Legal Costs Specialists – Gibbs Wyatt Stone

Jackson Costs Report – Philip Hesketh responds

Continuing with our occasional series of responses to the Jackson Costs Review from the “great and the good” in the legal and costs world is Philip Hesketh.  Philip is a Professional Mediator and former solicitor.

Like most commercial mediators I was eagerly anticipating Sir Rupert Jackson’s final report on his review of civil costs. Not because I thought it would be a cracking read (it wasn’t) but because I hoped finally our jurisdiction would receive the catalyst needed for mediation to move from esoteric mysticism into – to borrow Lord Clarke’s phrase – an integral part of the litigation toolkit. I wasn’t hoping for, or expecting, compulsory mediation but certainly strong encouragement that would lead to a significant increase in its use. I was to be largely disappointed. However there was one proposal which I felt was significant and that had the long term potential to do what I had hoped for – the proposal to allow contingency fees.

In paragraph 5 on page 133 Sir Rupert recommends :

“Both solicitors and counsel should be permitted to enter into contingency fee agreements with their clients. However, costs should be recoverable against opposing parties on the conventional basis and not by reference to the contingency fee.”

Contingency fees are only paid if the claim is successful. They are based on a percentage of the damages recovered. He suggests adopting the Ontario model (see paragraphs 61.2.5, 61.2.6, 61.4.3 and 61.4.4 of his preliminary report). The amount by which the contingency fee exceeds what would be chargeable under the ‘conventional basis’ would be borne by the successful litigant. The evidence from Canadian personal injury cases were that typical agreements allowed for costs to be charged at 20% of the damages. Costs awards against the paying party often amounted to around 15% of damages so the claimant would be losing about 5% of the damages. He says “This does not appear to be a source of general concern or complaint.”

The amount the solicitor receives would not be directly related to the amount of work done, although that would be relevant to the amount of costs recoverable from the paying party – the difference being made up by the client. It follows that an efficient solicitor will recover a better hourly rate. That rate will be not be fixed but calculated by the costs chargeable (lets say 20% of the damages) divided by the number of hours spent. The fewer hours it takes, the better the rate and profitability of the fee earner.

Why might this result in more work for mediators and coincidentally costs lawyers? One of the benefits of mediation for litigants is the way in which it can significantly shorten the time taken to resolve a legal dispute. I am often asked when is the right time to mediate and my answer is three questions. Do you want to settle? Are you ready to negotiate? Have other attempts to resolve the dispute failed? Answer all three in the affirmative and it’s time to try mediation. In other words if there are no more offers coming forward from either side the only conventional response is head down and prepare for trial and potentially a long wait for resolution. Mediating is a viable and often successful alternative. The client is happy because of the early settlement (not to mention the relief at not having to go court) and the solicitor’s hourly rate is not watered down by the extra hours that would have been spent in trial preparation. The old “Alarming Drop in Revenue” idea is reversed. Early settlement under a contingency fee agreement will increase profitability.

Of course this means claimants will be contributing to their lawyer’s fees so they will have an interest in costs recovered from their opponent. It is bound to lead to disputes on a solicitor and own client basis …

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One response to “Jackson Costs Report – Philip Hesketh responds”

  1. Jacques Hughes avatar
    Jacques Hughes

    If someone seriously injures me, would it be a satisfactory legal system that said “well, it’s time consuming and ‘disproportionate’ to work out your damages, so we will give you 70% of the sums claimed”? Surely, most people would say no. You should be compensated for the losses the injury has actually caused you, so long as you have acted reasonably to mitigate loss. Next question: one of the financial consequences of the accident is that I have had to employ a lawyer. In light of my assumed answer to the first question, why shouldn’t I recover all of the reasonable costs of doing so? Why is the position altered here? Why should the fees of the solicitor who assisted me be treated differently in legal terms from the fees of the physiotherapist or doctor who assisted me? In essence, all those fees are the same. They are financial consequences of the tort, forseeably caused. It is only by a quirk of history that one set of fees is labelled “damages” and the other labelled “costs”. The fees of the solicitor could just as well, conceptually, be claimed as damages. How can a mere label dictate a vast difference in approach, that leaves the injured party out of pocket?

    In the US, as is well known, there is only limited costs shifting, and litigants generally pay their solicitors from damages. But this is perceived as just only because US courts award puntive, as well as compensatory, damages. Juries set the punitive award knowing that the plaintiff must have a fund sufficient to pay his lawyers from a source additional to his pure compensation. That, of course, leads to unsatisfactory outcomes all of its own.

    In England & Wales we do not have punitive damages. So, consistently with what appears to be a universally accepted principle – that an injured party should be compensated for 100% his forseeable and reasonable losses – the claimant should recover 100% of his reasonable costs in addition to to that part of his compensation conventionally labelled as “damages”. Because those costs are *part* of the losses caused by the accident. They are, or should be, simply part of an overall compensating package.

    The spirit behind the Jackson recommendations, and most of their riavls, seems to me to be like saying “we have a very difficult cancer here so let’s shoot the patient”. In other words, to erode the fundamental principle that people should be compensated for wrongs done to them (whether those wrongs are injuries, as I have exampled, or other wrongs like breaches of contract), simply because it leads to difficult or inconvenient outcomes.

    Jackson is mostly asking the wrong question. It isn’t “should a claimant recover 100% of his reasonable costs?” It should be, “how can we make 100% of reasonable costs a more affordable sum?” Of course, this might require a look at our wider legal system. Why is the law so complicated? Why is a huge, learned profession needed to intermediate between even very intelligent members of the public, and the secular priesthood we call judges? Even on the small claims track for goodness sake. Is the English system of oral argument and lengthy adversarial trial the best way to achieve justice? And even if it is, is the best in this instance the enemy of the good? But Heavens! To explore such questions would be take on vested interests far mightier even than APIL. And after all, the Right Honourable Lord Justice Jackson, Knight Bachelor, is himself part of the priesthood. What priesthood has ever offered up its own privileges for sacrifice? And Mr Rupert Jackson QC did very nicely at the bar, and no doubt has friends and family still doing the same. So it is that we duck the real question – how to make going to law much cheaper. Instead, we take the expense as a constant and simply take steps to occlude it, by saying “Gosh – this looks embarrassing, the best way is to hush it up is to stop it being recoverable from the other side.”

    The Jackson Report is a stupendous achievement by a dynamic judge who deserves respect. But it boils down to tinkering with systems and ignoring the real questions about why litigation is so expensive. Rearranging the deckchairs on the Titanic, but a Titanic that never sinks, a Titanic that nudges aside the mightiest iceberg, and sails serenely on.

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