Kerry Underwood

FIXED RECOVERABLE COSTS IN ALL CIVIL CASES UP TO £250,000

with 22 comments


FIXED RECOVERABLE COSTS IN ALL CIVIL CASES UP TO £250,000

In Chapter 16 of Lord Justice Jackson’s Review of Civil Litigation Costs: Final Report he set out a proposal by Cameron McKenna LLP for fixing recoverable costs in all civil litigation where the damages are £250,000 or less.

This proposal is now very much back on the agenda and was referred to again by Lord Justice Jackson in a speech given at the Costs Law and Practice Conference on 30 September 2014.

Much more in due course, but here is a brief reminder of the proposal, which applies to all civil cases, not just personal injury work.

Case settles pre-issue

Fixed Recoverable Costs (FRC)                                             =             10% of settlement

Case settles post-issue but pre allocation                         =             15% of settlement

Case goes to trial                                                               =             40% of settlement

There will be other, as yet unspecified percentage figures for other, as yet unspecified, stages. However those stages are likely to mirror those in the existing FRC scheme for personal injury work, that is:

1 – Pre issue

2 – Post issue – pre allocation

3 – Post allocation – pre listing

4 – Post listing – pre trial

5 – Trial

As will be seen specific percentages have been suggested for stages 1,2 and 5, but not 3 and 4. Those are likely to be 25% and 30% respectively.

These figures are likely to include counsel’s fees but exclude VAT and disbursements, that is VAT and disbursements can be charged on top but counsel’s fees will be included in the fixed fee.

So, for example, a £200,000 claim goes to trial. The FRC are £80,000 plus VAT and disbursements, but including counsel’s fees.

The solicitor is free to charge the client solicitor and own client costs on top. I am certain that the market will settle down with this being a damages-based fee, albeit expressed as a cap on unrecovered solicitor and own client costs and success fee.

Typically this may be 30% of damages if existing arrangements are anything to go by. This element includes VAT, so the fee for that £200,000 claim will be

FRC                                       £80,000

VAT thereon                          £16,000

Charge to client                     £50,000

VAT thereon                          £10,000

plus disbursements excluding counsel’s fees.

Thus the profit costs will be £130,000 including counsel’s fees.

If you can’t make a living on that then you are in the wrong profession.

The potential massive losers here are barristers. Once solicitors are paying counsel out of their own fixed fees things change. This has already happened in FRC in personal injury cases and has always been the case in employment tribunals where cases are often dealt with on a contingency fee basis with any counsel’s fee coming out of the solicitor’s fee.

Watch this space.

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Written by kerryunderwood

October 3, 2014 at 1:20 pm

Posted in Uncategorized

22 Responses

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  1. Currently FRC only apply in personal injury up to £25,000 and there are exclusions to this. If it is the intention to extend FRC to all civil litigation up to £250k then presumably the PI scheme will also be extended to also incorporate claims up to £250k – Do you agree?

    Isn’t the danger however that value isn’t always reflective of complexity? Lets take for instance a clinical negligence or stress at work claim which could involve complex arguments on limitation, liability, causation, foreseeability etc but may be only be worth a relatively small amount (but is nevertheless time intensive) against an RTA claim where liability is admitted but the claim is high value due to the nature of the injuries rather than any other complicating feature.

    richardcoulthard

    October 3, 2014 at 1:35 pm

    • Richard

      Yes, definitely come in in personal injury, which is a form of civil litigation. The complexity of matters is already reflected in different Fixed Recoverable Costs for different types of work – see the existing scheme where for employers’ liability cases the fees are significantly higher than for road traffic. Is it reasonable to incur £20,000 costs in a £15,000 claim, however complex? Would you do this in a non-recoverable field, such as employment where generally cases are far more complex than clinical negligence – I still do both.

      What will you do when costs stop following the event and we have out and out contingency fess, which is inevitable?

      What do you do about proportionality?

      The times they are a changing – and I am with Jackson LJ on this one.

      Kerry

      kerryunderwood

      October 3, 2014 at 1:59 pm

      • A long time ago they should have decided the Lownds standard of necessity was the ‘standard basis’ test of reasonableness. What’s fairer than what is necessary and no more?

        Once you decide that the damages recovered set what is proportionate to spend you automatically make ‘low value’ injuries unworthy of compensation. This has Article 6 implications as much as additional liabilities do.

        That being said, I do agree that claimant’s should care about the costs being incurred and that they should have to contribute to them. However, given that a claimant’s contribution under a CFA/DBA is a capped percentage of their damages they are focussed on max damages rather than ‘should I spend another £1000 to recover another £1000’.

        Further true contingency fees with no inter partes recovery (like the USA model) would require a huge increase in damages otherwise no one will be interested in taking them on. Look at endodontic treatment claims. They are worth about £10000 if things have gone really wrong. In the USA you can get jury awards for hundreds of thousands of dollars for endodontic claims (not that i’m saying damages would need to be upped that much). And where do higher damages leave us? Robbing Peter to pay Paul?

        robertpettitt

        October 3, 2014 at 8:49 pm

      • Parliament has approved, by statutory instrument. the CPR changing the rules on proportionality and thus overturning Lownds. I disagree that that necessity should be the only factor – indeed it never was – the costs had to be reasonable as well. I also disagree that low value injuries claims necessarily suffer- they are quicker and easier to resolve. The current situation where, for example a Noise Induced Hearing Loss claim worth £5,000 runs up £20,000 costs on one side alone is indefensible. That is not justice and indeed the requirement of the insurers to pay it has held back the development of a modern justice system. Who in their right mind would spend £1,000 to get another £1,000 if they could not recover it?

        We have a US style system in relation to employment and there are plenty of solicitors doing that work. Awards in the US are not as high as you think – jury awards are virtually always appealed and slashed; it is well known that juries increase awards so as to put pressure on the appeal court to allow more than they otherwise would have.

        No costs are recoverable in family matters here, but lawyers still do this work. The small claims limit outside personal injury is £10,000. Why should personal injury lawyers and their clients get favourable treatment from the civil justice scheme?

        Increase damages. Scrap recoverability. Totally overhaul the civil justice system.

        Kerry

        Few countries now have recoverable costs; they will inevitably disappear here to.

        kerryunderwood

        October 15, 2014 at 2:03 pm

  2. Was this for all civil litigation, or just fast track claims? This would make claims under re HRA 1998 non-viable as the costs inevitably outweigh the damages, sometimes damages aren’t even awarded but a declaration is, what then? No recoverable costs? Lets hope they think this one through properly….

    Dave

    October 3, 2014 at 2:22 pm

    • Dave

      All claims in all tracks. Obviously the extension up from the current £25,000 will all be multi track. Already rules allowing valuation of non-damages claims – se Part 36 uplift on claimants’ offers provisions. See also Aarhus convention claims and Patent Court claims. No inherent problem in having fixed recoverable costs in cases where there are no, or limited, damages.

      Assuming costs cease to follow the event and any charge will always be to your own client, how would you work then?

      Kerry

      kerryunderwood

      October 3, 2014 at 2:33 pm

      • Kerry, thanks for the reply. No problem with fixed costs, as long as there is a provision for some costs. Fixed costs for HRA claims seems sensible.

        Many thanks

        Dave

        Dave

        October 3, 2014 at 4:18 pm

      • I agree.

        kerryunderwood

        October 3, 2014 at 4:21 pm

  3. I was at this Conference ….and was tempted to ask His Lordship to what extent his thinking had been shaped by Charles Dickens’ Bleak House …….

    hastanton

    October 3, 2014 at 3:55 pm

    • Personal injury lawyers said that about FRC in PI – but profits are up in well-run firms.

      Kerry

      kerryunderwood

      October 3, 2014 at 3:57 pm

  4. Not sure about barristers losing out with this. My experience is that when solicitors know they need to win to recover a decent fee (whether CFA or DBA) they will see more value in what (some) barristers can bring to a case and will pay a reasonable fee for it. Suits me……

    @jcoxbar

    October 3, 2014 at 4:05 pm

    • Not been the experience with Fixed Recoverable Costs in personal injury where barristers’ clerks tell me that there has been a very sharp drop in work.

      Kerry

      kerryunderwood

      October 3, 2014 at 4:08 pm

      • The Claimant PI/Clin Neg Bar will be decimated in the event that this proposal is adopted. Circa 1-2% of MT cases will ever reach trial and other than an advice on quantum (for protection in respect of future allegations of under settlement), it is hard to conceive of any firm of solicitors willingly gifting away a share of profit costs to Counsel.

        Entrepreneurial Barristers will either go the Direct Access route (Barrister Only entities, employing paralegals and other support staff, with the right to conduct litigation) or alternatively, go in-house.

        A few sets of Chambers will survive (either those that offer volume, commoditised work such as Clerksroom or sets solely comprised of QC’s/Senior Juniors such as Byrom Street who all do work higher in value than £200k). Clin Neg sets will be particularly hard hit (many Clin Neg cases are modest in value but have a high level of Counsel involvement).

        Interesting times ahead! For what it’s worth, the proposals seem very sensible and as Kerry has said, if you can’t make money off this model then there must be something wrong.

        Cashflow will improve greatly and sensible business planning decisions can be taken.

        A Barrister

        October 6, 2014 at 11:09 am

      • I agree with you that there will be a movement by entrepreneurial barristers towards going in house or down the Direct Access route, although I believe that many barristers grossly underestimate the challenges of working in partnership or in house with solicitors, as well as the daily grind of running a business, employing staff, ensuring that the staff have enough work and dealing with lay clients.

        I am not quite as pessimistic as you are about the claimant personal injury/clinical negligence part. I agree that for lower value cases solicitors will do this themselves as they will not wish to part with the share of profit costs. As you indicate the solicitors will effectively be paying counsel themselves. This of course is already the situation in virtually all personal injury claims of up to £25,000.00, but with the notable current exclusion of clinical negligence.

        It is a curious psychology of solicitors. Give them a fee of £2,000.00 plus counsel’s fees of £500.00, all recoverable from the other side, and they will happily take the £2,000.00 and instruct counsel and pay the fee. Give them a fee of £3,000.00 inclusive of counsel’s fees, which obviously leaves them with £2,500.00, that is £500.00 more than before, and they will not instruct counsel.

        Obviously under open costs, as compared with fixed recoverable costs, solicitors are free to do the work themselves and earn the extra profit costs. The psychological problem seems to come when the solicitors have to pay a disbursement out of what they regard as profit costs. This is very much the case in Employment Tribunal proceedings which are generally conducted for claimants under a contingency fee scheme and where solicitors relatively rarely instruct counsel.

        However my view is that in the higher value cases, and especially in the more complex area of clinical negligence, solicitors will continue to instruct counsel, although possibly not as often as now.

        I agree with you that chambers doing just higher value work are likely to do well. I am not sure that the future of those offering volume, commoditised, work is good. It is precisely those types of solicitors firms that have gone under since the Jackson Reforms.

        Interesting times ahead indeed! Overall I believe that good, innovative and modern lawyers, whether they be solicitors or barristers will succeed and the rest won’t.

        Sad though that is, it must ultimately be a good thing for our clients, the public and for the legal profession.

        Thank you very much for taking the time and trouble to comment on my blog.

        Kerry

        kerryunderwood

        December 1, 2014 at 4:44 pm

  5. […] called for the development of a fixed costs scheme for all claims with a value of up to £250,000. Kerry Underwood’s blog helpfully sets out a summary of how this might work and […]

  6. I can see this being welcomed by clients. However, if budgeting were to work as Jackson intended (and let’s face it, it has hardly got off the ground) FRC might not be needed. You can see minority (but highly vocal) interests such as defamation specialists making a big deal about the value of vindication beyond what are usually modest damages. In other walks of litigation life, parties may also act oppressively if they know the spectre FRC are squeezing resources.

    Andy Ellis

    October 6, 2014 at 12:39 pm

    • Thanks Andy

      Of course Lord Justice Jackson’s point is the reverse: budgeting is not necessary in relation to Fixed Recoverable Costs matters and thus extending FRC removes a huge budgeting burden: “Such a scheme may be particularly welcome now, because it will dispense with the need for costs management and costs budgeting in case valued at less than £250,000….” – paragraph 2.16 of speech on 30 September 2014.

      FRC do not just need to be money-based; it is possible and indeed necessary to structure the scheme to cover non-monetary matters, such as injunctions etc. This is not impossible. FRC as they exist have a core fee as well as a damages-based fee. Lawyers in areas such as employment an immigration already have to fix a fee for non-monetary claims, eg £25,000 if you win – nothing if you lose, or whatever.

      True it is that a rich party can act oppressively, but that can happen anyway, with one party outspending another and putting them at risk of open costs; at least FRC limits the poorer party’s exposure.

      Also, as is happening in defamation, that can partly be remedied by Qualified One Way Costs Shifting.

      As you say – you can see this being welcomed by clients – I agree, so if we can make a decent profit on it as well, then everybody is happy. 🙂

      Kerry

      kerryunderwood

      October 15, 2014 at 2:21 pm

  7. At the CLR conference, Jackson said he would like to see fixed costs in all Civil cases and was disappointed that FRC was only implemented for PI cases and wit exceptions. He expressed that he thought the CMS model had legs, albeit the exact methodology and fee structure needs further investigation etc.
    He did not at all suggest that this was back on the MoJ’s map.

    JS

    October 6, 2014 at 5:39 pm

  8. […] Kerry Underwood on the same theme (with a different viewpoint) in Fixed Recoverable Costs in all Civil Cases up to £250,000 […]

  9. Advice please.

    My first 1 day MT trial on Friday where cost budget is agreed. Am I obliged to file N260 or do I provide a summary of the costs as per the cost budget – or do we ask for a payment on account with detailed assessment

    44PD.8 / 9 does not mention cost budget at all – the white book does not have section PD 3E

    Richard

    October 21, 2014 at 8:38 am

  10. […] FIXED RECOVERABLE COSTS IN ALL CIVIL CASES UP TO £250,000 […]


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