One-way Cost-shifting June 17, 2009
Posted by Richard Moorhead in : Jackson Review , trackbackPerhaps most radically, Lord Justice Jackson suggests that one-way cost shifting might be introduced for certain types of claim (especially personal injury claims). The principle reason for this is a straightforward assessment that defendants in personal injury claims pay out significantly more in ATE premiums on cases that they lose than they get back in cost recovered under ATE premiums when they win and that one way cost shifting would do their interests minimal harm and considerably reduce cost by removing the need for ATE.
Jackson back’s up his view with some data from an insurer who, out of about 22,000 notified claims obtained costs orders in about 20 of cases (or one tenth of one percent of those cases) (para. 2.6, page 225). That insurer paid out nearly £3 million in ATE premiums (that would cover an average cost on the 25 cases of £120,000).
APIL have indicated a modest degree of support whilst reserving their position (para, 111) and FOIL have similarly given a positive, if lukewarm response. The sense I have is that neither party contemplated the idea seriously and were having to think on their feet in discussions with Jackson. FOIL is investigating the financial implications (para. 10.7, p. 114).
My view is that this is an idea with considerable merit (see my Regulated One-Way Cost Shifting paper). There are however three possible drawbacks to this suggestion which merit discussion:
- That costs spent on ATE are not significantly higher than costs recovered (this seems unlikely. If it were correct, then defendants would have been making rather stange allegations about the economics of ATE premiums);
- That making costs one-way only would lead to ‘moralhazards’ whereby claimants would be likely to bring weak cases in the knowledge that they are protected on costs. This argument ignores the need for claimant lawyers to bear the risk of those costs. It may be an argument tenable for some claimant firms bringing small cases on a nuisance basis, but is unlikely to be tenable beyond that (claimant firms would have to risk too much time and effort to bring the cases and would face defendants who would, because of the higher values at stake, have very incentive to defend).
- Selective implementation of one-way cost-shifting would be dangerous because it would remove the need for ATE (or the benefits of BTE) in large parts of the market and so make it less viable elsewhere. This is an argument which deserves considerable attention if one-way costs shifting is to move forward.
Jackson LJ appears to regard judicial review proceedings as inappropriate for one way cost shifting (para. 4.5, page 331) because of the need to discourage frivolous claims. He also seems to prefer a no-costs rule for collective actions as being fairer to defendants and not prejudicial to the interests of claimantsif CFAs or contingency fees were available (para. 5.11, page 362 and para. 6.6, page 365).
The costs shifted would also need careful regulation as the system is almost certainly prone to the same inflationary pressures as two way cost shifting.
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