Fixing costs woes

David McIntosh sets out his stall on how to resolve the muddle over costs and contingency fees

Last month, I addressed the Forum of Insurance Lawyers (FOIL) at its annual conference.

The subject was costs and contingency fees.

That costs and funding should be the central theme is not surprising.

Problems concerning costs have been of disproportionate importance over recent months, particularly in personal injury litigation.It is easy to state our objectives.

We need to ensure that the rules concerning lawyers' costs and their recoverability achieve the following aims:l Facilitate genuine access to justice, in the sense of making it more likely that the outcome of litigation depends on the merits of the case rather than the depth of each litigant's pocket;l Allow levels of cost which are sufficient to enable high-calibre lawyers to continue the work;l Provide the maximum possible choice for clients in their funding arrangements, and;l Avoid imposing an undue or disproportionate burden on unsuccessful parties.The present chaos surrounding the recoverability of costs, particularly in cases conducted on conditional fees, undermines these objectives.

Not only does the uncertainty cause a problem for practitioners on both sides of litigation, but it has had an impact on the court structure itself.

The Woolf reforms have resulted in a drop in substantive litigation.

However, there is a proliferation of proceedings concerning costs, some of which are proceeding to the Court of Appeal.

More will follow.

The confusion is an obstacle to access to justice.

From the point of view of potential claimants, the publicity around conditional fees - with success fees and insurance premiums recoverable - has created an expectation that they will not have to pay for litigation.

They expect the service to be conducted on a no-win, no- fee basis, and that if they win nothing will be deducted from their damages.However, claimants' lawyers currently cannot guarantee recovery of a success fee or an after-the-event insurance premium.

We expected some certainty after the decision in Callery v Gray made it clear that reasonable success fees and insurance premiums were recoverable even in comparatively straightforward road traffic accident cases, but even that is now subject to appeal in the House of Lords.Furthermore, the recent case of Sarwar v Alam has added more mud to the waters.

Claimants' lawyers now need to make extensive enquiries into the existence of before-the-event insurance in minor road traffic accident claims before it is safe to make a conditional fee agreement with after-the-event insurance.

The implication is that a client may have to disinstruct his lawyer of choice if a 'suitable' before-the-event policy is discovered, since with after-the-event policies it is unlikely that the success fee and premium would be recoverable.It is nonsensical that clients' freedom to instruct their lawyer of choice should effectively be fettered because they - or even their driver - have access to a before-the-event insurance policy.

But that appears to be the effect of the decision in Sarwar v Alam.What of defendant lawyers and their liability insurance clients? When the government removed legal aid for personal injury cases, preferring instead to transfer the costs to defendants and their insurers, it produced an almost inevitable result.

Liability insurers are challenging the new legislation and Rules of Court to minimise their exposure.

They can hardly be blamed for that.

The fault lies with the government for having failed to provide a clear and workable regime.

At the FOIL conference, criticisms of the chaos surrounding costs were voiced from all concerned, whether coming from the perspective of defendants' or claimants' lawyers.At the end of last month, the Civil Justice Council held a costs forum clearly prompted by a concern about the workability of the current regime (see [2001] Gazette, 6 December, 1).

The Law Society will continue to work to solve the current problems, but in the longer term we will need to think much more radically.

First, we need to be more receptive to the concept of fixed costs, particularly for smaller cases.

I fully understand the concerns about fixed costs regimes, but we must recognise the importance of establishing arrangements which mean that the costs involved are both predictable and proportionate.

Provided that fixed costs in fast-track cases are set at a level which is reasonable for the work involved in a 'standard' case, it is reasonable for lawyers to accept a system of 'swings and roundabouts', rather than for our clients to be faced with additional uncertainty.

Secondly, there should be no further procrastination over ending the indemnity rule, which has fallen into disrepute with all personal injury litigation practitioners.

This was recognised by no less than Lord Phillips of Worth Matravers, the Master of the Rolls, at the costs forum.

He is reported as having promised to press the Lord Chancellor's Department to find Parliamentary time for the primary legislation needed to end this out-of-date rule, which as it stands ignores commercial reality.

The Law Society supports this and any other step which will free personal injury solicitors to get on with serving clients.At the moment, confusion regarding costs entitlements and an adherence to antiquated practice is impeding access to justice and deflecting solicitors from their clients' causes.David McIntosh is the Law Society President