#3653 - Costs And Jackson Reform - Civil Procedure

ESSAY PLAN 2 – Costs and Jackson reforms

Jackson Report – costs

Indemnity rule = costs follow the event and successful party should be indemnified.

Indemnity principle = party entitled to costs will not be allowed more than the costs which that party is liable to pay to the legal rep.

Zuckerman (2009) – “the costs of litigation are high, disproportionate and above all unpredictable...undermines access to justice..... explosive growth in litigation over costs...the complexity of the costs rules in England, without parallel in any other country in the world, has generated unparalleled satellite litigation over costs”. Lots of costs-only procedures: protective costs orders, disputes over lawyers’ estimated costs, costs-capping orders, wasted order costs etc, about success fees ATE preiums”.

Zritzer (2009) – “why is it despite all our efforts, we cannot lick the demon of high costs for civil justice?”

Pro Jackson

Willis – Buxton LJ: “very high cost...matter of concern...for the litigations system as a whole...annual income of the professions who conduct it....assesses the proper charge for work on the basis of the market rates charged by the professions, rather than attempting the no doubt difficult task of placing an objective value on the work”.

1) in personal injury litigation, there should be one way costs shifting so that only the C can become a receiving party in the event of victory; except where the C had acted in bad faith or has high wealth can award in favour of victorious D

= losing C’s only ever liable to pay own legal costs and not the winners, whilst losing D’s continue to be liable to pay both their own costs and C’s costs. Losing D will not have to pay success fee or ATE premium.

Cost-shifting has generated a lot of satellite litigation; enabled liability insurers to gain windfalls.

Jackson rejected government proposition that one way cost shifting should be limited to CFA cases as they’re not means tested.

Reason why personal injury litigation suitable for one way cost shifting is: C’s are successful in majority of cases and paradigm of asymmetric relationship.

BUT prevent what Zuckerman (2009) presents and what might be more simply called ‘game theory’ – given that success secures not only the subject matter but also litigation expenses, a litigation who believes that an increase in the amount spent on litigation will increase his chances of success has a v good reason for raising the stakes; the other opponent would then feel compelled. Ratcheting up mechanism – indemnity rule. C’S lawyers will continue to benefit from the economic incentives that reward input, reward inefficiency and are anti competitive. Will keep litigation costs of insurance companies high and these costs passed on to policy holders. Policy holders, whether rich or poor, will thus continue to subsidise an inefficient system which rewards lawyers for the hours that they spend and thus generate profits for those who kind way of increasing input rather than for those that increase efficiency.

Zuckerman (2010) - Also scope for satellite litigation as Jackson recommends giving court discretion to make costs order against a losing C. Successful D’s thus entitled to require court to investigate C’s means and ability to pay D’s costs.

2) the success fee and ATE premium (s. 29 Access to Justice Act 1999) should cease to be recoverable in CFA funded litigation; there should be a 10% increase in general damages for C’s

Section 44 and 46 Legal Aid, Sentencing and Punishment of Offenders Act 2012. From April 2013.

Liability insurers raised a lot of technical challenges – “the mass of rules and case law which surround recoverable success fees form a jungle, which should be cut down and cleared”.

The C will have to pay the lawyer’s success fee and will therefore take an interest in controlling the costs being incurred on their behalf.

The problem of success fees is that success fees recovered from D’s in successful cases will cover the solicitors’ costs in unsuccessful cases. But why should D’s collectively have to pay not only the costs of C’s who win but also the costs of C’s who lose?

The problem of ATE premiums – these meant the C recovers costs if wins but has no liability if loses. If C wins, the D pays an enhanced premium; if C loses – the insurer picks up tab. This is about the most inefficient and expensive form of one way costs shift that it is possible to device.

C costs in CFA cases range between 158% - 203% of the damages awarded. BUT as Genn says these figures relate only to litigated cases which are inevitably most expensive.

The principle of full costs recovery is a myth; the fact that parties will have some costs liability, even if they win, has long been accepted as imposing a necessary discipline in litigation - standard costs not indemnity costs

Fenn calculates that the package of reforms with (a) CFA’s success fees capped at 25% (b) increasing damages by 10%, (c) enhancing damages if claimant offer rejected (d) one way costs shifting and (e) banning of referral fees = the great majority of personal injury claimants will be better off. She sampled 64k personal injury cases. 61% of C’s better off.

ATE premiums will still be recoverable in respect of cost of expert reports in clinical negligence proceedings (s58C). Jackson disapproves of this – NHS will end up paying for reports in every case: practical issues, cost concerns and how to limit so insurers’ profits are no more than reasonable? Also how to target – British taxpayer paying for experts of foreign naturals or wealthy people.

BUT Zuckerman (2010) – “tempting though the Jackson strategy appears, it is flawed in principle and its assumptions are suspect...the entire strategy if founded on the assumption that one-way cost shifting would not increase the burden on insurance companies because the loss of the opportunity to recover costs from unsuccessful C’s would be more than compensated for by not having to pay CFA success fees and ATE premiums to successful C’s. It is, however, dangerous to extrapolate from the existing system because the new system will create different incentives....might prove even more expensive in aggregate than the presently grotesque system.... C lawyers continue to benefit from incentives that reward input.”

3) US-style contingency fee arrangements would be lawful (outlawed by s87 Solicitors Act 1974) – victorious lawyers receiving a percentage slice of the victory cake (limited to 25% of damages); but the level of the fee would be regulated; a defeated D would be liable to pay the victorious party’s ordinary costs, rather than the percentage success fee.

Section 45 Legal Aid, Sentencing and Punishment of Offenders Act 2012. From April 2013.

Section 154 Coroners and Justice Act 2009 – contingency fees are allowed when relate to employment matters.

4) greater fixed-fee regulation within the fast track (Prt 46)

Zuckerman (2009) is a fan of this principle – describes German system. Very predictable; thriving litigation-costs insurance market. Predictable and proportionate costs.

BUT the problem (Zuckerman 2009) lies in the position that Jackson LJ seems to have adopted the idea that fixed costs must be the product of a genuine attempt to estimate the actual reasonable costs of winning party. Any such estimation will inevitably be made by reference to current practice and current levels of costs.

5) Section 55 Legal Aid, Sentencing and Punishment of Offenders Act – a D who fails to beat a C’s Part 36 offer at trial will be made to pay extra. This solves the current issues of the costs sanctions against a d for failing to accept a C’s offer to settle generally amounting to considerably less than the sanctions against a C for failing to beat a D’s offer to settle = less incentive for a D to accept reasonable offer from a C.

6) banning referral fees – Sections 56 – 60 Legal Aid, Sentencing and Punishment of Offenders Act 2012

7) abolition of the indemnity principle (principle which prevents a party recovering by way of costs sums which it is not itself liable to pay to its lawyer). The main reason for the proposed abolition is that the indemnity principle has allowed parties to escape liability for paying costs on technical grounds connected with the enforceability of the arrangements between the receiving party and its lawyers. The safeguard is to amend CPR 44.4(1) to require the court, when assessing the amounts of recoverable costs, to allow only reasonable amounts in respect of work actually and reasonably done and services actually and reasonably supplied for the benefit of the receiving party. Such sums will be recoverable even if those sums are not payable by the paying party to its lawyer.

8) Change in proportionality principle – CPR 44: reversal of Lownds (even if costs look disproportionate overall they can be allowed if necessary and reasonable. New approach is relationship between costs and sums in issue in the proceedings. Removes the test of necessity from proportionality = undue weight on the financial interests of the D at expense of access to justice of the C (McIver, 2011)

Overall

Briggs, Norris and Floyd JJ (2010) – “welcome the main thrust” but need extra resources etc to implement.

Anti Jackson

Zuckerman (2010) - It is simply “plastering over the cracks to shore up a dysfunctional system... its recommendations largely preserve the fundamental structure of the present system. As a result, the benefits to court users and their access to justice are likely to be modest.

There are three conditions that need to be fulfilled to...