Jackson and the Walrus

The following is the text of a lecture drafted by myself and James Wibberley and delivered by us at the Ropewalk Chambers Personal Injury Conference on 8th March 2013.

On 1st April 2013, the biggest shakeup in litigation funding in a generation will come into effect.  The reforms will change not just the way in which litigants (in particular claimants) pay their lawyers, but also the manner in which cases are managed and disposed of by the court.  Costs will no longer be an adjunct of civil litigation; the need to ensure ‘proportionality’ will place them at the very heart of every dispute.

The reforms have colloquially been referred to as the Jackson reforms: but it would be a mistake to concentrate solely on the Jackson report. The reality of the matter is that those reforms envisaged by Jackson LJ are but one aspect of a veritable storm now driving forward in relation to personal injury litigation, the other aspects of which include consolidation of funders, claims management companies and solicitor firms, through Alternative Business Structures, and the likely removal of a significant portion of personal injury work from the costs bearing tracks, altogether.

The purpose of this paper is to provide an overview of the reforms: concentrating on the key items, which will plainly alter the way litigation is conducted in the months and years to come, rather than to seek to evaluate each and every of the amendments to the Civil Procedure Rules.

This talk is accordingly divided into four sections to cover the main thrust of the coming changes post 1stApril 2013:

  1. The Funding of Litigation;
  2. The Practise of Litigation;
  3. The Assessment of Costs; and
  4. Reforms Still to Come.

As at the time of drafting this paper, it should be noted that as part of the implementation of the reforms (unkindly described by some commentators as an “omni-shambles”) many of the key documents and instruments are still in draft form. Inevitably by the time of the oral delivery of this paper, there will have been further documents published, which will be touched upon at appropriate points in the presentation.

The key documents to note at the current time are:

  • The Legal Aid Sentencing and Punishment of Offenders Act 2012.
  • The Courts and Legal Services Act 1990 (as amended).
  • The Legal Aid Sentencing and Punishment of Offenders Act 2012 (Commencement No. 5 and Saving Provisions) Order 2013
  • The Offers to Settle in Civil Proceedings Order 2013
  • The Conditional Fee Agreements Order 2013 (draft)
  • The Damages-Based Agreements Regulations 2013 (draft)
  • The Pre-Action Protocol for Low Value Personal Injury (Employers Liability and Public Liability) Claims.
  • The Consultation Paper on Extension of the RTA PI Scheme: Proposals on Fixed Recoverable Costs.
  • Simmons.v.Castle (No 1) [2012] EWCA Civ 1039 and Simmons.v.Castle (No 2) [2012] EWCA Civ 1288
  • The Solicitors Regulation Authority Consultation on the Ban on Referral Fees in Personal Injury Cases.
  • The Civil Procedure Amendment Rules 2013 (draft)
  • The 60th Update to the Civil Procedure Rules Practice Directions (draft)

THE FUNDING OF LITIGATON

Referral fees

If there is a place to start, it is with consideration of the issue of how and in what circumstances, a solicitor may lawfully be instructed by a claimant in a personal injury claim. Until the 31st March 2013, it is perfectly lawful for a solicitor to pay a fee to a third party in order to obtain the referral of a personal injury claim. After that date the law will change dramatically, by the ban on referral fees. It is worth noting, that historically referral fees were prohibited until as recently as 2004 and thus have only been lawful, for 9 years in any event. An interesting historical attempt to circumvent this ban whilst at the same time passing the bill for the referral fee to the losing party to litigation, was made by many of the now defunct claims management schemes e.g.: Claims Direct and The Accident Group, which charged case assessment fees, or agency fees, or fees for taking witness statements, when in reality what they were charging for was the case. These attempts ran into difficulties on the assessment of costs, and in many cases, the fees were disallowed, on the basis they were illegal payments and/or payments that had never been sanctioned by the client.

In 2013, however, the structure of the personal injury litigation industry is vastly different to the structure in the decades before 2004. The rise of the claims management company, the interests of trade unions and insurance companies in obtaining a steady stream of income from referral fees has made personal injury litigation big business: a different world from that where one Regional Costs Judge was able to nostalgically recall to me, that he would “take what he could get on his costs from the man from the General Accident, and make the real money on the  conveyancing.”

Lord Justice Jackson on referral fees

Lord Justice Jackson’s views on referral fees are well known. He regards them as a distinctly grubby element of the personal injury litigation industry, and a taint upon the practice of litigation. In his Final Report he noted this.

4.11 There is also a wider point. In my view, it is offensive and wrong in principle for personal injury claimants to be treated as a commodity. BTE insurers should not be in the position of auctioning off the personal injury claims of those whom they insure. It is equally unacceptable for claims management companies to buy in personal injury claims from other referrers and then sell them on at a profit. Indeed the very language of the claims management industry characterises personal injury claims as a commodity. Strong cases ready to be pursued are described as “oven ready”.

4.12 The practice is, in my view, even more abhorrent when the referrer not only demands a referral fee from the solicitor but also takes a slice of the claimant’s damages (without having added any value to the case). I am aware of one claims management company which charges its clients a fee of £379 out of damages received.

4.13 It is argued by some that a prohibition on payment of referral fees could not be enforced. I am not persuaded by this argument. In my view, the vast majority of solicitors are honourable professionals and would respect such a prohibition, whether imposed by legislation or by rules of conduct.

4.14 I have discussed the enforcement issue with the SRA which has considerable experience of enforcing the ban on “rewarding introducers” up until 2004. The SRA makes the point that defining what a referral fee is requires some care, in order to catch disguised referral fees but to permit legitimate marketing. I accept this adviceand have requested the SRA to assist in formulating an appropriate definition of “referral fee” and in keeping that definition under review. The Legal Services Board(the “LSB”) will also have a role in this regard. The definition which I propose, subject to review by the SRA and LSB, is “any form of payment or other consideration to a party for introducing clients to a solicitor”.

His views chime with those of the Right Honourable member for Blackburn, who after 32 years as a member of parliament in the North West of England and a minister in the government which enacted the Compensation Act 2006 eventually “saw the light”, and had this to add to the debate in June 2011

In an article for the Times, Mr Straw describes the spiralling cost of insurance – caused by referrals to personal injury lawyers – as a racket.

The Labour MP for Blackburn says he is acting on the concerns of constituents who face rising premiums.

Mr Straw is calling for the government to implement recommendations made last year by Lord Justice Jackson, who said such referral fees should be banned.

“It’s become a huge racket,” Mr Straw told the Today programme. “The insurance companies are complicit in this. They should and could have said this is outrageous.”

He said senior executives from two of the country’s largest insurers had admitted to him that it was the industry’s “dirty secret”.

“They said, ‘If we don’t do it everyone else will be doing it’.

“The garages, the recovery firms – even the police are selling on this information.”

Mr Straw is also angry at the high-pressure tactics of legal firms who handle personal injury claims.

He told the BBC that a friend was “bombarded” by calls and texts urging him to claim compensation after an accident, despite being uninjured and having not given permission to be contacted.

Conversely, the Legal Services Board was far more relaxed about the whole issue. It still is. In a press release in May 2011 the Chairman stated when commenting on the Board’s review of referral fees:

Before this exercise, the debate on referral fees was characterised by high passions but a lack of hard evidence. Following this detailed investigation, we are persuaded that the interests of consumers are best served by continuing to permit referral fees, but managing their impact through shining the light of transparency on them.

We have set out a range of measures that can help achieve this – with the approved regulators free to choose what is best suited to their part of the market. Whilst they will have the flexibility to tailor action, securing these outcomes is essential and we will track progress carefully over the coming months.

In the event the government decided to ban referral fees in personal injury claims, and has legislated accordingly in the 2012 Act. The key sections to note are as follows:

56 Rules against referral fees

(1) A regulated person is in breach of this section if—(a) the regulated person refers prescribed legal business to another person and is paid or has been paid for the referral, or (b) prescribed legal business is referred to the regulated person, and the regulated person pays or has paid for the referral.

(2) A regulated person is also in breach of this section if in providing legal services in the course of prescribed legal business the regulated person—

(a) arranges for another person to provide services to the client, and

(b) is paid or has been paid for making the arrangement.

(3) Section 59 defines “regulated person”.

(4) “Prescribed legal business” means business that involves the provision of legal services to a client, where—

(a) the legal services relate to a claim or potential claim for damages for personal injury or death,

(b) the legal services relate to any other claim or potential claim for damages arising out of circumstances involving personal injury or death, or

(c) the business is of a description specified in regulations made by the Lord Chancellor.

(5) There is a referral of prescribed legal business if—

(a) a person provides information to another,

(b) it is information that a provider of legal services would need to make an offer to the client to provide relevant services, and

(c) the person providing the information is not the client;

and “relevant services” means any of the legal services that the business involves.

(6) “Legal services” means services provided by a person which consist of or include legal activities (within the meaning of the Legal Services Act 2007) carried on by or on behalf of that person; and a provider of legal services is a person authorised to carry on a reserved legal activity within the meaning of that Act.

(7) “Client”—

(a) where subsection (4)(a) applies, means the person who makes or would claim;

(b) where subsection (4)(c) applies, has the meaning given by the regulations.

(8) Payment includes any form of consideration whether any benefit is received by the regulated person or by a third party (but does not include the provision of hospitality that is reasonable in the circumstances).

57 Effect of rules against referral fees

(1) The relevant regulator must ensure that it has appropriate arrangements for monitoring and enforcing the restrictions imposed on regulated persons by section 56.

(2) A regulator may make rules for the purposes of subsection (1).

(3) The rules may in particular provide for the relevant regulator to exercise in relation to anything done in breach of that section any powers (subject to subsections (5) and (6)) that the regulator would have in relation to anything done by the regulated person in breach of another restriction.

(4) Where the relevant regulator is the Financial Services Authority, section 58 applies instead of subsections (1) to (3) (and (7) to (9)).

(5) A breach of section 56—

(a) does not make a person guilty of an offence, and

(b) does not give rise to a right of action for breach of statutory duty.

 

(6) A breach of section 56 does not make anything void or unenforceable, but a contract to make or pay for a referral or arrangement in breach of that section is unenforceable.

(7) Subsection (8) applies in a case where—

(a) a referral of prescribed legal business has been made by or to a regulated person, or

(b) a regulated person has made an arrangement as mentioned in section 56(2)(a),

and it appears to the regulator that a payment made to or by the regulated person may be a payment for the referral or for making the arrangement (a “referral fee”).

(8) Rules under subsection (2) may provide for the payment to be treated as a referral fee unless the regulated person shows that the payment was made—

(a) as consideration for the provision of services, or

(b) for another reason,

and not as a referral fee.

(9) For the purposes of provision made by virtue of subsection (8) a payment that would otherwise be regarded as consideration for the provision of services of any description may be treated as a referral fee if it exceeds the amount specified in relation to services of that description in regulations made by the Lord Chancellor.

The sections are convoluted and lengthy, but the overall picture of what should be a referral fee, is tolerably clear. Money or “moneys worth” should not change hand for a case qua case. But there are problems ahead: the first is to note that net is cast extremely wide in terms of “moneys worth”. Secondly, to note that the regulators will be able to impose the burden of proof on what is/is not a referral fee, on the solicitor, to prove a payment is not a referral fee. Thirdly, consider the width section 56(2): does this effectively preclude a solicitor from receiving a commission, from say, an ATE insurance provider, even though such commission might be small, and declared to the client?

The key question really though, is what attitude is the Solicitors Regulation Authority going to take to the enforcement of this ban? Is it going to pursue solicitors doggedly, who infringe or potentially infringe the ban? In particular, is this to be light touch regulation or something more involved? Some inkling can be provided by the SRA consultation paper, which has some interesting points to make:

Regulated persons should be able to determine from LASPO itself the arrangements which will be prohibited and the risks associated with entering into referral arrangements. The SRA does not intend to provide regulated persons with ‘pre-approval of business models. However, we accept that a lack of clarity is not helpful, either to the profession or to clients and the wider public who need to be able to have confidence in the profession and the way it is regulated. We have therefore, produced our own interpretation and analysis of the relevant provisions of LASPO and how these might affect various kinds of arrangements. (See Part 3 of this consultation)Ultimately, in an outcomes-focused regulatory landscape, it will be for practitioners themselves to ensure their own compliance with their legal and regulatory requirements and we expect firms to make their own decisions on whether their arrangements are compliant. LASPO specifically puts the burden of proof to evidence this on the individual firm. Our analysis of the Act is intended only to show practitioners how we will interpret the Act in complying with our obligations to monitor and enforce the relevant provisions of LASPO. We cannot advise on every possible scenario, and it is as much the way an arrangement is carried out in practice, as how it is described, that determines whether it is compliant with the legal and regulatory requirements.

 Which is a lengthy way of not saying very much and certainly not saying anything which might be construed as instructive guidance, setting out a series of “bright line rules” as to what will, and will not be considered lawful. In particular, as “outcomes focussed regulation” is the latest fad, it seems to positively drive the SRA into a position, where it refuses to provide definitive guidance, or bright-line rules, but rather will focus on the end result. Hence uncertainty enters the process.

The draft guidance contained in part three of the consultation paper states:

Our view is that where there is a referral of a matter to or by a regulated person, or an arrangement for another person to provide services, a payment will be prohibited to the extent that it is being paid for the referral or arrangement. Where a payment is for the provision of other services of for another reason, the payment or that part of the payment would not be in breach of section 56 of LASPO.

Example: a group of SRA regulated firms get together to advertise their services. They set up a separate not for profit company, which is wholly owned by the regulated firms/persons, to carry out the advertising under the flag “Midlands Law”. Enquiries are made to a call centre, details of potential clients are passed to member firms on a rota basis and each firm pays an equal share of the costs of advertising and operating the scheme.

This is unlikely to involve an unlawful referral fee. On the other hand, if the advertising/marketing was carried out by a commercial entity and the fees paid by the regulated firms depended on the number of clients referred rather than the cost of the advertising/marketing campaign, this would suggest that the payment was for the referral.

The draft guidance continues:

Example: A claims management company (CMC) advertises in local newspapers in its own name and has a panel of firms to which they refer cases. When a potential client contacts the CMC, the CMC takes brief details and asks a standard set of questions to ensure the claim is not time barred. The client is told that a solicitor will contact them within the next 24 hours. Firms pay a fixed fee in respect of each client referred. The CMC says that the payments are for advertising, operating the call centre and vetting potential claims.

A firm in this situation would need to show that the payments were genuinely for the services described. In this case the vetting would appear to be minimal and it is difficult to see how the payment for advertising could be genuine as it is being paid “per client”  rather than reflecting the actual cost of advertising. It is therefore likely that the payment would include a referral fee element.

The rise of the Alternative Business Structure

But perhaps it may not matter much. The government is being naïve if it believes, that all those actors who are currently in receipt of referral fees, such as BTE insurers, claims management companies and trade unions, are going to “pack up” and leave the table. Instead one can predict with a degree of certainty, that what will happen is that claims capture services will be combined with the provision of legal services, in one vehicle, in order to ensure the flow of funds continues.

Indeed this is already happening. The vehicle in question is the Alternative Business Structure, and there is no reason why claims management companies, or insurance companies, cannot engineer a takeover of a legal practice, or indeed simply form their own, in order to ensure that they continue to enjoy the fruits of litigation. Trade Unions may form an Alternative Business Structure with their panel firms, and whilst the solicitors own and run the ABS, enjoy the status of preference shareholders, receiving a steady dividend from the vehicle.

In this sense, the ban on referral fees will prove something of a fruitless victory for those who believe it will in turn reduce the cost of litigation. The real issue is whether the absolute level of costs of litigation itself are too high, not how those costs are divided up, between one actor or several. Indeed, it might be thought that the Legal Services Board, is more likely to be right on this topic, than the other regulators. Provided a paying party is only paying a reasonable level of costs what does it matter if solicitors, or barristers, for that matter, share their fees?  What can be confidently predicted, is that the ban on referral fees will act as a motor, driving forward the consolidation of the injury, into a smaller number of large players.

Conditional Fee Agreements and After the Event insurance

The most trumpeted change in the law relating to inter partes costs, in the reforms, is the reversal of the statutory policy embodied in the Access to Justice Act 1999, namely the recovery of additional liabilities, success fees and ATE premiums from the losing party to litigation. The key point to note is that for the most part the success fee will cease to be recoverable due to the amendment to section 58A of the Courts and Legal Services Act 1990:

(6) A costs order made in proceedings may not include provision requiring the payment by one party of all or part of a success fee payable by another party under a conditional fee agreement.

A similar provision applies to ATE premiums in section 58C:

(1) A costs order made in favour of a party to proceedings who has taken out a costs insurance policy may not include provision requiring the payment of an amount in respect of all or part of the premium of the policy, unless such provision is permitted by regulations under subsection (2).

The devil is in the detail however. Although recoverability inter partes has been abolished, success fees may still notionally be charged on a solicitor-own client basis. I say notionally, because I am far from convinced, that a solicitor or barrister will be able to charge a success fee. Bluntly there is too much competition, for work, and firms will engage in a “race to the bottom”, whereby the client instructs them on the basis he keeps 100% of his compensation. But there are certain requirements set out in the statute, in relation to how such a charge may be levied.

58.— Conditional fee agreements.

(1) A conditional fee agreement which satisfies all of the conditions applicable to it by virtue of this section shall not be unenforceable by reason only of its being a conditional fee agreement; but (subject to subsection (5)) any other conditional fee agreement shall be unenforceable.

(2) For the purposes of this section and section 58A—

(a) a conditional fee agreement is an agreement with a person providing advocacy or litigation services which provides for his fees and expenses, or any part of them, to be payable only in specified circumstances;

(b) a conditional fee agreement provides for a success fee if it provides for the amount of any fees to which it applies to be increased, in specified circumstances, above the amount which would be payable if it were not payable only in specified circumstances  ; and

(c) references to a success fee, in relation to a conditional fee agreement, are to the amount of the increase.

(3) The following conditions are applicable to every conditional fee agreement—

(a) it must be in writing;

(b) it must not relate to proceedings which cannot be the subject of an enforceable

conditional fee agreement; and

(c) it must comply with such requirements (if any) as may be prescribed by theLord Chancellor

(4) The following further conditions are applicable to a conditional fee agreement which provides for a success fee—

(a) it must relate to proceedings of a description specified by order made by the [ Lord Chancellor

(b) it must state the percentage by which the amount of the fees which would be payable if it were not a conditional fee agreement is to be increased; and

(c) that percentage must not exceed the percentage specified in relation to the description of proceedings to which the agreement relates by order made by the [ Lord Chancellor

 (4A) The additional conditions are applicable to a conditional fee agreement which—

(a) provides for a success fee, and

(b) relates to proceedings of a description specified by order made by the Lord Chancellor for the purposes of this subsection.

(4B) The additional conditions are that—

(a) the agreement must provide that the success fee is subject to a maximum limit,

(b) the maximum limit must be expressed as a percentage of the descriptions of damages awarded in the proceedings that are specified in the agreement,

(c) that percentage must not exceed the percentage specified by order made by the Lord Chancellor in relation to the proceedings or calculated in a manner so specified, and

(d) those descriptions of damages may only include descriptions of damages specified by order made by the Lord Chancellor in relation to the proceedings.If a conditional fee agreement is an agreement to which section 57 of the Solicitors Act 1974 non-contentious business agreements between solicitor and client) applies, subsection (1) shall not make it unenforceable.

The Conditional Fee Agreements Regulations 2013, prescribe how success fees may be charged on a solicitor-own client basis, and also how these are to be calculated:

Specified proceedings

4. A claim for personal injuries shall be proceedings specified for the purpose of section

58(4A)(b) of the Act.

Amount of success fee in specified proceedings

5.—(1) In relation to the proceedings specified in article 4, the percentage prescribed for the

purposes of section 58(4B)(c) of the Act is—

(a) in proceedings at first instance, 25%; and

(b) in all other proceedings, 100%.

(2) The descriptions of damages specified for the purposes of section 58(4B)(d) of the Act are—

(a) general damages for pain, suffering, and loss of amenity; and

(b) damages for pecuniary loss, other than future pecuniary loss,

net of any sums recoverable by the Compensation Recovery Unit of the Department for Work and Pensions.

This all seems rather strange. In essence, a solicitor can charge a success fee, but it must not exceed 25% of the damages recovered for pain and suffering and past pecuniary loss. Unless the case is won on appeal, in which case, the solicitor can charge 100% of the damages, which begs the question, why would the client bother to appeal? A more attractive option might be for a solicitor to simply enhance his hourly rates by 15%, not charge a success fee, and circumvent the statutory regime altogether.

It is also important to note how the transitional arrangements will apply:

6.—(1) Articles 4 and 5 do not apply to a conditional fee agreement which is entered into before the date upon which this Order comes into force if—

(a) the agreement was entered into specifically for the purposes of the provision to a person (“P”) of advocacy or litigation services in connection with the matter which is the subject of the proceedings; or

(b) advocacy or litigation services were provided to P under the agreement in connectionwith those proceedings before that date.

 (2) Articles 4 and 5 do not apply to any conditional fee agreement entered into in relation to—

(a) proceedings relating to a claim for damages in respect of diffuse mesothelioma;

It should be noted that for individual CFAs, recoverable success fees will apply, if the agreement is made before 1st April 2013, but for CCFAs, some work must actually be done before 1st April 2013, for a success fee to be recovered on all work, related to that particular case. This is an anti-avoidance provision to avoid recoverable success fees accruing for ever and a day, on a CCFA. The provision for mesothelioma claims preserves the ancien regime at least, until the Lord Chancellor revisits the position.

Damages Based Agreements

Damages based agreements are a species of contingency fee arrangement. I say a species, because they are not true contingency fee agreements, but a hybrid creature designed to preserve the costs shifting rule, whilst topping up the lawyer’s remuneration from a client’s compensation. Possibly. There is little benefit for a solicitor acting under such an arrangement in a PI case, and no benefit for his client. It also runs counter to the grain, that a client should keep 100% of his compensation.

The statutory authority in a new section 58AA of the Courts and Legal Services Act 1990 provides:

58AA Damages-based agreements

(1) A damages-based agreement which […] satisfies the conditions in subsection (4) is not unenforceable by reason only of its being a damages-based agreement.

(2) But [ (subject to subsection (9)) ] a damages-based agreement which […] does not satisfy those conditions is unenforceable.

(3) For the purposes of this section-

(a) a damages-based agreement is an agreement between a person providing advocacy services, litigation services or claims management services and the recipient of those services which provides that—

(i) the recipient is to make a payment to the person providing the services if the recipient obtains a specified financial benefit in connection with the matter in relation to which the services are provided, and

(ii) the amount of that payment is to be determined by reference to the amount of the financial benefit obtained

(4) The agreement—

(a) must be in writing;

(aa) must not relate to proceedings which by virtue of section 58A(1) and (2) cannot be the subject of an enforceable conditional fee agreement or to proceedings of a description prescribed by the Lord Chancellor;

(b) [ if regulations so provide,  must not provide for a payment above a prescribed amount or for a payment above an amount calculated in a prescribed manner;

(c) must comply with such other requirements as to its terms and conditions as are prescribed; and

(d) must be made only after the person providing services under the agreement [ hascomplied with such requirements (if any) as may be prescribed as to the provision of information

(5) Regulations under subsection (4) are to be made by the Lord Chancellor and may make different provision in relation to different descriptions of agreements.

(6) Before making regulations under subsection (4) the Lord Chancellor must consult—

(a) the designated judges,

(b) the General Council of the Bar,

(c) the Law Society, and

(d) such other bodies as the Lord Chancellor considers appropriate.

[ (6A) Rules of court may make provision with respect to the assessment of costs in proceedings where a party in whose favour a costs order is made has entered into a damages-based agreement in connection with the proceedings. ]

(7) In this section—

“payment”includes a transfer of assets and any other transfer of money’s worth (and the reference in subsection (4)(b) to a payment above a prescribed amount, or above an amount calculated in a prescribed manner, is to be construed accordingly);

“claims management services”has the same meaning as in Part 2 of the Compensation Act 2006 (see section 4(2) of that Act).

(7A) In this section (and in the definitions of “advocacy services” and “litigation services” as they apply for the purposes of this section)“proceedings”includes any sort of proceedings for resolving disputes (and not just proceedings in a court), whether commenced or contemplated.

(8) Nothing in this section applies to an agreement entered into before the coming into force of the first regulations made under subsection (4).

(9) Where section 57 of the Solicitors Act 1974 (non-contentious business agreements between solicitor and client) applies to a damages-based agreement other than one relating to an employment matter, subsections (1) and (2) of this section do not make it unenforceable.

The Damages Based Agreements Regulations 2013, revoking the 2010 Regulations, provide as follows. The key regulations are 3 and 4:

3. The requirements prescribed for the purposes of section 58AA(4)(c) of the Act are that the terms and conditions of a damages-based agreement must specify—

(a) the claim or proceedings or parts of them to which the agreement relates;

(b) the circumstances in which the representative’s payment, expenses and costs, or part of them, are payable; and

(c) the reason for setting the amount of the payment at the level agreed, which, in an employment matter, shall include having regard to, where appropriate, whether the claim or proceedings is one of several similar claims or proceedings.

4.—(1) In respect of any claim or proceedings, other than an employment matter, to which these Regulations apply, a damages-based agreement must not require an amount to be paid by the client other than—

(a) the payment, net of—

(i) any costs (including fixed costs under Part 45 of the Civil Procedure Rules 1998);

and

(ii) where relevant, any sum in respect of disbursements incurred by the representative in respect of counsel’s fees, that have been paid or are payable by another party to the proceedings by agreement or order; and

(b) any expenses incurred by the representative, net of any amount which has been paid or is payable by another party to the proceedings by agreement or order.

(2) In a claim for personal injuries—

(a) the only sums recovered by the client from which the payment shall be met are—

(i) general damages for pain, suffering and loss of amenity; and

(ii) damages for pecuniary loss other than future pecuniary loss,

net of any sums recoverable by the Compensation Recovery Unit of the Department for Work and Pensions; and (b) subject to paragraph (4), a damages-based agreement must not provide for a payment above an amount which, including VAT, is equal to 25% of the combined sums in paragraph (2)(a)(i) and (ii) which are ultimately recovered by the client.

(3) Subject to paragraph (4), in any other claim or proceedings to which this regulation applies, a damages-based agreement must not provide for a payment above an amount which, including VAT, is equal to 50% of the sums ultimately recovered by the client.

(4) The amounts prescribed in paragraphs (2)(b) and (3) shall only apply to claims or proceedings at first instance.

The Rules contemplated by the statute make it very clear that the indemnity principle still applies:

44.18.—(1) The fact that a party has entered into a damages-based agreement will not affect the making of any order for costs which otherwise would be made in favour of that party.

(2) Where costs are to be assessed in favour of a party who has entered into a damages-based agreement—

(a)    the party’s recoverable costs will be assessed in accordance with rule 44.3; and

(b)    the party may not recover by way of costs more than the total amount payable by that party under the damages-based agreement for legal services provided under that agreement.

The glaring problem that arises from these provisions, in relation to both CFAs and DBAs, is that it requires calculation of the cap on the success fee, or proportion of compensation recovered, on the whim of a third party when supplying information. Suppose an insurance company makes a part 36 offer which the claimant wants to accept. Such an offer will usually be expressed as a pragmatic, single figure eg £5000 plus your reasonable costs. How from that, can figures for general damages and past pecuniary loss, usefully be extracted ?

The remnants of recoverable ATE

In relation to ATE insurance premiums, it should be noted that whilst their recoverability, in respect of policies effected after 1st April 2013, has been abolished, for the most part they survive in relation to mesothelioma claims (a temporary reprieve) and in a truncated form for clinical negligence claims. The Recovery of Costs Insurance Premiums in Clinical Negligence Proceedings Regulations 2013, provides as follows:

2.—(1) Subject to paragraph (2), a costs order made in favour of a party to clinical negligence proceedings may include provision requiring the payment of an amount in respect of the relevant part of the premium of a costs insurance policy taken out by that party which insures against the risk of incurring liability to pay for one or more expert reports in connection with the proceedings (or against that risk and other risks).

(2) A costs order may not require the payment of an amount in respect of the relevant part of the premium which relates to the liability to pay for any expert report if—

(a) the report was not in the event obtained;

(b) the report did not relate to liability or causation; or

(c) the cost of the report is not allowed under the costs order.

Whether there will be a market for such premiums, remains to be seen. The big question is to what extent ATE insurance will continue to be effected in personal injury litigation proper. Will it have a role in insuring disbursements? Will it have a role, in insuring the preservation of damages against a defendant’s part 36 offer? Will solicitors firms start offering their clients indemnities, and in turn re-insuring those liabilities through a policy of insurance incepted by the solicitor’s firm?

The increase in general damages

There have been already, three significant decisions of the Court of Appeal, on aspects of the reforms: Henry on costs budgeting which will be discussed in due course, and the two attempts by the Court of Appeal to raise the level of general damages in personal injury claims. Both of the decisions in Simmons.v.Castle (No 1 and No 2) represent an unhappy foray by the Court of Appeal into questions of policy.

In the first decision, the Court of Appeal announced:

19. The only remaining question is precisely how the increase should be applied. We have concluded that it should apply to all cases where judgment is given after 1 April 2013. It seems to us that, while it can be said that this conclusion does not achieve perfect justice in every case, the same thing can be said about any other answer to the question, particularly in the light of a number of the forthcoming changes being made to the costs regime pursuant to Sir Rupert’s recommendations. Our conclusion has the great merits of (i) providing a simplicity and clarity, which are both so important in litigation, and (ii) according with the recommendation of Sir Rupert, which is consistent with much of the rationale of the 10% increase in general damages.

20. Accordingly, we take this opportunity to declare that, with effect from 1 April 2013, the proper level of general damages for (i) pain, suffering and loss of amenity in respect of personal injury, (ii) nuisance, (iii) defamation and (iv) all other torts which cause suffering, inconvenience or distress to individuals, will be 10% higher than previously.

The response by the ABI was swift. The decision of the Court of Appeal served to give many Claimants “double money”: recoverable success fees due to the antiquity of their CFAs and 10% by way of increase in general damages. The ABI challenge led to a volte face by the Court of Appeal in the second case:

50. In these circumstances, we would, as it were, delete para 19 from our earlier judgment, and replace para 20 with the following paragraph:

“Accordingly, we take this opportunity to declare that, with effect from 1 April 2013, the proper level of general damages in all civil claims for (i) pain and suffering, (ii) loss of amenity, (iii) physical inconvenience and discomfort, (iv) social discredit, or (v) mental distress, will be 10% higher than previously, unless the claimant falls within section 44(6) of LASPO. It therefore follows that, if the action now under appeal had been the subject of a judgment after 1 April 2013, then (unless the claimant had entered into a CFA before that date) the proper award of general damages would be 10% higher than that agreed in this case, namely £22,000 rather than £20,000”.

It seems remarkable, that things could go so badly wrong, with the first of the key reforms. However, given the fondness for a system of “running repairs” which constitutes the prescribed methodology of the Rules Committee perhaps one should not be too surprised. After all, when the Woolf reforms were introduced, the rules were only half written. Chunks of the old CCR and RSC subsisted for years afterwards, even on such important matters as contempt of court proceedings.

THE PRACTISE OF LITIGATION

The Jackson Reforms will introduce three main changes to the practice of litigation.  Firstly, the introduction of costs management (also known as costs budgeting) on the multi-track will see the fusion of costs and case management as first envisaged by Lord Woolf.  Secondly, reforms to Part 36 will provide stronger incentives to settle through the introduction of p penalties where offers are beaten at trial.  Finally, the new/old phenomenon of Qualified One-Way Costs Shifting could revolutionise the way in which parties on both sides approach personal injury litigation.

Costs Budgeting

The very first change to the Civil Procedure Rules will be an amendment to the oft cited overriding objective.  Whereas the current rules include proportionality and saving expense merely as part of the requirement of dealing with cases justly, the amended rules redefine the overriding objective to mean dealing with cases “justly and at proportionate expense”. Costs, it would seem, are now as important in the eyes of the judiciary, as ensuring a fair outcome to the litigation.

The rephrasing of the overriding objective is accompanied by a remodelling of Part 3, which is now described as setting out the case and costs management powers of the court.  The two issues will therefore be intertwined from the very outset of the litigation.

Central to the fusion of costs and case management is the introduction of costs budgeting, which will apply to cases issued on or after 1st April 2013. The new rules are designed to build upon the ‘Defamation’ and ‘Technology and Construction Court’ costs budgeting pilots that began on 1st October 2011, and are now due to run until 31st March 2013. The new regime is therefore one element of the coming reforms of which parties may have some practical experience.

Scope and Requirements

The scope of costs budgeting is set out by rule 3.12, which states as follows:

“… This Section and Practice Direction 3E apply to all multi-track cases commenced on or after 1st April 2013 in:

(a)  A County Court; or

(b)  The Chancery Division or Queens Bench Division of the High Court (except the Admiralty and Commercial Court),

unless the proceedings are the subject of fixed costs or scale costs or the court otherwise orders. This Section and Practice Direction 3E shall apply to any other proceedings (including applications) where the court so orders.”

Costs budgeting will therefore apply to virtually all multi-track work, and certainly to all multi-track personal injury cases issued on or after the 1st April 2013.  Although the court has the power to exempt proceedings from the costs budgeting regime, one imagines that this power will very rarely be exercised.

The purpose of costs budgeting is set out within rule 3.12(2) as being management of the steps to be taken and the costs to be incurred by the parties are so as to further the overriding objective. Cost budgeting is not simply about controlling the quantum of recoverable costs; it aims to limit expenditure on both sides, particularly in those cases where there would otherwise be an inequality of arms.

The central requirements of the new regime are straightforward. The new rule 26.3(1) introduces a system of a provisional allocation and directions.  Following the filing of a defence, a court officer serve a notice on the parties telling them which track appears to be most suitable for the claim.  The notice will also contain a list of steps to be taken by the parties (such as the filing of proposed directions) and the date or dates by which those steps need to be taken.

Under the new rule 3.13, all parties (with the exception of litigants in person) must file and exchange costs budgets as required by the rules or as the court otherwise directs. If a date for filing a costs budget is provided in the notice of provisional allocation under rule 26.3(1) then the budget must be filed by that date. If, however, the notice of provisional allocation does not provide a date, the costs budget must be filed 7 days before the first case management conference.  The court can exempt parties from the requirement to file and exchange budgets but again this power is unlikely to be exercised.

A powerful sanction for non-compliance is imposed by rule of 3.14, which states that any party who fails to file a budget despite being required to do so will be treated as having filed a budget comprising only the applicable court fees. Rule 3.14 does allow the court to grant relief from this sanction, but it remains to be seen how forgiving the court will be in the early days of the new regime.

Following the exchange of budgets it is hoped that they will be discussed by the parties with the aim of reaching an agreement on the necessary and proportionate costs to be expended on either side.  This should include (if necessary) the preparation of revised budgets addressing the concerns expressed during negotiations.  In an ideal world, costs budgeting will be no more complicated than this with budgets being prepared and agreed at the outset.

As well as compelling parties to file accurate and up-to-date costs budgets, new costs management powers are given to the court by rule 3.15.  As per the new rule 3.15:

(1)     In addition to exercising its other powers, the Court may manage the costs to be incurred by any party in the proceedings. 

(2)       The Court may at any time make a ‘costs management order’.  By such order the court will:

(a)            record the extent to which the budgets were agreed between the parties; and

(b)            in respect of budgets or parts of budgets which are not agreed, record the court’s approval after making appropriate revisions. 

(3)       If a costs management order has been made, the court will thereafter control the parties’ budgets in respect of recoverable costs.

This provision is of course a reversal to the way in which cases are currently managed where (with the exception of the lip service paid to proportionality by the current overriding objective) costs and conduct are only really considered at the conclusion of proceedings. From 1st April 2013, the costs management order will allow the court to proactively control the level of costs that will eventually be recoverable on an inter-parties basis.

Controlling the recoverable costs could have a significant effect upon the way in which parties (in particular those paying their lawyers on a conditional fee agreement basis) will conduct litigation. Parties are unlikely to incur unnecessary costs, such as further disbursements, if they know that these will not ultimately be recoverable.

Unfortunately, the new rules do not contain any real guidance as to the frequency and circumstances in which a costs management order will be made (n.b. rule 3.15(2) simply gives the court the power to make the order).  In the 16th Lecture in the Jackson Implantation Program, Ramsey J. suggested that costs management orders would be made in virtually all multi-track cases.  One wonders though whether the court will have the time (and District Judges the interest) to make costs management orders in the vast majority of cases.  Given the increasing demands on judicial time, one suspects that many cases will slip through the net. If a party has a particular concern about the costs being racked up by their opponent, they will need to take a proactive approach and to seek a costs management order from the court.

Following on from the creation of a new type of case management order, rule 3.16 creates the costs management conference, a species of CMC where the only matter dealt with is the management of costs. The draft rules provide the example of such a hearing being convened to approve a revised budget. Rule 3.16(2) states that where practicable, costs management conferences should be conducted by telephone or in writing. It is clearly hoped that the process of costs management will not take up an undue amount of judicial time, and will not necessitate lengthy contested hearings before the court.

In order to prevent costs management becoming a contentious part of the litigation, the new Practice Direction 3E severely limits the costs of costs budgeting. Save in exceptional circumstances, the recoverable costs of completing the initial costs budgeting form (known as Precedent H) will be limited to the higher of 1% of the approved budget or £1,000.  All other recoverable costs of the budgeting and costs management process (i.e. completing revised cost budgets and/or attending costs management conferences) will be limited to 2% of the approved budget.  Engaging in substantial dispute about costs budgeting will only be worthwhile in particularly high value cases, or in those cases where it is hoped that the budgeting process can be used as a mean for tying one’s opponents hands.

The new Practice Direction also gives some useful guidance as to the approach that will be adopted by the court when conducting the process of costs budgeting. It is important to stress that costs budgeting is not the court conducting a detailed assessment in advance.  Instead, the court will look at the proposed costs for each phase of the proceedings and will decide whether the budgeted figures fall within the range of reasonable and proportionate costs. This type of broad-brush assessment will hopefully iron out any differences in judicial approach.

The new regime does not, however, give the court the power to retrospectively assessed costs. So far as pre-action costs are concerned (these are the first column to be completed on the Precedent H form) the court is only able to make observations.  Such observations are likely to be an incredibly powerful tool during any detailed assessment or cost negotiations that they follow the conclusion of the case.

 

The Effect of Budgeting Costs

The costs budgeting regime will be given teeth by rule 3.18, which states as follows:

“In any case where a Costs Management order has been made, when assessing costs on the standard basis, the court will:

(a)   have regard to the receiving party’s last approved or agreed budget for each phase of the proceedings; and

(b)   not depart from such approved or agreed budget and less satisfied that there is good reason to do so. (emphasis added)

It therefore follows that, subject to the good reason criterion, a costs management order will act as an effective costs cap.  Failing an application for relief, it will be determinative of the maximum level of recoverable costs. The regime that will also have teeth (albeit to a lesser extent) in cases where no costs management order has been made with the proposed introduction of a new Section 6 to the Costs Practice Direction. The proposed section includes a provision that any party seeking to recover more than 20% above its budgeted costs will have to file a statement explaining the difference between its budget and the figure of costs eventually sought. More importantly, in cases where the budget of the receiving party has been exceeded by more than 20%, and where the paying party is able to prove that it had a reasonably relied upon that budget (i.e. that it had tailored its approach to the case accordingly) the court will be able to limit the recoverable costs to such figure as it considers reasonable in light of that reliance. This power exists even if the costs incurred are both reasonable and proportionate in amount.

In either case, the court can look at the costs budgets filed when it is considering whether costs were reasonably and proportionately incurred.  Expect a possibly keener focus that under the current rules where costs estimates are regularly ignored.

As straightforward as they may seem, these two provisions both pose potential problems. It is unclear, for example, how easy it will be to establish reliance on a budget and how swingeing the court will be prepared to be in assessing the receiving party’s bill when such reliance has been made out.  More importantly, there are likely to be real difficulties (and consequently significant satellite litigation) when applying the ‘good reason’ test that allows a party to recover more than the budgeted costs following a costs management order.

On this last point some useful guidance may be gained from the operation of the two pilot schemes, and in particular from the recent decision of the Court of Appeal in the case of Henry v News Group Newspapers Limited [2013] EWCA Civ 19.

The facts of Henry v News Group Newspapers will be familiar to many of those reading these notes. Sylvia Henry was employed by Haringey Council during the mistreatment and subsequent death of Baby Peter. In its usual understated way, The Sun decided that it would blame Ms Henry for the whole affair. The Sun also accused Ms Henry of giving misleading evidence to the earlier ‘Laming Inquiry’ following the earlier death of Victoria Climbié, and hosted an online petition calling for Ms Henry to lose her job.  The Sun adopted a similar approach to the subsequent defamation litigation, repeatedly moving the goalposts and running allegations of justification and fair comment before settling for a substantial sum of damages shortly before trial.

The claim bought by Ms Henry fell under the Defamation Costs Budgeting Pilot.  Budgets had been exchanged and agreed by the parties early on in the litigation, but had then seemingly been forgotten about (certainly on Ms Henry’s side).  Despite having budgeted £11,250 for the process of disclosure, Ms Henry subsequently claimed £87,556 and increase of some £76,306.  Even more astonishingly, against a budget for the preparation of witness statements of £12,487 a figure of £228,891 was eventually claimed; a difference of some £216,404.

At first instance, Master Hurst decided on the preliminary issue of ‘good reason’ against Ms Henry.  In his view, it was of central importance that Ms Henry’s solicitors had not followed the requirements of the Defamation Costs Budgeting Pilot. By not following the pilot, News Group Newspapers had been kept in the dark as to the fact and extent to which the budgeted costs had been exceeded.  This potentially created a significant inequality of arms.  Master Hurst took the view that, notwithstanding that the costs claimed had been reasonably and proportionately incurred such that they would have ordinarily been allowed on a detailed assessment, the requirement of a ‘good reason’ was not made out.

On appeal, the Court of Appeal took a different view, finding that Master Hurst had placed too firm an emphasis on Ms Henry’s compliance with the regime. The Court of Appeal also found that there was no real basis to suggest that News Group Newspapers had been denied equality of arms or had otherwise been handicapped in their conduct of the litigation. It was stressed that the exercise of costs budgeting was neither as firm nor as inflexible as the process of costs capping. Costs management orders set a prima facie rather than definitive cap on the maximum recoverable costs.

The leading judgment was given by Lord Justice Moore-Bick.  At paragraph 25,  he stated that:

“In the rather unusual circumstances of this case the preliminary issue should in my view be answered in the affirmative [i.e. in favour of the receiving party] for several inter-related reasons. First, because unless the court depart from the budget the appellant would not be able to recover the cost of the action. That alone would not be enough; if it were the scheme would be otiose, but it is an important factor to the extent that on examination the court is persuaded that the costs actually incurred were reasonable and, most importantly, proportionate to what was at stake in the litigation. Allied to that is the fact that the failure of the appellant’s solicitors to observe the requirements of the practice direction did not put the respondent at a significant disadvantage in terms of its ability to defend the claim, nor does it seem likely that it led to the incurring of costs that were unreasonable or disproportionately in amount. In other words, the words which the practice direction sought to achieve were not undermined. In those circumstances a refusal to depart from the budget simply because the appellant had not complied with the practice direction would achieve nothing beyond penalising her… Then there is the fact that the appellant solicitors were not alone in failing to comply with the requirements of the practice direction. The respondent’s solicitors also exceeded their budget (admittedly not to so large extent) and the court itself was less active than it should have been in monitoring the parties’ expenditure when the matter came before it on the procedural applications in April 2011.  The failure of the respondent solicitors to register any protest when they were finally informed of the amount of costs incurred by the appellant suggest me some recognition of the extent to which the development of the litigation had affected the appellant’s preparation.”

The decision of the Court of Appeal has attracted some stinging criticism from advocates of the costs budgeting regime. It might be thought that this decision (and in particular the focus placed by the Court of Appeal on the fact that the costs were reasonably and proportionately incurred) has neutered the effectiveness of the new rules before they even come into force.

But having found for the receiving party on the appeal, he went on at paragraphs 27 and 28 to address the coming costs budgeting regime. In particular, he stated at paragraph 28 that:

“… Those Rules [i.e. the rules setting out the new regime] which will become effective from 1st April 2013, differ in some important respects from the practice direction with which this appeal is concerned. In particular, they impose greater responsibility on the court for the management of the cost of proceedings and greater responsibility on the parties for keeping budgets under review as the proceedings progress. Read as a whole they lay greater emphasis on the importance of the approved or agreed budget as providing a prima facie limit on the amount of recoverable costs. In those circumstances, although the court will still have the power to depart from the approved or agreed budget if it is satisfied that there is good reason to do so, and may for that purpose take into consideration all the circumstances of the case, I should expected it to place particular emphasis on the function of the budget as imposing a limit on recoverable costs. The primary function of the budget is to ensure that the costs incurred are not only reasonable but proportionate to what is at stake in the proceedings. If, as is the intention of the rule, budgets are approved by the court and revised regular intervals, the receiving party is unlikely to persuade the court the costs incurred in excess of the budget are reasonable and proportionate to what is at stake.”

In essence, that Lord Justice Moore-Bick was saying that the court and the parties in Henry v News Group Newspapers had got the regime wrong.  They had reached a situation where the budgeted costs had not kept up with the litigation. If the new regime operates properly then budgets will be updated in order to reflect complications and bumps along the road. Assuming this takes place, and assuming that both litigants and the court keep budgets under proper review, it should be difficult to argue that anything in excess of the budgeted costs is reasonable and proportionate.

Whether the Costs Budgeting regime works in the manner envisaged by Lord Justice Moore-Bick remains to be seen.

Part 36

One of the most astute observations made by Lord Justice Jackson within his initial report was that a well judged at Part 36 offer could act as effectively to prevent as to facilitate the settlement of proceedings.  This is a situation with which those reading these notes are likely to be familiar.  In addition, Lord Justice Jackson felt that the existing regime did not do enough to encourage settlement, in particular by encouraging defendants to accept claimant offers. A defendant who unreasonably defended a case to trial would be met by a fairly nominal punishment of enhanced interest.

The two concerns have given rise to a small (within the context of Part 36 as a whole) but significant amendment to rule 36.14(3).  This amendment introduces a punitive award of either damages or costs where a claimant obtains a judgment that is at least as advantageous to it as the proposals contained in its own Part 36 offer.

Under the current rules, a claimant who obtains judgment at least as advantageous as its own Part 36 is, unless the court orders otherwise, entitled to:

“(a) interest on the whole or part of any sum of money (excluding interest) awarded at a rate not exceeding 10% above base rate for some or all of the period starting with the date on which the relevant period expired;

(b) his costs on the indemnity basis  from the date on which the relevant period expired; and

(c) interest on those costs at a rate not exceeding 10% above base rate.”

Under the new rules those three penalties remain, and the claimant will also be entitled to “an additional amount” of up to £75,000 calculated by reference (in a monetary claim) to the judgment sum awarded to the claimant by the court or (in a non-monetary claim) to the sum of costs awarded to the claimant by the court.  As per rule 36.14(3)(d), the additional sum is to be calculated as 10% of any figure up to £500,000 and 5% of anything awarded above £500.000.

By way of example, a claimant seeks damages following their involvement in a road traffic accident in early 2013. Early in the proceedings they make an offer of £10,000. That offer is rejected by the defendant and the claimant goes on to recover £20,000 at trial. Under the new rules the claimant would receive (i) the damages of £20,000; (ii) interest on those damages at up to 10% above base rate; (iii) their costs on an indemnity basis; (iv) interest on those costs at up to 10% above base rate; and (v) an additional £2,000.

Under the transitional provisions contained within the draft Statutory Instrument, the amended Part 36 regime will not apply to the claimant Part 36 offers which were made before 1st April 2013. It is implicit, however, that the amended regime will apply to any offer made after that date, irrespective of when the substantive proceedings commenced.  There are therefore likely to be a raft of claimant Part 36 offers the following 1st April 2013.

Just as importantly, the new rule 47.20(4) means that Part 36 now applies to detailed assessment proceedings. The regime operates in exactly the same way for costs only proceedings as it does for substantive proceedings.  The only changes a number of technical amendments such as substituting the terms claimant and defendant for receiving party and paying party respectively.

Fortunately for paying parties, slightly different transitional provisions apply to introduction of Part 36 offers to detailed assessment proceedings. Although the amended Part 36 applies for any offer is made after 1st April 2013, rule 47.20(4) (i.e. the rule that introduces Part 36 to costs only proceedings) only applies to detailed assessment proceedings comments after 1st April 2013.  As per Section 22 of the draft Statutory Instrument, the existing rules 47.18 and 47.19 will still apply to any detailed assessment proceedings commenced before 1st April 2013.

One assumes that the slightly different transitional provisions are likely to have a significant effect on those considering commencing detailed assessment proceedings in the coming weeks. Given that the combined effect of rules 47.20(4) and 36.14(3)(d) will potentially allow a 10% bonus on top of the assessed or agreed costs, it makes little sense to commence detailed assessment proceedings until after the new rules have come into force. Those potentially facing detailed assessment proceedings would be well advised to make their best offer as soon as possible.

Qualified One Way Costs Shifting

When legal aid for personal injury claims was finally abolished, it was decided that defendants that would pay the costs of the whole personal injury industry. Those costs were of course increased through the introduction of recoverable after the event insurance (ATE) premiums. When a defendant loses a case and pays the claimant’s ATE premium, they are paying for cases that they are yet to win as well as contributing towards a profit for the ATE industry.

As per the above, recoverable ATE premiums will largely be a things of the past following 1st April 2013.  In their place, claimants will be protected from the effect of adverse costs orders by the regime of qualified one way costs shifting.

The Scope of QOWCS

The scope of qualified one way cost shifting is set out by rule 44.13.  As per rule 44.13(1):

“This section applies to proceedings which include a claim for damages:

a.           For personal injuries;

b.           Under the Fatal Accidents Act 1976; or

c.            Which arises out of death or personal injury and survives for the benefit of an estate by virtue of section 1(1) of the Law Reform (Miscellaneous Provisions) Act 1934.” (Emphasis added)

Rule 44.13(1) goes on to state that QOWCS will not apply to applications under section 33 of the Senior Courts Act 1983 or section 52 of the County Courts Act 1984; i.e. applications for pre-action disclosure. QOWCS similarly does not apply where the claimant has entered into a pre-commencement funding arrangement.

QOWCS is of course only available to claimants.  The term claimant is defined by rule 44.13(2) as meaning a person or an estate bringing a claim to which Section II of Part 44 (Qualified One-Way Costs Shifting) applies.  This is expressly stated to include a person making a counterclaim or an additional claim. It is therefore possible to have proceedings in which both parties will have the benefit of qualified one way cost shifting.

The effect of qualified one way cost shifting is set out by rule 44.14(1).  Under QOWCS, costs orders may only be enforced without the permission of the court to the extent that the aggregate amount of money contained within those costs orders does not exceed the aggregate amount of money in terms of damages and interest awarded to the claimant. In simple terms, a defendant can only enforce his costs to the extent that he is able to offset them against the damages he owes to the claimant.

Two features of rule 41.14(1) must be emphasised. Firstly, QOWCS only applies to the enforcement of costs. There is nothing within Section II of Part 44 that prevents the court from making a costs order against a claimant; the restriction is on the defendant taking steps to enforce payment of those monies. Secondly, in order to enforce without the permission of the court, the key measure is the aggregate amount of damages and interest awarded to the claimant. An award of costs in favour of a claimant does not count.

Further restrictions on enforcement are provided by rule 44.14(2), which states that a costs order against the claimant may only be enforced after proceedings have been concluded and after the costs have been assessed or agreed. This provision will therefore prevent defendants from obtaining an interim order for costs and then using it as a lever with which to apply pressure on a claimant. As per the above, the defendant will only be able to seek his money after it has been established that he owes the claimant an equal or greater amount by way of damages.

In order to sway any fears that unenforceable costs orders may affect a claimant’s credit rating (or alternatively to prevent the defendants from enforcing the payment of costs via the back door) rule 44.14(3) provides that an order for costs that is wholly or partly unenforceable shall not be treated as an unsatisfied or outstanding judgment for the purposes of the court record.

 

Exceptions to QOWCS

As per rule 44.15 there are three (and only three) automatic exceptions to the qualified one way cost shifting regime.  These exceptions mean that awards of costs can be enforced without the permission of the court even where there is no judgment for damages in favour of the claimant. The exceptions are in cases where the proceedings have been struck out  on the grounds that:

  • The claimant has disclosed no reasonable grounds for bringing the proceedings;
  • The proceedings are an abuse of the court’s process; or
  • The conduct of (i) the claimant; or (iii) a person acting on the claimant’s behalf with the claimant’s knowledge of such conduct, is likely to obstruct be just disposal of the proceedings.

It is important to note the fundamental requirement that the case has been struck out as opposed to summary judgment being entered on behalf of the defendant. This distinction is particularly important in cases where a defendant seeks to defeat proceedings on the basis that it did not owe the claimant a duty of care or in circumstances where it says that the claimant has simply got the law wrong. Whereas one often sees applications for strike out and summary judgment lumped together, the strict distinction between the two will now be hugely important. By awarding summary judgment in favour of the defendant as opposed to striking out the claimant’s case judges will be able to protect claimants from adverse costs orders. Just as there are only three automatic exceptions to the QOWCS regime, there are similarly only three broad circumstances in which the court can give permission for costs orders to be enforced. All three of these circumstances are prescribed by rule 44.16.

Firstly, as per rule 44.16(1) the court may allow an order of costs against the claimant to be enforced to the full extent of such an order where the claim is found, on the balance of probabilities, to be “fundamentally dishonest”. It will be noted that this is a considerable tightening of the position initially suggested by Lord Justice Jackson. To be granted permission, it must be established that the claim itself was based on a fraud.

There is likely to be significant litigation this issue as (at least until authoritative guidance is provided by the Costs Practice Direction) it is unclear what would make a claim fundamentally dishonest.  Does the dishonesty need to taint the claimant’s cause of action, or is it sufficient that certain heads of damage (i.e. claims within the proceedings) are fraudulent?  Is there a point at which flagrant exaggeration of a claimant’s losses taint or corrupt the entire claim?

Secondly, as per rule 44.16(2),  the court may give permission for costs orders to be enforced either to the full extent of such orders or to the extent that it considers just where:

The proceedings include a claim which is made for the financial benefit of a person other than the claimant or dependent within the meaning of section 1(3) of the Fatal Accidents Act 1976 (other than the claim in respect of the gratuitous provision of care, earnings paid by the employer or medical expenses); or

A claim is made for the benefit of the claimant other than a claim to which Section II of Part 44 applies (i.e. a non-PI claim). 

Both of these scenarios are relatively straightforward. The former covers circumstances where the claimant is simply being used as a figurehead or conduit via which another individual is seeking to make a claim from the defendant. The most obvious example of this would be in circumstances where an insurer seeks, through the claimant, to recover those subrogated losses.  The latter covers situations where a claimant brings a claim for personal injuries and also a claim for unrelated losses. The most obvious example of this would be a road traffic accident where the claimant sought to recover repair costs or hire charges in addition to general damages.

In both scenarios it is easy to foresee a significant amount of satellite litigation. Following the abolition of recoverable ATE premiums, some claimants will no doubt attach a token personal injury claim to their proceedings in an attempt to gain the protection afforded by qualified one way cost shifting.  In cases where a personal injury claim has been legitimately advanced, there are likely to be arguments about the extent (if at all) the non-PI elements of the claim have increased the defendant’s costs. Both of these issues are likely to raise their heads in the realm of credit hire litigation.

The third and final situation in which the court can give permission for a defendant to enforce payment of their costs is in relation to non-party costs orders.  This applies in cases where a claim is made for the benefit of an individual other than the claimant and where the court wishes to make a costs order against that individual.  Rule 44.16(3) does, however, make clear that the existing rules for making a non-party costs order (i.e. rule 46.2) continue to apply. This means that the non-party will still need to be added to proceedings, and will still need to be given the opportunity to be heard before the court.

Transitional Provisions

The transitional provisions attached to qualified one way cost shifting are contained within rule 44.17.   The QOWCS regime does not apply to cases where the claimant has entered into a pre-commencement funding arrangement within the meaning of the new Part 48.2. In simple terms this means a conditional fee agreement, an ATE policy or member organisation (i.e. trade union) funding arrangement entered into before 1st April 2013.

The term or cannot be overemphasised because a claimant only needs to have entered into a single pre-commencement funding arrangement to be deprived of QOWCS protection.  A claimant who funds their claim through a pre 1st April 2013 CFA, but who did not take out ATE cover prior to 1st April 2013, will not have QOWCS protection.

THE ASSESSMENT OF COSTS

Fixed costs

As an early Christmas present, the Ministry of Justice published at the end of last year, a consultation on reducing the levels of fees paid in relation to claims brought utilising the Ministry of Justice Portal scheme. The consultation also proposed to bring in fixed costs, for Fast Track cases. Although no date, has been set for the implementation of these changes, they will complete the process started by Lord Woolf in his 1996 report, who saw the Fast Track, as being a wholly fixed costs regime. The implementation of these changes will be sweeping in terms of the profitability of their caseloads for many firms.

If implemented, this will mark a dramatic drop in the current levels of remuneration. The reality of the matter is that the changes are all running one way, and are designed to squeeze the level of costs paid out in modest personal injury claims. At the time of writing APIL/MASS have just lost the judicial review that attempted to quash the decision on Portal fees. It remains to be seen whether they will pursue the matter to the Court of Appeal, although Elias LJ has granted leave.

The Fast Track costs are proposed to be banded according to type and value of the claim and the stage in the litigation process when it settles. It should be noted that these costs will apply to virtually all modest personal injury claims, and that per the draft employers liability protocol, it seems that an “employers liability” case will now include that area of practice formerly considered to be separately labelled as “industrial disease”, save for where certain limited exceptions apply.

Proportionality

And now I turn to proportionality. It seems ironic to say the least, that although the whole raison d’etre of the Jackson Review, was to identify whether litigation costs were disproportionate and if so, to devise ways they may be made proportionate, that very little interest was taken in defining what proportionality meant, and setting that at the heart of any reforms. Instead the emphasis has been on numerous, detailed reforms, including many badly drafted rules and provisions, which are going to create much uncertainty in practice. In fact, there is a bitter irony, in that the new test of proportionality, is perhaps the worst offender in this bracket.

There is a new test of proportionality, embodied in the Rules.

44.3.—(1) Where the court is to assess the amount of costs (whether by summary or detailed assessment) it will assess those costs—

(a)    on the standard basis; or

(b)    on the indemnity basis,

but the court will not in either case allow costs which have been unreasonably incurred or are unreasonable in amount.

(Rule 44.5 sets out how the court decides the amount of costs payable under a contract.)

(2) Where the amount of costs is to be assessed on the standard basis, the court will—

(a)    only allow costs which are proportionate to the matters in issue. Costs which are disproportionate in amount may be disallowed or reduced even if they were reasonably or necessarily incurred; and

(b)    resolve any doubt which it may have as to whether costs were reasonably and proportionately incurred or were reasonable and proportionate in amount in favour of the paying party.

(Factors which the court may take into account are set out in rule 44.4.)

(3) Where the amount of costs is to be assessed on the indemnity basis, the court will resolve any doubt which it may have as to whether costs were reasonably incurred or were reasonable in amount in favour of the receiving party.

(4) Where—

(a)    the court makes an order about costs without indicating the basis on which the costs are to be assessed; or

(b)    the court makes an order for costs to be assessed on a basis other than the standard basis or the indemnity basis,

the costs will be assessed on the standard basis.

(5) Costs incurred are proportionate if they bear a reasonable relationship to—

(a)    the sums in issue in the proceedings;

(b)    the value of any non-monetary relief in issue in the proceedings;

(c)    the complexity of the litigation;

(d)    any additional work generated by the conduct of the paying party; and

(e)    any wider factors involved in the proceedings, such as reputation or public importance.

(6) Where the amount of a solicitor’s remuneration in respect of non-contentious business is regulated by any general orders made under the Solicitors Act 1974([11]), the amount of the costs to be allowed in respect of any such business which falls to be assessed by the court will be decided in accordance with those general orders rather than this rule and rule 44.4.

(7) Paragraphs (2)(a) and (5) do not apply in relation to cases commenced before 1 April 2013 and in relation to such cases, rule 44.4(2)(a) as it was in force immediately before 1 April 2013 will apply instead.

Consider what this provision means. Costs may be reasonably incurred. Costs may even be necessarily incurred. But if they do bear a “reasonable relationship” to the matters in issue, they may be disallowed. This seems to focus the direction of the court, to looking at what stood to be gained from the proceedings, set against what costs have been incurred. If in a given case, say £20,000 of damages are recovered, but costs, after a thorough detailed assessment are reasonably and necessarily assessed at £130,000, the costs judge will have a discretion to (i) find there is no “reasonable relationship” between those amounts and (ii) to reduce the £130,000 further. But how does he gauge what is a reasonable relationship? And how by how much would he reduce it if he concludes that the relationship was “unreasonable”.

The difficulty, can of course, be evaded entirely, by the appropriate use of a part 36 offer, which if not beaten at trial, allows the claimant to recover costs on the indemnity basis. But very few cases go to trial. And most assessments are going to be standard basis assessments.

When considering the quantum of costs, the key provision has been updated. The “Seven Pillars of Wisdom” have now been awarded an additional support:

44.4.—(1) The court will have regard to all the circumstances in deciding whether costs were—

(a)    if it is assessing costs on the standard basis—

                              (i)   proportionately and reasonably incurred; or

                             (ii)   proportionate and reasonable in amount, or

(b)    if it is assessing costs on the indemnity basis—

                              (i)   unreasonably incurred; or

                             (ii)   unreasonable in amount.

(2) In particular, the court will give effect to any orders which have already been made.

(3) The court will also have regard to—

(a)    the conduct of all the parties, including in particular—

                              (i)   conduct before, as well as during, the proceedings; and

                             (ii)   the efforts made, if any, before and during the proceedings in order to try to resolve the dispute;

(b)    the amount or value of any money or property involved;

(c)    the importance of the matter to all the parties;

(d)    the particular complexity of the matter or the difficulty or novelty of the questions raised;

(e)    the skill, effort, specialised knowledge and responsibility involved;

(f)    the time spent on the case;

(g)    the place where and the circumstances in which work or any part of it was done; and

(h)    the receiving party’s last approved or agreed budget.

Provisional assessment

Many of you will be aware that for quite a while now (since 2010) the county courts in Leeds, York and Scarborough have introduced a pilot scheme for provisional assessment of costs. The detail is set out in Practice Direction 51E, which provides for a paper based assessment of bills up to £25,000 with a right to an oral hearing: but unless the provisional assessment is varied by 20%, the party requesting the oral hearing pays the costs of it.

In the Eighth Implementation lecture Lord Justice Jackson noted this:

4.6 Benefits of provisional assessment. The principal benefits of provisional assessment appear to be the following:

(i) The process is quick and simple. It thus enables many parties, who would normally be put off by the expensive and convoluted process of detailed assessment, to obtain a judicial assessment of bills. Thus the process addresses one major complaint about costs which was repeatedly pressed upon me during the costs review.

(ii) The figures which are assessed or agreed following provisional assessment are likely to be fairer than settlements negotiated in circumstances where neither party can face going through the process of normal detailed assessment.

(iii) The process is far cheaper for the parties than traditional detailed assessment, because (save in rare cases) they avoid the costs of preparing for and attending a hearing. Indeed, unlike traditional detailed assessment, it is cost effective. DJs Hill and Bedford estimate that the savings for the parties are at least £4,000 per case. This is because the case usually ends after the PA and thus the parties avoid a half day or one day hearing.

4.7 Benefits of the pilot. There have been two main benefits of the pilot. First, it has enabled an objective assessment of the process to be made. Secondly, it has been possible to try out some detailed rules and to identify shortcomings or areas where the rules can be improved. These matters will be addressed in the drafts which I shall present to the Rule Committee.

4.8 Next steps. The Senior Costs Judge, DJ Bedford, DJ Hill and I have now prepared draft rule and practice direction amendments with a view to introducing provisional assessment on a national basis as from the general implementation date. I shall present these to the Rule Committee for consideration at its meeting on 3rd February. I hope that the Rule Committee will accept this proposal either then or at some time in the future.

Provisional assessment has been embraced with a vengeance. All bills, less than £75,000 are now to be assessed provisionally. The Rules provide as follows:

47.15.—(1) This rule applies to any detailed assessment proceedings commenced in the High Court or a county court on or after 1 April 2013 in which the costs claimed are the amount set out in paragraph 14.1 of the practice direction supplementing this Part, or less.

(2) In proceedings to which this rule applies, the parties must comply with the procedure set out in Part 47 as modified by paragraph 14 Practice Direction 47.

(3) The court will undertake a provisional assessment of the receiving party’s costs on receipt of Form N258 and the relevant supporting documents specified in Practice Direction 47.

(4) The provisional assessment will be based on the information contained in the bill and supporting papers and the contentions set out in Precedent G (the points of dispute and any reply).

(5) The court will not award more than £1,500 to any party in respect of the costs of the provisional assessment.

(6) The court may at any time decide that the matter is unsuitable for a provisional assessment and may give directions for the matter to be listed for hearing. The matter will then proceed under rule 47.14 without modification.

(7) When a provisional assessment has been carried out, the court will send a copy of the bill, as provisionally assessed, to each party with a notice stating that any party who wishes to challenge any aspect of the provisional assessment must, within 21 days of the receipt of the notice, file and serve on all other parties a written request for an oral hearing. If no such request is filed and served within that period, the provisional assessment shall be binding upon the parties, save in exceptional circumstances.

(8) The written request referred to in paragraph (7) must—

(a)    identify the item or items in the court’s provisional assessment which are sought to be reviewed at the hearing; and

(b)    provide a time estimate for the hearing.

(9) The court then will fix a date for the hearing and give at least 14 days’ notice of the time and place of the hearing to all parties.

(10) Any party which has requested an oral hearing, will pay the costs of and incidental to that hearing unless—

(a)    it achieves an adjustment in its own favour by 20% or more of the sum provisionally assessed; or

(b)    the court otherwise orders.

 

113.    The new Costs Practice Direction provides:

14.1 The amount of costs referred to in rule 47.15(1) is £75,000.

14.2 The following provisions of Part 47 and this Practice Direction will apply to cases falling within rule 47.15—

(1) rules 47.1, 47.2, 47.4 to 47.13, 47.14 (except paragraphs (6) and (7)), 47.16,

47.17, 47.20 and 47.21; and

(2) paragraphs 1, 2, 4 to 12, 13 (with the exception of paragraphs 13.4 to 13.7,

13.9, 13.11 and 13.14), 15, and 16, of this Practice Direction.

14.3

In cases falling within rule 47.15, when the receiving party files a request for a detailed assessment hearing, that party must file—

(a) the request in Form N258;

(b) the documents set out at paragraphs 8.3 and 13.2 of this Practice Direction;

(c) an additional copy of the bill, including a statement of the costs claimed in

respect of the detailed assessment drawn on the assumption that there will not be an oral hearing following the provisional assessment;

(d) the offers made (those marked “without prejudice save as to costs” or made under Part 36 must be contained in a sealed envelope, marked “Part 36 or similar offers”, but not indicating which party or parties have made them);

(e) completed Precedent G (points of dispute and any reply).

14.4

(1) On receipt of the request for detailed assessment and the supporting papers, the

court will use its best endeavours to undertake a provisional assessment within 6 weeks. No party will be permitted to attend the provisional assessment.

 (2) Once the provisional assessment has been carried out the court will return Precedent G (the points of dispute and any reply) with the court’s decisions noted upon it. Within 14 days of receipt of Precedent G the parties must agree the total sum due to the receiving party on the basis of the court’s decisions. If the parties are unable to agree the arithmetic, they must refer the dispute back to the court for a decision on the basis of written submissions.

14.5

When considering whether to depart from the order indicated by rule 47.15(10) the court will take into account the conduct of the parties and any offers made.

14.6

If a party wishes to be heard only as to the order made in respect of the costs of the initial provisional assessment, the court will invite each side to make written submissions and the matter will be finally determined without a hearing. The court will decide what if any order for costs to make in respect of this procedure.

REFORMS STILL TO COME

From the above it will be clear that we are currently facing a period of significant change.  The Jackson Reforms are, however, only part of the picture.  On or in the months following 1st April 2013 there are there are three further tranches of reform in the pipeline.

 

Extension of the RTA Portal

The first of these reforms is the revision and vertical extension of the ‘Pre-Action Protocol for Low Value Personal Injury Claims in Road Traffic Accidents’ from cases worth up to £10,000 to cases worth up to £25,000.  The exact timing of the extension is, however, something of a mystery.

 The Current RTA Protocol

 

For the benefit of those not familiar with using the current RTA Protocol, the system operates by requiring would-be claimant to notify the defendant insurer of their claim through an online portal.  The defendant must acknowledge receipt the following day, and is then be given a set period to investigate liability.  If liability is denied or contributory negligence is alleged, the claim will fall out of the Protocol.  If a response is not provided in time, the claim will similarly fall out of the Protocol.  If liability is admitted then medical evidence will be obtained and the parties are compelled to make their best offers to settle the case.  The defendant must, however, make early payments in respect of costs as well as paying its best offer to the claimant.  If the parties are unable to reach an agreement then Part 8 proceedings are issued and the case is listed for a short disposal hearing.

At the disposal hearing, general damages are assessed on the basis of the medical report alone.  Any documentation supporting the special damages claimed must be submitted at the same time as the medical report.  Again, this documentation is the only evidence seen by the court.  It is easy to see why those representing claimants have concerns about the extension of the scheme.

Throughout the process it is open to either party to give notice and thereby take the claim out of the Protocol.  There are also a number of triggers (such as a failure to respond to the initial CNF in time) that allow cases to drop out.  However, if the court feels that the claimant has acted unreasonably in taking the case out of the Protocol, it can limit the claimant to Protocol fixed costs at the end of any Part 7 claim.

The New Rules

At present, we only have a draft of the new Rules, but these make clear that the extended system will continue to work much in the same way as before.  The response periods for (i) acknowledgement of the CNF and (ii) completion of the insurer response, remain the same at 1 day and 15 days respectively (see paragraphs 6.10 and 6.11).   The period for consideration at Stage 2 also remains at 35 days.  Cases worth less than £1,000 are not caught by the Protocol and if the claimant notifies the defendant that the value of the claim exceeds the top limit, the case will automatically drop out of the Protocol.  As per paragraph 5.11, a claim that has left the Protocol cannot subsequently re-enter.

When the Protocol was first introduced, the trigger was the accident date (i.e. claims brought following accidents that occurred on or after 1 April 2010). The commencement of the new and extended Protocol though will be determined by the date of the CNF.  As of 1st April 2013, virtually all new RTA PI claims will fall within the Protocol.

When considering whether the financial value of a claim falls within the Protocol is important to note the distinction drawn between claims for PI and associated pecuniary losses on one hand and claims for vehicle related damages on the other. Although the latter can be included within the Protocol, they do not count when assessing the financial value of the claim. A large claim for credit hire cannot therefore be used to take a PI claim out of the Protocol.  See paragraphs 4.1 and 4.4 of the draft rules.

Changes under the New Protocol

The first major change contained within the new Protocol is in relation to the payment of costs.  Previously, Stage 1 costs were payable on an admission of liability (paragraph 6.18 of the old rules).  Under the new rules, Stage 1 costs are payable within 10 days of receipt of the Stage 2 Settlement Pack.  This should prevent an abuse that often occurred under the old scheme where claims would be notified, Stage 1 costs would be paid, and then the claim would suddenly disappear.

The second is in relation to non-medical evidence.  Paragraph 7.9 allows the use of non-medical reports (for example accounting experts) and paragraph 7.11 witness statements, where they are reasonably required to value the claim.   Such evidence must though be disclosed under Stage 2 in order for it to be relied upon before the court. These changes apply to all cases and not just those worth more than £10,000.

The third final major change is the introduction of a role for Counsel in advising on more valuable (i.e. between £10,000 and £25,000) [14] Protocol cases. Although there is a presumption that cases proceeding through the Protocol will be dealt with by the claimant’s solicitor alone, paragraph 7.10 provides that the cost of an advice from Counsel or a specialist solicitor may be recoverable if it was reasonably required to value the claim. If such an advice is obtained, the claimant solicitors should indicate within the Stage 2 Settlement Pack why it was required. If a defendant refuses to pay the costs of such an advice then it should indicate why within its part of the Stage 2 Settlement Pack. The recoverability of the costs of obtaining an advice will then fall to be decided by the court.

In addition to these major changes there are a number of minor tweaks to the rules including the introduction of greater flexibility unto the provisions for interim payments.  There is also the expected updating to tie in with the new website for the Portal (www.claimsportal.org.uk) and the new CPR.

Despite a few problems with the drafting, it has to be said that the new Protocol is far more comprehensive and flexible than its forebear. The improvements made to the Protocol will work to the benefit of all claimants as (with the exception of the provisions relating to advice from Counsel) they apply to all claims within the Protocol irrespective of their financial value. It remains to be seen though whether the increase in value and/or the increased amount of evidence will lead to claimants or the court pushing more cases out of the Protocol on the basis of their factual or legal complexities.

 

The EL and PL Portal

The second forthcoming reform is the horizontal extension RTA Protocol and associated only RTA Portal (to be renamed simply the Claims Portal) to include employers’ liability and public liability claims.  Once again the timing of this reform remains unclear and we have only recently had sight of the draft EL/PL Protocol Rules.

In essence of the EL/PL Protocol will operate in exactly the same way as the revised RTA Protocol. There is the same process of notification, acknowledgement and investigation and the Stage 1.  The evidential position, the costs rules (including the ability to obtain advice from Counsel in appropriate cases worth more than £10,000) and the need to negotiate at Stage 2 are the same.  Those cases which do not resolve at Stage 2 will have the benefit of exactly the same Stage 3 process.

There are, however, a few notable differences between the RTA and EL/PL Protocols, not least a slightly amended notification and response process designed to reflect the more complicated and varied insurance position in EL and PL claims. Ordinarily, separate and slightly different CNF’s will be sent to both the individual defendant and their insurer. Where this is not possible because the identity of the insurer is unknown, the defendant must forward the proceedings to their insurer at the same time as they respond to the CNF (i.e. the day after receipt; see paragraph 6.10). Once informed of the insurer’s identity, the claimant was send the relevant insurer CNF as soon as possible, and in any event within 30 days.

The EL/PL Protocol also contains slightly longer investigation periods of 30 days (in the case of employers’ liability claims) and 40 days (in the case of public liability claims) from the sending of the initial CNF.  One has to wonder how realistic these investigation periods are given that many insurers fail to comply with the 15 day investigation period in road traffic accident cases. As with the more complicated rules regarding the service of the CNF on the defendant and their insurer, it is easy to see parties falling foul of the rules in the early days of the enlarged Protocol.

No doubt with these concerns in mind, different implementation provisions apply to the EL/PL Protocol.  The Protocol is intended to apply to cases where the accident occurs on or after 1 April 2013, or in the case of disease claims where no letter of claim has been sent by 1 April 2013. This means that there will be a gradual increase in cases entering the Protocol over a three year period.

Reducing Whiplash Claims

The third and final strand of the forthcoming reforms are those that are likely to follow the Government’s much advertised consultation ‘Reducing the number of costs of whiplash claims’.  Although the consultation will run until 8th March 2013, the foreword from Helen Grant (Parliamentary Under Secretary of State for Justice) makes it clear that the government is unlikely to change the clear view it has already formed.

In essence, the consultation proposes two reforms aimed at cutting the number of whiplash claims.  The first is introduction of independent medical panels (to be accredited by the court) to deal with the assessment of those claiming to have sustained whiplash injuries.  The second is a dramatic increase in the Small Claims Track limit for personal injury claims.  The consultation suggests that a limit of £5,000 should apply either simply to whiplash cases, or alternatively to all personal injuries stemming from a road traffic accident.  Common sense suggests that the latter of these two measures is will be adopted; the former seems unworkable in practice.

Leaving aside the obvious concerns about cases involving suspected fraud being heard via unsworn evidence on the Small Claims Track, the introduction of Damages Based Agreements potentially undermines the government’s hope that in removing recoverable costs, lawyers will not want to bring such claims forwards.  One has to question whether the proposed changes will result in the fall in volumes that the government is clearly hoping for.

One is given further cause to question whether the government’s proposals will limit the number of whiplash claims by recent research conducted by Aviva.  Their figures suggest that it is the friends and family of litigants rather than lawyers or claims management companies who are the main force behind minor whiplash claims.   As such, removing referral fees and recoverable costs will not put the genie back in the bottle.

Aviva’s research also highlights the availability of BTE cover to most motorists (around 70% of Aviva’s insured have BTE cover).  Even if costs are no longer recoverable inter parties, methods of funding remain.  With insurers no longer able to pass claims onto solicitors who are willing to act on a CFA, it must be assumed that an increasing number of people will seek to use their existing BTE cover.

Against this backdrop, the recent case of Brown-Quinn & Webster Dixon LLP v Equity Syndicate Management Limited & Motorplus Limited [2012] EWCA Civ 1633 lays down an important marker for the future.  In that case, the Court of Appeal found terms and conditions within a legal expenses insurance policy which restricted the choice of legal representative were a breach of Regulation 6 of the Insurance Companies (Legal Expenses Insurance) Regulations 1990.  Although legal expenses insurers can restrict the costs they are liable for, they can only do so to the extent that the freedom of choice guaranteed by EU Directive 2009/138 is not undermined.   The insurers could not therefore veto the appointment of Webster Dixon LLP due to their refusal to accept non-panel rates.

Fortunately for the insurer, the Court of Appeal went on to find that there was insufficient evidence to support a conclusion that the level of indemnity offered under the policy rendered the freedom of choice entirely meaningless.  The insurer was therefore only obliged to pay out at their non-panel rates; any difference would have to be made up by the claimant.

The judgment has been seen in some quarters as a pyrrhic victory.  The key to the judgment lies, however, in the principal of choice.  If individuals have the benefit of BTE insurance they will not necessarily be restricted to the use of panel firms, and non-panel firms are able to agree charges above the BTE insurer’s non-panel rates.  If indemnity levels are miserly then BTE insurers run the risk of having to pay out at a higher rate.  This opens up an important source of funding that could potentially take the place of the CFA is minor whiplash cases.  Insurers will be funding claims against each other, albeit in a slightly different way than before.

It is clear therefore that so far as both the funding and practice of litigation are concerned, the Jackson Reforms are only one aspect of a complicated picture.  There are no signs of stability or certainty on the near horizon.