The law of legal costs and why the price of justice is so disproportionately expensive

Is the juice worth the squeeze?

In the early 1990s, the courts were at breaking point, crippled by constant delay, ever-increasing costs and an ever-expanding case list. This was due to an overriding focus on ‘substantive justice’; the idea that the pursuit of justice requires that the merits of each case must be heard in full, irrespective of the costs involved.

In 1994, Lord Woolf was appointed to review the rules of civil procedure, with the aim of reducing the overall cost (fees and charges required by law to be paid to the courts or their officers) and the complexity of litigation. This resulted in the introduction of the Civil Procedure Rules 1999 (CPR), which have been used ever since.

At the heart of these rules is the ‘overriding objective’: a rule which requires cases to be dealt with “justly and at proportionate cost”, so far as is practicable. In the early 2000s, the reforms were mostly regarded as a success.

However, after several years, many judges and practitioners felt the legal system had begun to head back toward the situation we saw in the 1990s. As a result, Sir Rupert Jackson was appointed in 2009 to review civil costs and presented his recommendations in early 2010. Most of these recommendations were adopted by the government, and a new set of ‘costs budgeting rules’ was released.

To sum up the reaction to these rules, Master Barbara Fontaine probably put it best:

It would be an understatement to say that the costs budgeting rules that have been introduced have not been received well by either the judiciary or practitioners.

Such was her Ladyship’s opening during a lecture she gave earlier this year to a small cohort of Civil Procedure students. How right she is.

As she sees it, the current system suffers from two main complaints:

1. Costs are unpredictable and disproportionate.
2. The incentive of high hourly rates makes this unlikely to change.

The result? The cost of litigation, in the words of Adrian Zuckerman, is “high, unpredictable and can end up out of all proportion to the value of the subject matter in dispute”. This is undoubtedly the reason for the meteoric rise in cases brought by litigants in person, for who, in particular, the juice will rarely now be worth the squeeze.

In short, the current system has failed to address either of the two complaints. This is particularly true in cases of personal injury or clinical negligence, where the parties’ positions are notably imbalanced.

This — combined with Qualified One Way Costs Shifting (QOCS) whereby defendants will generally be ordered to pay the costs of successful claimants but, subject to certain exceptions, will not recover their own costs if they successfully defend the claim, as well as highly unpredictable litigation — means that a defendant’s insurers are unlikely to agree to cover the claimant’s costs.

With that said, there have been signs of improvement in some areas such as in cases of urgent health issues (cost budgeting is now discretionary), in cases under £50,000 (for which there is now a simplified procedure) and the introduction of guidance to encourage parties and judges to take a more broad-brush approach to agreeing/fixing costs. This is a welcome trend, moving towards Jackson LJ’s recommendation of making all costs management discretionary. For the moment, however, the majority of cases remain disproportionately expensive.

The introduction of the CPR following Lord Woolf’s recommendations in 1996 shifted the emphasis of the system from substantive justice to one of proportionality. This was a noble venture and is arguably much needed. As Professor John Sorabji notes, if cases are treated as “hermetically sealed” from the impact of other cases, many will not get access to justice. Such was the legacy pre-Woolf: systemic delay.

On the other hand, there is a strong argument for substantive justice, and Professor Neil Andrews rightly reminds us that we should not unwittingly sacrifice justice for proportionality as this will undermine the faith of the citizen in the system. In short, while the civil justice system should have regard to proportionality, it should not be implemented so stringently that justice becomes impossible. Doing so has given rise to four main problems.

First, the CPR permit the court to adjust costs down to a “proportionate level”. This renders the cases where costs are reasonable and necessary but disproportionate being classed as disproportionate. However, the problem with this is that unless a party is guilty of misconduct, the individual is penalised by an unprincipled application of the proportionality rule. The better view, says His Honour Michael Cook, is not to put the burden on the winning party, but to deal with high hourly rates. Quite so!

Second, the cost of litigation is unpredictable. This is, Zuckerman says, because what constitutes proportionate is far too subjective under CPR 44.4. For example, the amount of skill, expertise and the value a claimant places on a case will be very hard to ascertain, particularly as the amount of skill and expertise will heavily depend on the expertise and skill of the practitioner. Non-monetary claims (e.g. reputation) are difficult to quantify.

Third, proportionality can undermine substantive justice. As such, disproportionality must be weighed, from time to time, against access to justice. For example, as Professor Claire McIvor notes, sometimes the value of the claim is low indeed, but the value of exercising one’s rights must, at least broadly, remain supreme. Take, for example, the case of Ward v Byham where the claim was worth £1 per week. In these sorts of cases, the costs are bound to be disproportionate to the value of the subject matter in dispute. Failure to appreciate this will discourage the vindication one’s rights, particularly in the case of the impecunious litigant.

Finally, one of the biggest reasons for us having the two complaints is that before the Jackson reforms base costs, success fees and After the Event (ATE) premiums — which would cover any expenses of your opponent’s legal costs up to £25,000 in the event that you lost your case — were recoverable. This was a misstep partially corrected by the Jackson reforms, but it has not addressed one of the biggest culprits of high cost litigation: high hourly rates. This is because they are still calculated in the base rate, with no reference to proportionality (see CPR 48.8 and CPR 48.9). Unless this is remedied, the status quo is bound to remain the same.

So is there a solution?

In order for the status quo to change, we need a system more like that of the, dare I say, United States or Germany. Of the two, Germany seems the most preferable.

The so-called ‘no cost-shifting rule’ applied in the US system deals inherently with disproportionality because the claimant has to decide if the claim is worth the money to him. He will not recover his costs, even if he wins. He must decide if the proverbial legal juice is worth the squeeze. The trouble with the US system, though, is that the pervasive high hourly rates make it almost impossible to get a proportionately costed case (Cook).

Perhaps then, a fixed-cost system will provide us with the answer. Indeed, a fixed-cost system has been introduced by England and Wales for some personal injury and intellectual property claims (CPR 45). Further, in the multi-track claims over £25,000 and under £10 million must go through costs budgeting; though this has been largely unsuccessful (see above). Cost capping is also available under CPR 3.10, but is rarely used. Sir Rupert Jackson has since proposed applying fixed costs to all claims up to £250,000 in the IPA Annual Lecture he gave in January of this year.

The better view is the adoption of a system like that used in Germany. There, the courts use a pre-determined cost grid that allows a quick estimate of proportionate cost based on the number of hours reasonable in light of the complexity of the claim. For this to be successful, however, there would need to be an overhaul of the hourly rates (Cook) and, as Zuckerman has argued, this overhaul should be undertaken by an independent body.

Taking stock, it seems clear the two complaints we have examined are still complaints we could levy today. However, we have also seen that in certain circumstances this is a necessary evil. It is hoped the courts will be mindful of this as they continue to carry out their CPR 44.4 analysis. However, the unavoidable reality is that the system is in need of an overhaul. When it comes to costs, the juice is — for the average man at least — seldom worth the squeeze.

Michael Woollcombe-Clarke is a recent University of Cambridge graduate.

Sources

Cook, M. (2010) ‘Hourly rates and fixed costs’

Andrews, N. (2003) ‘Civil Procedure’

Sorabji, J. (2013) ‘Prospects for proportionality: Jackson implementation’

Zuckerman, A. (2010) ‘The Jackson Final Report on Costs—Plastering the Cracks to Shore Up a Dysfunctional System’