FIGURE IT OUT … Francis Kendall analyses proposals for a fixed costs extension

It was no doubt one of Sir Rupert Jackson’s great regrets about his report on the costs of civil litigation that not all of his recommendations were implemented, most significantly those on legal aid. But when it comes to his supplemental report on extending fixed recoverable costs (FRC), he can have no such complaint. 

The Ministry of Justice (MoJ) announced in March that it is set to implement his plan for FRC across the fast-track and in most money cases worth up to £100,000, and to introduce costs management in judicial review (JR) cases where a party’s costs exceed £100,000. The MoJ also confirmed that it was backing the Civil Justice Council’s proposals for FRC in noise-induced hearing loss cases. 

The consultation issued at the same time showed that the government only rejected two of the former Court of Appeal judge’s recommendations: rather than introducing his new intermediate track for cases worth £25,000 to £100,000, given “the costs and complexity that that would involve”, it proposed assigning these so-called ‘intermediate’ cases to an extended fast-track. Second, it does not intend to extend the ‘Aarhus’ costs-capping rules for environmental claims across all JR cases, given that both costs-capping orders and legal aid are available. 

The MoJ has accepted the four different bands of fast-track and intermediate cases, the criteria for the latter, and the actual figures included in Sir Rupert’s 2017 report. 

In the event of beating a part 36 offer, the MoJ said an uplift of 35%, rather than indemnity costs, should be applied to the FRC and sought views on how to penalise unreasonable litigation conduct. 

Sir Rupert did not deal with multiple claims arising from the same cause of action – such as a family claim from holiday sickness. The MoJ proposed that the FRC for each additional claimant should be set at 10% of that for the principal claimant. 

In cases which did not go to trial but there was a costs dispute, there would be a shortened form of detailed assessment, with a provisional assessment fee cap of £500. 

The MoJ deferred the question of extending FRC to part 8 claims for future consideration, and said it would retain the existing multi-track court fees for intermediate cases, “at least until the reforms have had time to bed in”. 

The two other recommendations of the 2017 report – introducing a new procedure and FRC for clinical negligence claims worth up to £25,000 and a capped costs pilot for Business and Property Court cases worth up to £250,000 – have already been taken up. A Civil Justice Council working party is considering the former, while the latter began in January. 

Lord Chancellor David Gauke said FRC in the fast-track have succeeded in making costs proportionate and improving access to justice for many: “It is sometimes suggested that fixed recoverable costs favour defendants at the expense of claimants. But it is generally just as much in claimants’ interests to control the costs that they might have to pay. 

“Access to justice is enhanced if claimants are able to contemplate legal proceedings with an informed assessment of the likely costs, rather than to avoid them altogether due to a fear of a high but uncertain liability.” 

The impact assessment published by the MoJ alongside the consultation said the reforms “should mean less time is spent arguing over costs, resulting in cases being settled quicker”. An “overall net reduction in legal fees” was likely, it added. “This is therefore likely to represent a cost to lawyers from reduced income per case. It may result in lawyers reducing the resource they spend on each case, as any increase in expenditure would reduce their profit margins.” 

On the other hand, the MoJ said the reforms might generate “business process efficiencies in the form of reduced management costs or overheads, in order for solicitors to maintain their profit margins, and cases may be settled more quickly which means they can take on more cases”. This assumes, of course, that there are more cases to be taken on. 

It did acknowledge that the proposals “could make small legal firms less able to compete with larger firms that have greater economies of scale and can provide services on mass [sic] as cheaply as possible”. PI firms may already be familiar with this trend. 

The assessment said that, whilst some claimant lawyers might not be willing to take on some cases, others may enter or existing providers may expand to meet demand. “This is because the proposed FRC are considered to reflect the amount of work which an efficient and effective provider would undertake.” 

The MoJ also assumed that claimant settlements would remain the same, but said there was a risk they could fall. “This risk might materialise if claimant lawyers reduce the time and resource they spend on cases in response to FRC, and if as a result settlement negotiations lead to worse outcomes for claimants. Whether this risk materialises would depend upon the behaviour of defendants in such settlement negotiations.” 

This led to another risk that there could be an increase in the number of professional negligence claims “if claimant lawyers reduce the amount of work they are able to complete on each case, as a result of FRC, and claimants are unhappy with the outcome of the case”. 

Ultimately, the question of fixed costs comes down to the figures. Do they provide genuine access to justice and allow a party to conduct litigation effectively, or do they only work for the privileged few who can afford to pay for litigation irrespective of what they recover from an opponent? 

The proposed figures adopted by the MoJ are some two years out of date from when Sir Rupert formulated them. He devised them based on data submitted by defendant firm Taylor Rose and analysed by Professor Paul Fenn, whose statistical analysis has underpinned all the fixed costs introduced over the years. 

The MoJ consultation said: “Sir Rupert consulted with his team of 14 assessors, drawing on a breadth of views and experience, and brought his own expertise to bear in finalising the figures. As such, we consider that the figures have been devised with appropriate rigour and intend to implement them as he recommends.” 

We do not agree. The government needs a much more rigorous statistical base if it is to widen the use of fixed costs, and also needs to commit to regularly reviewing and updating them. This is absent from the consultation, and indeed history shows that it does not happen, to the detriment of clients, their lawyers and access to justice. 

But the fact is that nobody else supplied figures to Sir Rupert Jackson. This shows that, unless there is engagement, apathy may play a part in determining the future of funding within litigation generally. 

All interested parties need to recognise the importance of engaging meaningfully with this consultation, including providing data, absent which they will have to accept the outcome without complaint.” 

This is particularly as the consultation hints at further reform down the road: “It remains our intention to extend the areas in which costs are controlled in due course: such an extension could include extending FRC to further categories of claims, including claims of higher value, and controlling costs incurred before the first costs and case management conference, where cases are not otherwise subject to FRC.” 

You have been warned. 

Francis Kendall, Vice-Chairman of The Association of Costs Lawyers.

This article was first published in PI Focus in May 2019.

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23 May 2019

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