Cost cutting

We have heard much in the last few months about so-called 'technical challenges' by defendants against conditional fee arrangements (CFAs) entered into by claimants, mainly in personal injury cases. These challenges were based on perceived failures by the claimant solicitors in complying with the complexities of the CFA Regulations 2000, with the prospect that a breach would render the CFA unenforceable and prevent the solicitors from recovering costs from the defendant. There was therefore, for both sides, an issue of financial importance attached to these challenges, as well as the issue of principle. The Court of Appeal has heard detailed arguments on various linked appeals, such as Pratt v Bull, on this point. A judgment on those appeals is expected in May.

In the meantime, claimants' solicitors have taken a technical challenge of their own against the use of costs negotiators by liability insurers. Claimants' representatives will no doubt argue that the judgment in Ahmed v Powell, which determined that the arrangements used prior to February 2003 were contrary to common law, vindicates the taking of such a challenge. But what was at stake? Nothing turned on the finding by Master Hurst, apart from the nature of the relationships between costs negotiators, liability insurers and their panel solicitors. It made no difference to the claimant in money terms - indeed, one questions why an individual claimant would wish to make such a challenge in the first place.

The decision

In Ahmed v Powell, solicitors were instructed by insurers on behalf of the defendant. Proceedings were issued and the case eventually settled on a payment into court. As is the usual arrangement, the file was then passed to costs negotiators to attempt settlement of the claim for costs. No settlement was possible and assessment proceedings were then instituted. The defendant's solicitors remained on the court record, but the negotiations and attendance at the assessment hearings were left in the hands of the costs negotiators, who at all relevant times were remunerated by the insurers on the basis of a percentage of the savings achieved on the claimant's costs.

Master Hurst ruled that the arrangement by which costs negotiators were paid was in breach of the common law principle of champerty, holding that the substantial savings achieved by the costs negotiators represented the "proceeds of litigation". He also held that costs negotiators did not have a right of audience at detailed assessment proceedings, noting that at no stage in the assessment procedure did the defendant's solicitors have control of the issues and that the negotiators were not regulated or qualified by membership of any professional body.

The reaction

Liability insurers have, in the main, reviewed arrangements with costs negotiators and have moved to methods of remuneration and control that do not conflict with Master Hurst's ruling. Claimant solicitors who thought that the judgment would see the end of the involvement of costs negotiators must think again.

Some claimant firms have taken to serving substantial requests for further information under Part 18, seeking to challenge the nature of any arrangement between solicitors, insurers and negotiators. Whether or not such requests are permitted in detailed assessments is a moot point, but detailed requests for information are precisely the sort of conduct by defendants that were criticised by claimant solicitors during the recent Court of Appeal hearings.

The real problem

Master Hurst noted in his judgment that from January 1999 to October 2002, one firm of negotiators acting for one liability insurer had achieved savings in excess of £20m. Although Master Hurst rejected arguments that these savings alone justified the percentage method of remuneration, such savings presumably represent the gap between the costs claimed by solicitors and the sums agreed as reasonable.

The way forward

The Master of the Rolls, Lord Phillips recently described satellite litigation over costs as "a blot on the civil justice system". However, as long as costs on routine cases continue to spiral upwards, such litigation is likely to remain. The solution lies in the work of the Civil Justice Council, in achieving a scheme for predictable costs on road traffic accident injury claims up to £10,000 and for seeking to introduce a mechanism for fixed costs on Part 8 claims for costs, so reining in the 'costs of the costs'.

There is much talk about the 'costs war', which is perhaps a reflection of events elsewhere, but far from acting as a deterrent, Ahmed v Powell will probably only have served to harden attitudes.

Andrew Parker is head of the strategic litigation unit at national law firm Beachcroft Wansbroughs.