The quantum foam

Part 45 CPR is an interesting section of the rules, which could be viewed as a kind of parallel universe to the one most lawyers inhabit: analogous to the quantum realm, where universal constants simply do not apply.

In particular the scale of costs prescribed to apply to, for example road traffic accident claims does not depend on the time spent by a solicitor on a case but rather is fixed by reference to other criteria. This can have surprising consequences when considering what costs orders may be open to a judge dealing with a claim governed by fixed costs.

An area of practice which has a particularly high volume of litigation is that of road traffic accident claims involving a claim for credit hire. Many credit hire claims start off under the Portal as part of a larger claim frequently including claims for damages for personal injuries, vehicle repairs or value, loss of earnings and other heads of claim. When a case falls out of the Portal and assuming it is allocated to the Fast Track, it will be subject to the fixed costs provisions of part 45 CPR.

Not infrequently a case will proceed to trial and although the claimant will recover some damages, a credit hire claim can fail in its entirety: perhaps on the issue of need for a replacement vehicle, problems with the enforceability of a credit hire agreement or some other reason.

Often the credit hire claim will be the single largest head of claim, and have identifiable items of costs related to it: disclosure of bank statements and other financial documentation, rates evidence, part 18 requests and reply and so on.

Even if the claimant is successful overall, the defendant may argue that either the costs of the claimant should be reduced, due to the failure of the credit hire element of the claim, or even to recover its own costs of the issue of credit hire. To what extent is this possible, if the case is a Fast Track case and fixed costs are prescribed by part 45 CPR? The answer may be: it isn’t.

Part 45 CPR contains no support for the notion that the court has a general power to make an issue based costs Order by reference to particular heads of loss: in fact it tightly prescribes the costs that can be awarded to either party, limiting a defendant’s potential to recover costs to the circumstances where the defendant has made a part 36 offer or pursued a counterclaim.

This is not to say that success or failure by the claimant on particular issues is not taken account of by the rules: it plainly is, but not in the context of making an order, but rather by the quantification of the costs recoverable by the claimant.

This is a logical approach, given the very modest sums recoverable, the context of QUOCS and the essentially arbitrary nature of the “bright lines” drawn in table 6B on the phases of the claim.

Pursuant to rule 45.29B when a costs order is made in the claimant’s favour, the costs are calculated as being the fixed costs recoverable under rule 45.29C and the reasonable disbursements permitted under rule 45.29I.

Table 6B indicates that where the claim is disposed of at trial, the relevant fixed costs are £2655 plus 20% of the damages awarded plus the trial advocacy fee with the addition of VAT on these amounts.

Rule 45.29I provides a further list of the categories of reasonable disbursements which will be recoverable, with VAT if appropriate.

It will be noted that because the claimant’s costs are calculated by reference to the judgment sum awarded, because the claimant will have been awarded no sums in respect of damages for credit hire, the claimant’s costs have already notionally been reduced by 20% of the damages that might have been awarded: in effect, the claimant has been deprived by the rules, of the costs of that issue.

For the defendant to be awarded a further sum of costs in respect of that issue, would accordingly constitute “double recovery”. Moreover the rules are prescriptive of the amount of costs that a defendant can be awarded: see in particular rule 45.29F.

The limitations are particularly striking: see 45.29F(2) any award of the defendant’s costs cannot exceed the amount that would have been awarded to the claimant at the same stage of the proceedings. The court’s jurisdiction to award any costs to the defendant at all, is prescribed, and predicated upon the notion that the defendant is successful at an identifiable stage of the proceedings.

Thus there is no scope for the defendant to be awarded “assessed costs” of a particular issue as the claimant will have succeeded at each stage of the proceedings, pre-issue, pre-trial and at trial.

In a scenario where there are substantial awards of damages for the claimant for eg: personal injuries and no effective part 36 offer by the defendant, there can be no doubt that the claimant was the winner at each stage of the proceedings.  The claimant will have had to go to trial to recover those damages and incurred the advocacy fee to do so.

See also 45.29G: even had the defendant brought a counterclaim, which succeeded, that would not have disentitled the claimant to his costs of the claim calculated in accordance with rules 45.29C and 45.29I and only nominal costs would have been attributed to the costs of the counterclaim, reflective of the Medway Oil principle.

In summary, as part of the “swings and roundabouts” of part 45 CPR, it can be argued that the court has no power to order the claimant to pay the costs of a failed claim for credit hire itself part of a larger claim: the rules in 45 CPR do not provide for it and the circumstances where the defendant might recover costs (success at an identifiable stage, a part 36 offer, or a counterclaim) do not arise in this case.

The above analysis is underpinned by the general principles which apply to awards of costs in personal injury actions, where a claimant’s claim is reduced at trial, or he fails on certain allegations, or certain heads of claim. Even if the court took the view that it had a wider discretion than is submitted to be the case, it would, not aid the defendant as binding authority indicates that the discretion should not in this context, be exercised in favour of the defendant.

In the case of Fox.v Foundation Piling [2011] EWCA Civ 790 Jackson LJ summarised the position as follows:

From this review of authority I draw the following conclusions. First, where one party makes a Part 36 offer and then achieves a more advantageous result than that proposed in his offer, the provisions of rule 36.14 modify the court’s general discretion in respect of costs. This is important because parties who choose to use the Part 36 mechanism in their settlement negotiations need to have a clear understanding of the legal effects of making, accepting and rejecting offers under Part 36.

Secondly, parties are quite entitled to make Calderbank offers outside the framework of Part 36. Where a party makes such an offer and then achieves a more advantageous result, the court’s discretion is wider. Nevertheless it may well be appropriate to order the party which has optimistically rejected the Calderbank offer to pay all costs since the date when that offer expired. This was what the court ordered in Stokes.

A not uncommon scenario is that both parties turn out to have been over-optimistic in their Part 36 offers. The claimant recovers more than the defendant has previously offered to pay, but less than the claimant has previously offered to accept. In such a case the claimant should normally be regarded as “the successful party” within rule 44.3 (2). The claimant has been forced to bring proceedings in order to recover the sum awarded. He has done so and his claim has been vindicated to that extent.

In that situation the starting point is that the successful party should recover its costs from the other side: see rule 44.3 (2) (a). The next stage is to consider whether any adjustment should be made to reflect issues on which the successful party has lost or other circumstances. An adjustment may be required to reflect the costs referable to a discrete issue which the successful party has lost. An adjustment may also be required to compensate the unsuccessful party for costs which it was caused to incur by reason of unreasonable conduct on the part of the successful party.

In a personal injury action the fact that the claimant has won on some issues and lost on other issues along the way is not normally a reason for depriving the claimant of part of his costs: see Goodwin v Bennett UK Limited [2008] EWCA Civ 1658. For example, the claimant may succeed on some of the pleaded particulars of negligence, but not on others. Indeed the fact that the claimant has deliberately exaggerated his claim may in certain instances not be a good reason for depriving him of part of his costs: see Morgan v UPS. A defendant who has obtained video surveillance evidence is perfectly well able to protect his position on costs by making a modest offer under Part 36.

Nevertheless in other cases (as stated above) the fact that the successful party has failed on certain issues may constitute a good reason for modifying the costs order in his favour. This is commonly achieved by awarding the successful party a specified proportion of its costs. In Widlake the facts were so extreme that the successful party was ordered to bear all of its own costs.(emphasis added)

There are of course, excellent arguments which could be mounted for a defendant but given the length of this post, I shall have to save those for another day.

Fixing problems

After the Brexit result, seasoned observers noted that one of the consequences of the referendum, was that the Ministry of Justice would be tied up for twenty years, unpicking the country’s legal relationship with the European Union, and would have no time to pursue involved schemes for fixed costs in consequence. In fact the converse happened: there is now not one, not two, but three reviews into costs underway at the current time.

In principle there is nothing wrong with a concept of fixed costs. Fixed costs should, for the losing litigant, preserve both the polluter pays principle and also ensure that the losing party can decide to settle or fight litigation on an informed basis, and not go bust if they wrongly decide to fight.

It is also hoped that a predictable scheme of fixed costs might kick start the BTE market, which historically has functioned as a clearing house for the referral of claims, rather than a provider of useful insurance products. They could also encourage efficiency on the part of those bringing the claims and, more prosaically, they could be said to represent what is already happening in practice in lower value claims.

Many case management systems in the personal injury context, are set up to record standard units of time for routine or mundane activities: 1 unit for creating forms of authority, 6 units for reading a GP’s medical report etc, the sum of which is to all intents and purposes “fixed”. The mischief is always the amount at which costs are fixed at. The insurance industry would dearly love to see £65 per hour as one of the assumptions used in fixing costs, noting that if that rate is good enough for Legally Aided cases then it’s good enough for a wider application too.

Further, one notes from recent history that amounts which are prescribed by way of fixed costs tend to rust into position for years, irrespective of what is happening in the wider economy, such as inflation. A wider consideration will also indicate that there are other potential consequences whose importance should not be glossed over.

One of these to note is that since the end of Legal Aid in personal injury and clinical negligence cases, the legal profession has been heavily dependent on the costs recovered from the insurance industry and other compensating bodies. The independence and health of the legal profession is of constitutional importance. A short funded or failing legal profession is not in society’s interests. Unless the law can be applied and accessed in the Courts by the citizens who have rights under it, then Parliament can make whatever laws it likes but their implementation is likely to be disregarded or flouted.

Although it might be cynical to suggest that the introduction of wide ranging provisions for fixed costs are a “done deal” when consultations are still ongoing, as the case law suggests, although the Government must have an open mind, that is not the same thing as an empty mind and all the pointers are that fixed costs will be introduced to a greater or lesser extent and then in the years to come, the scope of fixed costs expanded to include more and more cases.

So what can be done to mitigate the impact of fixed or even to profit from their introduction? The following suggestions or ideas come readily to mind. There are others too, which may well come to pass further down the line. It is important to distinguish between steps which can be taken now or in the near future, to steps which may be taken in the far future.

The first improvement I would suggest is to claims handling triage. Claimants’ solicitors (and barristers) make a living from the mistakes made by insurance companies and other compensators. These mistakes flow from the insurers having too much work and too few staff, taking bad points and ignoring good points and the consistent, persistent failure to make decent offers at an early stage of a claims notification.

As has been observed elsewhere, insurers like to pay 70 pence in the pound of a claim’s true value, as would be assessed by the Court. Under standard basis costs, the longer the claim runs the more costs the claimants’ lawyers recover. Under fixed costs, the longer the claim runs the more overheads a claimant’s solicitor will bleed.

It follows that ruthless early evaluation of a claim is necessary and at the very earliest point a Part 36 offer should be made to make use of the principle in Broadhurst -v- Tan, that an award of indemnity costs, displaces fixed costs.

It would also be prudent for the likely recipients of fixed costs, to lobby for a rule change. The insurers learnt long ago that test cases are usually (not always, but usually) an expensive waste of time, particularly in the field of costs. What works is to change the parameters within which costs are awarded.

Hence the drive for fixed costs is intended to drive down levels of recoverable costs. What claimants’ solicitors should be doing is lobbying for a rule change that when a claimant’s Part 36 offer is accepted out of time, the Court has a discretion and/or there is a rebuttable presumption that the accepting party will pay indemnity costs.

It should also be emphasised that the introduction of fixed costs on a large scale will be a “Black Swan” event. The characteristics of the part of the profession that undertakes personal injury work has changed dramatically in the last 20 years. Fixed costs could mean that there will be a drive to increase the size of firms in order to obtain economies of scale.

The problem with that is lawyers by and large are terrible businessmen. Hubristic empire building for the sake of it, or taking money out of the firm to buy a succession of expensive cars, always ends unhappily. More fruitful areas could be a move to smaller, more boutique practices, with a drive to reduce overheads, assuming that lines of credit for disbursement funding are available or increasing automation.

Devotees of the recent book “The Rise of the Robots” (2015) will note that anything that is routine and predictable can be automated, as the Bar has found to its cost, as routine pleading work has melted away. Such automation can already be observed with websites such as www.donotpay.co.uk being the forerunners, of the more intelligent and powerful systems which will be deployed in the future for document creation. The drive to reduce overheads could provoke a move to more enhanced and streamlined case management systems; getting rid of expensive premises, the end of the post, the end of paper itself, driven by a desire to save money and increase the profit element in fixed costs.

There will also be a need to diversify. Fixed costs and provisional assessments have knocked a hole in the work of costs lawyers and costs draftsmen, and it is doubtful that costs budgeting is going to make it up. They are going to have to diversify the work that they do, or integrate with other businesses.

Equally, personal injury lawyers who have over-specialised in, for example, one particular type of injury or disease may need to raise their eyes to the horizon and look at other areas of work. There will always be injuries and claims in tort. The key is to spot new fashions or new waves of litigation and be ready to ride them in preference to well-known and comforting areas of work. These are not necessarily the areas that appear the easiest.

Holiday sickness, housing disrepair and cavity wall claims are being widely touted on LinkedIn. Those who take on holiday sickness claims I suspect will end up feeling rather ill themselves. But there are many thousands each year of potential claims for disability discrimination under the Equality Act 2010, which are simply not being brought at the current time. Financial mis-selling (funded by contingency fee agreements) is another lucrative area.

In summary, although fixed costs on a wide scale will be a radical reform, I have no doubt that the practice of litigation will continue, albeit funded on a different basis, with different considerations and possibly different profitabilities.

A version of this article appeared in the April 2017 edition of Litigation Funding Magazine and can be found here Fixing Problems.

A thought on fixed costs reforms

Some time ago the Voice of Common Sense on the District Bench reminisced about those halcyon days pre 1999, now long gone, when there was little law on costs, no CFAs and a dispute about costs was usually settled by agreement in advance of any taxation hearing.

I pointed out that was not quite the case: even in the days of scale costs fixed by the County Court Rules, every scale 1 bill seemed to start with a request for the exercise of a discretion for an award of costs in excess of the scale.

There have always been disputes about costs, and always will be, as long as there is a shifting of costs from the losing party to the winning party in litigation. What has changed, is perhaps the enthusiasm for reform.

Each legal generation notoriously has re-invented the wheel, whether in the Civil Justice Review of 1988, the Woolf Report of 1996, the Jackson Report of 2010 or in earlier reforms.

What has changed this time round in my view is the degree of enthusiasm for reform. For instance, after fairly seismic changes in 2013, a period of stability might have been appropriate, if only to assess whether the changes had actually produced a net benefit to the public.

Far from it. At the current time the misleadingly entitled whiplash consultation has closed, which contemplates the enactment of primary legislation to remove from an entire class of claimant a substantive common law right to damages and less significantly a fairly sweeping change in the small claims track limit.

A clear issue exists about whether such claimants will be able to effectively source legal advice and representation. What I found interesting in the documents was the indication that perhaps 70% of claimants in road traffic claims have the benefit of legal expense insurance.

In which case one would have thought that the problems of collective funding and ensuring access to justice would have been best addressed by ensuring that the legal insurance market worked effectively in this field and was extended to cover the remaining 30%.

That however is an issue which is curiously absent from the government’s own documents, the responses I have seen from compensating parties and those who represent claimants. Such a solution, would render the raising of the small claims limit something of a side issue as claimants would claim on their legal expense insurance policies to obtain advice and representation in the Small Claims Court.

In addition, there is further work being undertaken by Jackson LJ, in relation to an overarching scheme of fixed costs, presumably applying to all cases, possibly worth up to £75,000. It is this exercise which I think should be of the greatest concern, as it will represent a development easily on a par with the abolition of additional liabilities in terms of its impact on access to justice and the funding of the legal profession.

Such a change to the recovery of costs would have sweeping consequences for access to justice and whether the “polluter pays” principle is maintained in a recognisable form, whether the viability of litigation is adversely affected or improved and the viability of certain sectors of the legal profession.

It also would be introduced presumably because costs budgeting and management would be perceived to be an expensive failure and hence fixed costs would be the cheaper and simpler solution to bespoke costs management in the context of an individual case.

And yet still further, there is a long promised consultation on fixed costs in clinical negligence cases, and on the horizon a digital bill of costs, whose use is compulsory from October 2017 and which may yet prompt a surge in the sales of “Microsoft Excel for Dummies” as the most modest of the expenditures solicitors would have to make in order to draw their bills.

With these reforms in mind, it struck me that the fires of satellite litigation are being banked ever higher, as rules are tested, explored and arguments made by those who perceive an advantage in doing so. Even relatively small points, which should be uncontroversial can give rise to argument.

A little while ago, I was asked to advise on whether in the context of a road traffic accident case, which concluded at trial where a single firm of solicitors represented three claimants, that meant a single amount of fixed costs should be awarded, or three sets of fixed costs. The paying party contending the former, the receiving party the latter.

Each claimant in the proceedings was jointly represented and solicitors issued a single claim form, naming the claimants as first, second or third claimant.

Turning to consider the rules, rule 2.3 defines a claimant as a person who makes a claim. It defines claim for personal injuries as meaning proceedings in which there is a claim for damages in respect of personal injuries to the claimant or any other person or in respect of a person’s death. The rule further defines a statement of case to mean a claim form, particulars of claim where these are not included in a claim form, defence, Part 20 claim or reply to a defence.

A “claim” is not the claim form, nor even the proceedings before the court, but rather the individual demand by a particular person for damages which is included in proceedings. Each claimant has an individual “claim”.

Turning to consider 45.29A, the starting point to note is that section IIIA of part 45 only has application where “a claim” is started under the protocol. Rule 45.29B provides that the fixed costs in rule 45.29C apply where “a claim” is started under the protocol and where the claim notification form is submitted after July 2013 and limits those costs accordingly. It does not limit costs by reference to “proceedings”.

It follows, that the wording of the rule, relates to “a claim”, being the individual’s demand for damages, indicating that costs are awarded per claim, not per claim form or per set of proceedings. It would be an absurd result, if the contrary were true and the fact that three claims are brought in one claim form, as opposed to three claims in three claim forms might make a material difference.

There exists in any case the possibility of individual part 36 offers being made in relation to individual claimants at varying stages, and the rules make no provision for apportionment of a single award of costs.

It can be mere chance that all three claims will go to trial  as opposed to one settling pre-issue, one settling after issue, and one being determined at trial, all of which predicate different awards of costs.

Finally the old PD 45.7 made it plain that costs accrued per claimant, cases of this nature were always settled, per claimant: if a radically different approach were to be taken, then one would have thought that there would be something clear to this effect. The rules are clear, once it is appreciated, what a “claim” is, from rule 2.3.

I was told it took half a day’s argument before the court concluded that indeed three sets of costs were recoverable. If a point like that can absorb so much argument, the new framework of fixed costs as and when it emerges may create just as many difficulties as those it purports to solve.

Late acceptance of claimants’ part 36 offers II

The issue of late acceptance of a claimant’s part 36 offer in personal injury proceedings, by a defendant, and whether this in turn permits escape from the regime of fixed costs is continuing to attract interest, with the respective claimant and defendant interests, arguing the toss vigorously.

In this post, which I note with angst, is already far too long, I shall first of all look at the arguments from the defendant’s perspective, and leave the very respectable arguments that exist for those who represent claimants in abeyance, for a later blog post.

The starting point in the context of a modestly valued claim for damages for personal injuries sustained in a road traffic accident is rule 45.29:

45.29B

Subject to rules 45.29F, 45.29G, 45.29H and 45.29J, if, in a claim started under the RTA Protocol, the Claim Notification Form is submitted on or after 31st July 2013, the only costs allowed are—

(a) the fixed costs in rule 45.29C;

(b) disbursements in accordance with rule 45.29I.

There is an escape clause: rule 45.29J affords the court discretion to allow more than fixed costs, but the exercise of the discretion is tightly prescribed by the rules. There must be something “exceptional” to justify a departure from the fixed costs regime:

(1) If it considers that there are exceptional circumstances making it appropriate to do so, the court will consider a claim for an amount of costs (excluding disbursements) which is greater than the fixed recoverable costs referred to in rules 45.29B to 45.29H.

(2) If the court considers such a claim to be appropriate, it may—

(a) summarily assess the costs; or

(b) make an order for the costs to be subject to detailed assessment.

(3) If the court does not consider the claim to be appropriate, it will make an order—

(a) if the claim is made by the claimant, for the fixed recoverable costs; or

(b) if the claim is made by the defendant, for a sum which has regard to, but which does not exceed the fixed recoverable costs, and any permitted disbursements only.

This is a provision which repays careful consideration: there is very little law, on what constitutes “exceptional” at the current time.

Turning to consider part 36, rule 36.11 provides so far as is material:

(1) A Part 36 offer is accepted by serving written notice of acceptance on the offeror.

(2) Subject to paragraphs (3) and (4) and to rule 36.12, a Part 36 offer may be accepted at any time (whether or not the offeree has subsequently made a different offer), unless it has already been withdrawn.

Turning to rule 36.13 that states as far as is material:

(1) Subject to paragraphs (2) and (4) and to rule 36.20, where a Part 36 offer is accepted within the relevant period the claimant will be entitled to the costs of the proceedings (including their recoverable pre-action costs) up to the date on which notice of acceptance was served on the offeror.

(Rule 36.20 makes provision for the costs consequences of accepting a Part 36 offer in certain personal injury claims where the claim no longer proceeds under the RTA or EL/PL Protocol.)

(2) Where—

(a) a defendant’s Part 36 offer relates to part only of the claim; and

(b) at the time of serving notice of acceptance within the relevant period the claimant abandons the balance of the claim,

the claimant will only be entitled to the costs of such part of the claim unless the court orders otherwise.

(3) Except where the recoverable costs are fixed by these Rules, costs under paragraphs (1) and (2) are to be assessed on the standard basis if the amount of costs is not agreed.

(Rule 44.3(2) explains the standard basis for the assessment of costs.)

(Rule 44.9 contains provisions about when a costs order is deemed to have been made and applying for an order under section 194(3) of the Legal Services Act 20073.)

(Part 45 provides for fixed costs in certain classes of case.)

(4) Where—

(a) a Part 36 offer which was made less than 21 days before the start of a trial is accepted; or

(b) a Part 36 offer which relates to the whole of the claim is accepted after expiry of the relevant period; or

(c) subject to paragraph (2), a Part 36 offer which does not relate to the whole of the claim is accepted at any time,

the liability for costs must be determined by the court unless the parties have agreed the costs.

(5) Where paragraph (4)(b) applies but the parties cannot agree the liability for costs, the court must, unless it considers it unjust to do so, order that—

(a) the claimant be awarded costs up to the date on which the relevant period expired; and

(b) the offeree do pay the offeror’s costs for the period from the date of expiry of the relevant period to the date of acceptance.

(6) In considering whether it would be unjust to make the orders specified in paragraph (5), the court must take into account all the circumstances of the case including the matters listed in rule 36.17(5).

(7) The claimant’s costs include any costs incurred in dealing with the defendant’s counterclaim if the Part 36 offer states that it takes it into account.

It will be noted that rule 36.13(5) does not specify that the costs are to be awarded on the indemnity basis in contrast with rule 36.17 which expressly does prescribe when indemnity costs can be awarded under part 36: when a claimant’s part 36 offer is beaten at trial.

Rule 36.17 provides:

(1) Subject to rule 36.21, this rule applies where upon judgment being entered—

(a) a claimant fails to obtain a judgment more advantageous than a defendant’s Part 36 offer; or

(b) judgment against the defendant is at least as advantageous to the claimant as the proposals contained in a claimant’s Part 36 offer.

(Rule 36.21 makes provision for the costs consequences following judgment in certain personal injury claims where the claim no longer proceeds under the RTA or EL/PL Protocol.)

(2) For the purposes of paragraph (1), in relation to any money claim or money element of a claim, “more advantageous” means better in money terms by any amount, however small, and “at least as advantageous” shall be construed accordingly.

(3) Subject to paragraphs (7) and (8), where paragraph (1)(a) applies, the court must, unless it considers it unjust to do so, order that the defendant is entitled to—

(a) costs (including any recoverable pre-action costs) from the date on which the relevant period expired; and

(b) interest on those costs.

(4) Subject to paragraph (7), where paragraph (1)(b) applies, the court must, unless it considers it unjust to do so, order that the claimant is entitled to—

(a) interest on the whole or part of any sum of money (excluding interest) awarded, at a rate not exceeding 10% above base rate for some or all of the period starting with the date on which the relevant period expired;

(b) costs (including any recoverable pre-action costs) on the indemnity basis from the date on which the relevant period expired;

(c) interest on those costs at a rate not exceeding 10% above base rate; and

(d) provided that the case has been decided and there has not been a previous order under this sub-paragraph, an additional amount, which shall not exceed £75,000, calculated by applying the prescribed percentage set out below to an amount which is—

(i) the sum awarded to the claimant by the court; or

(ii) where there is no monetary award, the sum awarded to the claimant by the court in respect of costs—

Amount awarded by the court

Prescribed percentage

Up to £500,000                                           10% of the amount awarded

Above £500,000                                         10% of the first £500,000 and (subject to the limit of £75,000) 5% of any amount above that figure.

(5) In considering whether it would be unjust to make the orders referred to in paragraphs (3) and (4), the court must take into account all the circumstances of the case including—

(a) the terms of any Part 36 offer;

(b) the stage in the proceedings when any Part 36 offer was made, including in particular how long before the trial started the offer was made;

(c) the information available to the parties at the time when the Part 36 offer was made;

(d) the conduct of the parties with regard to the giving of or refusal to give information for the purposes of enabling the offer to be made or evaluated; and

(e) whether the offer was a genuine attempt to settle the proceedings.

The rules noted above cross refer to two further rules, which apply in the context of a case which started but did not continue under the RTA Protocol, in order to ensure that part 36 and the fixed costs rules in part 45 read seamlessly. Rule 36.20 specially deals with the costs consequences of acceptance of a part 36 offer:

(1) This rule applies where a claim no longer continues under the RTA or EL/PL Protocol pursuant to rule 45.29A(1).

(2) Where a Part 36 offer is accepted within the relevant period, the claimant is entitled to the fixed costs in Table 6B, Table 6C or Table 6D in Section IIIA of Part 45 for the stage applicable at the date on which notice of acceptance was served on the offeror.

(3) Where—

(a) a defendant’s Part 36 offer relates to part only of the claim; and

(b) at the time of serving notice of acceptance within the relevant period the claimant abandons the balance of the claim,

the claimant will be entitled to the fixed costs in paragraph (2).

(4) Subject to paragraphs (5), (6) and (7), where a defendant’s Part 36 offer is accepted after the relevant period—

(a) the claimant will be entitled to the fixed costs in Table 6B, Table 6C or Table 6D in Section IIIA of Part 45 for the stage applicable at the date on which the relevant period expired; and

(b) the claimant will be liable for the defendant’s costs for the period from the date of expiry of the relevant period to the date of acceptance.

(5) Subject to paragraphs (6) and (7), where the claimant accepts the defendant’s Protocol offer after the date on which the claim leaves the Protocol—

(a) the claimant will be entitled to the applicable Stage 1 and Stage 2 fixed costs in Table 6 or Table 6A in Section III of Part 45; and

(b) the claimant will be liable for the defendant’s costs from the date on which the Protocol offer is deemed to have been made to the date of acceptance.

(6) In a soft tissue injury claim, if the defendant makes a Part 36 offer before the defendant receives a fixed cost medical report, paragraphs (4) and (5) will only have effect if the claimant accepts the offer more than 21 days after the defendant received the report.

(7) In this rule, “fixed cost medical report” and “soft tissue injury claim” have the same meaning as in paragraph 1.1(10A) and (16A) respectively of the RTA Protocol.

(8) For the purposes of this rule a defendant’s Protocol offer is either—

(a) defined in accordance with rules 36.25 and 36.26; or

(b) if the claim leaves the Protocol before the Court Proceedings Pack Form is sent to the defendant—

(i) the last offer made by the defendant before the claim leaves the Protocol; and

(ii) deemed to be made on the first business day after the claim leaves the Protocol.

(9) A reference to—

(a) the “Court Proceedings Pack Form” is a reference to the form used in the Protocol; and

(b) “business day” is a reference to a business day as defined in rule 6.2.

(10) Fixed costs shall be calculated by reference to the amount of the offer which is accepted.

(11) Where the parties do not agree the liability for costs, the court must make an order as to costs.

(12) Where the court makes an order for costs in favour of the defendant—

(a) the court must have regard to; and

(b) the amount of costs ordered must not exceed,

the fixed costs in Table 6B, Table 6C or Table 6D in Section IIIA of Part 45 applicable at the date of acceptance, less the fixed costs to which the claimant is entitled under paragraph (4) or (5).

(13) The parties are entitled to disbursements allowed in accordance with rule 45.29I incurred in any period for which costs are payable to them.

This rule contains no provisions for the costs consequences of acceptance of a part 36 offer to the defendant made by the claimant outside the “relevant period” i.e the 21 days. The effect therefore is that the court is thrown back onto the general provision under rule 36.13(4)(b) and 36.13(5): it has a discretion as to whether to order costs or not.

However, there is an important pointer in the rules to what was contemplated to be the just result: where a claimant accepts a defendant’s part 36 offer out of time, so that the claimant is entitled to costs until 21 days after the date of the offer, and the defendant to its costs thereafter, pursuant to rule 36.20(12) the costs the claimant must pay, are not costs on the standard basis, but costs which cannot exceed an amount calculated by reference to the fixed costs in table 6B, 6C or 6D.

In effect, although the costs liability is split between the parties, both sets of costs are calculated by reference to the tables for fixed costs.

Rule 36.21 deals with the costs consequences after judgment is obtained in a case which started in the RTA Protocol. It has no application to a case that settles before trial and is stayed, pursuant to rule 36.14, without judgment being entered.

The origin of the rule in rule 36.13(5) is that it represents the codification of the approach and principles set out in Lumb v Hampsey [2011] EWHC2808. The origins of the rule are therefore grounded in the need in some cases, to adjust the normal “before and after” rule for the allocation of costs: eg where a claimant accepts a defendant’s part 36 offer late, because of belated disclosure by the defendant or other conduct justifying disapplication of the normal rule.

The rule gives the court jurisdiction to potentially make an award of indemnity costs or standard basis costs. The issue is what criteria would justify an award of other than fixed costs.

The leading case on when it is appropriate to award indemnity costs remains that of Excelsior Industrial and Commercial Holdings v Salisbury Hammer Aspden and Johnson [2002] EWCA Civ 879 where Lord Woolf LCJ made a number of observations. As a statement of principle binding upon the lower courts, mere late acceptance of a settlement offer, without more is not conduct justifying an award of indemnity costs.

Similar considerations drove the decision in the case of  Fitzpatrick Contractors Ltd v Tyco Fire and Integrated Solutions [2009] EWHC 274: there has to be something more than late acceptance. The case is important for the very detailed and careful exposition of Coulson J, forming part of the ratio of the case, as to why mere late acceptance of a claimant’s part 36 offer did not generate a presumption in favour of indemnity costs.

19 First, I am bound to note that there is no reference at all within CPR 36.10(4) and (5) to a presumption that, unless it is unjust to do so, the court will order a late-accepting defendant to pay the claimant’s costs on an indemnity basis. The absence of such a provision is important. The usual basis for the assessment of costs is the standard basis; if there is an entitlement to seek indemnity costs, then it is expressly spelled out in the CPR , either as a rebuttable presumption (such as the presumption in r36.14 ) or by way of conduct ( r44.3 ). There is no rebuttable presumption expressed here.

20 Although it is always dangerous to speculate how and why the rules say what they do, it seems to me that there is a relatively straight forward explanation for why this part of the CPR is in its present form. A claimant’s entitlement to indemnity costs when it beats its own offer after a trial was first enshrined in the old r36.21 and was plainly designed to deal with the situation where a trial had taken place and costs had been wasted because the defendant should have accepted the Part 36 offer. For the reasons explained by Lord Woolf in Excelsior , this was more advantageous than the defendant’s position under r36.20 . On the words of the old r36.21 the situation argued for here could not have arisen, because r36.21 applied only where the defendant was held liable “for more” than the amount of the offer. Following the decision in Read v Edmed the rule was changed so that it expressly covered the situation where, after a trial, the claimant recovered the same as the amount of its unaccepted offer. But there is nothing on the face of any of the existing rules to suggest that this change was also designed to reward a claimant (whose offer under CPR 36.10 was accepted out of time and before there was any trial) with a rebuttable presumption in its favour in respect of indemnity costs.

21 Secondly, I consider that the court has to be very careful before inserting into a rule, which is silent on costs, a presumption of this kind, extracted from a different rule altogether. It seems to me that, on this point, Lord Woolf’s remarks in Excelsior are of some relevance (although I acknowledge that he was dealing there with a contrast between the old r36.21 and the old r36.20.) He concluded that, in the absence of any reference to the indemnity basis, an order for costs which the court was required to make under the old r36.20 was an order for costs on the standard basis. It seems to me that precisely the same general reasoning would apply here to CPR 36.10(4) and (5).

22 I accept Mr Thomas’s submission that the other cases relied on by Fitzpatrick, namely Petrotrade , Huck and Read do not offer very much assistance to the central question here, which is whether a rebuttable presumption in favour of indemnity costs, taken from a rule dealing with the situation following a trial where the offer has not been accepted, should be inferred into a rule dealing with the position prior to trial, where the offer has been accepted. I do not accept that the present situation is analogous to those cases. In all three of them, the courts were endeavouring to apply the words of the old r36.21 in a commonsense way, to achieve a just and sensible result, and to prevent injustice; they all arose after a trial on the merits (either on a summary or a full basis). In contrast, I conclude that the replacement of old r36.21 – the new CPR 36.14 – does not apply to the present case, because there has been a settlement, and it has occurred before the trial. The claimant has therefore been spared the costs, disruption and stress of the trial.

23 Thirdly, I note that r36.10(3) , which deals with the situation where the claimant’s offer is accepted within the relevant period, expressly provides that costs will be assessed on the standard basis. If, therefore, there was a presumption that indemnity costs would apply under r36.10(5) , when an offer was accepted outside the period, it seems to me that the rule would say so. It does not, and, in my judgment, that is not an oversight or an omission; it is because either standard or indemnity costs may  be applicable where an offer is accepted after the relevant period, depending on the analysis under CPR 44.3

24 Finally, I am not persuaded that, as a matter of policy, it would be appropriate to import an indemnity costs presumption into r36.10(4) and (5) . A defendant is entitled to accept an offer beyond the period of acceptance. In a complex case such as this, a defendant should be encouraged continuously to evaluate and re-evaluate the claim and its own response to that claim, so that even if the defendant had originally concluded that it was not going to accept the offer, it should always be prepared to change its mind. The CPR should be interpreted in a way that encourages such constant re-evaluation.

25 All those of us involved in civil litigation are conscious of the irony that a well-judged Part 36 offer by one party (whether claimant or defendant) at the outset of proceedings can often make a trial and a fight to the finish more, rather than less, likely, because there will often be instances where, by the time the offeree has belatedly realised that the offer was well-judged, he will have incurred considerable cost, and may feel that he has no option but to go on and fight the case through to the finish in the hope of bettering the offer. Such an outcome is not to be encouraged. There is a risk that, if a defendant belatedly changed its mind as to the acceptability of a claimant’s Part 36 offer, the defendant would be discouraged from formally accepting that offer if it thought that it would have to pay indemnity costs in consequence. It would not be appropriate to construe the CPR in such a way, because that would, in my view, actively discourage late settlements and instead give rise to another reason for the offeree to push on to a trial.

See further the summation by the court in paragraphs 31 and 32:

31 I am unable to accept that proposition. It seems to me that there is no basis for it. As I have said, a party can seek indemnity costs in one of two ways: either because there is a presumption that such costs will apply (such as under CPR 36.14) or because it can demonstrate the necessary evidence of conduct etc. pursuant to CPR 44.3. There is no basis under the CPR, or any authority of which I am aware, which would allow the court to order indemnity costs for any other reason or on any other basis.

 32 Accordingly, Fitzpatrick’s claim for indemnity costs on the basis of either a rebuttable presumption, or a watered-down conduct test, must fail as a matter of principle: in these circumstances, only a case by reference to conduct etc. pursuant to CPR 44.3 could justify such an order. Both parties made detailed submissions on questions of conduct and its relevance to the application for indemnity costs. Accordingly, if I am wrong in my rejection of either Mr Livesey’s primary case, or his secondary case, or if, despite its realistic understanding of the likely outcome, Fitzpatrick maintain an entitlement to indemnity costs by reference to CPR Part 44 , I now set out my views as to the parties’ conduct and the overall justice of the situation.

Heavy reliance is usually placed by claimants, on the County Court judgment in the case of Sutherland v Khan 21st April 2016. District Judge Besford felt able to distinguish the case of Fitzpatrick: he did not however identify any decision which had overruled this case, and was bound to apply it. If District Judge Besford doubted the correctness of Fitzpatrick, his proper course was to apply it and grant permission to appeal: see the decision of the Court of Appeal in the case of Sayce v TNT (UK) Limited [2011] EWCA Civ 1583 at paragraphs 22 and 23, on the application of the doctrine of stare decisis and precedent at common law. The Sutherland decision is both incorrect and was decided in a manner contrary to principle.

An alternative argument, is usually based upon the case of Broadhurst v Tan [2016] EWCA Civ 94 but that case is not in point: that concerns a judgment after trial and the application of rule 36.17, which does expressly provide for an award of indemnity costs.

It is anticipated that when the authorities of Excelsior and Fitzpatrick have been considered, as a fall back position, an award of standard basis costs will often be sought by those representing claimants.

Such an award could be said to be wrong in principle. Although the court retains a discretion, it must be exercised pursuant to the rules, in accordance with the statutory purpose and in a way that accords with the overriding objective.

First, and returning to the starting point, Rule 45.29B makes it clear that pursuant to rule 45.29J only in “exceptional” circumstances will an award in excess of fixed costs be made.

Secondly, the true ratios of both Excelsior and Fitzpatrick noted above, are that there is nothing culpable in a party re-evaluating its case and accepting a part 36 offer late, or out of time. Indeed to do so, runs with the grain of the CPR which requires parties to consider settlement as an alternative to a contested trial (see in particular paragraphs 24 and 25 of the judgment) noted above.

Thirdly, the internal construction of part 36, in particular the way a defendant’s costs are dealt with when a claimant accepts a defendant’s part 36 offer late and pursuant to rule 36.20(12) the claimant is only exposed to costs capped at the level of fixed costs. This is a powerful pointer, for a defendant only to be exposed to a greater quantum of fixed costs, for late settlement.

Fourthly, the claimant’s position in an appropriate case is in any event protected by the rules: under rule 36.13(5) or rule 45.29J, misconduct on the part of the defendant or exceptional circumstances can ground an application for standard or indemnity basis costs.

The Battle of the Bastards

Its been an interesting 3 weeks. In tandem, with the mass political suicide of the governing class, I have been watching season 6 of Game of Thrones with back to back episodes, and noting the curious parallels, between the rising political body count at Westminster and the emptying ranks of the noble Houses of Westeros on the small screen.

With a degree of cautious confidence, I predict the series only has another two seasons at most, as by then virtually every conceivable British character actor will (a) have appeared in it and (b) met a bloody end.

The former Lord Chancellor, who bears an uncanny resemblance to Stannis Baratheon, has fought his metaphorical Battle of the Blackwater, burned poor Boris on a pyre of his own hubris and achieved his life long ambition of not becoming the next Prime Minister. As was said caustically of the death scene of Little Nell in Charles Dickens’ The Old Curiousity Shoppe: it would take a heart of stone not to laugh.

I am upbeat that some good may yet come of all this. There may yet be a reversion to the appointment of a qualified lawyer as Lord Chancellor, and perhaps the recall of the impressive Dominic Grieve QC as Attorney General: I listened attentively to an excellent speech he gave on the Human Rights Act at the ALBA conference last summer, the ramifications of its repeal, and the way a British Bill of Rights might take shape.

In the meantime, and coming  back to the real world of costs, whispers are now circulating that the scheme for fixed costs in clinical negligence, might actually start to move forward.

Cynics will note that the Department of Health has a fondness for publishing consultation documents in August, secure in the knowledge that many lawyers depart for warmer climes, during that month. It follows that the next two months, might see some developments in terms of the long heralded reforms in this area.

I shall be departing for my own break at the end of the month, and this blog will be abandoned, for the duration of my holiday, as I voluntarily deprive myself of Iphone, Ipad, Ieverything and let the Outlook auto-response take the strain. Have a splendid summer.

 

Rule Britannia

The text of this article first appeared in the June 2016 issue of Litigation Funding.

At the time of writing, the referendum on whether this country should remain in the European Union or not, is some 6 weeks away. Every day, the respective camps for leaving or remaining, tempt the uncommitted voter with the prospect of millions of Albanians, Serbs and Turks moving to the United Kingdom should we remain, or the delights of being part of a free trade area with Montenegro and the Ukraine, as the de facto 51st  state in President Trump’s America. It’s going to be a tough one to call.

This year in January, Jackson LJ set forth a vision for a scheme of fixed costs to apply to all money claims worth up to £250,000, with a prediction that such a scheme, could, if the political will were present, be implemented before the end of 2016. But because this is a referendum year, that seems most unlikely.

The intended consultations on fixed costs for the limited classes of NIHL claims and clinical negligence have not taken place, as the Ministry of Justice goes into lock down and concentrates on the referendum, in peculiar circumstances where the Lord Chancellor is on the other side of the political divide to the Prime Minister.

In such circumstances, it does not seem fanciful to suggest that if the country votes to leave the European Union, the Ministry’s efforts for the next 20 years will be spent uncoupling the country’s laws from the European Union and all interest in fixed costs proposals and similar schemes, will just fall of the political agenda.

It follows in turn that the financial interests of litigation lawyers will be served by voting for Brexit, the costs tail wagging the constitutional dog. But should the country leave the European Union will also become decoupled from not only European Union jurisprudence, but also the comparative jurisprudence of the other member states, including Germany, whose legal system enjoys a much greater incidence of fixed costs than our own, and whose influence is clearly to be seen in the proposals for fixed costs in the vast majority of civil cases.

If the country votes to remain in the European Union, and if, a comprehensive scheme for fixed costs is introduced in England and Wales (that is two pretty big ifs) it follows that it would be instructive to consider what the German experience, over the last one hundred and fifty years has been and what lessons might be learnt for our own jurisdiction.

In volume two of the Review of Civil Litigation Costs: Preliminary Report published as long ago as May 2009, Jackson LJ noted how the regime of fixed fees, originally introduced in the 19th century in the German courts worked:

2.3   The quantum of legal costs that a successful party is entitled to recover from an unsuccessful party, and the fees and expenses of the court which are payable, are prescribed by statute. These rules do not seek to provide a successful party with a complete indemnity for his or her legal fees. Instead, they provide for the payment of legal fees and court costs in scales which increase in a degressive, non-linear fashion and with the use of multipliers that vary according to the value of the dispute, the stage at which the case is resolved, and other aspects of the case. Illustrations are given below of how these rules apply to disputes of varying sizes, in respect of the amount payable by the unsuccessful party (leaving aside that party’s own legal fees, which it must bear).

Amount in dispute = €10,000

Court fees payable €588.00
Lawyer’s fees payable (for one lawyer) €1,869.37
Total payable by unsuccessful party €2,457.37

Amount in dispute = €100,000

Court fees payable €2,568.00
Lawyer’s fees payable (for one lawyer) €5,123.07
Total payable by unsuccessful party €7,961.07

Amount in dispute = €1,000,000

Court fees payable €13,368.00
Lawyer’s fees payable (for one lawyer) €16,900.85
Total payable by unsuccessful party €30,268.85

These fees represent the scale applicable in 2004; it is interesting to note that they represent a small proportion of the amounts in dispute, and far smaller sums than one would anticipate being spent to litigate, substantial claims in this country. They also have a particular policy underpinning them. They are intended to ensure cross subsidisation of the legal profession with larger cases, “carrying” smaller cases, within the same lawyer’s caseload. As Jackson LJ put it:

A notion which underpins the cost scales used in Germany is that of “cross-subsidisation” which, in summary, posits that a lawyer may earn a reasonable living out of his or her profession by accepting a number of smaller cases where remuneration under the scale of fees is not very great (and there may be only a small profit margin) and in addition accepting a number of medium or large cases where the scale fees are higher. If a lawyer’s practice consists of a mix of small, medium and high value cases, the theory is that the fees from the medium and large value cases will “cross-subsidise” those derived from smaller ones, enabling the lawyer overall to earn a reasonable living.

This is a familiar concept to the English and Welsh regimes of fixed costs known as “swings and roundabouts”, but whereas such a system reflected the German legal profession, when introduced in the time of Bismarck and the Kaisers, it is creaking under the strain of changes in the legal profession and practice of Germany in the 21st century, including an increase in the size of law firms, increasing specialisation, and the fact that smaller firms, undertaking smaller claims, find it difficult to attract and undertake the larger claims which should be cross-subsidising their caseload.

In recent years, contingency fees have also been declared to be lawful in Germany, which increases the scope for lawyers to make “own client” charges, which cannot be recovered from the unsuccessful losing party.

It is interesting to note however, why fixed costs have been used by Germany on such a large scale. They are seen as integral to the vision of “access to justice” held in that country.

The use of cost scales is regarded by the courts as beneficial, as their application gives effect to a central value enshrined in the German constitution, being the “rule of law”. The rule of law requires not only that there should be free access to the courts, but that litigation costs should be both predictable and reasonable. It also requires the German legislature to ensure that access to the courts does not depend on the economic situation of an individual. One of the ways in which the legislature ensures access is by offering legal aid to people who meet the relevant criteria for such funding.

Context however is everything. Although Germany has an adversarial, rather than inquisitorial system of courts, there are features of the German system, which are very different from our own: there is no process of disclosure, no exchange of witness statements, cross examination is limited, experts are appointed by the courts, and interlocutory processes are devoted to eliciting what are the relevant issues and disputes, so that the final trial can be very short, rarely lasting more than a day. And with truncated court processes, most cases in the Local Courts run from commencement to final hearing in just over 4 months, and in the Regional Courts just over 7 months.

The key point to note here, surely is that if costs are fixed, at a level, which is below the sums in dispute, as a quid pro quo, then the amount of work that the court, and the substantive law requires must be reduced, to ensure that it remains feasible for a lawyer to complete it within the scale of fixed costs and still make a profit.

A corollary of a large scale comprehensive scheme for fixed costs across the bulk of civil litigation, has been the effect on the legal expense insurance market in Germany, which is unrecognisable in its extent to a lawyer in England and Wales. Such policies are also far more expensive than the modest premiums charged for BTE insurance in the UK.

The Interim Report also noted some research called the Soldan study, which revealed that whilst 35% of litigation was funded in Germany, by legal expenses insurance, in the United Kingdom only 4% of litigation was:

What is evident from the Soldan study is the significant role that legal expenses insurance plays in Germany when compared with England and Wales. It is common for individuals in Germany to take out legal expenses insurance to cover their legal fees in the event that they are involved in litigation, whether as a claimant or a defendant. Legal expenses insurance covers individuals for costs according to the statutory scale. The advantage to insurers is that the scale of costs makes the extent of the insurer’s exposure predictable. The widespread use of legal expenses insurance is seen as the driver of the widespread use of cost agreements according to the cost scales. It is difficult for lawyers whose clients are covered by legal expenses insurance to negotiate an individual fee agreement for remuneration at a rate above the applicable scale.

From these points, some conclusions seem to leap off the page. Should a scheme of fixed costs be introduced in England and Wales, along the lines of Jackson LJ’s proposal, it could well cause, a restructuring, and fragmentation of the legal profession.

Secondly, such a scheme would have to march hand in hand with some fairly radical streamlining and cost cutting of the litigation process, with cherished exercises such as disclosure, being ruthlessly curtailed, if not eliminated. Thirdly, such a scheme might be blunted through the rise of irrecoverable own client charges, a concept inherent in the current principle of proportionality. Finally, although such a scheme would undoubtedly reduce a lawyer’s remuneration on individual cases, it might, just might, through encouraging litigation by making it more affordable, not only increase access to justice, but give opportunities to the cannier lawyers to gain more work too through an explosion of new claims.

A PDF of the article can be found here: PDF file

 

The shadow of Cassandra

Last year, I wrote a post on the fixed costs regime and how in my opinion as far as claimants were concerned, they were an optional choice on the Fast Track.

The original blog post is here: http://costsbarrister.co.uk/uncategorized/are-fixed-costs-optional-on-the-fast-track.

This week, I was proved right in the decision handed down by the Court of Appeal in Broadhurst v Tan and another [2016] EWCA Civ 94, a copy of which can be found here: Broadhurst v Tan and another.

At this point I should declare an interest, having argued the first appeal unsuccessfully before HH Judge Robinson on behalf of the claimant.

Like Cassandra, I prophesised but was not believed.

Undoubtedly the decision of the Court of Appeal is correct: as soon as the Explanatory Memorandum was brought to the Court’s attention, the game would have been up as far as the defendant was concerned.

Moreover, one can see the clear public policy in ensuring that part 36 offers are taken seriously, and as many cases settle as possible. Should a defendant now take a case to trial and lose, they will now suffer what have been termed penal consequences.

The real question which must now be addressed, is how each part of the personal injury industry, systematically addresses it’s use of part 36. For claimants and those representing them, the challenge is now to calculate and issue a part 36 offer as early as possible.

It will not be lost, that as part 36 offers can be made on liability only, a part 36 offer of 95% would be effective to set the ball rolling and place the defendant, minded to defend a claim on liability at risk.

The balancing act required a little later down the process, is that when a solicitor is instructed, there will often be a continuing loss accruing, such as hire charges in a credit hire claim. At this point more skill will have to be deployed, to judge when to make an offer, as well as what that offer should be.

For defendants, a different set of challenges arises.

It is well known that many insurance companies utilise software, to value claims, particularly of the bottom end of the scale, and often on the basis of a database which includes all data for settled cases, and skews the value of any part 36 offer downwards.

As a seasoned common law barrister observed to me many years ago, insurers like to pay 70 pence in the pound by way of settlement, judged against the true value of a claim.

The effect of the Broadhurst decision will be to alter the dynamics of that calculation and the variables used, when calculating a settlement offer. If a defendant’s part 36 offer is beaten and the claimants part 36 offer exceeded at a hearing, then the cost of losing the claim will now increase dramatically. Instead of fixed costs, proper costs will be awarded on the “full fat” indemnity basis to which the principle of proportionality will not apply, and of course with the further uplift on damages to boot.

Thus in my view, Broadhurst will have a double impact in terms of the inflation of claims: first the cost of losing an individual claim at trial will now be higher and secondly across the board, insurers when looking at the book of claims which constitute their exposure, will have to adjust their overall offers upwards, if claimants’ solicitors start systematically making well pitched and early part 36 offers.

The decision may also throw into reverse a trend that I have noticed over the last year and a half, confirmed anecdotally by colleagues at the Bar, that more cases, particularly at the bottom end are going to trial, a trend traceable to the low exposure to costs that insurers face, should they fight a case subject to fixed costs and lose.

In the longer term, given that fixed costs for NIHL and clinical negligence costs are on the horizon, there may well be scope for the impact of those regimes to be blunted.

If for example, every time a solicitor is instructed in a clinical negligence case, it is open to them to make a part 36 offer on liability, to the tune of 95%, then straightaway the defendant is on the horns of a dilemma, with its fixed costs protection at risk.

There is of course still nothing to read, in terms of detailed proposals for fixed costs in NIHL and clinical negligence cases. Instead the legal world’s attention has been diverted by the recent lecture given by Jackson LJ, where fixed costs for cases worth up to £250,000 are mooted.

Those proposals have been described by virtually every legal commentator as unworkable: and in our current system of litigation, with the current levels of remuneration for lawyers, particularly in the personal injury sector that would be right.

If however, there is an agenda is to drive down the rates that solicitors bringing personal injury claims and clinical negligence cases against insurance companies or emanations of that state, recover in respect of their costs, to levels akin to those paid in Legal Aid cases and to ensure that a QC earns no more than a consultant does from his NHS salary, then the reasoning behind the proposals is logical.

Given that the fixed fees applicable to RTA Portal claims, were influenced by the Legal Aid rates, that may indeed be part of the agenda at work and so the consultation documents on NIHL and clinical negligence are ones that I look forward to reading with considerable interest.

The time has come

This week, ended with a flourish with a speech by Jackson LJ (delivered it seems with the concurrence of the Master of the Rolls) on the subject of fixed fees.

The text of the speech can be read here: Fixed Costs The Time has Come.

Already the internet has exploded with alarm, satisfyingly in tandem with the release of the Dads Army reboot, with complaints echoing Private Fraser’s famous cry of: “We’re all doomed!”

In truth, a broad based scheme of fixed costs which applies to all claims up to £250,000 has a lot to commend it in terms of facilitating access to justice. It will provide certainty.

It reduces the risk that the losing side to litigation will go bust, due to a huge and unknown costs liability and at a stroke, it means that the pointless and expensive costs budgeting regime can be locked away with the cutlass and the broadsword, as a relic belonging to another time.

It also is likely to overtake the move to J codes and digital billing: if virtually all costs are fixed, who will care when inter partes costs come to be awarded about time management and logging each and every individual letter? J codes can then be relegated to  solicitor own client charging, for those who choose to adopt them, which after all, is what they were designed for.

Such a regime might also kick start a properly funded and worthwhile BTE industry now able to more accurately gauge and quantify its exposure to adverse costs, with reasonable premiums and also provide stabilisation of the ATE industry.

It also, represents the reinvention of the way litigation used to be funded: devotees of the nineteenth century practice of costs, will  be well aware that most costs were fixed by scales, and event those who practised at the end of the twentieth century will recall with fondness the scale costs that applied then.

The only reason, that I could discern why scale costs were not carried forward into fixed costs under the Woolf reforms in 1999, was because the rules were rushed into force whilst half written, leading to endless updates as the vestigial remnants of the County Court Rules and Rules of the Supreme Court were gradually cleared away.

The biggest concern that the introduction of fixed costs will have, is one that affects the workload and the remuneration of the lawyers.

Fixed costs in Germany, undoubtedly affect the structure of the legal profession: most firms there are small, engaged with a very different court process than the one we have in England and Wales, and have the benefit of a very stable BTE insurance industry.

I cannot see how a significant proportion of the legal profession, which currently makes a living from disputes over costs and their quantification can continue in their current employment, or rather continue doing what they do now.

I also suspect that in absolute terms, it will lead to lower costs awards across the board, and a likely decrease in remuneration in traditional areas of work, although much will turn obviously, at what levels fixed costs will be set at.

However, equally, I think that areas of work which are currently in desuetude, due to LASPO 2012, might flare into life again: I have in mind particularly disability discrimination claims and environmental claims.

Moreover, fixed costs are more generally likely to cause cases to fight and go to trial, as defendants know that the downside to defending a case tooth and nail will be limited.

So the upshot of fixed costs could be more litigation rather than less: in which case, the solution for those lawyers who practise exclusively in costs, is perhaps to engage with what could be optimistically described as a process of “creative destruction” and start to think about the opportunities that this will create, and start planning for them now.

I would draw a parallel with industrial change. It is now more than 30 years since the miners strike of 1984-1985: the mining industry has effectively gone. Many of those miners, who lost their jobs in the decade after the strike, never worked again. But the demand for energy and the need for an energy industry has never been greater: the key is to ensure early recognition and adaptation to the way the legal services industry is going to change over the next few years to avoid the miners’ fate.

 

 

Fixed ideas

Just before my summer break (now rapidly receding into the past) I published an article in Litigation Funding magazine on fixed costs in NIHL claims.

A copy of the article, can now be downloaded in PDF format here: Fixed Ideas.

Of course, in the last two months the concept of fixed costs in clinical negligence claims worth up to £250,000 has been floated by the government.

One suspects that the figure of £250,000 has been chosen, so that when a compromise is reached at a lower figure (say £100,000) it reflects the government’s intended figure all along.

That fixed costs for clinical negligence cases will happen I have little doubt.

The real debate is how to structure such costs, with the very heavy expenditure on experts and counsel that such cases, have at least to date, carried.

Some commentators have speculated that this could herald the start of a move to fixed costs across the board, irrespective of whether the case is a clinical negligence or personal injury case.

I rather doubt that happening.

Such reforms are not drawn up in a vacuum to maximise utility or even to create a pleasing symmetry and economy in the rules, but rather reflect intensive lobbying by particular interest groups: the insurance industry, the NHSLA, which is absent in the general context of civil litigation.

It takes a great deal of effort to shift the Overton window.

This is demonstrated by the fact, that more than 16 years after the introduction of the Fast Track, costs in general civil litigation seem incapable of being fixed by the rules, nor is there any discernible pressure by lobby groups that they should be.