Fixed costs: Bad news or bad news?

With the spectre of fixed costs in civil litigation looming, Julian Oldfield warns firms to start preparing now for changes to the way they practice and the potential loss of revenue

In January 2016, Lord Justice Jackson made a speech to the Insolvency Practitioners Association revealing his recommendations to extend fixed costs in all civil litigation matters up to £250,000. While lawyers from both sides have derided this proposal and there has been a Brexit hiatus, my view is that it is highly likely to be introduced, and civil litigators need to face up to the reality and start planning now.

Following the Jackson report and the enactment of the Legal Aid, Sentencing and Punishment of Offenders Act 2012, the government has been wedded to the insurance sector lobby and its ideology of certainty, predictability, and above all proportionality.

The trouble is that the price of access to justice is now based exclusively on proportionality and proportional costs, with the scales of justice balanced heavily in favour of the defending or paying party.

This is not only bad news for claimants but also for the profit margins of firms specialising in civil litigation.

The rules set out in the Civil Procedure Rules (CPR) parts 44 and 45 will need to be re-written to accommodate this further revolution. It will not take long to expand the table that presently features at CPR 45.2.

Commercial litigation lawyers may be shocked to learn that in fast-track personal injury claims, the maximum fixed recoverable costs if a claim proceeds to trial are set out as in table 6C: 'The total of-(a) £4,280; (b) 30% of the damages agreed or awarded; and (c) the relevant trial advocacy fee.'

Fixed costs are set on a sliding scale and this figure is the highest sum recoverable from the third party. It is possible for a claimant to apply under CPR 45.29J for an order for costs exceeding the fixed recoverable costs, but only if the court 'considers that there are exceptional circumstances making it appropriate to do so' (CPR 45.13). However, I am not aware of a single order applying exceptional circumstances.

London firms have been able to benefit from an uplift of 12.5 per cent on base fixed costs but this is rarely sufficient in my experience.

Writing on his excellent blog, Kerry Underwood sees only
one real answer to this and that involves the client paying to top up the fixed costs. Despite
the unsatisfactory regulations surrounding damages-based agreements, the ability for the client to pay or the firm taking a large percentage of damages are the only ways of maintaining profit costs to a level where litigation matters can be serviced and standards can
be maintained.

But is this one-size-fits-all premise satisfactory for complex litigation, large disclosure of document claims, medical negligence, and so forth?

As we have seen in the past, the firm has to become the risk-taker, which is rarely in the client's best interests: borderline claims will never be run and
the client's access to justice is secondary to the needs of
the process. Personal injury practitioners have played second fiddle to the insurance sector for nearly a decade now and know what this economic game is all about.

Civil litigation practitioners must expect the following:

• Re-written CPR to learn - usually adopted without consultation;

• No link between inflation (consumer price index) and fixed costs. Road traffic accident predicable costs have not changed in ten years - while also linked to damages, which are linked to inflation, fixed costs are unlikely to be reviewed after inception;

• Difficult decisions involving staff, such as having to utilise more junior staff and potentially let senior staff go to maintain profit margins;

• A more robust risk assessments process;

• Charging clients;

• Hardening attitudes from legal expense insurer providers; and

• Bewilderment from clients whose expectations will need to be managed and who will have to financially contribute.

In summary, this is another 'game changer'. Above all, expect these proposals to be ratified and start planning now for the future. That includes seminars
to prepare litigious clients, budget and HR planning, and strategic reviews of the effects of potential loss of revenue. It also includes the ultimate decision
as to whether the firm should continue to offer civil litigation.

In the personal injury sector, there has been a united front to charge the client. Affected firms could not afford to do otherwise. With civil litigation disputes,
the law is presently framed to take a larger percentage of
client damages (as opposed to personal injury disputes where the cap operates at 25 per cent of recoverable damages). The impact may be slightly less, but barring a U-turn or a miracle, this is still going to be bad news for the status quo and adapting to change now will be the only way to survive.

Julian Oldfield is a solicitor and a consultant at Symphony Legal @symphony_legal symphonylegal.com