Whilst the Government’s response may have been lacklustre, I can’t help but feel it was the sensible route to take. The aim of the reforms is to get fair compensation for genuine claimants, but given the uncertainty and onerous investigations entailed in Employer and Public Liability cases, it was difficult see how fixed costs could have been implemented in a blanket way.

In my opinion, that aim is better served by a tightening of protocol across all claims and dispute handling in the County Courts and a phased implementation of changes to speed up the process.

These reforms are just one step forward in Jackson’s call for clarity and simplicity on legal costs and, whilst this received a blow earlier this month with the announcement that implementation of the Legal Aid, Sentencing and Punishment of Offenders Bill was to be delayed until to April 2013, the outcome of the Insurance Summit does offer some hope.

Promises made by David Cameron include tackling soaring legal costs by reducing the £1,200 fee that lawyers can earn from small value personal injury claims and a commitment to implementing the Jackson reforms that will see ‘no-win, no-fee’ reformed and referral fees banned.

An overview of the Government’s response to the County Courts consultation includes plans to:

Simplify the majority of cases
Increase the limit of ‘small claims’ from £5000 to £10,000 with a view to increasing it again to £15,000 subject to evaluation. All small claims will be automatically referred to the small claims mediation service, although mediation will not be mandatory. Cases proceeding to court will not need comprehensive legal preparation.

Modernise and streamline the county court system
A single county court will be introduced. This clears the way for all claims to be handled electronically at modern centralised business centres and to then be allocated across neighbouring courts according to demand. Some administrative work will move from judges to administrators, leaving judges to concentrate on making good decisions rather than managing cases. Restrictions will be lifted on High Court judges sitting in county courts while waiting to take cases in the High Court.

Improve the enforcement of court decisions so that more creditors receive what they are owed
For example where a court-ordered payment instalment plan is already in place, creditors will also be able to apply for an order to secure an unsecured debt. This would stop certain instances where a debtor might benefit from the sale of a property without paying off the debt. However, for their protection, debtors will no longer be at risk of losing their home over consumer credit debts of less than £1000.

Free up the High Court to deal only with necessarily complex cases
The level below which non-personal injury claims cannot be heard in the High Court will be raised from £25,000 to £100,000. The outdated value of property above which equity cases need to be referred up to the High Court will be raised from £30,000 to £350,000, reflecting the rise in house prices since the level was last set in 1981.

Extend a web-based scheme which controls legal costs for the majority of personal injury cases
The costs are pre-set in a way which encourages early settlement. Following evaluation of its current use in road accident cases worth compensation of up to £10,000, the scheme will be extended to road accident cases worth up to £25,000 and also to employer and public liability personal injury cases.

Cost Advocates, which assists some of the UK’s top companies to reduce their legal costs expenditure, will be working with Airmic to highlight the importance of greater scrutiny of legal costs to its members.

Martyn Hardy, Managing Director at Cost Advocates, said; “Over the years we have worked with a broad range of the UK’s largest companies helping them minimise their liability and spend on legal costs.  From the work we have already done in the self insured market we know there is a definite need for costs savings, which deeper scrutiny of their legal costs could bring. We hope that our acceptance as a Preferred Service Provider will raise the awareness of how to save money on legal costs to Airmic members, especially given the economic pressures businesses are under at the moment.”

John Hurrell, Chief Executive of Airmic said; “We’re delighted to welcome Cost Advocates as a Preferred Service Provider.  At a time when companies are under increasing pressure to find cost savings and the cost of litigation continues to rise, this will be an important area of focus for many of our members.”

The case, Solomon v Cromwell Group, saw the claimant’s solicitors argue that, where cases were concluded by acceptance of a Part 36 offer, they were not restricted to fixed recoverable costs as laid out under Part 45, but rather could claim ‘reasonable costs’ provided for by Part 36.10.

On 19 December, the Court of Appeal handed down its judgment that fixed recoverable costs are ‘reasonable’ and that they could not claim more than was laid out under Part 45 Section II unless the parties contracted out of it.

This is welcome news for industry as, had the judgment gone the other way, insurers would have been penalised for settling prior to proceedings with a Part 36 offer.  It would have removed the certainty of costs that Part 45 provides and removed the ability of an insurer to properly protect itself against adverse costs, going against the whole purpose of the pre-action protocols and the Civil Procedure Rules.

Detailed assessments are expected to reveal a trend for some claimant lawyers to maximise their costs, either by billing more hours or increasing their hourly rates – in order to claim the maximum fee.

Rigorously resisted for fear of a flood of dubious litigation, contingency fees were one of the key areas in Lord Justice Jackson’s reforms. He has proposed allowing them, so long as  safeguards are put in place, including requiring an independent solicitor’s counter signature and raising the cap from 25% to 35%.

Our justice system has traditionally taken a loser pays approach, with the ability to recoup fees from the losing party, giving lawyers a clear incentive to focus on truly meritorious cases.

We have shied away from the situation in the US where some lawyers pursue a portfolio of cases, even if many have little chance of success, on the chance of getting an occasional huge settlement. Their contingency fee system ties lawyers’ compensation to the value of the settlement – creating an incentive to make the litigation as expensive as possible.

Jackson’s aim is to avoid the situation in the US where it costs so much to successfully defend even a frivolous case, defendants will opt to settle for “nuisance” value payments.

The hope is that tribunal case rulings will protect the industry from a sudden hike in claimant costs. Insurers and lawyers alike will watch this space with keen interest.

Leigh Day’s £105m costs will be reduced significantly on preliminary issues, after the Court of Appeal overruled a decision by The Senior Costs Judge not to assess every item on the Bill.  The decision was made on the basis that his approach to ‘proportionality’ did not in fact go far enough; referring to Lord Justice Jackson’s recommendation that “proportionality should prevail over reasonableness”.

However, whilst the Court of Appeal is currently constrained by the decision in Home Office v Lownds* from 2002 (which said that if the costs appear disproportionate at the outset, the Court must apply a two stage test of necessity and reasonableness in respect of every item when assessing a bill), the comments of The Master of the Rolls will give the Civil Justice Council, which is currently working on a new definition of proportionality, plenty to think about.

The litigation, the subject of a 2009 BBC Newsnight programme, concerned the controversial ‘dumping’ of toxic waste and the injuries caused to local residents.  The litigation settled in September 2009 with Trafigura agreeing to pay damages of £30m, with claimants awarded approximately £1,000 each. Costs were awarded against Trafigura and Leigh Day served a bill of costs totalling £104.8m.

This move unequivocally attests to the strong judicial support for the system reforms advocated both by Lord Justice Jackson and Lord Young.

The new definition of proportionality due this year may well go further than the current test in Lownds, meaning that claimants will have to think very carefully about incurring costs which exceed damages, as even if the costs are necessarily and reasonably incurred, they still might not be allowed.

The Court of Appeal further added to the woes of claimant lawyers, by ruling that the costs incurred in setting up and maintaining funding arrangements for clients, should not be paid by the unsuccessful party, as it has no direct bearing on the litigation.

Under the old system, the only figure that mattered was the bottom line, so provided you were within or near the agreed budget for the case, it didn’t matter how the money was spent. 

But costs and case management have been placed firmly under the microscope, with a pilot scheme, initially trialled in Birmingham, currently being rolled out to all technology and construction courts across England and Wales.  Cases being tried in those courts are subject to regular case management conferences, in which both parties have to present the judge with proposed timetables and costs for each element of the coming proceedings.  The judge then approves, vetoes or modifies specific elements of the proposed phases and tasks to keep costs down based on:

• Its value and substance.
• Its importance to the parties.
• The complexity, novelty and difficulty of the issues in dispute.
• The time and cost to be incurred by the parties on each phase of work, including solicitors’ fees, counsel fees, experts’ fees and other expenses.

Under the scheme, parties will not be prevented from incurring costs considered reasonable and appropriate to achieve the commercial objective, but estimates, previously agreed by the court, will provide a guide as to what costs the court considers can be ‘reasonably’ recovered from an opponent.

This new process addresses a driving concern in Jackson’s proposed reforms; it should help reduce the cost of litigation by keeping costs in check and reduce, and in some cases eliminate, the need for detailed assessment at the end.

However, insurers and their legal teams should start investing in training now before case management conferences become the norm in all cases.  The stage-by-stage analysis and upfront planning that will be necessary under the reforms is a new skill that legal practitioners will need to learn and, with the need for clients to approve the cost of each stage, they will need to take a much more hands on approach.

Initially, due to be introduced in October 2012, implementation of the highly controversial Bill is likely to be pushed back to April 2013, due to the difficulties in passing the proposed legal aid reforms, which are experiencing a particularly rough ride in the House of Lords.

Whilst nothing has been announced yet, we believe this will have a knock on effect on the remainder of Lord Justice Jackson’s reform of litigation costs, including the extension of fixed recoverable costs.

Following the groundswell of support for Jackson’s call for clarity and simplicity, and in terms of costs law, this delay would clearly create some disappointment for many in the industry. However, given the judicial support the reforms have received, there is little doubt that change is inevitable.

David Cameron has pre-empted a formal announcement with his vow to “kill off the health and safety culture for good” in a speech to small business leaders. The Prime Minister has backed the extension to the fixed costs regime in cases where damages are up to £25,000 in value, although the precise details are awaited.

The reforms, which aim to simplify and speed up the claims process and reduce costs, would indeed be a welcome introduction, allowing insurers to predict accurate charges and costs reserves.  However, as we are all aware, some cases are far from predictable and not as straightforward as fast track RTAs.

Not only will the planned expansion of small claim limits and fixed costs across all fast track cases put a likely squeeze on profits made by claimant solicitors, it is also difficult to see how fixed costs could be implemented in a blanket way on Employer and Public Liability cases, where there is greater uncertainty and investigation can be far more onerous.

A more reasoned suggestion is to tighten protocol across all claims and dispute handling in the County Courts and look to a phased implementation of changes to speed up the process.

Clearly, although it marks a successful milestone in Jack Straw’s personal crusade, a ban alone won’t have the dramatic effect on premiums, the Government hopes. He also announced measures to:

•  Make it unlawful and a criminal offence to solicit, offer or pay referral fees relating to a personal injury traffic claim
• Introduce objective evidence for whiplash claims
• Halve the MoJ fixed fee for road traffic claims pursued through the portal
• Prohibit insurers from isolating risk on the basis of a geographic area smaller than a region
• Bring forward certain provisions in the Data Protection Act

These proposals and recent Court of Appeal cases can leave the industry in no doubt that the courts will be taking a hard line on excessive costs. There is strong judicial support for the system reforms advocated both by Lord Justice Jackson and Lord Young.

The Bill is scheduled for its second reading on 20 January next year.

The case involved a low value road traffic accident where liability had been admitted within protocol.  The claimant’s solicitors failed to negotiate and prematurely issued proceedings, submitting a Bill of Costs amounting to nearly £6000. 

Points of dispute, including over the premature issue of proceedings, were served against the Bill of Costs as, under Civil Procedure Rule 45, the claimant would have been entitled to approximately £1600 in costs.  However, due to the wording of the defendant’s final consent order which agreed to pay costs on the standard basis, the judge’s hands were tied.

Whilst the judge couldn’t revert to costs under CPR 45, in this case he did take into account the claimant’s failure to negotiate before issuing proceedings and compared the Bill of Costs against what should have been recovered under CPR 45.  The result was that penalties were applied to the Bill of Costs, amounting to a reduction of 55%.

While in this case the Bill of Costs was successfully reduced, to ensure success going forward, clients are advised to include a paragraph in final consent orders, reserving the right to raise premature issue of proceedings as an issue at the full detailed assessment hearing and where this is successfully argued, have predictive costs under CPR 45 applied.