With growing tension, many Claimant PI lawyers will have read Mr
Justice Jackson's final report on costs - published on 14 January
on-line - wondering if life will ever be the same. Defendant
lawyers and those they represent will also have clamoured to wade
through all 583 pages of his recommendations. The escalation
of costs in civil litigation has become such a problem that it has
started to overshadow issues of compensation payments in many
personal injury and clinical negligence claims, with the taxpayer
frequently picking up the bill. Opinions have varied as to whether
Jackson will recommend anything novel to tackle the problem or
whether it will be another damp squib. That question has been
Click here to view the full report
Some of those Claimant lawyers may now be putting off the next skiing holiday or putting the sports car catalogue back in their desks. Jackson has delivered a report with some far reaching proposals. However, as primary legislation will be required to put some of his key recommendations into effect the fate of the report is very unclear with an election looming. Will this really be at the top of the agenda for either, a Brown, Cameron or Clegg Government in 2010? This report was commissioned not by the Ministry of Justice after all but by the former Master of the Rolls, Lord Philips. We suspect that bits and pieces of the report will be implemented in some form or other - but not all of it - and the trick will be to work out which bits. We have set out a brief summary of 10 of the most relevant highlights for Claims-on-line readers:
1) CFA success fees and ATE insurance premiums should cease to be recoverable from the Defendant.
This is likely to be very controversial and the Claimant lobby is bound to oppose this recommendation as an attack on access to justice. However, Jackson has recognised (as we have always said) that CFA success fees and ATE insurance premiums have probably been the single major contributor to disproportionate costs in the UK and that such costs are themselves a barrier to access to justice for those who cannot afford it, including Defendants and those Claimants whose cases are not 'cherry-picked' by Claimant lawyers who want to benefit from success fee premiums without running any significant risks themselves. The present system just could not continue as it was and opponents of reform need to ask themselves, and be asked, if it is access to justice or to profits that is the prime concern. CFAs can still be entered into if the recommendation is adopted, but the additional success fee element on top of ordinary profit costs will have to be paid by the Claimant at the successful conclusion of a claim, likely to be out of any damages recovered. To sweeten the pot for Claimants (as opposed to their lawyers) Jackson has proposed a 10% increase in general damages for pain, suffering and loss of amenity and capped the amount of damages that lawyers cannot deduct from their client's damages for success fees at 25%. Historically we have seen 100% success fees being agreed as a matter of routine - whether the case is high or low risk - but now for the first time the Claimant will have a direct interest and there will be downwards market competition between different Claimant lawyers. The ATE market may not survive, certainly in its present form.
2) Qualified one-way costs shifting
The report recommends qualified one-way costs shifting for some types of cases. In other words, a Claimant will not be at risk of paying a Defendant's costs if the claim fails but a Defendant will be required to pay the Claimant's costs if it is successful. This is most likely to be introduced for personal injury litigation, but Jackson also mentions clinical negligence, judicial review and defamation claims. In some ways, this is just the price for Defendants to swallow in return for the benefit of the recommendation at 1 above and could be good value in the long-run. In his preliminary report, Jackson's detailed research had indicated that the value of costs recovered from Claimants by successful Defendants was far outweighed by the extra costs they pay in success fees and ATE premiums. This may be correct but it is only one measure. This recommendation will still cause real concern to many Defendants about an increase in unreasonable behaviour or in frivolous claims without the risk of an adverse costs order. With LSC funded cases we already have a degree of one-way costs shifting; adverse costs orders can usually only be recovered against LSC funded Claimants by way of set-off against damages and this has the unwanted side-effect of making some parties feel they have ‘nothing to lose’. Jackson has indicated that Claimants may still be liable for costs where there is ‘unreasonable or otherwise unjustified behaviour’, but we suspect that this otherwise undefined test will be construed very narrowly indeed, just as it is now in LSC funded cases where Claimants enjoy almost total immunity. The future role of Part 36 offers made by Defendants is not clear. Without the costs protection of Part 36, many Defendants may fear a chill wind if this recommendation is implemented. Our best guess is that Claimants will not be at risk of paying Defendants costs should they fail to obtain judgments at least as advantageous as a Part 36 offer but will not be able to recover their own costs from 21 days after the offer was made and hence their own lawyers my look to them for the balance.
3) Fixed costs to be introduced in some fast track litigation and in other cases a financial limit on the costs recoverable
The report recommends that fixed costs in fast track litigation should be introduced for some types of cases and in other cases there should be a financial limit on the costs that can be recovered (at a level of £12,000 for pre-trial costs). The current limit for fast track cases is £25,000 where the trial can be concluded within one day. Only 18 months ago, the Ministry of Justice rejected similar proposals for the widespread introduction of fixed costs in all fast track matters and this recommendation is another likely to be fought bitterly by the Claimant lobby. In practice this will concern very few cases of interest to Claims-on-line readers.
4) Regulated contingency fees to be allowed for contentious matters.
Contingency fees (where the lawyer is only paid if the claim is successful and is paid out of the settlement sum or damages awarded) are presently unlawful. The recommendation is to allow contingency fees for contentious matters, provided that the unsuccessful party is only required to pay an amount for costs reflecting what would be a conventional amount (with the balance to be borne by the successful party) and the terms of contingency agreements are regulated. Jackson has also recommended that referral fees (eg 'buying' cases from Claims Management Companies or Before-the-Event Insurers) be prevented in personal injury/clinical negligence cases.
5) Substantial parts of the 'Practice Direction - Pre-Action Conduct' be repealed.
For clinical negligence cases, Jackson notes that front-loaded pre-action costs are a particular problem and recommends that the deadline for Defendants to respond to Letters of Claim be extended from three months to four to give more time for investigation, but in return Defendants should obtain expert evidence on breach of duty and causation in that time if denying liability. There is also some uncomfortable reading for defence bodies in this section of the report. Jackson appears to have accepted submissions by Claimant lawyers that defence organisations fail to do so in too many cases. However, where a Claimant has investigated a claim for many years and then served a Letter of Claim without prior notice is one month really going to make any difference? We think the main problem under the current pre-action protocol is that the time-limits do not discriminate between simple, low-value claims which may require little investigation and complex, high-value claims such as for birth injuries which may date back to the 1980s and the clinicians may now be spread across four corners of the globe. This is currently being looked at by another Working Party set up by the Clinical Disputes Forum.
6) Hourly rates
Jackson has recognised the current absurdity that many Claimant firms in or out of London are now regularly charging rates (in excess of £400 per hour) that are the envy of many 'magic circle' City firms in this economic climate. He has recommended that a new Costs Council is introduced to propose Guideline rates that will apply to Detailed Assessment as well as to summary assessments. Whilst he has found that the more streamlined procedure for Summary Assessment of costs works well for hearings that last less than a day, changes can and should be made to the procedure for Detailed Assessment of costs including the format of drawing up Bills of Costs.
7) More ADR
The report recommends a serious campaign to ensure lawyers, the public and small businesses are fully aware of how ADR works. Are there really still lawyers who do not understand how ADR works? Everyone pays lip-service to wanting more ADR (Claimants and Defendants alike blame the other side for not engaging more often). From our experience, ADR is still used in a minority of clinical negligence cases that settle before Court. In many of those cases, Part 36 offers to settle or old-fashioned negotiation have been sufficient, but in others ADR could have been useful if proposed earlier before front-loading of the Claimant’s costs or if it was not so expensive. Most Court directions require ADR to be considered just before trial, when it is least likely to deliver costs savings.
8) Tighter case management
It is recommended that there be a tighter regime for case management (including limits on content and length of witness statements, allocating cases to judges with relevant expertise, ensuring cases remain with the same judge wherever possible, standardising case management directions, ensuring CMCs and other interim hearings are used cost effectively). The length and (dubious relevance) of many witness statements and expert reports does add to disproportionate costs but this is not likely to have a major impact in our view. The allocation to judges with relevant experience (as happens with the two specialist masters in the High Court in London) is also a welcome step but unlikely to affect major change by itself.
9) Costs budgeting and management
This is something many parties have suggested for a long time with the failure of the Courts to use existing powers of costs capping. It has already been canvassed by the High Court User's Group in London, receiving cautious optimism from Defendants with expected opposition from Claimant lawyers. There is some concern about how it is to be implemented and whether the Court will be given extra resources. In general, it is proposed that a budget questionnaire will be sent by the Court to the Claimant's solicitors as soon as possible after proceedings are issued and a costs budget will then be fixed by the Court as a paper exercise unless it is necessary to hold a hearing, usually by telephone and not lasting more than 10 minutes. Under the first draft of the proposal the Defendant will not be notified or permitted to make representations. A Defendant can seek a variation in the budget later, but such applications will be discouraged and in practice it is likely that a Defendant will be stuck with the budget. The Defendant representatives in the High Court User's Group argued strongly that Defendants must have some input provided this can be done without making this an adversarial exercise that costs more than it saves. The proposal is for a two year pilot headed by Master Yoxall in the High Court in London. The intention is that lawyers and judges will receive training on costs management and rules will be drawn up to set out standard costs budgeting and management procedures. As a part of High Court User's Group, the writer of this article welcomes any comments or suggestions.
10) ‘Super Part 36 offers’
Jackson felt that Defendants need stronger incentives to accept Part 36 offers made by Claimants to settle cases earlier. Jackson therefore recommends that in addition to existing costs sanctions, a Claimant's damages should be enhanced by 10% where a Defendant fails to beat a Claimant's offer. Presently there are no comparable costs sanctions in the reverse situation where a Claimant should have accepted a Defendant’s Part 36 offer and it is not intended that there will be an equivalent to the premium on damages either. The future of Part 36 offers made by Defendants is uncertain and could be a major fly in the ointment for these proposed reforms – see 2 above. This imbalance is unfortunate in our view and contrary to the overriding objective of ‘equality of arms’. As a Defendant lawyer it always surprises me that my opponents make so few Part 36 offers and it may be that Claimant lawyers are too concerned about under-settling claims to use existing incentives to best effect. Perhaps there ought to be sanctions for failing to make Part 36 offers at all? It is also my experience that Claimants are often willing to gamble on Part 36 offers in the expectation that a higher offer can usually be extracted closer to trial.
At this stage, the MOJ has responded to the report with a
statement thanking Mr Justice Jackson for his efforts and
confirming that they ‘will look at the recommendations in depth and
will set out the way forward in due course’. At the
time of writing, there has been a cautious welcome from the Law
Society. However, the Lord Chief Justice, Lord Judge, and present
Master of the Rolls, Lord Neuberger have already given their full
backing to the report as a whole and it would be a shame if such a
substantial body of 12 months' work were lost in the
wilderness. The only certainty is that the present system
cannot continue and calls by some Claimant lawyers to avoid any
reform at all sound a bit like, "Let them eat cake".