Personal Injury Cost Reforms

Background   In response to the perceived "compensation culture" in our civil justice system, the government has announced their intention to implement the majority of Lord Justice Jackson's recommendations to reform the costs of the system.   The main principle behind the reforms is to reduce costs and enforce proportionality, whilst ensuring access to justice, and ensure that non meritorious cases are deterred.   The introduction of Conditional Fee Agreements under The Access to Justice Act 1999 assisted with access to justice for claimants, many of whom did not have the financial means to bring a claim, yet were not entitled to legal aid. In addition, the emergence of ATE providers assisted claimants with the cost of funding disbursements as the claim progressed, and to protect them against having to pay the defendants` costs if they were to lose the case.   Initially, the success fee component of the CFA was deducted from the client's damages. However, this was subsequently altered in April 2000 to be recoverable from the defendant so as to ensure that the claimant received all the compensation they were entitled to. It followed that if the defendant was at fault then they should be liable to pay the claimant's costs in full.   The government maintains that the current system has got out of kilter stating that CFAs enable claims to be pursued with no real risk to claimants, whilst defendants are at risk of excessive costs. Whilst it is true that there is no real financial risk to individual claimants due to CFAs and ATE cover, there is substantial risk to claimant lawyers. What the government doesn't appreciate is that lawyers do not actively take on cases with no merit as that would be financial suicide for them. The original principle of no win no fee agreements was that the success fee element of a successful case compensates claimant lawyers for the cases that they lose. That way, they are able to ensure that access to justice is available for all on the basis that the straightforward cases can potentially fund the not so straightforward cases. Failing that, the temptation would be to "cherry pick" the cases that are clear cut winners.

Similarly, claimant lawyers are entitled to recover a higher success fee in the riskier cases. Therefore, there has been a plethora of case law and legislation on the issue that success fees should be capped in the more simple cases, such as RTA cases. However, in the more complex clinical negligence cases, claimant lawyers are entitled to charge a 100% success fee in appropriate cases, but this is rarely recovered in full.   ?In the vast majority of cases, it is impossible to predict the percentage chance of success of a claim, and as such, claimant lawyers are put at risk. This is especially true in clinical negligence litigation where it is almost impossible to predict the outcome of a case until independent expert evidence is obtained, sometimes from several experts, and always at significant speculative cost to the lawyers acting on a CFA.   Yet the governments view is that claimants bring hopeless claims which give the defendants no choice but to settle immediately in order to get out and avoid the legal costs running up. This is unlikely to be the experience of most claimant lawyers. In fact, it could be argued that the reverse is true - in strong cases, the defendants will often fight until the door of the trial court, thus unnecessarily inflating the costs of the case.   Claimant lawyers have been criticised for taking cases on a CFA where the claimant is able to fund the claim privately. However, it could be argued that it is not for a lawyer to determine what their client should or should not spend their money on. Some pecunious clients would chose not to bring a meritorious claim when faced with the prospect of an uncertain legal bill. Indeed, competition ensures that there will always be a firm who would take the case on on a CFA and no firm wishes to turn away good business in this economic climate.   The issue of proportionality is a recurrent feature in civil litigation. The government has looked at the ratio of damages versus costs. However, it is not always this straightforward, especially in clinical negligence or catastrophic personal injury  litigation. Many low value claims can be complex and additional investigative work can be both reasonable and essential. Yet lawyers are criticised when their costs exceed a claimant's damages. This can be unavoidable in some cases.

It could be argued that the issues of proportionality and success fees could be better addressed by the Court as part of their managerial role under the CPR, and/or with the introduction of appropriate costs sanctions at detailed assessment, instead of Lord Jackson's proposals which will inevitably send the system into turmoil.   Lord Jackson's proposals therefore seek to reduce the disproportionate costs that defendants to CFA actions are faced with, and encourage claimants to taker a closer financial interest in the way their case is conducted. Under the governments proposals meritorious claims will be resolved at more proportionate cost, while unnecessary or avoidable claims will be deterred from progressing to court. It is envisaged that this will help defendants in time and money, leading to significant savings. This consequence is obvious. However, what is not so obvious is what effect this will have on the claimants and their lawyers.   The Key Elements of the Reform

Success fees are no longer recoverable from the losing party and are to be deducted from the claimant's damages   ATE premium to be taken out of the claimant's damages. There is an exception in clinical negligence cases - the premium will be recoverable from the defendant (in a successful case) to cover the costs of expert reports only. The government also seeks to implement the commissioning of joint reports wherever possible so that ATE is not required.   There will be an increase of 10% in non pecuniary general damages, such as PSLA   In PI cases, lawyers are restricted to taking a maximum of 25% of a claimant's damages, excluding those for future care and loss which are ringfenced.   The maximum success fee is set at 100% (and subject to the 25% cap in PI cases as above)   Recoverability of the self insurance element by membership organisations (such as trade unions), equivalent to the ATE premiums, are to be abolished   Introduction of a regime of Qualified One Way Costs Shifting (QOCS) for all PI and CN cases - the claimant will not have to pay the defendant's costs in an unsuccessful case (except in limited prescribed circumstances such as frivolous claims and wealthy claimants) but the defendant will be expected to pay the claimant's costs in the event that the claimant's case succeeds. It is yet to be decided whether a minimum payment towards the defendant's costs will become payable by the claimant in an unsuccessful claim.  ? Part 36 will be amended to equalise the incentives to claimants and defendants to make and accept reasonable offers. That is, costs sanctions applicable under part 36 will apply should an offer be beaten at trial, by whatever margin. In addition, a sanction equivalent to 10% of the value of the claim will have to be paid by defendants who do not accept a claimant's reasonable offer that is not beaten at trial.

Damages Based Agreements (Contingency Fee Agreements) to be allowed in civil litigation. It is thought that they will be used in commercial claims. The successful party will recover their base costs which would be set off against the DBA fee, reducing the amount payable by the claimant to any shortfall between the costs recovered and the DBA fee. The amount lawyers can take in PI cases is capped at 25% as for CFAs (excluding future care and loss)   ?Introduction of a new test of proportionality in costs assessment - costs are to be controlled where they are being incurred in a way that is disproportionate to the value, complexity and importance of the claim   The prescribed rated which successful litigants in person may recover from losing opponents will increase in line with inflation   Conclusions   It seems that the majority of respondents to the consultation were opposed to many of Lord Jackson's proposals, yet they shall now be implemented.   It is widely appreciated that the costs of litigation have to be met by someone, whether it is the customers, the insured or the taxpayer. Therefore some would say that these proposals ensure that it is the individual claimant, who decides to bring a claim, that pays.   The government accepts that claimant solicitor practices are businesses with responsibility to their partners and employees as well as their clients. However, they maintain that solicitor practices will inevitably adapt and continue to be profitable in the future stating "the current CFA regime has served them well as legal costs have increased."   The government maintains that the packet of measures will restore a much needed sense of proportion and fairness. Defendants should benefit from more proportionate total legal expenses, with legal costs for the NHS falling by about one third. Claimants, on the other hand, will have their damages reduced by success fees or DBAs, whilst others may struggle to find a solicitor to take on their not so straightforward case.   Whether these proposals maintain and protect access to justice will remain to be seen...