When the Colosseum falls

“The most worthless of mankind are not afraid to condemn in others the same disorders which they allow in themselves; and can readily discover some nice difference in age, character, or station, to justify the partial distinction.”

Edward Gibbon, The Decline and Fall of the Roman Empire

February has arrived. A febrile atmosphere lies over government. Lurid tales abound of wine soaked parties, complete with cheese and other devilry in the heart of power. It would appear that it is not only enthusiasm and patriotism but a more reliably liquid commodity, which has been fuelling the engine of the government machine.

The Prime Minister has rediscovered the fickle nature of political life. Whilst Number 10 may have gone a “fridge too far” in the pandemic, I suspect deeper political forces are at work. But irrespective of the current controversy, the work of government must grind on.

In October 2022, the current plan is that a wide ranging scheme of fixed recoverable costs will be implemented through a fundamental redraft of part 45 CPR. The thrust of the proposals are contained in the goverment’s response paper published in September 2021, which can be found here extending-fixed-recoverable-costs-civil-cases-government-response. Of equal interest is the impact assessment which can be found here: fixed-costs-impact-assessment which I will discuss below.

The government response follows on from the consultation paper published in March 2019 and in essence fixed recoverable costs are extended to all Fast Track claims up to £25,000 in value, and what are described as intermediate Fast Track claims of up to £100,000 in value. Within the track claims will be allocated to one of four bands, based on their perceived complexity, with a bespoke set of bands for NIHL. Cases will still be intermediate cases, even if the ultimate trial may take up to 3 days.

In terms of how the bands will work, in the context of personal injury claims, band 1 will be for quantum cases only, bands 2 and 3 will apply to cases where liability and quantum is in dispute and band 4 will be reserved for cases where there are serious issues on breach, causation and quantum. The bands then apply to a matrix of fixed costs which allows the recoverable level of costs to be fixed by determining how much the case settles for, the point in time the case settles at, or when it concludes at trial. 

So by way of example drawn from the matrix or table, a band 1 quantum only dispute which concludes at trial in a judgment of £30,000 will attract a maximum award of fixed costs of £19,150. If the same case resulted in a judgment of £50,000 at trial the award of fixed costs will be £22,150 and if the case results in a judgment of £100,000 then the award of fixed costs would be £29,650. To these sums would be added reasonable disbursements (but not counsels’ fees) and VAT.

Certain categories of case will be excluded from the ambit of fixed recoverable costs: mesothelioma and other asbestos claims, clinical negligence (which has its own set of proposals), actions against the police, claims arising from child sexual abuse, intellectual property and “complex” personal injury claims. What this latter category of cases will include, is not defined.

So far so…predictable. But if you consider the accompanying impact statement, there is a surprising view taken of the likely impact on the courts. What the statement says is this: 

87. FRC encourage early settlement and help to streamline proceedings, which may lead to earlier resolution, thus saving court time.

A bald statement, which I would suggest is demonstrably flawed by reason of the demonstrated ignorance of the concept of “moral hazard”. Let me explain what I mean by that term.

Of all the provisions contained in the Civil Procedure Rules, the most important are those which relate to part 36. Part 36 is the lineal descendant of the “payment into court”. The mechanism by which parties settle their cases, by imposing costs risks on the opposing party. If that risk is removed or reduced, then the incentive to settle a case is accordingly reduced.

Without such incentive the courts would collapse under the weight of trials, as there are too few judges and courts to try anything other than a fraction of the claims that are made. But for part 36 to work requires the parties not only to have an evaluation of the likely chance of beating a part 36 offer,  but to also fear the consequences of getting it wrong and facing a stinging award of costs.

If the amount of costs that they face is known, and reduced or capped at the level of fixed recoverable costs, then the “moral hazard” of proceeding to trial is reduced as the downside is limited. Logically therefore, fixed recoverable costs should encourage more cases to go to trial: because the loser can more easily stand the pain of a loss. 

There is some slight support for this conclusion in my own empirical experience. In the period after the implementation of LASPO 2012 in April 2013, and certainly after the introduction of fixed costs for Fast Track personal injury claims later in July that year, the number of trials in personal injury claims taking place surged significantly.

The reason at the time was perceived to be that insurers no longer faced success fees, ATE premiums or even standard basis costs. So why not have a go at defending the case which might otherwise settle on economic terms? The factor of “moral hazard” also explains why the small claims court is choked with credit hire claims and small whiplash claims: and has a 51 week waiting list. There is no “moral hazard” in such cases in any meaningful way.

So where as I expected to see in the impact statement a prediction that the number of trials would increase, it appears that HMCTS is working on the diametrically opposite assumption. There is no allowance for extra judges and extra courts. Costs for the court service are thought to be minimal. We shall have to see what 2023 brings, of course, but I can feel another Cassandra moment coming on.