Why I don't agree with the Fixed Recoverable Costs proposals

Below is my draft response to the Ministry of Justice's consultation on Fixed Recoverable Costs. Please note it has not copied and pasted as well as I would have hoped.....

Dear Sirs,

Response to your consultation on extending fixed recoverable costs in civil cases (published on 28/3/2019)

I write in response to the above consultation.

Good intentions
From the outset I wish to stress that I believe reforms of some description to control legal costs are a good idea (who doesn’t want to know precisely where they stand when it comes to their legal costs) but in practice these particular reforms do not work and should not be adopted. If we are to make ground breaking reforms we have to ensure we are properly informed. There is not enough evidence currently available to support these reforms. Most of my points below have not been considered in any context at all by either the MOJ or the Judiciary. I find that odd and concerning when you consider what is actually at stake. 

Uncertainty is sometimes beneficial
Firstly, if you commit a civil wrong then should you subsequently prevaricate and refuse to engage in righting the wrong (by being held accountable for it), or should you fail to accept your wrongdoing, there should always be significant cost consequences in place. This is our current system, and one benefit of it is that a loser in litigation does not fully understand what his actual punishment will be. The uncertainty of what a losing party might pay in legal costs is attractive for a number of obvious reasons. By removing costs uncertainty, which is what the proposals seek to remove, these proposals provide an opportunity for parties to commit civil wrongs and that is going to be very damaging to our civil justice system. Make no mistake about it this is a fundamental change and I do not believe the statutory instrument which allows for civil procedure rule changes intended it to cover changes of this magnitude. These are changes which will impact on our rule of law and access to civil justice forever. Therefore a proper opportunity must be allowed rather than a meek consultation such as this. The proper place for this sort of debate on something as important as this must be Parliament itself.  

The impact on the deterrence theory
Furthermore, it is worth pointing out the impact these reforms will have on the nuts and bolts which hold our civil justice system together. The deterrence theory is a theory which helps to build a robust civil justice system. This theory focuses on deterrence as a way to stop wrongs (both civil and criminal) from being committed. There are three key elements to the theory which help to further the aim of ensuring a civil system should always have, as one of its central pillars, the aim of deterring any wrongdoing. The theory states that the following should be present:-

1.    There should be present within the system the concept of severity where the punishment for the wrongdoing is severe enough to stop it from happening in the first place.

2.    There should be a sufficient degree of certainty where we can rely on the system to deliver the correct outcomes. 

3.    There should be a sufficient degree of celerity where matters are dealt with quickly enough to maintain confidence that the wheels of justice are turning at an adequate speed. 

These proposals greatly damage the concept in all three regards; firstly, by removing the severity of committing a civil wrong because the fear of the loser paying a large undefined costs bill to the winner is removed. Secondly, they reduce the system’s certainty because less claimants will be prepared to run cases to Trial. It is obvious that a claimant will be even more confused about what their net recovery will be. A net recovery is the money a winning party receives from their opponent as awarded under the claim less the money they have to pay in legal fees, which they cannot recover from their opponent and have to pay for themselves. The uncertainty the reforms will introduce actually renders them pretty useless because they are not controlling the actual costs of the claim at all. The burden of proof remains the same and therefore the same amount of work will be required to win a case. This means the cases will cost the same to deal with. All these proposed reforms will do is reduce how much the winner recovers from the loser.  

Thirdly, the game defendants will be allowed to play, where they can drag things out for as long as their budget allows, will also greatly reduce the system’s celerity. If defendants know what the consequences of their wrongdoings will be in pounds and pence then they could suddenly start to budget for them, meaning a likely increase in the number of civil wrongs that are actually committed in the first place. I am unsure how anyone could argue against the fact that the proposals relax the grip deterrence has had over the civil structure since it was first created. If that is such an obvious and definite conclusion then we should not even consider implementing these proposals.   

An example of what could happen
The reforms as currently drafted would therefore result in an unintentional, seismic shift in favour of misconduct. For example, if you ran a business and you needed to buy materials for a particular contract to fulfil your obligations what could you do under these reforms? You could use them very much to your advantage. If that business owner knows it will take 3 months to complete the contract and get paid for his or her work but it can only get 30 days credit for key materials from a supplier then these reforms help them to act unethically. The owner could work out that after 2 months beyond the credit terms they would pay a maximum of £x on top of the price for the materials for failing to pay if legal proceedings are issued against the company. If the company owner works out that this is still cheaper than borrowing money to pay for the materials earlier then they might do it this way. Ultimately the supplier might not even issue legal proceedings by the time the company can pay the supplier and the company will make even more money for its poor conduct. With these opportunities in mind the business owner can build this into its pricing model. Under the current system not knowing what they might pay in legal costs acts as the deterrent and that is the key difference. Consequently, the reforms are not only poor proposals but they go further than this. They actually present an enticement to commit a civil wrong because the risk will be worth it and the chances of being caught doing it are slim.  

Therefore, not only do the proposals invite an unethical, terrible way to conduct business, they also butt horns with the very concept of civil justice and it is potentially going to also be very damaging for our already fragile economy. It means businesses may have to guard against this kind of professional prevarication which will be allowed to prevail under this regime and that means prices will have to be inflated to compensate for the mischief these rules would openly be introducing. 

I would add that the above example of credit misconduct is just one example in one area of law (my area of debt recovery) although I estimate that it could, in one way or another, cover the majority of money claims issued in the Courts. However, credit control functions within businesses rely heavily on the deterrence theory and the uncertainty of cost consequences and I fear this will be irreparably damaged by these proposals. 

As this is such a huge flaw in the argument for fixed recoverable costs it seems nobody has spent enough time mapping out what the unintended consequences of these reforms would be. How has that been possible? It seems as though we have focussed too much on the objective and not enough on its impact. Missing these key points should hopefully provide an indication of just how poorly thought through these proposals are. 

The power to force a Claimant to exceed its budget

Under the reforms if I am a defendant I will also know what my opponent is going to recover from me in costs so I know that in the early stages of litigation I can put my opponent to work to ensure they spend more than they can afford on a stage in the proceedings. If they are only going to recover £1000 from me for a particular stage I am going to make sure completing that stage costs them significantly more than £1000. Many of you will say that there will be safeguards in place to stop this but the reality (for example, just like we do not Appeal Small Claims because it is not worth it) is that this will cost even more money to rectify and further risk making the debt recovery we need to make on a case. If I were a defendant I would apply maximum pressure with the objective of forcing a claimant to spend too much money on an early stage in proceedings until it becomes completely uneconomical to pursue a claim against me. The result will be that a claimant will either settle for far less than they should have done (meaning the claimant only had access to justice in part) or they will discontinue a claim that would have been successful under the current regime (meaning the claimant had no access to justice at all). That is not reliable access to justice and it damages, without any question, our rule of law because it is a system that cannot be relied upon to ensure a just outcome.

Whatever the counter-benefits might be for these proposals it is being pushed through at the risk of the above happening and I strongly believe that fully justifies the dismissal of these white picket-fence proposals. The risks and rewards do not adequately balance and so we should not hesitate to dismiss them and think again.

The size of the problem - are we wasting time on a small problem?
Finally, the problem with costs is not widespread. In fact, the problems we are considering cover only a small part and yet the proposed solution disrupts the entire system. This makes the proposals totally unnecessary. The reality of them is that a sledgehammer is being proposed to crack a nut. Most disputes are settled before proceedings are issued. Most that are issued are determined at the default Judgment stage in proceedings (c. 80%+). The rest are either settled before track allocation (c. 10%) and many more are settled before the expensive steps of disclosure and witness statements are started. These latter stages are, in my opinion, where the vast majority of problems sit. However, it is only a slither of the whole (c. 2%) that would be caught by these stages of litigation where costs can sometimes become disproportionate and need to be controlled. However, there are other reforms that help with these problems such as the current disclosure pilot and fairly recent changes to budgeting. I also understand witness statement changes are to be proposed. As a result there is still absolutely no justification at all to change an entire system which on the whole works very well. The fact it might assist with a very small number of cases at certain stages in proceedings does not provide any justification at all for these proposals. 

Conclusion
In conclusion, there are more dimensions and layers to the problems I have highlighted than have been considered. All I have done is try to pick out key ones, which should be enough to stop these proposals. I believe that if the proposals are implemented history will show that this was a poorly designed set of reforms carried out at a point in time where had we waited for better data to be captured (which, through a FOI request I made last month I understand is being put in place shortly) and had we collected that data for a period of years we would have had enough robust data available to analyse. A decent due diligence exercise can still be designed if the brakes are applied now.

If it is properly thought through and time is set aside to collect a data set which is useful then good answers will eventually present themselves and when they do I suspect it will become clear that fixed recoverable costs are probably not the best answer. 

If we do not pause and take this opportunity to think again then we will have resigned ourselves to not having any proper evidence to make these important decisions. It would be a foolish thing to do.

If reforms are implemented prematurely the authors and implementers of the reforms will be remembered as people who completely missed the point and did irreparable damage to something which is of such fundamental importance to our way of life it should be protected in such a way that only primary legislation should be able to change it. Indeed, there may well be a problem that needs to be tackled (I accept that costs can at times be too high) but these proposed reforms are certainly not the answer.  

Yours faithfully

James Perry