A one-way street?

The Preliminary Report on Civil Litigation Costs by Lord Justice Rupert Jackson has been produced, following a whirlwind tour of various jurisdictions including the US, Canada, Australia, New Zealand, Hong Kong, France and Germany, the bulk of which took place in late March/early April of this year. Having acted so promptly in producing the report, Jackson LJ expects his stakeholders to act equally promptly in responding thereto.

This is not as daunting a task as may first appear since many practitioners and interest groups will want to focus upon discrete areas of specific interest, thereby breaking the task down into more manageable tranches. Those of you practising under conditional fee agreements (CFAs) would be well advised to make time to read the report in time to raise comments upon it before the deadline of July 31, 2009.

One-way costs shifting in PI cases There are some radical suggestions floated in the report, one of which is so-called “one-way costs shifting” in personal injury cases. That is a system whereby, if the claimant wins, then the claimant also gets his or her costs from the defendant, but if the defendant wins, then the claimant will not be ordered to pay those costs. Its reputed merit, as highlighted in the report, would be that without the looming threat of adverse costs, claimants would not need after the event insurance (ATE) for anything save their own court fees, experts’ fees and so on.

Those of you with an interest in PI/ clinical negligence work will already know that at the upper end of the scale, such ATE premiums can “track” the litigation, being expressed as a large percentage (sometimes over 100%) of the assessed profit costs. Six-figure sums are far from unheard-of. Even in smaller cases, so called “staged” premiums that increase exponentially at prescribed stages in the litigation often increase the claimant’s costs by a five-figure sum.

ATE premiums
According to an unnamed solicitor who specialises in medical defence work and is cited in Pt 6 at para 2.9 of the report, because of the high level of ATE premiums defendants in clinical negligence cases would be better off under a one-way costs shifting regime than under the present costs regime. Put another way, the ATE premiums payable by defendants in almost all unsuccessfully defended clinical negligence cases greatly outweigh the costs that defendants would have to forego in the comparatively small number of successfully defended cases in which they currently recover their costs under such ATE policies, if one-way costs shifting were adopted. Hence, the theory goes, this would be of benefit to both parties if not to the burgeoning ATE industry.

Controversial
The report rightly identifies that this issue may be controversial, with the Forum of Insurance Lawyers (FOIL) already having raised the prospect of frivolous claims and of claimants dragging the case out in the face of reasonable offers if they can rest assured that they will not be ordered to pay their opponents’ costs as a result. Jackson LJ expresses doubt that either prospect is as fearsome as FOIL may believe, since the chances are that solicitors taking on CFA-funded cases will already be weeding out the more far-fetched cases. That should certainly be the case on the excellent assumption that frivolous lawsuits might fail to thrive and take the firm’s fee income down with them. Similarly, the report opines that adverse costs are not the only reason why CFA-funded claimants accept reasonable offers. That is again true as there is usually pressure, subtle or otherwise, from those instructed. Anyone acting under a CFA and having any instinct for self-preservation should have drafted the CFA in such a way that the claimant, if advised that the offer is a reasonable one, will be hard pressed to refuse the offer and continue with the case/with that firm.

Co-existence
It is not clear how other mechanisms such as the Part 36 offer would co-exist with this proposal. What happens if the claimant’s solicitors are prepared to assert that an offer is unreasonable and should not be accepted, then the claimant proceeds and ultimately does not achieve a result that is more advantageous than the Part 36 offer? In a one-way costs shifting regime with no ATE then presumably the risk of adverse costs in such cases would fall upon the shoulders of the solicitors who advised the claimant to reject the offer. That might have some advantages, whether it be philosophical (let the polluter pay) or pragmatic (claimant solicitors can bulk buy cover and therefore presumably leverage better rates for it). If you disagree, don’t write to me, write to Lord Jackson before July 31.

Cautionary note
The prospect of one-way costs shifting requires a cautionary note. The replacement of almost all legal aid cover for PI work with CFA funding led to protracted and bloody satellite litigation about validity of CFA’s, only recently resolved by the introduction of the CFA “lite” which (cautiously) appears to be working well.

Post Carver v BAA plc [2008] EWCA Civ 412; the term “more advantageous” in a Part 36 context permits a more wide-ranging review of all the facts and circumstances of a case in deciding whether the judgment which was the fruit of the litigation was worth the fight. That is another way of saying that claimant and defendant may try to argue who emerged victorious in all but the clearest cases. It would be a great shame if the legacy of Sir Rupert’s report was yet more satellite litigation, on this and other issues.

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