This post was originally published as an article in January 2012.
The Civil Justice Council has set up what it describes as an expert working party to help develop practical proposals to assist with the implementation of secondary legislation such as regulations or court rules in a number of areas, qualified one way cost shifting, atypical cases and behavioural aspects, the introduction of additional sanctions or rewards under Part 36 and the detail of the proportionality test with content of a practice direction and examples of when the test should not be applied.
The role of the working party is really to consider options. The working party is not meant to be revisiting the policy objective set out in the government response but to focus on the practical measures which are required to give effect to the proposal.
The detailed drafting of any secondary legislation is (says the Civil Justice Council) a matter for the Civil Procedural Rules Committee (if indeed it is part of the Civil Procedural Rules) and/or government lawyers (if it is secondary legislation properly so called) the working party intended to draft papers setting out optional solutions together with an analysis of pro and cons in the last part of 2011.
The working party has produced a document entitled the CJC Working Group on Technical Aspects of Jackson Implementation: Options for Proportionality, Part 36 Offers and Qualified One Way Cross Shifting. The paper runs to 102 pages A4 and was published in October 2011. The options that it considers can be summarised under each of the three areas it has been tasked with looking at.
The working party has come up with four potential alternatives to meeting the objectives of a new rule on proportionality.
(a)The Longstop Model. There would be no preliminary determination as to proportionality akin to the current Lownds Test. Instead, under this proposal reasonableness (alone) would be applied to each item of costs or category costs as disputed by the paying party or as identified by the Court. It would only be at the end of the assessment that the proportionality and the new rule would be applied and then only in exceptional cases. The purpose of the Longstop is to provide the Court with an extra tool as a Longstop to be applied only in exceptional cases to reduce otherwise reasonable costs to proportionate level. The cases falling within the Longstop would be exceptional and rare (because under this model reasonableness is synonymous with proportionality) and in all probability would bite on cases which in the light of the overall reasonable expenditure should not have been pursued and brought to a conclusion in the way they were. These will turn to be rare and exceptional cases.
(b)Reversal of Lownds model. Under this model there would be no Longstop application of proportionality. Proportionality would be applied at the end in all cases. Instead of proportionality being considered at the outset (Lownds) it would only be considered at the end and then not part of a Longstop. The bill of costs would be assessed item by item (or by category) against the sole test of reasonableness. Once the bill has been assessed as reasonable, the Court would go on as a matter of routine to apply the proportionality test to reduce the bill still further to a proportionate level. Unlike option A, the proportionality test would be applied and engaged in all cases and not just rare or exceptional cases.
(c)The hybrid model. Under this model both reasonableness and proportionality are considered at the same time whenever and item or category is being assessed/budgeted. Unlike A and B proportionality (and the new rule) is applied as the items of the bill or category of costs are being assessed alongside considerations for reasonableness. There is then a residual Longstop for the Court to reduce the figures still further if the proportionality rule justifies it. This would be applied only in rare/exceptional cases. Like option A, the application of the Longstop will be in exceptional or rare cases only, but this time not because reasonableness would have catered for disproportionate costs (as in option A) but because inevitably where a Court has assessed items as being reasonable and proportionate during an assessment there will only be in exceptional rare cases that the outcome of the assessment results in a disproportionate figure.
(d)Retention of Lownds. Proportionality will considered at the outset. If the costs as a whole appeared disproportionate within the meaning of the new rule then the necessity test would apply. Unlike the present day application of Lowndes, the practice direction would contain lists of factors relevant to the application of a necessity test and make it clear what may it clear what may be reasonable or may not.
Each of these options is potentially flawed. The notion of a “long stop” discount test of proportionality, is a recipe for satellite litigation, as it will introduce chronic uncertainty into the assessment of costs, both in terms of when such a deduction will be applied and in terms of what the quantum of deduction might be.
Perhaps, more significantly, it is disappointing that even now, some 15 years after Lord Woolf “borrowed” the concept of principle of proportionality from European Union law, it remains a nebulous and uncertain concept, hard to define and even harder to apply, which is conceptually very odd, when one considers that the stated aim of Jackson was to reduce perceived disproportionate costs to a proportionate level. If you can’t define proportionality, how can you judge whether you have succeeded or not in moving from a disproportionate model of costs to a proportionate one?
A key proposal of Jackson is to “beef up” claimant’s part 36 offers, to give them more of a parity in their consequences to the effect of failing to beat a defendant’s part 36 offer. The key question which is not yet settled, is whether the sanctions for failing to beat a claimant’s part 36 offer should sound in damages, or costs.
It is material to note that the majority, although not all, of the working group favoured a cost based sanction rather than a damages based sanction recommended by Lord Justice Jackson. If cost based sanctions were to be implemented the majority of the working group were attracted to a solution involving significantly enhanced interests on costs of a prescribed rate of say 25% above the base rate.
If a cost based sanction were to be implemented it could be applied by one of 3 options.
Option A1: Cost based sanction (enhanced interest on costs of a prescribed rate of say 25% above base rate) biting on Judgment only, preferred by the majority of the working group.
Option A2: Cost based sanction (enhanced interest on costs of a prescribed rate of say 25% above base rate) also biting on acceptance of claimant’s Part 36 offer pre-trial, preferred by a minority of the working group.
Option A3: Costs based sanction applying to non-personal injury cases with a damaged based sanction only applying to personal injury cases preferred by a minority of the working group.
Conversely, if a damages based sanction as proposed by Lord Justice Jackson were to be implemented, a majority of the working group agreed that a cost based sanction as outlined above should be used for non-financial claims or a cost based sanction should be used for what are termed mixed claims.
The proposals favoured by the working party would, in effect, re-introduce recoverable success fees through the “back door”. In essence, the claimant’s lawyers would “bet” that they will beat their part 36 offer and will be rewarded by a 25% interest derived, success fee. Although interest on costs nominally belongs to a client, usually, under the terms of a retainer, it will be payable to the lawyers. Such a reform, would undoubtedly give real teeth to claimant’s part 36 offers however.
Qualified one way costs shifting is seen by Lord Justice Jackson as a panacea for providing costs protection for losing claimants and justifying the end of recoverable ATE insurance premiums in personal injury litigation.
Qualified one way costs shifting is a concept that for Middle England probably has no relevance whatsoever, due to the fact it is to be “means tested” in its application.
For that part of the population, ATE, BTE, and Trade Union indemnities will have to fill the gap, just as they did, with limited success, before 1st April 2000.
What will be a new and potentially very important form of costs protection will be solicitor’s indemnities, offered through alternative business structures, possessed of significant capital reserves. Such a form of funding may, in time, come to dominate the personal injury market place.
The ambit of the working party is not concerned with the means testing criteria however. They are concerned with when, as a point of principle, what circumstances within the litigation might cause the loss of qualified one way costs shifting.
In this respect the considerations of the working party are quite interesting. They decided that “claims for personal injury” should be widely interpreted for the purposes of qualified one way cost shifting and it should be noted that Rule 2.3 of the Civil Procedural Rules 1998 provides an extended definition of what is a personal injury claim in any event.
The crucial point to note was that the operation of qualified one way cost shifting where a claimant has failed to beat a defendant’s Part 36 offer is described as critical.
A majority favoured the normal principles of Part 36 taking precedence over qualified one way cost shift shifting with a set off of damages operating as a control mechanism and a majority also favoured setting off costs as well as damages.
A minority rejected the costs set off arguing that it could cause uncertainties and raise indemnity principle points. A minority favour the primacy of qualified one way cost shifting over Part 36.
It cannot be stressed how important this point is. In the writer’s view, if part 36 offers by a defendant cause the loss of qualified one way costs shifting protection, the benefits of the new system will prove illusory. No properly advised claimant, will take the risk of not beating a part 36 offer and risking financial disaster from doing so.
The working party unanimously agreed that the bringing of a fraudulent claim should cause the loss of qualified one way cost shifting protection: but of course this begs the question of what is fraudulent? Certainly, one anticipates “staged accidents” would fall within this category.
But what of the situation of where a claimant is exaggerating the value of his claim? Or where there is a real issue as to whether the claimant was exaggerating his claim and it has been decided by a Judge that he was so exaggerating?
The majority of the working party also accepted that striking out a claim for abusive process should cause the loss of qualified one way cost shifting protection and the impact of the bringing of a frivolous claim or general or unreasonable litigation conduct can be resolved in a number of ways by adopting a high threshold test or a low threshold test whilst treating the matter solely as a matter of judicial discretion. The working party also believed that qualified one way cost shifting should apply to areas and types of personal injury claims on which costs are fixed, counter-claims and cases involving multiple defendants, multi party claims in which the harm complained of falls within the personal injury definition and mixed claims in which damages for personal injury are sought alongside a long non-monetary remedy and a number of practical points arose as to how qualified one way cost shifting might apply in cases in which a claim has been discontinued.
The overall tenor of the Jackson reforms is well known. There is clarity on the key change, that of the end of recoverability of additional liabilities. But the current proposals on such topics as qualified one way costs shifting and particularly proportionality indicate that there is a long way to go before the reforms which their final shape and that there is every prospect of the law of unintended consequences being invoked, to spark off a new chain of “costs wars”.