Questioning assumptions

Does the current costs system strike the right balance between access to justice for claimants and for defendants?

Matthew Amey, of litigation insurance broker TheJudge, recently complained in these pages (Solicitors Journal 155/47, 13 December 2011) about the requirement in the costs practice direction for claimants to notify defendants of the level of cover purchased under any ATE policy.

Amey's complaint is that a defendant with far greater financial resources than a claimant can exploit this knowledge and stifle the claim by escalating costs beyond the claimant's cover. This may cause the claimant's action to fold. Apparently the 'defendant can formulate a strategy for escalating costs above the cover they know is in place', and this mandatory disclosure is therefore directly prejudicial to the claimant.

Appropriate figure

Assuming that, all other things being equal, any defendant of adequate means is always going to spend an amount at least up to what they consider sufficient to give reasonable prospects of successfully defending the claim, what will they do beyond this? If defendants incur costs that pass the point of being reasonable and proportionate, then surely the courts on detailed assessment can be expected to limit the defendants' recoverable costs to an appropriate figure. A properly advised claimant will always obtain ATE cover of a level that should be more than sufficient to cover an adverse costs order. Under the current system, the premiums for such cover are routinely deferred and self-insuring. Unless one proceeds on the basis that the courts are incapable through the detailed assessment process of controlling costs, a party that unreasonably outspends the other party will not recover those extra costs. A better view of the notification requirement is that it enables defendants to decide whether, given the level of ATE cover available if they successfully defend the claim, it is economically worthwhile defending. Is it worth spending £250,000 defending a claim against an impecunious claimant who has ATE cover of £50,000? Equally, is it fair for a defendant of limited means to proceed in total ignorance of what costs they might recover if successful? Far from notification acting as a fetter on access on justice for claimants, it may assist some claimants to succeed through early settlement on economic grounds alone.

Complaining about the plans to revert the CFA regime to that in place in the 1990s, David Pipkin, of Temple Legal Protection, recently wrote: 'The reality is that success fees have been successfully regulated and capped and only pose a significantly higher cost to defendants if they prevaricate and obstruct the course of justice.'

Let us take some examples to examine the reality.

Consider, for instance, a defendant faced with a claim for psychiatric injury alleged to have been caused by work-related psychological stress. The defendant admits liability within 14 days of receiving the letter of claim. When the claim for special damages is quantified by the claimant, the defendant promptly makes a reasonable offer, which is accepted. And what success fee will the defendant be liable for? An automatic 100 per cent by virtue of CPR 45.24(2)(b).

Or how about an employer with a long history of hearing loss claims against it dating back many years. The employer has never successfully defended one of these claims, always admits liability promptly and makes sensible settlement proposals at an early stage. These claims are brought via trade union panel solicitors who know that these claims always succeed. What success fee will the employer be liable for when it settles a new claim at the earliest opportunity? An automatic 70 per cent by virtue of CPR 45.24(2)(c)(i).

In either of these two examples, how has the defendant prevaricated or obstructed the course of justice? Are they nevertheless not stuck with significantly higher costs?

Unreasonable behaviour

Take a further example: a defendant promptly admits liability in a high value RTA claim. The medical evidence takes some years to finalise. When finalised, the defendant makes an early and reasonable part 36 offer. The claimant rejects the offer and the matter proceeds to trial. The claimant fails to beat the defendant's part 36 offer and the claimant's costs are therefore limited to 21 days after the part 36 offer was made. If we are to take 'prevaricating and obstructing the course of justice' to mean that a party is being unwilling to settle a claim at a reasonable amount, then in this situation it is the claimant who has behaved unreasonably. What success fee is the claimant entitled to on their costs having behaved unreasonably? 100 per cent by virtue of CPR 45.16(a) and as confirmed by the Court of Appeal in Lamont v Burton [2007] EWCA Civ 429, instead of the 12.5 per cent recoverable if the reasonable offer had been accepted. Fair?

Lord Justice Jackson's proposed reforms are based on the recognition that access to justice is not a concept just for claimants, but that defendants are equally entitled to be able to litigate at a proportionate cost. The current system where claimants can pursue cases at no cost to themselves, through recoverable success fees and ATE premiums, does not allow for this. Will the proposed changes, with qualified one-way costs shifting, restore the balance?