Legal costs is a funny old game.

Fixed success fees for employers’ liability claims were introduced on 1 October 2004. Fixed success fees for employers’ liability disease claims were introduced on 1 October 2005. Recoverability of success fees between the parties will end in April 2013 (although not retrospectively).

Only now, with the end in sight, has the question of what is and what is not a “disease” suddenly become problematic.

The first issue that arises is whether exacerbating a pre-existing condition amounts to a disease. This issue now appears to be heading to the Court of Appeal. See the excellent briefing note from specialist costs counsel Andrew Hogan for a more detailed analysis.

Secondly, we have the recent judgment of Mr Justice Males in Patterson v Ministry of Defence. This concluded that symptoms relating to exposure to cold weather conditions did not amount to a “disease” for the purposes of the fixed success fee regime. This judgment includes a detailed analysis trying to interpret the meaning of the term “disease”. It is clear that this is a far from straightforward point. This is compounded by the fact that some of the claims that fall within the “disease” category for the purpose of the rules would not normally be considered as such using ordinary language.

Now that the courts have been asked to properly grapple with this issue it is likely to run for some time and potentially produce some unexpected outcomes. Remember, everyone used to believe that pleural plaques was an actionable injury and millions of pounds was paid out in damages and costs before it was decided that it was not.

Earlier in the year specialist costs counsel Andrew Hogan wrote about the various alternative proposals for a new proportionality rule. Commenting on the Longstop Model (i.e. undertaking an assessment applying reasonableness and at the end of the assessment process the judge can stand back and reduce the figure further if the amount appears disproportionate – this is the model that appears to have been adopted) he wrote:

“The notion of a “long stop” discount test of proportionality, is a recipe for satellite litigation, as it will introduce chronic uncertainty into the assessment of costs, both in terms of when such a deduction will be applied and in terms of what the quantum of deduction might be. Perhaps, more significantly, it is disappointing that even now, some 15 years after Lord Woolf ‘borrowed’ the concept of principle of proportionality from European Union law, it remains a nebulous and uncertain concept, hard to define and even harder to apply, which is conceptually very odd, when one considers that the stated aim of Jackson was to reduce perceived disproportionate costs to a proportionate level. If you can’t define proportionality, how can you judge whether you have succeeded or not in moving from a disproportionate model of costs to a proportionate one?”

I have yet to meet a costs practitioner who believes that the new proportionality test is workable.

More worryingly, I have yet to meet a costs judge who is able to explain by what margin, if any, a Bill of Costs in relation to routine litigation that has been assessed at £75,000 applying the reasonableness test should then be reduced down to if the amount in dispute was only £25,000.

A reader recently contacted me to ask whether I had any information on how the provisional assessment pilot scheme is working in practice, what is generally being allowed to claimants, and what people’s general experiences have been.

I must confess, to date I have not had a single case fall within the scheme. Perhaps claimants are steering well clear of the courts where the pilot applies.

So, the best I can do is ask other readers to share their thoughts here. For once, I will entirely understand if these are anonymous.

I don’t want to have to change the name of the Legal Costs Blog to the Let’s Have a Go at APIL Blog but they do keep coming out with the silliest things.

APIL president Karl Tonks, commenting on the Court of Appeal’s change of mind in Simmons v Castle as to the timing of the 10% uplift in general damages, stated that the original ruling was “simple, clear, and fair to all concerned”.

His criticism is that:

“now someone who starts funding his claim in, for example, March next year but whose case concludes in, for example, November, won’t be entitled to the increase, while at the same time someone who starts on 1 April but whose case concludes in November will receive a different sum in damages for his pain and suffering. It could easily mean that two claimants leaving court on the same day, with the same injuries, will receive different damages just because of the date on which they signed their funding agreement.”

This appears to reveal a rather worrying lack of understanding as to how LASPO will operate.

Let us take two claimants who suffer identical injuries following highway tripping accidents, both worth £5,000 general damages in current money. They settle their claims in November 2013. Both claims are funded by way of CFAs with 100% success fees and ATE premiums of £500.

If the Simmons judgment had been left unaltered:

1. Claimant A starts his claim in March 2013. When the claim settles in November 2013 he would be entitled to damages of £5,500 (ie £5,000 plus the 10% uplift). The other side would be liable for the success fee and ATE premium meaning Claimant A walks away with £5,500 in hand.

2. Claimant B starts his claim in April 2013. When the claim settles in November 2013 he would be entitled to damages of £5,500 (i.e. £5,000 plus the 10% uplift). Claimant B will have to pay his success fee and ATE premium out of his damages. The success fee would almost certainly be £1,375 as the 25% cap would apply. Claimant B would therefore walk away with £3,625 in hand.

How is this any fairer then the amended judgment? The amended judgment means Claimant A get £5,000 and Claimant B £3,625. Still not the same, but at least closer.

Any change such as this creates inherent “unfairness” during the transitional period. If APIL had a fairer solution that would have meant all claimants would have identical outcomes with the introduction of LASPO it is a pity they did not suggest it to the Court of Appeal. Of course, one solution would have been to introduce the 10% uplift and the end to recoverability at exactly the same time (ie end recoverability retrospectively). That way Claimant A and Claimant B would both have identical outcomes when their claims settled in November. Although, no doubt APIL would have managed to come up with some objection to even that “fair” solution.

The Association of Costs Lawyers recently released the results of a survey of claimant personal injury lawyers indicating gloomy predictions for the implications of the Jackson costs reforms. 78% predicted that they would have less work after implementation. 62% of firms expected to make staff redundant as a direct consequence of the Jackson reforms, while 28% did not yet know. Only 10% said they were sure they would not make such redundancies.

When personal injury lawyers sneeze the costs profession tends to catch a cold. Even if the personal injury lawyers surveyed are incorrect as to the negative impact on their work volumes, other parts of the Jackson reforms, such as an extension of fixed fees and costs budgeting, will inevitably lead to a significant reduction in the amount of work available for Costs Lawyers and law costs draftsmen.

A recent press release from the Association of Costs Lawyers, commenting on the continuing high numbers of new students joining, highlighted the fact that “The Costs Lawyer route to qualification supports the social mobility agenda in the legal profession, as students need only a minimum of four GCSEs to begin the training”. What intrigued me about that aspect is that the Association’s President, Michael Bacon, commented in this month’s Costs Lawyer magazine on the “impressive level of qualifications that many of those applying for student membership this year have shown” and the suggestion that the Association should be trying to extend awareness of the profession to various universities and their students, with it being agreed in principle that a selection of universities would be visited to outline to them the role of the Costs Lawyer, what qualifications are required and the “attractiveness” of the profession as a viable alternative to either barrister or solicitor.

Although there is not exactly a conflict between the minimum academic qualifications required and the potential drive to encourage those with law degrees to enter the costs world, it does reveal a certain tension between the two.

I would be the first to recognise that there are many excellent Costs Lawyers and law costs draftsmen who may have limited academic qualifications, and in the past this was probably true for a high proportion of those practising. I would also be the first to say I would much rather have a bright employee with four GCSEs then a dim one with LPC or BVC qualifications (of which there are many). On the other hand, the costs world has changed unrecognisably in the last 15 years from when I first started. Costs law has become infinitely more complex and demanding. As the volume costs work begins to disappear post-Jackson, that trend will accelerate.

I have long questioned whether a significant number currently working in costs are really intellectually or academically suited to the same. I won’t rehash the whole issue of Costs Lawyer standards, but it seems perfectly arguable that some of those in the profession probably shouldn’t be and that there are other young bright law students who would be much better suited for the future.

These various different topics appear to come together. If it is accepted that the post-Jackson world is going to lead to much less costs work it must also follow that many currently working in costs will not do so in the future. If the Association of Costs Lawyers role is now a purely representative one should it be seeking to encourage new, and possibly better qualified, entrants into the profession who will be competing with existing Costs Lawyers? Or is its role to protect existing members regardless of their suitability for the future or what is in the best interests of clients, in which case should it be discouraging new entrants into the profession?

The aim of costs budgeting, that will be rolled out nationally from April 2013, is to control the level of costs that are incurred. There are a large number of unpredictable factors as to whether this aim will be achieved. However, let those make a couple of assumptions:

1. Claimants’ costs are currently reduced, by agreement or assessment, very roughly by one-third (obviously this masks an enormous amount of variation).

2. Come April 2013 claimants are able to produce accurate budgets that broadly reflect the level of costs that are currently incurred. (The likelihood of accurate budgets being produced is, of course, a very big assumption.)

If the judiciary hopes to limit costs to no more than the levels currently been incurred they would need to reduce the budgets submitted by claimants by an average of one-third.

In fact, if the aim of costs budgeting is to reduce the amounts allowed below current levels it would be necessary to go further than that one-third. Reducing the budgets submitted by an average of 50% would only produce a relatively minor reduction on current figures.

Are judges really going to routinely reduce budgets by this margin?

The danger is that judges may think they are being “jolly robust” reducing budgets by an average of 25%, and thereby avoiding the need for matters to proceed to detailed assessment, and conclude that costs budgeting has been a great success.

The difficulty is that I have not seen any suggestion that the judiciary will have any accurate yardstick with which to compare the budgets being submitted with what might be deemed a “reasonable” allowance under the current system.

I would certainly not suggest that the very small proportion of cases that proceed to detailed assessment are indicative of “average” figures, let alone “reasonable” figures, but at least that would represent a starting point. I have heard no suggestion that the time or resources needed to analyse the data from detailed assessment hearings is being spent to give judges a guide as to what to allow in the budgeting process.

How is success therefore to be measured? A reduction in the number of cases that proceed to detailed assessment cannot be an adequate guide if the costs allowed under the budgeting process exceed current figures.

I had a very enjoyable morning last week in Derby giving a training session to Geldards solicitors on the practicalities of costs budgeting. Costs budgeting is, of course, expected to become the norm for multi-track matters come April 2013.

(Geldards is a firm that has lucked out having Nicola Mallen has a professional support lawyer. When I saw the quality of the training materials she had already produced on the subject of costs budgeting I almost cancelled. To increase the pressure, Professor Dominic Regan was speaking later in the day. I was just happy it wasn’t the other way around. Dominic is not an easy act to follow.)

As part of the training session I raised the issue as to who should normally undertake the costs budgeting exercise. At this stage I am sure they expected the hard sell to begin. In fact, quite the opposite. I am far from convinced that the majority of Costs Lawyers or law costs draftsman are remotely suited to the job of day-to-day costs budgeting.

It was therefore rather ironic when later that day I checked for updates on the Litigation Futures website to see Iain Stark, Chairman of the Association of Costs Lawyers, being reported as saying:

“The Jackson reforms will put a far greater emphasis on dealing with costs pre-emptively rather than after the event. This means solicitors will need to bring in costs expertise from the start of a case to ensure that the budget they will have to submit to the court at an early stage is realistic and defensible.”

I fear that costs budgeting will be to the cost profession what the PPI scandal was to the banking sector, only worse.

The only thing I would suggest to those considering offering a costs budgeting service in this area, and who hope to remain practising in 5 years time, is to set aside at least 10% of your annual turnover for the next 5 years to ensure you have a sufficient reserve to pay for professional indemnity insurance once the claims starts coming in.

The Court of Appeal has amended its decision in Simmons v Castle by deciding that the 10% increase in general damages due to come into effect on 1 April 2013 should not apply to those claimants whose cases are funded by conditional fee agreements where the CFA was entered into before 1 April 2013.

The Court accepted the ABI’s main argument that it would be unfair for such claimants to be able to recover success fee and ATE premiums after that date but to also benefit from the increase in general damages that was designed to compensate claimants for not being able to recover success fees and ATE premiums. As the court put it “it is hard to challenge that contention: such claimants would have the penny and the bun” (I’m going to have to start using that expression).

On the other hand, the Court decided that those claimants whose claims are funded on a conventional should benefit from the increase regardless of when the claim began (which still seems to be very much the case of somebody getting a free bun).

The Court noted:

“If the amendment is rejected, there could be cases where a Part 36 offer was sufficient at the time it was made but was insufficient after the 1 April; no such difficulties would arise if ABI’s proposal was accepted. Similarly, if ABI’s proposal is rejected, there could be cases where defendants try to accelerate the trial and claimants try and delay it. We do not think that these problems are considerable, but they tend to favour ABI’s case.”

If this is true of CFA funded claimants would it not equally apply to “conventionally” funded claimants? Hasn’t the decision to allow “conventionally” funded claimants the uplift, regardless of when the claim began, left open considerable scope for satellite litigation over whether Part 36 offers have been successful or unsuccessful? Given this potentially includes a very large number of claims funded by BTE insurance this is likely to come back to haunt the Court of Appeal.

Bizarrely, APIL’s submissions to the Court included the argument that the ABI’s proposals would “lead to satellite litigation”. It has not been reported as to whether the advocate making that submission managed to keep a straight face at the time.

Although this has been a broadly successful outcome for defendants, the downside is that the Court took the opportunity to extend the 10% increase to claims other than those in tort, such as claims in contract. This will therefore cover holiday claims.

Therefore, a decision was made to delete paragraph 19 from the earlier judgment and replace paragraph 20 with the following:

“Accordingly, we take this opportunity to declare that, with effect from 1 April 2013, the proper level of general damages in all civil claims for (i) pain and suffering, (ii) loss of amenity, (iii) physical inconvenience and discomfort, (iv) social discredit, (v) mental distress, or (vi) loss of society of relatives, will be 10% higher than previously, unless the claimant falls within section 44(6) of LASPO. It therefore follows that, if the action now under appeal had been the subject of a judgment after 1 April 2013, then (unless the claimant had entered into a CFA before that date) the proper award of general damages would be 10% higher than that agreed in this case, namely £22,000 rather than £20,000.”

The Costs Law Articles Archive section of Legal Costs Central has been updated with an article previously published in Solicitors Joournal on the extent to which retrospective success fees are recoverable.

The Government has been releasing further details as to how the Jackson forms are to be implemented.

In relation to the 25% cap on success fees in personal injury cases, excluding damages for future care and loss, this 25% includes solicitors’ success fee, any barristers’ success fee and VAT. Imagine trying to split that particular pie between the solicitor, junior counsel and senior counsel (not to mention what would happen where there is a change in the firm of solicitors acting or a change in counsel).

The lawyer will be required to provide clear information to the claimant on how the success fee has been calculated including showing the breakdown between solicitor and barrister (if appropriate), and the type of damages that the cap applies to (excluding future care and loss). This will be a new requirement for both CFAs and damages-based agreements (DBAs). That should be fun where settlement is reached on a global basis.

In relation to damages-based agreements (DBAs), it has been announced that in addition to the 25% cap on the amount of damages, excluding damages for future care and loss, in personal injury cases that we already knew about, and the existing 35% cap on damages in employment tribunal cases, there will also be a cap of 50% on damages for all other cases under a DBA in civil litigation.

It has been confirmed there will be a new rule on proportionality; the test is intended to control the costs of activity that is clearly disproportionate to the value, complexity and importance of the claim. This will come into effect on 1 April 2013. Of course, it won’t be until at least 12 months after that date that we will have the faintest idea as to how this test will work in practice. 12 months of absolute pandemonium in the costs world with probably not a single case capable of settlement.

The extension of the RTA portal upwards to £25,000 and outwards to cover EL and PL cases appears to still be firmly on the agenda, although the rumours circulating on this issue seem to change by the day.

The Government is still considering whether to increase the small claims limit for personal injury cases from £1k to £5k.