Jackson costs review divides market
18 January 2010 | By Katy Dowell
Jackson LJ attacks Access to Justice Act with proposals to reverse ATE provisions and cap success fees.
Lord Justice Jackson’s review into civil litigation costs has reignited the debate on how claimants can get to the courts without incurring huge legal bills.
Jackson LJ made a series of recommendations, some of which will need the support of primary legislation, which will effectively overhaul how litigation for small and medium claims operates.
The report proposes that civil litigation success fees should be capped at 25 per cent of damages and that losers will no longer be liable for after-the-event (ATE) premiums. At the same time he suggests that general damages should increase by 10 per cent.
This has sent shockwaves through the profession, particularly for those working in the personal injury (PI) sector.
Irwin Mitchell head of PI Andrew Tucker insists that access to justice for PI claimants has never been better, adding that if Jackson LJ’s proposals were implemented this would no longer be the case, as claimants would have to contribute to their own costs.
“In cases involving the most serious injuries, claimants may have to contribute thousands of pounds. This cannot be just or fair,” he says. “In many cases compensation is carefully calculated to pay for a lifetime of future care and is contrary to the current intention of Parliament in setting up the ‘no win, no fee’ system.”
When presenting his report at the Royal Courts of Justice last week (14 January), Jackson LJ said legal costs had been pushed up as a direct result of the Access to Justice Act 1999. Jackson LJ said that, thanks to the act, which made success fees and ATE premiums recoverable, a “costs war” has broken out between claimant and defendant lawyers, spawning unprecedented levels of satellite litigation and adding even more layers of costs.
This needs to be reversed to improve access to justice for all, Jackson LJ argued, and the most instant way of doing this is by amending the structure of conditional fee arrangements (CFAs).
Edwin Coe partner David Greene says: “Jackson addresses what he sees as the imbalance that the CFA regime introduced between the claimants and defendants.”
But according to Peter Smith, managing director at legal expenses insurer First Assist, Jackson LJ’s proposals tip the balance too far in the defendant’s favour.
“It’ll certainly reduce the number of claims being brought,” he says. “We’re disappointed that the Access to Justice Act has effectively been repealed while the Government seems to be doing away with legal aid.”
One litigator tells The Lawyer he would be less inclined to take on cases if recoverability is scrapped. “We just wouldn’t be able to afford it,” he explains. “The success fee pays for cases we may lose.”
Addleshaw Goddard head of litigation Simon Twigden suggests that there would be less motivation to settle claims if the proposals went ahead. “A properly structured and staged ATE premium is a powerful tool in driving the earlier settlement of meritorious commercial claims,” he says.
Instead of being driven to settle because of the ‘loser pays’ notion, the report suggests that where a defendant refuses to settle a claim but fails to do better in court, the defendant should pay an uplift of 10 per cent on damages awarded.
In addition, the option of using alternative costs models such as contingency fees should be available. This has divided the profession.
Jackson LJ recognises that contingency fees, which allow solicitors to take a percentage of a payout, could be left open to abuse. Therefore these should be regulated properly and arranged by an independent solicitor.
Stewarts Law head of PI Paul Paxton says this would have an adverse effect because claimants would be undercompensated.
Yet Twigden believes that, for commercial clients at least, a contingency model would be a welcome development.
“If contingency fees are adopted,” says Twigden, “Lord Jackson’s proposals in this area would represent a revolutionary change in public policy, and
that’s got to be good news for commercial litigants.
“It would allow us to provide our clients with even better access to justice in complex, high-value litigation: a simpler and more transparent regime that incentivises lawyers to settle cases early and concludes with an actual result for our clients that is proportionate whatever the outcome.”
The issue here, however, is that commercial clients may be able to afford commercial fees, whereas individuals with low-value claims may not.
Jackson LJ’s primary aim is to shake up the market to force lawyers to find innovative ways of charging clients. “The focus of our litigation process should be upon compensating victims, not upon making payments to intermediaries and others,” he says.
It is an ambitious and bold aim and one that has been motivated by the honourable desire to facilitate access to justice. But lawyers, particularly in the claimant arena, are unconvinced that the proposals will work. “We’re genuinely concerned about access to justice,” says one. “In one swoop Jackson’s destroyed the claimant model and locked claimants out of the courts.”
Andrew Parker, head of strategic litigation, Beachcroft*
Many observers will focus on the proposed reforms that would have the most direct impact on their own business, whether that be removing the recovery of success fees or ATE premiums, banning referral fees or fixing fast-track costs for all PI cases.
But lawyers should look at the whole package of reforms collectively. The clear and stated intention in these cost-control measures is to provide access to justice, both for claimants with valid claims and for defendants with valid defences. That is very much in the public interest.
Practitioners cannot afford to ignore the report. There was a strong message of judicial intent expressed, that measures will be taken to implement these proposals as fully as can be achieved.
Although some key points will require primary legislation, the bulk of the very detailed proposals will not need to wait for that.
Jackson LJ will have a role in the implementation of these plans and, given his track record so far, no one should doubt his ability to deliver.
*Andrew Parker was one of Jackson LJ’s assessors
Graham Huntley, dispute resolution partner, Lovells
The basic approach is clear: in larger cases judges should assume more responsibility for managing costs. However, in lower-value cases pragmatism requires fixed costs to be introduced for the work prior to trial, when the judges will be much closer to the action.
But in the thorny areas of PI, defamation and judicial review cases, Jackson LJ has found a delicate balance between the competing interests of clients, insurers and the need for access to justice.
The solution is imaginative: the claimant, often the financially weaker of the parties, should be able to litigate knowing that they may not have to pay more than they can afford.
Perhaps the most subtle, but in time the most significant, change will be the recommendation for all practitioners and judges to be trained in costs issues. This can only help judges discharging Jackson LJ’s call for more hands-on case management.
Geoff Nicholas, commercial disputes head, Freshfields Bruckhaus Deringer
Jackson LJ’s recommendation for qualified one-way costs-shifting for PI cases leaves defendants facing the possibility that their costs would not be recoverable upon success.
This risk is particularly acute for defendants in collective PI actions, which may also be brought on a contingency fee basis, resulting in some scope for ‘risk free’ collective litigation.
Jackson LJ suggests that the ”general” pre-action protocol should be repealed, and that in standard commercial litigation there should be a simple requirement for “appropriate pre-action correspondence”.
This is sensible and should reduce the need for very detailed letters before action and the consequential frontloading of costs.
Jackson LJ’s support for a ‘menu’ of disclosure options in large commercial cases will also be welcomed by most practitioners and clients. This encourages the parties to give real consideration to whether the burden and cost of standard disclosure can be avoided.
David Greene, litigation partner, Edwin Coe
For commercial litigators there are interesting points raised in the detail of the report, but generally Jackson LJ has left the commercial side alone.
He does recognise, however, that small and medium-sized enterprises (SMEs) have restricted access to the courts because of the costs.
The difficulty that is faced by SMEs is that they are faced with an adversarial system that is inherently expensive.
As the London Solicitors Litigation Association and the Law Society have recommended, consideration needs to be given to the procedure itself and trying to simplify it in some way.
As the judges who presented the report accept, some of the responsibility for where we are lies with the judiciary. They already have the power to manage cases, both in procedure and costs. One element of the report is a call to arms for those judges to manage cases proactively.
Many of the changes can be carried out without legislation. For example, referral fees were outlawed by professional rules, but the Law
Society is looking at those again.
The proposals may give that campaign a fillip.
Similarly, case and cost management can be undertaken under current rules without primary legislation. Simplifying the smaller claims procedure can
also be undertaken through the rules committee.
David Allen, London litigation head, Mayer Brown
In addition to the headline-grabbing recommendation regarding contingency fees, I was struck by the proposed changes to Part 36.
The decision in Carver v BAA plc (2008) has to be one of the most heavily criticised in recent years, introducing as it did uncertainty into the Part 36 regime. Jackson LJ has sensibly recommended that the decision be reversed.
Although this reversal was trailed in Jackson LJ’s preliminary report, his other recommendation on Part 36 will surprise many. Jackson LJ recommends that, where a defendant rejects a claimant’s offer but fails to do better at trial, in addition to the enhanced costs and interest already available, there should be an uplift of 10 per cent on damages awarded - although he accepts that the uplift may be scaled down in claims of more than £500,000.
This recommendation is aimed at increasing the number of cases that settle early and is intended to force defendants to accept reasonable offers.
Jackson LJ asserts that he is levelling the playing field, but although encouraging settlement is laudable, defendants and their advisers may grumble that this verges on the penal.
Dr Mark Friston, barrister, Kings Chambers
The quality of Jackson LJ’s report demonstrates a level of industry that is possessed by only a select few. If you were of a political bent, you could complain that he proposes a system of funding that favours the middle classes.
This is because the main source of funding seems to be before-the-event insurance, the cost of which will no doubt rise considerably.
If you were a traditionalist, like the Chancery Bar Association, you might lament the passing of the indemnity principle, an ancient doctrine that has had its image unfairly tarnished by badly drafted delegated legislation that was rushed through Parliament with indecent haste.
Most of all, if you were an ATE insurer, you could express bewilderment at the way that UK plc sought to nurture the fledgling market one minute, only to annihilate it the next.
All of these concerns would be entirely justified, but it is easy to complain, harder to compose. If I were asked to contrive a better plan, I would fall silent: this is because litigation funding is an insoluble problem.
Simon Twigden, litigation head, Addleshaw Goddard
Of key importance to commercial clients is the potential introduction of contingency fee arrangements.
If a properly regulated contingency fee regime is implemented, it would represent a revolutionary public policy change that would deliver even better access to justice, with a simpler and more transparent regime that incentivises lawyers to settle cases early, achieving a result that is proportionate whatever the outcome. This is what our clients want and we are ready to pioneer the use of these arrangements.
We do have reservations regarding the proposal to abolish the recoverability of ATE premiums and anticipate the lively debate this proposal will generate. A properly structured ATE premium is a powerful tool in driving the earlier settlement of commercial claims.
Abolishing recoverability may also have unwanted consequences on the pricing structures of third-party litigation funders, who although capable of operating without ATE, rarely do.
Add to this the recommended removal of the cap on funders’ exposure to adverse costs, and the result may increase the risks associated with funding, so that access to justice is inhibited, not encouraged.
Sonya Leydecker, litigation head, Herbert Smith
Jackson LJ’s report recognises that dealing with cases at proportionate cost means that one size does not fit all.
In large-scale commercial cases the rules should allow the parties flexibility to conduct their dispute appropriately, without too many constraints.
The report is helpful in promoting such flexibility, for example in proposing a ‘menu’ of disclosure options for large commercial claims. This should allow the most appropriate level of disclosure to be adopted for each claim, as well as ensuring that the parties and the court focus at an early stage on the extent of disclosure needed.
Another helpful recommendation for commercial cases is to expand the use of docketing, so that cases may be allocated to a designated judge.
Jackson LJ has also taken on board that defendants must have access to justice as well as claimants, recommending an end to the current regime in which CFA success fees and ATE insurance premiums are recoverable.
This recommendation is certainly welcome in the context of commercial claims. There is no obvious reason why defendants should be liable for the additional costs resulting from claimants choosing to litigate on a cost-free basis.