An uncertain future
With a new fixed costs regime for civil claims set to come into force in the autumn, Dan Bindman speaks to CILEX members about the potential impact on how cases are run, the long-term consequences for civil litigation practices and what practitioners are doing to prepare
In October, a new fixed costs regime for ‘intermediate’ civil claims worth between £25,000 and £100,000 will come into force. There are various exemptions but, for the first time, a predetermined fee structure for higher-value claims will set the amount of costs legal professionals can recover.
At worst, the extension could lead to the departure of many firms from contentious work and claimants unreasonably persuaded to settle early. This could potentially be coupled with enhanced cherry-picking of claims by surviving firms and consequent damage to access to justice, plus the unnecessary bringing forward of court proceedings and a reduction in the quality of legal work.
At best, more cases could be settled to the benefit of both parties, clients will be better informed and innovation by lawyers could mean lower legal claims costs overall.
Currently, fixed recoverable costs (FRC) are restricted to claims allocated to the small claims track and fast-track personal injury (PI) claims valued at between £1,000 and £25,000. FRC were first implemented in 2010 for road traffic accident (RTA) cases worth up to £10,000.
In most other cases, the costs are either subject to agreement between the parties or assessed by the judge at the end of the case. Extension to intermediate cases is the latest in a series of reforms since the report on civil litigation costs by Sir Rupert Jackson was published in 2010 and his subsequent report specifically on FRCs in 2017.
The official rationale for the change is that it will provide clients and defendants with greater certainty as to recoverable costs – enabling more informed choices over how to proceed in litigation – and access to justice at a proportionate cost, while encouraging efficiency by lawyers.
Introducing the government’s response to its consultation on extending FRC, the then justice minister, Lord Wolfson of Tredegar, observed that if cases were to be litigated, “they should be resolved as early as possible with costs… as fair to both sides as possible”. Uncertainty of costs meant access to justice was hindered, he added.
The government also claims that existing FRC regimes in PI have “promoted access to justice for defendants by enabling them to defend a case according to its own merits, rather than settle for fear of high costs” and therefore balances “the interests of both claimants and defendants”.
Delayed impact
Practitioners likely to be affected argue that, in the overwhelming majority of cases, there is already efficiency in legal services and proportionality in the outcome of cases, which are often barely profitable for lawyers given the competition and large overheads that firms have to carry to function effectively. Extensive costs budgeting also means that a high degree of certainty already exists, they explain – in a recent report, the Civil Justice Council costs working party praised the impact of budgeting.
One leading Chartered Legal Executive specialising in low-value PI claims, Craig Budsworth anticipates that while in the short-term the extension of FRC will lead to lawyers innovating in order to maintain profitability, history shows that the impact will arrive in three or four years’ time, at which point firms will have to make cutbacks and some leave the sector altogether.
“While in the short-term the extension of FRC will lead to lawyers innovating in order to maintain profitability, history shows that the impact will arrive in three or four years’ time”Other predictions as to the likely consequences of the new regime include those of the new president of the Association of Personal Injury Lawyers, Jonathan Scarsbrook, who worries about it leading to “poor behaviours” by some parties – for instance, defendants exploiting a shortfall in costs recovered – and a decade of litigation to clarify how FRCs will work. Its scope is “ambiguous across various elements of civil litigation”, especially in clinical negligence claims, he says.
Continuing, Mr Scarsbrook, a partner at Irwin Mitchell, points to the huge pressures the civil justice system is under, brought about by court closures, a shortage of judges, massive case backlogs and constant legal reform.
The new regime splits cases into four bands of complexity, with the level of FRC then decided according to the stage the case has reached: band one for the simplest claims where there is only one issue and the trial will likely take up to one day; the second and third bands are for ‘normal’ and more complex cases; and lastly band four will be for the most complex cases where trial is likely to last three days and involve serious issues on breach, causation and quantum. Parties and, should it be necessary, judges, will agree on which band is suitable. Disputes over banding decisions appear inevitable.
A number of claims will not be subjected to FRC in any circumstances, namely mesothelioma or asbestos lung disease claims, any but the simplest clinical negligence claims in relation to the harm of children or vulnerable adults and certain Human Rights Act claims, or those against the police.
Sir Rupert hopes that, as well as keeping recoverable costs ‘proportionate’ to damages and controlling costs in advance, modifying the Civil Procedure Rules (CPR) will reduce the costs themselves as far as possible.
Swings and roundabouts
CILEX litigators consulted for this feature are unsure of the exact consequences, or the likely sequence of events, but generally do not expect the true impact to become clear for some time. In the short-term at least, they expect, higher-value claims will be largely unaffected.
However, firms that handle both higher- and lower-value claims will find the usual ‘swings and roundabouts’ assumption – in which profits from more profitable claims help to subsidise the less profitable ones – will likely be affected. An often-expressed concern is that, in order to maintain profitability, important litigation will be pushed downwards to less qualified staff.
Ben Davey is a senior Chartered Legal Executive at Brighton firm Dean Wilson specialising in high-value PI and medical negligence cases, such as brain and spinal injuries. He speculates that “the trouble with fixed costs is that it always incentivises firms to cut corners where they can and give it to someone who's ultimately cheaper”, although he stresses this was not something his own firm planned to do.
Stuart Hoysted, a member of CILEX’s civil practitioner special reference group and senior associate at national firm Clarke Willmott, says his firm undertakes both types of litigation but that most of his caseload is of higher value, where lawyers’ fees tend to be underwritten by clients if cost recovery is insufficient.
He reports that only one client has expressed concern so far, because they have “a large portfolio of matters that deal with personal injury”. The client is particularly worried that “there's going to be a flood of cases” issued between now and the start of the new regime. Mr Hoysted predicts that, in larger PI claims, clients might have to pay more out of their own pockets to cover a shortfall in costs resulting from FRCs.
Experienced Chartered Legal Executive Jamie MacKenzie, a civil litigator at Birmingham firm RLK Solicitors who is also qualified as a barrister, has a personal caseload largely involving claims of a value above the £100,000 FRC threshold. He too feels that the impact will be less. Indeed, he adds: “We're grateful that we're not in that line of business.”
Mr Davey speculates that one possible outcome is that proceedings could start earlier in order to reach a stage where legal costs are payable sooner. This would be the opposite effect to what the Ministry of Justice intends, namely that cases are settled earlier.
He explains: “Under the new regime, the amount of costs that you will get paid depends on the point of settlement of the case. So, if you undertake all of the work before you issue court proceedings, you won't get paid for it.
“[Lawyers] are going to be forced to issue the claims earlier than would have otherwise been the case… because this opens up the costs that would be available to them and allows them to spend the time doing the work that's reasonably required to prove the claimant’s case.”
Further, he adds, some firms might decline to take on more difficult cases because they know they are not going to recover the full amount in the courts. “Those solicitors already accepted the burden of acting under conditional fee agreements (CFAs) for almost all matters. So, if they are now not going to get paid in full, even if they win, then that may well act as a deterrent that [could limit] access to justice.”
Early settlements
Mr Hoysted anticipates that the FRC extension could lead to more earlier settlements. In fact, he says, “I imagine that's what the government's thinking of: that [lawyers] will be advising clients ‘look, it's going to cost you this at the end of the day. So do you want to consider settling for X at an earlier stage?’”.
He says it is vital that civil litigation lawyers understand the coming FRC changes and assess their clients’ positions.
“You will need to explain to any relevant clients the effect of the pending fixed costs regime now. While the reforms will not impact cases issued until, on, or after 1 October, any cases recently received or currently in pre-litigation stages could easily be caught up in the new FRC by the time you get to issue.”
He adds: “You will also need to review and consider what changes might be required to your firm’s client engagement correspondence.”
“There is a danger that defendants, knowing that clients could be out of pocket even when successful, may attempt to force an early settlement”
Mr Davey is suspicious of the government’s motives in fixing costs which were already paid only “if they were shown to be reasonable”. He goes on: “It seems like a cynical attempt just to reduce costs that are going to be paid by insurance companies. From our perspective, we don't think that there's anything wrong with the existing system.”
Mr Mackenzie agrees there is a danger that defendants, knowing that clients could be out of pocket even when successful, may attempt to force an early settlement. “I think that's where the courts do have to play a role by stressing the fact that this isn't to be exploited. The hope would be that judges would be on top of that sort of behaviour,” he says.
Continuing, he points to the fact that under the new CPR − in addition to an uplift of 35% of FRC where a part 36 offer to settle is made by one side but not beaten by the other at trial − the government intended to implement a 50% uplift of FRC where a defending party has engaged in “unreasonable behaviour”.
Lessons from RTA claims
Craig Budsworth’s deep knowledge of RTA leads him to predict a contraction of the PI market following the new FRC regime. Group technical director at alternative business structure AX, which originally formed the business with Newcastle firm True Solicitors, he specialises in debt recovery for claimants following an RTA. He is also a former chairman of the Motor Accident Solicitors Society.
Mr Budsworth says the experience of FRCs in RTAs clearly shows that, in the long run, law firms turn away from dealing with many of the claims currently brought, justifying the initial fears for access to justice held by people in that field who were up in arms when the policy was first announced in 2010.
When FRCs in RTAs came in, he says, at first “what you saw was an awful lot of innovation in law firms”. They could still turn a profit, even though “it suddenly reduced the amount of earnings that was going on in partnerships”. However, then there was an impact: “Firms turned away more of the potentially contentious CFA work, because the profitability lines were already so narrow.”
Whereas before the ‘swings and roundabouts’ effect applied, a decade later, exacerbated by an absence of increases in recoverable costs to allow for cost of living changes, “PI departments were now running on the breadline”.
He predicts the same outcome is very likely with the latest FRC extension, summarising: “For the next year or two, you'll see innovation and you'll see some firms go and you'll see some firms continuing, thriving. But then, in three, four years’ time, you're going to see the same issues with those firms that impacted the [RTA] PI world.”
Ultimately, the effect of the new FRC regime may take years to become apparent. In the short term, in order to continue in their current line of work, firms relying heavily on income from lower-value claims may strive to streamline processes further, investing in and adopting new IT and otherwise attempting to make savings.
A lot will depend on whether future governments increase recoverable legal costs at least in line with inflation. But as Mr Budsworth reports, history does not suggest things will go well.