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Better late than never: Government to press ahead with Jackson proposals on extension of fixed costs but are the amounts too high?

Over 18 months after receiving the report from Sir Rupert Jackson on extending the use of fixed recoverable costs (FRC) to include most cases worth up to £100,000, the MoJ is finally ready to proceed with the long-awaited consultation on the report's implementation.

The delay can be partly explained by other pressures on a Government department with a cut-back budget, but with the Civil Liability Act now in place resource has now been found to tackle the issues raised in Jackson's final piece of work before his retirement. The MoJ themselves refer to the need first to have dealt with first the Post Implementation Review of LASPO as they did at the end of last year.

 

The consultation is open until 6 June and the proposals affect most claims dealt with by insurers which are worth up to £100,000. The issues raised by the consultation in what is essentially a plan to introduce the Jackson proposals with only minimal change are largely as expected, but it is appropriate for insurers to provide a response to the consultation on a key issue where significant sums are at stake in cases at quantum levels which will include the vast majority of claims.

Summary

Assuming no significant change in the political landscape at Westminster over the next couple of years, it seems likely that the vision of a wide extension of FRC as drawn up by Jackson and now supported by Government will be in place relatively soon, perhaps in late 2020. The bandwagon towards more and more fixed costs continues. New rules of court will be needed but time will not need to be found to pass primary legislation.

 

The MoJ largely accept Jackson's 2017 report in rolling out FRC to the remaining claims worth up to £25,000 and indeed to most cases up to £100,000, and the use of bands of complexity to determine the appropriate level of FRC for each. They accept a future potential extension to higher value claims perhaps to £250,000, but also need to control disbursements in addition which are currently excluded from this process.

 

The key issue for insurers and others is whether Jackson has pitched his FRC figures at the right numbers. There are in fact signs that perhaps in a desire to compromise he has been too generous at certain levels. These include band 4 for claims worth up to £25,000 where the proposed FRC greatly exceed the negotiated level of FRC for NIHL claims, as well as bands 2-4 for claims up to £100,000 which are suggested at levels much higher than Jackson's view in 2016.

 

Jackson says that he has factored in adjustments into the FRC figures on account of process savings due to the existence of fixed costs, as well as efficiency savings based on better streamlined claims processes though it is unclear as to the extent to which he has done so.

 

What does seem clear is that it could be said that insufficient downward adjustment has been made for increased efficiency of business processes as the claimant sector has widely demonstrated over recent years and which will inevitably continue. It could be said that this should be encouraged by making further appropriate adjustments.

 

Next Steps

We can expect a government response to the consultation which will then largely implement the current proposals. There is though an inconsistent position taken in the consultation itself as to when that response will come: in fact 3 different dates are given. At the start of the consultation document itself we are told the response will be due "within three months of the consultation ending", on page 9 it is said the response will follow as is often said by Government - "in due course", while on page 41 this appears: "The government will publish a response to this consultation, and set out the way forward later in the year".

 

There will clearly be a need to have new rules of court and the MoJ say they will start engagement with the Rule Committee "at an early stage" to discuss those changes.

 

If a response to the consultation emerges later this year then it may be realistic to expect implementation of these plans in around October 2020.

Jackson's report

This was delivered on time at the end of July 2017 and we reviewed it in detail here. As the current proposals essentially adopt Jackson's report it is worth looking back to that time via the previous link setting out the proposals to extend FRC.

 

At that time we expected Government acceptance of the reasoned set of proposals from Sir Rupert and so it has proved. In mid-2017 we seemed to be looking ahead to implementation in October 2018 so 2 years of time have been lost.

 

As a reminder, the report suggested three main reforms: filling the gaps in the use of FRC in claims up to £25,000 where in fact many claims were already subject to fixed costs; accepting the proposals of the Civil Justice Council Working Group on NIHL claims as to FRC and new processes for deafness claims; and proposing a new intermediate track so that FRC could be introduced for most cases worth up to £100,000.


The rationale for more FRC

More fixed costs are good in principle say the MoJ. "It is sometimes suggested that FRC favour defendants at the expense of claimants. But it is generally just as much in claimants' interests to control the costs that they might have to pay."

 

The MoJ also quote Jackson himself with approval: "I accept that if litigation becomes uneconomic for lawyers, so that they cease to practice, there is a denial of justice. But, for the most part, achieving proportionate costs and promoting access to justice go hand in hand. If costs on both sides are proportionate, then (i) there is more access to justice and (ii) such funding as the parties possess is more likely to be sufficient."

 

It was fully anticipated that Government would take their current line as their view on the principles involved are the same as Jackson's. The move towards more FRC is a bandwagon that cannot be stopped.

 

For insurers their interests in accurate reserving coincide with those of other litigants and are recognised as an advantage from FRC extension: the key as seen by the MoJ is for parties to a claim to be able to make "an informed assessment of the likely costs" when working out their case strategy.

 

The MoJ position

They accept Jackson's proposals essentially as presented with one change that while at first glance may appear significant is in fact is unlikely to be.

 

There is no change to the level and type of claim intended to be included in the extended FRC regime, which is to be most claims up to £100,000, but instead of creating a new intermediate track to handle cases in the £25,000 - £100,000 range, the MoJ intend to extend the fast track up from £25,000 to a new level of £100,000 so as to include these cases. They say it would be costly and complex to create a new intermediate track.

 

In fact Jackson himself had considered doing the same as an alternative to creating a new additional track before deciding it would be simpler to have a new track. The issue as to whether to proceed as the MoJ propose is one of the matters raised for responses in the consultation.

 

In reality we see the position between the two options as finely balanced but the difference as largely insignificant. Either way the CPR will need to be revised.

 

If there is to be a new track then new rules for that track will be required. If the fast track is extended then Parts 26 and 28 will need revision. Certain current provisions for the fast track as set out below will need to be changed: that the track is appropriate for cases with a trial length of up to 1 day; that trial is expected to be within 30 weeks of the CMC; and that expert evidence is limited to 2 per party in different fields of expertise.

 

We believe that it is the extension of FRC to these cases rather than the name of the track that they are allocated to which is important.

 

The MoJ accept as expected Jackson's point that the 'one-size fits all' approach where all types of claim are treated the same in terms of the level of FRC does not apply. They propose to treat the different types of case in the same way as Jackson had proposed.

 

The costs figures being proposed

If more FRC are accepted in principle as seems inevitable, then the key point is the actual level of FRC in terms of the amount of costs allowed as recoverable between the parties. This point is fundamental to the reform itself and also to the strategic position taken by insurers and others in relation to this proposed reform.

 

In outline form, the government with only very minor tweaks accept fully the figures proposed by Jackson in his report. They believe the figures "have been devised with appropriate rigour" having been based substantially on data from a firm of solicitors and costs lawyers who claimed a 10% share of the market, which were then analysed by Professor Fenn, and where the outputs were reviewed by a team of 14 assessors with a "breath of views and experience".

 

The Jackson report will be nearly 2 years old by the time the consultation closes. Some of Jackson's figures had been uprated for inflation by 4% to represent the 4 years which by the date of the report had passed since some of the existing FRC were set, but the consultation does not address inflation since the date of the Jackson report though the MoJ may consider no further increase can be justified.

 

We will consider below the potential use of those figures when compared to current levels of recoverable costs being paid by insurers and other litigants as that remains the litmus test of these reforms.

 

FRC for cases in the current fast track worth up to £25,000

The MoJ accept the recommendation that on the fast track claims should be divided into 4 bands of increasing levels of complexity as follows:

Band 1 - RTA non-injury claims such as bent metal or vehicle damage only; defended debt claims Band 2 - RTA injury claims which fall within the RTA low value protocol; holiday sickness claims Band 3 - EL accident claims; PL claims; RTA injury claims which fall outside the low value protocol; housing disrepair claims; other money claims Band 4 – EL disease claims except NIHL (which are dealt with separately); professional negligence claims; property claims; complex housing disrepair claims; other claims at the top end of the fast track  We deal separately later in this briefing with FRC in NIHL claims.

The actual proposed FRC are set out in this grid:

 

All of the above figures are cumulative and cover all case stages up to that point, with the exception of the trial advocacy fees which need to be added if the case gets that far. As to the four categories of those advocacy fees, a. is for claims where damages of up to £3,000 are awarded; b. for claims £3,001-£10,000; c. for claims £10,001-£15,000 and d. £15,001-£25,000.

 

Footnote 42 in the table above highlights the only adjustment from Jackson's report where the words "The greater of £572 or" have been added with the figure in question taken from the current FRC contained in the CPR and uprated for inflation for reasons of consistency.

 

To compare current costs with these new FRC we can take the example of claims settling pre-litigation.

 

Current FRCs for 4 types of injury claim which settles for an assumed damages figure of £25,000 are as follows:

 

  • RTA £3,430
  • PL - £3,870
  • EL accident - £4,000
  • EL disease – hourly rate costs

Taking the same cases settling for £25,000 pre-litigation then the costs on the basis of the Jackson's figures (which the MoJ propose to accept) would be:

 

  • RTA - £3,507
  • EL accident/PL - £4,100
  • EL disease (excluding NIHL) - £6,000

So the figures essentially take the existing level of FRCs for RTA and EL accident claims and uprate them for inflation over the 4 years since their introduction through to the date of the report: 2017. With RTA and EL there is an increase of between 2.2% and 2.5%, while for PL the increase is 5.9%, so as to create equality with EL accident as is the new approach.

 

We see that FRC for EL disease excluding deafness are proposed to be at a level 46% above EL accident and PL. While it should be recognised that EL disease is only one example of a band 4 claim, the differential between this type of claim and accident claims (and therefore between band 4 claims and the lower band claims) looks high.

 

The same conclusion can be reached when comparing the EL disease excluding NIHL claims with the FRC level which would apply to NIHL claims themselves. As we will see when looking at NIHL claims below, depending on factors such as whether liability is admitted, the number of defendants and whether draft proceedings are prepared, the FRC are between £2,500 and £5,000. Taking a mid-point of £3,750 demonstrates that the EL disease figure given above of £6,000 indeed looks too generous.

 

So in summary, the MoJ follow Jackson in proposing to fill the gaps in FRCs in claims under £25,000 by taking the current FRCs used both for RTA injury (essentially band 2 claims) and for EL accident and PL claims (band 3 claims) which drop out of the portal, uprating them marginally, and then scaling them downwards for bent metal and other more straightforward claims (band 1 claims), and upwards for EL disease, professional indemnity and property claims (band 4 claims).

 

Is this a radical enough approach where efficiencies in business processes will have delivered better and smoother handling of these claims since the existing FRC were set in 2013? This seems especially true where as we have seen following negotiations under the auspices of the CJC lower FRC were agreed for NIHL claims than those currently being proposed for many less complex types of claim.

 

Jackson did not address the question of what costs to allow where multiple claims are made from the same incident. Additional claimants could arise out of the same factual situation with gastric illness claims or from an RTA for example. Where the same lawyer is used the proposal is that FRC for claimants after the principal claimant should be set at 10% of the main FRC figure. While a conservative figure this reflects the fact that much of the work will be duplicated.

 

The government propose to trim the Jackson recommendation of allowing recovery of certain counsel's fees in addition to the set level of FRC in sub-£25,000 cases. He had suggested allowing on top of FRC an extra £500 for the drafting of a defence and £1,000 for an advice or conference where the work was done by counsel or another 'specialist lawyer'. Subject to consultation the MoJ agree with this recommendation but limit this to only apply to band 4 cases and NIHL claims where there could be more complexity.

FRC for cases in the proposed extended fast track worth up to £100,000

Again the MoJ largely accept the Jackson intention to have FRC for these cases (with certain limited exceptions which are thought to be the most complex cases within this value band) together with 4 case bands of
increasing complexity of claim as set out below though in view of the closeness of the actual FRC figures as well as presumably the actual designations of suitable cases they ask in the consultation whether bands 2 and 3 should be merged.

The bands are these:

  • Band 1 – quantum only injury claims; debt claims
  • Band 2 – with band 3, this is to be one of the 'normal' bands, while suitable for the more straightforward cases including injury claims where liability and quantum are in dispute
  • Band 3 – as with band 2 this is the other 'normal' band, while suitable for the more complex cases Band 4 – the most complex claims where trial is likely to last 3 days where there are serious issues of fact/law including injury cases where there are serious issues on breach, causation and quantum.

The proposed FRC are as Jackson suggested and are set out on this grid: