In the Legal Aid, Sentencing and Punishment of Offenders Bill, the government conceded remarkably little following extensive – though hardly protracted – periods of consultation. As reported in the Gazette, 5,000 submissions on the legal aid proposals made hardly any difference to the bill’s contents. Likewise, over 600 submissions on the reforms of civil justice proposed by Lord Justice Jackson do not seem to have altered the government’s position on key parts of those reforms; though ministers have removed some balancing safeguards included by Jackson in his original report.
A last-minute concession would allow recoverability of after-the-event (ATE) premiums for reports in clinical negligence cases, but there is little else to reassure clients.
Does that mean it is ‘game over’? In terms of the letter of the legislation, it quite possibly is. But the government’s civil justice reforms now start to enter a difficult and complex phase, where, at worst, public policy based on partial, and in place inaccurate, assessments of claim-types must be grafted onto the complex litigation landscape. At best, change for all parties will be significant and wide-ranging.
The signs are that attempts to move forward a raft of civil justice reforms all at once are starting to chafe against the inappropriateness of some areas they are expected to deliver in. Attention is focusing on the classes of cases affected by Jackson, the extension of the road traffic accident (RTA) portal principles, and further key proposals in the consultation paper Solving disputes in the county courts (consultation on which closed on 30 June).
A key public figure cited by James Delaney, director of litigation cost broker TheJudge, is that too many civil justice proposals are heavily based on the personal injury model. “PI is a unique bit of the market” Delaney points out. “The way cases are taken on, and the definition of a ‘successful’ outcome are all different to many types of case which will be affected by the Jackson reforms.”
There are, Delaney notes, cases where simple recoverability is not the aim. “If you think of an intellectual property claim brought by an inventor against a blue-chip company for infringement” he explains, “the successful outcome will most likely be an agreement around a licence fee, rather than a cash award.” Post-Jackson, costs rules would struggle to reflect the economics of such a case, Delaney says.
But overall, the biggest unacknowledged losers, Delaney notes, are small and medium enterprise (SME) claimants. SMEs are now heavy users of conditional fee agreements in claims against larger businesses from which they could not otherwise seek to recover funds.
“With after-the-event insurance and a success fee coming out of a successful damages claim, even in one of the better scenarios you could see £40,000 coming out of a successful claim for £100,000 if current proposals go ahead,” he says.
With the exception of low-value RTAs, there is also evidence that the Ministry of Justice is struggling to establish a necessary consensus around processes and rules that are intended to ‘streamline’ the litigation process. In particular, much faith has been placed in the extension of the RTA portal process to other types of claim, and to higher-value RTAs.
RTAs between £1,000 and £10,000 are now handled through an electronic portal, with a protocol and rules drafted with input from claimant and defendant insurer lawyers. The portal has experienced various ‘teething’ problems; some technical, some stemming from areas where the portal’s setup fails to reflect the actual rules.
In its consultation paper Solving disputes in the county courts, the MoJ noted that under the portal process “liability is being admitted much more quickly” and that the cost of ATE insurance has fallen.
These assertions are based on a sample; and when Norman Fenton, professor of risk at Queen Mary, University of London, completes a detailed analysis of the figures requested from law firms, it is expected that they will indeed confirm a fall in legal costs and timeframes for portal cases. It is also clear that the early problems experienced in use of the portal can be corrected.
THE NEXT STAGE
However, the MoJ faces a much more difficult task in seeking to extend the portal process.
Defendant insurer lawyers remain keen and are pressing for such an extension. Andrew Parker, head of strategic litigation at national law firm Beachcroft and an assessor to the Jackson review, tells the Gazette: “It’s good to see the government sticking to its guns on implementing the core principles of Jackson’s recommendations. We do, however, need to see delivery of the second phase of the Jackson reforms, in which legal costs in low value personal injury cases are fixed and the process for paying compensation is simplified.”
The point, Parker argues, is that “where damages are predictable, you don’t need to pay lawyers to argue over the cost”.
In one key area, though, defendant insurer interests start to diverge. For example, the Medical Defence Union (MDU), the UK’s main medical defence body, questions the “validity and fairness” of introducing a scheme to fast-track low value clinical negligence claims.
Dr Matthew Lee, director of professional services at the MDU, argues: “In road traffic accidents, it is usually straightforward to determine whether the defendant was at fault and the effect this had on the claimant.” Lee points out that this is “rarely true” of the clinical negligence cases he encounters, where expert evidence may be needed to determine the impact any negligence may have had on the patient. “It is essential” Lee adds, “that doctors’ and dentists’ ability to defend themselves against claims is not fettered by an unthinking quest for efficiency.”
Among the proposals, one which the MDU does not support is the use of binding opinions from jointly instructed experts, as clinical negligence cases often involve significant differences of medical opinion. Lee concludes that it is “doubtful that a scheme for road traffic accidents can be modified sufficiently to make it acceptable to all parties in the highly complex world of clinical negligence.” In that respect at least, Lee appears to be in agreement with claimant representatives.
In his own response to the consultation on his proposals, Jackson famously wrote that the reform package “should be implemented in full”. In certain respects compromise would be variously “the worst of all worlds” and a “disaster”.
His “disaster” comment related to the proposed 10% uplift in general damages for “pain, suffering and loss of amenity”, an increase that is in part a quid pro quo for the loss of success fee and ATE insurance recoverability.
The problem, critics say, is that this enhancement is only guaranteed with judicial oversight. As the Law Society’s head of law reform Robert Khan notes: “A very high proportion of cases – 80%-90% – settle out of court. Those cases can’t be policied, and there is no guarantee that offers from insurers will reflect the uplift.”
This is contested by Parker: “The 10% of the value of the claim is 10% at any stage – I don’t see the difficulty with this aspect. Is that the critics’ point, or is the [real] point that 10% does not cover the shortfall that exists when you remove recoverability of the ATE and success fee?”
In these latter respects at least, Khan is critical too. “It is an abrogation of the restitution principle, as injured victims will no longer receive 100% of their compensation” he argues. “Victims who have suffered harm due to the wrongdoing of others will lose a significant proportion of their damages.
Claims around the impact of the success fee on the conduct of cases remain hotly contested on all sides of the argument. Parker stands by the government’s arguments on costs. “In personal injury cases, where a claimant lawyer is confident that the case will succeed, they have no interest in keeping down costs.”
Not so, counters Khan: “Everyone involved in a case funded by a CFA has strong incentives to keep costs low. Solicitors will not waste costs conducting unnecessary work as they will not be paid for it if they ultimately lose, while insurers, who ultimately pay the costs, act as a check and balance by ensuring unnecessary work is not conducted or paid for”.
A key protection for claimants proposed by Jackson is the introduction of qualified one-way costs shifting (QOCS), whereby claimants in some classes of claims, if they act “reasonably” and do not have significant “means”, are protected against paying defendants’ costs if they lose. This could increase the cost to bodies defending such cases, as Khan notes: “You’ll see an increased legal costs burden for police, ambulance and other public authorities”.
This proposal, though, has not produced the same degree of opposition as proposals relating to the recoverability of the ATE premium and success fees. However, where QOCS could fail to deliver on the promise of reform is around satellite litigation.
Vikram Sachdeva, a barrister at 39 Essex Street and an expert in costs, explains: “QOCS could well cause further litigation where the defendant wishes to allege that the claimant acted unreasonably.”
Some of those disputes, he adds, will be between solicitor and client: “There will always be satellite litigation where costs rules are relatively complicated, as here. Whereas there may be fewer inter partes costs battles in future, there may be more litigation between solicitor and client, given that success fees will simply be recoverable from one’s own client.”
Looking at the totality of the civil justice reforms, many lawyers and interested parties believe that an opportunity for change was missed on the key issue of referral fees. Jackson proposed an outright ban – or at least a cap of £200 – on referral fees. They are opposed by the Law Society and the Association of British Insurers.
Recently, former justice secretary Jack Straw labelled them the insurance industry’s “dirty secret”.
Aside from referral fees’ visible role in creating the impression of a ‘compensation culture’, their continuation is arguably a further threat to the ‘restitution’ principle in justice. John Spencer, a partner at CS2 Lawyers, explains: “It is broadly accepted that referral fees average £750, and Jackson was damning in his view that such fees added absolutely no value in the process.
“Assuming that solicitors will therefore continue to pay referral fees as part of the cost of doing business in this market, available monies governing road accidents will continue to be spent – in a largely fixed costs regime – which would otherwise be available for firms to invest in service and time in representing the claimant.” Also retained, Spencer notes, are “the inherently perverse commercial incentives which I believe undermine a claimant’s right to choose their representation in a transparent and efficient market environment, jeopardising their access to justice.”
An unintended consequence in commercial cases, is that CFAs and damages-based claims may be increasingly used as a funding option.
In conclusion then, can one say that Jackson’s proposals have been “cherry-picked” in the way he warned must not happen? Despite some amendments, Parker insists they have not been: “Jackson’s point is that his package in the round takes into account a balance of the interests of all parties, and I think what was in the bill reflects that, when read alongside the county courts consultation.”
So how will the reforms change the market? Will they give rise to new and insuperable difficulties?
“There will be some product innovation” Delaney notes. “But for some types of cases, the new economics just do not add up for new funding solutions”.
Certainly, Khan’s objectives remain fundamental, and are directed at the heart of government’s reform agenda: “Recent history suggests that this will still not result in lower [insurance] premiums for consumers. Thus, the government is taking victims away from the heart of the civil justice system – and replacing them with the insurance lobby.”