Costs controlling

After the Access to Justice Act 1999, the reality for PI claimants should be that they will pay nothing if they lose, as they are on a 'no win, no fee' conditional fee arrangement (CFA). They will also pay nothing if they win, because there will be an order for their opponent to pay costs. There can be no greater certainty for a litigant than that.

The oft-derided euphemism 'predictable costs' gives a clue to what this debate is really about. Insurers of the losing defendant want fixed costs so that they can predict in advance their liability, and they can use this as a weapon in the litigation. In a PI claim, unless the defendant is prepared to agree issues, the burden of proof is entirely on the claimant. Spinning out a case to use up a fixed claimant's budget is the best way for insurers to save on both claimants' costs and damages.

There is no evidence that base costs in small PI cases are out of control – research by Fenn & Rickman for the Civil Justice Council (CJC) concluded tentatively that, insofar as there had been an increase, this could be explained by the front-loading introduced by the Woolf reforms. The real problems have been caused by issues relating to recoverab-ility of success fees and after-the-event (ATE) insurance premiums, not base costs.

However, there is clearly a problem in the recovery of costs in small road traffic accident claims settled without the issue of proceedings. The cost of recovering such costs has become disproportionate. The use of costs negotiators by insurers in almost every case has led to antagonism, cost, delay and tremendous cashflow pressure on claimant firms. Irrespective of the cause of the problem, something had to be done about it.

Which is why the Association of Personal Injury Lawyers (Apil) is recommending the deal struck at the CJC's Costs Forum for fixed costs in small road traffic accident claims to its members. Apil has always made it clear that any deal must be linked to effective modification of the indemnity principle. Disapplying the indemnity principle is necessary not only to allow a fixed costs system to work effectively (the 'fixed cost' might otherwise operate only as a cap rather than a fixed cost), but also to prevent insurers continuing to mount their absurd 'technical challenges' to CFAs, seeking windfall costs savings in cases they have lost.

Fenn & Rickman's research shows a clear link between costs and damages, which informed the amounts of the agreed fixed costs. These costs may be less than is currently obtained on average, but there will be savings in time on dealing with CFAs in the new regime, as well as less time spent and much less delay in getting paid.

Fixed success fees in fixed-cost cases remains to be agreed, but Apil will continue discussions with insurers on this. There are many more details to be con-sidered, and rules and practice directions need careful drafting. If we are to see a reduction in satellite costs litigation, the involvement of practitioners on both sides is essential.

The new regime will be subject to fundamental review after two years to assess whether it is working and how it should change. Insurers no doubt wish it to be extended – Apil does not agree.

However, the deal struck in December is a pragmatic solution to a problem affecting a huge number of cases. Hopefully, it is a step forward in the resolution of the more general problems besetting costs in PI cases following the implementation of the Access to Justice Act 1999. n

David Marshall is vice-president of Apil and a partner at Anthony Gold Solicitors

It is easy, but completely wrong, to categorise the Civil Justice Council (CJC) predictable costs model as being a cost-cutting exercise where client care is sacrificed at the altar of predictability.

For a start, the figures on which the agreement is based come from almost 150,000 concluded claims. The consistency of the figures produced by the CJC's retained academics was startling. The figure of £800 as the base costs, together with a figure calculated from 20 per cent of the damages, combines to make a sum that is consistent with the data provided to the CJC.

The academics concluded that base costs have increased since 1998, in the order of 50 per cent in respect of costs incurred pre-proceedings, and 25 per cent in respect of costs incurred once litigation has commenced. Undoubtedly, some of those figures relate to the 'front-loading' aspect of the Civil Procedure Rules. Nevertheless, it is an impressive increase compared with the rate of inflation.

The lack of information provided by claimant solicitors must indicate that their own figures confirmed an increase. Why else would only two claimant firms produce information for the academics? Therefore, while achieving the great prize of predictability, claimant solicitors did not have to accept a reduced level of costs.

The CJC would like to have gone further in relation to the types of claims to be dealt with and the stages at which claims are subject to fixed recoverable costs (ie after the issue of proceedings). There was, however, a dearth of information available to anybody in this respect.

The next two years will see that information being collected and I can only hope that everybody will seek to collect what information they can so that those figures can be free from suspicion by any sector of the industry.

Undoubtedly, the insurers would like to have a basis on which they can predict the costs of the claim in relation to every personal injury (PI) claim that is brought. I believe that once claimant solicitors are attuned to the idea of fixed costs, they will find them to be a positive idea rather than a cap, which is how they always appear to be viewed.

The obvious advantage is the speed with which payment will be made. There will be no need to calculate or negotiate upon costs based on payment by the yard. The figure can be calculated easily and the cheque for costs can be sent at the same time as the cheque for damages. It is far more likely that cheques will be sent promptly where the claims handler can pay the claimant, the claimant's solicitors, the Department for Work and Pensions etc all at the same time.

Furthermore, the whole mentality of dealing with the claim alters. Defendant solicitors have become used to working on fixed or staged figures, and are aware that the dynamics of the relationship between the client and solicitor often alters for the better. On the claimant side, it will be far simpler to indicate to the claimant that sometimes their wishes will come at a cost to them.

What about the complicated cases that would not have been in the fast track even though valued at less than £10,000? If the fixed fee is not sufficient, then it will be open for the costs to be assessed.

I suspect that such proceedings will be few and far between and that on most occasions claimant solicitors will accept the figures offered. However, the approach to this is very much in the hands of claimant solicitors. There is no point in complaining about an insurer's conduct if that conduct is then condoned by the actions of the claimant's solicitor.

The only way to establish to insurers that a particular firm seeks extra costs only in appropriate cases, is to persuade a court that is the case where necessary. It is the same point as the need for compliance with the pre-action protocol. The only answer to non-compliance is to commence court proceedings. Defendant solicitors will be interested to see whether the amount of proceedings is increased.

Frankly, I do not think that it will be. The fixed fee figures already reflect the speed with which claims are currently settled, and therefore, on balance, the same amount of profit will be made out of future cases. Early indications are that most claimant solicitors would like to move on to the fixed fee figures now rather than await their implementation later in the year. Welcome to the club.

Jason Rowley is president of the Forum of Insurance Lawyers