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JILT 1996 (1) - Lord Woolf - Costs

ACCESS TO JUSTICE

COSTS
  1. Lord Woolf’s Interim Report in June 1995 set out in Chapter 4, para 7, the objectives of the new system of civil litigation. In relation to costs these were that: "Prior to commencing and throughout the course of proceedings, parties should be able to be, and should be, kept fully informed of the likely costs and consequences of the proceedings and any alternative means of resolving those proceedings." "Proceedings should be conducted and disposed of in a manner, at a cost and within a timescale which is appropriate, taking into account the nature of the issues involved and the means of the parties."
  2. To meet these objectives Lord Woolf recommended: (i) an expanded small claims jurisdiction extended up to £3,000; (ii) a new fast track for straightforward cases up to £10,000 with a strictly limited procedure and standard fixed costs; (iii) a new multi-track, providing appropriate and proportionate case management, with individual hands on judicial case management concentrated on those cases which require significant attention and will most benefit from it. Other cases will proceed on standard or individually tailored timetables according to standard or individual directions; (iv) at case management conferences and pre-trial reviews on the multi-track information available for the hearing should include an estimate of the amount of costs already incurred and the costs which will be incurred if the case proceeds to trial; (v) it should be a professional obligation for lawyers to explain their charges to clients and what might be the overall cost of a case; and to give reasonable notice where an estimate is likely to be exceeded; (vi) legal professional bodies should encourage their members, where this is practical, to undertake litigation on fixed fees either for stages of the proceedings or the proceedings as a whole.
  3. There is increasing pressure from larger corporate clients and from the Legal Aid Board, as a major purchaser of legal services, to achieve greater certainty over prospective costs. These, however, offer no benefit to prospective one-off clients in the middle range. The Law Society’s practice management standards require participating solicitors to inform clients of likely costs in advance but they are not mandatory in respect of all solicitors.
  4. It has been suggested that control over procedural activity, through the Fast Track and proportionate case management on the multi-track, may not be sufficient in itself to achieve control over costs; and that a requirement to inform clients of costs estimates at the start of the case and, in larger cases, at key stages in the course of a case may not provide sufficient transparency for clients to understand how costs relate to procedures and activity.
  5. The attached paper by A.A.S. Zuckerman, Fellow of University College, Oxford discusses a number of mechanisms for controlling costs in advance, such as budget setting, fixed fees related to value, fixed fees related to procedural activity

    The Inquiry invites comments on the proposals outlined in the paper. Respondents may also wish to set out alternative ideas for controlling costs and achieving greater transparency.

    Responses should be sent by 11 March 1996 to:

    Clare Funnell
    Lord Woolf’s Inquiry
    Lord Chancellor’s Department
    Room 6.21
    Selborne House
    54/60 Victoria Street
    London SW1E 6QW


    Devices for Controlling the Cost of Litigation Through Costs Taxation

    Paper presented to the Woolf Inquiry Team by A A S Zuckerman.

    Introduction

    1. The main thrust of Access to Justice - the Interim Report is to achieve proportionality between the procedure employed and its cost, on the one hand, and on the other the complexity, importance and value of the case in question. The Interim Report is principally concerned with the procedural mechanisms. In the fast track procedure, the litigation process will be limited by special rules governing all fast-track litigation. In the multi-track procedure the litigation process will be tailored to suit the needs of the particular dispute.
    2. The success of judicial case management in cutting down cost will crucially depend on the co-operation of the profession. For instance, the success of the case management conference in defining the issues will of necessity hinge on the lawyer's input. If this input is obscure, ambivalent and complicated, the court would have to invest a great deal of effort in knocking the pleadings into shape. A major aim of case management conferences would be to 'produce an agreed statement of the issues in dispute. This will be the responsibility of the parties ... The statement of issues will effectively take over from the pleadings' (Report, 155-6).
    3. The new approach to the conduct of litigation, therefore, imposes a heavy burden on the parties' lawyers. They are expected to clear the ground of the dispute from ambiguities and marshall their evidence and arguments clearly and succinctly so that the field may be ready for judicial examination. However, this process of preparing the ground may be just as expensive, if not more expensive, than the present less exacting approach.
    4. The parties' lawyers would be expected to negotiate amongst themselves in an attempt to produce an agreed list of issues. When lawyers are paid on an hourly basis, there is a clear danger that the process of producing an agreement will itself become a source of great expense, just as witness statements proved to be expensive. A similar comment may be made about discovery. The success of the new approach will depend on a distinction between documents which are adverse to a party's own case, and which would need to be discovered as a matter of course, and documents which are otherwise relevant (Report, 168). In the absence of an incentive to economize in discovery, practitioners are bound to play safe and press for maximal discovery.
    5. Economy in witness statements and testimony will also be practitioner dependent. For the early case management conference, only the identity of witnesses and a brief note of the issues with which they deal will be prepared. At that stage the issues will be identified, thereby determining which witnesses will need to be called. Only statements from these witnesses would then have to be exchanged. At the subsequent pre-trial review it will be decided which witnesses should be actually called and the issues on which they would testify. At the trial itself the parties would be allowed to ask their witnesses to amplify their statements. Clearly, even the lightest management will leave considerable flexibility for the parties' representatives to expand the process or contract it.
    6. The Interim Report left the problem of costs to be dealt with at the subsequent stage of the Inquiry. The purpose of this paper is to discuss options for cost regimes which will support the objectives of the fast-track and multi-track procedures.

      The weakness of the present costs regime

    7. Our present costs system already attempts to establish a sensible relationship between the complexity and value of the dispute and the expenditure of litigation. The broad principle is that on taxation only reasonable costs for work reasonably done are recoverable. However, this system has failed to curb the capacity of litigation to consume vast amounts of resources.
    8. The failure of the present system to curb costs is due to two factors. First, costs are determined by reference to what is considered by the profession to be reasonably necessary work and by the prevailing standards of hourly fees and overheads. In other words, the judicial pitching of costs follows the forensic practices and expectations and not the other way round. Secondly, taxation is conducted retrospectively so that it reflects the way in which the parties chose to conduct the case. In other words, retrospective taxation does not influence the steps which are pursued in litigation.
    9. Even lawyers themselves have only limited control on the costs. Lawyers who would like to be thrifty are not always in a position to achieve this. In order to determine whether procedural economy is feasible, one has to have an overall view of the dispute. Yet litigants can obtain such a view only at the end of an expensive and protracted pre-trial process. Moreover, this process can take on a life of its own, forcing lawyers to respond to each other’s procedural move with little control over economy. Under the present system it is therefore virtually impossible to place a limit on costs or achieve a measure of predictability. Costs simply flow with the process.
    10. The regime devised by the Interim Report seeks to limit costs and introduce a measure of predictability. At the case management conference each party will need to produce an estimate of the costs already incurred and of the costs likely to be incurred if the case proceeds to trial (Report, p 49, para 7). At the pre trial review a budget for the trial could be set (Report, p 50, para 12). Further, the fast-track process will in any event be subject to a fixed costs regime.
    11. The new approach of controlling the procedural resources that parties could consume still leaves, as we have seen, considerable scope for piling up expense. At the same time closer judicial control of litigation creates opportunities for a new approach to costs which could reverse the present trend of spiralling costs.

      Prospective Budget Setting

    12. One option to be considered is replacing retrospective taxation with prospective budget setting. Under this regime budgets would be set in advance so that the process would have to conform to budgetary constraints, rather than the cost following the process as at present.
    13. In considering this proposal we need to bear in mind the distinction between party and party costs, on the one hand, and solicitor and own client costs, on the other. Party and party costs represent what a winning party is entitled to recover from the loser by way of costs. The solicitor and own client costs represent the amount of money that a client has to pay his or her own lawyer.
    14. At the end of the case management conference the procedural judge will consider the question of costs. The procedural judge will determine: (a) what costs should be allowed to each party for work up to that point; (b) the amount of costs that will be allowed to each party for litigation up to judgment. This consideration would be based on information provided by the parties.
    15. The decision under (a) will reflect the procedural judge's view of the conduct of the case up to that point. The decision under (b) will effectively set a budget for the remainder of the litigation. Courts already undertake a similar exercise in applications for security for costs.
    16. The decisions under both these heads could admit of different assessments regarding plaintiffs and defendants.
    17. Such a budgetary constraint will give a real practical authority to the directions given at the end of the case management conference.
    18. The budget could be expressed either in financial terms or in terms of the number of allowable hours, thus allowing for regional variations in hourly rates.

      Advantages

      (a) The parties will have some incentives to economize in the preparation for the case management conference since they would know that the judge’s assessment of their performance up to that point will be directly reflected in costs allowed.

      (b) After the case management conference clients and their lawyers will have a strong incentive to keep inside the budgetary limit set, as they will not be able to recover more in the event of winning.

      (c) The parties will know exactly how much it will cost to go to trial. They will be in a far better position than at present to assess the cost-benefit advantages of persisting with litigation or settling the action. (The decision to settle turns on the prospect of success and on the magnitude of cost likely to be incurred by failure. At present the magnitude of cost is uncertain and wildly speculative).

      (d) The existence of a budget will give the client greater control, since the lawyers will have to justify more closely any recommendation to spend more than has been allowed by the prospective taxation.

      (e) A pre-determined budget will limit the scope for harassment of the poor litigant by the rich litigant through threats of ever rising costs.

      (f) A pre-determined budget will obviate any argument about wasted costs in respect of the stages following the case management conference. Wasted costs in respect of process up to that point will be much easier to assess. The prospect of wasted costs orders will doubtless concentrate the mind in the preparation for the case management conference.

      Disadvantages

      (a) Such a system offers only a weak control over costs up to the case management conference. Indeed, if lawyers know that they are liable to budgetary constraints after the case management conference, they may be tempted to front load costs.

      (b) If prospective budget setting affects only party and party costs, leaving lawyers free to spend more than the allowed costs and claim the difference from the client, the new system could be undermined. Lawyers could tell the client that in order to succeed the client has to pay for extra non-allowable costs, and the clients may be poorly placed to resist raising the pressure for extra expenditure.

      (c) If the budget does not apply to party and client costs, the rich client would still be able to harass the poor. For by intensifying the litigation (more expert opinions, more discovery, more witness statements) the richer litigant makes it more expensive for the poorer opponent to respond.

    19. If the budget affects only party and party costs, a great deal of leeway will be left for exceeding it. This could result not so much in reducing overall cost as in simply making a larger proportion of the costs non-recoverable.
    20. If, on the other hand, prospective taxation and budgets are to be applied to solicitor and own client costs too, then we are moving in a different direction altogether. This new direction will involve fixed litigation costs.

      Fixed litigation costs

    21. Fixed costs regimes may take a number of forms, but they have one feature in common. That is, lawyers are expected to provide litigation services at a fixed cost.
    22. There are several ways in which a fixed costs regime could operate: a) Fixed fee for the litigation as a whole.
    23. The fixed fee can be determined as a general rule for all cases. For instance, we could have a pre-determined scale under which legal fees are fixed as a proportion of the value of the subject matter in dispute.
    24. Alternatively, the fixed fees can be determined on a case by case basis.
    25. There is also the possibility of a combination of these two methods. The combined method would involve a pre determined scale of fees, the exact pitching of which could then be done on a case by case basis. For instance, the scale would determine that, say, for claims of £10k to £20k the fees would be between 10 and 20 per cent, leaving the determination of the exact level to the judge in charge of the case. b) Fees fixed by reference to procedural activity
    26. Under this system the legal fees for each procedural step are determined in advance as a matter of rule. A system of this kind exists in the county court under Scale 1 costs (see The County Court Practice 1995, pp 1622, 1663). Under Scale 1, a certain sum is payable for preparation of documents, for interlocutory proceedings, for preparation for trial and so on. Further, so much is payable per typed page.
    27. The system may be operated with a ceiling so that costs may not exceed a certain proportion of the value of the claim, or some other pre-determined sum. Or it can operate subject to no ceiling. Unlike now, however, there would in future be a limit on procedural activity. c) Mixed systems
    28. One can have a mixed system, consisting of fixed costs for the preliminary stage and activity costs for the stages following the case management conference. The costs for serving a statement of claim and defence and preparing for the case management conference will be fixed by regulation (possibly as a proportion of the value of the claim). Thereafter, costs will be charged on an activity basis, in respect of the activities sanctioned by the procedural judge.
    29. Such a system will obviate the danger of front loading and at the same time allow some flexibility, subject to a ceiling, in the preparation for trial.

      Appraisal of fixed costs

    30. Fixed cost litigation will provide lawyers with incentives to economize in litigation. It will provide clients with precise information about the cost of litigation. If the fixed costs are sensibly determined, the system would ensure that the procedure employed is commensurate with the value of the dispute in question.
    31. It is true that a ceiling on costs will limit the extent to which issues can be investigated. But this is not necessarily a bad thing. The whole tenor of Access to Justice is that we can no longer afford unlimited procedural provision for every case, regardless of importance, complexity or value.
    32. Furthermore, fixed costs are already creeping into the system. Some large repeat corporate clients already insist that their solicitors work to a budget. Some corporate clients even put their requirement for legal services to competitive tender. There is no reason why such practices should not be available for the benefit of the public at large. Since one-off clients do not have the influence of large corporations, it is incumbent on the administration of civil justice to take steps to endow them with the benefits of fixed costs systems.

      Professional liability

    33. One of the forces behind the upward movement in costs has been the prospect of professional liability in negligence. In order to minimise the scope for liability lawyers have naturally tended to follow all procedural avenues open to their client. Since reasonable standards of litigation practice are determined by what practitioners normally do, it follows that we have here a mechanism which continually expands the intensity of litigation.
    34. The judicial management of cases will considerably limit the scope for professional liability. As the procedure adopted will be largely determined by the rules themselves, or by the courts, there will be limited room for blaming lawyers for the failure to take this or that step.

      Professional profitability

    35. Only a reduction in the cost of litigation can lead to improved access to justice. Limitations on fees for legal services are not inimical to professional profitability. True, the profitability of any given procedural step, be it witness statements or discovery, will now be governed by conformity with the budgetary constraints. But a regime of constraint could well lead to the evolution of cost effective practices, as they have done in other areas of the economy. Furthermore, a regime of predictability will encourage litigation by those who are put off by the uncertainty of costs at present. It will also encourage the development of a litigation expenses insurance industry which will ensure that lawyers are not without work.
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