Those who expected the Woolf reforms to reduce legal fees and simplify the process of recovering costs are likely to be disappointed. Gary Stevens, managing director of Stevens Costs Negotiators, looks at the costs implications post-Woolf and the Access to Justice Act.

The insurance industry has begun to realise that damages, although an important issue, are no longer the primary concern when taking insurance matters to the courts. Costs very often exceed the level of damages.

Levels of reserves are increasing and will continue to do so with the implementation of the Access to Justice Act. Costs can only be controlled by taking control of litigation and evaluating the risks and the costs involved in pursuing a defence.

As a result, insurers need to take a more active role in the management of cases, particularly when panel solicitors are acting on their behalf. They need to know at what stage a case becomes uneconomical to defend.

For what is the point in paying £2,000 damages after two years of litigation and receiving a demand for costs way in excess of this figure?

What's new?
The point of the civil justice reforms was to bring some relationship between the amount of damages recovered and costs, but this in itself is nothing new. The old Scale 1 costs regime in low-value claims attempted to do just that by introducing scale items for various aspects of work done. This has now been replaced by the somewhat vague and nebulous notion of proportionality.

The issue of proportionality only applies to costs that have been awarded on the standard basis as defined by Part 44.4(2)(a) of the Civil Procedure Rules. This stipulates that, where the amount of costs is to be assessed on the standard basis, the court will only allow costs that are proportionate to the matters in issue and resolve any doubt which it may have as to whether costs were reasonably incurred or reasonable and proportionate in amount in favour of the paying party.

In applying the test of proportionality, Part 44.5(3) stipulates that the court must have regard to the conduct of all the parties, including in particular conduct before, as well as during, the proceedings and the efforts made, if any, before and during the proceedings in order to resolve the dispute.

These are fundamental issues that the court and paying parties should consider if they are to ensure only reasonable and proportionate costs are paid.

The use of proportionality to support the courts is the overriding objective of the CPR and in particular 1.1(c); this stipulates that solicitors must deal with a case justly including, so far as practical, ensuring the parties are on equal footing, saving expense and dealing with the case in ways that are proportionate to the amount of money involved, to the importance of the case, to the complexity of the issues and to the financial position of each party.

There is very little guidance as to how the judiciary is approaching the issue of proportionality but the recent House of Lords case of Piglowska v. Piglowska (1999) (The Times, June 25) gives some indication as to what claimants can expect if they fail to have regard to the value of a claim and the issues involved. This was a family matter – but an important one – relating to the issue of proportionality. The value of the assets was in effect wiped out by the costs.

Conduct of the parties
This has by far the most significant effect on the issue of costs and the level of costs recovered by either party to the litigation. Either party could in principle succeed in an action but recover no costs at all due to their conduct during or prior to the litigation.

The general rule is that the successful party will recover costs but the court may make a different order (Part 44.3(2)).

Part 44.3(4) stipulates that, in deciding what order (if any) to make about costs, the court must have regard to all the circumstances, including the conduct of the parties and whether a party has succeeded on part of his case, even if he has not been wholly successful.

Part 44.3(5) stipulates that the conduct of the parties includes conduct before, as well as during, the proceedings and in particular the extent to which the parties followed any relevant pre-action protocol; whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue; the manner in which a party has pursued or defended his case or particular allegation or issue; and whether a claimant who has succeeded in his claim, in whole or in part, exaggerated his claim.

These provisions therefore allow parties to take issue as to whether any costs should be payable, even if they were unsuccessful, on the grounds that the receiving party had failed to follow the Civil Procedure Rules and relating Protocols, thereby causing unnecessary costs to be incurred. This would include the claimant raising an unreasonable issue in the action or pursuing an unreasonable head of claim. The claimant may have failed to disclose expert evidence in good time, thereby precluding the defendant from making early proposals for settlement of the claim.

Therefore, if either party can show that there has been misconduct they can request the court to invoke its powers under Part 44.3(6). Those powers are that the court may order a party to pay: a proportion of another party's costs; a stated amount in respect of another party's costs; costs from or until a certain date only; costs incurred before proceedings have begun; costs relating to particular steps taken in the proceedings; costs relating only to a distinct part of the proceedings; or interest on costs from or until a certain date, including a date before judgment.

In order to avoid punitive costs orders, the parties must follow the protocols and manage their files cost effectively if they are to avoid penalties. The court will no longer tolerate delay on either side or failure to attempt to resolve issues both pre and post-issue.

Access to Justice Act 1999
This Act has significant costs implications for the insurance industry, which is already paying huge levels of costs. A claim for damages of £2,000 will inevitably result in costs exceeding £3,000 when you take into account an insurance company's panel solicitors costs and those of the claimant.

This is due to increase beyond all proportion when the Act is implemented early next year. Section 27 of the Act substitutes Section 58 of the Courts and Legal Services Act 1990 by making provision for payment by the losing party of any success fee under a conditional fee arrangement.

There is provision for the paying party to take issue with the level of success fee. However, it will be a difficult task to establish the correct level of success fee. This will require the paying party to undertake a risk assessment of the case and apply what they feel should be the correct success fee.

For instance, a rear-end collision with an admission of liability may not attract any success fee as there was no risk of losing, but other factors may be taken into account when applying a success fee such as the fact that the solicitor is required to fund the disbursements. Therefore, more technical knowledge as to litigation will be required by costs negotiators if they are to succeed in arguing the level of success fees.

The Woolf reforms relied heavily on the issue of proportionality, yet the Access to Justice Act appears to have total disregard for this as the paying party is now going to bear the full burden of costs. The Act also makes provision for payment of any after-event insurance premium. One of the most radical and controversial proposals within the Act is contained in Section 31, which allows rules of court about the award of costs to provide that the amount awarded need not be limited to the amount that the litigant would have been liable to pay his or her own lawyers if costs had not been awarded (bye, bye indemnity principle).

Experts' fees
Expert's fees have long been the cause of some concern for the paying party. Solicitors can no longer expect to recover their full expert fees. The CPR gives a strict code that solicitors must follow when instructing experts. Part 35.1 stipulates: "Expert evidence should be restricted to that which is reasonably required to resolve the proceedings." In the case of Gumpo v. Church of Scientology (Royal Courts of Justice, July 26, 1999), the court decided that the costs of instructing a psychiatrist would be disproportionate and therefore refused to allow any psychiatric evidence to be admitted.

The expert's overriding duty is no longer to the client but to the court. Specific instructions are contained as to the content of the report in order for it to constitute proper expert opinion.

Appeal Court refused expert
One only has to refer to the case of Stevens v. Gullis (CA) (The Times, October 6, 1999) to realise the effect of the expert's failure to understand his obligations when preparing expert written reports. The Appeal Court refused the expert permission to give evidence as the expert had demonstrated that he had no conception of the requirements placed upon him by the rules.

In the case of Baron v. Lovell (CA, July 27, 1999), the matter had come before the court for pre-trial review relating to a personal injury claim. There was some delay by the defendant in obtaining a report and disclosing the report. In fact, the report was never disclosed even though the defendant had indicated the intention to rely upon it prior to the pre-trial review. At the pre-trial review, the judge refused the defendant leave to call that expert. The defendant appealed but the decision was upheld.