The law of unintended consequences could lead to costs – or at least profitability – increasing at some law firms post-Jackson, a well-known costs barrister has suggested.
Andrew Hogan of Ropewalk Chambers in Nottingham identified eight features of the new legal world that could run contrary to the stated intent of the reforms, starting with alternative business structures.
“Any insurance company or claims management company or trade union which wishes to stay in the business of receiving a steady stream of income from claims should now be seeking to package up claims capture capability with the provision of litigation services,” he wrote on his blog .
“This in turn has the potential to generate further costs savings through economies of scale and the removal of transactional costs with increased profitability. The ban on referral fees is thus a powerful motor, driving forward in the personal injury field, the move to ABS.”
Mr Hogan said that since April there has been no race to the bottom on success fees; instead solicitors are looking to charge their clients.
He said: “Given that the average success fee is now routinely pitched at 100% – subject to the statutory cap of 25% of general damages and past special damages – the quantum of success fees, which in the majority of cases, ranged in the past from 12.5% to 62.5%, has actually increased, albeit that it is the client who is now liable to pay them.”
Then there is “punishing the insurance industry for non-compliance” in line with the courts’ new focus on the rules. “Non-compliance generates more costs, through dropping out of portal schemes, the reasonable issue of proceedings, and applications for sanctions for non-compliance,” he said.
“Conversely, the claimants’ solicitors can and should have their claim ready, with documents, and statements in place to force the pace once issued.”
Mr Hogan continued: “The costs budgeting rules represent a clear opportunity for the likely receiving party’s costs to be ratcheted up at the start of the case. First, as they have no application at all to pre-issue costs, a solicitor is free to spend what he wants prior to the issue of proceedings and will do so, to avoid any potential strictures of budgeting. Something like two-thirds to three-quarters of all costs are incurred pre-issue.
“Second it gives an excellent opportunity to establish hourly rates, document time and overall levels of costs anchoring expectations for a detailed assessment, promoting unease in the mind of the likely paying party.”
The barrister argued that the fixed-fee matrix for fast-track cases “positively encourages claimants to issue proceedings, and to run them to as late in the day as possible as the longer the case goes on, the higher the costs recovered, per case”.
Similarly, qualified one-way costs shifting introduces an incentive for claimant lawyers to run every case, he said.
“Moreover, even if a defendant successfully couches a part 36 offer which it succeeds on at trial, as its own costs can only be set off against the claimant’s damages, not damages and the claimant’s costs, the situation will arise where a claimant’s damages are wiped out to zero, but his solicitors will still recover substantial costs, up to the point in time that the part 36 bites.”
Still with part 36, Mr Hogan said that if a receiving party can couch a part 36 offer in detailed assessment proceedings accurately, then they will receive not only 10% of the costs of the bill, but part 36 interest on the costs on the bill, indemnity costs of the detailed assessment and part 36 interest on the detailed assessment costs.
“Thus, with one stroke, the £1,500 cap on assessment costs prescribed by provisional assessment can be made otiose.”
His final prediction came around damages-based agreements (DBAs), before-the-event insurance (BTE) and the small claims track.
“If the small claims track limit is raised to £5,000 for personal injury claims, then those claims will not disappear. Instead, the 70% of motorists who have BTE, will have a positive incentive to use it and those who don’t have BTE, or if BTE is withdrawn in its current form, will have an incentive to use DBAs or appropriately drafted CFA Lites with waivers, to continue to litigate the case: which would mean lower damages for claimants, but potentially higher fees for solicitors than those prescribed, by for example, the portal scheme.”