Civil question in need of an answer

Since Lord Justice Jackson published his latest plans for reform of civil costs at the end of July, he has been doing the rounds on the speaker circuit. Needless to say, I am normally lurking somewhere in the audience.

At the end of last month, he gave the keynote speech at the Law Society’s Civil Justice Section conference.

Jackson (pictured) received something of a grilling from one delegate, who honed in on what could turn out to be a very significant point. Many of the claims encompassed by the proposed fixed costs extension, which covers straightforward cases worth up to £100,000, will be debt recovery or contractual money claims. These often involve a contract between a big business, such as a building society providing a mortgage, and an individual.

Currently, there is nothing to stop the large business from inserting a clause in its contract with the smaller party to ensure that it can recover its full legal costs in the event of litigation – neatly sidestepping the fixed costs regime. It is quite common, for example, for building societies to give themselves a contractual right to recover their costs in full from the proceeds of the property sale if they have to bring action against the person taking out the mortgage.

Where contracts contain express provisions dealing with costs, these will reign supreme over the fixed costs regime, which will not apply. But the contractual terms are likely to be a one-way street, with a powerful organisation receiving its full costs if it wins the claim, but the individual limited to fixed costs if they win.

The danger is that as fixed costs are extended, the more commonplace such contractual clauses could become. The more that happens, the more the judiciary will lose its grip on costs – the opposite of what is intended by the fixed recoverable costs regime.

What can be done? Unfortunately, this issue cannot by resolved by the Civil Procedure Rule Committee; primary legislation would be needed to prevent parties from reaching a contractual agreement about recoverable costs. At last month’s talk, Jackson suggested there would be no need for this at the moment, because the problem is not widespread. But, he added, if businesses did start writing in contractual provisions to override the fixed cost regime on any large scale, there would then be a ‘very strong case’ for legislation.

The problem is that this would not be clear-cut. Mortgage companies, for example, might argue that if they lose their current freedom over contractual terms, this will affect their business models and could in turn lead to a hike in mortgage rates. With Brexit looming large and only a slim Commons majority to play with, it is very hard to imagine the government picking a fight with big business over legal costs.

So if and when these reforms do come in, the prospect of many more costs being dealt with under uneven contractual terms, rather than through the carefully balanced new fixed costs system, is a real one. But we do not need to panic just yet. As the Gazette reported last month, the fixed costs extension appears unlikely to be with us before April 2019 or even later – even though it does not need legislation and could easily be brought in through the committee.

Jackson had seven months to submit his report and did so bang on time on 31 July. As he acknowledges in the report itself, much of the work was fitted in at weekends and during holidays.

As for the content of the report as a whole, it would be a stretch to suggest that the legal profession has welcomed it with open arms. But neither has there been a real outcry. The judge has listened to lawyers in the way he has focused on process as well as cost, with a streamlined intermediate track, and in his decision to keep the ceiling at £100,000 in damages. He has listened to clients too, trying to accommodate the demands of small businesses with a voluntary fixed costs pilot for cases worth up to £250,000.

So after all the blood, sweat and tears – not only from Jackson himself, but also all the lawyers, clients and experts who contributed to his review – where do we now stand? The MoJ has still given no official timescale for a consultation on the proposals, even though these have been set out in enough detail to be consulted on as they stand. We have no idea when the ministry will press ‘go’ on the voluntary pilot for higher value cases; despite the fact that the committee has already approved the pilot rules and Jackson has even found a university to monitor the scheme.

Will these reforms ever happen? Or will they be left to gather dust on a shelf somewhere in the bowels of the ministry – perhaps touching edges with the lengthy report on damages-based agreements that the MoJ commissioned from the Civil Justice Council, published in September 2015?

Many lawyers would shed no tears if Jackson’s latest report were indeed left to languish until it disappears from the collective memory. But whatever the MoJ’s true intention in relation to the changes, perhaps it could do the legal profession (let alone the judge himself) the courtesy of letting us know.

Rachel Rothwell is editor of Gazette sister magazine Litigation Funding: tinyurl.com/yb3rr5gm