Looking on tempests

Although Sir Rupert Jackson published his final report in December 2009, he continued to conduct research and gather evidence for a year after publication. Some of the fruits of these labours are set out in his response to the Ministry of Justice consultation paper.

Sir Rupert dealt with his critics robustly: 'Throughout 2010 there have been forceful attacks on the final report, both at meetings and in articles, sometimes emanating from those with a vested interest in the present arrangements. However, no rational argument has been put forward to dissuade me from the final report recommendations.'

Jackson LJ remains unmoved by his detractors. Although his original consultation paper considered some variations, the Lord Chancellor has fallen in line, accepting the case for fundamental reform, proposing legislation to abolish the recoverability of success fees and ATE premiums.

The scope and scale of the change cannot be underestimated. CFAs dominate personal injury litigation, are widely used in defamation cases, and in recent years have become more common in both chancery and commercial practice. CFAs offered an opportunity to all '“ the poorest and the richest in society '“ to litigate without the risk of incurring significant legal costs and, through ATE, adverse costs protection.

The price of such access to justice was a concomitant rise in the cost of litigation with the losing party being faced with a bill for base costs seemingly unrestrained by any application of proportionality, as the client had no interest in how much his or her solicitor charged, success fees of up to 100 per cent of base costs, and ATE premiums.

The resulting costs inflation is a fact of life in county courts throughout England and Wales. Every day cases settle or conclude at trial for £1,000 to £2,000 in which costs are assessed at between £10,000 and £20,000. It is hard to see what justification there can be for continuing a system in which it is patently obvious that lawyers make more money out of the litigation than the successful claimant, and when the burden on the public purse is so great in an age of austerity.

The identification of a problem does not necessarily suggest its own or any inevitable solution. The disparity between the value of the claim and the cost of litigation is explicable if properly considered. There are inevitable costs of litigation, including court fees, medical reports, and trial fees. Solicitors' profit costs vary from case to case but will be assessed by the judge and limited to those costs which are reasonable and necessary.

At this point it is hard to see where or how there can be any further 'excess' that can be trimmed from the bill. The apparent lack of proportion between the value of the claim and the quantum of costs reflects the reality that there is a certain minimum amount of work that will be required and expense incurred in every case even those of low or modest value.

In fact Jackson LJ provides a useful example of this in the evidence he gathered to establish fixed profit costs on the fast track: for example, in those road traffic, employers' liability, and public liability cases where judgment is obtained at trial for £1,000, profit costs should be £3,450, £5,125, and £4,625 respectively.

In cases run at such efficient levels the essential fact that 'distorts' the proportionate relationship between costs and damages is the incidence of CFAs, but this too has to be seen in context.

Dispelling the myths

A common fallacy is that all CFAs are conducted with a 100 per cent uplift. In fact the vast majority of personal injury cases conducted under a CFA fall within the fixed success fee regime contained in part 45. These rules embody agreements reached by the representatives of the insurance industry, professional bodies representing claimants, and the Bar.

Few would deny that these rules have been an enormous success: they create certainty, limit the scope for inquiry at costs assessments and provide clear and obvious incentives to settle a case at an early stage, while compensating the claimant's legal representatives for running risky cases to trial.

The underlying philosophy behind the fixed success fee agreements was that they were costs neutral. The success fess reflected the risk of losing based on the best statistical data available. In this context it is hard to understand the Lord Chancellor's argument that the current system causes injustice to insurers as they are compelled to settle weak cases that would otherwise fail. This is an odd argument, and completely unsupportable in relation to those cases to which fixed success fees apply.

In road traffic accident and employers' liability cases, success fees on solicitors' costs are 12.5 per cent or 25 per cent at all stages of the proceedings until the advocate opens his or her mouth at trial. As these cases cover the majority of claims litigated in our courts it is hard to see how the current regime could be described as forcing insurer's hands in weak cases. Even if settled late in the day success fees are still modest.

In any event settlement is a two way-street. For every case an insurer settles reluctantly because of lingering doubts about the merits, there will be at least one (if not more than one) that the claimant's solicitors will settle at less than the full value of the claim because of litigation risk. The costs consequences of part 36 make it more likely than not that in the majority of cases claims are compromised at less than full value.

One might tentatively suggest that a reason why an insurer settles in order to reduce the exposure to costs is when it failed to deal with the claim effectively at the pre-action protocol stage or to make an appropriate part 36 offer early in proceedings. The unnecessary settlement of unmeritorious claims within the present system is a bogus and unworthy argument.

Analysed correctly this argument is fatally undermined in any event by another strand of the Lord Chancellor's case. This is the contention that the current system places an overwhelming and increasing burden on the NHS that must be checked. Contrary to the argument that CFAs result in unmeritorious claims being settled, the argument of the NHSLA has been that claimant's lawyers are guilty of cherry picking, that they will only litigate those cases with the best prospects of success. This is an extraordinary argument. What is the NHSLA actually saying? Would it prefer claimant's solicitors to run unmeritorious claims at enormous cost?

The fact that clinical negligence solicitors only run those cases that are likely to succeed reflects in part the fact that so many cases that have to be considered go no further than a preliminary inquiry. Claimant solicitors are a vital guard against unmeritorious claims proceeding to the court and would be financially reckless to conduct their practices in any other way.

Cherry picking goes some way to undermine another aspect of the insurers' case. In medical negligence and stress at work cases, solicitors will reject many more than one in ten of the cases that come through their doors. Statistics would no doubt justify success fees in these cases of well in excess of 100 per cent. The extent to which CFAs work to vet cases stands in marked contradiction to the assertion that the system encourages a compensation culture.

The argument that CFAs encourage litigation where the lay client has no interests in the costs of litigation is not true. Part 36 will always put the claimant at litigation risk. It is very rare for a lay client to pursue litigation against the advice of his or her legal representatives and the key stages of proceedings will always require an advice on the prospects of success to the ATE insurer. The case that the client has 'no skin in the game' is a chimera.

Illogical and unfair

Ultimately the question is very simple. Who should bear the burden of litigating unsuccessful claims? Claimants? Claimants' lawyers? Unsuccessful defendants? The answer to this question is not one that can be based on rational argument or the technocratic analysis of costs rules, but on the principle of fairness. Jackson and the Lord Chancellor have accepted that the burden of paying for unsuccessful litigation is a cost that should be borne by successful litigants. Such a conclusion is inimical to the principle of the full recovery of damages. Its effects are illogical and inconsistent as well as unfair.

In a system in which compensation does not regularly include either aggravated or exemplary damages the injured claimant simply has no money in the kitty to pay his lawyers those fees not recovered inter partes. In most cases general damages will not be enough to cover such costs even with a ten per cent increase. All other losses will either represent out-of-pocket expenses already incurred or future loss based on the claimant's need and care requirements.

A system in which the more severely injured you are and the greater your needs the larger the amount of money you have to pay your lawyers is grotesque. Nothing could do more to undermine public confidence in the civil justice system.

An extended system of fixed success fees, fixed costs for small-value cases, and other more modest procedural reforms could radically alter the costs burden currently placed upon insurers and the NHSLA while protecting access to justice and preserving claimants' damages.

There is an alternative worth fighting for based on principle and rationality and not the mere expression of vested interest. The achievement of full compensation for the victims of personal injury and clinical negligence is for some (if not all) 'an ever-fixed mark that looks on tempests and is never shaken'.