The reforms that introduced recoverable success fees and ATE premiums created an uneven playing field. The would-be claimant became a formidable opponent, insulated against the prospect of paying any costs. The reforms permitted an untrammelled pursuit of a claim by a litigant. The consequence of such a system has been spiralling legal costs, foremost in the guise of success fees.
Jackson LJ does not accept that access to justice at any cost serves the greater social benefit and therefore proposes to remove the recovery of success fees altogether. Instead what is proposed is a regime where a solicitor can enter into an agreement which includes a success fee which may be deducted from the claimant’s damages but capped at 25% of the damages (excluding future losses).
What are the consequences of such changes beyond the obvious reduction in legal costs? It is arguable that there is too much ‘fat’ in the system as a consequence of success fees and there remains, without that element, sufficient profit for the claimant lawyer. It is not necessarily the case that claimants will have difficulty finding solicitors willing to take on their claims under the new regime. ATE insurance
There is a simple but startling analysis behind Lord Justice Jackson’s recommendation to remove the right to recovery of ATE premiums and, to avoid the risk of an uninsured claimant having to meet a defendant’s costs - to introduce “qualified” one-way cost shifting. He considers that the cost to defendants of having a right to recover their costs in the event that they successfully defend a claim exceeds the overall benefit achieved.
Some defendants may well be concerned that, without the prospect of recovery from a losing claimant, they may question whether to defend a case, at cost, or at all. A further concern is that such an amendment would encourage the pursuit of unmeritorious claims. However, if one accepts that the pursuit of claims is lawyer driven and that the proposed changes to success fees would create a more prudent set of claimant lawyers, those concerns may be allayed.
A likely result of the removal of ATE is an increased use of BTE which so far has been chronically under-used considering its prevalence. Fixed costs
The report considers the issue of fixed costs in fast track litigation. It is not surprising to see that Jackson LJ has recommended that the costs recoverable for all fast track personal injury cases should be fixed. He would like to see a procedure which is shorter and more streamlined than that proposed under the current MoJ reforms. Procedural changes
- Proportionality - LJ Jackson proposes rule changes that will permit a judge to stand back and make significant reductions to the overall costs where these far outstrip damages, reversing the effect of Lownds v Home Office.
- Part 36 - the report proposes removing the uncertainty caused by Carver v BAA and, more radically, providing an incentive for claimants to make Part 36 offers on the basis they stand to gain 10% more in damages if the offer is not beaten. Under the present system there is no real incentive for claimants to enter into negotiation and this proposal is therefore cautiously welcomed.
- General damages should be increased by 10% as a "complementary measure" for claimants having to make payments towards their legal fees.
- The small claims limit should remain as it is, which may be some comfort to claimants’ solicitors.
- Referral fees should be banned, or if this cannot be implemented, then they should be fixed at a level that drives them down.
A key issue for those reviewing and possibly welcoming these proposals is when any changes will be implemented. As recognised by Lord Justice Jackson, many of the changes would require primary legislation. Given that the Government is a significant compensator, there is some incentive for reforms to be moved forward. However, with a general election looming it is unlikely that anything will happen quickly. We wait with interest to see whether the impetus created by Lord Justice Jackson is maintained. In the meantime, it is clear that anyone looking at civil legal costs from now on cannot ignore this substantial report.