Recent proposals for cost shifting in the English Courts

Not so long ago, I listened with heightened interest to Lord Justice Jackson’s reference during the keynote speech to the Westminster Legal Policy Forum where he referred to a table setting out a possible fixed costs structure specifying the maximum costs that could be "shifted" and recovered from the losing party.

I  have practiced as a forensic accountant, specialising in the quantification of losses and damages, for over 20 years and was astonished about what his proposals meant from a financial perspective and considered the table which was originally included in his lecture "Fixed Costs – The Time Has Come", at the Insolvency Practitioners Association.  Lord Justice Jackson suggested that claims be categorised in 4 bands covering a range from £25,000 to £250,000.  A summary of the 4 bands and the permitted maximum costs for the purposes of cost shifting is shown in the table below:

 Table Cost shifting in English Courts

I appreciate that Lord Justice Jackson has consulted widely and have a couple of observations (not criticisms):

1. It seems to me that Lord Justice Jackson is suggesting that it is legitimate for a party to incur costs of up to 75% of the amount in dispute, and at the lower end of the scale 27.1%.  This presumably means that aggregate costs in the range 54.2% to 150% of the sum in dispute are considered reasonable and by implication proportionate, and that is before the 15% London uplift.

It is unclear as to whether this proposal achieves its objective of keeping costs proportionate to the matter in dispute and whether costs under such a regime would still restrict "access to justice".

2. My second point is one that appeals to the accountant geek in me and arises because the proposed regime would be a "slab" based one where higher rates, or in this case allowances, apply to the whole of the claim.  This has a similar effect to the rates at which Stamp Duty Land Tax was charged prior to recent reforms which took effect from April 2016.  As the table above shows the maximum costs that could be “shifted” for a claim of £50,000 would be of the order of 37.5% of the claim, whereas if the claim was £50,001 the maximum costs that could be "shifted" would increase to 60% of the award.  This situation also occurs at the boundary points between Bands 2 and 3 and Bands 3 and 4.

Ultimately a defendant could face the prospect of paying an additional £12,250 in costs to a successful claimant if the amount awarded increases from £50,000 to £50,001. It is unclear whether the punitive effect of such an increase in the amount awarded for a relatively low value claim is intended.  The effect is even greater at the boundaries of Bands 2 and 3 and Bands 3 and 4.

In summary – is it proportionate to incur costs aggregating to 150% of the amounts in dispute and is it intended that an increase in damages by £1 moving the amounts awarded into the next band can increase the cost award by over £10,000 or even as much as £21,750?

 

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