Who calls the tune?

He who pays the piper, so the saying goes, calls the tune. But not any more. At least not when it comes to costs. The party that has to pay never gets the chance to even see what tunes are on the play list, let alone choose one.

Now I am not saying that the old legal aid system was perfect. Far from it, we only have to remember the Guinness and Maxwell cases to know that it was far from perfect. But at least with the legal aid system there were some safeguards, the certificate could be limited to, say, obtaining an advice from counsel, which if unfavourable could lead to the certificate being discharged. Or latterly there were the financial limitations to the Legal Aid Certificates, which at least doffed a cap at limiting costs.

But now, with the virtual demise of public funding, there is no body that considers the merits of claims. This is now down to the individual solicitors, who suddenly find themselves having to navigate the uncertain waters of calculating success fees, something nobody has been trained for and very few understand.

It is universally acknowledged that the one part of the Crown Procedure Rules that is not working is the area relating to costs, and that costs are spiralling upwards, nearly out of control. And who is paying the price for the increased costs of litigation? Every taxpayer in the country, together with all those people who use public services or insure their car.

The rear-end shunt
Put it like this: Mr Y is the passenger in a car who is involved in a small road traffic accident, the so-called `rear-end shunt' with a car driven by Mr X.

Mr Y suffers slight whiplash injury, visits his solicitor and signs up to a conditional fee agreement (CFA), complete with insurance premium (£1,300) and success fee (50%).

He is seeking in the region of £5,000 for his pain and suffering. Mr X's insurance company, on an economic basis, wishes to get rid of the claim and settles it as a nuisance value claim for the sum of £1,250, together with reasonable costs.

The costs schedule arrives. The profit costs are £2,000 - not an unreasonable sum - but with a 50% success fee there is another £1,000 and, of course, the sum of £3,000 will not be deemed disproportionate just because of the additional £1,000. There is also the medical report (say £350), the insurance premium (say £1,300) and the other miscellaneous disbursements (say £100).

So for a claim which settled on a nuisance value basis of £1,250, the insurer is faced with an additional £4,750 in costs, a total of £6,000.

So what is to be done? The knee-jerk answer is to put up the premiums for car insurance to cover the increase in reserves and claim values. So not only Mr X suffers, but conceivably Mr Y as well, together with all other drivers who saw a steep rise in their premiums last year, partly to fund those increased reserves.

And who cares? Certainly not the government which is now responsible for funding very few legal cases, and which can cheerfully point the finger at the opportunistic lawyers and profiteering insurance companies.

So, what is the answer? A prime contender is benchmarking, the American system (a real no win-no fee system), which reverts to the old idea of CFAs, where the insurance premium and success fee came out of the damages. It was understood by the legal community that this was meant to be implemented in October 2001, but this idea seems to have dropped below the horizon.

The fixed cost debate
Currently the debate seems to be centring on the idea of fixed costs, at least for fast-track cases, but this seems to be fanning the flames of a firefight between the Association of Personal Injury Lawyers (Apil) and the Forum of Insurance Lawyers (Foil).

So why is no consideration being given to using a model based upon the way that Magistrate Court Bills are funded? This system, with its different categories and bands, seems to overcome the majority of the current difficulties. There could be divisions either on the value of a case, or the stage it reaches; categories could be pre-issue, low value cases; cases up to allocation; and from allocation up to settlement pre-trial.

These categories can cover all types of work, from the simple road traffic accident to the straightforward clinical negligence matter, such as that found in Bensusan v Freedman. If a case is settled early for a low value, the costs are correspondingly low; cases of medium value and/or complexity fit into a middle band, and there is the safety net that, if the matter does proceed to trial, then the costs can be assessed at a detailed assessment hearing.

There is the added bonus that both parties would have at least a reasonable idea of the level of costs likely to be incurred.

All I know is that if we do not sort out the disaster area that is costs, we, as the good people of Hamlin discovered, will have to pay the price for getting rid of the problem - and it's usually a high one.

Sally Williams is a fellow of the Association of Law Costs Draftsmen and works in the costs unit of Browne Jacobson