The bleeding obvious

Basil: Can’t we get you on Mastermind, Sybil? Next contestant Sybil Fawlty from Torquay, special subject the bleeding obvious.

-Fawlty Towers

The recent decision of Mrs Justice Carr in the case of  Merrix v Heart of England NHS Foundation Trust [2017] EWHC 346 QB is perhaps unsurprising in its result, but has predictably caused a fluttering on the legal web dealing as it does with what is undoubtedly an important point of practice on the relationship between costs budgeting, costs management and detailed assessment.

It could also be regarded as a useful exposition of the “bleeding obvious” contained in folio after folio of beautifully written text, exploring all the nuances of what in essence is a very short point: once a costs management Order has been made, and costs budgets adjusted under it, then the criterion of “good reason” must be met for the budgeted costs on a detailed assessment, to be adjusted downwards or upwards, with the distinction between budgeted and incurred costs, now established in the revised practice direction 3E having been quite apparent from the earlier versions of the rules.

That the arguments were made at all is a reflection of the effect of the law of unintended consequences: although the higher judiciary (particularly in the TCC) anticipated in 2013 a co-operative approach to costs budgeting and costs management; in the trenches of personal injury and clinical negligence litigation, costs budgeting was only ever going to be seen as another stick with which to thump the receiving party at the outset of a case and detailed assessment its counterpart to thump the receiving party at the end of the case.

The judge’s conclusions were as follows:

The judgment below was the product of the careful and reasoned thinking of an experienced specialist costs (and clinical negligence) judge, which naturally deserves respect. However, there is on any view legitimate scope for disagreement, as other recent judgments from specialist costs judges have readily demonstrated. For the reasons set out above, I have come to the conclusion that the answer given to the preliminary issue by the Costs Judge was wrong.

In my judgment, the answer to the preliminary issue is as follows: where a costs management order has been made, when assessing costs on the standard basis, the costs judge will not depart from the receiving party’s last approved or agreed budget unless satisfied that there is good reason to do so. This applies as much where the receiving party claims a sum equal to or less than the sums budgeted as where the receiving party seeks to recover more than the sums budgeted.

The appeal will therefore be allowed.

To use a preliminary issue in a factual vacuum for resolution of issues such as this is inevitably to apply a blunt tool. There are so many potential variables and nuances that the answer on any particular given set of facts might require refinement. But the central message is that set out in CPR 3.18, namely that the approved or agreed budget will bind the parties at the detailed assessment stage (on a standard basis) whether the costs claimed are for less than, equal to or more than the sums approved or agreed by that budget, unless there is good reason otherwise.

One can be confident that this decision on first appeal will not end the debate. I respectfully make the perhaps obvious point that the issue would appear to be ripe for early consideration by the Court of Appeal raising, as it does, an important point of principle or practice. Indeed, I learned only days before the appeal came before me that there is in fact an appeal already listed to be heard in the Court of Appeal this May against Master Whalan’s decision in Harrison (by way of “leapfrog” direction and albeit on a “floating” basis only). It may be that any appeal from this decision could be listed alongside that matter, if that were thought appropriate.

Whatever the future holds, however, it is important that a growing body of judgments on the same issue does not emerge in piecemeal manner. It is essential that there is procedural co-ordination. The same solicitors and/or counsel are involved in many of these matters in what is a relatively small world. I am told that many stays of detailed assessments are already in place, pending the outcome of this appeal. The parties may accept my judgment as binding for their purposes. Alternatively, it may be that further stays need to be imposed, to prevent unnecessary court and judicial time and expense being devoted to a debate which the Court of Appeal is very shortly going to consider.

The effect of the decision is likely to be limited in two particular respects. The first is that the topic is likely to be revisited by the Court of Appeal in at least one appeal in the next three months.

Secondly, the decision only applies to what are now termed by Practice Direction 3E “budgeted costs”. Incurred costs, which have been expressly left out of the budgeting process are not subject to the test applied in rule 3.18.

Conversely the decision could prove to be quite important in two other respects. The first and narrower point is the requirement now for a paying party to be quite specific whether in the Points of Dispute or a witness statement as to why there should be a departure downwards from budgeted figure for costs on a detailed assessment, addressing with particularity the reason which is said to be a “good reason”.

The second wider point is that the decision will surely prompt a change in litigation behaviour. If incurred costs are not subject to the “good reason” requirement, or the stringencies of a costs management process, there will be an enhanced incentive to front load the preparation of a case, so that as high a percentage of the costs as possible, are in the incurred column, rather than potentially subject to the strait jacket imposed by a robust costs budgeting exercise.

The back of the queue

This post first appeared as an article in the February 2017 issue of Litigation Funding magazine.

As 2017 opens, despite predictions that the Brexit process would absorb the attentions of lawmakers and divert scarce resources away from the dry and dusty terrain of costs reform, to greener European pastures, there are a significant number of reform projects under way.

First the misleadingly entitled “Reforming the soft tissue injury (whiplash) claims process”, secondly the imminent and overdue consultation on fixed costs in clinical negligence claims, thirdly Jackson LJ’s further report into fixed costs and fourthly the move to a digital bill of costs in October 2017.

However seemingly left high and dry, despite the flood waters of reform flowing, remains the vexed question of amending the current regime for Damages Based Agreements (DBAs) prescribed by the Damages Based Agreements Regulations 2013 made under section 58AA of the Courts and Legal Services Act 1990.

That this reform is sorely needed, is apparent to me from the increasing trickle of cases which come across my desk, where the shortcomings, failings and drafting infelicities of the current Regulations are manifest. It is salutary also to note both that there are no decided cases on the Damages Based Agreements Regulations 2013 and also that the Law Society has produced no model DBA.

A few examples of some of the problems will suffice. As is well known, the government declined to give lawyers what they really wanted, which was a form of hybrid Conditional Fee Agreement (CFA), whereby the lawyers would be able to recover costs from the losing party to litigation and a success fee, calculated as a percentage of the damages recovered by the client.

Instead the “Ontario” model was adopted, whereby the client agrees to pay a percentage of the damages recovered, and then in turn is able to deduct from the payment, the amount of costs recovered from the other side and retained by his lawyer.

The first problem that this creates is a conceptual one: what costs are to be credited against the payment, if a client has entered into multiple DBAs, with for example a solicitor and counsel, or a DBA with a claims management company and a further CFA with a solicitor’s firm? Is it the totality of the costs recovered from the other side? Or just the costs peculiar to each “representative”? Given that claims management companies “costs” will not be generally recoverable from the other side to litigation this creates real doubt as to the client’s liability.

Secondly, because the payment agreed under the DBA, acts as a cap for the purposes of the indemnity principle on costs recoverable from the losing side per rule 44.18 CPR, the suitability of the DBA for litigation which takes a surprising turn, may change overnight. A £3000 claim for example, funded by a DBA with a provision for payment of 25% of damages recovered, would cap any recoverable costs at £750. This would be a good deal for a solicitor, if the case settles after a dozen letters have been written.

It could prove an unfortunate bargain, if proceedings need to be issued, fraud is raised as a defence, and a low value case proceeds as a multi-track claim. Although the retainer may be capable of novation in such circumstances, should the client agree, a further layer of needless complexity will need to be addressed to ensure retainer issues are not problematic at the end of the case.

Thirdly, do you trust your client? If the client has entered into a DBA and as things get tougher, in prosecuting the claim, changes his mind, and no longer wishes to proceed with the claim, he can end the DBA. Whilst the client can end the agreement, unless it concerns an employment matter, then the Regulations give the solicitor no facility to send the client a bill for early termination. The Regulations are silent as to the client’s liability in those circumstances: but given that regulation 4 prescribes what payments can be made and the only payments that can be made, the solicitor is likely to be horribly exposed.

An unintended consequence of the introduction of DBAs, which can be utilised by claims management companies (CMCs), as well as solicitors, and which apply to the provision of claims management services, is that they are being deployed to arguably circumvent the referral fee ban, in personal injury litigation. The client enters into a DBA with the CMC, the CMC refers the case to a solicitor who enters into a CFA with the client and no prohibited referral fee changes hands.

But a solicitor cannot ignore the presence of the DBA, or turn a Nelsonian blind eye, to the client’s agreement with the CMC, taking the view that this occurred before his instruction and is none of his business, but is under a duty to advise a client of the nature of the agreement and his obligations.

The sad cases of Beresford and Smith, where solicitors failed to do so and whose relationships with claims management companies were pored over and found wanting, are instructive and on point: the decision of the Solicitors Disciplinary Tribunal was upheld by the High Court: Beresford and Smith v Solicitors Disciplinary Tribunal [2009] EWHC 3155 (Admin).

Although the Solicitors Practice Rules have been swept away and replaced by the Solicitors Code of Conduct, I do not think it is the case that the regulatory requirements have eased in the years since this case: far from it, if anything the regulatory net is likely to tighten further both for solicitors and CMCs who will shortly be regulated by the FCA.

There are other flaws with the drafting of the Regulations and the uses to which they might be put: these issues can be divided into drafting issues and matters of policy. These were addressed in a very interesting and useful report from the Civil Justice Council entitled The Damages Based Agreements Reform Project: Drafting and Policy Issues.

The report was published in August 2015 and runs to 145 pages, of closely argued text, dealing with the details of the confusingly named Damages Based Agreements Regulations 2015. These “Regulations” as the report makes clear in its introduction are a set of draft Regulations, provided to the report’s working party, which were intended to be brought into force in 2015, subject to any revisions or amendments flowing from the working party’s report.

In this respect, it is interesting to note what the working party recorded the then government as wishing to achieve in its terms of reference:

In particular, the Government’s intention is ‘substantively to improve the regulatory framework without encouraging more litigation’, and that the overriding objective is ‘to ensure that any  changes we make do not encourage litigation which would not otherwise be taken forward. Given the  similarities in substance between DBAs and CFAs, the Government does not see DBAs are filling  an access to justice gap — rather, they are intended to be an alternative form of funding, perhaps  in niche areas of litigation.’ In stating this, however, Lord Faulks acknowledged that it was a  ‘complex issue’, and that the Government was keen to avoid, so far as was possible, the ‘unintended  consequences’ that may flow from the redrafting of the DBA Regulations.

Reading that passage one comes away with the conclusion that not only was the government of the day reluctant to reform DBAs for fear of the law of unintended consequences, but it had no interest in promoting DBAs as a form of mainstream funding, perhaps seeing the model, as another unwelcome piece of fuel for the “compensation culture”.

Accordingly, given the current zeitgeist, I suspect the excellent 2015 report will remain to gather dust on the shelf for quite a while to come. DBA reform, is, in Mr Obama’s memorable phrase “at the back of the queue”.

A copy of the article as originally published can be found here: The Back of the Queue PDF

Rogue One

The whiplash “industry” of claims management companies, solicitors, medical reporting agencies et al provokes strong views from those who are part of it and those who deal with it.

Those who represent injured claimants with damaged vehicles regard themselves as obtaining access to justice on behalf of victims, from plutocratic insurance companies who have taken the premiums for the very risk that has materialised.

Insurance companies conversely regard the whole superstructure as riddled with fraud, and absent proof of fractured vertebrae, each claim is either exaggerated at best or fraudulent at worst.

The legal press and social media in the last couple of months, has been full of coverage of the views of those with an interest in the reforms on either the part of the insurers or those who represent claimants, vociferously arguing the toss with the publication of Reforming the Soft Tissue (‘whiplash’) Claims Process a copy of which can be found here: Reforming the Soft Tissue Injury (‘whiplash’) Claims Process.

It is hard to resist the conclusion that more heat than light has been generated by the debate so far: both sides are overstating their case, with the insurers painting a gloomy picture of a fraud riddled compensation culture dragging the insurance industry down to bankruptcy and in turn claimants representatives seemingly suggesting that it would be positively un-English if the Small Claims track limit were to be raised.

On a more human note there is a very real expressed fear amongst claimants’ representatives that significant reform will imperil the viability of their businesses and lead to wide ranging redundancies. The same concerns afflict the insurance industry’s panel firms to a lesser degree, but are expressed in a more muted tone.

The further conclusion that I have drawn is that the debate is not driven by evidence: nor does the consultation represent the fruits of any exercise in evidence based policy.

The pity is that there are undoubtedly a number of issues thrown up by the debate which would benefit from the production of evidence, to inform rational decision making for the collective good.

The starting point is surely to determine whether whiplash is a genuine condition or not. I have fond memories of litigating these claims in the 1990s when a series of studies from the Baltic countries, were regularly produced by medical experts instructed by the defence to suggest that whiplash in the UK was an illusory condition, or largely so.

Such views were always counter to the mainstream and indeed common sense. On the internet, one can observe videos of crash tests using dummies, at 20 mph, which illustrate vividly how a strain injury might be caused. Equally one can observe videos of impacts at 3mph and wonder how on earth anyone with a human neck could possibly sustain injury in that context.

If one takes the view that a physical whiplash type injury may well be sustained in a negligently caused collision to the extent that is more than de minimis, then the common law would prescribe that a remedy in damages should be given: to the full extent of the loss, not one penny more, nor one penny less. Because the common law is judge made law, the levels of damages awarded are those devised by the judges.

The next issue then is in what forum and against what criteria, should full compensation be awarded? Nearly 20 years ago I remember traveling to the Lincoln County Court in the full majestic panoply of wig and gown, my instructing solicitor in tow to argue issues of liability and quantum in a three party road traffic accident trial against two other barristers and two other solicitors.

It occupied a full day of a kindly QC’s time sitting as a Recorder, who took full and proper notes with his Mont Blanc pen poised over his red note book.

Each of the parties claims was worth about £3000: collectively well under £10,000 was at stake. Even then it struck me as absurd that a quicker and cheaper way of shifting small amounts of money from one party to another on simple criteria could not be devised.

What sort of justice system do you want to determine liability and award a remedy? You can have one where a wise man or woman sits under a palm tree to hear disputes between parties. They could each pay him or her a donative of £10 by way of fee: he or she would listen to each side’s version of events, with a fixed time of 15 minutes and then give a decision and remedy based upon what he or she considered fair. Simple, quick and cheap.

Or you can have a more involved system, with a settled system of laws, which grade results by ever finer and more complex criteria, to try and reach an increasingly perfect decision. You can require the parties to provide documents by way of disclosure.

You can require witness evidence in written form. You can require expert evidence, on those tricky areas of knowledge that are not within the purview of a layman, to try and reach a better decision.

But all this superstructure, requires a legal profession to operate it efficiently and to advise people how to use it. And that and the steps required by the process cost money.

Which of these models is best suited to whiplash injuries ?

Assuming you take the view that palm tree justice is inappropriate for today’s society and you need a legal system with a degree of complexity and professional lawyers, costing money the question then is who pays?

There are a number of options. The first is to require individuals to pay their own costs. This runs counter to the costs shifting philosophy of English law: that the party in the wrong pays the reasonable costs of the injured party getting vindication at law.

The second is to note that legal costs, or rather the overheads of legal practice are likely to result in a bill in an individual case, which is too large for an individual to reasonably bear.

This in turn leads to a conclusion that such costs should be collectively funded: in the same way that other services such as medical treatment, social security or ill health insurance are.

The question then is what structure of collective funding is likely to be effective?

Provision can be made through the state, through a Legal Aid scheme. If that is not thought to be appropriate, it can be made through insurance, or through other forms of collective organisation such as trade unions or membership organisations.

Buried away in the whiplash consultation is the interesting statistic whose provenance is uncertain that 70% of injured whiplash claimants have BTE insurance.

If that is so then I would suggest a real issue that is thrown up by the consultation but not addressed by it, is how that provision might be extended to 100% of injured claimants.

They would then have the benefit of insurance funding for their costs whether those were incurred in pursuit of a claim allocated to the Small Claims Track or a costs bearing track.

Then the further issue is to ensure that the BTE insurance which is provided is actually adequate to ensure that access to justice is not only preserved but enhanced with proper indemnities and freedom of choice when it comes to instructing a lawyer.

If this could be achieved then the expressed fears of the courts collapsing under the strain of unrepresented litigants or being exploited by claims management companies or unscrupulous Mackenzie friends might not come to pass.

Spring is in the air

The early part of 2017 has seen the pace of costs reform picking up in relation to the introduction of fixed costs in clinical negligence claims and what might be considered to be more fundamental reforms in relation to small personal injury claims generally.

Two major consultations have been embarked upon and the consultation period for the misleadingly entitled Reforming the Soft Tissue Injury (“whiplash”) Claims Process closed on 6th January 2017. A copy of the consultation document can be viewed here: Reforming the Soft Tissue Injury (‘whiplash’) Claims Process.

I describe the document’s title as misleading: as its principal proposed reform is to increase the Small Claims Track limit for personal injury claims, to a level where any claim where damages for pain, suffering and loss of amenity is worth up to £5000 will now be treated as a small claim.

Thus a small workplace injury claim, or a tripping claim involving injury sustained on the public highway, will be affected by the principal reform proposed in the paper.

I describe the proposed increase in the Small Claims Track limit as the principal reform, because I regard it as the realistic one. It only requires secondary legislation to raise the Small Claims Track, there is a respectable argument that an inflation based increase at least, is well overdue and the government can avoid the perils of primary legislation, necessary to remove someone’s right at common law to claim damages for a soft tissue injury, or to substitute a fixed scheme of compensation.

It is worth noting as well, that there may be nothing to prevent an insurer or other defendant, from admitting a liability to compensate for an injury and plead an admission that the damages for PSLA are say, £4500, and thus reach a further mezzanine level, where only if damages are worth £5000 more than the admitted sum will a case escape the Small Claims limit.

The consultation contemplates a reform which will undoubtedly affect both the public and that section of the legal profession which depends on the whiplash industry (or small personal injury claims generally) to earn its daily crust.

The latter is not lying down. There have been numerous submissions to the consultation and the progress from here on, is likely to be controversial.

In due course the recent Supreme Court judgment of R on the application of Moseley v London Borough of Haringey [2014] UKSC 56 the leading case on the requirements for any consultation to be lawful will undoubtedly be dusted down and a judicial review of any secondary legislation is likely.

The Moseley case was the first time that the Supreme Court has considered the extent of a public law duty to consult.  This is perhaps surprising: the development of the doctrine of legitimate expectation requiring consultation in such cases as R v North and East Devon Health Authority Exp Coughlan [2001] QB 123 by the Court of Appeal has not escaped criticism in other common law jurisdictions around the world.

In the Supreme Court, the main judgment was given by Lord Wilson: although there are differences between his judgment and that of the other justices who concurred in the result, his reasoning repays careful scrutiny.

Of particular interest, are his comments at paragraphs 27 and 28 of the judgment which suggest that sometimes fairness will require that interested persons be consulted not only upon the preferred option but also arguable yet discarded alternative options. Even where the subject of the requisite consultation is limited to the preferred option, fairness could require passing reference to be made to arguable yet discarded alternative options.

In the Moseley case the subject of the consultation was the Council’s preferred scheme relating to relief from the liability to pay the Council tax, but in order for the consultation to be fair, the consultees had to be aware of the other ways in the which the shortfall in funding which was vexing the Council could have been deployed. The alternative options would not have been obvious to those who were being consulted. The consultation had in fact been positively misleading, by suggesting that there were no other options.

There seems an increasing vogue for public law challenges to alterations to the framework within which private law claims are made or funded: see the recent case brought by the ABI over the discount rate for multipliers in personal injury claims.

I have little doubt that when the government actually announces its preferred option, at the very least, consideration will be given by the various interest groups to a judicial review of whatever measures are to be introduced.