County Court Rules Committee Consultative Document on Scale Costs Summary of Responses and Proposed Way Forward
Contents Page Section 1: Introduction 3 Section 2: Background and Proposals 5 Section 3: Summary of respondent s views and response from the County Court Rules Committee 9 Section 4: Conclusion and proposed way forward 27 2
1. Introduction 1.1 This is the County Court Rules Committee summary of responses on the consultative document on scale costs. 1.2 This report provides: a background to the consultation and proposals; a summary of the views expressed by respondents together with the County Court Rules Committee s response; and a conclusion and proposed way forward. 1.3 Further copies of this report and the consultation paper can be obtained by contacting: Consultation Co-ordinator Scale Costs, Civil Justice Policy and Legislation, Access to Justice Directorate, Massey House, Stormont Estate, Belfast BT4 3SX Phone: 028 90169540; Textphone: 028 9052 7668 E-mail: atojconsultation@dojni.x.gov.uk 1.4 A copy of this report will be placed on the DOJ website at www.dojni.gov.uk and the Northern Ireland Courts and Tribunals website at www.courtsni.gov.uk 1.5 You may make additional copies of this report without seeking permission. If you require further printed copies of this report, we would invite you to access the document through our website and make 3
copies yourself. If you do not have access to the internet and require us to provide you with further copies, please contact the Consultation Coordinator at the address at paragraph 1.3 above with your specific request. 1.6 Comments in the summary of responses have not been attributed to any individual or organisation. 1.7 This document is available in alternative formats or languages on request. Please contact the Consultation Co-ordinator with your request. 4
2. Background and Proposals Background 2.1 In December 2010 the Minister of Justice indicated his intention to increase the financial jurisdiction of the county court (in accordance with Article 22 of the County Courts (Northern Ireland) Order 1980 ( the Order ). This followed a public consultation exercise conducted by the Northern Ireland Court Service (as it was then) earlier in 2010. The Minister proposed to increase the civil jurisdiction of the county court from 15,000 to 30,000 and the District Judges limit from 5,000 to 10,000. The Small Claims Court limit was increased by the Minister from 2,000 to 3,000 on 2 May 2011. 2.2. It is in this context the County Court Rules Committee ( the Committee ) considered the amendments required to the County Court Rules (Northern Ireland) 1981 ( the 1981 Rules ) to facilitate the proposed increase in the jurisdiction of the court. Statutory Function of the Committee 2.3. Articles 47 and 48 of the Order provide for the establishment of the Committee and for that Committee to make rules in relation to the jurisdiction exercisable by county courts as referred to in section 21(1) and (2) of the Interpretation Act (Northern Ireland) 1954 ( the 1954 Act ). Section 21(1) of the 1954 Act provides for the making of rules to regulate the practice and procedures of a court including the regulation of costs. The Rules made by the Committee are submitted to the Department of Justice which, after consulting the Lord Chief Justice, may allow or disallow the Rules. 2.4 Appendix 2 to the 1981 Rules sets out in tables various scales for costs in respect of proceedings in the county courts. Scale costs have long 5
been regarded as a positive attribute of the county court system as they provide certainty for the benefit of all parties as to the cost of litigation. 2.5 On 23 March 2011, the Committee issued a targeted consultation on proposals to introduce new scale cost bands up to the proposed new county court limit of 30,000 and to provide for an inflationary uplift of existing scale costs. 14 responses were received to the consultation (nine from the legal profession, three from insurers and two from public bodies). On 7 July 2011 the Committee published an in-depth review of scale costs by way of public consultation and integrated impact assessment. The proposals recognised the merits of the existing system for the payment of costs for all involved in litigation. The Committee proposed to maintain that costs structure and build on existing scales by providing three additional bands to specify costs for matters up to the proposed new limit of 30,000. In adopting that approach, the Committee acknowledged that one of the benefits of the proposed increase in jurisdictional limits is enhanced access to the more straightforward procedures applicable in the county court. 2.6 The consultation ran for 12 weeks and closed on 30 September. 16 responses were received, nine were from the legal profession (two from individual solicitors and six from solicitors organisations and one from the Bar), three from insurers (one from an association of insurers and two from individual insurance companies), two from public bodies, one from a voluntary sector organisation and one from an individual. 2.7 The consultation document set out the Committees proposals, namely that:- a. there should be three new bands created up to the new limit of 30,000: 6
15,000-20,000 20,000-25,000 25,000-30,000. b. that the 2001 principles should be applied to the present review. c. an increase of the existing scale costs set out in Appendix 2 of the 1981 Rules by the rate of inflation as measured by the GDP deflator of 9.85% phased over two years. This should also be applied to other miscellaneous costs in Appendix 2. d. there should be a discretionary uplift of one-third for complex cases up to the new jurisdictional limit of 30,000. e. there should be an amendment to the existing rule for all county court claims to provide that solicitors costs for an additional day shall be 50% of the scale costs on the amount claimed/decreed (as appropriate) up to a ceiling of 600. Counsel s costs for an additional day will be 50% of counsel s scale costs. f. there should be a reduction in fee bands from eight to four and the addition of three new bands between 15,000 and the new limit of 30,000 in relation to costs where no notice of intention to defend is served and judgment is marked under Order 12 of the 1981 Rules (known as 21 days costs ). g. there should be an amendment to the 1981 Rules to provide that the judge has a discretion to award an uplift from 5% up to a ceiling of one-third of the relevant scale costs in circumstances where there is more than one separately represented defendant. 2.8 The consultation included a questionnaire seeking views on the following key issues: 7
should the guiding principles which informed the 2001 fundamental review of scale costs should continue to be applied; should the following bands be introduced- 15,000-20,000 20,000-25,000 and 25,000-30,000; should the proposed scales be applied to the new bands; should the present bands be increased in line with the rate of inflation; should there be a phased implementation of the inflationary increase; should a discretionary uplift of one-third for complex cases be applied to awards up to the new jurisdictional limit of 30,000; should there be new proposed costs for additional day hearings; should there be proposed costs for cases in which there is more than one defendant. 2.9 This report summarises the responses. 8
3. Summary of respondent s views and response from the County Court Rules Committee 3.1 The Committee received 16 responses to the consultation. Of these, nine were from the legal profession (two from individual solicitors and six from solicitors organisations and one from the Bar), three from insurers (one from an association of insurers and two from individual insurance companies), two from public bodies, one from a voluntary sector organisation and one from an individual. The responses to the consultation broadly reflect the comments received to the consultation undertaken in March 2011. 3.2 Some respondents commented generally on the proposals in addition to or instead of answering the specific questions posed. The following summary of responses is grouped according to the specific questions set out in the consultation questionnaire. Where a reference is made below to the majority of respondents, it is to be read as a reference to the majority of respondents to that particular question, rather than to the majority of respondents to the consultation generally. Question 1 Do you agree that the guiding principles which formed the 2001 fundamental review of scale costs should continue to be applied? Responses 3.3 A majority of respondents (nine) agreed that the guiding principles of the 2001 fundamental review should continue to apply. Five respondents did not agree with the proposal and two respondents made no comment. 3.4 A respondent who agreed that the guiding principles which informed the 2001 review should be applied to the present review suggested that 9
those principles could be used as a starting point and that further work could be carried out particularly in relation to procedures. The respondent commented that as the jurisdictional limit of the county courts will increase to 30,000, the vast majority of personal injury cases will now be issued there and the requirements of county court work has changed somewhat since the last review in 2001. They went further to say that a costs drawer should be engaged in order for costs to be fixed at the appropriate level. Another respondent who agreed with the 2001 principles being followed agreed that the need to be remunerated on a fair and reasonable basis is paramount and that the need to ensure that litigation is conducted efficiently and economically is also considered. The same respondent commented that they would be less inclined to agree that Northern Ireland should follow similar scales prescribed in England and Wales and that Northern Ireland s own current economic situation should be considered when deciding an increase in court costs and that this should be tailored to any increases in jurisdiction. Another respondent who agreed with the continued application of the 2001 guiding principles also expressed concern about the applicability and comparability of the scales prescribed in England and Wales. 3.5 A respondent who agreed that the fundamental principles of the 2001 review should continue to be applied commented that requirements of county court work had changed since the last fundamental review in 2001. They stated that there was an increasing emphasis on efficiency and the speed of disposal cases. This in turn increases costs to the solicitor in having to devote more resources to the county court cases that they hold and reduces remuneration. Another respondent agreed with this comment and they suggested that further consideration be given to defendant behaviour and safeguards to protect the right of the injured party to bring and fully pursue a claim. 3.6 A respondent who disagreed with the 2001 principles being applied expressed concern that the Committee had decided not to undertake a 10
fundamental cost review at this time and rejected the suggestion that practice has not changed significantly since the last review in 2001. The respondent suggested that costs payable did not reflect the increasing requirement to attend at direction appointments and review hearings and also contended that additional requirements such as the preparation of indexed trial bundles for hearings were not accounted for. Referring to the Northern Ireland Courts and Tribunals Service policy of full cost recovery for civil business, the respondent also suggested the cost of financing civil litigation had increased since 2001. Although accepting that new fees represented only a relatively small increase in the cost of issuing a Civil Bill, the respondent suggested that the cost of ancillary proceedings had increased substantially. 3.7 A respondent who did not agree that the 2001 guiding principles should continue to be applied stated that costs have become disproportionate to complexity and that the swings and roundabouts principle has been eroded over time at the lower end of the scale. Another respondent agreed with this and suggested that further analysis was required as those guiding principles do not take account of increased complexities and procedural requirements of personal injury cases which will fall to the county court when the jurisdictional limit is increased to 30,000. Another respondent commented that since 2001 the landscape of civil litigation, its costs and impact on court users, consumers and taxpayers has significantly changed and that the 2001 principles are not current. Committee s comments 3.8 The Committee, in the fundamental review of county court costs in 2001, took the view that when conducting a review it should ensure that the scales are fair and reasonable. The essential guiding elements that informed the review carried out in 2001 were- a. professional services require a fair and reasonable return for work done. 11
b. whether any proposal which would constitute fair and reasonable remuneration should be assessed by considering what might be the result if cases were subject to taxation, using accepted principles. In that regard the assessment would include an appropriate hourly rate as well as information from the Taxing Master. c. whilst it was proper to have regard to any scale costs prescribed for England and Wales such work would require to be comparable, and in that regard there appeared to be agreement that fast track costs in England and Wales were, and remain, different from county court scale costs and operate on a different premise and for a different purpose. d. The Civil Justice Reform Group expected the advantage of the Northern Ireland civil justice system being less expensive than that in England and Wales to be maintained in the future, and that the Committee was to be alert to keeping the costs of litigation in Northern Ireland as economical as possible consistent with the need to ensure that professional services are properly remunerated. This reflected the comments of the Lord Chief Justice in Re C&H Jefferson when he observed that the county court should be a court in respect of whose proceedings the costs and fees should be both moderate and ascertainable [1998] NI at 409. e. The Committee should seek to maintain the principle that there should be a measure of proportionality between the amounts awarded and costs. 3.9 The Committee considered that those principles (largely derived from the 2001 Civil Justice Reform Group Final Report and jurisprudence) remained relevant and should remain the guiding principles in this 12
review. The Committee consider that the application of the 2001 principles ensures the proposals are fair and reasonable whilst allowing proper access to justice. The Committee considered comments from respondents that practice and procedure in the county court have changed since the 2001 review. The Committee agreed that in practice procedures both in terms of frequency and substance have not significantly changed since the last review. 3.10 As well as having regard to the 2001 principles the Committee also ensured that it was informed of all relevant factors it considered carefully the responses to the public consultation exercises, the Office of Fair Trading report on the cost of car insurance, comments made in the Northern Ireland Assembly, the current Northern Ireland economic climate and the effect on public funds. Whilst the Committee has adopted the underlying assumptions that have been identified in earlier fundamental reviews which it considers appropriate, the Committee also propose a fundamental review of the county court scale costs in 18 months time which will analyse the impact of the increase in jurisdiction of the county court and District Judges court in civil matters. Question 2 Are you content with the proposed bands of 15,000-20,000, 20,000-25,000 and 25,000-30,000? 3.11 A majority of respondents (10) agreed with the proposed new bands. One respondent who agreed with the proposed bands at intervals of 5,000 stated that this continued to provide certainty to parties who litigate in the county court. That respondent noted that unlike for applicants in England and Wales, the revised scales would allow the vast majority of civil litigants in Northern Ireland to assess with greater clarity the financial costs of going to court. 13
3.12 Four respondents did not agree with the proposed bands. Two of those respondents suggested the bands proposed were too wide and that a six band system of: 15,001 to 17,500 17,501 to 20,000 20,001 to 22,500 22,501 to 25,000 25,001 to 27,500 27,501 to 30,000 would provide fairer remuneration. Those respondents commented that a six band system would provide greater certainty at the top of the scale as to which costs applied in any given case which would be for the benefit of both the plaintiff and defendant. A respondent who agreed with the proposed three bands stated that a smaller more uniform gap would be preferable to avoid the potential difficulty when attempting to conclude settlement through negotiation. 3.13 Two respondents declined to comment. Committee s comments 3.14 When setting the new fee bands, the Committee recognises that the value of a claim can be used as a means of measuring its importance to the parties and consequently of the level of legal representation expected. The Committee also recognises, however, that one of the benefits of increasing the jurisdiction of the county court is to extend the more straightforward procedures applicable in that court. 3.15 The Committee are of the view that the bands represent a substantial saving on the present level of costs for cases of these values currently disposed of in the High Court, whether payable by taxation, the Insurance Industry or other scale costs. The Committee propose that 14
there should be three new bands created up to the new limit of 30,000: 15,000-20,000 20,000-25,000 25,000-30,000 Question 3 Do you agree with the proposed scales for the new bands? 3.16 A majority (nine) of respondents did not agree with the proposed scales within the suggested new bands. The majority of those respondents who did not agree were of the view that the proposed scales were not at an appropriate level which would allow for fair remuneration. One of these respondents noted that the Belfast Solicitor Association s Guide to High Court Costs recommends a fee of 7,595 for cases settling between 15,000 and 19,999 and that the proposed fee represents a figure just under half of that at 3,800. Whilst they acknowledged that removing cases from the High Court to the county court would generate cost savings, the respondent commented that the level of work and preparation involved is likely to be similar, whichever court the case is heard in and the proposed scales do not reflect that. Another respondent agreed with this view and commented that the procedures and burden of preparation for a county court case is certainly not half that of a High Court action in practice. 3.17 A respondent who disagreed with the proposed scales commented on the existing scales in relation to the difference in damages between 10,000 and 15,000 which equates to a difference in costs (for solicitors) of 460. They contended the proposed scales for year 1 of the new bands would introduce an increase of 905 for the step from 15,000 to 20,000. This would mean that a case potentially worth either 1 or even 5,000 more would result in an uplift of 50% in costs. They felt this potential of excessive costs would erode the principle of proportionality and may encourage claims to be inflated to fit within the upper band. 15
3.18 Five respondents agreed with the proposed new scales. One of those 5 respondents was of the view they represent fair remuneration in the current economic climate. They stated that it is a reasonable and proportionate approach and the proposed scale represents value for money for clients. That respondent went onto comment that it is important that the distinct roles played by both branches of the profession are recognised and remunerated appropriately. 3.19 Two respondents declined to comment. Committee s comments 3.20 The Committee concluded that the proposed new scales for the three bands should reflect the simpler procedures applicable in the county court. The Committee considered the Crown and Departmental Solicitors scales as well as the costs on taxation, Belfast Solicitors Association, Motor Insurers and Comerton scales. The Committee considered costs in England and Wales however a direct comparison was not possible as the fast track costs are very different to scale costs and work on a different premise. The Committee s approach to establishing fair and reasonable remuneration in respect of the three new bands was to take account of the mid-point on those existing scales for High Court proceedings, to establish an average then to reduce that figure to take account of the simpler procedures applicable in the county court. Some of the figures were then rounded off or adjusted. In setting counsel s costs, account was taken of the existing scales in High Court proceedings and the need to balance any reduction made to take account of simpler county court processes. 3.21 The Committee are of the view the proposed new scales safeguard against disproportionate costs and provide a civil justice system which is in line with the guiding principles established during the 2001 16
fundamental review. The Committee propose the following scales for the new bands: Solicitors costs Counsels Costs 15,000-20,000 3,800 825 20,000-25,000 4,170 934 25,000-30,000 4,600 1,039 Question 4 Do you agree that bands should be increased in line with the rate of inflation? 3.22 A slight majority of respondents (seven) did not agree with the proposal to increase the present bands in line with inflation. Three of those respondents who were opposed to the increase held the view that the proposed new scales are set at too low a level in the first instance and that an inflationary rise was not enough to increase the scales to a level they thought they should be at. One respondent commented that the fees should reflect a realistic amount for the work involved and that there has been an increase in ancillary work in recent years and the scale costs have not been increased to take this into account. The additional increases of annual inflation increases would be minimal, by not increasing the costs yearly by inflation once a full scale review has taken place effectively means that the professionals suffer a drop in their income in real terms between the review years. For this reason the respondent commented that a purely inflationary increase in costs for the current bands is not appropriate. Another respondent commented there should be a full review of the current scale cost system by a costs drawer and that a yearly inflationary rise should be applied with further full reviews undertaken at five year intervals. 3.23 A respondent who did not agree with the proposed inflationary increase commented that the scales themselves self protect against inflation i.e. damages increase over time due to inflation thus pushing solicitor fees into the next bracket, which with the application of an inflationary rise to 17
scales, would effect a duplicated increase. Another respondent agreed with this approach and stated that the inflationary rise in damages offsets any notion of a pay-freeze for the legal profession. One respondent countered this argument by stating that whilst there may have been inflation in the economy as a whole this has not had any discernable impact on county court awards which have remained static for a number of years and that the vast majority of awards are still under 5000. 3.24 A respondent noted consumers had experienced pay freezes, benefit reductions, reduced hours and increases in energy and food prices in recent years and expressed concern that the legal profession should consider raising its costs in line with inflation in that context. 3.25 Another respondent commented that if the existing scales are to be increased by reference to inflation or otherwise public funds do not have the financial resources to remunerate on this basis and will not be in position to continue to follow scale costs. 3.26 Six respondents favoured an increase of existing scales in line with inflation, although one respondent suggested that there should be an annual uplift which should be linked to the Retail Price Index rather than the GDP deflator. Another respondent stated that annual increases may be acceptable with detailed reviews every five years. 3.27 Three respondents declined to comment. Committee s comments 3.28 The Committee has had regard to the state of the Northern Ireland economy when determining what is fair and reasonable. In this consultation, the Committee originally proposed an inflationary increase of 9.85% to take effect over a two year period. This increase of 9.85% 18
reflected the measure of inflation (using the GDP deflator) between July 2007 and March 2011. 3.29 Accordingly, having considered the responses to the consultations and the continuing difficult economic climate, the Committee have decided to reduce the proposed increase by 5.85% to 4% and for that increase to take effect over a two year period. Therefore there should be an increase of the existing costs set out in Appendix 2 of the 1981 Rules: a 2% increase for the first 12 months to be followed by a further increase of 2%, and a full review of all scale costs from 0-30,000 in 18 months time. The new bands between 15,000 and 30,000 would be increased only by 2% in year 2. 3.30 The Committee have taken into account the fact that since all cases between 15,000 and 30,000 will attract costs substantially less than would be payable through taxation in the High Court and also reduce the number of cases involving senior counsel, there is an efficiency and cost saving with the Committee s proposals. These proposals, whilst representing a saving, still provide a reasonable level of costs for the legal profession. The saving should mitigate against the impact of the proposed inflationary rise as, when viewed as a package rather than in isolation, proposals should provide value for money for courts users. 3.31 The Committee has been conscious that the scales reflect the amounts paid to businesses, not employees, and that those businesses have been faced with increases in overheads, as have most businesses in Northern Ireland. Scale costs have not increased since 2007 and in consequence the legal profession have effectively faced a pay freeze for work done in the intervening period and have subsumed increasing costs in respect of the cases issued and settled (as the vast majority have been). The Committee noted other pay freezes have engaged from 2009, particularly those in public bodies. However in some areas 19
there have been increases since then. The Committee also notes that going forward, public sector pay is planned to increase by 1%. 3.32 In relation to comments made by respondents that the scales self protect against inflation, the Committee undertook a review of the Guidelines for the Assessment of General Damages in Personal Injury Cases in Northern Ireland but did not easily identify this overlap (or double effect) and considered that this would only operate at the periphery of the bands. Furthermore, awards for personal injuries in Northern Ireland have largely remained stagnant over the past five years which is contrary to some respondent s comments. Judicial statistics show that in 2010 87% of awards in the county court for personal injuries were for less than 5,000. In 2005 89% of awards were for less than 5,000. Question 5 Do you agree with the phased implementation of the inflationary increase? 3.33 Four respondents agreed that if an inflationary rise was to be applied it should be implemented over a two year period. One of those respondents commented that they recognised and agreed with the need for the phased inflationary increase. Another respondent welcomed the Committee s proposal to phase in an increase in costs gradually over a two year period. 3.34 A majority of respondents (nine) disagreed with the proposal for a phased increase. The majority of those respondents (six) were of the view that the proposed inflationary increase being phased in would dilute the effect. One respondent commented that there had been an increase in ancillary work in recent years and the scale costs have not been increased for some time and did not therefore take such matters into account. Another respondent agreed with this view stating that the phased implementation was not acceptable, commenting that there had already been a delay in applying an inflationary rise and further delays 20
would perpetuate losses. Another respondent also noted that the proposal for phased implementation for an inflationary rise added a further year to losses already sustained by practitioners. The same respondent commented that in the five years since the last increase, the percentage increase which should have been paid annually since the 2007 Rules had been lost. A respondent commented that any benefit from the increase will be severely diluted by a phased implementation. 3.35 A respondent who opposed any increase for inflation also opposed an increase staged over two years commenting that it would place further unnecessary burden on consumers already struggling. Another respondent commented that if the existing scales are to be increased by reference to inflation, even on a phased implementation, public funds do not have the financial resources to remunerate on this basis. 3.36 Three respondents did not comment. Committee s comments 3.37 The reduction of a 5.85% increase to a 4% increase and the deferment over a two year period spreads the increase, whilst acknowledging that the profession should have some form of increase to allow for fair and reasonable remuneration. 3.38 The Committee was mindful of the potential impact of immediate full implementation on those responsible for paying costs and whilst it recognises that any delay in implementation will reduce the value of the increase, the Committee believes that phased implementation over a two year period balances those two legitimate but competing concerns. 21