Fixed costs would “encourage overseas competitors”, City lawyers warn Jackson

City lawyers: ability to recover actual costs appeals to overseas litigants

City lawyers have warned Lord Justice Jackson that imposing fixed costs on commercial litigation would encourage “England’s competitors” at a time of uncertainty caused by Brexit.

The City of London Law Society (CLLS) said successful parties should not be penalised by recovering a lower proportion of their costs.

Further, the current system was internationally popular and judges already had “extensive powers” to control litigation.

Jackson LJ was asked by the senior judiciary in November to investigate options for the extension of fixed recoverable costs and report back by the end of July this year. This followed a speech he made in January 2016 about fixing costs for all civil claims worth up to £250,000.

The CLLS litigation committee said in its response to his call for evidence that fixed costs would not compensate successful parties for the “actual costs” of litigation, but “provide for the payment of a sum, selected for policy reasons, in lieu of genuine costs shifting”.

The committee went on: “The successful party will still be required to pay its lawyers for the work needed to pursue the litigation, the fees for that work being determined in the highly competitive legal market place.

“All that will change in practice is that the successful party will recover a lower proportion of its costs.

“The civil legal system should, in the committee’s view, aspire to promote access to justice, not to impose costs on successful parties forced into court in order to vindicate their rights.

“If the rules governing litigation require disproportionately high legal costs to be incurred, it is a strange policy choice to impose those costs on the party with substantive merit on its side.”

The committee described litigation as “seldom optional or undertaken with enthusiasm”, but said the ability to enforce rights was “fundamental to trade and commerce”.

The committee said one of the reasons for the international popularity of the English and Welsh legal system was the ability to recover actual costs.

With the system “facing questions, whether justified or not, as a result of Brexit”, the CLLS said it would be concerned at any steps, such as fixed costs, that might “offer encouragement to England’s competitors”.

The committee argued that judges already had “extensive powers” to control the cost of litigation. “This might mean exercising more robustly powers to strike out claims or grant summary judgment rather than allowing manifestly weak or obscurely pleaded cases to proceed to trial.

“It might mean real consideration of the scope of disclosure rather than defaulting to standard disclosure (a problem that Lady Justice Gloster is currently addressing) or it might mean judges not being content merely to reduce the total set out in a draft costs budget without also adjusting the steps required in the litigation.”

The CLLS warned of “perverse results” if there was “inequality of arms” between the parties and richer litigants could pursue cases in an “extravagant manner” to force the opposition to abandon their claim or defence.

The committee said that determining costs by reference to only one factor, the sum claimed, would “randomise recoverable costs” and “potentially cause injustice”.

For example, a claim for £25m might require short pleadings, minimal disclosure and a small number of witnesses, or “a million pages of disclosure”, numerous interim applications, large numbers of witnesses and a 40-day trial.

The CLLS said linking proportionality only to the sum claimed ignored the “main factor” behind any decision to pursue litigation – an assessment of the prospect of success against the potential return. This could discourage claims from being pursued, “frustrating” legal rights rather than vindicating them.

The committee said costs in the current system were “seldom indeterminate” and “experienced solicitors” could estimate costs to an “acceptable level of accuracy”.

Even with fixed costs, there would still be uncertainty as to when, in the words of Jackson LJ in January 2016, work was ‘substantially started’ or ‘completed’ or when it involved ‘exceptional complexity’.

The fact that few judges “relish” costs budgeting was an “inadequate reason” to introduce fixed costs, and there were “numerous” problems about the cost of interim applications, summary judgment or cases struck out.

There were further questions, the CLLS argued, on methodology – for example, whether there were fixed bands or a fixed sum plus a percentage of the sum claimed.

Despite all its objections, the litigation committee admitted that a “small minority” of its members were “more sympathetic to the aims of fixed recoverable costs”, on the grounds of greater certainty.

However, even they believed there should be a pilot scheme, possibly in the Mercantile Court, to assess “both whether there is demand for fixed recoverable costs and how it would work in practice.”

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