Review of Civil Costs

With lawyers having to digest the contents of the recent Review of Civil Costs by Lord Justice Jackson, Nick Routh of Routh Clarke Solicitors provides a brief overview of the issues now in debate.

The costs review is the most important legal review since the Woolf reforms were introduced in 1999.  It arises from ongoing disputes over costs and, arguably, ongoing attempts by the insurance industry to reduce the bill they have to pay.

The current system allows the Court to look at the costs incurred in proportion to the issues in a case.  Normally a party who is entitled to recover their costs must show that they are reasonable in amount and any doubt is exercised in favour of the person who will have to pay.  Where the Court feels the costs are disproportionate to the issues then it must also be shown that they were necessarily incurred.  A party who fails to act reasonably and causes an unnecessary increase in costs has nothing to hide behind.

The advantage of a system where costs are recoverable if you win is that it is supposed to deter parties from unreasonably defending claims.  In personal injury litigation fixed fee structures were introduced on the basis that the insurance industry would be able to deal with claims efficiently and they have not.  Despite this the Government is currently looking at extending the model.

With the reduction in availability of Legal Aid (now known as Public Funding) Conditional Fee Agreements (colloquially known as “no win, no fee” agreements) have become a common way method to fund cases.  The problem for a losing party is that the winning party is then entitled to recover success fees on top of normal costs.  In the worst case this amounts to double costs recovery.

The remit for Lord Justice Jackson included access to justice.  A major part of the proposals relate to limited costs recovery.  This means that where a party has to pay costs to the other side the Court will take into account their financial circumstances when deciding what they should pay.  Currently a party who recovers costs is entitled to an award based on the amount they should be entitled to recover and then it is left to them to see if they can get the money.  The new system will add a further layer, and potential cost, before they are able to pursue that.

It cannot be denied there are problems with Conditional Fees (CFA’s).  The success fees on winners are supposed to pay for losers.  The viability of the system is based upon good risk management by lawyers.  This makes the lawyers the gatekeepers for access to justice.  If they are not satisfied with your prospects they will not take the case on a “no win, no fee” basis.  If you cannot afford to fund it the claim and cannot bring the claim yourself then no claim will be made.

The problems with CFA’s have arisen because some firms will take the guaranteed winners and pocket the success fees without running any cases that might lose.  Costs that are paid out on the cases that are brought are therefore always higher, skewing the statistics that say that average costs are increasing, as there are fewer losers.

Under the proposals any success fees will be paid by the client.  While this may make the client more aware of what is being done in their name for the majority of clients they use solicitors because they do not know what they are doing and wish to pass all decisions on.  That is unlikely to change.

An extension of the current fixed fee structure is also proposed.  This is likely to push lawyers away from conducting difficult or complicated cases which are uneconomical to run in a fixed fee regime.  In personal injury claims covered by the current fixed fee regime there is a tendency to “dumb-down” the level of legal representation and provide the minimum service possible to achieve an acceptable result.  In every case that we take over from other solicitors we find items of losses (often considerable ones) that they have not identified and told the client they can claim for.

Something needs to be done, but it is important that it is not change for change sake.  The Government has a lot more pressing issues on its plate than legal reform.  Any changes are likely to take time to resolve and implement. However, the decisions which will be made now will have a long-term impact on society as a whole and it is important that the debate does not stop here.

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