Paying the price

The final report by Lord Justice Jackson is 'clear and comprehensive', 'thorough and fair', 'imaginative and realistic in its proposals': these were among the numerous compliments from the Master of the Rolls, Lord Neuberger. The report is in every respect the fundamental review of our system of costs that Sir Rupert Jackson was commissioned to undertake.

Indeed, some have already expressed surprise at how fundamental the recommendations are; nowhere more so than in proposing 'qualified one-way costs shifting' and the introduction of contingency fees. At first sight these ideas are not linked, but there is an underlying theme that binds them and many other recommendations together '“ that of the public interest in access to justice for both claimants and defendants.

The report identifies that conditional fee agreements (CFAs) have been the major contributor to disproportionate costs, particularly when coupled with after the event (ATE) insurance. This observation, like most of the contents of the report, is firmly data led and so objectively not open to challenge.

Sir Rupert recommends that CFA success fees and ATE premiums should cease to be recoverable. Claimants and their lawyers can still enter into such agreements, but the additional costs generated by them will not be visited on the defendant. In effect, this brings England and Wales into line with other jurisdictions examined during the review, removing our anomaly that the terms agreed between litigant and lawyer could in some way increase the costs recovered from the losing party.

Protecting access to justice

The public interest remains at the forefront of this recommendation. It is vital that access to justice is not diminished and that genuine claimants can bring their claims without hindrance. The risk of paying an opponent's costs is one which weighs heavily on the minds of most claimants; hence the introduction of one-way costs shifting, in which the winning claimant's costs would normally be met by the defendant but the winning defendant's costs would not normally be met by the claimant.

The exceptions to this rule would be limited to claimants failing to beat defendants' part 36 offers (claimants would normally have to pay the defendants' costs out of damages recovered), other unreasonable conduct and a modified Access to Justice Act financial test; that the financial resources of the parties may justify two-way costs shifting in particular cases (likely to be extremely limited).

These proposals are not confined to personal injury cases. The concept is broader in scope, intended to apply to areas of litigation where the claimant is usually an individual and the defendant is usually an institution or public body (or backed by insurance). Sir Rupert names three other practice areas: clinical negligence, judicial review and defamation. He accepts there may be others and that there should be consultation on the scope of one-way costs shifting.

This leaves many areas where one-way costs shifting will not be the answer. It is because of those areas that Sir Rupert has recommended extending current methods of funding to include the use of contingency fees. This will generate significant debate about whether the report moves us closer to a US-style approach to litigation. Equally, there are those concerned that the need for a contingency agreement to be approved by an independent solicitor simply adds another layer of cost.

Sir Rupert is very clear that we have 'crossed the Rubicon' in allowing fee agreements that are contingent on the outcome of the case, as CFAs are exactly that. Careful use of contingency fees is an obvious extension; consultation responses demonstrated that, in some areas, particularly commercial disputes, contingency fees were a sensible addition to the range of funding options. The model used in Ontario is broadly favoured, in which the costs between the parties are still assessed on the usual basis of time spent and hourly rate '“ the contingency fee agreement is relevant only between litigant and lawyer.

A sensible safeguard

The need for independent advice arises from the need for proper regulation of the use of contingency fee agreements. It may be a safeguard that is only required in the early days of permitting contingency fees; the key is to ensure that the agreement is being selected for the benefit of the litigant, not for the benefit of the lawyer. For all concerned, that is a sensible safeguard.

Other funding methods are broadly endorsed. The report highlights the benefits of before the event legal expenses insurance, particularly in commercial and other non-PI cases. It endorses the use of third party funding, but also recommends that funders should have greater exposure to opponents' costs so as to avoid inequality of arms. ATE may well still have a place, but as a commercial product and not as an add-on payable by the other party.

Taken as a whole, the report demonstrates that there is a price for removing recoverability of success fees and ATE premiums, which is necessary in the public interest of preserving access to justice. Although primary legislation would be needed, the cost to the public purse in clinical negligence claims alone makes a compelling case for early reform.

The whole picture: get the full coverage of the Jackson report at solicitorsjournal.com/jackson