18 April 2017
Fixed recoverable costs: unfair and wrong in principle?
Bagnall: risk of unwieldy matrix of fixed fees
Posted by Alex Bagnall, an associate advocate at Litigation Futures Associate Just Costs
Are fixed recoverable costs inevitable? On 11 November 2016 it was announced that Jackson LJ was to consult on the extension of fixed recoverable costs. That announcement was clear: those involved were to “look at options to extend fixed recoverable costs much more widely”; and to “develop proposals for extending the present fixed recoverable costs regime”.
It was said that “the momentum is heavily for reform” and that the purpose of the review was to provide “opportunity for comments and submissions on the form and scope that reform should take”.
The consultation was therefore focused on ‘how’ – not ‘whether’ – fixed recoverable costs should be extended. This was emphasised by Jackson LJ last December: “The purpose of the seminars is to obtain constructive input… People who come along and simply say ‘don’t do it at all’ will not be providing any assistance.”
Which cases are likely to be subject to fixed recoverable costs?
Whilst predicting government policy is difficult, some hints might come from the facts that:
- Within his final report, Jackson LJ suggested that all fast-track litigation should be subject to fixed recoverable costs.
- It was subsequently suggested that all litigation with a value of less than £250,000 would be suitable for fixed recoverable costs. The recent proposal for a voluntary fixed recoverable costs pilot in the Mercantile Court also proposed a £250,000 damages cap.
- Fixed recoverable costs in clinical negligence claims are subject to a stand-alone consultation by the Department of Health.
What are the problems with fixed recoverable costs?
Two overriding difficulties exist with the extension of fixed recoverable costs.
Costs spent v Costs recovered
Costs spent are not the same thing as recoverable costs. In a claim where a claimant spends £100,000 and a defendant spends £75,000, the gross legal costs are £175,000. If recoverable costs were fixed, the gross spend would still be £175,000.
Fixed recoverable costs would therefore not reduce the cost of litigation. Instead, they would benefit the loser by reducing the amount payable to the winner; and the winner would be harmed by an increased shortfall in recoverable costs. The longer a case lasts, the more pronounced these effects become.
This could incentivise the defending of cases which might now be settled on commercial grounds. More concerningly, it could prevent legitimate claims being brought, particularly where the claimant is of limited means or where the defendant has seemingly endless resources.
Widespread adoption of damages-based agreements could ameliorate these difficulties. Many litigants would be comforted if their maximum liability for costs were to be a specified percentage of their damages; and if this was then reduced by fixed amounts depending on when the claim settled. But this cannot yet happen because the rules regarding damages-based agreements are not fit for purpose.
The calculation of fixed recoverable costs
The second difficulty comes from the calculation of fixed recoverable costs as a function of damages.
The amount in issue is one of five factors to be considered by the court when determining whether costs are proportionate and one of eight factors when determining whether costs are reasonable. If every other criterion is ignored when determining the level of fixed recoverable costs, absurd results will be produced.
Coulson J alluded to these difficulties in CIP Properties (AIPT) Ltd v Galliford Try Infrastructure Ltd (Costs No.2)  EWHC 481 (TCC): “The value of the claim is of course a factor in calculating proportionality although, in a case of this type, it is not as important as complexity… it might cost £300,000 or £30 million to rectify drainage defects, but the expert evidence necessary to prove those defects… will be broadly the same.”
The same can be said for many other types of litigation: the work required to establish a breach of contract, for example, will not be linked to the value of damages.
Will a complex and hard-fought boundary dispute attract the same fixed recoverable costs as a straightforward breach of contract claim? Will a claim arising out of the death of an infant be remunerated at the same level as a mid-value credit hire claim?
If the value of damages is the only relevant factor, the answers must be ‘yes’.
But if there are to be different fixed recoverable costs depending on the nature of the work done, the result will be an unwieldy matrix of fixed fees and plenty of scope for satellite litigation.
The next steps
The consultation process has now closed and the deadline by which the review should be completed is 31 July 2017. Last month, Jackson LJ gave a speech in which he acknowledged the many difficulties which exist in attempting to set appropriate fixed costs. It remains to be seen what his final recommendations will be and, crucially, which – if any – of them are adopted by the government.