Legal Report - Closing the costs chasm

The debate concerning the cost of clinical negligence litigation focuses on fears of high damages payments rivalling awards of the most punitive juries in the US. Another worry for insurers and the NHS Litigation Authority (NHSLA), the body that funds NHS litigation, is that claimants' costs far outweigh defendants' costs.

The NHSLA's annual report of 2004-05 estimated that costs paid to defendant solicitors and their experts averaged approximately 69% of those of claimants' solicitors and their experts. The total claimant costs paid out in settlement of clinical negligence claims closed in 2004/05 was £84,955,634, as opposed to just £59,023,956 for defence costs.

Why is there such a disparity, and what can be done to prevent the chasm widening?

Common funding arrangements open to claimants in clinical negligence litigation are Legal Aid, conditional fee agreements (CFAs), insurance policies and private funding.

CFAs, or ‘no win, no fee' funding schemes, are traditionally less common in clinical negligence than personal injury cases as they are seen to carry greater risks and higher premiums - hence the maintenance of legal aid for some such claims after an April 2000 review.

But CFAs will become more prominent as the downturn in issue of legal certificates continues (19,000 in 1991, but just 6,000 in 2003).

When claimants enter CFAs, they generally take out insurance to cover them against losing and having to pay defence costs. The high premiums increase as a trial nears. For example, on issue of proceedings it is possible for ‘after-the-event' premiums to rise from £1,500 to £13,000 and then to more than £70,000 when the case is within 45 days of trial.

In assessing premiums, claimant solicitors advise insurers of the chances of success and give estimates of defendants' costs to trial. But these estimates will be based on an estimate of their own costs, which are invariably higher.

Where a claimant is successful - either in court or, usually, before then - the defendant pays the claimant's reasonable costs. These include the solicitor's costs and disbursements, and the insurance premium and "success fee".

The success fee is a percentage increase in the claimant's costs of up to 100% - an increase recommended by claimant solicitors when assessing risk at the outset. With a CFA, claimant solicitors receive no fees if the claim is unsuccessful, so the risk of accepting a case is translated into the level of success fee.

If they believe there is approximately a 50% chance the claim will succeed, claimant solicitors will recommend the maximum success fee of 100% and, if their client succeeds, the fees paid by defendants will be twice the level of solicitors' costs ordinarily charged. All too often in clinical negligence cases, the 100% success is recommended.

Claimant solicitors vociferously justify their high hourly rates, citing their vast experience. Despite such experience, however, they often successfully submit that they cannot determine the likelihood of success early on.

This contradiction should be questioned more at a case's conclusion. While many clinical negligence cases are complex, often they are no more complicated than personal injury cases. For lower value cases, damages may often be settled within two or three months of receipt of the pre-action letter of claim.

To slow the escalation of claimants' costs, one suggestion is to introduce a staggered success fee. Courts might allow, say, 100% success fees before expert evidence is gathered but, once it is received, or when admissions are made, the fee could be re-evaluated.

Disparity
At the conclusion of the case, costs draughtsmen could then split the bill between the different stages of litigation.

There is a disparity in hourly rates between defendant and claimant firms. Defendant solicitors rightly negotiate their charge-out rates in the open market, creating fair and competitive rates for all. The market for claimant firms is less studied, particularly as the claimants themselves rarely foot the bills.

Claimant solicitors will say the case required high charge-out rates and experienced solicitors. But while that is often the case, partners charging around £350 per hour often seek counsel's advice at the earliest opportunity.

In reality, counsel's involvement in claims worth less than about £100,000 is not required until the conclusion of the pre-action process unless exceptional circumstances dictate.

The Law Society advises hourly rate boundaries for firms, based on location, market average and expertise, but they still tend to be higher than those of defendant firms. Courts should not be constrained by these figures.

A more stringent structure, such as cost capping, ought to be put in place. The case of Sheppard v Essex Strategic Health Authority and Others [May 2005] is encouraging. The High Court agreed a cap should be placed on the claimant's costs early on to avoid them escalating out of control. This will help unsuccessful parties to avoid having to rely on detailed assessment to reduce costs after the event.

Deemed reasonable
Where claimants are funded via legal aid, the Legal Services Commission (LSC) should also challenge charge-out rates and the amount of work done by experts and counsel early on.

Costs judges have the judicial muscle to reduce costs, determine whether charge-out rates are reasonable and question whether they are proportionate to the level of damages.

All too often, we are advised by experienced costs draughtsmen that it is fruitless to take a matter to detailed assessment because most claimants' costs will be deemed reasonable - despite the fact they are found on average to be 30% higher than defendants' costs.

When costs are assessed, judges also consider whether success fee insurance policies are reasonable. They are guided by claimant solicitors who usually succeed in arguing that at an early stage, without expert involvement, it was not possible to determine the victor.

As the vast majority of litigated cases result in damages payments, it is disingenuous for them to consider only rarely that their client has a far greater than 50% chance of success. Costs judges ought to take this into account.

Most claimants have little incentive to question costs as they do not anticipate ever having to pay them, so the bargaining position is lost. The LSC, the courts and claimant solicitors must do more to ensure that the level of claimant costs does not expand further. IT

'Robert Tobin is a solicitor with City law firm Kennedys