Jackson Costs Report - The Dawn of a New World

Many working in the legal costs industry will have gone to work last Thursday, the day Jackson LJ published his final report on his civil litigation costs review, wearing brown trousers.  Most of them will have been spending the weekend updating their CVs.  Those who thought the final report would probably turn out to be something of a damp squib will have had the shock of their lives.

From the perspective of the majority of those working in the costs industry this was about as bad as it could have been.  Short of recommending a total change from the current system to contingency fees, or a total end to costs shifting, it is hard to imagine how much worse it could have been.  This is not to suggest that any of his proposals are wrong given the scope of his remit. 

The majority of those reading this who currently work in the costs industry will be earning a living doing something entirely different in 2-3 years time.

The starting point, if you haven’t done so already, is to read the Final Report (click link) itself.  There are helpful summaries on pages xvi-xxiv and 463-471.  The legal, insurance and mainstream press has been busy writing about the report and a selection of articles can be found read here: Law Gazette, Solicitors Journal, New Law Journal, The Lawyer, The Times, Telegraph, Guardian, Insurance Times and Post Magazine.

For a useful introduction to the recommendations in the report, New Law Journal’s webcast on the final report can be found here: Jackson Webcast.  The New Law Journal was busily promoting this webcast last week and it seems they did a bit too good a job of it as the massive demand for the webcast caused their system to crash.    

So, let’s have a look at some of the key proposals and see what kind of an impact these will have on the legal costs industry:

• Fixed costs for all stages in all personal injury fast track matters. - This is the big one.  This change does not require primary legislation and is therefore all but certain to happen.  Jackson LJ wants the new regime in place by October 2010!  Yes.  That quickly.  Fast-track personal injury work (with the limit now being £25,000) accounts for the vast majority of the civil costs work out there.  This will mean the end, at least in their current form, for most volume legal cost firms.  Although there will be a run-off period for existing claims, for fast-track matters this will not be long.  Firms are going to be starting to plan their redundancy programmes now.  Firms will be looking for mergers and management buy-outs for what remains of these businesses, if anything.  To make matters worse for employees, many of these firms will have no incentive to retain quality staff and will look to maximise profits for the short run-off period.  Await news of big changes to bonus structures. 

• An end to recovery of success fees and ATE premiums between the parties. -  Although this will not have a direct impact on the nature of the work out there, it is likely to have two indirect consequences.  Many claimant lawyers will feel unable to charge their clients success fees if these cannot be recovered from defendants.  Even if they do feel able to charge success fees, the proposed new cap on success fees will dramatically reduce the amount lawyers can charge.  This may have an impact on the willingness of firms to accept risky personal injury claims.  Any reduction in new claims being accepted will mean a future reduction in costs work.  Secondly, it has been the amounts at stake as a result of the recoverability of success fees and ATE premiums that has done much to increase the importance of legal costs in litigation and generate the need for specialists.  Once additional liabilities are removed from inter partes bills, the amounts at stake will appear much more modest.  Lawyers and insurers may feel much more comfortable negotiating costs in these cases and not feel the need to involve costs experts.

• Even if recovery remains in place, Jackson LJ not only wants to reverse the decision in Crane v Canons Leisure Centre [2007] EWCA Civ 1352, which allowed success fees to be claimed on work done by external costs draftsmen, but he wants recovery of success fees to be ended entirely in detailed assessment proceedings.  In recent years, detailed assessment proceedings have often been more profitable than the substantive litigation itself.  This will end and there will be less incentive for claims to be pushed to detailed assessment.

• Jackson LJ wants new software developed that will enable time to be recorded on case management systems in such a way that schedules of costs and bills of costs can be generated automatically.  Yes, you did read that correctly.  The traditional job of a law costs draftsmen, drafting bills of costs (as the name implies), is to end.  The bread-and-butter work for claimant costs firms will disappear.  This proposal would take some time to put into place, and faces a number of problems, but does not make for happy reading.

• Lengthy points of dispute and replies have become an industry in their own right and generated much work for the costs world.  Jackson LJ wants a radical change in approach and these pleadings to be much shorter.  Interestingly, the new model points of dispute (page 556 of the Report) are very similar to the kind I have been producing for years.  This recommendation is more one of guidance as to what the courts will expect to see rather than a fundamental change in the rules.  Although this change anticipates an actual amendment to the Costs Practice Direction, we can expect judges to want parties to implement the spirit of this change immediately.  Receiving parties will have to think carefully before preparing optional replies unless there is a point of principle arising or positive concessions are being made.  If they carry on producing replies along current lines they are unlikely to recover the costs of the exercise.  You heard it here first.

• There is a proposal for a pilot scheme of a provisional assessment procedure for bills up to £25,000.  If fast-track cases become subject to fixed costs, this proposal is unlikely to impact on a large number of cases.

• Jackson LJ recommends the introduction of qualified one-way costs shifting (in simple terms it means that defendants in personal injury claims will not normally be able to recover their costs when they win a case except where the defendant has succeeded on its Part 36 offer).  This will mean an end to the need for defendant bills of costs in most cases where a defendant wins on liability.  It will mean an end to the need for losing claimants to challenge such costs.

Are there any crumbs of comfort to come out of the report?  Not many.

• The introduction of rules for costs management in cases is proposed.  At one stage it was hoped in certain quarters that this idea would generate significant new work and keep experienced costs specialists busy.  However, it is proposed that it will generally be in the discretion of the judge as to whether to order costs management and it is unlikely that it would be adopted much beyond the type of case that is currently considered appropriate for costs capping orders (ie virtually none).

• Judges will be given a bit more discretion as to the circumstances where they are meant to summarily assess costs.  Basically, if they don’t want to, they don’t have to.  However, given fast-track cases will be caught by the fixed costs proposals this is only going to have limited impact on costs work levels.

• The radical proposals for “proportionality” (which I’ll discuss in more detail on another occasion) seems certain to generate a flurry of satellite litigation initially, but this will probably be short-lived.

Don’t start complaining as to why you weren’t warned about all this before.  Given Jackson LJ’s opening comments to his Preliminary Report were: “My final report will generate protest from at least some directions and quite possibly all directions. … The personal injury litigation industry is populated by numerous interest groups and middlemen, all of whom have to meet their overheads and make a profit on top. If any layer of activity can be removed from the process … it may be thought that this will serve the public interest”, it should have been obvious what was coming.  I warned as much in a previous post (click link) and a recent article I wrote for the Solicitors Journal (click link).

If there is any comfort at all from this report it is that it may help separate the wheat from the chaff in the costs world.  For too long this has been an industry largely populated by poorly trained “costs muppets”.  With only a small number of higher value claims remaining in the system post-Jackson, it is to be hoped that those who survive are the genuine experts and what was an industry will become a true profession.

For the rest, happy job hunting.