The Need For The Extension of Fixed Recoverable Costs
In these very uncertain times, one area where insurers and other paying parties would like to see greater certainty is in relation to the legal costs recoverable by claimant law firms when pursuing personal injury and other claims in England and Wales. Legal costs in such cases have long been disproportionate to the underlying issues, with regular examples of cases being overworked in order to maximise costs recovery.
As we know, proportionality was historically a significant challenge in the lower value claims space, where the bulk of claims sit, which led to and has in large part been addressed by the reforms resulting in the low-value claims process applicable to most cases and the introduction of Fixed Recoverable Costs (FRC). However, whilst those developments have not prevented the regular rounds of satellite litigation on discrete issues, most compensators take the view that the regime has served to slow undesirable claims inflation and played a role in curbing adverse behaviours exhibited by some claimant practitioners. Further, it has aided reserving accuracy, which is a great benefit to underwriters, actuaries and customers.
The position at present is that claims at higher values continue to experience frequently disproportionate and high billing formerly seen in modest value cases, judging by reductions achieved on submitted bills, although outcomes via the Detailed Assessment process, in which the courts adjudicate costs disputes, can be unpredictable. Whilst it is accepted that claims of the maximum severity, taken for the purposes of this article as those in excess of £250,000, which do of course represent a very small proportion of insurers’ claims portfolios, are less well suited to the concept of fixed costs, Zurich is satisfied that FRC should be extended into the lower reaches of Multi-Track claims, certainly to those matters valued below £100,000 and ideally beyond that.
Indeed, many will remember that the costs reforms in this area proposed by Lord Justice Jackson in 2017 originally started out with an ambition to include Multi-Track cases valued up to £250,000, before being scaled back to £100,000 within His Lordship’s formal report on the subject, albeit with a view to extension beyond that amount if the scheme worked well. The proposals inevitably involved some exceptions, but generally speaking, most claims for damages in what would be a new “Intermediate Track” would have been within scope.
The Ministry of Justice (MOJ) consulted on this subject in the Spring of 2019. The MOJ was broadly in support of the reforms outlined and Zurich was also positive in its response to the consultation, recognising the benefits that fixing costs to a greater extent would bring. Zurich’s position is that whilst FRC may in some claims result in higher costs payments than would otherwise have been the case, overall, the savings in frictional costs, including the Detailed Assessment processes and own legal spend, as well as enhanced operational efficiency and the ability set reserves earlier and with greater accuracy outweigh any disadvantages to the introduction of FRC.
It is unfortunate that the MOJ has yet to announce an intention to implement the proposed extensions to FRC, accepting that Government business has been dominated in recent times by other matters which need no introduction and recognising that the task is not an easy one. However, it is hoped that the recent report from a Working Group of the Civil Justice Council in relation to Guideline Hourly Rates (GHR) will galvanize action toward bringing the extension of FRC to fruition. Indeed, many have voiced dissatisfaction with GHR review undertaken, given amongst other things the issue of the geographical locations of lawyers and clients is now largely eroded through modern remote working practices (accelerated by the pandemic), as well as challenges on the data used for the exercise, but crucially any change to GHR will do little to prevent the inevitable costs disputes that will continue to be presented.
Zurich’s view is that legal costs will only be able to be appropriately and proportionately addressed, with greater certainty for both sides, once there is a clear regime of Fixed Recoverable Costs in place, which is sufficiently wide to capture the vast majority of the claims that come for settlement. There are benefits for all parties in the removal of frictional activity and promoting the laudable objective of increasing access to justice for claimants, rather than distraction created by the issue of costs, where settlement strategies often have to be geared to limit the unnecessary exposure to these for the paying party.
