News article published on: 25th March 2019
Where are we, exactly, with fixed fees now that the RTA claims process reforms are imminent and the Jackson report has been published? asks Stuart Kightley, Solicitor at Osbornes Solicitors, London.
The process of PI costs and funding reform has wound a circuitous route towards a regime of comprehensive fixed fees, always keeping the spectre of the small claims limit in view but at bay. Applying the age old adages that you need to be in it to win it and least worst is best the claimant lobby has largely engaged throughout this journey. This article looks at where we are now with fixed fees under the government’s imminent RTA claims process reforms and the Jackson recommendations.
The RTA claims process is the brainchild of the Ministry of Justice. Nobody had asked for a brand new model for PI claims that was costed from the bottom up rather than top down, but they clearly thought that by reinventing the wheel they might make it run faster.
They cleverly sought agreement on building the process first, with the costs to be added at the end. Clever because the process could be bashed into shape but without the numbers no stakeholder could really sustain any objections. The process that emerged, which included all the steps, actions and contingencies that the claimant side could persuade them to include, was divided into stages one, two and three, where stage one covers initial notification and a 15 day liability admission, stage two the subsequent work to a negotiated settlement and stage three a simplified Part 8 procedure for the assessment of damages. The base costs ascribed to each of these stages are £400, £800 and £500/£250 (oral/paper hearing) respectively. The success fee will remain as 12.5 per cent (or 100 per cent on stage three costs at a quantum hearing) and London weighting will be paid as now.
This is less than the costs paid under the Fixed Recoverable Costs System (FRCS). Fenn & Rickman reported in 2007 that average base costs paid under FRCS were a little over £1,500, that average fee earner time spent was ten hours and average damages agreed were £2,360 (which incidentally would give base costs of £1,272).
So are there any cost savings or other benefits built in to the new RTA Claims Process? The main time saving is the removal of the need to investigate primary liability, contributory negligence (save for seat belt contributory negligence) and causation. The initial liability assessment will just need be sufficient to decide to take the case on, but there will be no need to contact and proof witnesses, obtain and consider the police report (which certainly in the Met is a laborious task), locus photos, plans etc or to enter into correspondence on liability issues; or to take further instructions and negotiate over contributory negligence; to review medical records and put questions to the medical expert (or field such questions from the opponent) over causation and debate the issue with the opponent. In these cases the claim will automatically exit the process and will fall to be costed in the current FRCS system.
The short time periods and guillotine default provisions should also reduce the transactional costs involved in chasing the opponent and keeping the client informed: defendant delays on liability and on quantum will take the case out of the system, and again into the FRCS. Likewise if the defendant delays on payment of damages or costs the claimant will be able to exit the process and claim further costs.
Timely payment of costs would be a welcome improvement on the current system, especially with the stage one costs being paid within 25 working days of the Claim Notification Form (CNF).
Stage three allows an oral hearing or, if both parties agree, a paper hearing on quantum before a district judge. A stage three claim form is issued, after which further offers can be made and the claim can still settle, but importantly it is only the defendant’s stage two settlement pack offer that will need to be beaten. The parties’ last stage two offers will go to the court in sealed envelopes and Part 36 rules will apply, so that if the claimant beats the defendant’s last offer he will recover a 100 per cent success fee on the £500/250 stage three costs (and 12.5 per cent on the stage one and two costs). If not, he must pay the defendant’s stage three costs plus a 100 per cent uplift to defendants on a CFA. He will therefore need ATE insurance if he does not have alternative funding and the MoJ has accepted the need for ATE insurance for the claims process (although it remains to be seen what effect the reduced costs exposure will have on premiums).
The Rules Committee is drafting the necessary amendments to Part 36. They should include enhanced damages as well as costs for beating a defendant offer to reward a claimant for beating an inadequate offer.
The stage three procedure should deliver final hearings much quicker than under the current Part 7 procedure. If defendants continue to calibrate their quantum software too low it may suit claimants and their lawyers to maximise the claim by embracing stage three.
In children cases there will need to be a stage three hearing in any event. For approval hearings stage three base costs of £500 will be paid (in addition to stage one and two costs and a 12.5 per cent success fee). Where it is a contested hearing (quantum not agreed) an additional £500 is payable, with a 100 per cent success fee for winning. In addition there is an allowance for counsel’s quantum advice.
Winners and losers
The new fee structure represents a significant cut in fees at the top end of damages because the MoJ chose to break the linkage between damages value and fee level (a feature of the FRCS). There is now no incentive to do the extra work necessary to maximise the higher value claim (the Fenn research indicates, inevitably, that the higher value claims involve more work, although the amount of work does not increase in proportion to the amount of damages, as is illustrated by the formula in the FRCS: 20 per cent of damages up to £5,000 but only 15 per cent of damages to £10,000).
So a £10,000 damages claim will now attract only £1,200 base costs if it settles at stage two, whereas the same case would attract £2,550 base costs under the FRCS (assuming such a case remained in the FRCS system, which is unlikely), although it is also true that the amount of work involved will be less because some of the complicating factors have been stripped out of the process, and duration of the claim is likely to be less. It should also be borne in mind that in higher value claims the defendants may be less able or willing to admit liability within 15 days.
At the bottom end, claims will be attracting more than the current FRCS costs (£1,200 base costs rather than £1000 base costs for a £1,000 damages claim) for doing what could be significantly less work.
If the average level of damages for FRCS cases is about £2,400 then in global terms it is possible to argue that both sides have both won and lost.
Whether individual firms do better or worse under the new regime will depend to some extent on their work profile, their work practices and their tactical approach.
Work profile matters because the lower value claims will be more profitable than higher value claims. So a firm running BTE policy holder (i.e. usually vehicle driver) cases are likely to have a significant proportion of low value whiplash cases. Other firms running ATE cases are more likely to be dealing with non policy holders such as pedestrians and cyclists, with orthopaedic injuries which may be of a higher value. However, these cases are often less straightforward on liability and so may have to come out of the system under the initial 15 day rule. These are of course generalisations and there are many different profile types, but the point is that it is important for a firm to recognise what sort of cases it is dealing with, how those cases will be treated under the scheme, and what tactics to employ to ensure that they can continue to run those cases properly and profitably.
FRCS fixed fees may already have driven a change in claimant firm work practices, with lower grade fee earners doing some or all of the work, assisted by case management systems. Some firms may have continued as before on the basis that the FRCS fees were not significantly different to the previous fee levels, but the failure of the government to increase rates since 2003 and now the RTA Claims Process fees reduction may make us think again about whether we can afford to continue running RTAs in the same way as other claims.
Tactics will inevitably apply on both sides. According to the Fenn review the incidence of proceedings being issued increased noticeably after the FRCS was introduced in 2003. The obvious explanation was firms deliberately issuing proceedings in order to avoid fixed costs. That practice will be curtailed in the sense that under the new scheme if proceedings are issued over quantum they will stay within the scheme, but there is arguably now both greater scope and greater incentive to exit the system entirely. If defendants do not comply with the strict 15 day time limit for admitting liability the case will exit the system and will not be allowed back in. The same applies where they breach the time limit for payment of stage one costs or for making a settlement offer, or if they deny causation or allege contributory negligence (except seat belts), so the pressure is very much on defendants to improve their own claims handling practices. If they fail to comply then we must allow them no wriggle room.
Implementation date remains 6 April 2010, an almost impossibly tight timescale given that the draft rules and IT systems are not yet complete. Plans and strategies should be developed now, although much may still change and much may have to await the inevitable satellite litigation.
Jackson fixed costs
In his seminal and wide ranging report ‘How do you solve a problem like PI’ published January 2010, Jackson LJ made it clear that the next step was to implement his recommendations for fixed PI costs on the fast track (via the Justice Minister and the Rules Committee) in 2010, whilst stage two was to tackle, by primary legislation, the rather more intractable issues concerning referral fees, recoverability of additional liabilities and the indemnity principle.
Jackson’s interim report last summer had already built on Lord Woolf’s original proposals on fixed costs by populating a matrix for non FRCS cases with empirical data (provided by Professor Fenn). For him, it remained only for the stakeholders to agree numbers.
In a series of ‘facilitations’ it is well known that an industry agreement was not delivered but, as set out in Jackson’s final report, the claimant and defendant sides were largely in agreement as to the reliability of the data and the need to have different fixed cost levels for different stages. In addition the matrix was to have different costs bands for different damages values. The claimant side sought an uplift for inflation and the defendant side argued for a referral fee-sized cut as well as efficiency savings and a discount for not having to deal with the ‘costs of costs’.
What resulted was a matrix (appendix five to the final report) that covers RTA pre issue £10-25,000 value cases and RTA post issue cases as well as all employers’ liability (EL) accident and public liability (PL) accident cases. Jackson’s formula was to take average current costs as the base line, to adjust the baseline to allow for inflation on the one side and cost of cost savings on the other and then to weight the figures for the damages level and stage reached. Final variables were an extra amount for counsel’s advice in issued and children cases and a variant model with discounts for early admissions.
The defendants sought a discount of £400 per case for the costs of costs. Jackson allowed £200, with a further £100 to cover the cost of providing costs data to the new Costs Council. Counsel’s fees accounted for an additional £100/£225. £300 in RTA/ELA/PLA and the early admission discount was to be £250/£500 in pre/post issue cases.
Add in a success fee of 45 per cent for PL cases, trial advocacy fees (at current rates) and voila: a simple system with a fixed price menu for all types, stages and values of case up to the £25,000 fast track limit.
But the new system will be far from simple. If the Jackson fixed costs come into force (he optimistically anticipates an October 2010 implementation date) then we will have five different costs models for low value RTA claims simultaneously: small claims fixed costs, FRCS fixed costs, Claims Process fixed costs, Jackson fixed costs and standard basis costs, each with a different fee level and a different formula.
Fixed costs in Personal Injury benefit only the deep pocketed defendant. If they are set at existing cost levels then there is little point and no benefit – all cases will pay either too much or too little, and the annual review is never delivered. If they are set below existing cost levels they further tilt the playing field away from the claimant.
For the higher value and litigated cases included in the Jackson model the danger is that fixing costs will affect behaviours: driving bad defendant behaviour and forcing claimant’s to settle when they run out of money. The post election MoJ must look at what it wants to achieve by extending fixed costs, and should at least ensure that any system for fixed costs maintains the link between costs and damages and includes a mechanism for controlling adverse behaviours.