Reshaping the fixed costs regime—transforming justice in a fix

Reshaping the fixed costs regime—transforming justice in a fix

 8705469_xlA recent consultation aims to begin a process of transforming justice in the area of fixed costs, nevertheless offering little detail for how this transformation might come about. James Arrowsmith, partner at Browne Jacobson, assesses the fixed cost regime and what the future might hold. [UPDATE: Extension of deadline for written comments to 30 January 2017]

What are the proposals in the consultation paper in relation to fixed costs?

The consultation sets out an intention to extend fixed recoverable costs for civil claims, but provides no detail of the scheme proposed. It is therefore necessary to look elsewhere to gauge the likely extent of the scheme and the way in which fixed costs will be set.

What is the background to these proposals?

As can be seen from the below, fixed costs have been a developing feature of civil litigation for a number of years, but the political motivation to ‘transform our justice system’ is perhaps a more recent phenomenon. Increasing concerns about a compensation culture, the impact of litigation costs on public bodies faced with claims and evidence from insurers that claim costs drive up premiums have captured the attention of politicians, resulting in a will in government to find efficiencies in the legal system. Counter arguments in relation to access to justice, the impact on consumers of ‘cut price’ legal services and the viability of the legal services market in a fixed costs regime have so far failed to get the same traction.

Against this background, Lord Justice Jackson’s review of civil litigation has set the agenda for much of the change that we have seen. It should be noted that the low value protocols were a work in progress before his report, and would in any event have been accompanied by fixed costs, but his report provided the basis of the costs regime for claims exiting those protocols and encouraged further reforms to extend fixed recoverable costs across the fast track, and potentially beyond. Jackson now supports fixed fees on all claims up to £250,000, proposing fees of up to £70,000 for a £250,000 claim going to trial.

Recent news in relation to increased insurance premiums, attributed to a combination of increased insurance premium tax and claims, are likely to provide additional political impetus towards further action to cut the cost of claims.

In summary, what is the current regime (for example, the subdivisions under CPR 45?)

The current fixed costs rules are a collection of regimes set up at various times to address costs in particular areas of civil litigation, including:

  • small claims fixed costs, limiting the sums recoverable in low value money claims to around £100 on commencement, with additional sums recoverable on judgment, where the precise costs recovered are determined based on the value of the claim, the manner of service, the number of parties and the way in which it is disposed of (CPR 45). A similar regime applies to recovery of land and demotion claims, with commencement costs of around £70
  • enforcement proceedings under CPR 70–73 (which deal with a range of enforcement options) are also subject to a set of fixed costs determined according to the enforcement method, steps required to be taken by the judgment creditor in the course of enforcement and, in some circumstances, the value of the judgment to be enforced (CPR 45)

CPR 45 also includes rules in relation to recovery of costs by HMRC officers in debt actions, with fixed costs banded by claim value, and an upper band for claims above £300,000. However, the purpose of this section is different from others in CPR 45. Whereas the others limit the costs recoverable in relation to the costs of legal representatives, this permits recovery of costs even though no legal representative has been instructed. The low level of fixed costs reflects this.

Actions in the Intellectual Property Enterprise Court are also dealt with at CPR 45, but with a set of costs caps. An overall cap of £50,000 in claims in relation to liability and £25,000 in relation to an inquiry as to damages or account of profits is set out in CPR 45, with the Practice Direction setting out scale costs for each stage of a claim up to these points (such as for the particulars of claim or the defence).

What developments have there been in this arena recently?

Fast track injury claims

The most significant recent developments in fixed costs have related to fast track personal injury claims, and the relevant costs regimes are also found at CPR Part 45. Fixed costs for fast track trials generally have been a feature of the CPR from the outset, and are calculated on a scale according to the value of the claim. Costs were updated when the fast track limit was raised from £15,000 to £25,000 but otherwise the basis of the scheme has remained unchanged.

In 2010, the first of the pre-action protocols specifically targeted at low value injury claims (at the time, up to £10,000) was introduced. This approach has been extended both in terms of the range and of claims to which it applies to arrive at the current personal injury regime.

The result is the present scheme which applies to most road traffic accidents (RTA), employers’ liability and public liability claims valued at £1,000 to £25,000 (those under £1,000 remain in the small claims track). The fixed costs scheme for these claims is designed to complement the pre-action protocols which govern the way in which claims are presented and negotiated prior to commencement of court proceedings, and the stage 3 process at Practice Direction 8B. There are a number of exclusions to the protocol which impact on the applicability of fixed costs.

What would extending the regime in relation to other civil claims (ie to mirror that for fast track personal injury claims) entail?

The consultation paper merely refers to an intention to build on measures previously introduced in relation to low-value injury claims to extend fixed costs to as many civil cases as possible, and to proposals to be developed by the senior judiciary for consultation at a later date. The process and proposals that will result from it are therefore a matter for speculation.

A key measure announced by George Osborne during his tenure as Chancellor, was an increase in the small claims limit for injury claims. Without changing the fixed costs rules themselves, this would have the impact of bringing many more cases into a lower fixed costs regime than currently applies. Mention of the small claims limit is notably absent from the recent paper, but it should not be assumed on this basis that plans have been shelved. There remains a strong current of opinion that this is a simple and effective way of reducing the burden of lower value injury claims. An increase to the limit for other claims is a possibility which should not be ruled out.

Extension of a fixed costs regime such as that which currently applies to EL, PL and RTA claims up to £25,000 is likely to be pursued. Previously measures of this type have generally been explored in two stages of consultation, the first in relation to the scope of fixed costs and rules as to exceptions and a second in relation to the costs which should apply based on that framework. However, with some frameworks already in place for some claims, and Jackson LJ having already set out his stall on further fixed costs rules, it would not be surprising if this time around we saw a single paper dealing with both the scope and level of costs, and that paper could be published soon.

When setting fixed costs for injury claims, Jackson LJ and his assessors had the benefit of a clearly defined cohort of claims for which fairly good data was available (as both claimant practices and insurers have been monitoring liability claim costs closely for many years now). Key questions for those preparing further proposals will be whether to attempt to define further cohorts of claims to be subject to fixed costs and, if this approach is to be taken, how to obtain data to set costs at an appropriate level.

Given the challenges faced by Lord Justice Jackson, the simplest measure for expansion of fixed costs to additional claim types may be to introduce an overall cap, which Jackson LJ has previously proposed should be £12,000 to trial. However, as Jackson LJ acknowledged in his final report, this would impact on few cases, as costs are often less than this cap. It would therefore be of limited impact in relation to the government’s goal to reduce costs. It is therefore likely that as part of any further consultation an attempt will be made to go further than this. Whether they will adopt Jackson LJ’s approach of identifying analogous claim types, or some other method, has yet to be seen. It is also possible that existing fixed costs will also come under scrutiny. With insurers reporting increased claims volumes, it may be argued that either existing fixed fees are too generous or that those in the industry have adapted to them. This may form the basis for proposals to reduce the existing fees to a lower level.

What are the considerations for stakeholders when considering the proposals?

To date, government reforms have had limited impact on claims volumes, and recent reports suggest insurance premiums are continuing to increase as a result of claim costs. While fixed costs are generally lower than the costs previously paid on a similar claim settling at a similar stage, behavioural change such as failure to negotiate (save when mandated by the fixed cost process) and a focus on increasing claim volumes would seem to be undermining the potential savings. The impact of fixed costs regimes across a portfolio of claims is therefore far from straightforward.

Fixed fees have impacted upon the claims industry, with smaller law firms in particular unwilling or unable to continue to work in the personal injury sphere. Claims management companies and larger firms appear to have taken up the slack, so keeping claim numbers high, though for some profitability has been affected significantly. For defendants, the picture is complicated by other reforms brought in alongside fixed costs, including procedural changes, qualified one-way costs shifting and an end to recoverable success fees. News around recent insurance premium data suggests that insurers have not seen consistent savings as a result of past reforms, and it is likely this will reflect the experience of many defendants.

Broadening fixed costs will impact on a far broader range of stakeholders than has been the case in relation to personal injury reforms, affecting small and medium-sized enterprises for example. It will also affect existing stakeholders in new ways, such as impacting upon costs in relation to insurer’s own recovery claims.

A challenge relating to the existing reforms is the complexity of the rules, which attempt to cater for a wide range of circumstances within carefully defined areas of application. This is not only challenging for handlers, but creates risks of satellite litigation. A further consultation on fixed costs offers an opportunity to create a more coherent system, and if a cap were introduced for those claims which did not otherwise fall under the rules simplification might be possible without allowing claims to fall entirely outside the regime. If that can be achieved, it is likely to benefit all stakeholders.

In general terms, what has been the reaction to these proposals and what will likely come next for fixed costs?

Battle lines are already being drawn in some areas, with insurers pledging premium reductions if reform is delivered and claimant organisations instructing actuaries to refute this, for example. While engagement and compromise would have held out a better prospect of achieving a workable regime, we seem set for a heated dispute in relation to fixed cost proposals. However, the present government and its predecessors have been committed to this course for some time, and a change of direction is unlikely.

We can expect an extension of fixed costs, both in terms of the type of claim impacted and the value. A general cap or set of staged costs coupled with more specific rules for certain claim types is likely to be an attractive model. This could well be coupled with a review of existing fixed costs and/or the small claims limit for injury and perhaps other claims.

It is unlikely reform at this stage will be the end of fixed costs developments. Briggs LJ’s proposals for reform of the justice system, including an online court, greater signposting towards alternative dispute resolution and unbundling of legal services could see dramatic changes to the court process, which would have fundamental repercussions in relation to costs.

Interviewed by Julian Sayarer. The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

This article was first published on Lexis PSL on 14 October 2016. For the latest expert analysis, subscribe to Lexis PSL or take a free trial.

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