Group A's Paper re Fixed Costs

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Group A's Paper re Fixed Costs Powered By Docstoc
					              Fixed Costs – A Scheme From Group A

                                      August 2002

                                                                  Group A of The Big Tent

                                                                  Tim Wallis
                                                                  Garry Barker
                                                                  Roger Charter
                                                                  Kevin Rousell
                                                                  Andrew Hopper QC
                                                                  Peter Rogers
                                                                  Rachel Sarfas
                                                                  Neil Rickman
                                                                  Jason Rowley

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                                Group A's Paper re Fixed Costs

Item                                                                       page no
1) Introduction                                                               1
2) Item A: extract from paper by Rachel Sarfas (claimant solicitor)           2
3) Item B: contribution from Roger Charter (insurer)                          7
4) The draft Model                                                            9
5) The draft Model in spreadsheet form                                       11

    1) Introduction

    The purpose of this meeting was to develop proposals for a workable fixed
    costs matrix in Road Traffic Cases to be submitted to the CJC by 31st
    July. In particular the Group were to consider the following issues:

        1) What features of a case would trigger an “add on” payment and what
        features would not lead to a discount from the total fees?

        2) Whether defendant and claimant costs profiles differ and if so, how?

        3) What are the stages for costs purposes post issue?

        4) Whether there are relevant stages for costs purposes pre-issue and if
        so what are they?

    These issues were discussed in some detail in the paper by Rachel Sarfas which
    Group A had the benefit of during the meeting itself. The paper also deals with the
    question of whether there is in fact a need for introducing a fixed costs regime in
    place of existing costs systems. There was much debate at the beginning of the
    meeting on this point. There was also discussion on the point of whether fixed costs
    may lead to possible misconduct by solicitors. Agreement was not reached on these
    issues and therefore the differing views are set out below in summary form; item A
    on page 2 below is the extract from Rachel’s paper and item B on page 7 has been
    contributed by Roger Charter. There then follows on page 9 the Groups’ views on a
    draft model for RTA cases (and these views are “without prejudice” to items A and

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    2) Item A: extract from Rachel Sarfas’s paper

It is, in my view, inappropriate and premature to consider the introduction of fixed costs
and the above questions without first giving detailed consideration to whether there is a
real or perceived problem in relation to base costs.

I believe that this analysis should start with properly funded and formulated independent
research into the issue of base costs before any attempt is made to abandon the current
system in its entirety.

What are the arguments against fixed costs ?

For the following reasons Thompsons consider the concept of fixed costs in road traffic
cases inappropriate, misguided and damaging for injury victims.

Case complexity       In a personal injury case fixed costs are, in reality, a cap on what
can be recovered from the losing side. This will mean that whatever the complexity of a
matter, whatever the behaviour of the insurers defending the case and however long the
case takes to be concluded, the winning party will only be able to recover a set amount
of fees.

Unsubstantiated claims as to increased costs There is no evidence to support the
  suggestion that costs are increasing or are “out of control” as has been alleged.
  Lawyers can only recover their ‘reasonable, necessary and proportionate’ costs under
  the court rules and our own experience is that costs have not increased since the
  introduction of CPR.

Whilst it is clear that there has been an increasing amount of insurance driven litigation
regarding the issue of costs this litigation has not been in respect of base costs. Indeed it
was suggested by many of the parties present at the Big Tent event on 17 June 2002
(insurers and claimant lawyers alike) that base costs were either static or had increased
only in line with inflation and damages.

Evidence as to levels of costs       There has been no independent or verifiable
  evidence produced by the government, the insurance industry or the CJC that costs
  in personal injury cases are out of control. Indeed such evidence as there is suggests
  the opposite.

The most recent study is that of Goriely et al commissioned for the Civil Justice Council;
More Civil Justice? The impact of the Woolf reforms on pre-action behaviour. This
confirms that the relationship between pre-action costs and damages recovered remain
unchanged since the introduction of the Protocol despite the inevitable front-loading
required by the new procedures.

Before any change to the current regime is introduced a comprehensive and thorough
review of the level of base costs should be undertaken. Before such research can be
embarked upon, the details must be agreed to ensure the research data is
obtained from independent sources and can be verified and thereby provides the
basis for an objective analysis.

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Such a study must look at unit base costs and consider the fact that a very great majority
of personal injury claims are now settled during the pre-action proceedings stage. If
there is any increase identified it must go on to consider the underlying reasons for this:

Is it because CPR has introduced new procedures and requirements that have
increased the work required and therefore the costs?

Is it because insurers are failing to act reasonably and settle cases as early as possible?

Is it simply because hourly rates have had to rise to reflect market wage inflation?

Polluter pays It is, in my view and the view of society (as well as being morally right)
  that when someone has caused injury they should meet not only the compensation
  for the injury but the full reasonable, necessary and proportionate costs caused by
  their negligence. An injured party should not be hampered in their pursuit of justice by
  a fixed costs regime that would cap the energy his lawyer will invest in the pursuit of
  his claim;

Costs as an efficient, automatic control mechanism           Fixed costs will remove the
  financial incentive on insurers to ‘behave’ in litigation and will increase pressure on
  the courts as they have to deal with the consequences. Removing this important stick
  would encourage insurers to delay and fight every point

The present costs regime puts insurers under constant pressure to act reasonably, limit
issues, settle cases early and make settlement offers. It discourages: fighting liability
where it should be conceded; delays; constant low offers; taking unsustainable points;
refusing to agree medical evidence; and making unsubstantiated allegations of
contributory negligence.

It is no answer to suggest the courts will police this. History suggests that will fail. Such a
system defeats one of the main reasons for fixed costs, the elimination of satellite

Protecting victims’ damages          Having been forced to incur costs above the cap
  many solicitors will have no choice but to recover such costs from the injured person’s
  compensation. That would at one stroke defeat the purpose of the recoverability
  regime and leave injury victims short-changed;

Under-settlement of claims Pressure will be on lawyers to under-settle cases early
rather than pursue the matter in the best interests of the client, because in that way they
will recover the same fixed cost for less work.

An insurance industry agenda against recoverability: Callery revisited

At present in true no win no fee and trade union backed cases the costs arrangements
are irrelevant to the injury victim. They will not pick up a bill for costs win, lose or draw.
It is not in the interests of victims to press for fixed costs that would limit the work that
could be done on their case in the pursuit of justice. This is an insurers’ campaign.

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The significance of the timing of the campaign should not be lost. It can be tracked back
quite clearly to the introduction of recoverability of additional liabilities and guerrilla
litigation since then to defeat the regime Parliament introduced to shift the costs burden
from the public purse. It has been pursued with cases such as Callery and Sarwar as
well as well as by technical arguments in the lower courts relying on the Consumer
Credit Act and the indemnity principle. At the same time an army of costs negotiators
have been engaged to fight costs claims at every level, force Part 8 and assessment
proceedings and put the courts and District Judges under enormous pressure.

The campaign therefore cannot be linked to any genuine concern over base costs in
personal injury litigation as there is no evidence that there has been any increase. The
Civil Justice Council runs the risk of unwittingly being party to a cynical attempt by the
insurance industry to undermine the clear intention of Parliament in relation to the
recoverability of additional liabilities.

Access to justice     Recoverable insurance premiums and success fees in conditional
  fee cases were in part specifically designed to encourage lawyers to take on personal
  injury cases under the regime introduced by the Access to Justice Act. Capping
  recoverable costs threatens once more to reduce the pool of lawyers prepared to take
  on personal injury cases. It will encourage unscrupulous lawyers into the market and
  in turn threaten access to justice;

Inequality of arms In personal injury cases the claimant is always an individual with
   limited means and the defendant always a multi-million pound insurance company
   with virtually unlimited financial backing. Capping costs serves only to load the dice
   even further against the injury victim allowing the insurers to financially, ‘outgun’ the
   claimant when costs are near or over the fixed cap.

Certainty already exists     There is a myth, peddled by some, that the insurance
industry require certainty. As bulk participants in the market insurers have certainty
already. Insurers, like Thompsons, are bulk providers of legal services. We know that
whilst individual cases and costs recovery vary, costs are spread over many cases and
average unit costs remain stable and predictable.

What are the alternatives?

It is disappointing that the goal of this review focuses on a predetermined goal of
achieving fixed costs. This ignores the real cause of the current pressure from some
quarters to introduce fixed costs. It is clear that costs litigation has become an industry of
its own. Rather than accepting defeat and throwing out the system of costs assessments
that worked quite adequately prior to the introduction of recoverable additional liabilities,
we should analyse the reasons for this shift and look to ways of resolving the real
problem. Thompsons would submit that concern over costs emanates from Insurers
desire to avoid, by any means, the additional costs now accruing as a result of the
recoverability of additional liabilities.

If, despite these submissions, the Lord Chancellor considers that a fixed costs regime
should be introduced for road traffic accident claims we submit that the following
considerations would need to be taken account of as follows:

What features should a workable fixed costs regime contain?

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Any matrix would have to:

               Maintain the dynamics of costs in encouraging settlements and the
                resolution of issues within the litigation.

               Not allow the defendant to ‘outspend’ the claimant

              Reflect the complexity of the substantive law involved irrespective of the
            quantum valuation.

               Leave success fees and insurance premiums unfixed and reflective of risk

         Not prejudice the solicitor’s professional duty to act in the client’s best
            interests in obtaining the maximum damages

         Allows the claimant (with due regard to proportionality) to maximise the
        damages claim

         Provide an automatic annual increase that reflects average increases in
        solicitor’s wages

               Ensure equality between the parties

         Protect the claimant’s damages from deduction

        Take adequate account of the legal work undertaken in pursuing or defending
the claim

                 To approach a fair and just system, a costs matrix would need to account
        for all these elements. It is submitted that a fair costs matrix would inevitably be
        complex and would inevitably lead to satellite litigation.

                Disadvantages of a fixed costs matrix

               There remain substantial Disadvantages to a system of fixed costs based
        on a cap on work that can be undertaken:

               A matrix is an attempt to artificially create the dynamic produced
                automatically by a system of detailed assessment of costs. It is, therefore
                less precise and more open to abuse.

               As with any tariff additional factors will never be comprehensive enough
                to cater for all possibilities.

               As with any fixed regime, case preparation will be affected. Solicitors will
                be encouraged to press ahead (or prevent progress) to certain stages.

               Disputes will arise as to whether issues are genuinely raised or simply
                raised to attract increased costs.

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               The same uplift would apply irrespective of complexity and work required
                within those additional factors. For example, discovery from both parties
                could be in one case might cover voluminous complex documents (e.g.
                where the claimant was of self employed status) and in another case
                account for only a few straightforward items.

Satellite litigation will remain inevitable, possibly more so than under the current
arrangements. There must be a means to challenge the additional factors claimed.

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  3) Item B: contribution from Roger Charter

    It was agreed that I’d respond “on behalf of insurers” to
    Rachael’s views expressed in her note of 15 July.

    I regret that due to other committments I’ve not hitherto been able to
    “put pen to paper” but if it will suffice, I can provide some bullet point
    reaction to her note:

    * How adversarial - insurers pitted against the poor lawyers. Rather
    outdated since we all operate in the same market and commerical influences
    affect both sectors

    * Her report makes no allowance for specialism and efficiencies. I
    find that the volume and specialist ULR firms welcome certainty and
    predictabilty. What proportion of the legal fraternity does her views

    * There is reference to the “poor client”. Is there such a thing in
    volume RTA work since the majority are either covered by BTE or ATE cover.

    * What she’s really referring to is the solicitors ability to recover
    their costs as claimed.

    * Use of the expression “insurers waging a guerilla war” is, again,
    adversarial and rather sweeping. That may be the case of some but
    certainly not of the majority

    * No account has been taken of those groups of solicitors and insurers
    who together over a period of some 3 to 4 years have piloted the RTA
    Protocol that incorporates a fixed-fee regime.

    * I was intrigued by reference to insurers “outspending” the claimant
    solicitors. Wearing another hat, the insurance industry is financing the
    prosecution of RTA cases via BTE and ATE.

    * I refer specifically to RTA since that Fast Track is currently
    accepted as being appropriate for fixed or predictable costs.

    * I agree, research (preferably independent) into base costs is
    called-for so at least we agree on that

    * I’d say that base costs have been consistently high for at least the
    past 3 to 4 years. If that is not so, then why have cost draftsmen
    generating average savings of circa 30% on non-CFA

    * The point is that the average “overcharge” existing prior to the
    introduction of CFA’s

    *   If we examine the savings on base costs in non-CFA cases, the

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    percentage savings rises to nearer 45%.

    * I’ve no doubt this can and will be supported by data and research

    * I wouldn’t say that base costs are out of control but rather that
    there has been a consistent degree of over charging over a considerable
    period and this has resulted in the growth of that other industry - costs
    agents! Insurers had to take that route - what was the alternative?

    *   The alternative is of course fixed or predictable costs

    * We should be looking to the system rather than seeking to apportion
    blame to insurers or cost draftsmen. If costs were reasonably stated and
    proportionate in the majority of cases, we wouldn’t be having this debate.
    There has to be a better more predictable way.

    Roger Charter
    Head of Group Technical Claims
    Churchill Group

    Phone 0208-313-5847

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    4) The draft Model

    It was agreed that the model would operate on a time stream basis, with a
    unit of payment being awarded for work carried out at any point up to the end of
    each stage.

    The stages along the time stream were agreed as follows:

        1) Protocol

        2) End of Protocol to Pre-issue

        3) Issue – Allocation, or no later than 21 days after defence has been filed, or
        judgment in default

        4) From Allocation or any point in 3) above up to no more than 21 days before

        5) From 21 days before Trial up to and including Trial

    Payment would also be determined by the specific features of a case. Where certain
    features were not present ADD ON payments would not accrue. The
    agreed features were:

           Identity of Insurer
           Liability
           Causation/ 1st Medical Report
           2nd Medical Report

It was recognised that there should also be an increase in payment where the following
items were present.:

           Multiple Defendants
           Patients/Minors
           Con Neg.
           Multiple Witnesses
           Multiple Experts
           Failure to Notify
           Documentation
           Numerous Offers

    It was accepted that the model should be as detailed as possible to avoid
    unwarranted use of “escape clauses”. In terms of an escape clause it was
    agreed that only misconduct and exceptional cases would be exempted. There
    would need to be some guidelines on this to avoid uncertainty as far as possible.

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    There was also some discussion over finding a precise definition for RTA
    cases, whether by statute or otherwise, however it was felt that this was
    beyond the reemit of the Group. (This concern will have to be addressed. For
    instance, accidents involving a motor vehicle but which related to defective
    equipment should be excluded. Other examples of probable exlusions would include
    accidents caused by a defective road or defective traffic lights etc )

    It should be noted that until certain data is made available, the
    proposals for this matrix will, by necessity, remain hypothetical.
    Further, the question of how figures would be reviewed over time was not

    Post Script
    The draft model is represented overleaf in spreadsheet form. This has kindly been
    devised by Alex Cook []. It should be noted that
    although the “Unit Price” column is blank at the moment this is an active worksheet.
    It complements the model and can be used, in due course, to help illustrate possible
    fee rates for all the various stages/feature/loading and the total cost of a case.

    Tim Wallis
    or and on behalf of Group A
    7 8 02

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Fixed Costs Matrix

                                                                  Unit Price   Case 1


ID insurer
2nd Medical Report

Multi Defendants
Contributory Negligence
Multiple Experts
Failure to Notify
Numerous Offers


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