Costs Lawyer & Partner
Fixed Costs: The time has come!
Costs Aware 1
On the 28th January 2016, Lord Jackson delivered a lecture - called ‘The Time Has Come’ in which he proposed extending the use of fixed costs in civil litigation.
He proposed to extend fixed costs to all claims up to a value of £250,000. He expressed concern that the high level of litigation costs inhibited access to justice.
He stated that the system of ‘hourly rate’ remuneration is inefficient and that unrestrained costs shifting drives each party to leave no stone unturned in their determination to ensure that the other party pays them.
The current reforms have fixed costs in fast track personal injury cases and the abolition of recoverability of success fee and ATE premiums has cut out one layer of excessive costs. The introduction of Costs Management has, when done properly, controlled the level of costs as has the new test of proportionality.
Lord Justice Jackson was of the view that the time has now come to devise and establish a coherent scheme of fixed costs for the whole of the fast track and for the lower reaches of the multi track.
He recognises that in future years many of the current fast track cases may proceed in the Online Court (proposed by Briggs LJ in his recent report) and be subject to a completely different regime. As a result he has not suggested fixed costs for consideration.
However, he invited consideration of the grid of fixed costs set out on the next page.
The grid follows the phases used in costs budgets on multi track cases. Lord Justice Jackson also sets out a number of rules as follows:
- The value of the claim in each band includes counsel but excludes other disbursements, VAT and cost of enforcement.
- If the claimant wins, the band is determined by the sum or the value of the property recovered. If the defendant wins, the band is determined by the sum or the value of the property claimed.
- The fixed cost is payable only if a work stage is completed. 50% of the fixed cost is payable if proceedings have been issued and the work stage has been substantially started.
- Add 15% if the work needs to be done in London.
- Fixed costs will not apply in respect of any stage where the court has awarded indemnity costs.
- The court may add a percentage uplift to fixed costs for part or all of the case, if it considers (1) that the claim involved exceptional complexity or (2) substantial additional work was caused by the conduct of the other party.
Fixed costs have been a key component of the Jackson reforms and whilst we welcome the call for an extension of fixed costs, we have a number of concerns which we discuss below:
- The “work stage” model – It is difficult to see why the fixed fees have been modelled on the work stages of a costs budget when we already have a “settlement stage” fixed fee model in existence and working for fast track personal injury claims.
The “settlement stage” model where the fixed fee is based upon the procedural point of settlement provides immediate certainty as to the amount of costs at risk and to be paid. Whereas, the “work stage” model does not provide certainty as to the amount of fixed fees because a party will not know if a work stage has been “completed” or “substantially started.”
- Evidence as to the amount of the fixed costs – LJ Jackson does not explain much of the reasoning behind the proposed figures in the grid other than to say he has drawn on the combined experience of costs judges and costs practitioners.
It must be assumed that the detail is based on some concrete evidence otherwise it is likely to be rejected in a similar way to the Master of the Rolls rejection of the Costs Council hourly rates recommendations.
- The amounts of fixed costs – An analysis of Keoghs’ data suggests that the fixed costs in the grid are lower in some areas than the fixed costs being allowed for stages at costs management hearings, especially as they include counsel fees.
However, it is difficult to accurately compare the fixed fees with costs paid on settled cases because of the interpretation of “completed” and “substantially started” in Rule 3 above.
- The incentive to commence proceedings – Rule 3 provides a real incentive for claimants to commence proceedings prematurely in order to recover fixed fees for stages that have been substantially commenced.
On a claim that settles for £50,000 the fixed fee is £3,250 if it settles pre-issue and £7,225 if it settles immediately after proceedings. The difference of £3,975 is attributable to the fixed fee for issuing proceedings together with 50% of the fixed fees for disclosure, witness statements and expert evidence. It will also create a reluctance to settle pre-issue.
- Value band creep – A claimant’s solicitor will be keen to get the claim value over £25,000 and reluctant to settle for less than that in order to recover higher fixed fees. The difference of £3,840 between the fixed fees for a claim that settles for £24,000 (£5,960) as oppose to one which settled for £26,000 (£9,800) will incentivise damages exaggeration.
Claimant solicitors will clearly be very keen to fix values at the ‘right’ side of any lines. Using the grid shown in the lecture, a claim settled after experts’ reports but before PTR would be worth £17,250 on a £99k claim, but, as we have seen £26,250 on a £101k claim.
Interlocutory applications - No mention is made of discrete costs allowances for interlocutory applications. It must be assumed that some provision will be made for these. Such a provision will have to be balanced enough to avoid creating a separate incentive for making a formal application. If not, then there is a risk of promoting costs building applications to the detriment of co-operative litigation.
- Conduct – Mention is made of adding an additional uplift if additional work is caused by the conduct of a party. However, we are concerned that this may be used to penalise defendants who raise genuine issues and put the claimant to proof in the litigation. The circumstances in which conduct attracts the additional uplift should be specified so that they are clearly understood at the commencement of the litigation.
- Contributory negligence – There is no indication as to whether the fixed fee is calculated by reference to the gross or net value recovered. If it is the latter then fixed fees may apply to cases up to £500,000 with 50% finding of contributory negligence.
If value is based on net value recovered then acceptance of contributory negligence may be a blocker to settlement. Take a case where quantum is agreed at £200,000 on a full liability basis. Acceptance of 25% contributory negligence on a £200,000 claim will move the case from band 4 to band 3, making a difference in fees of £11,250 (£37,500 - £26,250).
Whilst Lord Justice Jackson’s call for an extension of fixed fees is very welcome, we are concerned at the proposed model, the amount of the fees and the rules that accompany it.
The devil is going to be in the detail if we are to successfully extend fixed fees into the multi track arena whilst at the same time avoiding any unintended consequences.
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