The weekend after Lord Justice Jackson published his final report on civil litigation costs, says Simon Gibbs, would have seen many of those working in the costs industry updating their CVs.Gibbs, a partner at defendant legal costs specialists Gibbs Wyatt Stone, says that ‘this was about as bad as it could have been’ for such people. ‘Short of recommending a total change from the current system to contingency fees, or a total end to costs shifting, it is hard to imagine how much worse it could have been.’

Gibbs is not suggesting that any of Jackson’s proposals are necessarily wrong given the scope of his remit, but certainly the knives are out already for the judge. There are claimant solicitors unhappy at the prospect of fixed fees across the fast-track and the abolition of success fee and after-the-event (ATE) premium recovery; claims management companies aghast at his wish to see referral fees abolished in personal injury (PI); and ATE insurers seeing their business models go up in smoke with one-way costs shifting in PI (meaning a victorious defendant could not recover costs, obviating the need for ATE) and an end to recoverability.

Addressing the press conference at which he launched the report, Jackson said: ‘The focus of our litigation process should be on compensating victims, not upon making payments to intermediaries and others who have moved in recent years into the personal injury compensation process.’ Solicitors should be competing on the lowest success fee they will charge clients, not the highest amount they can pay a claims manager.

White elephant‘The champagne corks will be popping at insurers’ headquarters,’ says Tom Jones, head of policy and public affairs at national trade union firm Thompsons. ‘They have got almost everything they have been lobbying for. Claimants are going to be paying out of their damages and insurers will be paying out to their shareholders.’

The firm estimates that ending recoverability of both ATE premiums and success fees in PI will take up to 50% of an injured person’s compensation. ‘The furore about "no win, no fee" lawyers taking money from compensation has been forgotten,’ says Jones.

The Association of Personal Injury Lawyers is similarly uncompromising. ‘While Lord Justice Jackson’s report pays lip service to the importance of ensuring that victims of personal injury are properly compensated, in reality there is very little in it which helps injured claimants,’ says president John McQuater.

Ending recoverability will not save costs, he argues. ‘The costs will still be there. They will just shift to the claimant.’

Jackson’s proposal to increase general damages by 10% to offset the end of recoverability has been roundly criticised. McQuater describes it as a ‘white elephant’: ‘Damages are now too low in any event, as, in most categories, they have never been increased in line with the minimum 50% increase recommended by the Law Commission 10 years ago. Second, there is a real risk that the proposed increase will not cover the cost of the success fee in any event, leaving the injured person with a shortfall in his damages.’

John Spencer, chairman of the Motor Accident Solicitors Society, is equally sceptical: ‘[Ending recoverability] is detrimental to claimants and there is no statistical evidence set out in the report to support the assertion that these changes are equal.’ Jackson, however, is confident in the analysis of his economic assessor, Professor Paul Fenn.

Sauce for the gooseFixed costs are similarly unpalatable to many claimant PI lawyers. Andrew Tucker, head of PI at Irwin Mitchell, notes that while victims will have to pursue their claim on a fixed budget, the big company or insurer on the other side will not. ‘This would not represent a level playing field or a fair deal for accident victims, and may see less-well-off claimants having to settle for lower-quality legal representation.’

McQuater agrees and questions the timing – Jackson wants to see PI fixed fees in place in October, just six months after the Ministry of Justice’s new fixed-fee claims process for lower-value road traffic cases goes live. ‘This should be allowed to settle down and be monitored before we even think about further reform in this area,’ argues McQuater.

However, interviewed by the Gazette following publication of his report, Jackson was robust in pushing such objections aside. ‘We’ve already had some fixed costs introduced in the fast-track,’ he said ‘We have experience of them. I think that one can spin out forever the process of implementing necessary reforms. There is a widely held consensus that costs in the fast-track ought to be fixed. This ought to have been done following Lord Woolf’s report in 1996. I do not want my proposal for fixed costs in the fast-track to be kicked into the long grass in the same way as happened to Lord Woolf’s identical proposal 14 years ago.’

There is, unsurprisingly, little sympathy from the defendant camp, which was forced by clients to work on fixed fees years ago. ‘What is sauce for the goose is now sauce for the gander,’ says Brendan Padfield, head of PI at City firm Eversheds. ‘The truth is that claimant lawyers have been maximising the efficiencies of an inefficient costs system. The current system largely does not incentivise the claimant lawyer to be efficient. At last, we have formal recognition that fixed fees have worked for the majority of defendant PI lawyers, so why shouldn’t they work for claimant lawyers?’

Valid defencesJackson’s brief was to deliver ‘access to justice at proportionate cost’, and claimant lawyers argue that he risks actually reducing access to justice. However, it was telling that, in his press conference, the judge observed that ‘access to justice is important not only for claimants who have valid claims, but also for defendants who have valid defences’.

Surely defendants can afford it? Only because we all pay the costs of it through higher insurance premiums and the like, Jackson replies. Recoverability has ‘very substantially increased costs of litigation across the board’, he says, pointing to various examples in the report. ‘Take the £8m damages claim... where the ATE insurance premium was £4m and then the claimants also had a substantial success fee as well. When the defendants were confronted with additional liabilities on that scale, the game wasn’t worth the candle. They were driven to settle because of the oppressive consequences of recoverability.’

Claims managers and ATE insurers both insist that they have played a significant role in opening up access to justice for claimants – although Jackson contends that it was not restricted before referral fees were allowed. James Vintin, managing director of referrer Contact Law, says: ‘There is no doubt that referral businesses are needed to stimulate competition and to help consumers navigate an incredibly diverse and complicated legal profession – that is a conclusion the Office of Fair Trading (OFT) has also come to.’

The OFT actually told Jackson that a total ban would be anti-competitive; he disagrees. At the same time, the Conservatives have said they are minded to ban referral fees if they come to power.

Jason Smart, chief executive of LitComp, which owns ATE insurer Elite, says ATE offers individuals and companies an equal opportunity to access litigation services without it costing them a fortune. He argues: ‘Lord Justice Jackson is denying access to justice and potentially destroying the litigation services market which has developed to support those claimants who cannot themselves fund litigation for bona fide claims.’

Smart adds that one-way costs shifting in PI (meaning successful defendants would not recover their costs, obviating the need for ATE), along with the recommendation for contingency fees, ‘will inevitably lead to an increase in frivolous and vexatious litigation and, no doubt, satellite litigation on costs’.

Bleak though the future is for ATE insurers that focus on PI, Bob Gordon, who runs ATE and third-party funder 1st Class Legal, believes some providers will adjust: ‘Prudent players in these markets will already have taken the possibility of such changes into consideration for future plans.’

Matthew Amey, director of ATE broker The Judge, says: ‘While most ATE insurers are likely to adapt their business models, it’s highly likely that the availability of insurance will diminish as capacity is withdrawn, and premiums will certainly harden in certain areas, to cope with the adverse selection initiated by removing recoverability.’ That is, solicitors will in future only recommend going to the expense of ATE in particularly risky cases.

Given his clear antipathy towards conditional fee agreements, why did Jackson not just go for contingency fees completely? ‘I think that in many circumstances contingency fee agreements are more beneficial for the client than conditional fee agreements,’ he replies. ‘When one stands back, one’s got to accept that although we get rid of recoverability, there is a place for both... and the availability of both mechanisms will promote access to justice and make funding easier.’

At the other end of the scale, Jackson is fairly satisfied with the conduct of commercial litigation, subject to certain procedural reforms, most notably to disclosure. He makes a series of recommendations on other areas of practice and procedure (defamation, as usual, received disproportionate attention given the power of the defendant media lobby), and the plans for more robust case management, and active costs management by the courts across the piece, have been welcomed.

Fallback positionsThere is, however, no getting away from the crucial question of whether the government will just shove the report on a dusty shelf, especially with the upcoming election set to relegate Jackson down the list of priorities – the report identifies nine changes that will require primary legislation. ‘I would be naive to say that this is not a thought that had ever occurred to me and that I have never lost a wink of sleep on this particular topic,’ the judge told journalists.

Lord chancellor Jack Straw described the report as a ‘remarkable piece of work’ and the MoJ has at least committed to setting out the way forward in light of the recommendations ‘in due course’.

Where recommendations could save the Treasury money – such as ending recoverability in clinical negligence cases – there might be considerable enthusiasm, although the overall picture needs careful review. Given the choice of legal aid funding or having to pay solicitor’s success fee and ATE premiums out of your damages, which method would most eligible clients choose? Would there be much overall saving to the public purse?

Other changes can be achieved through the Civil Procedure Rule Committee – although ultimately these too require ministry sign-off – and there may be some political appeal in reforms that cost nothing but can be presented as a crackdown on lawyers’ fees.

Perhaps wisely, Jackson has included fallback positions if his main recommendations are not accepted: fixed success fees and non-recoverable ATE premiums, and a £200 cap on referral fees in PI.

Genuine expertsFor those who work in the costs industry, fixed costs will obviously have a massive impact – there are no bills to draft or costs to negotiate in such a system. But Jackson says law costs draftsmen will have a ‘considerable role’ to play in costs management through the life of a case and a reformed detailed assessment process. In fact, if made less expensive, there may be more assessments, Jackson speculates, because ‘it may more often be worthwhile for the parties actually to litigate about the amount of costs which are due’.

Gibbs, who is a fellow of the Association of Law Costs Draftsmen, says that, if nothing else, the Jackson report may help separate the wheat from the chaff in the costs world. ‘For too long this has been an industry largely populated by poorly trained "costs muppets",’ he says. ‘With only a small number of higher-value claims remaining in the system post-Jackson, it is to be hoped that those who survive are the genuine experts and what was an industry will become a true profession.’

So now the waiting begins to see what, if anything, will come of the Jackson report. For the master of the rolls, however, the time for discussion and debate is over. Lord Neuberger told the launch event: ‘It is now time for action. Without action, costs will continue to spiral out of control... true justice will be undermined and the public interest will be severely affected.’

Freelance journalist Neil Rose is editorial consultant for the Gazette