Judith Purchas takes a look at the important new rules governing fees for low to moderate road traffic accident cases

A new set of fees will apply for all road traffic accident cases from 6 October 2003, which would escape allocation to the small claims track and which settle without the issue of proceedings for a value of 10,000 or less.

It is hoped that the consensual nature of the negotiating process that has brought about the scheme will bring an end to the disputes and uncertainty about costs that have marked recent years.

The scheme is to be reviewed during the next two years.

The details of the scheme may be found in parts 45.7 to 45.14 (inclusive) of the Civil Procedure Rules 1998 (CPR), and section 25A of the Costs Practice Direction.

The rules are contained in statutory instrument 2113 of 2003.

The final version of the practice direction and the rules may be viewed at the Civil Justice Council Web site.

Visit: www.costsdebate.civiljusticecouncil.gov.uk.

The final versions of each of these will be included in the 33rd update to the CPR.

The scheme provides for a basic payment of 800 and a second payment made up of 20% of damages up to 5,000 and 15% of damages from 5,000 to 10,000.

For example, agreed damages of 7,523 would result in recoverable costs of 2,178.45, made of 800 plus (20% of 5,000 = 1,000) and (15% of 2,523 = 378.45).

These fees are increased by 12.5% where the work is done in London and the claimant lives or works in London (rule 45.9(2)).

In cases where more than one claimant instructs a single solicitor, there will be one payment under the scheme for each claimant.

In addition to these fixed fees, disbursements may be paid (a list is specified in rule 45.10) and a success fee if relevant.

The amount of the success fee is not fixed.

Solicitors wanting to claim an amount greater than the fixed costs may apply to have the costs assessed.

The procedure is set down in rule 45.12.

Initially, solicitors will have to establish that the court should 'entertain' the application by demonstrating that the case is exceptional and indicating the amount of costs sought.

A defendant who considers that only the fixed costs should apply will indicate this on the acknowledgement of service.

The court will then, if it considers the claim to exceed the fixed costs appropriate, either assess the costs or make an order for the costs to be assessed.

If it considers the claim inappropriate, it will make an order for fixed recoverable costs only.

If the assessed costs exceed the figure prescribed in the schedule by more than 20%, then the defendant must pay the assessed costs and also the costs of assessment.

If the costs are assessed at less than 20% above the predictable costs figure, then the defendant will pay whichever is the lower of the predictable costs figure and the assessed figure and the claimant will bear the cost of the assessment.

This appears to be the only occasion when an amount lower than the predictable costs figure may be payable.

If the amount of the fixed recoverable costs is agreed and the dispute over the amount of costs relates to a disbursement or a success fee, the claimant should make the usual costs only application in accordance with rule 44.12A

The scheme is intended to work on a 'swings and roundabouts' basis with the usual costs being recovered over a spread of cases.

The introduction of the scheme has implications for the retainers used, for the advice to be given to the client about the fees that they must pay and also for the fees to be paid by the other side in the event of success.

Despite argument that the indemnity principle should be abolished to make the scheme workable and avoid technical challenges and problems with terms of business, this has not happened and some commentators argue that the indemnity principle will still apply in these cases.

An alternative view is that, because the figures are set down in the rules, the indemnity principle does not come into play in party-and-party recovery.

This was the approach taken to the fixed trial costs outlined in guidance given by the Senior Cost Judge to the designated Civil Judges Conference in 2000 (see [2000] Gazette, 15 December, 39).

This emphasised that the paying party must pay the amount prescribed in the rules, but that costs belong to the client.

If the same approach is applied to the predictable costs scheme this would mean that - unless the client is liable under the retainer for the amounts prescribed by the predictable costs scheme - then the solicitor will have to account to the client for any amount by which the predictable costs exceed the actual costs calculated under the terms of his retainer.

This has implications for retainers and there are a number of choices.

It is important that practitioners consider, and fully understand, the implications of each.

Much of this work is conducted using before-the-event legal expenses insurance.

Where this is the case, the nature of the contract between the client and his insurer will dictate the appropriate retainer.

Solicitors doing the work on no win, no fee conditional fee agreements may consider amending the agreement to include a new paragraph.

This would provide either that the client is liable only for the predictable costs figure (or the costs as assessed or agreed if this applies) if the case falls within the scheme (the no win, no fee, no deductions approach) or that the client is liable for any actual costs incurred over and above the predictable costs figure.

When pursuing the second option it is important that clients fully understand that they may have their own costs assessed.

Solicitors should be mindful of the provisions of section 74(3) of the Solicitors Act, which provide that no amount may be allowed between the solicitor and his own client that could not have been allowed between the parties unless they have an express written agreement to the contrary (see also CPR, rule 48.8(1A)).

There is nothing to prevent solicitors from using the present Law Society model conditional fee agreement unamended, but practitioners should be aware that they will have to account to their clients for any excess between the figure from the scheme and the actual costs.

Solicitors will have to consider section 74(3) of the Solicitors Act when advising clients about their liability for costs.

With the traditional retainer - pay as you go on the basis of a time charge - the client should be informed that the predictable costs figure is the figure that will be recovered from the other side if the claim is successful and falls within the scheme.

If the predictable costs figure exceeds the costs incurred on the time charge basis, the solicitor will have to account for the difference to the client.

Otherwise, the client should be informed that the predictable costs figure will be a ceiling on what can be recovered from the other side unless regulation 45.12 applies and the costs are assessed at a figure more than 20% greater than the predictable costs figure.

Again, solicitors should be mindful of section 74 of the Solicitors Act if they wish to preserve their rights to recover any shortfall in costs from clients.

Judith Purchas is a remuneration policy adviser at the Law Society