Claimant and defendant lawyers have accused each other of behaviour which inflates costs, in their responses to the government consultation on extending fixed recoverable costs (FRC).
Meanwhile, the Law Society has come out against any extension while wider court reforms continue to bed in, and the Chartered Institute of Legal Executives (CILEx) said FRC risked pushing smaller law firms out of litigation.
In its response to the consultation, the Association of Personal Injury Lawyers (APIL) argued that costs management and budgeting were a better way of controlling both sides’ spending as they recognised that costs were not a ‘one size fits all’ model and were more transparent.
“There is a general feeling currently that defendant firms spend a disproportionate amount defending cases on a matter of principle…
“If fixed costs are extended for the claimant, defendants should be required to complete a costs estimate relating to the actual costs being incurred, this should be accompanied by a statement of truth. There must be a proper analysis of defendant costs – something which was previously promised by the government, which has failed to happen.”
APIL said it was not easy for the court to control defendant spending, as it was “not always visible. The organisation pointed to the use of ‘shadow experts’ to review the report obtained from the ‘on-record’ expert.
“Both claimants and defendants should be under the same costs scrutiny by their clients where they seek to recover solicitor and own client costs.
“The economics and the risk/reward analysis of litigation must have equal influence on the behaviour of both sides. Neither should be able to outspend the other without it impacting on their client.”
APIL said defendant behaviour was “one of the biggest causes of disproportionate costs” in multi-track cases through not being proactive, and suggested extending the collaborative approach outlined in the Serious Injury Guide to the lower reaches of the multi-track.
“A commitment from both sides to a collaborative approach would ensure early contact, regular dialogue, and help to narrow the issues in the case.
“Following the guide helps achieve earlier interim payments, and easier access to rehabilitation. This, coupled with judicial scrutiny through costs budgeting, will save costs.
“If the reality is that the government wishes to preserve the ability of the well-resourced party to deploy costs as a weapon, whilst restricting the opportunity for costs to act as a leveller, it is unlikely that these reforms will be successful, at least in a way that furthers the overriding objective and preserves access to justice.”
APIL, along with several respondents, argued that “if costs are fixed, the process must also be fixed”.
President Gordon Dalyell said: “Injured people are already burdened with high court fees. Ill-planned and ill-conceived fixed recoverable costs mean they face further inequality against well-resourced defendants…
“Simply shoehorning certain cases into an extended fast-track is not appropriate and will not achieve the government’s aims of controlling costs. Fixing what can be recovered does not mean fixing actual costs.”
Defendant insurance firm Kennedys welcomed the extension of FRC, but warned that more needed to be done to stop claimants and their lawyers “playing the new system”.
Kennedys’ response said the Ministry of Justice (MoJ) needed to be aware of unintended consequences, pointing to the “poor litigation behaviours” that followed the introduction of FRC for lower-value personal injury claims and could be replicated under the new regime.
These included: inflated damages, as costs were linked to damages; increased fraud, given that lowering the cost of litigation removes “vital vetting processes to help weed out unmeritorious claims” provided by lawyers, as claims management companies take over their role; limited information provided by the claimant, “making it difficult for defendants to efficiently review liability and quantum”, and claimant lawyers moving into areas not covered by FRC, where their inexperience can “hinder the process and extend life cycle and costs”.
Kennedys stressed that “issues of complexity are not necessarily linked to value”, and expressed concern about the proposal to place cases into four bands of complexity, with escalating levels of FRC.
This could lead to “band wars”, the City firm said, and said an alternative would be to allocate all cases of a particular type to one band.
“This will remove an opportunity to game the system and remove any disincentive not to fight unmeritorious claims.”
Kennedys also argued that many of the reforms sought to penalise defendants and encourage them to settle, seemingly irrespective of the merits of a claim.
“The balance is shifting unfairly to impede a defendant’s ability to defend and challenge unmeritorious or exaggerated claims,” the response said. “Defendants should not have their hands tied and their ability to defend diminished.”
Kennedys also echoed the concerns of others that much of the data behind the proposals was limited, particularly for non-injury claims, and was also possibly out of date.
Deborah Newberry, head of public affairs at Kennedys, said: “FRC change behaviours and introduce incentives for claimant lawyers to do what they can to achieve higher levels of costs.
“The good news is that the use of FRC in lower-value cases in recent years has shown the risks and we hope the MoJ will re-engineer its approach to ensure that these do not recur.”
The Law Society said it supported the principle of FRC for low-value and non-complex claims, but president Christina Blacklaws there was “a genuine risk with more complex claims that the vulnerable and the less well-off will be left unable to seek justice”.
She added: “In any case the further upheaval of changing the rules while the effects of court reforms remain unclear mean we cannot support the proposals in the consultation.
“A regime to limit the recoverable costs of civil litigation will need to be carefully calibrated if it is to be fair to everyone engaged in a claim.
The response said proportionality of costs could not be dealt with by controlling what lawyers charged or recover “without reducing the amount of work that is necessary and reasonable on a case”.
“If the amount of work a lawyer must do results in disproportionate costs, then the system must be changed to reduce the amount of work a lawyer must do. This is what the HMCTS reform programme is attempting to deliver.”
The society also complained that “the risk of unscrupulous litigants using the FRC regime as a tool to deny their opponents a just remedy has not been adequately addressed”.
CILEx, meanwhile, argued that FRC for low-value personal injury cases has restricted smaller law firms from offering their services to the public and this would be made worse extending them.
It urged the government to consider the wider impact of FRC on the availability of legal advice to support people needing the justice system.
Small local firms and specialists have been forced to turn away personal injury clients, CILEx said, because they could not handle the volume of claims required to achieve a balance between profitable and unprofitable cases.
“This leaves consumers with a limited choice of either larger national providers which handle cases in bulk or being forced to represent themselves. Ultimately the consequence is a reduction in both quality advice and access to justice.”
Its response highlighted the test set by Lord Justice Jackson in his 2009 report that “if litigation becomes uneconomic for lawyers, so that they cease to practise, there is a denial of justice”.
It added: “We are therefore of the view that FRC should be reserved for only the least complex cases, and restricted to cases below a realistic value level, to avoid exacerbating these understandable concerns.”
CILEx also pointed out that the consultation failed to take account of the Competition and Markets Authority review of the legal services market, which has led to regulatory efforts to encourage price and service transparency.
It said “significant interventions in what is an independent market should be a last resort”, and that without considering frontline regulators’ active efforts to improve information for consumers, the consultation was “fatally flawed”.
The Commercial Litigation Association (CLA), meanwhile, said the MoJ should defer FRC for business disputes, citing concerns over access to justice.
The CLA said it was particularly concerned that business disputes were at risk of being “caught up in the fever pitch around reducing costs in routine personal injury claims without adequate impact assessment on the effect that this will have on businesses involved in commercial disputes”.
CLA chairman Luke Harrison said the MoJ proposals provided no incentive for ADR “and are likely to further entrench parties in litigation as it is widely known that adverse costs acts as a driver, in the main, towards controlling the behaviour of litigants”.
He added: “Whilst control of costs in litigation is critical the current proportionality rules provide for an adequate mechanism of judicial control and at present the proposals for fixed recoverable costs are seeking to solve a problem that simply doesn’t exist.”