The Lord Chancellor has announced his intention to introduce a new fast track procedure in the courts, to resolve personal injury claims valued at between £1,000 and £15,000, and other claims valued at between £5,000 and £15,000. Lord Woolf recommended that under such a procedure, the costs to be paid by losing parties to winning parties would be set in advance. The government now faces the difficult task of setting appropriate levels of fixed costs.
Lord Woolf proposed that before deciding costs levels, the Lord Chancellor's Department should conduct "a series of hypothetical studies" in which solicitors and judges were asked to work through scenarios based on real cases, to find out the amount of work required in a typical fast track case. In September 1997, the Department funded the Institute of Advanced Legal Studies to carry out a study of hypothetical personal injury and contract claims. We conducted six day-long events around the country, involving employers' liability, road traffic and contract cases. Invited groups of solicitors, district judges and claims managers were shown case papers developed from real cases. Participants were asked to talk through their likely approach to the cases under the new procedures, to simulate discussions with their opposite numbers and to provide detailed estimates of the time each stage would take. The methodology is described further in chapter 1.
Our objectives were two-fold:
We aimed to develop profiles of typical fast track cases, setting out in detail what work lawyers would be required to do and how long it would take them.
We wished to learn more about how lawyers and judges would act under the new procedures and to highlight areas where the procedures might cause problems.
For personal injury work, we were able to draw on an underlying consensus about the work parties needed to carry out, both before and after proceedings were issued. We have proposed costs elements based on the time we were told solicitors would need to devote to the case. With contract work, however, no such consensus exists. Instead, participants gave widely different estimates, both of the work required and the time it would take. Given the scale of the differences, it has not been possible to develop profiles for contract claims based on the work a solicitor will be required to carry out for their own client.
Below, we outline the cost profiles we propose for personal injury work, before considering the difficulties posed by contract work.
The personal injury cost profiles are discussed in detail in chapters 3 and 4, and summarised in chapter 6. We have structured claimants' costs around five cost elements:
| A: | The basic element, payable in all successful cases; |
| B: | The investigation element, payable whenever defendants fail to admit liability within three months; |
| C: | Issue to Allocation, to cover the costs involved in a case from issue to just after the Notice of Allocation; |
| D: | Discovery to before Preparation for Trial; |
| E: | Preparation for Trial. |
Under such a cost regime, trial would form the sixth and final element. However, trial costs are outside the scope of this study. Nor do we include the cost of procedural hearings and appeals, which would be covered by "bolt-on" fees.
The final three elements are similar to those proposed by Lord Woolf in his cost matrix. However, we believe that the matrix may have underestimated claimants' pre-allocation costs. In our cost profiles, 70% of claimants pre-trial costs were incurred prior to allocation, and we have divided this element into three.
In developing our system of cost elements, we have attempted to provide clear incentives to settle at key stages of the case, before substantial further costs are incurred. We have, for example, provided an incentive for defendants to admit liability in their three month response by differentiating between the basic and investigation elements. It is important that defendants are given clear notice before claimants move through to a new cost element, so that they can make a formal offer before incurring liability for the next cost element. Thus we propose that claimants should give defendants at least 14 days notice of their intention to issue proceedings, and another 14 days notice of their intention to prepare for trial. The Notice of Allocation should specify the date by which the defendant should make an offer in order to avoid liability for cost element D.
For defendants' costs we have looked specifically at legal costs paid to defence solicitors. In most cases, solicitors are instructed only when proceedings are imminent. Thus we have limited defendants' costs to elements C, D and E (issue to allocation, disclosure to before preparation for trial, and preparation for trial). On this basis, just over a third of defendant's pre-trial costs would be incurred prior to allocation.
Our cost matrix is set out below, complete with the times we consider necessary to conduct the work required in a typical personal injury claim.
| A Basic element |
B Investigation element |
C Issue to allocation |
D Disclosure to before preparation for trial |
E Preparation for trial |
|
| Claimants' costs per element |
9hrs 45mins | 5hrs 35mins | 3hrs 40mins | 4hrs 10mins | 4hrs |
| Claimants' cumulative costs |
* | 15hrs 20mins | 19hrs | 23hrs 10mins | 27hrs 10mins |
| Defendants' costs per element |
* | * | 3hrs 45mins | 4hrs 10mins | 2hrs 30mins |
| Defendants' cumulative costs |
* | * | * | 7hrs 55mins | 10hrs 25mins |
Chapter 5 discusses special cases, such as multiple parties and the needs of claimants with difficulties in responding to written communication. A summary of work allowed for in each cost element is provided in the case profiles contained in chapter 6.
Lord Woolf recommended a banded system, in which costs depended on the value of the claim. The solicitors we consulted denied that smaller claims were necessarily simpler claims. Furthermore, we are concerned that the value of a claim is too subjective a figure on which to base a costs regime.
However, despite solicitors' protestations, the Legal Aid Board's figures show that when one looks at the generality of cases, there is a connection between damages and costs. Smaller claims do tend to be cheaper than larger claims (see appendix 4). We are concerned that the cost matrix set out above over-values claims settled on a full liability basis for under £3,000. We recommend that where defendants admit liability in full within three month of receiving a letter of claim and then settle the claim for £3,000 or less, the basic element owed to the claimant's solicitor should be reduced by two and a half hours. For these claims, we recommend a fee set on the basis of 7 hours 15 minutes work.
The cost elements are put forward as the basis for further consultation and negotiation. We recommend that these negotiations are conducted in the light of all available information about current costs and practice (endnote 1). The Legal Aid Board Research Unit is currently finalising a profiling study of legally-aided personal injury work which will provide important new information on how our cost elements compare with current practice. We anticipate that in the course of negotiations, further refinements will be added to the cost elements proposed. We would look sympathetically at suggestions that supplements should be added for larger work accident claims, particularly those securing over £10,000 in compensation.
Our contract role-plays revealed considerable variations in the time estimates given by different groups.
Partly, the variations reflect differences in the ideological starting points of participants. Judges tended to assume that for litigation to be an effective possibility, it must be affordable. Solicitors, on the other hand, started with the work required. They argued that necessary work must be done, irrespective of whether costs were proportionate to the amount in dispute.
The variations also reflect uncertainty about the work contract litigants should undertake. At present, proceedings are often issued as a matter of routine debt collection. Some participants argued that this should continue, as it would place too great a burden on creditors to investigate every putative defence before starting court action. Others, however, felt that starting proceedings before investigating a defence contravened the spirit of the Woolf reforms.
One major difference between contract and personal injury work is the absence of a pre- action protocol. Thus there is no authoritative source of guidance about what is expected of litigants and their solicitors.
It is clear that, at present, the legal system does not handle contractual disputes between £5,000 and £15,000 well. The joint costs may exceed the amount in dispute.
Given the present uncertainty about how the fast track procedure will work, we do not think it possible, at this stage, to establish cost levels based on the amount of work a solicitor will be required to carry out for their own client. However, it would be possible to limit the amount required to be paid by the loser to the winner on a party and party basis. Such costs would be based, not on the amount of work required, but on a sum that is proportionate to the value in dispute.
The link between own client and party and party costs is already considerably weaker for commercial disputes than for personal injury. Setting fixed party and party costs would be to weaken it still further. It would thus constitute a move away from the indemnity principle. The advantage would be to reduce some of the uncertainty and risk litigants bear, at least as far as the other side's costs are concerned. The disadvantage would be borne by a winning party, who is unable to recover his or her full costs from the other side.
Our role-playing events provided an opportunity for the participants to try out the procedures for the first time. We pass on their comments for the Lord Chancellor's Department for them to consider. A summary of action points is provided in chapter 11.
We consider that for personal injury work, the combination of fast track procedures, the pre- action protocol and fixed costs has the potential to enable cases to be concluded more efficiently by:
setting clear expectations of what should be done when, so that letters receive replies, rather than requests for more letters;
using a cost structure which includes incentives to both sides to concentrate on resolving the case;
maintaining a brisk pace to the litigation, so that work does not have to be wasted in reporting to one's client that no progress has been made, or in re-reading the file because one has forgotten it;
encouraging both defendants and claimants to put forward offers, so that each side can see how far apart they really are.
Contract work will benefit from set trial dates and a system of claimants' offers, but in the absence of a pre-action protocol, there is much greater uncertainty over what is expected from the parties.
The changes require a significant shift in culture. Although Lord Woolf has emphasised this time and again, it is easy to underestimate the scale of the required transformation. Litigation is a risky business and lawyers are often terrified that things will go wrong, leaving their client blaming them or, perhaps, suing them. At many key points, participants failed to act openly through fear of making mistakes. The less experience lawyers had, the less confidently they acted. In particular:
Accident victims' solicitors were reluctant to write a letter of claim before they had completed their investigation. They worried that they would make a mistake, and their client would be cross-examined on every discrepancy;
Claims managers were reluctant to admit liability through fear that the claim would turn out to be greater than they had thought;
Generalist solicitors worried about sending a claimants' offer through fear that they would value the claim at too low a level;
In drafting pleadings, generalists thought it safer to use stock legal phrases rather than describe how the accident happened;
Claimants solicitors said they would need to spend a long time polishing witness statements and checking bundles, for fear of incurring judicial wrath if something was omitted.
The personal injury pre-action protocol encourages the parties to agree a medical expert, and many have predicted that this will also involve a significant cultural change. The role- plays suggested that agreeing the name of an expert will be relatively easy. The difficulty comes in agreeing the instructions and in raising queries with experts after the report has been delivered. At present, the pre-action protocol suggests a half-way house between single instructions and joint instructions: the claimant's solicitor sends the instructions and pays for the report, but only after they have shown the instructions to the defendants. Neither side proved happy with this arrangement, and disputes arose over the wording of the instructions.
For contract cases, the process of agreeing and instructing single experts was even more problematic, as solicitors had less knowledge of relevant experts and less guidance is available about what solicitors are required to do.
Bringing about the required change in culture will be a difficult process. Part of the responsibility lies with judges. Although judges are rightly keen to take a robust line with those who fail to abide by the new protocol, they must be careful not to lambaste those who have genuinely attempted to exchange information but have made errors. Superior courts will also need to allay solicitors' fears by showing that Lord Woolf's new "landscape of litigation" is not the minefield that solicitors anticipate.
Training is clearly crucial. The Lord Chancellor's Department may wish to consider working with other interested organisations to establish a body to take the lead in training the profession about the new procedures. There is a need to develop and publish examples of good practice, to train the trainers, and to monitor problems as they arise.
Occasionally, the procedures need to be streamlined, and we set out several proposals for the personal injury pre-action protocol working party to consider (see chapter 11).
We also suggest that the Lord Chancellor's Department considers issuing a new Details of Claims form modelled on the Industrial Tribunal IT1 form, with boxes for the facts, the regulations, the injuries and the remedies.
We urge the Department to consider how guidance can be given to those engaged in contract disputes, either through a pre-action protocol, training or some other method. The three priority areas for guidance are pre-issue negotiations, agreeing single experts and disclosure.
The final difficulty is fixed fees will be introduced while solicitors are still adapting to conditional fees (see chapter 6). Generalist personal injury solicitors worried about the sheer number of changes they were required to make. They expressed doubts about whether they could continue to carry out personal injury work after the reforms are introduced. If the policy intention is to keep small generalist firms within personal injury work, we advise the Lord Chancellor's Department to consider undertaking a further study, talking to them about their intentions.
Medium-sized personal injury firms had more experience of conditional fees, and said they would be willing to conduct our hypothetical scenario under a conditional fee agreement. However, they worried that fixed fees would not be adequate. They suggested that they would continue to charge their own clients on a traditional timed bill basis, and that uplifts would be calculated as a proportion of the timed bill rather than fixed fee. In our view, it would be inadvisable to proceed with fixed fees unless most solicitors were prepared to accept them as the basis of conditional fee arrangements. We suggest that once the proposed fixed fees have been published, the Lord Chancellor's Department conducts a further study to talk to solicitors about their plans.
| 1 | See, for example, Armstrong and Peysner, (1996). |
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