FIXED COSTS – THE PROS AND THE CONS

I recently held a seminar at my offices on the issue of fixed costs.  The seminar was in conjunction with the Leeds Law Society and Kings Chambers.  The format of the seminar was a question and answer session and it was interesting to hear views from Leeds based litigators (claimant and defendant) on the issue of fixed costs.

Here are my current views on the pros and the cons to the introduction of fixed costs in civil and commercial litigation:

Pros

1. Certainty;
2. Speed of payment at the conclusion of a case;
3. Reduction in Court time;
4. Reduction in costs management and detailed assessments;
5. Should result in the reduction of insurance premiums;
6. Automatically creates proportionately;
7. Opportunities for firms (who can structure themselves appropriately) to grow and become more profitable;
8. It will give SMEs access to justice and the confidence to litigate where appropriate;
9. The hourly rate can reward inefficiency

Cons

1. The effects of LASPO are not yet known. There are still many pre Jackson cases in the system and there will be for some time.  It is too early to change the system again;
2. Give time for cost management to work. The process is improving and is starting to work. It is too early to say that costs management does not work;
3. Fixed costs creates a one sided system. Defendants will be able to run cases past a profitable stage for the claimant in the hope that the claimant law firm will be then incentivized to settle.  This is a real risk as when the system was one sided and in the favour of the claimant (i.e. additional liabilities were recoverable) defendants still litigated hard.  If the system is in favour of defendants then they will clearly litigate even harder;
4. Why should a successful claimant (or defendant) be restricted to what they are entitled to recover for legal costs without reference to case specifics and the ability to present a claim for costs on an item by item basis to a Costs Judge;
5. The quality of legal advice will reduce. Likely to be more paralegals employed to deliver civil and commercial litigation work;
6. Access to justice – firms will decline work that they simply cannot make profitable;
7. There will be more solicitor/own client costs disputes;
8. Law firms will be forced to charge shortfalls or increase shortfall contributions. The shortfalls will be payable out of the client’s damages. The only loser therefore will be the client;
9. The Court has the power through costs management, costs capping and detailed assessment (new test of proportionality) to set/award proportionate costs. Why therefore are fixed costs required?
10. Fixed costs are too rigid as civil and commercial cases have too many unknowns and cases can go down a number of paths;
11. How do you fairly set the fixed fees, with suitable exemptions across the board? – Every case is different and every area of law is substantially different.
12. The introduction of increased Court fees coupled with an introduction of fixed costs will encourage claimants not to litigate. A real benefit to defendants.
13. It may encourage Claimants to issue proceedings in order to progress to the next ‘stage’ and therefore be entitled to increased costs. This has the potential to actually discourage settlement in some cases.
14. Professional indemnity insurance premiums may increase for law firms who employ a high amount of paralegals due to the valid concern that fixed costs would reduce quality

As can be seen from the above there are definitely more cons than pros to the introduction of fixed costs.  The above represents my views only.  If anyone has any views or comments on any of my ideas set out above then please feel free to share them through this blog.

This blog was written by Andrew McAulay, who is a Partner and the Head of the Costs and Litigation Funding Team at Clarion. Andrew can be contacted at andrew.mcaulay@clarionsolicitors.com or on 0113 336 3334.