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Fixed recoverable costs – The Big Debate: Birmingham perspectives and pilot scheme glimpses

I was fortunate to have the chance to attend Jackson LJ’s fixed recoverable costs seminar in Birmingham on 16 March 2017, which focused on mercantile and business litigation. Those of you who have been following Practical Law’s coverage of Jackson LJ’s fixed recoverable costs review will be aware that he has been chairing a series of seminars, focusing on different areas of the law, to obtain court users’ input on the potential extension of the fixed costs regime.

In Birmingham, we heard from four speakers: His Honour Judge David Waksman QC of the London Mercantile Court; Ed Pepperall QC of the Commercial Bar Association (COMBAR); John Hughes, President of the Birmingham Law Society; and Isabel Hitching of the Technology and Construction Bar Association (TECBAR). There were also many practitioner contributions, leading to a lively discussion of the pros and cons of extending the fixed costs regime. In this blog, I provide a brief flavour of each speaker’s presentation and a summary of the views expressed from the floor.

Fixed costs pilot: watch this space

HHJ Waksman provided outline details of a proposed two-year fixed costs pilot scheme, which is currently being developed by a fixed costs working group, of which he is a member. Both Jackson LJ and HHJ Waksman emphasised that the pilot is still very much a proposal, and subject to the approval of the Civil Procedure Rule Committee. If approved, it will operate on a consensual basis in London (Mercantile Court) and in Manchester (Chancery Division, Technology and Construction Court, and Mercantile Court). (It is understood that the Leeds specialist courts will also have the option to participate.)

The purpose of the pilot is to gather evidence on market appetite, and to see how the fixed costs regime would work in practice. It is hoped that the pilot (which draws upon aspects of the Shorter Trials Scheme and the Intellectual Property Enterprise Court (IPEC) costs regime) can commence before the summer, combining “an appropriately truncated procedure” with “robust and rigorous” case management.

Subscribers can read more about the proposed pilot and the key features of the truncated procedure (as currently envisaged) in Legal update, Fixed costs pilot scheme in the pipeline.

View from the Commercial Bar: fixed costs are not suitable for higher value cases

Ed Pepperall QC began by noting the Bar Council position: there is, perhaps, a case for the horizontal extension of fixed costs to other fast track cases, but the Bar Council is opposed to the regime being adopted on the multi-track.

He explained that COMBAR’s primary position is that any extension to fixed recoverable costs should not go further than all fast track cases. If, however, the regime is to extend beyond the fast track, COMBAR’s alternative position is that it should apply only to County Court cases up to £50,000, with a trial length not exceeding two days, and no expert evidence.

Mr Pepperall suggested that the costs budgeting process already provides certainty as to costs, but also observed that costs budgeting adds extra expense to the lowest value cases, which may support a case for extending fixed costs on the fast track. He suggested that fixed costs can work where costs do not vary considerably from case to case, claim values are low, and there is a need to ensure proportionality.

However, he cautioned that, if fixed recoverable costs are set too low, it will damage access to justice. The rates must allow a reasonable level of recovery and avoid a significant differential between recoverable costs and client-solicitor costs. It is also important that the rates do not affect the availability of quality representation.

As to possible “candidates” for fixed recoverable costs, Mr Pepperall identified the following:

• Work which is capable of bulk processing, such as low value personal injury work arising from road traffic accidents.

• Work featuring only a modest variation in cost and complexity.

• Cases where costs budgeting is not working.

Mr Pepperall noted that, if the objective of extending the fixed costs regime was to drive down costs, it would be necessary to have a parallel change in procedure to allow proceedings to run more efficiently. He considered that the Shorter Trials Scheme provides useful guidance as to the type of modified procedure that might be needed for an extended fixed costs regime.

Mr Pepperall suggested that, if fixed costs were to be extended beyond COMBAR’s alternative position, it would need to be done on a bespoke basis. He explained that business cases are too variable to support a rule that all cases up to a certain value must fall within the regime. Both the Bar Council and COMBAR consider that length of trial is a better indicator of complexity than value.

The Bar Council position, which Mr Pepperall endorsed, is that advocacy fees must be ring-fenced. He suggested that, in a fixed costs climate, solicitors would want to keep as much work in-house as possible and, over time, there are fears for the junior bar. 60% of the work of the junior bar comes from cases with a value up to £250,000, and the financial impact of the extension of fixed costs could also lead to diversity issues at the junior end of the profession.

As to whether there should be a “London uplift” in the fixed recoverable costs, Mr Pepperall referred to the stance of Vos and Briggs LJJ that no case should be too large to be tried in the regions. He queried why cases should need to be litigated at London rates, and suggested that there should not be any such uplift.

Birmingham Law Society: Fee transparency welcomed, but practical concerns remain

John Hughes, President of the Birmingham Law Society, explained that the Society welcomes the transparency of fixed fees and is broadly in favour of an extension of the fixed costs regime, but has some practical concerns:

• Fees can be unfairly escalated to put pressure on opponents to settle, and there is a risk of lawyers engaging in aggressive litigation to trigger the next fee stage.

• Fixed fee work requires a streamlined process, with an experienced, specialist judge, and there are concerns about the shortage of judges.

• Larger firms can invest in suitable IT for such work, but smaller firms may struggle.

• It is possible that firms will have to undertake work at a loss, charge an additional fee to clients beyond the fixed costs, or turn away work altogether.

Mr Hughes considered that fixed costs could work if restricted to relatively low value cases, which are not complex. Such cases could be undertaken by junior fee earners or non-legally qualified staff. However, he acknowledged a danger that firms may employ inappropriately qualified staff. He also noted that the potential involvement of claims management companies remained a risk.

Other points made by Mr Hughes included:

• There should be an opportunity to opt out of the regime.

• The Society is reserving judgment on an appropriate upper limit for fixed costs, until the figure to be used in the proposed pilot scheme becomes known. (Practitioners may wish to note that it is now anticipated that the pilot will accept cases with a value of up to £250,000.)

• The value of a claim does not necessarily correspond to its complexity.

• The Society firmly believes that there should not be an uplift for London rates. The absence of an uplift would encourage decentralisation of work.

View from the Technology & Construction Bar: TCC work does not lend itself to fixed costs

During her presentation, Isabel Hitching outlined TECBAR’s opposition to the extension of the fixed costs regime and explained why TECBAR considers that TCC work should be excepted in any event. TECBAR’s view is that the effective case management and costs budgeting procedures already in operation in the TCC are better suited to TCC work. TECBAR has also taken soundings from clients, which have not disclosed a demand for fixed recoverable costs. Rather, clients are concerned that the necessary time and cost is spent to deal properly with their cases.

TCC cases are generally document-heavy, often require expert evidence, and can involve many sub-disputes. Ms Hitching explained that, with fixed costs, there is a concern that TCC clients will face the unpalatable choice of either running cases as they are advised to and facing a significant shortfall in recoverable costs, or settling on unfavourable terms. She observed that, although the extension of fixed recoverable costs may be trying to deal with inequality of arms, it may in fact lead to that.

Ms Hitching suggested that, even for the proposed pilot scheme, an upper limit of £250,000 for claims subject to fixed recoverable costs would be too high. TECBAR would endorse a far lower limit, nearer to £50,000. While TECBAR supports the suggestion that figures should be based on complexity and value, there are concerns that this could lead to satellite litigation regarding “complexity”. Any test of complexity should be capable of being understood and managed clearly and quickly, both by the parties and the court. She also suggested that there should be separate ring-fenced costs allowances for solicitors and barristers.

Practitioner perspectives

Views expressed by practitioners when the debate was thrown open to the floor included:

• Some practitioners regard fixed costs, not costs budgeting, as providing certainty, as with the former, a solicitor knows what costs the client will recover when they first walk through the door. This enables solicitor and client to discuss at the outset whether the case will be run on a fixed or hourly rate.

• Several attendees thought that there should be fixed costs for different stages of the litigation, such as close of pleadings, exchange of witness statements, and six weeks before trial. As to whether the figures should relate to value and complexity, one practitioner queried how complexity can be judged at the outset of a case, and suggested that rates should be calculated on a rough and ready basis, using value alone.

• In an extended fixed costs regime, it might be necessary to limit the number of issues that the parties can raise. It was noted that corporate defendants (such as insurers) might require every issue to be proved or take every possible point in order to secure a settlement by draining the claimant’s resources.

• One attendee considered that there was a need to ring-fence not only advocacy fees, but also fees for settling pleadings or advising early in the case. They also noted that the early involvement of counsel could assist in narrowing the issues. However, another attendee suggested that, if counsel’s fees were ring-fenced in this way, some firms might simply choose not to instruct counsel. In their view, the potential for conflict between the solicitor’s commercial interests and the best interests of the client could undermine the profession. For this reason, fixed costs plus a disbursement approval for counsel and experts’ fees would be preferable.

• A number of practitioners expressed concern about the problem of opponents who aggressively ran up solicitor-client costs. While it was felt that the truncated procedure outlined by HHJ Waksman might assist, they considered the real problem to be the ongoing correspondence, noting that fixed costs did not offer any deterrent to those who wished to push up client-solicitor costs by “litigating in correspondence”. Various ideas for controlling correspondence-related costs were mooted, including only permitting parties to recover costs for pre-action correspondence, or only allowing costs for correspondence falling within certain pre-defined categories.

• Concerns were expressed that parties might seek to sidestep the effects of an extended fixed recoverable costs regime by including indemnity clauses in their contracts to deal with costs recovery. This is a point which Jackson LJ plans to consider further.

• It was suggested that TCC parties should have the right to “opt in” to fixed recoverable costs in the TCC (as a fixed costs regime might be attractive to small subcontractors, for example, who wish to benefit from TCC expertise but also the certainty of fixed costs).

• One practitioner thought that reform to Damages Based Agreements was required before the fixed costs pilot was introduced as, otherwise, solicitors might be dissuaded from participating.

Conclusion: “the devil is in the detail”

It is clear that the extension of fixed recoverable costs remains a controversial topic. Some of those present in Birmingham acknowledged that fixed costs might have a place in certain types of case with little variation in value and complexity. However, there is also real concern that extending the regime (or, at least, extending it too far) might, in fact, undermine access to justice, rather than promote it.

If the proposed pilot goes ahead, it should assist in clarifying the appetite for fixed costs, as well as the type of procedure that is likely to work in this context. After all, as was observed at the seminar, “the devil is in the detail”.

Practical Law Dispute Resolution Natalie Stopps

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