Costs News

14 February 2019
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MoJ recognises concerns about costs budgeting – but does not plan to address them

There are “relatively strong views” about costs budgeting among practitioners, the Ministry of Justice (MoJ) said last week, with many believing that the process could be improved.

However, it made no commitment to taking action on this in its post-implementation review of part 2 of LASPO, which found overall that, “on balance”, the reforms succeeded in reducing the cost of litigation, discouraging unmeritorious cases and promoting access to justice at proportionate cost.

Costs budgeting did not form part of the review, but the MoJ said it nonetheless received “a significant number of representations… citing concerns with the process”.

It said one of the main recurring concerns was that costs budgeting was inconsistent between different courts and judges, “although some noticed there had been progress in this regard”.

Claimant lawyers also said that the process could be “quite prescriptive and fixed at the start of the case where many variables about the future course of litigation are unknown, making it very difficult to estimate costs”.

The review continued: “Furthermore, lawyers in some areas suggested that costs budgeting could even be increasing costs through the additional process itself, including for clinical negligence and low-value damages cases. It was also said that costs budgeting can increase the length of claims significantly.”

There was some concern on the defendant side that costs budgeting did not deal with incurred costs, sometimes leading to “frontloaded costs”. The MoJ added: “It was also said that once budgets are declared, the budget becomes the cost or a target to reach rather than the maximum cost.”

Nonetheless, the MoJ said it was not proposing any amendments to the primary legislation, or immediate changes to the underlying rules and regulations, although it identified reform of the damages-based agreement (DBA) regime as the area it was most likely to address in the future.

The MoJ said: “Based on the evidence received as part of the PIR, the government considers the part 2 reforms to have been successful in achieving the principal aim of reducing the costs of civil litigation.

“The evidence shows that, in a range of personal injury claims (including clinical negligence claims), costs have reduced significantly (c. 8-10%) and early settlement has also improved [by 9%].

“A definitive judgement on the impact on unmeritorious claims cannot be made at this time, but the claims volumes data, the changes in financial incentives to CFAs, the test of fundamental dishonesty for QOCS and anecdotal stakeholder feedback suggest there has been an overall decline in unmeritorious claims.”

The figures were based on a data analysis from Professors Fenn and Rickman – whose work has underpinned much of the civil justice reform of the past 15 years – which indicated lower base costs and damages, and reductions in the length of proceedings, in personal injury and clinical negligence cases following LASPO.

The MoJ said it accepted the argument that the DBA regulations would benefit from “additional clarity and certainty”. However, it also needed to exercise caution “to avoid creating unintended consequences”.

The review explained: “While it may be an advantage for lawyers to have different funding options available, there may also be disadvantages in having to advise their clients between different options, especially where – as with CFAs and DBAs – the better option financially for the client will be the worse for the lawyer, and vice versa.”

It said it would give “careful consideration” to the way forward following an independent review of the drafting of the regulations, which is being undertaken by Professor Rachael Mulheron – who chaired the Civil Justice Council committee on DBAs – and leading costs counsel Nicholas Bacon QC.

The other area of possible reform it identified was extending qualified one-way costs shifting (QOCS). The MoJ said there were “clear attractions” for claimants and their lawyers in being able to litigate at no or reduced costs risk.

But it continued: “There is also a clear risk that by extending costs protection that some of the benefits of the part 2 reforms would be undermined: the shifting of costs back to defendants, an overall increase in costs and the potential for prolonging rather than settling litigation.

“The government would wish to be satisfied that these risks have been addressed before considering the case for extending costs protection further.”

The Fenn and Rickman research received feedback that suggested costs in other categories of law have generally also fallen, but there was not sufficient data available to make a quantitative judgement outside of PI and clinical negligence.

The review acknowledged that many claimant lawyers felt that it has become more difficult and challenging to bring some claims, in part due to the part 2 reforms.

“Although general concern was expressed about the consistency of the court’s approach to proportionality, most respondents agreed that the proportionality test was an effective way of ensuring that costs and damages were aligned.

“That said, concern among some correspondents remains in some areas of litigation where costs to damages ratio are high, although claimant representatives in these areas argue that relatively high costs are necessary to maintain access to justice due to the complexity of these cases, the amount and quality of evidence required and the holistic value of a case beyond the monetary damages themselves.

The MoJ also noted concerns from liability insurers and defendants that QOCS may encourage more (and weaker) claims, but said it has not seen “any reliable or conclusive evidence that supports that theory”.

It continued: “There are stronger measures in place to deter unmeritorious claims such as the qualification of fundamental dishonesty for QOCS and the ban on referral fees for PI, and there is also anecdotal evidence of claimant lawyers looking for higher prospects of success before taking on a case.

“The volumes of claims also support this view – generally, the volumes of claims indicate a slight decrease.”

In relation to the part 1 LASPO legal aid reforms, a legal support action plan doubled funding to support litigants-in-person to £3m for the next two years and said the legal aid means test would be reviewed.

There will also be a £5m fund to explore “new ways in which legal support and advice can be delivered remotely through digital means”, “ways in which questions about a legal problem and legal support itself can be broken down” and “ways in which legal support can be delivered to litigants in person”.

Justice secretary David Gauke (pictured) said the test for access to justice should not be “legal aid as it has been” and it was time to “embrace technology and innovation and do things differently”.

 

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