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Will fixed costs fix costs?

Fixed Costs

“The difficulty lies not so much in developing new ideas as in escaping from old ones”

Not for the first time Justice Jackson has had to calm the fears of the legal world, this time over his proposed changes to costs. His idea to fix the cost of all claims up to £250,000 was later described as just “a good starting point for debate.” However, this hasn’t stopped an angry reaction being drawn from litigators across the legal market.

The argument behind this seems to be centred on the “great demand” from clients to have more price certainty, but it is worthwhile to point out that lawyers are no lovers of hourly rates either. Most would accept that billable hours create a barrier between client and professional, not least because inefficiency is encouraged as more time spent means more time billed. I don’t believe there are many lawyers out there with time to waste on extending their work load, but truly how is the client to know?

The problem is that law firms, as with any business, exist to make profit. In order to do so lawyers provide a service and without profit this service will no longer exist. The very existence of our law system depends on this margin. Lawyers may not love hourly rates, but they fairly remunerate them for the time spent on an issue, not necessarily how much money they stand to gain from it.

This will be the big problem with introducing fixed costs. On the face of it the idea seems sensible, with the fixed amount being dependent on the claims value. LJ Jackson provided some figures that show how this might look:

  • £18,750 in costs for claims up to £50,000.00 in value
  • £30,000 in costs for claims up to £100,000.00 in value
  • £47,500 in costs for claims up to £175,000.00 in value
  • £70,250 in costs for claims up to £250,000.00 in value

There’s no doubt this would provide increased proportionality and clarity as LJ Jackson suggested. However, it ignores a rather seemingly obvious problem with litigation. The complexity of the case is not necessarily represented in the quantity of the damages. It is far from uncommon for two claims at opposite ends of the spectrum in terms of complexity to be similar in value. In LJ Jackson’s new world of fixed costs, the result will be that the complicated case for a small amount of damages is not taken on because of simple economics. Therefore, is it possible the changes may result in a lack of access to justice for the very people it was intended to help?

There will never be a system that suits everyone perfectly, but surely clients are demanding a costs change that will make litigation simpler, not more unlikely? If fixed costs act as both a deterrent to clients to access justice and to lawyers to take on complicated work, then much legal work will be lost. Defamation and clinical negligence spring to mind as areas in particular that could be affected.

We would then need to ask whether spiralling and disproportionate costs is a price worth paying in order to litigate, or should we move towards a system where damages instead of skill are the measure we use to justify a claim’s worth?