More Noise: Loser pays on CFA’s?

  Coventry v Lawrence (Part 2)

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A Supreme Court case I commented on recently, elsewhere described as “…an important judgment on the principles of private nuisance for the 21st century…”[i] now has wider ramifications for legal costs in CFA cases. In the supplemental judgment of 23 July, Coventry v Lawrence [2014] UKSC 46[ii] a five member Supreme Court panel decided on the grant of an injunction and damages in a private nuisance case brought by a house owner against operators of a speedway stadium.

One of the remaining issues was whether the injunction for nuisance should be suspended until the house was again habitable, following fire damage. Damages were thought likely to be even more of an adequate remedy in the meantime.

However, the pronouncements on CFA costs have assumed far greater importance than on this case alone. The house owner had been awarded 60% of his costs to be paid by the operators, including base costs, success fee and after the event costs insurance (AEI). On a detailed analysis of the figures, Lord Neuberger said

 the figures are very disturbing

The base costs were £398,000, success fee £319,000 and AEI £350,000 (total £1,067,000). This was “regrettable” in the context of the house being worth a maximum of £300,000, and the nuisance reducing this by £74,000 at most. The operator’s liability to pay the householder’s costs would leap from £238,000 (60% of basic costs only) to £640,200, being 60% of all three elements, based solely on how the householder had chosen to fund their case.

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It had been thought that satellite litigation on costs or CFAs and AEIs at least had subsided, following Callery v Gray [2002] 1 WLR 2000, where the House of Lords decided that, subject to reasonableness, success fees and ATE premiums were recoverable. In Campbell v MGN Ltd (No 2) [2005] 1 WLR 3394, the House of Lords held that the 1999 Act[iii] costs recovery regime did not infringe Article 10 of the European Convention on Human Rights (“ECHR”) (freedom of expression).

However, the operators argued that following the Strasbourg Court in MGN Limited v United Kingdom (2011) 53 EHRR 5 and Dombo Beheer BV v Netherlands (1994) 18 EHRR 213, Article 6 (right to a fair trial) would be infringed if the court required them to pay 60% of the success fee and the ATE premium.

In MGN v UK at para 217, the Strasbourg Court said that “…the depth and nature of the flaws in the system…” introduced by the 1999 Act and the provisions of the CPR were “…such that the Court can conclude that [it] exceeded even the broad margin of appreciation to be accorded to the State in respect of general measures pursuing social and economic interests…”.

As to Article 1 of the First Protocol to the Convention (“A1P1”), the operators rely on the reasoning of the Strasbourg court in James v United Kingdom (1986) 8 EHRR 123.

Faced with these contentions and giving the lead judgment, Lord Neuberger held that it is

open for argument

whether the home owner’s costs claims (success fee and AEI) are a breach of the operator’s entitlement to a fair trial under Article 6 ECHR and/or A1P1. The Supreme Court ruled that if the operator wishes to pursue that argument, it would be wrong for it to decide the point without representations from the Government and other interested parties as interveners. These would include the Attorney-General and the Secretary of State for Justice, and any other intervener sanctioned by the Court.

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Comment

Following the Jackson Reforms, the success fee and AEI would no longer be recoverable in cases where such arrangements were entered in to after April 2013. However, in the instant case (and a vast number of cases continuing through the Courts under the “old” fee regime), until now such success fee and AEI have been regarded as entirely valid and enforceable against the losing side.

A number of questions arise, including whether, if the court considered that there was an infringement of the operator’s rights this ought to be recognised by a declaration of incompatibility. However, the forum for this decision has yet to be resolved, whether this should be again at the Supreme Court, or as stated in Callery v Gray at the Court of Appeal, being “…the primary supervisory and judicial policy-making functions in connection with case-management, procedural and costs issues…” with greater experience on matters concerning costs.

Further affected by this renewed doubt however, are litigants in ongoing cases subject to the old costs regime, where the funding, CFAs, retainers and AEI premiums will now be questioned, to say nothing of all previous cases decided (or settled) on the assumption by the courts that the old regime did not offend against ECHR. If there is a declaration of incompatibility, this could lead to a deluge of compensation claims against the UK Government.

 

[i] (Planning permission no defence to private nuisance claim) http://wp.me/p4DFLr-c

[ii] http://supremecourt.uk/decided-cases/docs/UKSC_2012_0076_Judgment.pdf

[iii] Legal Services Act 1990 Part II, Access to Justice Act 1999

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Back to “punishment to fit the crime”? Court of Appeal construes Mitchell

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The Court of Appeal has tried to clarify what happens when a party to Civil Litigation is late in complying with a court order. The decision in Denton on 4 July was eagerly awaited because lawyers, litigants (and the courts) have been in a quandary since last November’s landmark decision by the Court of Appeal in the case of Mitchell. That upheld deliberately sweeping sanctions, enforcing the “Jackson Reforms” of April 2013. 

In Mitchell, the former Chief Whip was suing a media group for defamation, arising out of the “Plebgate” saga. However, his lawyers were 5 days late in lodging at court a new detailed costs budget in “Form H” predicting costs for the entire case. Under “Jackson”, great importance is attached to this form, to be finalised by all sides, as soon as a Defence is filed.

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Because Form H was late, the court treated Mr Mitchell as having failed to serve any estimate. Consequently, his budget was restricted to court fees alone rather than the approximate £400,000 his solicitors estimated in the form. The other side estimated their costs in a similar range. As a result, even if Mr Mitchell won his claim he would have been unlikely to recover more than a fraction of his expected costs approaching £1/2M. Since that decision, courts and lawyers have been dealing with a perceived “zero tolerance” of failures to meet court deadlines. That is even though often the courts may be late in sending out forms and orders.

The upshot has been that the courts have been inundated with applications for “relief from sanctions”, usually well in advance of a deadline, because the message has been that delays, however short, may result in the case (or defence) being struck out. There have been contradictory decisions, some of which have been criticised as unduly harsh, and disregarding the justice of the individual case.

In an effort to stem the resulting tide of “satellite litigation” the Court of Appeal has argued in Denton that whilst Mitchell was correctly decided, it has been misunderstood and misapplied. There were 3 conjoined cases in Denton;

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Facts

Denton v TH White Ltd

This claim was against the installers of a milking parlour. Statements and expert reports were exchanged on time, but additional evidence was served in December 2013, just five weeks before the trial. At the pre-trial review the claimants obtained permission to rely on the statements and the court vacated the trial date. The defendant appealed to the Court of Appeal on the ground that the judge failed to apply, or misapplied, Mitchell and erred in the exercise of his case management discretion.

Decadent Vapours Ltd v Bevan

The claimant failed to comply with an order that “unless” they file a pre-trial checklist and pay the court fee by 4pm on 19 December 2013, the claim would be struck out. The checklist was filed by email on the afternoon of 19 December. Unfortunately the cheque for the fee was only sent that day and it was not cashed. It is not known when the cheque went missing, but it may have been lost at court. The failure to pay the fee wasn’t discovered until a hearing on 7 January, where the claimant’s failure to comply with the “unless” order meant that the claim was struck out. The fee was paid on 9 January 2014, shortly after it was learned that the cheque had been lost. The court rejected the claimant’s application for “relief from sanctions” to reinstate the claim.

Utilise TDS Ltd v Davies

The claimant failed to comply with an order that “unless” they file costs budgets by 4pm on 11 October 2013, they could only claim court fees by way of costs if they were successful. The claimant missed the deadline by 45 minutes. The order also granted a stay until 8 November and required the claimant to inform the court of the outcome of negotiations by 4pm on 15 November. However the claimant was 13 days late in reporting. The District Judge refused the claimant’s application for “relief from sanction”, and their appeal to the High Court was also dismissed.

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The issues before the Court of Appeal

The new Civil Procedure Rule 3.9, for applications made after 1 April 2013, dispensed with the previous nine factors for consideration (see below) and replaces them with two:

(1) the need for litigation to be conducted efficiently and at proportionate cost and (2) the need to enforce compliance with rules, practice directions and orders. As with the old rule 3.9, the court must also consider “all the circumstances”.

The three conjoined appeals were heard as a test case by the Master of the Rolls Lord Dyson, Jackson LJ, and Vos LJ. The Law Society and the Bar Council were allowed to make submissions as Intervenors regarding wide ranging issues in practice.

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The Court of Appeal decision in Denton

The Court of Appeal has and directed that this decision takes primacy and should be the only case to be considered from now regarding relief from sanctions. Mitchell, and the subsequent decisions, need not be referred to. The appeals were allowed in each of the three cases.

“…we think that the judgment in Mitchell has been misunderstood and is being misapplied by some courts. It is clear that it needs to be clarified and amplified in certain respects”.

The court differed as to the correct approach however. Lord Dyson MR and Vos LJ set out a three stage approach. Jackson LJ, agreed with the outcome in each appeal, but favoured a more direct approach at stage 3, and for the court to simply “deal justly with the application” and considering all of the relevant factors, but without regressing to excessive lenience with any breach being overcome by a costs penalty. That was the approach of the judge in Denton. Jackson LJ insisted that the judge was mistaken in not taking in to account the wider impact on litigants and the court when considering the justice of the case. Lord Dyson MR and Vos LJ criticised the treatment of Mitchell rather than Mitchell itself. On deciding an application for relief from sanctions Under CPR 3.9 ther three stage approach is:

Stage 1

Identify and assess the seriousness and significance of the failure. When considering stage 1, the court should not initially consider other unrelated failures that may have occurred in the past. In other words, no cumulative totting up of non-trivial, or insignificant breaches. If the breach is not serious or significant, the court is unlikely to need to spend much time on stages 2 and 3 and the prospects of relief being granted should be greater.

It is notable that the Court of Appeal has distanced itself from the terms “trivial” and “non-trivial”, preferring the words “serious” and “significant”.

Stage 2

Consider why the failure or default occurred? Unfortunately, the Court of Appeal gave no further guidance on this point, merely saying the guidance in Mitchell is not exhaustive. This spelt out that “pressure of work”, or being unable to get to the office due to inclement weather were not good reasons.

Stage 3

A re-emphasis of the provisions of CPR 3.9: when considering the application the Court should consider

“all the circumstances of the case, so as to enable it to deal justly with the application”,

including:

  1. Whether the breach has prevented the court or the parties from conducting the litigation (or other litigation) efficiently and at proportionate cost; and
  2. The importance of complying with rules, practice directions and orders.

Dyson MR, and Vos LJ said the third stage required the Court to give particular consideration to all the circumstances of the case but with greater weight to be given to factors (a) and (b). Jackson LJ, whose report is the foundation of the reforms (and who was part of the Court of Appeal hearing the Mitchell case, dissented slightly, stating that, “the rule does not require that factor (a) or factor (b) be given greater weight than other considerations. What the rule requires is that the two factors be specifically considered in every case”. I.e., irrespective of any other factors, the court must consider (a) and (b). As the majority, Vos LJ and Dyson LJ disagreed, the guidance now is to simply attach greater weight to those factors.

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Comment

In any event, “all the circumstances” must be considered, rather than merely concentrating on the specific factors in the new CPR 3.9. This suggests that following Denton, relief from sanctions in similar circumstances is now more likely to be granted than applied post Mitchell, where there would be short shrift.

Comparison

Relief from sanctions applications were previously governed by CPR 3.9 with consideration of nine factors as follows:

“(1) On an application for relief from any sanction imposed for a failure to comply with any rule, practice direction or court order the court will consider all the circumstances including –

  • (a) the interests of the administration of justice;
  • (b) whether the application for relief has been made promptly;
  • (c) whether the failure to comply was intentional;
  • (d) whether there is a good explanation for the failure;
  • (e) the extent to which the party in default has complied with other rules, practice directions, court orders and any relevant preaction protocol;
  • (f) whether the failure to comply was caused by the party or his legal representative;
  • (g) whether the trial date or the likely trial date can still be met if relief is granted;
  • (h) the effect which the failure to comply had on each party; and
  • (i) the effect which the granting of relief would have on each party.”

From 1 April 2013 this changed to a newly worded CPR 3.9:

“On an application for relief from any sanction imposed for a failure to comply with any rule, practice direction or court order, the court will consider all the circumstances of the case, so as to enable it to deal justly with the application, including the need—

  • (a) for litigation to be conducted efficiently and at proportionate cost; and
  • (b) to enforce compliance with rules, practice directions and orders.”

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Punishment to fit the crime?

The shift of emphasis in Denton is to be welcomed, perhaps heralding a return to “proportionality” and the principle previously endorsed as “the punishment should fit the crime” (Beeforth). It is likely that this re-balancing in Denton following recent confusion will not see a reversion to courts failing to uphold sanctions without good reason.   

The Court of Appeal wanted more co-operation between parties (which had prevailed pre-Mitchell). Opportunistic attempts to take advantage of technical or trivial breaches will be met with heavy costs sanctions.

However, there is no guidance on what remedies if any there may be for litigants, their solicitors and insurers where a claim or defence has been struck out due to a misinterpretation of Mitchell.

Cases referred to

Mitchell v News Group Newspapers Ltd [2013] EWCA Civ 1537

 Denton v TH White Ltd and another, Decadent Vapours Ltd v Bevan and others and Utilise TDS Ltd v Davies and others [2014] EWCA Civ 906

http://www.bailii.org/ew/cases/EWCA/Civ/2014/906.html

Beeforth v- Beeforth. Court of Appeal [1998] EWCA Civ 1151; The Times [17.9.1998]

 

Arbitration: Pros & Cons

 

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Why Arbitrate?

1              The aim of this briefing is to identify the relative advantages and disadvantages of Arbitration as a means of dispute resolution. Arbitration is, justifiably, an increasingly popular method of dealing with disputes, but arbitration is not ideally suited to every situation. This note compares the main features of arbitration with litigation and ADR,  and pinpoints key issues in deciding the most appropriate dispute resolution forum.

2              Typically, the question of whether or not to arbitrate arises at two key stages:

  • When negotiating a contract. The parties may decide to include in their agreement an arbitration clause to cover disputes that arise in the future. Inevitably, the arbitration clause is one of the last terms to be agreed, and there may be a temptation to rush matters to get the deal finalised. Given the far-reaching consequences of agreeing, or failing to agree, an arbitration clause, this temptation is best resisted. It is vital that the pros and cons of arbitration are given proper consideration at the time of contracting.
  • When a dispute has arisen. The decision at this stage is, in one sense, easier because the features of the particular dispute, and its suitability for arbitration, will be clearer. However, it may be more difficult to conclude an agreement to arbitrate if one party has an interest in delaying matters, or perceives a tactical disadvantage in arbitrating.

3              If the parties do decide to enter an arbitration agreement, it is important that it is carefully drafted; further advise as necessary should be taken on individual circumstances.

Arbitration compared with litigation

4              Arbitration can have several advantages over litigation. However, it is important that each perceived advantage is examined carefully in each particular case to assess its weight.

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Enforcement

5              Ease of enforcement is probably the most important factor in favour of arbitration. The New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) provides an extensive enforcement regime for international arbitration awards. There is no real equivalent for enforcement of court judgments.

6              If you opt for arbitration principally because of the advantageous enforcement regime, it is important to ensure that you draft the agreement with this in mind. This will usually involve ensuring that the arbitration agreement is in a form that will be recognised as valid in both the seat of the arbitration and the country of enforcement.

Certainty

7              Like a choice of court clause, a well-drafted arbitration agreement introduces a welcome degree of certainty with regard to the forum for resolving disputes. This is particularly attractive where there is a cross-border element to the dispute: the need to consider, or take advice on, the complex rules of private international law governing jurisdiction can be entirely sidestepped.

8              In litigation, disputes over jurisdiction can be expensive and (once appeals are factored in) extremely time-consuming. By contrast, a carefully drafted arbitration agreement should minimise the chances of jurisdictional disputes. Furthermore, if the parties agree to institutional arbitration, or agree that a certain set of rules will apply to their arbitration, this will also ensure a degree of procedural certainty and predictability (By simply referring to the applicable arbitration rules, the parties can inform themselves of what steps they need to take, and when.

9              Of course, disputes relating to jurisdiction and procedure can and do arise in arbitration just as in litigation. But the chances of such disputes can be eliminated or minimised by carefully drafting the arbitration agreement.

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Flexibility

10           A significant advantage of arbitration is the ability to tailor procedures to the needs of a particular dispute. There is great scope for the adoption of innovative, effective and efficient procedures. For example:

  • The parties are generally free to agree a suitable procedure, and are able to influence the procedure much more than is possible in court proceedings.
  • Similarly, the tribunal will give directions that are fine-tuned to the particular dispute so as to ensure its speedy and efficient determination.

Expertise

11           The parties in an arbitration can choose their tribunal. For example, where a dispute raises technical or scientific issues of fact, the parties can choose a tribunal with the relevant technical expertise. Similarly, where a dispute turns on a point of law, they can appoint a lawyer or lawyers. Choosing wisely can save time and money.

Privacy

12           Litigation is rarely private. For example, in England, court trials are usually open to members of the public. The mere fact that a party is involved in English court litigation can be ascertained by a search of publicly available information, and most judgments are publicly available. More importantly, non-parties are permitted to obtain copies of any statements of case, judgments or orders in English litigation (unless the court makes a special order to the contrary – see CPR 5.4C).

13           The relative privacy of arbitration is an attractive feature to many commercial parties. Arbitration hearings are usually held in private, and the fact that a party is involved in arbitral proceedings is not usually in the public domain. Furthermore, English law has also recognised an implied duty of confidentiality which prevents the disclosure to third parties of most documents produced or disclosed in an arbitration, including the statements of case and award. This is in stark contrast to court proceedings.

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14           Note, however, that the precise scope of the duty of confidentiality, and the exceptions to it, may be a matter of argument. If privacy and confidentiality is a particularly important factor consider including an express confidentiality clause in your arbitration agreement.

Neutrality

15           Another important feature of arbitration is the ability of the parties to refer their disputes to a neutral forum. This factor is likely to be particularly important to commercial parties, wary of referring disputes to the “home” courts of their contracting partner. The consensual nature of arbitration means that the parties can ensure that the composition of the tribunal, as well as the seat of the arbitration and the location of any hearing, are neutral. By their choice of the arbitral seat, the parties can also ensure that their arbitration is subject to modern, effective and supportive arbitration law.

Cost

16           Although arbitration is often perceived as being cheaper than litigation, this is not always the case. The parties must pay the tribunal plus any administrative costs (for example, room hire), which may represent a relatively substantial outlay when compared with the cost of court proceedings. The parties must also undertake the practical arrangements and organisation for any hearing.

17           To a large extent, the relative cost of arbitral proceedings depends upon the attitudes of the parties and the tribunal. An experienced tribunal and co-operative parties will often be able to devise procedures that minimise costs. By contrast, where arbitration is conducted as if it were court litigation, or where the tribunal unthinkingly applies the procedure set out in institutional rules without any attempt to modify them, costs can escalate. Do not assume that arbitration necessarily equals cheaper.

 

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Delays

18           Again, this perceived advantage of arbitration is one that needs to be assessed carefully. It is true that, compared with lead times to trial in court, arbitration often represents a speedy method of dispute resolution. However, if the parties opt for a three-man tribunal consisting of three busy and popular arbitrators, there may be a substantial delay before any hearing can be accommodated. Also, because arbitrators’ powers of coercion are much more limited than the courts’, there is greater opportunity for deliberate delays and breaches of procedural deadlines.

19           This works the other way, too: if your chosen strategy is to delay the “day of judgment” for as long as possible, then arbitration may be your best option. It is probably fair to say that institutional arbitration offers the greatest safeguards against delays.

Finality

20           A court judgment will very frequently be subject to appeal(s). By contrast, the opportunities for appealing or otherwise challenging an arbitration award are very much more limited. This is frequently perceived as an advantage to the parties – though, of course, this is questionable if the arbitrator determines a dispute wrongly.

Predictability

21           Although national arbitration laws vary to some extent, there is a significant degree of harmonisation. Many countries have adopted the UNCITRAL Model Law; others (like England, Wales and Northern Ireland) have arbitration laws based upon its provisions. There is, therefore, a degree of certainty and predictability with regard to arbitration law that may not apply to the procedural law of national courts.

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When is litigation preferable to arbitration?

22           Notwithstanding the factors identified above, there are certain situations in which litigation will usually be preferable to arbitration. The following analysis focuses primarily on litigation in the English courts: the position may be different if you are seeking to compare arbitration with litigation in a foreign court, in which case advice from a competent foreign lawyer is advisable).

Multiparty disputes

23           The right to arbitrate derives from the arbitration agreement. There is, therefore, no power to join third parties unless all the parties, and the third party, agree. Although joinder may well result in overall savings in costs, parties will often refuse to agree to it for obvious tactical reasons. This means that in multiparty situations, arbitration can be a cumbersome and inconvenient procedure, which carries a risk of inconsistent findings and which may prejudice the chances of settlement.

24           For similar reasons, arbitration cannot easily accommodate class action litigation. ( Note, however, that class arbitration is recognised in the US (though subject to certain restrictions).

Recalcitrant parties

25           Arbitral tribunals’ coercive powers are much more limited than that of a court. Although national courts can sometimes intervene to enforce arbitrators’ procedural orders, delays are still a more distinct possibility in arbitration than in litigation. Some institutions have taken steps to deal with this, but deliberate delaying tactics may be more difficult to combat in arbitration than in litigation.

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Summary determination

26           In principle an arbitral tribunal can determine claims and defences summarily. However, in practice they may be less willing than a court to do so. For example, English courts tend to be robust in disposing of meritless claims or defences on a summary basis. An arbitral tribunal is less likely to adopt such an approach. Therefore, if your claims are simple, involving only one defendant, and are indisputably due, you may prefer to issue court proceedings and apply for summary judgment.

No precedent

27           An arbitration award is for most purposes confidential to the parties. Furthermore, although persuasive, it does not give rise to any binding precedent or res judicata vis a vis other parties. Where, therefore, a final and generally binding ruling on the meaning of a standard form contract is required, litigation in court will be preferable.

Irrelevant evidence

28           The tribunal or parties may decide whether or not to apply the strict rules of evidence. If they decide not to, there is a greater chance of the introduction of prejudicial or irrelevant material. However, this is not usually a problem in practice.

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Arbitration compared with ADR

29           The term “ADR” encompasses so many and varied procedures that it is difficult to generalise about its relative advantages and disadvantages. For present purposes, the following general points may be stated.

 

30           ADR (in particular mediation) enables the parties to reach solutions that are not based on a “win/lose” paradigm, and that promote continuing relationships. As such, ADR may save time and costs by cutting through the legal or technical rights and wrongs, and focusing upon the solution. The flexibility and goal-oriented nature of ADR will be attractive to many parties.

31           However, unless the parties reach a settlement, ADR will not give rise to any binding judgment or award. Parties may withdraw from ADR before reaching any settlement, or the ADR may conclude without any settlement being reached, giving rise in such cases to wasted costs. Furthermore, and by contrast with arbitration, there is at present no statutory regime in support of ADR. Parties who are not comfortable with this relative lack of structure may prefer to arbitrate or litigate, or possibly to adopt two-tiered or hybrid procedures.