Whiplash claims and DBAs

We live in interesting times. In April 2013, the biggest shake up to the civil justice system in a generation is due to take place with the implementation of the Jackson reforms and the coming into force of the key provisions of LASPO.

In parallel, the shape of the legal services industry is being fundamentally recast by the introduction of significant numbers of Alternative Business Structures and the relaxation of rules on ownership of law firms and the introduction of outside capital.

Yet even more reforms are on the horizon: the “horizontal and vertical” expansion of the Ministry of Justice sponsored Portal scheme for low value, quantum only personal injury claims to encompass not only road traffic accident claims, but employers liability and public liability claims and claims with a higher value is on the horizon, although the implementation of the expansion has been delayed beyond April 2013. And just before Christmas 2012, the Ministry of Justice published a further consultation document, entitled Reducing the number and costs of whiplash claims: A consultation on arrangements  concerning whiplash injuries in England and Wales(CP17/2012).

The key proposal on which the government is consulting upon, is that the Small Claims Track should become the default track, for the allocation of either whiplash claims in RTA cases worth up to £5000 in respect of damages for pain, suffering and loss of amenity (the narrower proposal) or personal injury claims in RTA cases worth up to £5000 in respect of damages for pain, suffering and loss of amenity generally (the wider proposal).

The paper also makes proposals for the diagnosis of whiplash injuries, which is thought to warrant reformed procedures. This article will confine itself to the costs considerations that the consultation raises.

The rationale behind raising the SCT limit is stated at paragraph 8 of the executive summary to be

Insurers report regularly that it is simply not rational to challenge many claims given that the value of the claim is often less than the costs of challenge. As such, the present arrangements might not provide the proper incentives as to allow fraudulent claims to be tested properly. A beneficial result of an increase to the damages threshold for personal injury claims in this area would be for more fraudulent and/or exaggerated claims to be challenged, potentially reducing the number of such claims made.

The executive summary continues:

Claims pursued through the small claims track usually result in both sides bearing their own costs, meaning that it would become more economically viable for defendants to challenge exaggerated or fraudulent claims given that there is reduced risk of funding high costs if the case is lost. In addition, the costs rules would make it more likely that claimants would be deterred from making such claims unless they were genuinely injured.

The executive summary blithely notes at paragraph 12:

The Small Claims track is designed to deal with relatively straightforward claims and to serve self represented litigants. District Judges usually preside and have a responsibility to equalise any “uneven playing field” where one party is self represented.

The summary concludes(hubristically?):

Taken together, the changes being consulted upon will make it less likely that fraudulent or exaggerated claims will be made, and if they are that they can be properly tested. Such reductions in claims numbers should be reflected in the insurance premiums each motorist pays, given that the insurance industry has committed to pass on savings to policy holders.

It can readily be concluded, that if the authors of the paper really believe that fraudulent claims are best tried in the Small Claims Track they are engagingly naiive, and have never had the pleasure of undertaking back-to-back small claims hearings all day in the Mansfield County Court.

The Civil Procedure Rules and in particular parts 26 and 27 of the Rules, with their accompanying practice directions are extremely clear that the Small Claims track is not the appropriate track, whatever the value of the claim, where an allegation of dishonesty is made.

The reasons are simple. Evidence is not given on oath (the witnesses are presumably free to lie without fear of perjury?), there is no formal disclosure process, no rules of evidence and the ability to adduce expert evidence is extremely limited. The track cannot deal with cases that are complex in fact or law.

The notion that low velocity impact claims with their engineers and orthopaedic surgeons can be dealt with in the Small Claims Court, or that that forum is suited to the adduction of voluminous database and social media evidence is simply bizarre. Any District Judge considering such a case on allocation, will in accordance with rule 26.6 simply allocate it to the Fast Track, or more likely the Multi-track.

Moreover, the paper with its concerns that insurers face huge bills of costs for challenging fraudulent claims, seems to miss the point that if an insurer fails to establish fraud, and is ordered to pay costs, that actually would seem to indicate that the claim, was not, in fact, a fraudulent claim. The insurer would have been better advised to pay the claim speedily, rather than run a duff point, if it wanted to avoid a large bill of costs.

Equally, the paper misses the point that under the regime of Qualified One Way Costs Shifting which will apply come April 2013, the insurers will have to stand their own costs in all personal injury claims, whether rightly or wrongly made, save for a number of limited exceptions: of which the principal one is fraud! But on this proposal, that concession to common sense and justice will seemingly be negated.

In truth what the paper is really about and the motivation behind it, is moving a considerable tranche of personal injury claims out of the costs bearing tracks, in order to reduce the overall bill of costs to the insurance industry, in return for a reduction in the overall levels of premium which motorists pay.

It would be a great deal more satisfactory to have the consultation and debate put forward on this premise: which is more grounded in genuine considerations of economic utility, than to have it dressed up with a rationale that could be described to be a “fiction of fraud”.

This would enable the considerations of onerous insurance premiums to be weighed against considerations of access to justice. It is something of a pity that this is not the route the paper has taken, as there is a lot to be said on both sides of that debate.

Perhaps however, the more significant point, is that the “law of unintended consequences” is likely to defeat the rationale behind the proposal: namely to discourage the promotion of whiplash claims.

Although such claims will no longer attract an award of inter partes cost (unless, oddly enough fraud is raised as a defence and the case is allocated to a costs bearing track) this does not mean that solicitors will not wish to take on and prosecute such claims.

Consider the other parts of the reforms. The introduction of damages based agreements (DBAs), enhanced awards of damages of pain, suffering and loss of amenity (by 10%), costs protection through allocation to the Small Claims track buttressing the system of qualified one way costs shifting, meaning in turn there is little or no need for ATE indicates that solicitors representing claimants will have every incentive to run as many of these claims as they can find in the Small Claims track, provided that they can do so profitably for a fee representing 25% of the award of damages.

If the average level of damages for pain suffering and loss of amenity in a whiplash claim is £2500, that figure will become £2750 after April 2013, and with a couple of hundred pounds of special damages, for a total award of say, £3000 in damages and interest, a solicitor might recover £750, plus (potentially, with clever drafting of the retainer) the limited Small Claims track costs which can be awarded under part 27 if acting under a DBA permitting them to charge 25% of the value of the claim.

This might well be thought to be a more attractive option for solicitors firms than the Ministry of Justice Portal costs, particularly as it should be noted that a fairly drastic reduction in those costs, is proposed as part of the reforms.

A key consideration from April 2013, will be the formation and structuring of a solicitor’s retainer with his client. Should it be a CFA ? Or a DBA ?

How will the retainer signed at the start of the case, contemplate the possible disposal of a claim through the Portal or on the Small Claims Track or if fraud is raised, on the Multi-track after a two day trial ? How will it permit a solicitor to retain costs if they are awarded or a slice of the damages if they are not ?

Because DBAs are subject to the indemnity principle, a clear danger posed by a simple DBA, is that in a case of fraud, where a Claimant is victorious in recovering £3000 after a 2 day trial, but notionally incurs costs of £50,000 along the way, any award of costs inter partes, is liable to be capped at £750 ! Careful thought and drafting of the retainer at the outset should avoid this possibility.

 

When is a road traffic accident not a road traffic accident ?

Although we are now in the “dog days” of part 45 section II, and the issue of fixed recoverable costs inter partes, interesting points still arise from time to time on the interpretation to be afforded to the rules.

In a recent case, I dealt with a dispute arose as to whether the subject matter of a settled claim was a road traffic accident or an employers liability claim and whether fixed recoverable costs accordingly applied if the former contention was correct. The Claimant sought a declaration in these terms:

It is declared that the Claimant’s entitlement is to reasonable costs and disbursements to be the subject of detailed assessment if not agreed and not limited to the fixed recoverable costs prescribed by section II of part 45 CPR.

The issues in the case were threefold:-

(i) Whether the terms of the contract of compromise settling the case precluded the Defendant from arguing that the predictive costs regime had any application.

(ii) Whether the claim was apt to fall within the RTA fixed recoverable costs regime prescribed by section II of Part 45 of the Civil Procedure Rules 1998 in any event.

(iii) If so, whether in any event the Court should exercise its discretion to allow an amount greater than fixed recoverable costs pursuant to rule 45.12 of the Civil Procedure Rules 1998 in any event.

The facts of the case were not controversial between the parties. On 9th January 2010, the Claimant was injured in an accident. On 30th September 2010, the Claimant’s instructed solicitors wrote a letter of claim to the Defendant’s employers liability insurers.The letter set out the summary of the claim and alleged inter alia, the following:

We are instructed that our client who was a former employee of your insured was driving the work’s van home in readiness for an early start on a job in Birmingham the next day. He was travelling out of Lincoln towards Nettleham and had just negotiated the A46 bypass roundabout, about 200 yards further on, and there was a sudden explosion in the back of the van which shot flames through to the front where he was sitting. He felt the flames on the left side of his face and on the top of his head so quickly pulled up and managed to jump clear of the van before it exploded. He landed on the road sustaining personal injuries. We understand that there was a canister of some sort of solvent in the back of the van which came into contact with the battery terminals causing the explosion. We understand that the battery was located under a seat in the back of the van and was left uncovered.

By an email dated 16th May 2012 from  the Claimant’s solicitors to the Defendant’s insurers, an offer was put: the claim could be compromised in the sum of £4724 together with payment of reasonable costs and disbursements to be the subject of detailed assessment if not agreed. The Defendant’s insurers signified acceptance by conduct, by the despatch of a cheque for £4724 on 19th June 2012, not qualified in any way.

The terms of the agreement noted above were for “reasonable costs and disbursements” not “fixed recoverable costs and disbursements”. The Defendant having instructed solicitors, attempted to argue that fixed recoverable costs was the measure of costs recoverable. In turn that was contended on the part of the Claimant to be no more nor less than an attempt to resile from a concluded contract.

The District Judge was referred to a number of authorities. The question of the scope of an Order, and the extent to which “reasonable” costs can be interpreted to mean fixed costs has been ventilated in the Court of Appeal decision of O’Beirne.v. Hudson [2010] EWCA Civ 52. See in particular from paragraph 16 of that decision. In summary, the court at best, if it concludes that the case might have fallen within the fixed recoverable costs regime have regard to that as a factor, for the purposes of a rule 44.5 assessment, but cannot limit the quantum of costs by what is an arbitrary figure. See also Letts.v.Royal Sun Alliance [2012] EWHC 875, which is along the same lines.

In relation to the second issue, the relevant rule was 45.7. The Claimant was using the Defendant’s vehicle in the sense that he was driving it. The issue in the case is whether his accident was “caused by or arising out of” that use: if it was then per the wording of the rules it would be a road traffic accident. The key case on this issue, was the decision of the Court of Appeal in Dunthorne.v.Bentley (Court of Appeal Transcript 26th February 1996): that case drew a distinction in terms of causation for the purposes of the Road Traffic Act 1988: a proximate cause, or causally contributing factor constitutes something “arising out of”: a mere causal concomitant does not. The concept mirrors the old distinction in the common law between causa sine qua non, and causa causans: the background cause and the immediate cause.

On the facts of this case, it was contended on the part of the Claimant, that the presence of the van, was a background cause to the accident, but the effective, immediate or proximate cause, was the presence of inflammable solvents, which did indeed ignite: if they had been properly stowed (or not carried at all) would have avoided this accident.

The Claimant’s final point was that even if the Defendant established that prima facie rule 45.7 applies, the Court has a discretion to allow in exceptional cases, a greater element of costs by rule 45.12. In this context, on ordinary principles of construction, the first point to ask, is what “exceptional” means. In ordinary English, it means something other than the norm.

The Claimant contended that the facts of the case (per the letter of claim) made it clear that this was not a rear end shunt, or other “bent metal” case. Had it been pleaded and issued, the Claimant would have placed primary reliance on the Provision and Use of Work Equipment Regulations 1998, the Control of Substances Hazardous to Health Regulations 1999 and pleaded unsafe system of work, unsafe plant and equipment and lack of supervision: not driving too fast, failing to keep a proper lookout etc.

In short, it was argued that as a question of substance, the case was an employers liability case, it falls outwith the norm of a road traffic accident claim and the court should exercise its discretion under rule 45.12 accordingly.

In the event the District Judge found that the Defendant was precluded from the terms of the compromise from arguing that fixed recoverable costs applied, that if they had not been so precluded, the case would have come within rule 45.7 due to the central role the van had played in the accident, but that in any event he would have exercised his discretion under rule 45.12 to direct that assessed costs was appropriate due to the unusual nature of the case.