Review of Civil Litigation Costs: Preliminary Report

Transcription

1 REVIEW OF CIVIL LITIGATION COSTS Review of Civil Litigation Costs: Preliminary Report Volume One May 2009

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3 Contents REVIEW OF CIVIL LITIGATION COSTS PRELIMINARY REPORT By the Right Honourable Lord Justice Jackson May 2009 VOLUME 1 CONTENTS i FOREWORD v GLOSSARY vi PART 1. INTRODUCTION 1. The Civil Justice Costs Review 1 2. The scheme of this Preliminary Report The costs rules and the Costs War The role of the civil courts 39 PART 2. THE BASIC FACTS 5. How much civil litigation is there? The broader picture Court fees What do lawyers earn? 72 PART 3. RESEARCH, CONSULTATION AND INVESTIGATIONS RE COSTS 9. Academic research and literature re costs Views of stakeholders and court users Surveys and costs data 135 i Contents

4 Contents PART 4. THE FUNDING OF CIVIL LITIGATION 12. Legal aid Before-the-event insurance After-the-event insurance Third party funding Conditional fee agreements Self financing CLAF and SLAS explained Is there a case for a CLAF or SLAS in England and Wales? Contingency fees 189 PART 5. FIXED COSTS 21. The present fixed costs regime Should there be a comprehensive fixed costs regime in the fast 202 track? 23. Should there be a fixed costs regime above the fast track? 213 PART 6. PERSONAL INJURIES LITIGATION 24. What should be the upper limit for personal injury cases on the small 219 claims track? 25. Should there be one way cost shifting for personal injury claims? Can the transaction costs of personal injuries compensation be 227 reduced? 27. How are general damages for personal injuries assessed in other 233 jurisdictions? 28. Can the assessment of general damages for personal injuries be made simpler and more predictable in lower value cases? 240 PART 7. SOME SPECIFIC TYPES OF LITIGATION 29. The Mercantile Courts, small business disputes and intellectual 247 property litigation involving SMEs 30. Consumer claims Housing claims Large commercial claims Chancery litigation Technology and Construction Court litigation Judicial review claims Environmental claims Defamation proceedings Collective actions Appeals to the Court of Appeal 370 Contents ii

5 Contents VOLUME 2 PART 8. CONTROLLING THE COSTS OF LITIGATION 40. E-disclosure Disclosure generally Witness statements and expert reports Case management Trials Cost capping Should the cost shifting rule be modified? The recoverability of success fees and ATE premiums Costs management 483 PART 9. REGIMES WHERE THERE IS NO COST SHIFTING 49. Small claims track Employment tribunals Ancillary relief proceedings 517 PART 10. THE ASSESSMENT OF COSTS 52. Summary assessment Detailed assessment 534 PART 11. REVIEW OF COSTS REGIMES IN OTHER JURISDICTIONS 54. Scotland Germany France The Netherlands Australia New Zealand The USA Canada The Eastern Caribbean 639 PART 12. CONCLUSION 63. Plan for Phase 2 of the Costs Review Final remarks 652 ANNEXES Annex 1: Phase 1 submissions received by 31 st January Annex 2: Conferences, seminars and meetings attending with 658 representative bodies during Phase 1 Annex 3: Meetings attended with overseas organisations and persons in Phase iii Contents

6 Contents APPENDICES 1 Appendix 1 District judges survey Appendix 1a Personal injury survey Appendix 2 Circuit judges survey Appendix 3 Queen s Bench judges survey Appendix 4 Queen s Bench masters survey Appendix 5 Chancery judges survey Appendix 6 Chancery masters survey Appendix 7 Supreme Court Costs Office Costs judges survey Appendix 8 West Midlands costs survey Appendix 9 Schedule of recent cases provided by Commercial Court Users Committee Appendix 10 Table supplied by claimant personal injury solicitors summarising cases completed May December 2008 Appendix 11 Schedule of recent cases supplied by a commercial city firm which did not contribute to Appendix 9 Appendix 12 APIL schedule Appendix 13 Schedule of recent Technology and Construction cases Appendix 14 Schedule of recent Court of Appeal cases Appendix 15 Schedule of recent Chancery cases Appendix 16 Supreme Court Costs Office exercise Appendix 17 Publication claims resolved in 2008 Appendix 18 One week s cases of a liability insurer Appendix 19 E-Disclosure costs models Appendix 20 Analysis of cases handled by one costs drafting firm since 2003 Appendix 21 Sixteen graphs provided by NHSLA Appendix 22 Data provided by MPS Appendix 23 Two years cases of a liability insurer Appendix 24 One year s cases of a liability insurer Appendix 25 Data from the Compensation Recovery Unit Appendix 26 One year s cases of a liability insurer Appendix 27 Two and a quarter years cases of the same liability insurer Appendix 28 Report by Frontier Economics (commissioned by the Association of British Insurers) and APIL response Appendix 29 Appendix to Chapter 60 - State limits on contingency fees Appendix 30 Appendix to Chapter 60 - Federal statutes providing for award of legal fees Contents 1 These appendices are available on the disc attached to the inside back cover of Volume 2. Where possible they have been formatted to be printable in A4 format. iv

7 Foreword REVIEW OF CIVIL LITIGATION COSTS I am asked to review the rules and principles governing the costs of civil litigation and to make recommendations in order to promote access to justice at proportionate cost. The terms of reference are set out in chapter 1 and they include a requirement to consider whether changes in process and/or procedure could bring about more proportionate costs. This requirement has necessitated a review of civil procedure stretching far beyond the costs rules. In undertaking this task, I have set on one side opinions previously formed and am approaching the issues with an open mind. The first step is to marshal the available evidence, to identify the issues for consideration and to set out the relevant factors and competing arguments. Four months have been allotted to this task, namely January to April This preliminary report is the product of investigations which I have carried out during those four months, with considerable assistance from the assessors and the other persons who are thanked in chapter 1. Today marks the beginning of the second phase of the Costs Review, namely the consultation period. I hope that this report will be of assistance to all who wish to participate in the consultation exercise. The facts set out in this report and the appendices have been gathered from many sources. They are not intended to support any particular conclusion. On the contrary I hope to ascertain, with the assistance of consultees, where those facts lead us. The data in the appendices, including the results of the four week judicial survey, will have to be analysed in greater detail than has been possible so far. The focus of attention over the last four months has been upon collecting the data rather than reaching conclusions. Where I have formed tentative opinions, these are indicated in the report, so that those who disagree can explain why such opinions are wrong. The issues upon which I am asked to report are both complex and intractable. They do not admit of simplistic answers. Nor are the facts straightforward. For this reason the Preliminary Report is bound to be a lengthy document. Anyone looking for a summary of the report should go to chapter 2. I look forward to engaging in a lively and constructive debate with court users, practitioners and judges over the next three months concerning the matters set out in this report. After July I shall set about writing a final report, as required by the terms of reference. Rupert Jackson Royal Courts of Justice London WC2A 2LL 8 th May 2009 v Foreword

8 Glossary GLOSSARY The following is intended as a glossary or working description of some of the key terms and expressions that appear throughout this Preliminary Report. It does not, however, provide an exhaustive list of every expression, term or acronym used in the report, although definitions and descriptions are found in each chapter. Word or expression access to justice after-the-event ( ATE ) insurance assessment before-the-event ( BTE ) insurance Civil Procedure Rules 1998 ( CPR ) conditional fee agreement ( CFA ) contingency fee contingency legal aid fund ( CLAF ) Meaning or description The ability of a person to obtain legal advice and representation, and to secure the adjudication through the courts of their legal rights and obligations. Insurance by one party against the risk of it having to pay its opponent s legal costs, where the insurance policy is taken out after the event giving rise to court proceedings (e.g. an accident involving personal injury). The process by which the amount of costs payable by one person to another is determined by a judicial officer (usually a judge or a costs judge). Assessment was formerly known as taxation. An assessment may be a detailed assessment or a summary assessment. See chapter 2, paragraph 3.29 and chapter 3, paragraph Insurance, protecting a claimant or defendant, that was in place before the occurrence of an event giving rise to a legal claim (e.g. a motor vehicle accident) that covers the claimant s or defendant s legal fees, and possibly also those of its opponent (in the event of the insured being ordered to pay their opponent s costs). See generally chapter 13. The primary rules of court for civil litigation in England and Wales, introduced as a consequence of the Woolf reforms. An agreement pursuant to which a lawyer agrees with his or her client to be paid a success fee in the event of the client s claim succeeding, where the success fee is not calculated as a proportion of the amount recovered by the client. A typical example of a CFA is where a lawyer is retained on a no win, no fee basis. See generally chapter 16. A lawyer s fee calculated as a percentage of monies recovered, with no fee payable if the client loses. See chapter 20, paragraph 1.1. A fund which grants legal funding to chosen applicants, where the receipt of funding is conditional on the applicant agreeing to pay a percentage of any amount awarded (e.g. as damages) back into the fund. CLAFs attempt to be self-financing and operate on a not-for-profit basis. See generally chapter 18 Glossary vi

9 Glossary paragraph 1.3. cost capping cost shifting costs costs judge detailed assessment disclosure e-disclosure fixed costs indemnity basis indemnity principle legal costs legal expenses insurance ( LEI ) A mechanism whereby judges impose limits on the amount of future costs that the successful party can recover from the losing party: see chapter 45, paragraphs 1.1 and 4.2. The ordering that one person is to pay another s costs. Cost shifting usually operates on a loser pays basis, so that the unsuccessful party is required to pay the successful party s recoverable costs. The costs incurred by a party through engaging lawyers to act for it. These costs may include the cost of expert witnesses, barristers, photocopying and other disbursements. Costs may be distinguished from fees which are payable to the court in civil litigation. See chapter 3, paragraph 1.3. A judicial officer, usually a master of the court, who decides the amount of costs payable by one party to another should the amount be disputed. An assessment of costs which is carried out by a costs officer or judge (as appropriate). A detailed assessment is more involved than a summary assessment. The process in litigation by which relevant documents are made available to an opponent. Prior to the Woolf reforms disclosure was referred to as discovery (and it is still known by that name in many common law jurisdictions). See generally chapter 41. The disclosure of electronic material (see generally chapter 40). Costs which are fixed in amount by rules of court, especially CPR Part 45. See generally Part 5 of this Preliminary Report. The assessment of a party s legal costs, made on the basis that the party may recover its reasonable costs that were reasonably incurred and which are reasonable in their amount. However, there is no specific requirement that costs recovered on such a basis be proportionate to the amount or issues in dispute: see chapter 3, paragraph The indemnity principle holds that a successful party cannot recover from an unsuccessful party more by way of costs than the successful party is liable to pay his or her legal representatives: see chapter 3, paragraph 4.13 and chapter 53, paragraph 1.8. See costs. Insurance that covers a person against his own legal costs and/or the legal costs of an opponent in litigation. LEI includes both BTE insurance and ATE insurance. vii Glossary

10 Glossary no win no fee standard basis summary assessment supplementary legal aid scheme ( SLAS ) third-party funding ( TPF ) Woolf reforms An agreement between a client and a lawyer that the lawyer will only be entitled to payment should the client be successful in its claim. In England and Wales such agreements are usually in the form of conditional fee agreements. The assessment of a party s legal costs, made on the basis that the party may recover its reasonable and proportionate costs: see chapter 3, paragraph The assessment of costs by a judge, usually made quickly and on limited material. See chapter 2, paragraph 3.30, and more generally chapter 52. A SLAS is similar to a CLAF, in that it is a legal fund which aims to be self-funding, and the granting of funding is conditional upon the applicant agreeing to pay a percentage of any amounts recovered back into the fund. A SLAS is different from a CLAF in that it is usually operated by a legal aid body, and is intended to provide funding to persons who do not satisfy the relevant criteria for obtaining legal aid, yet are not of sufficient means to afford legal representation for their case. See generally chapter 18 paragraph 1.3. The funding of litigation by a party who has no pre-existing interest in the litigation, usually on the basis that (i) the funder will be paid out of the proceeds of any amounts recovered as a consequence of the litigation, often as a percentage of the recovery sum; and (ii) the funder is not entitled to payment should the claim fail. See generally chapter 15. Reforms arising out of the review of the civil justice system conducted by Lord Woolf, concluding with his final report Access to Justice in July The Civil Procedure Rules 1998 ( CPR ) were brought in as a result of Lord Woolf s recommendations. See chapter 1, paragraph 1.1. Glossary viii

11 REVIEW OF CIVIL LITIGATION COSTS PART 1: INTRODUCTION CHAPTER 1. THE CIVIL JUSTICE COSTS REVIEW 1. INTRODUCTION 1.1 Lord Woolf s reforms. It is now ten years since Lord Woolf s reforms to civil procedure ( the Woolf reforms ) were implemented. The Civil Procedure Rules 1998 ( the CPR ), which implemented the Woolf reforms, came into force on 26 th April Those reforms have brought huge benefits to civil litigants. Far more cases are settled before issue. Those cases which are contested proceed far more swiftly from issue to trial. We no longer have the repeated tragedy (for such it was) of meritorious claims being struck out for want of prosecution. The case management function, which the court has assumed following the Woolf reforms, prevents cases from being parked indefinitely, whilst the parties or their lawyers attend to other matters. The creation of tracks for cases ensures that each type of case receives an appropriate allocation of resources and degree of attention from the court. The fast track ensures that lower value cases are brought to trial with expedition and that the trial costs (although not the pre-trial costs) 1 of such cases are fixed. The procedure for offers contained in CPR Part 36, including claimants offers (one of Lord Woolf s many innovations) has by common consent been a considerable success. 1.2 The costs of civil justice continued to rise. Despite the general success of the Woolf reforms, the costs of civil litigation continued to rise. This was due in no small part to (a) the introduction of conditional fee agreements ( CFAs ) and (b) the reforms to CFAs effected by the Access to Justice Act These two developments were not based on recommendations contained in Lord Woolf s report. Instead they were consequential upon the retraction of legal aid and the Government s search (in some haste) for alternative means of funding litigation. Leaving aside those parallel developments, however, it must be accepted that some of the cost increases since 1999 do appear to be consequential upon the Woolf reforms. Pre-action protocols and the requirements of the CPR have led to front loading of costs. Also the detailed requirements of the CPR and the case management orders of courts cause parties to incur costs which would not have been incurred pre-april Where cases settle between issue and trial (and the vast majority of cases do so settle) the costs of achieving settlement are sometimes higher than before. I say sometimes because the Woolf reforms promote earlier settlements and thus in some cases they 1 The pre-trial costs of such cases are not yet fixed, despite Lord Woolf s recommendation that they should be fixed. In this regard, I shall take up the baton from Lord Woolf in chapter 22 below Part 1: Introduction Chapter 1: The Civil Justice Costs Review

12 achieve an overall cost saving. 2 Furthermore, settlements based upon a fuller understanding by parties of their opponents cases are more likely to be fair. 1.3 Mounting concerns about the costs of civil justice. Over the last decade there have been mounting concerns about the costs of civil justice. Liability insurers have maintained that the costs payable to claimant lawyers are becoming ever more disproportionate to the damages paid to claimants. The media have forcefully expressed their anxiety about the escalating costs of defamation and related litigation. 3 Claimant lawyers have protested 4 about massive costs being run up as a result of procrastination by liability insurers. There has been an explosion of litigation about costs issues, 5 which has added a further layer to the costs of litigation (sometimes referred to as costs of costs ). On 21 st September 2008 the Lord Chancellor delivered a speech which included the following passage: I am concerned about another element of legal services No win no fee arrangements. It s claimed they have provided greater access to justice, but the behaviour of some lawyers in ramping up their fees in these cases is nothing short of scandalous. So I am going to address this and consider whether to cap more tightly the level of success fees that lawyers can charge. 1.4 The Master of the Rolls Costs Review. During 2008 the Master of the Rolls, Sir Anthony Clarke, acknowledged that there was concern about the costs of civil litigation. He indicated on a number of occasions during the summer his intention to appoint a lord justice of appeal to carry out a fundamental review of the costs of civil justice. On the 3 rd November 2008 the Master of the Rolls made the following announcement: Part 1: Introduction Chapter 1: The Civil Justice Costs Review The Master of the Rolls has appointed Lord Justice Jackson to lead a fundamental review into the costs of civil litigation. The review will commence in January 2009, and the findings are due to be presented to the Master of the Rolls in December Lord Justice Jackson will be the sole author of the final report, but he will be assisted in the review by a small group of assessors, drawn from the judiciary, legal profession and an economist. The review group are due to meet monthly to discuss issues and findings. The review is being undertaken as the Master of the Rolls, Sir Anthony Clarke, is concerned at the costs of civil litigation and believes that the time is right for a fundamental and independent review of the whole system. 1.5 The terms of reference for the fundamental review were set out in an appendix to that announcement. 2 For empirical research on these issues, see chapter 9, paragraph The concerns of the media were supported by Brooke LJ in King v Daily Telegraph [2004] EWCA Civ 613; [2005] 1 WLR Some supporting evidence re specific instances was submitted during Phase 1 of the Costs Review. 5 The so-called Costs War, which is described in chapter

13 2. MY TERMS OF REFERENCE 2.1 The terms of reference for my review, as appended to the Master of the Rolls press release, read as follows: With the support of the Ministry of Justice, the Master of the Rolls has asked Lord Justice Jackson to conduct a wide ranging review into civil costs. Objective To carry out an independent review of the rules and principles governing the costs of civil litigation and to make recommendations in order to promote access to justice at proportionate cost. Terms of reference: In conducting the review Lord Justice Jackson will: Establish how present costs rules operate and how they impact on the behaviour of both parties and lawyers. Establish the effect case management procedures have on costs and consider whether changes in process and/or procedure could bring about more proportionate costs. Have regard to previous and current research into costs and funding issues; for example any further Government research into Conditional Fee Agreements - No win, No fee, following the scoping study. Seek the views of judges, practitioners, Government, court users and other interested parties through both informal consultation and a series of public seminars. Compare the costs regime for England and Wales with those operating in other jurisdictions. Prepare a report setting out recommendations with supporting evidence by 31 December THE ASSESSORS 3.1 The original assessors. The original assessors appointed were: Senior Costs Judge Master Peter Hurst The Right Honourable the Lord David Hunt of the Wirral, Partner at Beachcroft LLP Mr Justice Ross Cranston Jeremy Morgan QC, 39 Essex Street Michael Napier CBE QC, Senior Partner at Irwin Mitchell Colin Stutt, Head of Funding at the Legal Services Commission Professor Paul Fenn, Head of Industrial Economics at Nottingham University Business School Part 1: Introduction Chapter 1: The Civil Justice Costs Review

14 3.2 Substitution. Unfortunately, Lord Hunt was obliged to resign on health grounds at an early stage of the review. In the circumstances, Andrew Parker, a partner of Lord Hunt at Beachcrofts and a member of the Civil Procedure Rule Committee, kindly agreed to become an assessor in his place. 3.3 Monthly assessors meetings. The seven assessors have attended monthly meetings with me at the Royal Courts of Justice. On these occasions, numerous issues have been debated. The deliberations and the advice of the assessors have been of enormous assistance. In relation to issues where the assessors disagree, I have gained much insight from listening to the argument and hearing the alternative viewpoints exposed. 3.4 Further contributions made by the assessors. In addition to attending the monthly meetings, the assessors have been generous with their time. They have given advice on individual points. They have assisted with drafting and research for certain chapters of this report. They have commented candidly on various draft chapters which I have prepared and circulated. This report, however, remains my sole responsibility. 4. OTHERS WHO HAVE ASSISTED 4.1 Judicial assistants. I have so far had the assistance of two judicial assistants, based at the Royal Courts of Justice. They are: Pete Given, a trainee solicitor at Allen & Overy, who was with me from 5 th January until 6 th March Ilona Groark, an associate solicitor at Herbert Smith LLP, who is with me from 9 th March to 31 st July Both Mr Given and Miss Groark have worked long hours and provided invaluable assistance with research and drafting. They have attended a number of meetings concerning the Costs Review, either with me or on my behalf. They have also discussed the issues with me, as the review has proceeded. Part 1: Introduction Chapter 1: The Civil Justice Costs Review 4.2 Part time secondment of experienced solicitor. Between January and April 2009 Julian Bailey, a solicitor at CMS Cameron McKenna LLP, has been seconded to the Costs Review on a part time basis, working from his own office. Mr Bailey is qualified as a solicitor in both England and Australia, with 13 years experience of practice in the two jurisdictions. Mr Bailey, supported by CMS overseas offices, has provided extensive and invaluable assistance with research and drafting in relation to six of the foreign jurisdiction chapters. 4.3 Clerk. Abigail Pilkington, a newly qualified barrister, is serving as clerk to the Costs Review from 5 th January to 14 th September 2009 (when she will start her pupillage). Ms Pilkington is working long hours at the nerve centre of the Costs Review, liaising with all who are involved in the review and maintaining a well organised filing system of written submissions, correspondence etc. She also attends numerous meetings and assists with research and drafting. Without her meticulous organisation, skill and good humour, this review would be in serious difficulties. 4.4 Lawyers who have helped with individual chapters. One circuit judge and a number of counsel and solicitors have given very substantial assistance with research and drafting for individual chapters. They have applied themselves with considerable - 4 -

15 industry to their assigned topics and have attended meetings with me to debate the issues. I have learnt much from all of them. They are (in alphabetical order): Gilbert Anderson (Andersons Solicitors LLP) Nick Bacon (4 New Square) (assisted by Daniel Saoul) Tara Conklin (White and Case LLP) Joanna Folan (Beachcroft LLP) Andrew Francis (Serle Court) (assisted by Paul Adams, Michael Edenborough, Keith Gordon, and Mark West) HH Judge Madge Alison Potter (4 Pump Court) Kate Wilson (1 Brick Court) 4.5 Others who have given assistance. Many others have given assistance in connection with this report and I thank them all. Although I do not name everyone who has given assistance, I must mention (in alphabetical order): Michael Black QC, Mike Clements, Master Gordon-Saker, Master O Hare, Denis O Riordan, Lindy Patterson, Clare Radcliffe and Lisa Sanchez. 4.6 Academic Lawyers. I have had meetings plus follow-up correspondence with the following academic lawyers: Mr Neil Andrews (Director of Studies in Law and Fellow of Clare college, Cambridge) Professor Dame Hazel Genn (Dean of Laws, Professor of Socio-Legal Studies and co-director of the Centre for Empirical Legal Studies in the Faculty of Laws at University College London) Herr Doktor Matthias Kilian (Director Of The Soldan Institute For Law Practice Management, Essen, Germany) Professor Herbert Kritzer (Professor of Political Science and Law Emeritus at the University of Wisconsin-Madison) Professor Richard Moorhead (Deputy Head of School at Cardiff University Law School) Professor Rachael Mulheron (Professor of Law at Queen Mary University of London) Professor Ian Scott (Emeritus Professor of Birmingham Law School at the University of Birmingham, General Editor of the White Book) Professor Garry Watson (Professor at Osgoode Hall Law School, York University, Canada) Professor Michael Zander QC (Professor Emeritus of Law at the London School of Economics and Political Science) Professor Adrian Zuckerman (Professor of Civil Procedure at Oxford University) Part 1: Introduction Chapter 1: The Civil Justice Costs Review

16 I have also spoken by telephone with Professor Stephen Nickell, who is Professor of Economics at Oxford University, Warden of Nuffield College and Chairman of the Advisory Committee on Civil Costs. 6 I hope to meet Professor Nickell in the summer. 4.7 Judges. As can be seen from chapter 11 below, numerous High Court judges, circuit judges, recorders, masters, costs judges, district judges and deputy district judges filled in questionnaires for the purpose of the judicial surveys, the results of which appear at Appendices 1 to 9 of this report. Judge Stephen Oliver-Jones QC and District Judge Robert Hill kindly organised the surveys of circuit judges and district judges. They also undertook the exercise of analysing the returns and preparing the spreadsheets which appear at Appendices 1, 1a, 2 and 8. This was a mammoth task, which occupied many hours at evenings and weekends. Judge Stephen Stewart QC kindly organised a series of meetings with judges and practitioners in Liverpool (a city where costs issues are not unknown) and accompanied me to those meetings. Also, whilst travelling overseas in recent weeks, I have met a large number of judges, who have provided much helpful information and advice, based upon their own experience. Finally, I have had numerous discussions about costs issues with my judicial colleagues. I am most grateful for their help, but I will not name all those judges. 4.8 Costs officers and court staff. John Lambert and his colleagues at the Supreme Court Costs Office kindly organised the survey of costs judges and produced the spreadsheet at Appendix 7. Mr Lambert also (with his colleagues) undertook the exercises which I requested in respect of court fees. The results of those exercises appear in chapter 7 and Appendix 16. James Parker and Marie Bancroft-Rimmer kindly organised the survey of Queen s Bench judges, Chancery judges and Chancery masters. They also produced analyses of the results. Stella Christoforou has produced further spreadsheets in respect of the judicial surveys and has assisted in reorganising and formatting the appendices to this report. 4.9 Fast Track Fixed Costs Sub-committee. Two of the assessors, Andrew Parker and Professor Paul Fenn, formed part of the Fast Track Fixed Costs Sub-committee, which was set up following the first assessors meeting (14 January 2009). The further members of the sub-committee are District Judge Michael Walker, District Judge David Oldham, District Judge Richard Chapman and Colin Ettinger. The results of the sub-committee s deliberations appear in chapter 22. Part 1: Introduction Chapter 1: The Civil Justice Costs Review 4.10 Contributors to Phase 1 of the Costs Review. A large number of organisations have contributed information, data and comment to the Costs Review over the last four months. They are identified below. Some organisations were pressed by me for further information or to carry out surveys for specified purposes. They all responded generously to such requests and the results of their endeavours appear as appendices to this report Oxford University. Dr Christopher Hodges (Head of the CMS Research Programme on Civil Justice Systems Centre for Socio-Legal Studies, University of Oxford) and Professor Stefan Vogenauer (Professor of Comparative Law and Director of the Institute of European and Comparative Law, University of Oxford) of the Law Faculty of Oxford University are running a project on overseas costs rules in parallel with this Costs Review. Both Julian Bailey and I have had meetings and correspondence with Dr Hodges and Professor Vogenauer, in order to co-ordinate our respective projects. Dr Hodges will participate in one of the Phase 2 seminars of the Costs Review, namely the Manchester seminar on 3 rd July I will participate 6 See chapter 52, section

17 in the Oxford seminar organised by Dr Hodges and Professor Vogenauer on 6 th and 7 th July. Although our respective projects have different parameters (Oxford are looking at a wider spread of overseas jurisdictions and have more of an academic focus to their research), it is hoped that each project will benefit from the other. Certainly, I shall be paying close attention during Phase 2 to the Oxford papers which are now being prepared Ministry of Justice ( MoJ ). The Rt Hon Jack Straw MP, the Lord Chancellor, and Mrs Bridget Prentice MP, Minister for Justice, have expressed their support for the Costs Review. I have had most helpful meetings with them. I have also had most helpful meetings with MoJ officials, in particular Mr Andrew Frazer. I have received much assistance from the MoJ officials and statisticians Thanks. I am extremely grateful to all those mentioned above for the enormous assistance which they have provided over the last four months. Many have worked extremely long hours on the tasks assigned to them. None of them has received any payment for that work I am also extremely grateful to the following firms of solicitors for allowing trainees or solicitors on their staff to take time out of fee-earning in order to assist in this review: Allen & Overy LLP Andersons Solicitors LLP Beachcroft LLP CMS Cameron McKenna LLP Herbert Smith LLP White & Case LLP In the case of CMS Cameron McKenna, I am also grateful for the assistance provided by the European network of CMS offices in supplying information, materials and translations, as well as arranging or hosting meetings. In the case of Herbert Smith, I am also grateful for the logistical support which they have provided to Miss Groark while she is working as my judicial assistant. 5. THE CONDUCT OF THE COSTS REVIEW SO FAR (i) Division into three phases 5.1 Plan for the year. Twelve months have been allotted for the Costs Review, namely January to December I have decided to divide the year into three separate periods: January to April: Phase 1 fact finding and preparation of this preliminary report. May to July: Phase 2 consultation. September to December: Phase 3 preparation of final report. 7 A modest weekly sum is paid to firms of solicitors who provide judicial assistants Part 1: Introduction Chapter 1: The Civil Justice Costs Review

18 5.2 Commencement date for Phase 2. In order to allow time for copying and distribution of this preliminary report, publication has been fixed for Friday 8 th May The consultation period will effectively start with the press conference on that date. (ii) Work undertaken in Phase Written submissions during Phase 1. During January I received and considered a large number of written submissions. These were circulated to the assessors, in order to inform discussion at the monthly meetings. A list of the organisations and persons who sent in written submissions is set out in Annex 1. A number of individuals and organisations have sent in letters and written submissions some time after the deadline of 31 st January It has not been feasible to take these into account during Phase 1. These late documents and submissions have been filed and will be treated as submissions during Phase 2, the consultation period. 5.4 Meetings attended with representative bodies during January and February During January and February I (together with judicial assistant or clerk) attended meetings with the organisations listed in Annex Conferences and seminars. During Phase 1 I have attended the conferences and seminars listed in Annex Overseas visits. During January I visited Germany for two days, accompanied by Julian Bailey. During March and April I spent three weeks visiting Hong Kong, Australia, New Zealand, the USA and Canada, accompanied by two of the assessors (Senior Costs Judge Peter Hurst and Michael Napier QC), the clerk to the Costs Review (Abigail Pilkington) and members of the Civil Justice Council. In Hong Kong I was also accompanied by Senior Master Steven Whitaker, who made a presentation at a Hong Kong seminar on e-disclosure. I made a separate one-day visit to Paris in April, accompanied by Julian Bailey. Professor Paul Fenn (assessor) attended a conference on civil litigation costs in Rotterdam on 24 th April Part 1: Introduction Chapter 1: The Civil Justice Costs Review 5.7 Meetings attended with overseas organisations and persons. During the overseas visits, the assessors and I attended meetings with the organisations and persons listed in Annex Report writing. The drafting of this preliminary report has been a major ongoing task throughout Phase 1. Although I have received much research assistance, suggested drafts, suggested revisions to my drafts and many comments from all sides (for all of which I am genuinely grateful), this document remains my own report and I am responsible for all errors and omissions. Much of this report has been prepared in great haste and without the polish which I would normally wish to give to such a document. 5.9 Comment. All contributors to this review have been candid, indeed forthright, in their opinions. That is extremely helpful, because it exposes the issues and lays bare the magnitude of the task which lies ahead. The issue of costs is one which generates deeply held and fundamentally opposed opinions. It is an issue of obvious 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 - 8 -

19 this stage I still have an open mind), 8 one thing is inevitable. My final report will generate protest from at least some directions and quite possibly from all directions. 8 The reported assertion by some protagonists, that Jackson has already made up his mind and is simply going through the motions, is not correct Part 1: Introduction Chapter 1: The Civil Justice Costs Review

20 CHAPTER 2. THE SCHEME OF THIS PRELIMINARY REPORT 1. PURPOSE AND STRUCTURE OF REPORT 1.1 Purpose of report. The purpose of this report is to review the operation of the costs rules and to examine possible means of reducing the costs of civil litigation, whilst promoting access to justice. This report does not reach any firm conclusions. It sets out the facts (as ascertained during Phase 1 of the Costs Review) and identifies possible options. This report is intended to set the scene for the consultation exercise during Phase 2, not to prejudge the outcome of that consultation. 1.2 Parts 1 and 2. Part 1 of this report explains the present cost rules and the struggles to which they have given rise. It sets out the role of the civil courts and the function of the present Costs Review. Part 2 sets out the basic facts. It examines how much civil litigation is taking place; how many claims are being made which settle before court proceedings are issued. Part 2 sets out what court fees are levied on litigants. Court fees are a significant factor in the costs of litigation, over which the parties and their lawyers have no control. Part 2 also addresses the question of what lawyers earn. That chapter reviews average earnings of lawyers in particular categories, in so far as data are available from published sources. 1.3 Part 3. Part 3 contains a review of academic research and literature, which bears upon the question of costs. It also summarises the information which I have obtained and the research which I have undertaken during Phase 1 of the Costs Review. 1.4 Part 4. Part 4 reviews the different ways in which litigation may be funded. These chapters explain how it comes about that litigation costs at their present level are in fact met. Part 1: Introduction Chapter 2: The scheme of this Preliminary Report 1.5 Part 5. Part 5 reviews the fixed costs regime which currently exists in CPR Part 45 and considers the extent to which such regime might be extended. Strictly speaking some of the costs in Part 45 are predictable rather than fixed, but it is convenient to use the word fixed in a broad sense, to embrace both fixed costs in the strict sense and also predictable costs. 1.6 Part 6. Part 6 reviews the costs of personal injuries litigation. It examines options for reforming both the process and the costs rules. 1.7 Part 7. Part 7 focuses on the costs of certain specific types of litigation, devoting one chapter to each. No specific theme emerges from this part, save that it is dangerous to generalise about costs. The considerations which govern costs in each individual area of civil litigation are very different. 1.8 Part 8. Part 8 focuses on methods of controlling costs. This part is principally concerned with the larger and more complex cases in which disclosure and preparation of witness statements can be a major generator of costs. 1.9 Part 9. Part 9 reviews regimes in which currently there is no cost shifting. Neither employment tribunals nor ancillary relief proceedings fall within my terms of reference. Nevertheless, it is extremely helpful to see how a regime in which each side bears its own costs works out in practice. In the context of employment tribunals, we can also see the effect of contingency fees

21 1.10 Part 10. Part 10 deals with the two methods of assessing costs and examines options for reform Part 11. The fifth bullet point of my terms of reference requires me to compare the costs regime of England and Wales with those operating in other jurisdictions. Accordingly, Part 11 of this report describes the costs regimes operating in nine other jurisdictions. Readers of this report can compare those regimes with our own (as described in chapter 3). It is hoped that the uniform structure adopted for chapters 54 to 62 will assist in that exercise Part 12. Part 12 of the report draws the threads together and sets out what is planned for Phase 2 of the Costs Review. 2. AVAILABILITY OF THIS REPORT 2.1 A limited number of hard copies of this report have been printed and are being made available to interested parties. Alternatively, the report and its appendices are available to be downloaded via a link from the following website: 3. FUNDAMENTAL QUESTIONS WHICH EMERGE FROM THIS REPORT 3.1 A number of fundamental, but interrelated, questions emerge from the preliminary report. I shall highlight some of those questions in this section of chapter 2. (i) Cost shifting 3.2 Abolition? In the course of Phase 1, I have detected no serious body of opinion, which supports total abolition of the cost shifting rule. It must be conceded, however, that a number of areas of litigation function perfectly smoothly without any cost shifting rule. The question therefore arises whether there are any other areas in which the abolition of cost shifting would be of overall benefit to court users. In considering this question, readers might gain assistance from (a) the academic research summarised in chapter 9 and (b) the experiences gained from regimes where currently there is no cost shifting, as described in chapters and Modification? Assuming that cost shifting remains, the next question which arises is whether the rule should be modified in its effect. Two principal modifications which arise for consideration are identified in the two following paragraphs. 3.4 One way cost shifting. The first possible modification would be to introduce one way cost shifting. One way cost shifting means that when the defendant loses, he pays the claimant s costs; when the claimant loses, each side bears its own costs. Such a system would self-evidently benefit claimants. Ironically, such a system would also benefit defendants in certain areas. A one way cost shifting regime would be cheaper for defendants than a regime under which they recover costs when they win, but pay ATE premiums (as well as all the other costs) when they lose: see chapter 25. A crucial consideration, however, would be the need to provide incentives for claimants to accept reasonable offers Part 1: Introduction Chapter 2: The scheme of this Preliminary Report

22 3.5 Partial cost shifting. The second possible modification, which merits consideration, would be to move from the present system of full 9 cost shifting to one of partial cost shifting. By partial cost shifting, I mean that the winning party should recover part only of its costs and should pay the balance itself. (ii) Fixed costs 3.6 Should the existing range of fixed costs be extended? The question here is whether costs should be fixed for a wider range of cases than are currently provided for by CPR Part There are two different types of fixed costs. The difference between them is of some importance: (i) Fixed costs which are the product of a genuine attempt to estimate the actual (reasonable) costs of the winning party. (ii) Fixed costs which are deliberately set at less than the actual (reasonable) costs of the winning party. I shall refer to these two categories as type 1 and type 2 respectively. 3.8 Type 1 fixed costs. The fixed costs in CPR Part 45 section II are an example of type 1 fixed costs. In the ordinary way, it is expected that the lawyer will recover whatever is due from the other side under Part 45 section II, and that the lawyer will not claim anything further from his own client. It is intended that over time the lawyer will break even and make an appropriate profit from such cases on a swings and roundabouts basis. 3.9 The policy arguments in favour of such a regime include: Part 1: Introduction Chapter 2: The scheme of this Preliminary Report (i) The claimant/client retains all of his damages intact. (ii) Certainty is introduced into the costs system and expensive assessment hearings are avoided The policy arguments against such a regime include: (i) The devil is in the detail, namely in devising proper fixed costs figures for (a) each type of case and (b) each stage at which that type of case might be resolved. (ii) The fixed costs require regular review, which past experience suggests may not happen Type 2 fixed costs. It is perfectly possible to have (and some jurisdictions do have) 10 a regime in which the fixed costs are only intended to meet part of the winning party s bill. The client is expected to pay the rest The policy arguments in favour of such a regime include the following: (i) Some litigants (e.g. small businesses) may regard the risk of incurring indeterminate costs liability to the other side if they lose as worse than the risk of failing to recover all their own costs if they win. A party can control the costs 9 Subject to deduction of unreasonable or disproportionate items. 10 See Part 11 of this report

23 which he incurs. A party cannot control the costs which the other side may be running up. Nor can a retrospective detailed assessment achieve such control. (ii) Such a regime achieves certainty in those categories of civil litigation where it is impracticable to establish type 1 fixed costs. Certainty is a commodity which many litigants (especially commercial litigants) crave and which is singularly lacking in civil litigation. (iii) If both parties know that, win or lose, they will be paying at least part of their own costs, there will be an incentive for economy on both sides The policy arguments against such a regime include: (i) It is unjust that the party who is vindicated should bear part of his own costs. The claimant, if successful, should keep all of his damages intact. The defendant, if successful, should walk away from the courtroom no poorer than when he arrived. (ii) In a fixed costs regime a wealthy party can generate much expense by procedural manoeuvres and thus grind down the other side, which will never recover all of its costs It should be noted that type 2 fixed costs are one variant of partial cost shifting (discussed in paragraph 3.5 above). This is not, however, the only way of achieving partial cost shifting. (iii) Personal injuries 3.15 Policy questions. Personal injuries litigation gives rise to a number of policy questions. In particular: (i) Is it ever right that claimants should suffer any deductions from damages for personal injuries, in order to cover costs? (ii) Is there any way that the high costs currently incurred in respect of processing personal injury claims can be reduced, whilst ensuring that proper compensation reaches claimants? 3.16 Should claimants receive damages free from any deduction for costs? Even in a costs recovery regime, it is normal for successful claimants to suffer some deductions from their damages, namely, items of costs disallowed on assessment. See, for example, Appendices 9, 11, 13, 14 and 15. In the past it has been accepted that personal injury claimants were, conceptually, in no different position. Thus in CFA cases prior to April 2000 claimants were liable to lose up to 25% of their damages in respect of deductions for success fees and ATE insurance premiums. Furthermore, deductions from damages are not unusual in legally aided cases. Nor are such deductions unusual overseas. 11 Under the current CFA regime, however, the claimant usually receives 100% percent of his damages without any deductions by the lawyers The point has forcefully been urged by APIL and others that 100% retention of personal injury damages is now an established principle, from which there should be no retreat. Damages for personal injuries, unlike damages in respect of other matters, are sacrosanct. The alternative view, which has been urged by some, is that 11 For example, personal injury claimants under the Hong Kong SLAS suffer deductions of 6% or 10%, depending upon the stage at which the case is resolved: see chapter Part 1: Introduction Chapter 2: The scheme of this Preliminary Report