Jackson reforms: counting the costs

On the third anniversary of his reforms, Lord Justice Jackson is unlikely to win any popularity contests among solicitors. His ambitious reforms package, intended to get a grip on escalating legal costs, was immediately attacked by claimant representatives as being too weighted in favour of defendants.

Once implementation began in April 2013, the criticism began to come from both sides. It soon became apparent that the new budgeting regime was floundering, due to lack of resources and a woefully ill-prepared judiciary.

So has the pain been worth it and are the reforms beginning to make a difference?

Does budgeting add up?

Budgeting – or costs management – is arguably the most important aspect of Jackson, because it comes into play from the outset. Since March last year, when the threshold was raised, it has applied to all cases worth up to £10m. Under Jackson’s original plans, judges would have had discretion over whether or not to order budgeting. But he was overruled on this point and when budgeting was introduced it was made mandatory – forcing reluctant judges to grasp the nettle.

The notion of lawyers being compelled to set out what they will spend on each phase of a case is hard to argue with, especially from a client’s perspective. While many initially complained that litigation could not be predicted in this way, the profession has adjusted well to the new discipline. But the downside for clients is that budgeting does inevitably ‘frontload’ costs.

The real problems with budgeting have stemmed not from the concept, but from implementation. Judges, many of whom dislike delving into costs issues, had far too little training and the result was shocking inconsistency.

As Brett Dixon, vice-president-elect of the Association of Personal Injury Lawyers and solicitor at Smith Jones, explains: ‘There is a very real problem with courts around the country doing things differently; and also solicitors doing things differently.’

‘I’m told there’s a master in the RCJ [Royal Courts of Justice] who says that fixing a budget should take five to 10 minutes. But other judges are taking 30 minutes to an hour,’ says APIL trainer Gary Barker.

So far there have been few applications to court to ‘vary’ a budget, which is a procedure intended to be used whenever litigation takes an unexpected turn that will affect its cost. This suggests solicitors are not following the process properly. Another area of confusion is the extent to which ‘incurred’ costs – for work already done before the budget was drawn up – should be looked at during the budget hearing.

Clinical negligence is one field where budgeting has wreaked havoc. In a hard-fought sector where defendants and claimants are unlikely to agree budgets, there were too few masters to cope with the huge number of budget hearings. In desperation, a moratorium on budgeting was introduced last October for London clinical negligence cases. This has now ended and, according to Master Cook of the Queen’s Bench, there are signs that budgeting is ‘beginning to work’ in clinical negligence, with a ‘significant increase’ in the number of cases where budgeting is agreed, at least for a number of the budget phases. More Queen’s Bench masters have now been appointed to ease the pressure.

Sue Nash, chair of the Association of Costs Lawyers, says: ‘As Master Cook recently pointed out, it seems that costs budgeting is starting to work [in some areas] where it is done properly. It needs to be given more time. You can’t just introduce something as radical as predicting costs and expect that to filter through into savings so fast.’

From the defendant perspective, Duncan Rutter, president of the Forum of Insurance Lawyers, has a mixed assessment of budgeting. He says: ‘Overall, budgeting has been a positive change. The courts are getting to grips with it and so are practitioners. The courts are not afraid to cut the budgets – sometimes quite dramatically – and so budgeting is working in that there is starting to be proper control of the costs. But there is still little or no control over incurred costs, and there is a trend towards claimants doing a lot more work before they issue proceedings.’

Rutter adds that since budgeting came in, the extra burden has led to a deteriorating court service: ‘There are not enough staff and the court service seems to be getting worse.’

Last year a sub-committee of the Civil Procedure Rule Committee, which was led by Mr Justice Coulson, took a detailed look at budgeting problems. Its recommendations for change came into force this month. For cases worth less than £50,000, only the first page of the Precedent H form must now be used, to be filed and exchanged with the directions questionnaire. For higher-value claims, a full Precedent H form needs to be filed and exchanged, no later than 21 days before the first case management conference.

A new form, Precedent R – the ‘agreed budget discussion report’ – must also be filed for all budgeted claims. This is a spreadsheet which sets out, for each phase of the budget, the sum claimed, the sum offered and whether the figures are agreed (and if not, why not). Infant claims begun after April 2016 are exempted from budgeting.

So will these amendments deliver improvements?

Barker says: ‘In personal injury, you don’t get much discussion between claimants and defendants, for example to narrow the issues and agree phases. But that’s something that may now change. It seems that the new “budget discussion report”, where people will have to say what they think the figure should be and why, may force a discussion between parties.

‘Also, the fact that, for a case worth over £50,000, the budget must be filed 21 days [before the CMC] gives time for negotiation and discussion.’

But Dixon has a word of warning. Whereas previously there was a ‘blurring’ in terms of what could be included in the budget to reflect the time spent preparing for a budget hearing, for example, the new rules have spelt out that this cost should not be included.

‘I do worry that the recent changes will mean that people will put less time into the budget,’ Dixon says.

Hand in hand with budgeting is the concept of ‘proportionality’, with the budget designed to keep costs ‘proportionate’ from the outset. But what does ‘proportionate’ actually mean? A new proportionality rule was introduced in April 2013, but there was no accompanying practice direction; with Jackson instead suggesting that clarification would from the Court of Appeal. Three years later, the CoA is still waiting for the right case to come before it, leaving the profession and lower judiciary in the dark as to how the rule should be interpreted.

‘There should have been proper guidance on proportionality from the outset’, Dixon says, ‘then everything else might have fallen into place a little better.’

So why hasn’t the right case reached the courts yet? In the PI world, where the defendant is normally the paying party, there is a sense that defendants do not have the appetite to take a proportionality issue to the Court of Appeal. ‘What you have got now is uncertainty, which is basically as good as a good decision in the defendants’ favour,’ Dixon says. ‘In negotiations, the defendant costs draftsmen are able to say, “you’re never going to get that”.’

Fixed ideas

With budgeting ‘mark two’ only launched this month, many lawyers were stunned to see yet another radical reform put forward by Sir Rupert this year – particularly one that would abolish the need for budgeting in the vast majority of cases. The judge’s proposals for extending fixed recoverable costs to all civil cases worth up to £250,000 seem premature, with the 2013 reforms not having had a proper chance to work. As Dixon puts it: ‘Budgeting should be given more room to breathe before deciding if it is dead or alive.’

David Marshall, managing partner at Anthony Gold and chair of the Law Society’s Civil Justice Committee, laments the speed at which reforms are being introduced. He says: ‘Policymakers are constantly changing things before you can work out whether it actually works. It seems to me that fixed costs are a solution in search of a problem – and a single set of costs for every type of proceeding is unlikely to produce a good outcome. It is not simple, but simplistic; it is endangering justice for the individual and moving away from the principle of compensatory damages… and if that’s what the policy is, then it should be stated in that way, rather than presented as simply a way of replacing budgeting.’

If fixed costs are indeed introduced on the scale proposed by Jackson, then much will rest on the actual figures. As commercial litigator John Gosling, a partner at Addleshaw Goddard, says: ‘For clients, it is obviously good that they will have certainty as to how much they will have to pay if they lose, and how much they will receive [in costs] if they win. The important question is, will the client’s own lawyers be prepared to restrict their charges to the fixed fees? That will depend on the case.

‘If it is a straightforward claim, then it may be that the lawyer will indeed restrict their charges to the fixed fee. But solicitors are not going to do work that’s unprofitable. It is a question of whether they can restructure themselves so that the work can be done profitably; and it will depend on the type of case.’

In outlining his proposals for extended fixed costs, Jackson LJ set out a provisional ‘grid’ of fees as a starting point for discussion. Under the grid, the maximum fee for a five-day trial would be £70,250.

Gosling says: ‘There may be relatively straightforward cases where it could be done for that figure, but others where it will be difficult. There are some parts of the market where the culture is very much that the claimant lawyer will restrict their fees to the amount recovered from the losing party. There may be parts of the commercial market where that is the case – but there are [also] big parts of the market where that is definitely not the case.’

When it comes to fixed fees, it is fair to say that defendant representatives are considerably more enthusiastic than their claimant counterparts. Rutter points out that fixed fees and budgeting are essentially two different approaches to the same objective – reducing costs.

He adds: ‘Fixing recovered costs is a more certain and less cumbersome approach than budgeting. If cases are too expensive, people will not have proper access to justice. Both [budgeting and fixed costs] are needed in the attempt to reduce costs overall.

‘Fixed costs are not new. We have had them in the PI fast track for some time. In intellectual property, there are fixed costs for cases up to £500,000; so in that context, £250,000 is not so high.

‘On the defendant side, we have been used to working on fixed costs for our clients for some time and commercial lawyers are also used to it. It is clearly the direction that things are going. At FOIL, we cannot see that there is a particular problem with having fixed costs.’

Another defendant lawyer, Alistair Kinley, director of policy and government affairs at BLM, also supports fixed costs. But though he readily accepts that some exceptions will be needed to the fixed costs regime, he warns that this aspect will need to be carefully managed.

He says: ‘If you look at, for example, employers’ and public liability cases, the 2013 protocol spells out the areas where the claim does not go into the process: accidents abroad, claims for abuse, clinical negligence, mesothelioma. If you look at the statistics for these areas, they have all gone up significantly. Is this because there really is a rise in the number of incidents – or because people are getting around the system?’

Another issue is how fixed costs might affect the dynamics of litigation. If defendants know their costs liability will be limited to a fixed amount if a case goes all the way to court, could this make them less inclined to settle claims?

Not according to Rutter. He says: ‘Most compensators want certainty and to settle cases as quickly as they can to achieve that certainty. The earlier you settle, the cheaper it is. And the [sooner] you know what the claim has cost you, you can pay it and write it off, instead of continually having to reserve against the claim.’

Indeed, the recent High Court judgment in Broadhurst v Tan [2016] EWCA Civ 94 has increased the defendant incentive to settle, by ruling that a claimant’s successful Part 36 offer will attract indemnity costs, even in a fixed-fee regime.

QOCS: a qualified success?

In Jackson’s war against legal costs, recoverable success fees and after-the-event insurance premiums were first in the line of fire. The reason for their demise lay in the personal injury sector, where the cost of solicitor uplifts and ATE was said to be fuelling soaring legal costs. But the abolition of recoverability applied across almost all litigation, including commercial. In commercial, Jackson anticipated that the recoverability blow would be softened by the introduction of damages-based agreements as a new way of funding cases; but botched government implementation has led to these being virtually unused (see box above).

In PI, where individuals do battle with large insurers, claimants were kitted out with the armour of ‘qualified one-way costs-shifting’ to protect them from adverse costs. So how should that scheme be judged, three years in? It is still early days, but from the claimant perspective Barker suggests that it is ‘working pretty well for the most part’. Dixon, however, adds that disbursement costs, which do not come under QOCS, are a ‘gaping hole’ that could prevent claimants from accessing justice – particularly as it is often the more difficult cases where claimants face more expensive disbursements.

Defendant lawyer Kinley adds: ‘QOCS is a sound model and comes from the principled perspective that on the one hand, [it protects] people who are not in a position to face adverse costs; but if they do not play fair, then they stand to lose the shield.’

He adds that the model should be expanded to encompass other areas where there is asymmetry between claimants and defendants, such as claims against the police, as well as mesothelioma cases which still benefit from recoverable success fees.

Impact assessment

Despite a difficult start, there are signs that the Jackson reforms are beginning to make progress towards their goal of affordable justice. But the judge’s painstakingly drawn architect’s plans were not followed to the letter by the builders at the Ministry of Justice and they are further undermined by government policies such as the steep rise in court fees.

‘Jackson was always very clear that his reforms were a “package”, and if they had been introduced as a package as intended, we would not be facing many of the problems we are facing now,’ says Nash. ‘For example, there was no trial of budgeting in clinical negligence as Jackson had recommended. If that had happened, a lot of the problems could have been ironed out.

‘The “Jackson” reforms will always bear his name and be spoken of pejoratively. It must be very frustrating for him.’

Rachel Rothwell is editor of Gazette sister publication Litigation Funding. For subscription details see: tinyurl.com/htffvhh