The stand-out development in the last 12 months has been the Lord Chancellor’s announcement in September 2016 that the fixed recoverable costs regime will be extended to “as many civil cases as possible”. This will clearly have a significant effect on all those involved in litigation.
In this section, we explore what is proposed for fixed recoverable costs and also look at how the current measures are working in practice before providing a brief update on other key developments and cases over the last year affecting civil procedure, costs and funding.
Fixed recoverable costs
Horizontal and vertical extensions
In November 2016, Lord Justice Jackson was commissioned to carry out a review of fixed recoverable costs. He was asked to consider the areas of litigation into which such costs should be extended and the value of claims to which such a regime should apply (horizontal and vertical extensions). On 31 July 2017 he published his findings in his report 'Review of Civil Litigation Costs: Supplemental Report, Fixed Recoverable Costs'.
Jackson LJ had previously proposed (in a lecture to the Insolvency Practitioners’ Association in January 2016) a single fixed costs grid for all multi-track cases up to £250,000 rather than separate grids for different areas of work. At that time he also proposed appropriate staged fees, based on his experience and various sources, which ranged from £18,750 for claims up to £50,000 to £70,250 for claims up to £250,000. Certain factors would then be added to those base figures to reflect the complexity either of a certain type of case or in an individual case.
In his latest report, Jackson LJ has recommended that all claims in the fast track should now be subject to a fixed recoverable costs regime and he has proposed a fixed costs grid for all fast track cases, divided into four bands based on the complexity of the case. However, he has been persuaded that costs management is now working effectively and saw no need for a “great leap forward” as regards extending fixed costs outside the fast track. He has therefore limited his proposals for vertical extension to claims up to £100,000 that would sit within a new intermediate track. He has set out proposals for the types of case that will fall into the track and a new streamlined procedure that should be applied. The Government will now need to consider the report and consult on any of the proposals that it decides to take forward.
A pilot is to be introduced to test the use of a capped costs scheme for High Court claims up to £250,000 in a limited number of courts. It will run for two years. The procedure will be similar to that for the shorter trials scheme. The pilot is based on summary assessment with costs capping rather than recoverable fixed amounts. Capped amounts have been set for each stage of the action with an overall maximum cap of £80,000. Participation will be voluntary with both parties having to agree to enter the scheme; they will not, however, have an unfettered right to leave the pilot.
In the meantime, as mentioned in our predictions, the question of whether fixed recoverable costs should be extended into fast track clinical negligence claims has been the subject of a consultation from the Department of Health, which closed in May 2017. Jackson LJ recommends in his latest report that the Civil Justice Council and Department of Health should work together to create a stand-alone procedure for clinical negligence claims of up to £25,000 to which fixed recoverable costs would apply.
The extension of the Low Value Protocols for Road Traffic Act, Employers Liability and Public Liability claims in 2013 saw the introduction of fixed recoverable costs for claims falling from the portals. Jackson LJ did not consider the fixed costs for portal cases, save to uprate the fixed costs for cases that fall out of the portal for inflation.
Unsurprisingly, there have remained questions over the costs payable, and 2016 saw the Court of Appeal rule in Bird v Acorn Group Limited (2016), that the listing of a disposal hearing on the giving of directions sees the costs move from the ‘pre-allocation’ to ‘post-listing’ stage, missing the intermediate ‘post-allocation pre-listing stage’. In Qader and others v Esure Services Limited (2016), the Court of Appeal confirmed that fixed recoverable costs do not apply to cases allocated to the multi-track following the commencement of proceedings, no matter the claim’s value, and in Sharp v Leeds City Council (2017) it ruled that fixed costs apply to applications for pre-action disclosure on claims to which fixed recoverable costs apply. Jackson LJ did not address these issues in his latest report, stating that it was outside his remit and an issue for the Civil Procedure Rule Committee to address.
The impact of Part 36 of the Civil Procedure Rules (CPR) on fixed recoverable costs was clarified in the Court of Appeal’s judgment in Broadhurst and Taylor v Tan and Smith (2016) and the first instance decision in Car Craft Test Centre v Trotman & Advantage Insurance Co (2017); claimants who beat their own Part 36 offer should recover fixed recoverable costs up to the expiry of the offer, and costs assessed on the indemnity basis thereafter, whether the offer is accepted late or beaten at trial. Jackson LJ made it clear in his report that a policy decision was needed to address this issue. He did, however, express his view that indemnity costs should be replaced with a percentage uplift of say 30-40%. This allows for claimants who make effective Part 36 offers to be rewarded but maintains certainty for litigants.
Other areas of reform
Online Solutions Court – pilot
A pilot of the Online Solutions Court, proposed by Briggs LJ in his Final Report on the Civil Courts Structure Review in July 2016, was scheduled to be launched on 31 July 2017. This is the first of a series of pilots that will take place over the next couple of years. The main aim of the pilot is to test the software. Cases invited into the pilot will be limited to specified claims under £10,000 involving a single unrepresented user against another single unrepresented user. Users will be informed that they are entering a pilot as a controlled group from the outset and will be able to leave the pilot at any time. The pilot has been drafted within the confines of the CPR. In contrast, the Online Court’s rules will not be included within the CPR but will be drafted in simpler language that is more user-friendly.
Other pilot schemes
The shorter trials pilot scheme (STS) and flexible trials pilot scheme (FTS) have both been extended by a further year; they are now due to end on 30 September 2018. The aim of the STS is that trial will be reached within ten months of the issue of proceedings. In November 2016, this was achieved in the first case to reach trial under the scheme. The one-day hearing took place just seven months after issue.
Although it has not yet been used, the Financial Markets Test scheme that was introduced in October 2015 is to be extended for a further three years with a widened scope. The availability of such a facility is considered to be important and useful by users of the Financial List.
CE-File The pilot for electronic working continues in the courts based in the Rolls Building. Since 25 April 2017, use of CE-File, the new electronic filing and case management system, has become mandatory for professional users (but not litigants in person) for issuing and filing, forcing professional users to adopt a new style of working. The system seems to be working and we can expect it to be extended to other courts in the future.
The Business and Property Courts
From 2 October 2017, the specialist civil courts and the lists of the Chancery Division will become known as the Business and Property Courts of England and Wales, acting as a single umbrella for the specialist courts across England and Wales and allowing for more flexible cross-deployment of judges with suitable expertise to sit on appropriate business and property cases. Initially there will also be Business and Property Courts in Birmingham, Manchester, Leeds, Bristol and Cardiff, with plans to expand to Newcastle and Liverpool. There is a clear intention for a greater number of cases to be handled in the regions. Again, it is being said that “no case should be deemed too big to be tried outside London”.
This new structure, together with the Financial List and the STS and FTS, is intended to enhance the UK’s reputation for international dispute resolution.
Damages-based agreements (DBAs), a form of ‘no win, no fee’ agreement where recoverable fees are calculated as a percentage of any damages recovered by the client, have remained unpopular amid uncertainty over the legality of hybrid-DBAs, which would allow lawyers to charge some fees on a traditional basis with the balance falling under a DBA. Despite the Civil Justice Council suggesting recommendations to the Government in September 2015 to improve DBA take-up, this has not progressed further and their use remains almost non-existent.
Meanwhile, the funding market has seized on the difficulties with the DBA model by developing innovative products which achieve the same result as hybrid-DBAs and give law firms some financial certainty. ‘WIP funding’ is one such concept. Here, funders and law firms agree a funding arrangement which allows the firm to drawdown at various intervals to cover its costs and disbursements and, in return, the funder takes a significant return under the DBA entered between the firm and the client. Another concept is ‘DBA insurance’, which enables law firms to insure a portion of the fee risk under the DBA. If unsuccessful or the claim cannot be enforced, the firm is reimbursed the insured portion of its fees. If successful, the firm recovers its share of the contingency fee less the insurance premium. Policies typically cover around 50% of fees to ensure there is alignment of risk between the firm and insurer.
Third-party funding (TPF), where funders pay the legal fees and expenses involved in pursuing litigation or arbitration in exchange for a stake in the claim, continues to be a good solution for many claimants, particularly given many law firms’ reluctance to use DBAs. Now a booming industry in the UK and globally, growth has been fuelled by hedge funders entering the market and funding groups of cases on a portfolio basis, rather than individual claims as previously.
Criticism over the absence of statutory regulation of the TPF market remains, with only seven of the 20 funders in the UK subscribing to the Association of Litigation Funders’ voluntary code of conduct. Since most funds come from highly sophisticated investors looking to maximise their profits, some commentators are concerned that disproportionate sums are flowing back to the funders’ pockets.
Given the growth of TPF, some satellite litigation regarding the role of funders in claims was inevitable and over the last year the courts have decided the following salient points:
- Funders should not expect to remain anonymous in proceedings. In two recent decisions, the court held that the identity of funders should be revealed so that defendants can apply for security of costs against the funders (Wall v RBS and the RBS Rights Issue Litigation).
- The court will order security for costs against a funder where the funder is effectively the ‘real party’ to the litigation because of its financial interest in the outcome and there is a risk that an adverse costs order would not be satisfied.
- Funders should ordinarily expect to pay costs on the same basis as the party they are funding, which will include paying costs on an indemnity basis if so ordered (Excalibur Ventures LLC v Texas Keystone and others).
While the TPF market has grown ever larger, The Law Society, Bar Council and Chartered Institute of Legal Executives set up a joint working group in July 2016 to examine the viability of Lord Justice Jackson’s recommendation to create a contingent legal aid fund (CLAF) as an alternative funding option for claimants. The group’s early investigations suggested mixed views as to the use and viability of CLAF with concerns over prohibitive administrative costs, the need for rigorous merit testing and problems over funding low value claims. The group invited feedback via a survey which closed in January 2017 but no formal recommendations have since followed.
Costs and costs management
Costs management orders
A body of case law is being developed in relation to costs management and budgets. One particular area the courts have had to grapple with, when considering making a costs management order, is the issue of incurred costs. By the time of the case and costs management conference, substantial legal costs may well have been incurred. The Court of Appeal decision in Sarpd Oil v Addax Energy SA (2016) suggested that if a party did not contest the incurred costs when the costs management order was made then they would lose the opportunity to do so at a detailed assessment. This has since been clarified by a rule change in the CPR which confirms that the court’s power to approve or manage a budget relates only to costs yet to be incurred. The court can, however, record comments about the incurred costs which will be taken into account in subsequent assessment hearings. In his recent report reviewing civil litigation costs, Jackson LJ noted that there have been significant improvements in costs management in the multi-track. He made no immediate proposals but recommended a further review, once his latest recommendations were bedded in, to consider developing a grid of fixed recoverable costs for incurred costs in different categories of case.
Another issue has been what weight should be given to a costs budget at a detailed assessment. In Merrix v Heart of England NHS Foundation Trust (2017), the judge held that the court cannot depart from the receiving party’s last approved or agreed budget unless it was satisfied that there was ‘good reason’ to do so. This decision was endorsed by the Court of Appeal in Harrison v University Hospitals Coventry & Warwickshire NHS Trust (2017). The Court confirmed that a costs judge would require ‘good reason’ to depart from an approved costs budget, irrespective of whether the paying party wishes to pay less or the receiving party wishes to recover more than the budgeted amount. The Court also held that incurred costs were never approved by a costs management order and should be subject to detailed assessment in the usual way, without any added requirement of ‘good reason’ to depart from the budget. The obiter comments in Sarpd had gone too far. Finally, the Court confirmed that when assessing the incurred costs and considering the budgeted costs, the costs judge would still have to consider whether the resulting aggregate figure was proportionate. This was described as a potential safeguard for the paying party.
What will be considered to be ‘proportionate’ remains a difficult issue and further cases will be needed to provide clarity.
The Court of Appeal has again sent out a message that the courts expect parties to engage fully with the mediation process. In Thakkar v Pattel (2017), where the Defendants were found to have “dragged their feet to the point where mediation was abandoned”, the Court of Appeal held that the judge was entitled to reflect the fact that the Defendants were primarily to blame for the failure to mediate in his costs order. A softer approach was taken by the Court of Appeal in Gore v Naheed & Another (2017) in which it was held that a failure to engage in mediation, even if unreasonable, did not automatically result in a costs penalty. Nevertheless it is a factor to be taken into account by a judge when exercising his costs discretion and is likely to be given significant weight. It will be a high-risk strategy to refuse an offer to mediate.
Insurers’ liability for costs
A non-party costs order has been made against product liability insurers in XYZ v Travelers Insurance Company Ltd (2017). Here, some of the claims made in the group litigation against the insured were uninsured as they fell outside the period of insurance cover. The court held that the insurers’ continued involvement in the defence of those uninsured claims justified the non-party costs order in favour of the successful claimants of the uninsured claims.
Costs assessment - electronic bills
A new electronic format for a bill of costs looks likely to be introduced in April 2018 for detailed assessments in the Senior Courts Costs Office and the County Court for costs incurred after that date. The current pilot has attracted very limited uptake with only three bills in electronic format filed to date. For some firms of solicitors this will require a change in practice when recording time. Those insurers who currently require panel solicitors to bill using task-based systems should consider aligning their requirements with those of the new bill.
Other key developments
Court of Appeal
In an attempt to reduce the Court of Appeal’s backlog of cases, changes were made to the CPR in October 2016. A key change was the removal of the automatic right to an oral hearing if an application for permission to appeal was refused. The application is now determined on the papers unless the Court considers an oral hearing appropriate. The suggestion of raising the threshold test for permission to “a substantial prospect of success” was dropped and it currently looks like it will stay that way. Changes have also been made to the destinations of appeals so that, subject to some exceptions, appeals from both interim and final decisions in the County Court will lie to the High Court instead of to the Court of Appeal.
A sub-committee of the Civil Procedure Rule Committee (CPRC) is continuing to look at the hot-tubbing of experts, where evidence is given concurrently. The sub-committee has concluded that it is not feasible or desirable to identify classes of case that are suitable for hot-tubbing. Whilst accepting that hot-tubbing should not be imposed, the CPRC agreed in principle that it should be promoted where possible and appropriate.
A dramatic increase in probate fees which would have meant an increase from the current flat fee of £155 or £215 to up to £20,000 for some estates in England and Wales had been proposed. The controversial proposals were dropped in April 2017 as there was not enough time for the legislation to go through Parliament. The Ministry of Justice had admitted that the income currently raised through probate fees fully covered the cost of the probate service, but said that it needed to go further to reduce the £1.1 billion burden on taxpayers to cover the cost of funding the courts and tribunals system. The legality of the rise was questioned and the change dubbed a new death tax. Whether the proposal will be revised remains to be seen, but it is clear, following on from the substantial rises in issue fees last year which resulted in an issue fee of £10,000 for claims valued at £200,000 or more, that court fees generally are seen as an attractive route to raise revenue.