A Titanic challenge?
Date: 21 May 2009
Authors: Michael Zander
Issue: Vol 159, Issue 7370
Categories: Features, Costs, Procedure & practice
Lord Justice Rupert Jackson published his Preliminary Report on Costs, as he said he would, on 8 May. I have no doubt that he will be equally punctilious in delivering the final report by the due date, 31 December 2009.
His report (see the writer's Comment in last week's issue: NLJ, 15 May 2009, p 683), is 663 pages long with over 200 pages of appendices. There are 60 chapters divided into 12 parts. The report has no executive summary and no list of recommendations. Here and there Sir Rupert reveals what he calls a tentative view. For the most part he assembles the arguments pro and con and invites views for the second consultation phase of the exercise concluding on 31 July. After that he will settle down to write his final report.
He has however given an indication as to what he regards as the main issues in an introductory section entitled: “Fundamental questions which emerge from this report” (pp 11–17).
Cost shifting
The first is cost shifting. He found no serious body of opinion recommending abolition of the rule in favour of the American rule that each side bears its own costs. But assuming that cost shifting remained, he asked whether the rule should be modified?
One possible modification was “one-way cost shifting”—when the claimant loses, each side bears its own costs; when the defendant loses, he pays the claimant's costs: “Such a system would self-evidently benefit claimants. Ironically, such a system would also benefit defendants in certain areas. A one-way cost shifting regime would be cheaper for defendants than a regime under which they recover costs when they win, but pay ATE premiums (as well as all other costs) when they lose.” (p 11, para 3.4)
The issue is explored in Ch 25 devoted to one-way cost sharing in personal injury cases. The facts speak for themselves. Data provided by one unnamed insurance company showed that out of a total of some 22,000 PI claims the company obtained costs orders in about 25 cases (0.1%). In the same period they paid out £2.97m in respect of ATE premiums (p 225, paras 2.6, 2.7). The company's manager told the judge that one-way cost shifting would be cheaper for insurers than two-way cost shifting.
Jackson says that his “tentative view” is that the necessary incentives for claimants to accept reasonable offers could be in the form of costs penalties as proposed by FOIL. (p 115, Table 10.1; p 226, para 3.4)
Fixed costs
Fixed recoverable costs for fast track cases as recommended by Lord Woolf were only partially implemented. Lord Justice Jackson is clearly on track to recommend that this work now be completed. (“I have canvassed views from my panel of assessors and it is our unanimous view that we should take forward this work and try to achieve a fixed costs system in fast track cases” (p 203, para 1.11). A sub-committee headed by District Judge Michael Walker had been asked to devise a matrix, drawing on Lord Woolf's proposals and subsequent experience. (For a draft see Table 22.2, p 205). Views are invited as to whether the matrix can be improved and whether other types of cases should be included.
Personal injuries
Jackson poses two main questions regarding personal injuries: (i) should successful claimants ever suffer deductions from damages; (ii) could the cost of processing these cases be reduced?
It is clear from the report that Lord Justice Jackson accepts the possibility of deductions from claimants' damages. My sense is that he will not be persuaded by APIL's plea that 100% retention of damages “is now an established principle, from which there should be no retreat” (p 13, para 3.16).
In Conditional Fee Agreement cases before April 2000 claimants were liable to lose up to 25% of their damages in respect of deductions for success fees and ATE premiums. Deductions from damages were familiar in legally aided PI cases and remain part of the legal aid system. Why, anyway, should personal injury claimants be treated more favourably than other claimants?
A half-way house, Jackson suggests, would be to make general damages for pain and suffering, and possibly special damages in respect of past losses subject to deduction, but damages for future care needs not subject to deduction (p 14, para 3.18).
As regards reducing the processing costs of PI cases, the report says that the costs are too high, especially in lower value claims considering that “the general run of personal injury cases is not hugely challenging work”. Targets for reducing costs would include: the banning of referral fees; elaboration and extension of the new “claims process for personal injury claims” being developed by the MoJ for road traffic accident claims up to £10,000 to also cover other straightforward, low value PI claims; and a software system available to everyone for the assessment of general damages in small claims and fast track PI cases (pp 231, 243–46 ).
Controlling the costs of “heavy” litigation
Could costs in commercial cases, construction cases, mercantile litigation, heavy Chancery claims, and the like be reduced? The costs in some of these cases are beyond belief. (Jackson recalls a case he tried in which the claimant recovered £6m where the costs of both sides totalled £22m.) The Commercial Court's Long Trials Working Party was currently grappling with the same question and some argued that Jackson should concentrate primarily on litigation outside the Commercial Court. He disagreed. (“I have come to conclusion that the Commercial Court is not sacred territory which falls outside the terms of reference set for me…[T]he recommendations in my final report must encompass all civil courts, including the Commercial Court” (pp 280–81, paras 3.5, 3.6)).
Topics addressed include disclosure and witness statements:
● Disclosure (ch 41): Limiting disclosure to documents relied on with the ability to seek specific disclosure; “issues based” disclosure; more rigorous case management of disclosure rules; reversing the burden of proof in specific disclosure applications; the parties paying retired solicitors or judges to act as independent “disclosure assessors”. (In a major case “where the parties are investing millions of pounds in the disclosure process, the costs of a disclosure assessor may be a drop in the ocean and may achieve substantial savings overall” (p 399, para 6.8).)
● Witness statements (Ch 42) Most cases settle between issue and trial. This posed the question whether the high costs of witness statements are justified, “given that in the majority of cases the main benefit of 'reducing the length of trial' is not realised” (p 403, para 3.4). Often they merely repeated what was in the documents. Many submissions said that the costs “have got out of control”. Possible solutions included: imposing costs on parties where the witness statements do not comply with the rules; confine them to matters not within the documents; stipulate a maximum length; make witness summaries rather than witness statements the norm.
Recoverability of success fees and ATE premiums
Recoverability introduced in April 2000 promoted access to justice for claimants but massively increased the costs burden on defendants. Should the rule be changed and, if so, how? Sir Rupert does not reveal his own thinking but such clues as there are suggest that he may go so far as to recommend abolition of recoverability. (“In addressing these questions, it is necessary to consider not only the financial position of the parties and the burdens cast upon them, but also the other functions of the costs rules. In particular, one function of the costs rules is to provide an incentive for reasonable litigation behaviour. If the rules transfer the entire costs of litigation onto the shoulders of defendants, then it may be said that two adverse effects follow: (i) The costs rules impose no proper incentive upon claimants to act reasonably. (ii) The costs rules impose excessive pressure upon defendants to settle unmeritorious claims” (p 15, para 3.26 )).
Contingency fees
In considering contingency fees, Sir Rupert clearly is impressed by the Canadian system (described in Ch 60): “Canada is particularly important for present purposes because not only are contingency fees permitted but also there is cost shifting…In so far as the contingency fee or the success fee exceeds what would be chargeable under a normal fee arrangement, that is borne by the successful litigant. Canadian lawyers and judges regard it as unacceptable that a private arrangement between litigant and lawyer should have the effect of foisting additional costs liabilities upon the other side. Contingency fees are generally thought to work satisfactorily in Canada and to promote access to justice” (p 192, para 2.5).
I anticipate that the final report will recommend the introduction of the Canadian (probably the Ontario) system. If contingency fees and conditional fees co-exist, there is the obvious danger that claimants' lawyers will tend to promote whichever most benefits them. If Sir Rupert goes so far as to recommend that CFAs should be replaced altogether by contingency fees, that would indeed be bold.
The next stage
In the period up to 31 July, Sir Rupert intends to continue the process of consultation. In addition to seeking responses to the preliminary report, there will be four day-long seminars: in Cardiff (19 June, 150 places); Birmingham (26 June, 200 places); Manchester (3 July, 150 places), London (10 July, 200 places). For details of how to participate check the Costs Review website.
The format of each seminar will be the same—after an opening address, 15-minute presentations by six speakers (in London, the Chairman of the Bar, the President of the Law Society, someone from Which and the Society of Editors, Senior Costs Judge Peter Hurst and Professor Herbert Kritzer from the USA). If the speakers can be prevented from overrunning their allotted 15 minutes, there will be six half hour periods for discussion from the floor with a Panel Discussion concluding the day.
In his Preliminary Report Sir Rupert repeatedly states that he has not yet made up his mind about anything and that he will be in consultation mode until he starts writing his final report in August. Given the impressive scope of his inquiries to date it would be surprising, however, if anyone manages to come up with an issue or argument he has not already heard and considered.
According to his terms of reference the purpose of the whole exercise is to “promote access to justice at proportionate cost”. The crucial question therefore is whether the Jackson report is mainly about re-arranging the deck-chairs on the Titanic or whether it will actually lead to any reduction in costs.
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