For better or for worse

Lord Justice Jackson's much heralded and extensive preliminary report was published on 8 May 2009. His remit? To undertake a complete review of costs in the civil litigation arena and to make recommendations for reform.

Impressively put together in a relatively short period of time (it spans two volumes and 663 pages), the report highlights what most already know: that litigation costs appear to be spiralling out of control, particularly in the field of personal injury.

While Jackson LJ is keen to stress that he has not formed a final view on any topic, it is clear that he has some fairly strong views on some of the more controversial and crucial issues.

Costs shifting

Should the costs shifting rule (i.e. that the losing party pays the winning party's costs) be abolished or modified? The report sets out the tentative conclusion that costs shifting in some form must remain. Worryingly, for defendants at least, Jackson LJ appears in favour of a 'one-way costs shifting' rule, at least in personal injury claims. If the defendant loses, he pays the claimant's costs; but if the claimant loses, each side bears its own costs. At first blush, this appears inherently unfair from the defendant's point of view. Jackson LJ however considers that this might actually significantly reduce the amount of overall costs defendant insurers are liable to pay in claims overall.

First, it seems Jackson LJ is keen to scrap After The Event Insurance and the often significant premiums that are claimed. With the implementation of a one-way costs shifting rule, the claimant would no longer need to insure against the risk of having to pay the defendant's costs. Indeed it appears Jackson LJ is keen to severely curtail the role of the middleman (such as the ATE Insurer) in the overall costs of litigation.

Secondly, the report avers that the statistical analysis (based on figures provided by one insurer) which cumulated in this radical proposal, revealed a surprising conclusion: that favourable costs orders against claimants were obtained in only 0.1 per cent of total notified claims.

One might question the wisdom of relying on data from only one insurer as not all insurers may have the same costs recovery ethos. The notion may also seek to marginalise those defendants who are self funding or who indeed also have a financial interest in a particular layer of insurance cover. Indeed, does the statistic really reflect the true position?

There is a concern (although it appears Jackson LJ begs to differ) that implementing a one-way costs shifting regime may encourage the pursuit of unmeritorious claims and make claimants more reluctant to accept reasonable offers of settlement. Will the mere fact that the claimant's solicitors operate under a CFA self police this particular concern?

Fixed costs

Should the existing range of fixed costs be extended? The report advocates applying fixed costs in fast-track personal injury cases at all stages with a matrix approach being proposed (save perhaps for the costs relating to interim applications). With the recent increase of the fast-track limit from £15,000 to £25,000, predicting the level of litigation costs would become a much easier task in the vast majority of personal injury cases '“ something which will no doubt be welcomed by the insurance industry.

Increase in small claims track limit?

The report recognises that the vast majority of personal injury claims fall between £1,000 and £5,000 in value. Claimants' lawyers will be nervous about the prospect of a significant loss of business in the event that the small claims limit for personal injury claims is raised to £5,000. Even a lesser increase to the limit would have a major impact. Jackson LJ clearly envisages this as a potential option.

Calculation of general damages

The report also addresses whether the assessment of general damages in fast-track cases can be made simpler and more predictable in lower value claims through the use of a points system or a 'Colossus type' software system, which Jackson LJ considers has proved effective overseas. While software systems have undoubtedly become more sophisticated over the years, one wonders whether this would be workable. Would it lead to satellite litigation with the claimant seeking to distinguish their claim for general damages from the 'system'?

Food for thought

The report raises fundamental questions both in relation to the currently accepted methods of funding claims and the claims process itself. In terms of the impact this has, much will depend on how interested parties respond and comment on the consultation document, how radical Lord Justice Jackson is in his final conclusions and the extent to which these are then implemented.

It is particularly positive for defendants and insurers dealing with liability claims that there is a clear acceptance that the costs currently being incurred by claimant's solicitors are too high and that proposals are being considered to address this both in terms of methods of funding and the claims process itself. However, some of his preliminary 'answers' would fundamentally change the way in which litigation is funded and managed, potentially to the detriment of defendants. Jackson LJ is seeking comments on his report by 31 July 2009. There is appetite for change and this is a key opportunity to contribute to the debate.