estimated time. He also queried the use of the solicitor rate by an MRO and referenced evidence from MAPS that one advantage of an MRO was lower staff salary costs compared with a solicitor’s practice. Rowley found it “surprising that using a lower hourly rate was not the route taken […]”.
Rowley was clear:
“If, in considering whether the expert evidence fees are reasonably incurred and reasonable in amount, the MRO fees are treated as being outsourced solicitors’ work—and so comparable with the instructing solicitor—the claimants have, in my judgment, failed to put forward any cogent evidence which might remove doubt from the court’s mind as to the reasonableness of the fees.”
MROs Can Negotiate Bulk Discounts
The Claimants sought to submit that the benefit of an MRO is their bargaining power with the individual experts. However, Rowley’s view that the evidence in respect of discounted fees was sparse. He cited one expert in the case who offered discounted fees to both solicitors and MROs for repeat business.
Professor Cosker provided a witness statement where he explained that it was beneficial to take instructions from an MRO as he could not accept instructions on a deferred payment basis as he would otherwise not be prepared to undertake such work as “the risk was too high”. He made the point that if he had to act on a deferred basis then his reporting costs would have to increase to account for uncertainty and risk.
Under cross-examination there was some confusion over whether a lower hourly rate was contractually agreed with the MRO or if the savings derived from Professor Cosker spending less time.
The court noted that only limited evidence had been provided with the MROs expressing some regret further evidence had not been sought.
Rowley held that the argument that MROs have the ability to reduce experts’ fees below figures which were available directly to instructing solicitors was made out in the evidence before him.
Disbursement vs Outsourced Solicitors’ Work
Submissions turned to the status of MRO work – chiefly whether it was outsourced solicitor’s work (i.e. on agency basis) or a disbursement.
Rowley reflected historical case law which highlighted the fine line and difficulties in distinguishing between what is and is not categorised as a disbursement.
The court considered that historically there were no MROs and as such solicitors would have to engage experts directly. On the question of whether it was solicitors work, Rowley considered a number of points:
a) The work undertaken by an MRO is not solely work a solicitor would do.
b) The work undertaken by an MRO would include items a solicitor would not do such as maintenance of an expert database, organisation of rooms and appointments, deferred payments and write-offs.
c) Some MRO work would be administrative (part of a solicitor’s overhead) this causes a tension as to the Stringer description as “work that would otherwise have been done by a solicitor”.
These points could lead to an outcome, considered Rowley, that the MRO fees overall could be less than the solicitor charges but still be vulnerable to challenged because some elements would not be considered to be ‘legal work’.
Rowley considered that “The challenge that the work done was administrative rather than solicitors’ work would, on the Crane test, point towards the fee being a disbursement.”
Consequently, he considered the issue of where responsibility for the work would lie.
It was considered that the responsibility for the contents of the report was with the expert rather than with the solicitor and this was an important distinction when considering agency principles. This distinction was important said Rowley because “it leads the assessment away from a comparison of time and effort spent by the MRO with the hypothetical time costs of the non-required solicitor.”
Rowley concluded that his view was that MRO fees are a disbursement rather than outsourced solicitors’ work and crucially:
“It flows from that conclusion that I do not consider the fees are limited by a comparison with a hypothetical solicitor’s work in obtaining the medical evidence and as such there is no purpose in requiring an MRO to provide a breakdown equivalent to that produced by solicitors in their bill of costs.”
The Approach to Quantum — Defendants’ Position
The Defendants submitted that there was not a binary choice between allowing an MRO fee as claimed or disallowing it entirely. They criticised the failure of the MROs to attempt time‑recording, arguing that by not doing so the court was prevented from allowing “something rather than everything”.
Rowley observed that:
“The production of some form of time recording by the MRO would not necessarily lead to that sum being allowed, even if it were below the hypothetical solicitor’s equivalent. It would simply be the gateway to further arguments, for example, regarding administration work rather than legal work.”
The Defendants also sought to distinguish between what they regarded as the recoverable and irrecoverable elements of the MRO fee. In the absence of a breakdown, they submitted that the whole fee should be disallowed, given the uncertainty over the extent of recoverability.
The Elements of an MRO Fee
The SCCO considered the constituent elements of an MRO fee, identifying five major components:
i) Obtaining the medical evidence – administration of arranging expert appointments and “marshalling”.
ii) Expert database – the ability to provide details of suitable experts.
iii) Prompt payment – the value of the MRO taking on the financial burden of paying the expert within a matter of months while deferring reimbursement until the claim concludes.
iv) Write‑off (“waive”) facility – the possibility of writing off unrecovered fees.
The Defendants did not object in principle to the first two aspects (subject to the Stringer Cap). However, the latter two were argued to be funding costs and therefore irrecoverable as a matter of law.
Are MRO Funding Costs Recoverable?
Extensive discussion followed on whether the funding elements were recoverable.
The MROs relied on changes to the CPR permitting pre‑judgment interest. Rowley made clear his view on funding costs:
“My understanding has always been that the funding of the cost of litigation is a matter for the litigant… If a bank loan had to be taken out in order to fund litigation, then that is a matter for the party… In the same way, questions as to the depths of the pockets of the opponent… were not ones which had to be answered.”
The MROs argued by analogy to solicitors who defer payment until the conclusion of a claim, noting that this does not amount to the solicitor “funding” the litigation.
The Claimants submitted that Defendants do not challenge directly‑instructed experts whose fees are subject to deferred payment terms.
The Defendants replied that deferred payment by the solicitor, where the MRO charges for that deferral, was disbursement funding.
Rowley considered the issue in detail:
“76. In my judgment, the response of the defendants to Mr Marven’s primary point is not convincing. The market for MROs to provide medical reports is not simply one of providing good administration so that experts, claimants and medical records converge at the same point in order for an efficient report to be produced. Those acting on the claimant side of the case are all dependent upon fees being paid at the end of the case by the opponent. It is inescapable that the costs will be incurred some time before that payment is likely to be made. Those experts who accept instructions directly from solicitors either build something into their fees for this delay in payment or are simply prepared to wait for their fees to be paid. The same is true in respect of the solicitors whose fees not only will not be paid until the end of the case, but will only be paid at all if the claimant is successful (assuming that the almost ubiquitous use of a Conditional Fee Agreement (“CFA”) is in operation). Whilst there is the possibility of claiming a percentage in the form of a success fee for deferment of payment under a CFA from the client, that is, in my experience, relatively rare, and is often swallowed up by the risk element where such a fee is actually claimed.
77. In the circumstances an MRO is simply factoring into its terms and conditions an expectation that income will lag expenditure by a distance. As with the other participants, cash flow will eventually appear in cases coming to fruition and will pay for expenditure incurred in newer cases. The purpose of the terms and conditions is to provide medical evidence; it is not to provide credit even though that is, in effect, a byproduct of the agreement. In my view, this is an entirely different proposition from the cost of a disbursement loan from a bank or other litigation funder.”
Turning to the waive facility:
“83. The defendant’s criticisms of the waive facility were added to the arguments concerning the deferment of payment in describing the fees charged by MAPS or Premex as including cost of funding elements because they involved an appreciable element of the cost to the MRO of providing the service.
84. I do not accept those criticisms. I have already described why I do not think that the staggering of payments is sufficient to amount to any form of credit agreement. It seems to me that the waive facility strengthens the point that the market in which the MROs operate with solicitors requires terms generally to establish an attractive package for solicitors to use the services of an MRO. The specific cash flow arrangements between Thompsons and MAPS accentuate the commercial relationship between the two organisations. The main agreement which they entered into appears to be the one which MAPS uses with other firms. The additional “preferred supplier agreement” simply reflected the ongoing relationship between Thompsons and MAPS.
85. For these reasons, I do not consider that the MRO fees contain any irrecoverable funding costs in the manner contemplated by Hunt v Douglas Roofing. They simply reflect a commercial relationship between the MRO and the firm of solicitors.”
In short: MRO fees contain no irrecoverable funding costs.
Can / Should the MRO Fee Be Deconstructed?
Irrespective of whether there were irrecoverable elements, the Defendants contended that a breakdown was needed to consider reasonableness and that without a breakdown that adjudication could not be made. The Defendants were critical of the MROs contending that just because they had a system which meant they were unable to set out the constituent elements of their charges the court should simply assess these matters on a global market basis.
The court accepted the difficulties and impossibilities of disentangling the different elements of an MRO fee:
“90. The stark difference of approach was criticised by the defendants as leaving no middle ground for the court. As will be seen, I do not entirely accept that categorisation of the situation, but I do think that there is no realistic scope for any attempt to deconstruct the elements of the MRO fee. It seems to me to be a little surprising that a commercial organisation would not have analysed its cost base to see which, if any, costs might be reduced or the relevant element dealt with in some other way which would lessen the cost and thereby increase the profit. However, there is no evidence before the court of any such analysis.”
The Claimants / MRO position was that there was now need to deconstruct the MRO fees and consideration could be given to the reasonableness of the fee as a whole. Ben Williams, on behalf of JXX articulated the point the approach deconstructing MRO fees “does not occur in respect of any other disbursement”. He contrasted the approach to counsel’s fees.
The Claimants also pointed to the lack of evidence provided by the Defendants and reference was made to the fact that Defendants too use MROs.
Rowley considered this holistically, neither side had supplied much in the way of evidence.
The MROs submitted that their fees were based on a percentage mark up applied to the experts’ fees and there was scant evidence before the court that the fee charged by the experts was any different from that which would be charged to the solicitor.
It was noted by Rowley that in JXX there were markups between 20% and 104% (MAPs) and for HLA the markups ranged between 35% to 45% (Premex).
The MROs contended that:
a) The percentage charged was not reflective of the time spent.
b) The percentage was designed to make the MRO profitable on a global basis.
c) There is a competitive market between MROs that “regulates the percentages charged”.
Rowley, accepted the bargaining position on the waive facility but rejected it with respect to the fee charged on top of the expert evidence. The court made the analogy of parents buying training shoes for their children: “those who benefitted from the purchase were not those who were responsible for payment of it”. In short the Claimant solicitor, broadly speaking, isn’t paying the MRO fees, but they are directly involved in the waive element. This means there is less incentive for ‘bargaining’ on the MRO markups which the Defendant is ultimately paying. This does, overlook, though the broader point that shortfall often has to be met from somewhere.
Rowley concluded on this point:
“103. I do not think there is anything in the claimants’ argument that competition between MROs for the business of solicitors which supports the proposition that the MROs’ charges are inherently reasonable. Since that argument is unsuccessful, then it is difficult, if not impossible, to compare invoices between one expert and another with any certainty that either of the invoices is reasonable. That may be the case, but equally the invoices might have been increased by MRO fees which might be considered unreasonable in themselves.
104. For these reasons, I do not accept the claimants’ approach that the court can simply compare one invoice with another in circumstances where the fee note under assessment has been increased by an unknown percentage for the MRO’s efforts.”
Imperilling the Future of MROs?
The SCCO considered the impact on MROs. Rowley acknowledged that an adverse decision could detrimentally affect MRO businesses but stressed this was not an issue for a court of first instance.
Both parties accepted there is a place for MROs in personal injury litigation.
Rowley noted that a significant percentage of instructions are still sent directly to experts.
He reached no final determination on the point.
Quantification
So how is the MRO fee quantified in all circumstances? As Rowley acknowledged even with the evidence available “quantifying the reasonable and proportionate sum for the defendant to pay is not, at least in my view, straight forward”.
What ensues in the judgment is passages dealing with the work an MRO may undertake for the procurement of an expert report by reference to the four constituent elements referred to previously.
Rowley remained sceptical of the inability of “large commercial organisations to be able to provide specific information regarding their costs base”. It was noted, for instance, that Premex had a minimum charge of £200 to reflect the ‘minimum cost for basic overheads’.
The Senior Costs Judge continued:
“122. But there is no such information before the court and, in its absence, the court has to paint with broad strokes. Since the MROs indicate that they do not calculate the percentage uplift on a case-by-case basis, but on a more macro level, it seems to me difficult for them to complain if the recoverable fees are dealt with on a similarly “swings and roundabouts” basis. Indeed, when the evidence strayed into the fixed recoverable costs cases under Part 45, reference was specifically made to dealing with cases in this fashion. Not only was that a feature of the fixed figures, but it also reflected the subsidising of the less remunerative charges for the whiplash injury reports by the markups received on other reports.”
Rowley considered that:
a) Premex – The increase to the percentage uplift from 25% to 35% was a “significant change”.
b) MAPs – The wide range of different markups and inability of the MRO to confirm if the correct rates were applied ultimately undermined evidence on reasonableness.
The judgment continued:
“127. To draw things together at this point, there a number of elements which the MROs have shown which go into the fees that they charge on a broad basis. Although there is competition between them for the business of solicitors acting for claimants, that competition suffers from the tripartite tension described by Professor Peysner and Mr Cutler. Those ultimately paying for the great majority of the fees charged by the MROs have no say in the competition between MROs. Even the suggestion that market feedback regarding fees agreed with defendants was fed into discussions as to rates seems to me to be of limited value. The MRO evidence, particularly from Mr Cutler, was that until the Stringer point started to be taken more actively by defendants, virtually all fees were recovered without difficulty.
128. Disagreements caused by the tripartite tension is the trigger for the court to be involved. In the unusual event of there being a dispute between the claimant and their solicitor regarding the fees of medical evidence obtained, a judge would have to conclude whether the composite fee charged was a reasonable one between solicitor and client.
129. But in a between the parties’ assessment, the court’s task is to determine what a reasonable (and proportionate) sum for the paying party to pay would be. That does not generally mean that the court considers that the costs have not actually been incurred. Normally, it is a matter of whether all or only some of those costs claimed between the parties should be laid at the paying party’s door. As Mr Cutler put it:
“Fundamentally -- there is nothing free here. The underlying costs that are being incurred as part of providing the service are real costs. You can argue about the margin being made and those kinds of things, but they are all real costs. It is just a question of who bears them, Is it the client, is it ourselves, is it the defendant, because they are all underlying costs as part of bringing the claim.”
130. Therefore, my task is not necessarily to assess whether the full sum is reasonable in itself, but merely whether it is reasonable between the parties. On many occasions in a detailed assessment, an item might be reasonably incurred on the client’s instructions (and therefore payable by the client) yet is not reasonable between the parties. A simple example would be a speculative medical report obtained to determine whether symptoms the client said related to the accident could be linked by such evidence. The cost of an unsupportive report would rarely be recoverable ultimately from a defendant in such circumstances.
131. Similarly, a reasonably incurred disbursement may not be fully recoverable if the court decides it is unreasonable in amount. Whether that is so in these cases, is the issue I need to decide.”
Rowley did not accept the argument that the court could not assess MRO fees and that this could be distinguished from ATE premiums in that a Claimant who wishes to be insured has no choice but to take out ATE whereas a Claimant can elect whether or not to use an MRO. Further, it was held that considering the reasonableness of percentages claimed was not a novel one.
In concluding the quantification question, Rowley stated as follows:
“136. The defendants raised some concern about any percentage being charged on more than the expert’s own labours, for example on travelling costs or other disbursements. I consider that the percentage should apply to everything (including disbursements etc) for reasons of simplicity and practicality. The percentage mark up is intended to achieve an overall sum and allowing it only on certain elements would, in my view, simply justify a higher sum on those elements.
137. Where there is a limitation to the receiving parties’ evidence, the court needs to take a cautious approach. I think that is the situation here and I am not persuaded that even the range of 30% to 53% generally charged can be considered reasonable, let alone the outlier percentages, some of which result from fixed sums having been claimed. The general range of 30% to 53% plainly reflect variations resulting from ongoing commercial relationships between the solicitors and MROs rather than any case specific factors. There is nothing wrong with those relationships but they are not any basis on which to allow any particular percentage between the parties. Having spent a considerable time reviewing the evidence and submissions in this case, both as documentation and in this decision, in my judgment, a mark up figure of 25% between the parties would be a reasonable percentage. More than that would be a matter for the claimants, their solicitors or the MROs. Any mark up claimed of less than 25% would be limited to that percentage.
138. As a final word, one advantage of a maximum recoverable percentage fee is that it can easily be stated on the MRO invoice, unlike the quasi-solicitors’ breakdown, which might assist all sides as well as the court in the future.”
There will be a short consequentials hearing to follow and it will then be over to the parties to consider their position as to a prospective appeal. The writer would not at all be surprised if this was not the last heard in relation to JXX / HLA and certainly not the last word on agency breakdown.
Full Judgment is available here.
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