Lord Justice Jackson gave the keynote speech on Tuesday to a packed-out White Paper costs conference (conference to be repeated on 28 March 2017), discussing his current review of an extension of fixed costs.
It will be remembered that Sir Rupert stated in another speech in January 2016, before he was tasked with undertaking this review:
“There should be single fixed costs grid for all multi-track cases up to £250,000.”
It is therefore understandable that there was a certain element of scepticism when he declared, after he had been formally tasked with undertaking this review in November 2016, that:
“I will keep an open mind for the time being about what types and levels of cases should fall within such a regime”
It was therefore interesting to listen to clues as to the extent his views had hardened or softened compared with his original position.
Firstly, there can be no doubt that he will look to extend fixed fees across the fast-track. Sir Rupert has repeatedly stated that the missing piece of his original reforms was the fact this was not done originally.
In terms of impact:
- For low value commercial disputes, claims under £10,000 currently fall into the small claims track. Extending fixed costs into those claims which fall between £10,000 and £25,000 is perhaps not dramatic.
- The two notable areas of personal injury work that currently fall outside fixed costs are noise induced hearing loss claims and holiday claims. In the past, this probably represented on a relatively modest proportion of the costs market. However, given earlier reforms have sucked such a large part of the personal injury market into fixed fees, these probably represent a more significant proportion of the surviving work. Certainly, those costs firms that undertake work in this area will feel the impact and this will inevitably squeeze the profits of those claimant solicitor firms heavily reliant on these areas of work.
Sir Rupert was always of the view that fixed costs, once his initial reforms had bedded-in, should be extended into the “lower reaches of the multi-track”. The most interesting comment of his recent speech was that:
“’lower value’ has different meanings according to context. In the mercantile courts (I am told) ‘lower value’ means claims up to about £250,000. In personal injury litigation, on the other hand, the upper limit for ‘lower value’ claims would be well below that figure.”
If I was a betting man, I would anticipate that he will recommend an extension of fixed fees for personal injury claims valued up to £50,000 (paving the way for further increases at a later date).
He will be significantly fortified in his views by the fact that campaigners against his original proposals for fixed fees argued they would cause significant reductions in claims numbers but this has, as he said, simply not happened. This may explain, in part, why more recent claimant campaigns have also been met by considerable scepticism.
In any event, work volumes for those working in costs will drop further.
Likely implementation date: April or October 2018.
One of the current battlefields in costs is over the issue of whether additional liabilities should be included (where still recoverable) when considering proportionality.
One would have thought this was at least one area where there was no room for dispute as there is an express transitional provision dealing with this issue at CPR 48.1(1):
“The provisions of CPR Parts 43 to 48 relating to funding arrangements, and the attendant provisions of the Costs Practice Direction, will apply in relation to a pre-commencement funding arrangement as they were in force immediately before 1 April 2013, with such modifications (if any) as may be made by a practice direction on or after that date.”
To what extent the current debate is down to poor drafting or the ingenuity of lawyers is a matter I will leave to others.
It is usually a mistake to try to determine the merits of an argument based on the number of people who share it, even to the extent to which they are experts. As matters currently stand, this seems to be a relatively evenly balanced point based on the first instance judgments that are circulating, with the slight edge going in favour of the view that additional liabilities are to be considered separately (or does a Senior Costs Judge count for double?).
Senior Costs Judge Master Gordon-Saker in BNM v MGN Limited  EWHC B13 (Costs):
“When applying the new test of proportionality, the court need not consider the amount of any additional liability separately from the base costs.”
Master Simons in Rezek-Clarke v Moorfields Eye Hospital NHS Foundation Trust  EWHC B5 (Costs):
“the Claimants submit that when looking at the question of proportionality I should look separately at profit costs and additional liabilities. That may well have been the case prior to the 1 April 2013 but in my judgment the position is now different. Costs must include those costs that are claimed in the Bill of Costs that are presented to the Court.”
Master Rowley in King v Basildon & Thurrock University Hospitals NHS Foundation Trust  EWHC B32 (Costs):
“when considering whether the costs in this case were proportionate, the relevant costs to consider … were in my judgment the base costs, exclusive of success fee and ATE premium”
Regional Costs Judge Besford in Mather v Doncaster & Bassetlaw Hospitals NHS Foundation Trust when faced with a bill of costs that straddled the Jackson reforms decided the court should consider both the pre and post April 2013 costs when deciding whether it was proportionate, but ignore any additional liabilities.
Master Brown in Murrells v Cambridge University NHS Foundation Trust:
“In the circumstances I respectfully disagree with the decision of Master Gordon-Saker in BNM as to the application of the new proportionality test to additional liabilities and therefore also as to the need to aggregate base costs with additional liabilities.”
Hopefully, the Court of Appeal will finally resolve this issue in October in the appeal in BNM v MGN Ltd.
The decision by Regional Costs Judge Lumb in Merrix v Heart of England NHS Foundation Trust  EWHC B28 (QB) caused many to question the point of costs budgeting.
The issue the court faced was:
“to what extent, if at all, does the costs budgeting regime under CPR Part 3 fetter the powers and discretion of the costs judge at a detailed assessment of costs under CPR part 47.”
At the risk of oversimplifying a very carefully reasoned decision, he concluded that a costs budget acted simply as a cap (in the absence of a “good reason” to allow more) on the recoverable costs but that any costs up to the level of that cap could be challenged on detailed assessment in the normal manner.
Unsurprisingly, perhaps, that decision has now been overturned on appeal: Merrix v Heart of England NHS Foundation Trust  EWHC 346 (QB).
The wording of the relevant rule, CPR 3.18, reads:
“In any case where a costs management order has been made, when assessing costs on the standard basis, the court will –
(a) have regard to the receiving party’s last approved or agreed budget for each phase of the proceedings; and
(b) not depart from such approved or agreed budget unless satisfied that there is good reason to do so.”
On appeal, Mrs Justice Carr concluded:
“the answer to the preliminary issue is as follows: where a costs management order has been made, when assessing costs on the standard basis, the costs judge will not depart from the receiving party’s last approved or agreed budget unless satisfied that there is good reason to do so. This applies as much where the receiving party claims a sum equal to or less than the sums budgeted as where the receiving party seeks to recover more than the sums budgeted.
…the central message is that set out in CPR 3.18, namely that the approved or agreed budget will bind the parties at the detailed assessment stage (on a standard basis) whether the costs claimed are for less than, equal to or more than the sums approved or agreed by that budget, unless there is good reason otherwise.”
(The indemnity principle would stop greater costs being recovered than had actually been incurred.)
The Court of Appeal is due to consider this very issue in another case going to appeal in May of this year but it is unlikely they will reach a materially different conclusion.
This is not to suggest that detailed assessment is now a thing of the past where there is a costs management order. As the judgment recognised, there will be some areas which will be subject to detailed assessment in the normal way including:
- pre-incurred costs not the subject of the costs budget
- costs of interim applications which were reasonably not included in a budget
- where costs are being assessed on an indemnity basis
- where the costs judge finds there to be a good reason for departing from the costs budget.
The most important of these, and the most problematic, is “good reason”. Matters would have been rather easier if this was a “save in exceptional circumstances” test. It is not and a costs budget therefore should not be equated to a straitjacket. The difficulty, and therefore the potential scope for endless satellite litigation, is where the boundaries of “good reason” lie.
One crucial practical issue to note, as highlighted by specialist costs counsel Andrew Hogan, is:
“the requirement now for a paying party to be quite specific whether in the Points of Dispute or a witness statement as to why there should be a departure downwards from budgeted figure for costs on a detailed assessment, addressing with particularity the reason which is said to be a ‘good reason’.”
The other important issue this case highlights is the importance of properly challenging costs budgets at the costs management stage. At detailed assessment it will often be too late.
At the end of any unsuccessful campaign it is instructive to try to analysis why it went wrong.
Why did Labour lose the 2015 general election? Because people voted Tory as Labour was not left wing enough. Solution: elect a hard left leader with genuinely left wing policies and watch the voters come flooding back.
Why did Clinton lose the presidential election? Because most Americans are racists and were therefore naturally attracted to Trump’s bigoted anti-Muslim, anti-Mexican views. That’s why America will never have a black President.
Why did Remain lose the Brexit referendum? Even I struggle to advance a convincing explanation for that one. Nevertheless, there is a very interesting, if lengthy, blog from Dominic Cummings, previously Campaign Director of Vote Leave (the official Leave campaign group), exploring some possible reasons. I do not know whether any of his analysis is correct but he does highlight the very real danger of retrospectively trying to explain the cause of events:
“There are strong psychological pressures that lead people to create post facto stories that seem to add up to ‘I always said X and X happened.’ Even if people do not think this at the start they rapidly construct psychologically appealing stories that overwrite memories.”
One of the examples he gives from the referendum is:
“Month after month they [Remain campaigners] argued (including to us in private discussions) that they would win largely because they had the advantage of the status quo – an advantage proved in votes around the world over many years. They were right. That was a big advantage. It is much simpler to argue for the status quo than for a very complex change – that is exactly why most ‘change’ referendums lose, just as they briefed the media. Now they say ‘The EU is very complex, it requires a lot of information to explain it’ (Craig Oliver). Their claim that actually they had the ‘complex’ argument to make against our ‘simple lies’ is laughable for exactly the reasons they gave themselves before they came unstuck.”
I therefore wonder what post-campaign analysis is being undertaken, and what conclusions reached, by those who campaigned most strongly against any radical changes to the whiplash claims process.
The recent government announcement represents a devastating loss (although it could have been even worse) to the status quo campaigners.
A combination of increasing the small claims limit for RTA claims and introducing a very low tariff system for “whiplash” injuries will have a catastrophic impact on the RTA industry.
The damages figures are, depending on the injury duration:
0–3 months – £225
4–6 months – £450
7–9 months – £765
10–12 months – £1,190
13–15 months – £1,820
16–18 months – £2,660
19–24 months – £3,725
(For claims with an injury duration of 12 months or less, these represent reductions of between 62% and 87% on the amounts currently awarded for similar injuries.)
Commenting on these figures, Kerry Underwood writes:
“The effect of the tariff system, set out above, means that the general damages figure in soft tissue claims will never cross the £5,000.00 general damages threshold unless the injuries are very serious.
That being the case the overall claim needs to be above £10,000.00 – the general small claims limit – to escape the small claims limit and to be cost bearing.
For all intents and purposes all road traffic whiplash claims will be small claims.
Overall, as a percentage of the personal injury market, road traffic whiplash claims are thought to account for around 50%.
However the effect of the changes will still be to remove around half of all cases from being cost bearing.
That of itself would not, in my view, cause a significant problem as if there was still a reasonable amount of damages, but with a quicker and cheaper procedure, lawyers doing whiplash work could still make a decent living by charging the clients say 40%.
The real killer for personal injury lawyers is the tariff system in whiplash injuries.”
There has been some scaremongering to suggest that if solicitors withdraw from low-value RTA claims the gap will be filed by unscrupulous claim management companies. However, I am struggling to envisage any business model which would allow for a reasonable profit to be made (even by CMCs) where damages for whiplash claims with symptoms of under 12 months are £1,190 or less and the claims are not costs bearing. What % of damages could be taken that would enable a profit to be made but leave enough damages for the claimant to bother with a claim? (The one exception to this is if an AI system could be put together that would fully automate the claims process for claimants, without the need for any human intervention, in exchange for a small cut of the damages.)
Either way, massive jobs cuts will follow.
Now, I start from the self-evident truth that it is always a misfortune if someone losses their job, but it is a crying catastrophe if that job is mine.
Nevertheless, a campaign by me relying on how terrible it would be if I lost my own job is one that would be likely to receive only limited sympathy. The Association of Costs Lawyers has wisely always been very careful, when responding to consultations that clearly threaten Costs Lawyer jobs, to avoid raising job losses amongst its own member as a reason to oppose change.
With or without the benefit of hindsight, it therefore seems a mistake by campaigners to have put the risk of job losses (amongst those very same campaigners) into the mix when fighting against RTA claim reform. For example, Access to Justice tweeting:
“We prove that #PIReforms are putting 35,000 jobs at risk. MoJ must consider the DISASTROUS impact on jobs & rights”
It obviously does not help that lawyers are not universally popular. Most people want a buoyant housing market, but a concern for preserving the jobs of estate agents is not usually a driving factor behind that desire. Most people want a strong and stable financial sector, but a concern for preserving the jobs of City bankers is not usually a driving factor behind that desire.
Potential reductions in work volumes will not just impact lawyers but will also massively reduce the demand for medical reports. Perhaps the government thought that GPs and orthopeadic surgeons might be able to find something else to do, of some equal value to society, if they were freed from the 100,000s of hours each year writing medical reports for low-value RTA claims. I cannot think of anything off the top of my head, but the possibility perhaps exists.
The issue of potential job losses as a result of changes to the RTA claims process is something on a non-issue in any event. As Kerry Underwood has previously observed, the introduction of driverless cars will see much of the personal injury claims sector disappear regardless of any changes to the RTA claims process. The whiplash reforms will simply accelerate this process by a few years. Those working in RTA claims should already have an exit strategy in place.
The other rather obvious mistake made by campaigners has been the relentless drive, led by the Association of Personal Injury Lawyers, to argue that whiplash claims have been in rapid decline in recent years and this is evidence there is no problem that needs fixing. Regular readers may have become rather tired of my repeated suggestions that this was complete twaddle. The apparent falls in “whiplash” claims were almost certainly no more than relabelling identical types of injury. Having looked at the issue, big surprise, the government concludes:
“Many respondents from the claimant lawyer community have indicated their belief that the numbers of whiplash claims registered with the CRU are decreasing. However, further study of the CRU statistics suggests this is not the case and that differences in claims labelling may be behind this belief. When soft tissue injury claims labelled as ‘neck’ and ‘back’ are considered together with those labelled as ‘whiplash’ the figure increases significantly. The number of such claims has remained steady over the last three years at around 680,000 claims, which is around 90% of all RTA related personal injury claims made.”
Again, without trying to use the benefit of hindsight, it seems a fundamental flaw to a campaign to use figures that are plainly wrong, you know are wrong and everyone else knows are wrong.
“£350 million a week extra for the NHS if we leave the EU”. Nobody would believe that.
As Dominic Cummings observes, sometimes the outcome is certain from the start, such as Reagan’s re-election campaign in 1984 or Blair’s re-election campaign in 2001, and the campaign itself does not make any difference to the eventual outcome. I suspect that the anti-whiplash reform campaign broadly fell into this category. The point had been reached when the government was happy to kill off large parts of the claims industry. A popular theory for this is that the wicked Tory government is happy to remove the rights of injured people to claim compensation and to destroy thousands of jobs just so as to line the pockets of greedy insurance companies. Possibly. I would suggest there are two other possible causes.
Firstly, this may be a case of the chickens coming home to roost. The worst excesses of the claims industry over the years has led to the situation where a government can kill a large part of the industry and know no tears will be shed by the larger public. Examples include, and feel free to add you own:
• Dishonest and inflated claims for legal costs.
• The scandals that were Claims Direct, The Accident Group, etc, etc.
• Solicitors happily paying unlawful referral fees (that everyone knew were unlawful) to those same unscrupulous claims management companies.
• Dishonest and inflated claims for legal costs.
• Solicitors setting up their own medical agencies to provide “independent” medical reports and taking a slice of the pie of the medical fee.
• Too clever by half ATE insurance providers introducing deferred, self-insuring, ring-fenced policies, meaning the client had no interest whatsoever in the price. (A classic example of killing the goose that laid the golden egg).
• Solicitors taking undeclared commission for selling the same ingenious ATE policies.
• Endless cold-calling by claims management firms for claims that then made their way into the hands of solicitors who were less than scrupulous as to how these claims had been generated.
• Dodgy claims against the military over Iraq abuse allegations.
• Dishonest and inflated claims for legal costs. (Have I done that one already?)
(The real tragedy is that personal injury claims were traditionally undertaken by largely descent, hard-working lawyers able to make a reasonable living. The spivs were then allowed to take control and have brought everyone else down with them.)
Secondly, even with the greater costs control introduced in recent years by fixed fees, the overall cost of the system (once medical fees, court fees, defendant costs, etc are added) is still enormous to provide a relatively modest level of damages per claim. “General damages” for whiplash is, in any event, an odd concept of trying to compensate in monetary terms for an entirely non-monetary “loss” (ie pain).
Although it no doubt appears to lawyers working in the industry to be a self-evident good to society (to compensate the injured for the wrong-doing of others), it is difficult to imagine that, starting from scratch (and knowing what it would turn into), a society would ever consider creating such a claims system afresh. Having, inherited a broken system, it now looks more attractive to kill it off rather than attempt further reform.
This was, perhaps, a campaign that was always going to be lost.
Litigation Futures features a guest post from Deborah Evans, chief executive of the Association of Personal Injury Lawyers, titled “Can we trust insurers to behave?”. In the context of rising insurance premiums, she called for “a robust examination of the facts” and for insurers to “stop making excuses and sort yourselves out”.
The timing of this post was unfortunate as Litigation Futures’ sister website Legal Futures carries a report this week headed: “Bolton law firm repays insurer £100,000 for ‘systematically inflating’ costs”.
Claimant law firm Asons has apparently agreed to repay more than £100,000 to AXA after admitting to falsely and systematically inflating its legal costs, according to the insurer.
The dispute involved 65 personal injury cases, settled between September 2013 and December 2014, where “Asons overstated the qualifications and experience of its legal staff to falsely inflate the bills sent to AXA”.
In a statement, AXA said: “Asons admitted that they were systematically attempting to present false and misleading information on an organised basis to exaggerate their claim for costs, but Asons denied acting fraudulently”.
AXA claimed the issue came to light following a case in Manchester County Court, where Asons claimed the fee earner working on the case had more than six years of litigation experience, when actually they had less than two. Asons claimed this was an administrative error but the court sanctioned the firm for misconduct.
It may be that AXA were specifically targeted or that, by coincidence, the only claims Asons had during this period were cases where AXA were the insurers. This seems unlikely. A more likely scenario is that, to whatever extent this “exaggerating” of costs was being undertaken, it was across the board against all insurers/Defendants. The report notes Asons agreed to pay AXA more than £40,000 in legal costs as well as nearly £70,000 in damages and interest. If 10% (for example) of costs claims during this period were against AXA, it would suggest potential overbilling totalling £700,000 by one firm during little over a year.
The report does not record to what extent other insurers have been repaid any “overpayments”.
In a statement, Asons said: “We take matters like this very seriously. Following a complaint by AXA, an internal investigation was immediately undertaken. We reported the matter to our regulator and any overpayments were returned. New procedures were instigated and we are satisfied that there has been no recurrence of the historical issues raised by AXA.”
An appropriate procedure might be to require any bills or statements of costs to be signed off with a statement of truth or certificate of accuracy.
Given this problem came to light following a case going to court and where the court appears to have made an adverse finding as to conduct, to have got that far would have required either a signed Statement of Costs or certified and signed Bill of Costs. What other “procedures” can be put in place if fee earners are prepared to certify inaccurate claims?
But at least the judiciary can happily continue with the fiction of Bailey v IBC Vehicles Ltd  3 All ER 570 CA as though this kind of thing never happens and APIL can continue to blame insurers for any increase in insurance premiums.
You couldn’t make it up.
“The proportionate amount of costs must inevitably be smaller for a case which concludes early than one which reaches a final hearing.”
My criticism was that it ran the danger of confusing what work was reasonable and necessary (the old proportionality test) with what total costs were proportionate. Inevitably, a matter that proceeds to trial will involve additional costs compared to one that does not, but that is simply part of the first stage of the assessment process.
At the recent Solicitors Costs 2017 conference Master Rowley explained the reasoning behind his decision is that, under the new regime, costs budgets are based on phases. On assessment, the more phases that have been completed, the greater will be the recoverable costs. Costs budgets are, of course, meant to produce a proportionate total. Although the claim in May does not appear to have been costs managed, Master Rowley’s reasoning is that given the approach to costs management, it must follow that proportionate costs on detailed assessment will be lower if a matter settles early (with less phases completed).
Given the existence of costs management by phases, the logic of this is difficult to argue with.
Nevertheless, if is still noteworthy that CPR 44.3(5) does not list the amount of work undertaken or the stage at which the matter settled as being relevant factors when considering whether costs are proportionate.
Further, in May the initially assessed costs of £99,655.74 were reduced to £35,000 plus VAT to reflect proportionality. This was as against agreed damages of £25,000. This, of course, begs the question as to what would have been considered proportionate if the matter had proceeded to a full trial. Sadly, Master Rowley did not share his thoughts on this.
Online job advertisement I came across over the weekend:
“Immigration/ Asylum Caseworkers / Paralegal / Family Solicitors
XXX & XXX LAW FIRM – London SW19
Our firm have opportunities ambitious Caseworkers/paralegal with experience in immigration/asylum law have a genuine interest passion immigration. The ideal candidate will have excellent drafting and communication skills; have the able to work invidiously and as a team player, have an ability to handle pressure and tight deadlines and provide excellent client care and satisfaction.”
Yes, we can all agree on the importance of excellent drafting and communications skills.
For cases where proceedings are issued on or after 6 April 2016 and cost budgets have been filed, parties must file an “agreed budget discussion report” no later than 7 days before the first case management conference (CPR 3.13(2)).
The budget discussion report must set out (PD 3E para.6A):
(a) those figures which are agreed for each phase;
(b) those figures which are not agreed for each phase; and
(c) a brief summary of the grounds of dispute.
The parties are encouraged to use the Precedent R Budget Discussion Report.
Precedent R leaves something to be desired.
Two of the columns are headed, respectively, “Claimed” and “Offered”.
The choice of the word “Claimed” is somewhat odd as nothing can be claimed in a budget in respect of incurred costs. Incurred costs are there for reference purposes only because a court cannot approve costs incurred before the date of the budget (PD 3E para.7.4). Future estimated costs are no more than that: an estimate. There is no “claim” for those costs. At best, the future estimated costs are the amounts a party is “claiming” should be allowed in a costs management order. Perhaps I am being overly picky.
A weightier issue is the absence (so far as I can see) of any guidance as to what figure is meant to be included in either of the two columns. Given a court cannot approve incurred costs, should the “Claimed” column not be limited to estimated future costs only? As a court can only approve future costs, surely it is only in respect of those costs that an opponent can make an “offer” as part of the budget discussions. If the “Claimed” and “Offered” columns included both incurred and estimated costs, a court would have no way of knowing to what extent an offer correlated to what the court could approve even if it accepted the “offered” amount as being appropriate. For example, if the Witness Statements phase of the budget includes £1,000 for incurred costs and £1,000 for estimated costs that gives a total of £2,000 for the phase. If Precedent R is meant to show the total (here £2,000) and the opponent “offers” £1,500, how much of that £1,500 relates to incurred costs (that cannot be approved) or future estimated costs that can be approved?
Precedent R is not mandatory and so it is probably worth adapting to make expressly clear it only covers future estimated costs, even if the total costs for each phase will need to be referred to at any costs management hearing.
I previously commended on the fact the law has traditionally avoided applying hindsight when assessing the reasonableness of legal costs that have been incurred.
This approach was confirmed when applying the old proportionality test in Lownds v Home Office  EWCA Civ 365:
“the proportionality of the costs incurred by the claimant should be determined having regard to the sum that it was reasonable for him to believe that he might recover at the time he made his claim”
I also commented on the problems this creates when trying to apply this in practice.
However, has this basic principle survived recent reforms?
CPR 44.3(5)(a) certainly provides that “costs incurred are proportionate if they bear a reasonable relationship to the sums in issue in the proceedings”, although that simply begs the question as to what sums really were in issue.
I would suggest that the traditional “rule” against applying hindsight may no longer apply.
Certainly, in the area of personal injury claims, the majority of matters are now subject to one form or another of fixed fees. Generally, the greater the level of damages recovered, the higher the award of fixed costs to a successful claimant. This is intended, on a swings-and-roundabouts basis, to reflect the fact that the higher the level of damages recovered the more complex the matter was likely to have been and the more work that would have been reasonably necessary.
However, the crucial point to recognise is that claimants’ costs are calculated by reference to the damages actually recovered, not the amount claimed or the amount it may have been reasonable to expect to recover.
If costs in the majority of cases are therefore now expressly subject to hindsight, by reference to the damages recovered, on what logical basis should those cases that fall outside fixed costs be subject to a fundamentally different test? Lord Justice Jackson is now embarking of a massive further extension of fixed fees. Again, initial suggestions are that these will based (at least in broad bands) on greater damages recovery meaning greater costs recovery).
It would be very odd to have two different general principles (absolute hindsight v no hindsight) operating at the same time in civil claims.
It would be nice to think the Court of Appeal will expressly address this issue when they consider proportionality in BNM v MGN Limited, but I won’t hold my breath.