Litigation costs review divides opinion Insurance Day

Published on 22 Jan 2010 under category: cubism

By Peter Mellett, Consultant at Cubism Law

As published in Insurance Day 22 January 2010

STANDFIRST: Lord Justice Jackson’s final report on his review of Civil Litigation Costs in the UK was published last week. Below we publish a selection of reactions:

Among the compliments paid to Lord Justice Jackson by the Master of the Rolls, Lord Neuberger, at last week’s launch of the Final Report, one stood out: that the report is “imaginative and realistic in its proposals”, reports Andrew Parker, head of strategic litigation at Beachcroft LLP and one of Lord Justice Jackson´s assessors.

“Sir Rupert Jackson has done justice to his original brief, by delivering the fundamental review of civil costs that he was asked for – indeed some have been surprised at just how fundamental his proposals are.

“It is natural those reading the report will home in on the proposed reforms having the most direct impact on their own business. That focus could be removing the recovery of success fees or ATE premiums; banning referral fees; fixing fast track costs for all personal injury cases; or allowing the use of contingency fees as an alternative funding mechanism (subject to strict controls to safeguard the client’s interest).

“What all readers should do is to look at the whole package of reforms collectively. The clear intention in these cost control measures is to provide access to justice, both for claimants with valid claims and for defendants with valid defences. That is the public interest focus that lies at the heart of the whole report.

“Practitioners cannot afford to ignore the report. There was a strong message from the senior judiciary last week - they will ensure that measures are taken to implement these proposals as fully as can be achieved. Although some of the more major proposals will require primary legislation, the bulk of the very detailed recommendations will not need to wait for that.

“The situation is in danger of becoming urgent. The report picks up that where commercial litigants have a choice of where to bring their claim, many are already opting for jurisdictions such as Germany, where costs are more controlled and more certain. If we cannot provide such control and certainty soon, England and Wales (and London in particular) will lose out.

“As the Master of the Rolls said, the time for discussion and debate is over. Sir Rupert has accepted he will have a role in the implementation of his own plans. Given his track record so far, in delivering both the preliminary report and final report on time and in monumental detail, no one should doubt his ability to deliver.

“Not only are these proposals imaginative and realistic: they are also achievable.”

Meanwhile Graham Huntley, a partner at Lovells LLP who sat on the Commercial Court Long Trials Working Party, says “Much of the reaction to Lord Justice Jackson´s report is likely to focus on his proposals in respect of personal injury claims, as that is where the biggest problems are perceived to exist and a large number of his final recommendations are directed.

“However, this is the biggest review of the litigation regime in the UK in more than10 years, and as such there will inevitably be consequences for businesses of all shapes and sizes.

“It is clear that Lord Justice Jackson expects judges to play an increasingly more significant role in case management, and indeed costs management, to ensure costs are controlled in major disputes. It may be that some rather technical procedural changes will be introduced to meet this end, and they could have real impact on high value, ´big ticket´ litigation.

“One of the most eagerly anticipated elements of the report was whether or not Lord Justice Jackson would attempt to introduce fixed or capped costs legal costs, as already exists in Canada. At present, we operate on a ´loser pays´ principle in England and Wales, where the loser of the litigation is often forced to pay the legal costs incurred by the winner. The argument is that this prevents spurious litigation; however, it can also act as a barrier to justice

“Although Lord Justice Jackson has recommended the introduction of fixed recoverable costs across the fast track and capped scale costs in the Patents County Court, he has declined to propose the introduction of any general scheme of fixed costs in multi-track cases.

“For the foreseeable future the potential costs liabilities of the parties to most business disputes worth more than £25,000 will remain, in theory at least, unlimited."

“Lord Justice Jackson has recommended pre-trial costs in all non-personal injury cases proceeding in the fast track be limited to £12,000 (£13,500 in London). This will allow the small business involved in a dispute worth up to and including £25,000 to know at the outset what its maximum exposure is and could result in a greater volume of low value litigation.

“However, Jackson has not proposed any general scheme of fixed costs in multi-track cases where the parties will remain exposed to potentially unlimited costs liabilities.

“Insurance firms offering after-the-event (ATE) insurance are unlikely to welcome Jackson´s recommendation that such premiums should cease to be recoverable from unsuccessful litigants.

“Some commentators have previously expressed a belief that Jackson was concerned about their role in litigation. It is certainly clear from Jackson´s report he is concerned about the use of ATE insurance and if, as he recommends, premiums become payable by the successful party, then this is likely to have a serious impact on the insurance market.”

Peter Mellett, insurance consultant at Cubism Law, adds “Jackson’s proposals on the future of civil litigation costs may provide respite for liability insurers. The review is a model of consultation and transparency and was required to be so, given the competing commercial interests that would be affected by any changes.

“It contains recommendations, which, if implemented by parliament and by rule change, will make important changes to who pays the costs of litigation. The most important recommendation is that claimants should pay the success fee of solicitors acting for them under a conditional fee agreement out of the damages awarded to them and that neither the success fee nor the costs of obtaining ATE insurance should be recoverable from unsuccessful defendants.

“This will be welcome news to liability insurers who presently have to foot these costs and bad news for ATE insurers. As a counterbalance, the report has recommended an increase in general damages in personal injury cases and torts concerning individuals. Payments of referral fees by solicitors firms to third parties will be banned and a Cost Council established to review solicitors and barristers’ hourly rates.

“Jackson believes access to justice for small and medium enterprises could be facilitated by an expanded before the event (BTE) market offering cover for commercial litigation. BTE insurers’ use of panel solicitors will be curtailed, which may impact upon their pricing models.

“An integrated IT system is recommended for the court service to enable judges to take a more active role in the management of cases. If implemented, the report will remove some of the most glaring flaws in the present system, but only time will tell if it succeeds in its aim of dramatically reducing the cost of litigation.”

Simon Twigden, head of litigation at Addleshaw Goddard says “We do have reservations regarding the recommendation to abolish the recoverability of ATE insurance premiums and anticipate the lively debate this proposal will generate. A properly structured and staged ATE premium is a powerful tool in driving the earlier settlement of meritorious commercial claims – unmeritorious claims should not attract cover.

“Abolishing recoverability may also have unwanted consequences in relation to the pricing structures of third party litigation funders, who although capable of operating without ATE, in our experience rarely do. Add to this the recommended removal of the cap on funders´ exposure to adverse costs, and the net result may increase the risks and costs associated with funding such that access to justice is inhibited, not encouraged.”

Liam O’Connell, of CMS Cameron McKenna, says "The report turns back the clock on ‘no win, no fee’ agreements by proposing to end the recovery of success fees from defendants. But Jackson has suggested that other funding options be made available - including contingency fees, which are widely used in North America. My feeling is many clients will find contingency fee agreements attractive because they allow clients to share the risk of litigation with their lawyers.”

Guy Pendell, also of CMS Cameron McKenna, adds “The recommendation that disclosure in large commercial cases should be dealt with on a menu basis is generally to be welcomed. However, this may encourage satellite litigation in individual cases.

“Jackson is not making recommendations for wholesale reform to complex high-value litigation. But he is proposing important changes in relation to disclosure and the widening of the allocation of judges to specific cases.”

Liam O’Connell concludes “The complaint is sometimes made that judges let cases drift and don´t grab them by the scruff of the neck. Jackson is proposing judges get more involved and take responsibility for controlling costs. Some judges might resist this but court users will certainly welcome it.

“This is a thorough and comprehensive report. It targets areas that are perceived to be troubled, especially personal injuries litigation. But it largely leaves alone or tweaks those areas that often work well, like commercial litigation.”