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Life after jackson
Cilex Journal – April 2014

Mark Smulian surveys the world of legal costs in the wake of the landmark Jackson review

A year on from implementation of the controversial Jackson reforms the dust is, perhaps, settling. While the worst fears of some have not come to pass, at least yet - there are 'kitchen table' draftsmen still happily in business - the reforms are changing the way costs lawyers and legal executives work.

This has been masked somewhat by the long tail of cases still proceeding under the system that applied before April 2013.

Any professional upheaval can be alarming, in particular when it results not from market changes but from government ministers whose main priority is saving public money rather than understanding the implications of their decisions.

Sir Rupert Jackson's 2009 review into civil costs resulted, he said, in "a coherent package of interlocking reforms, designed to control costs and promote access to justice", and to rein in what he referred to as "civil litigation costs [which] are disproportionate and impede access to justice".

This led to the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO) and to a ban on referral fees, changes to conditional fee agreements so that success fees are payable from damages rather than by the losing party, more cases being directed through the Ministry of justice portals and fixed costs in some circumstances.

Jackson also changed Part 36 to incentivise both parties to reach settlements so that if claimant 'beats' the offer previously made once in court there is an uplift in damages. The reforms also saw the arrival of costs budgeting for multi-track cases started after 1 April 2013.

These include both solicitor and counsel costs, and must show how costs break down for each phase of a case. Where parties cannot agree a budget, the court will decide whether the costs proposed are reasonable and proportionate.

Plebgate

Costs budget rules gained particular prominence as a by-product of the 'Plebgate' scandal in which Andrew Mitchell, the Conservative MP alleged to have insulted police officers in Downing Street, discovered how rigid the courts can now be. In his action against News Group Newspaper Ltd he filed his costs budget six days late and was then deprived of all costs except the court fees.

Pleas about overwork, holidays or oversights that might once have been accepted by the courts are now unlikely to be unless something exceptional has occurred.

Some expected that this new emphasis on costs budgets and timetables would see law firms either setting up, or expanding, in-house departments, or looking to use large costs firms that could offer rapid and predictable turn rounds of work.

Consolidation

Such moves could see costs cease to be a semi-cottage industry with a small army of kitchen table draftsmen, who would lose out from these upheavals. Views around the profession suggest that the post-Jackson world is thus far more mixed than the pessimists feared a year ago. Sue Nash, the new chair-elect of the Association of Costs Lawyers, says: "There is definitely a move to larger firms in the personal injury world driven by Jackson. That may have happened anyway but it has had a massive effect."

"It reflects what is happening in client firms, and as they consolidate and grow that is to an extent mirrored in the costs world," Ms Nash continues.

"The number of costs lawyers employed in-house appears to be growing and a lot of firms are already looking to engage costs lawyers as part of their professional support team for the longer term."

Ms Nash feels that the work they do has also changed from pure cost drafting work to advising, for example, on retainers, Part 36 and qualified one-way costs shifting as well as costs management and budgeting and the preparation of Precedent H material.

"In summary, Jackson has put the role of the costs lawyer centre stage," she says. Paul Bracewell, director of costs firm JPN, says he's yet to see an increase in cost budgets work, possibly because of the large number of pre-April 2013 cases still being handled.

Reviewing the market, he notes: "I've not seen us affected by fixed costs claims. I gather there are likely to be a few challenges to try to get a claim through beyond fixed costs by citing some exceptional reason though the advice is usually to settle."

The Mitchell case has had an impact, Mr Bracewell feels. "Mitchell came along and meant people thought they had better get a costs lawyer; there was a lot of that just before Christmas," he says. "Before April last year if you had a default costs order there was a 99.5% chance you'd get it set aside, and that is less likely now. We had a case where a solicitor had gone on holiday and in the past that was a classic reason for relief, but now its not because its seen as not allowing the court to make best use of its time.

Judges are tightening up and I assume its because someone has told them to."

Matthew Kain, director of costs firm Kain Knight says Mitchell "has made everyone much more twitchy over time limits". He adds: "At the moment we're extremely busy with our traditional costs services but also budgeting.

"However, we know there will come a time when a chunk of the work will fall away and it's extremely difficult from the businesses' perspective to plan for when that might happen. We believe only the strongest firms of costs lawyers will thrive post-Jackson."

From a law firm perspective Andrew McAulay, manager of costs and litigation funding at Leeds-based Clarion Solicitors says: "With the introduction of costs budgeting, and cases under the old rules still in the system, I think everybody involved in costs work have never been busier.

Mr McAulay says: "Larger firms are in a great position to do better in the future as they will have the money, capacity and access to technology to work with law firms in terms of costs budgeting and preparation of the bill of costs at the end of the case." He reckons that budgeting has led to better case planning and more profitable work.

"Lawyers are definitely thinking more about what needs to be done which boils down to working with the costs lawyer to prepare the costs budget,"

he says. "I am working with some firms who are rolling out case planning from when the client walks through the door and are thinking more about who should do the work and what the gross margin will be.

This is the way forward and proper and accurate costs budgeting is the way to do it."

That said, Mr McAulay thinks better training and guidance in relation to costs budgeting is essential as "this is the area of change which frightens the entire legal profession.," he says. "The guidance note on costs budgeting (in the CPR) needs to be revised to be clearer and more concise."

Institute member Steve Jepson, senior costs lawyer at R Costings, says costs draftsmen will lose out from the 25,000 damages level now imposed for fast-track work, rather than the old 5,000 limit. "Only those with 25,000-plus cases will use a costs draftsman," he says. "If they are a very good service firms that previously used them will still I think give them work, but for the fixed fee not the full fee they used to enjoy."

Mr Jepson says larger costs firms have thus far seen little change "but that will not be the position indefinitely. "Even if costs are budgeted that does not guarantee agreement so it may well end up there will be bills of costs still needed in budgets not agreed."

Not all doom and gloom

James Fisher, a Chartered Legal Executive who runs Forest Costing, has found costs work "very busy", but is concerned by uncertainty over costs budgets. "Some judges are like lost sheep asking what on earth they are supposed to do," he says.

"The rules on budgets are drafted badly and that creates all sorts of difficulties." He says. "For example, how is it billed at the end if the case does not go to trial?" Mr Fisher expects an increase in satellite litigation where there are statute bills or difficulty in tallying up costs and "I fear that will have to be decided by the judiciary in test cases".

He also expects satellite litigation over relief from sanctions post-Mitchell as "people will not just bow down and take that without appealing".

But what of the world seen from the kitchen table, or at least small office? Lichfield-based Dominic Swallow says: "Post-Jackson the obvious impact for small firms is on the personal injury (PI) market and the slowdown in work in relation to that.

"I think some have seen an upswing in work but that is because some firms of solicitors are closing PI departments and just want to get what work they still have out the door as quickly as possible, so I doubt that will last longer term." He adds: "I do have some alternative sources of income but those with 100% PI work may need to find other things to do. PI has changed with work going through the Ministry of Justice portal that used to be in cases up to 10,000 but now its 25,000."

Mr Swallow adds that it would be "fair to say it would be difficult to start up now as a kitchen table draughtsman, but its not all doom and gloom". Self-employed costs consultant Philip Sherwood has not yet seen any downturn in work but he mostly works for insurers "negotiating with the claimant's solicitor to see if we can agree on costs." He says: "The big change is the fixed costs for road traffic accident cases taken through the portal, down from 1,200 to 500.

"That means claims firms are taking part of their client's damages and that raises all kinds of questions about access to justice. In the past they would not have had to take a share of the damages but its now the only way to make a living for them. "A lot of claimant firms have seen job losses as a result. At 1,200 it was do-able if you were efficient but at 500 it's very difficult."

Ms Nash says the position of the self-employed draftsman has "considerably weakened", with the decline of legal aid work. "In particular those that just did family work may have to brush up their skills and move into other fields," she says, "Their expertise in high cost cases is similar to that required for costs budgeting and that skill is transferable.

Mr McAulay says once cases under the old system end, fixed fees are rolled out across the fast track and costs budgeting is applied to all multi track cases "the position of the self-employed draftsman will decline."

More work will be done in-house or go to costs firms who use technology to work with law firms. With more reliance on technology in the future (and less paper) the kitchen table drafters will become extinct."

The impact of Jackson and its associated reforms will take some years to become clear, but the relatively high proportion of self-employed members in the profession seems set for change.