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Fixed costs would be ‘perverse’ and ‘unworkable’

Lawyers react to proposals that would incentivise undesirable defendant behaviour

30 January 2017

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A radical ‘one size fits all’ approach to costs would be ‘perverse’ and unfair, only benefit defendants with deep pockets, and raise significant concerns over access to justice, lawyers have warned as the profession responds to Lord Justice Jackson’s proposals on extending fixed costs to cases worth up to £250,000.

Speaking at the IPA Annual Lecture last year, Jackson LJ said the civil justice system was ‘exorbitantly expensive’ and the time had come for an extensive regime of fixed costs for civil litigation.

Fixed costs apply only to personal injury claims valued up to £25,000. However, Jackson recommended that all civil claims up to £250,000 be subject to the new regime. One analysis of Ministry of Justice figures suggests this would amount to around 9,000 cases a year – less than half of 1 per cent of all civil claims, the majority of which are personal injury matters.

‘A fixed costs regime provides certainty and predictability,’ said Jackson. ‘This is something which most litigants desire and some litigants desperately need. A fixed costs regime is easier for solicitors to explain to clients than the current costs rules.’

Jackson said there was a growing acceptance of fixed costs by practitioners: ‘My impression is that the profession is now more willing to accept fixed costs than it was in the past. I do accept if we have a regime of fixed costs there will be winners and losers... That is a price worth paying in order to obtain the benefits of certainty, predictability, and proportionality.’

However, Jackson admitted that switching to a totally fixed costs regime for all claims, regardless of size, would be ‘too great a change for the profession to accept, certainly in the short term’. He also warned against the ‘Balkanisation’ of fees, particularly in relation to clinical negligence claims.

Losing expertise

Responding to Jackson's call for evidence for a review into fixed recoverable costs, the Law Society president, Robert Bourns, acknowledged that fixed costs for low-value claims could provide litigants with greater certainty as to their potential liabilities, making it less risky for them to litigate, but risked damaging access to justice.

‘Fixing costs for all claims up to £250,000 – a tenfold increase on the current limit – would risk making many cases economically unviable, and undermining the principle of justice delivering fairness for all.’

Bourns explained: ‘If the sum is fixed, then for at least some cases and possibly most, the costs that a successful party could recover will fall significantly short of the costs they have incurred. Either they will have to meet the costs out of their own pockets, or out of their compensation, or the solicitor will have to do the work for the recoverable costs only.

‘As a result, the successful claimant would lose out significantly, to the benefit of those who have injured them. At its worst this regime could seriously impact the ability of solicitors to investigate and prosecute significant claims for their clients.

‘In due course valuable expertise could be lost, undermining the ability of those suffering serious loss to obtain the remedy they deserve and the common law provides.’

Unfair and unworkable

Meanwhile, the Association of Costs Lawyers has told Jackson that it is too soon for a radical extension of fixed costs and that to introduce them in clinical negligence, defamation, and judicial review claims would be ‘unfair and unworkable’.

The ACL said the proposed MoJ reforms to personal injury claims need to be in place ‘before it is possible to consider how further changes to the regime would operate effectively’. The modernisation agenda for the courts could also have a major impact on costs, it added.

‘Further, there is a strong argument to suggest that an extension of the fixed recoverable costs regime at this time would be undertaken before the impact of the existing regime – which is barely three years old – has been assessed,’ it said.

The association expressed concern that Jackson’s plans could make it uneconomic for foreign companies to litigate in England and Wales, which would be a ‘grave risk’ given the economic uncertainty for the UK post Brexit.

The ACL stressed the importance of a major data collection exercise to ensure the regime was applied to the correct categories of cases and at the right level. This, it said, would assist in identifying patterns and categories of litigation that are not appropriate for fixed costs.

Simon Murray, chair of the ACL’s fixed costs working group and CEO of NeoLaw, said: ‘The overarching concerns of the membership are that if there is to be any extension to FRCs, timing is key and the level of fees must be informed by meaningful data provided by all of the key stakeholders in the legal industry.

‘Moreover, it is extremely unlikely that a “one size fits all” system will be achievable and so a tailored approach to the various classes of action will be required. In our opinion these issues are of the utmost importance to ensure access to justice is maintained.’

‘Perverse’ review

In its response, Hodge Jones & Allen said the expansion of fixed costs would be ‘perverse and unfair’, adding that without conditional fee agreements, ‘civil justice would not have any meaning for most of the population. At present we have such a system but fixed costs in our view would upset the balance significantly in favour of the defendants.’

The response continued: ‘It would be wrong, and indeed perverse, to fix recoverable costs in the multi-track by reference to damages when such costs are bound to be less than actual and necessary costs and the costs are largely determined by the litigation conduct of the defendants (and evidence, court, and CPR requirements) and not the claimants.’

The firm said that fixed costs have their place, but only in lower-value, non-complex cases where issues are straightforward: ‘A “one size fits all” grid across the breadth of civil litigation would in our view be disastrous for those seeking redress. A fixed costs system, as advocated, fails to address defendant behaviour and could indeed further incentivise undesirable behaviours.’

HJA said that to save and reduce costs, Jackson should consider financial penalties for defendants’ tactics, especially for late admissions or settling at the door of the court.

Patrick Allen, HJA’s senior partner, said: ‘We understand that to defend and deny is natural until a defendant has seen all the evidence. The harm comes in denying the successful claimant the cost of proving their claim when the work was all necessary due to the law, the CPR, and the courts, and the approach of the defendants.

‘In particular, we say that fixed costs have no place in Human Rights Act claims and civil liberties and fatal claims, while they would end effective disrepair litigation by making them uneconomic.

‘Lord Justice Jackson must look at this issue in the round, rather than from the overly narrow perspective of the relationship between damages and costs. There are many reasons why costs are not proportionate to damages, and they often have little to do with the claimant.’

John van der Luit-Drummond is deputy editor of Solicitors Journal

john.vanderluit@solicitorsjournal.co.uk | @JvdLD

*Please note, this article has been updated to reflect the correct date of Lord Justice Jackson's IPA speech from 2017 to 2016

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Legal services Personal injury Costs

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