Posted: 18/10/2017
On 21 July 2017, Jackson LJ published that essential summertime reading, his Review of Civil Litigation Costs: Supplemental Report – Fixed Recoverable Costs (the report). It is a 135 page page-turner about Jackson LJ’s pursuit of the ‘holy grail’: a system in which the actual costs of each party are a modest fraction of the sum in issue, and the winner recovers those modest costs from the loser (paragraph 1.2, page 11). A noble quest, or a Sisyphean task?
The report contains Jackson LJ’s recommendations and conclusions on how to balance ‘many competing interests in terms of access to justice and proportionality of costs’ (paragraph 13, page 10). The focus of this article is the impact of these proposals on commercial litigation.
Let us start firmly grounded in reality. Jackson LJ recognises that adversarial litigation is inherently expensive, and identifies three things which are achievable in the real world:
Litigation being the shape-shifter that it is, there is no intention to seek to restrict actual costs, or to interfere with the parties’ freedom to contract. Restricting recoverable costs is intended (perhaps a little naively) to incentivise lawyers competing for work to keep the actual costs down, so that their winning client’s shortfall in costs recovery is as low as possible.
Controlling recoverable costs in advance is important to impose discipline on the parties and prevent runaway costs. It also provides parties with certainty, at least as to how much they will recover if they win or stand to pay out if they lose. There is no discussion in the report of the gap (and therefore residual uncertainty) between the incurred and recoverable costs for any party, successful or otherwise.
Jackson LJ identifies two main ways of controlling costs in advance: a general scheme of fixed recoverable costs (FRC), so that parties can look at a grid and easily see what the recoverable costs will be in their case, and imposing at an early stage a binding budget in each case. At paragraph 2.19 of page 24, he also identifies a variant of FRC, capped staged costs, as being a useful weapon for the costs crusader.
Under Jackson LJ’s proposals, the fast-track limit would remain at £25,000, in part to match the proposed Online Solutions Court (OSC). Feedback from the consultation process indicated that FRC are working well in the fast-track. Consequently, Jackson LJ recommends that FRC should apply to all fast-track cases (other than OSC or Intellectual Property Enterprise Court cases) in the sums set out in chapter 5, to be reviewed every three years. The 12.5% London weighting will also remain in place.
The FRC grid itself contains the same phases as are currently used, but with four new bands of complexity, each with (slightly) higher levels of FRC. Paradigm examples for commercial disputes in each band include defended debt cases in band 1, with other money claims at band 3, and property disputes and professional negligence claims in band 4. The FRC themselves comprise a set core fee plus a percentage of damages (the highest being 40%). The word ‘damages’ is used as shorthand for damages, debt, liquidated sum or other monetary relief. If the claimant succeeds, the specified percentage applies to the relief recovered. If the defendant succeeds, the specified percentage applies to the claim defeated, as valued in the particulars of claim.
Trial advocacy fees are listed separately from the otherwise cumulative totals, and range from £500 in a band 1 claim of up to £3,000, to £2,500 for a band 4 claim of between £15,001 and £25,000.
In band 4 cases, separate fees may be recovered where counsel or specialist lawyers give any post-issue advice or conference (£1,000) or settle a defence or defence and counterclaim (£500).
Interestingly, Jackson LJ refused to ring-fence counsels’ fees in general. He had no truck with the argument that it was ‘very much in the public interest’ to protect the junior bar, noting (paragraph 5.8, page 86): “I do not see how I can recommend any reform because it is necessary to ‘protect’ one part of a profession. The professions exist to serve the public, not vice versa. It must be for the professions to organise themselves in whatever way is necessary to protect younger practitioners.”
The gauntlet has been thrown down: it is for the professions to adapt to the brave new world, rather than to seek to retain the status quo.
In procedural terms, parties will be required pre-action to seek to agree the appropriate track, and in respect of fast-track cases, the appropriate band for FRC. The district judge or master will then allocate in the usual way, and specify the band if that is in dispute. Paper applications can be made to challenge that decision – with the unsuccessful party facing a costs liability of £150. It will be interesting to see how much debate there is over the appropriate band of complexity for each case, and how the courts assess complexity at allocation.
A more nuanced approach than was perhaps feared, then - although practitioners should look at the proposed figures for themselves to understand the likely impact on their business. Quite how these changes will affect the traditional solicitor/barrister model is hard to predict, and may not become clear for some considerable time.
In a speech to the Insolvency Practitioners Association in January 2016, Jackson LJ proposed extending FRC to all types of cases under £250,000. However, our knight’s quest has taken him around the country, and he has listened to many stakeholders in the court system in different places and with very different views and agendas. As a result of this, and in particular because of the more positive way in which the profession is embracing costs budgeting and management, Jackson LJ concedes that there is no longer any need to develop FRC on the scale originally envisaged (paragraph 4.4, page 97).
Sighs of relief all round? Probably, although he does conclude that same paragraph by noting that: “… the possibility remains of substantially extending FRC in the future, if the costs management process either fails to deliver effective control over costs or becomes unduly expensive.”
The writing is on the wall: if we want to avoid wholescale FRC, we need to keep working with the costs management process, and engage with the other proposals that Jackson LJ sets out in the report.
Chief among these proposals is the introduction of a new ‘intermediate track’ for certain claims of up to £100,000 (including personal injury cases, but not clinical negligence).
Jackson LJ acknowledges that (paragraph 3.1, page 101): “… value must not be the sole criterion for assigning cases to an FRC regime: some high value cases are straightforward; some low value cases are complex; some cases are difficult to value.”
One size will not fit all. A claim will only be allocated to the intermediate track if it is not suitable for the small-claims track or the fast track, and the claim is for debt, damages or other monetary relief, and is no higher than £100,000. Mesothelioma cases, intellectual property cases and some multi-party cases are excluded from the intermediate track.
A claim will only be suitable for the intermediate track if, assuming the case is managed proportionately, the trial will not last longer than three days, and there will be no more than two expert witnesses giving oral evidence for each party.
Jackson LJ also recognises that if the recoverable costs are going to be fixed, the procedure must be streamlined, so that lawyers on both sides do less work. Consequently, a claim will only be allocated to the intermediate track if it can be justly and proportionately managed under the expedited procedure, and there are no wider factors, such as reputation or public importance, which make the case inappropriate for the intermediate track.
However, the court will retain a discretion to allocate a case to the intermediate track where to do so would promote access to justice. One such example would be individuals of modest means bringing defamation claims because of material on the internet. This also highlights that, although the intermediate track is principally for monetary relief, it may also be used for a claim for non-monetary relief where necessary. Jackson LJ also makes clear that it won’t be possible to evade the regime by including claims for non-monetary relief.
The intermediate track will also be suitable for categories of litigation where emotions are apt to run high, and ‘parties may need to be protected from their own enthusiasm for the fray’ (for example in boundary or family business disputes) (paragraph 3.8, page 102).
The intermediate-track FRC grid takes a similar form to its fast-track counterpart, and relies on the same principles. There are four levels of complexity, ranging from band 1 (debt claims) to band 4 (business disputes where there are serious issues of fact / law and the trial is likely to last three days). Bands 2 and 3 are intended to be the most populated bands. Parties should make their suggestions as to the appropriate band in their letters of claim / response. The court’s decision can be challenged at the case management conference (CMC), with the unsuccessful party incurring a fixed-costs liability of £300.
A practice direction will cover, among other things, assignment to bands. Relevant considerations will include the complexity of the factual and legal issues, volume of evidence, remedy sought and value of claim. Jackson LJ does however recommend that only cases of ‘modest complexity’ be assigned to the intermediate-track (paragraph 8.1, page 112).
There are 15 stages in the proposed FRC grid for the intermediate-track. Six of these are cumulative fees made up of a set fee plus a percentage of damages (up to 22%); the remaining nine are either ring-fenced items for which only counsel / specialist lawyers can be paid (settling pleadings etc), or set items which can be shared between the solicitors and counsel / specialist lawyer as appropriate. Advocacy fees are included in the grid and range from £2,750 for the first day of trial for a band 1 case, to £5,000 for a band 4 case (£1,250 and £2,500 for subsequent days in band 1 and band 4 respectively).
For non-personal-injury cases which are settled before issue (stage S1), the figures are capped costs rather than FRC. This is to reflect the fact that in such cases, the amount of work to be done to achieve a pre-issue settlement may vary substantially.
The total maximum fixed costs ranges from £19,150 for a band 1 matter of £30,000 or less to £68,450 for a band 4 claim of between £50,000 and £100,000.
It should be noted that the proposed grid does not include disbursements such as court fees, expert fees and mediation fees. Jackson LJ does however recommend that once the new fixed-costs regime is in place, work should commence on developing fixed costs for experts.
Jackson LJ proposes the following streamlined procedure:
Having considered the submissions of a range of interested parties, Jackson LJ proposes a voluntary pilot of a ‘capped costs’ regime for business and property cases up to £250,000. Capped recoverable costs are set at up to £80,000. The pilot will run in the London Mercantile Court and the Mercantile, Technology and Construction and Chancery Courts in the Manchester and Leeds District Registries for two years. Because it is to run only in the High Court, it is in effect a pilot for cases with a monetary value of £100,000 to £250,000.
It will be open to any case in the pilot courts, except those with a monetary value in excess of £250,000; those which will require a trial of more than two days after appropriate case management; those which involve allegations of fraud; those which are likely to require extensive disclosure or reliance upon extensive witness or expert evidence; and those which involve numerous issues and numerous parties.
In order to make the regime viable, there will be streamlined procedures (similar to those in the Shorter Trials Scheme), and Jackson LJ notes that ‘robust case management’ will be required (paragraph 2.8, page 121). There will be no automatic disclosure, witness statements or expert evidence. Trial will take place no more than eight months after the case management conference, and last no longer than two days. Each case will be fully docketed.
If the pilot is successful, Jackson LJ recommends that a capped costs list should be created in the Business and Property Courts or the Business and Property Lists of the County Courts to make the capped costs regime available to cases with a value of up to £250,000. He also observes that (paragraph 5, page 125): “It may well become appropriate to extend the regime to cases up to £500,000, but that must be for future consideration.”
Let us hope that Jackson LJ can find some fellow travellers for this part of his quest…
The interaction of Part 36 with fixed recoverable costs has been the subject of debate since Broadhurst v Tan [2016], in which the Court of Appeal held (as a matter of interpretation) that Part 36 overrides the rules governing fixed costs where a claimant matches or beats a Part 36 offer. Jackson LJ observes that, unless its effect is modified by rule change, Broadhurst will impact upon fixed costs across the board.
Opinion was sharply divided among Jackson LJ’s team of assessors as to how best to square this circle. He could see the force of the argument that parties should be entitled to be reimbursed for their actual legal spend, rather than fixed costs, where a party has misconducted themselves or caused a party to incur costs unnecessarily. However, on balance, he prefers the idea of a percentage uplift of 30–40% on the fixed costs, in order to avoid the need for a detailed assessment of costs, and to provide certainty for litigants. That said, Jackson LJ states that this is a clear issue of policy, to be addressed during the Government’s consultation process (paragraph 2.6, page 80).
On a related note, Jackson LJ recommends that in cases of unreasonable litigation conduct, the court should have the power either to award a percentage uplift on costs or to make an order for indemnity costs. The court will exercise that power having regard to the seriousness of the conduct in question. One example of such unreasonable conduct might be substantial non-compliance with the relevant pre-action protocol (paragraph 2.7, page 80).
Jackson LJ has completed his part of the quest for the proportionate costs holy grail. He has picked his way through some treacherous terrain and provided a clear map for his successors to follow and improve on. The end is still not in sight, though: the Government needs to consider and consult on these recommendations, pilots need to be run, rules need to be drafted, changes need to be bedded in before further changes can be made… it will be a while before these prosaic proposals can become the stuff of legend.
Whoever assumes Jackson LJ’s mantle would do well to remember these words, which lie at the heart of this particular quest (paragraph 12, page 10): “Controlling litigation costs (while ensuring proper remuneration for lawyers) is a vital part of promoting access to justice. If the costs are too high, people cannot afford lawyers. If the costs are too low, there will not be any lawyers doing the work.”
This article was published in Commercial Litigation Journal in September 2017.
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