Fixed Recoverable Costs: Living on a Prayer (motion)

The speed of change, the small group of people tasked with implementing a vast and complex web of changes, and the difficulty that group must have had to map out what the Fixed Recoverable Costs regime means for all types of civil case, litigant, and situation. This has quickly led to what I am calling the 'civil justice cliff edge' - where nobody seems sure of their next step. 

Time to accept there are major problems

There are many major problems with the new rules. As a general civil/commercial practitioner, the following seem to be the main issues, although this list is almost certainly not exhaustive:

1. New rules 45.1(3) and (4). The rules as drafted restrict freedom to contract by not allowing contracting parties to contract out of the regime so they can recover their costs in full, and not the pitiful sums the new regime allows for. These rules are not permitted to be passed under secondary legislation because they change our laws. So why is this a new rule when only primary legislation can achieve this? Why even attempt to run roughshod over such an important contractual principle instead of implementing change in the correct way? The CPRC on behalf of the MoJ has acted beyond its powers here. Even the chair of the Commons justice committee, Sir Bob Neill, has asked the MoJ to explain the meaning of these particular rules. A reply is expected before parliament reconvenes in September. I have followed this up by emailing the letter I initially sent to the committee (raising the problem in the first place) to the CPRC and the MoJ, so they have a complete picture of why I believe these rules go well beyond what the MoJ is permitted to do. The hope is that the rule is either removed or amended to ensure freedom to contract remains intact, at least until primary legislation is passed or, more likely, rejected. Businesses need to have this option; albeit there is an argument that the Late Payment of Commercial Debts (Interest) Act 1998 will still apply for business-to-business contracts, which might provide some comfort. However, even that matter has not been clarified by the new rules.

2. Issues raised in the recent consultation regarding clinical negligence cases. How did this slip through the net? The good news is that during a recent committee meeting Chalk confirmed that he was confused that these case types were caught by the rules. He was trying to be diplomatic, but it was clear that had the rules been drafted under his watch, these case types would have been excluded. This felt like a glimmer of light down the long tunnel. Oddly, PI and clin neg are the CPRC sub-committee’s specialist subjects, and yet either they or the MoJ have missed some major points here -  so much so, that there is currently a last-minute consultation in full swing and APIL isa threatening a judicial review. Were these mistakes an oversight or was this intentional? Context and understanding are always important. This is why primary legislation is debated and afterwards we can refer to Hansard. What was the thinking behind all of this? One point to note is that during the recent committee session with Chalk, the chair also commented on who the big winners of these reforms will be -  public bodies (NHS trusts) who are usually defendants that will now not have to pay as much to the other side when they lose a case or a case settles. It is true, that along with insurers, they will be the only winners.

3. Claim type versus the number of issues. This problem centres around the failure to see that you can recover more in the Fast Track than the Intermediate Track for the exact same claim (same facts and arguments); albeit there is only 2p difference in the claim value.
   
   For example, a prof neg claim worth £24,999.99 would be allocated to Band 4 on the Fast Track. If it runs to trial as planned, with no twists, then a successful litigant recovers a maximum of £17,900 of your legal costs. However, if it is worth £25,000.01 and there is only liability left in issue (say you know precisely what your loss would be and that is accepted by your opponent) then you recover only £9,930 in legal costs because it is classed as a Band 1 Intermediate Track claim. That same case, with all the same facts, only catches up with its Fast Track sibling when it is worth just over £78,000. At that point, the recoverable costs reach the £17,900 mark. That is a whopping error, and it happens because one system is based on case types (the Fast Track) and the other with the number of issues (the Intermediate Track). There is no seamless transition between the two, but a very disjointed one.
   
   I imagine Lord Justice Jackson missed the point because he was considering the tracks in isolation, trying to engineer something which kept the Fast Track simpler than the track above it. However, this is another example of everyone taking what Jackson proposed at face-value and accepting it because there was little time to do anything else. I am sure  Jackson LJ did not expect that to happen at the time because it is always a danger when adopting proposals not to review them first. I am certain he would expect them to be reconsidered six years after the event. This was unfortunately a huge gamble by the MoJ which now looks to have failed. It will have happened this way because the MoJ’s timetable was far too tight.
   
   As we begin to see more of these odd examples, expect applications to the court to clarify which band applies or which set of costs applies. I can see a claim being allocated to a band for case management but adopting the costs of another, lower band (like in my example above) because it is fairer to do so. If my professional negligence claim was worth £30k and was to be allocated to Band 1 of the Intermediate Track then I would be thinking about applying to court to have it allocated as a Band 4 Fast Track claim instead; or perhaps asking for an order that those costings would instead be used because that would be a more just outcome. I might lose (who knows where we all stand with these uncertainties), but I would feel compelled to offer to my client the opportunity to make the application. After all, these are not small, rounding errors. In my example it would be the chance to recover nearly twice as much for my client. That’s not something to be sniffed at.

4. Trap of setting issue fees by reference to claim value and doing the same for fixed costs. I detest both methods but the problem with awarding fixed costs by reference to claim value is that the figure you issue for might not be the figure you are awarded. So all you can do is advise a client as to the number of possible variables, which is far harder and more complicated than telling a client to expect to recover between 60-75% of their legal spend if they win.
   
   Clients can grapple with that concept because the maths involved is simple. What they cannot grapple with is the infinite number of possible outcomes you now have to think about with these tables - riddled with errors (see point above). The MoJ might think numbers in neat boxes provide certainty but the reality is very different. Consider the following:
   
   A litre of petrol is currently about £1.45 where I live, but what if you were suddenly only told that petrol was £1.45 and nothing more than that, meaning every day the quantity of petrol you bought was different. Some days you might get a litre for £1.45, some days half-a-litre for £1.45 and other days you might get 10 litres for £1.45. Putting the figure £1.45 in a box in a table would not make things any better for the driver. Everyone would of course believe this to be a particularly silly state of affairs. You would have the certainty of knowing that your petrol will cost £1.45, but that metric is rendered pointless without its accompanying metric - quantity. How would you budget or plan for your journeys? You couldn’t, it would be impossible. It is the two elements of the calculation that lock certainty firmly into place. That is what fixes it. One without the other is completely pointless.
   
   It is the same for any number in the boxes in the FRC tables. You do not know the amount of time the accompanying task will take and so you do not know the cost to complete the task.
   
   The irony is that nothing about ‘Fixed’ Recoverable Costs is actually fixed for a client. I am struggling to come up with standard advice to explain this strange situation. Every time I try to draft something for my precedent letter it is tinged with sarcasm, because you are attempting to provide pointless costs advice, and you are struggling to put a client in a position where they can make a sensible, informed choice on whether to proceed. Nothing under the new regime locks the costs into place so how do you provide any meaningful advice on costs to a client? The advice you give will now always contain several pointless guesses because of the level of uncertainty the regime introduces. The figure in the box is no longer linked and connected to the estimate you give, like a percentage was. What use is that to a client? We will be giving advice only to ensure we are not negligent. That in itself will be a much harder task, but given the increased level of uncertainty on the shortfall in legal costs it will potentially be of the same value as not giving any advice at all -  or perhaps of the same value as just explaining what the regime is, but not committing on what the shortfall might be and leaving the client to run the calculations themselves.
   
   I am tempted to tell clients what my costs might be for each stage, but to then only point them to the relevant column or columns in the relevant tables, and to not attempt to put the two together and make any points about shortfalls for fear of being held accountable should I get something wrong. I will probably tell them how the tables work and nothing more. I believe the probability of getting something wrong is going to be much higher so trying to link your estimated costs with what you might recover, and at what stage you might recover it, is only likely to tie you up in knots. Perhaps when something like this is so procedurally messy, you can be forgiven for making a mistake, but I do not want to be the one to test that point. There is also a train of thought that budgets are only going to be dispensed with by the court and that you will still have to spend significant amounts of (probably unrecoverable) time doing something like a budget for your client which dovetails with the table and band for the case you are working. If you do not create something robust enough to stand up to scrutiny, then you run the risk later down the line of a client complaining about your costs and the shortfall. You need to have a tight estimate you can refer to if there is a complaint, to show you gave them adequate advice at the time, and they were able to make an informed choice.
   
   If the claim value changes then the recoverable costs change. If the banding changes then the recoverable costs change, and because you do not know for certain until part way through the claim what the banding will be - and you do not know for certain until the end of the claim what the claim value was -  then it makes the task of advising your client on what they might recover, and what the shortfall will be, very difficult. Expect a lot of negligence claims and complaints.
   
   
5. Pre-action costs and how they should be dealt with before a defence is filed. My reading is that you only get commencement costs in Table 2 if a claim is admitted, but of course the pre-action costs in the pre-action box in the Tables look as though they will have been incurred by that point. How do you advise your client on this point at the outset? Do you have to tell them you might get those costs back but then again you might not? How likely is it that a client will understand this? Many questions arise regarding pre-action costs with few answers securely locked into place.