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Civil Litigation Section

Back to square one on costs?

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James Perry comments on his grilling of Jackson reform. 

I am the delegate cited in Rachel Rothwell’s piece who gave Jackson ‘a grilling’ at the civil litigation autumn conference. The point I made requires clarification.

The article states that many of the claims encompassed by the proposed fixed costs extension will be debt recovery or contractual money claims. In fact, the vast majority will be encompassed thus, as 80%-plus of all claims issued are contractual money claims.

So potentially, 80 per cent-plus of Jackson’s proposals could be sidestepped by businesses having a contractual clause in their contracts for the recovery of their legal costs.

An indemnity clause for costs in your contract gives you a better chance of making a better recovery, so why would you not have one? If there is a better way for our clients to recover their legal costs, surely failing to take that opportunity would amount to professional negligence.

Jackson explained that primary legislation would be required to change the law, involving nothing less than a Law Commission report. He also did not think parliament will allocate time to civil justice reform of this nature.

He went on to say that though the problem of having a contractual term to recover costs is not widespread, if it were to become widespread there would be a  strong case for legislation.

I disagree. First, I do not believe we know exactly how widespread the ‘problem’ is. I do know it should already be widespread.

Second, I do not agree it is actually a ‘problem’ at all. Save for limited situations concerning consumers, the actual value of the bargain parties enter into is not usually of any concern to a judge, for good reason – and it certainly should not be changed just to suit a system of arbitrary fixed costs. A fundamental change of contract law, at any point, would seriously damage our economy and push access to justice even further away from claimants.

You also cannot have a two-tier system where a bank or a lender is given preferential treatment, as that would be unjust. Why should they be treated differently? All parties should be free to negotiate the value of their bargains and the legislature, judiciary and executive should not tamper with such a fundamental, well-established principle. Ultimately, if the reforms are adopted, Jackson’s fixed costs will drive lawyers and businesses to change their terms. In over 80 per cent of claims, the very thing Jackson has been trying to avoid would then be exacerbated.

In Gomba Holdings v Minories Finance [1993] Ch 171 the courts established the principle that a mortgagor could challenge a lender’s costs which had been applied to a mortgage account. However, this can only be done on the indemnity basis, which of course still makes it advantageous to have a clause in a contract for the recovery of legal costs.

If this principle is to be applied when assessing indemnity cost clauses, the parties would still have to deal with the issue of detailed assessment in one guise or another, working through each item incurred to determine whether or not it can be recovered.

The key aim of Jackson’s proposals is to reduce the cost of litigation, which will take the pressure of dealing with costs away from the courts. He aims also to simplify the costs process, improve access to justice and improve proportionality.

However, these reforms could actually increase the amount of court time spent dealing with costs for contract claims - meaning the status quo regarding access to justice and the question of proportionality prevails for this type of case. If indemnity cost clauses become the norm for contract claims, which they should, then the judiciary could find itself back at square one.

Without a cork to plug this leak in Jackson’s fixed-costs dam, his proposals for contractual claims might never have to be applied.

This article was first published by the Law Society Gazette on 9 October 2017. 

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