The cost of going to court: Lord Jackson reopens the debate

Out-Law News | 15 May 2009 | 4:55 pm | 3 min. read

A preliminary report on civil litigation costs asks fundamental questions about who should pay the legal costs when disputes are taken to court in England and Wales and how those costs can be controlled.

The report launches the consultation phase of Lord Justice Jackson's review of the current cost system and sets out the results of a four-month information gathering exercise. His final report and recommendations are due to be published by the end of this year.

Commenting on the task before him, Lord Jackson said: "The issue of costs is one which generates deeply held and fundamentally opposed opinions. It  is an issue of public importance and one which touches upon a number of vested interests.

"In the last four months, I have been caught up in a maelstrom of conflicting arguments. Indeed, in comparison with the present Costs Review, the design and construction of the Tower of Babel seems to have been quite a harmonious and straightforward project.

"Whatever I may recommend at the end of this year (and at this stage I still have an open mind) one thing is inevitable. My final report will generate protest from at least some directions and quite possibly from all directions." 

Lord Jackson was appointed in November 2008 to carry out an independent review of the current costs regime and to make recommendations to promote access to justice at proportionate cost. This paper, published on 8th May, marks the end of the first stage of that review.

"The facts set out in the report have been gathered from many sources," he said. "They are not intended to support any particular conclusion. On the contrary, I hope to ascertain, with the assistance of the consultees, where those facts lead us.”

Nevertheless, the paper raises a number of fundamental questions and, in some areas, puts forward tentative conclusions as a basis for further discussion.

Loser pays

One of those questions is whether the "loser pays" principle, also known as cost shifting, should be retained, modified or dispensed with altogether.

Subject to the discretion of the court, the general rule in England and Wales for the last two centuries has been that the losing party pays the other side's costs of the litigation. 

Supporters of the rule argue that it discourages unmeritorious claims and encourages earlier settlement. Some jurisdictions, however, restrict the amount the successful party can recover. In others, there is no cost shifting at all, so that each party must bear its own costs. Even in England and Wales, tribunals traditionally operate on a no cost shifting basis.

Lord Jackson's initial investigations, however, have revealed strong support for the loser pays principle.

"Despite the discordant arguments which resonate on every other issue, there is one matter upon which all the warring parties are agreed," the report states. "The cost shifting rule must be retained".

But Lord Jackson's tentative view is that the pros and cons of keeping the rule are more finely balanced. "There may possibly be further specific areas of litigation where the abolition of cost shifting is a serious candidate."  

One such area is class actions, where the report suggests a "no costs" rule with some sort of carefully-regulated contingency fee arrangement to meet the claimants' lawyers fees might be appropriate, together with built-in safeguards to discourage unmeritorious claims. Alternatively, cost shifting would remain, but the court would decide at an early stage of the action whether it should apply.

"Subject to defined exceptions, however, it appears that cost shifting in some form must remain for the generality of litigation". But, he warns, "the existing cost shifting regime should not be regarded as a sacred cow".

Alternatives mentioned include one-way cost shifting (where an unsuccessful defendant pays the claimant's costs, but an unsuccessful claimant is not liable to pay the defendant's costs) or partial cost shifting, where the successful party recovers some, but not all, of its costs.

Personal injury claims

Personal injury claims are another area where the report suggests that modification of the loser pays principle "merits serious consideration".

Most personal injury claims are pursued by claimant lawyers on a "no win no fee" basis backed up by after the event (ATE) insurance covering the claimant against the risk of having to pay the defendant's legal costs.

If the claimant loses, no ATE premium is payable. But if the claimant wins, the defendant has to pay an enhanced premium, plus the lawyer's basic costs and a success fee on top of that.

This regime means that personal injury claimants can bring their claims at no cost and no personal risk. This promotes access to justice, but it has also massively increased the exposure of liability insurers operating in this market. "The question must now be asked as to whether the correct balance has been struck," says the report.

Lord Jackson would like his review to tie in with proposals currently being considered by the Ministry of Justice for reforming the court process for road traffic accident personal injury claims worth between £1000 and £10,000. These include a streamlined claims process, fixed time periods and fixed recoverable costs.  

In his report, however, he comments that the much broader proposals put forward in 2007 by the Department for Constitutional Affairs, which would have applied fixed fees and other reforms to all personal injury claims (other than clinical negligence) worth up to £25,000, made "eminently good sense".

Next steps

Responses to the paper, including further evidence and data, should be submitted by 31st July. Lord Jackson plans to publish his final report and recommendations by 31st December 2009. 

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