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Technical claims brief se - lord justice jackson civil litigation costs - march 2010

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Lord Justice Jackson - Civil Litigation Costs, Final Report …

Lord Justice Jackson - Civil Litigation Costs, Final Report

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  • 1. Lord Justice Jackson - Civil litigation costs: Final Report - Implications for the Defendant Community
  • 2. Contents Introduction 1 Implementation - Phases and timetable 1 Application 2 Financial impact 2 Table A - Principal recommendations 3 Table B - Impact by Line of Business 4 Appendix 1 5 Case management 5 CFA funding 6 Costs control 7 Fixed costs in the Personal injury fast track 8 Fixed costs in litigation generally 10 General damages in personal injury – Neutral calibration 10 Non-CFA funding 10 Pre-action protocols 11 Process and procedure 12 Qualified one way costs shifting in personal injury litigation 12 Referral fees 13 Small claims limit (Personal injury) 13
  • 3. 1796-Special Technical Bulletin – March 2010 1 The report’s major focus is on personal injury actions but the recommendations impact all areas of civil litigation. The recommendations with the greatest potential impact are summarised at Tables A and B. The recommendations are explained in greater detail at Appendix 1. Implementation – Phases and timetable The report is clear that the recommendations are to be considered an interlocking suite of reforms, requiring implementation en bloc in order to have the desired effect of promoting access to justice at proportionate cost. However, there is no guarantee that the litigation environment envisaged by Jackson will be reached in its current form, if at all. The recommendations may be broadly split into those that can be implemented by amendment of the Civil Procedure Rules (CPR) and those that will require primary or secondary legislation. The CPR can be amended relatively quickly, with those measures potentially in place by the end of 2010. Passing primary legislation is a much slower business. With a general election taking place early this year and in the face of competing demands on parliamentary time the required legislation is unlikely to come into force before mid-2012. That said, the two major changes of rendering ATE insurance premiums and a Success Fee uplift irrecoverable from the paying party require nothing more than the removal of two legislative sections from the statute books without having to draw up anything to replace them. The Ministry of Justice for its part has said simply that it will “look at [the] package of recommendations in depth and will set out the way forward in due course”. The Civil Justice Council has been tasked with immediate non legislative implementation. Council members met on 11 March 2010 specifically to explore approaches to implementation. The views of whatever Government is in power following the General Election cannot be known. However, in December 2009, David Cameron delivered a speech in which he criticised ‘compensation culture’ and the “commercialising of lawyers’ incentives to generate litigation, through the system of enhanced success fees and referral fees which have led to a growth in ambulance chasing.” Given the current economic climate and the Government’s own hefty litigation bill through the NHSLA as well as central and local government it seems that the Jackson report is unlikely to be ignored. The reforms are likely to be implemented in phases: • Phase 1 – fixed costs but to include success fees and ATE recoverability. Success fees are likely to be at tariff figures of 12.5% motor, 25% EL accident, variable % EL disease, 45% PL accident. For completion circa. Q4 2010. • Phase 2 – New decision engine for personal injury damages tariff with judicial calibration. Availability circa. Q3 2011. Lord Justice Jackson was appointed to carry out a fundamental review of the costs in civil litigation in England and Wales. On January 14 2010 he published his final report. In a number of areas he found costs to be both excessive and disproportionate and has recommended substantial changes. However, the road to implementation will be long and winding and it must be accepted that the litigation environment mapped out within the report may never be fully realised.
  • 4. 1796-Special Technical Bulletin – March 2010 2 • Phase 3 – Main reforms to include irrecoverable success fees and ATE insurance, uplift in general damages of 10%, new Part 36 rules. For implementation 2012 as primary legislation is needed. Application It appears highly likely that the new arrangements, if implemented as recommended, will impact claims made on or after the go live date. So all claims intimated prior will be resolved on the current costs rules. There is no retrospective effect. Financial impact The claims community have set up an internal review working party to explore the implications of the Jackson reforms generically and by class of business. The next steps are to review the fixed fee structures proposed by Jackson and put these into the context of current claims settlements and costs payable thereon. Our initial view when presented with Jackson’s report was that the changes envisaged would produce a generally favourable financial result for defendants. However, upon further review we have come to the conclusion that the recommendations are in fact likely to prove, at best, costs neutral. If implemented as proposed they may provide savings by the removal of success fees and ATE premiums from a defendant’s liabilities but this must be set against the significantly inflationary effect of the proposed damages calibration and judicial valuation uplift. An uplift of 10% on the level of damages awarded by the judiciary is likely to represent an increase of something like 20% - 30% on the level of damages that we currently negotiate with claimants on unlitigated and non-trial cases (the overwhelming majority of settlements). Furthermore, the proposed amendment of the Part 36 rules to increase the penalty on defendants who fail to beat a claimant’s offer will inevitably mean that defendants’ own offers will have to be increased somewhat in order to buy off this risk. Finally there is the implementation risk. Fierce lobbying from those whose interests are not served by a reduction in the costs attributable to litigation is already underway and with the reforms being introduced, at the quickest, over a period of 2 years or more there exists the nightmare possibility that the process will stall half way through, with the damages increases having been implemented but without the counterweight of the legislation required to remove success fees and ATE. We will be monitoring this situation closely and adding our voice to industry representations that aim to ensure as smooth and painless a transition as possible into the new litigation costs environment. Further Bulletins will follow as that environment takes shape. Our thanks go to Simon Denyer and DWF Solicitors for their considerable assistance in providing material for Appendix 1.
  • 5. 1796-Special Technical Bulletin – March 2010 3 Recommendation Defence perspective Implementa- tion mecha- nism Potential implemen- tation date Inflation direction Fixed costs in personal injury Fast Track (claims up to £25,000). Model 1 with Success fees; model 2 without. Pre-trial costs in non personal injury cases capped at £12,000. Model 1 could be implemented first featuring success fees for Motor, EL and PL of 12.5%, 25% and 45% respectively. Greater certainty as to the eventual liability and aid accurate reserving. CPR Q4 2010 Part 36 – where a defendant fails to beat a claimant offer - 10% enhancement of damages. An inflationary driver on damages spend. CPR Q4 2010 Controls on the costs of litigation – encouraging ADR, robust approach to costs management, controls on the costs of disclosure and witness evidence. Should help control the costs of litigation. CPR and Practice Direction Q4 2010 A working party to consider a “transparent and neutral” calibration of judicial personal injury damages. Universal adoption of Claims Outcome Advisor or similar system. Should increase certainty, reducing quantum arguments and speeding up settlement but, given judicial involvement in the working party, probably at a higher level than presently. Stakeholder Working party Q3 2011 Success Fee uplift to be irrecoverable from paying party. A saving on claims costs. The fallback of success fees and premiums remaining recoverable is still favourable. Legislation Q2 2012 ATE insurance premium to be irrecoverable from paying party Saving on costs. ATE premiums are often set at a substantial proportion of a claim’s full value. Legislation Q2 2012 Judicial valuation of compensation for Pain Suffering and Loss of Amenity to be increased by 10%. A significant inflation driver. Likely to mean an increase on current negotiated settlement levels of around 20% - 30%. CPR - in tandem with legislation on SFs and ATE Q2 2012 Fixed costs without success fees (model 2). Indemnity Principle to be replaced by Qualified One Way Costs Shifting. (Personal Injury litigation only). Fixed costs represent a saving on current costs levels. Successful defendants unable to recover costs from claimants who lose/abandon litigated claims. Not a significant financial offset. CPR – in tandem with legislation on SFs and ATE Q2 2012 Encouraging greater take-up of BTE insurance (but not compulsory) Could facilitate the bringing of claims and so lead to an increase in numbers. None required Ongoing Table A - Principal recommendations
  • 6. 1796-Special Technical Bulletin – March 2010 4 Recommendation Employers liability Public liability Motor Professional indemnity Fixed costs in personal injury Fast Track (claims up to £25,000). Model 1 with Success Fees; model 2 without. Pre-trial costs in in non personal injury cases capped at £12,000. Part 36 – where a defendant fails to beat a claimant offer - 10% enhancement of damages. Controls on the costs of litigation – encouraging ADR, robust approach to costs management, controls on the costs of disclosure and witness evidence. A working party to consider a “transparent and neutral” calibration of judicial personal injury damages. Success fee uplift to be irrecoverable from paying party. ATE insurance premium to be irrecoverable from paying party Judicial valuation of compensation for Pain Suffering and Loss of Amenity to be increased by 10%. Fixed costs without success fees (model 2). Indemnity Principle to be replaced by Qualified One Way Costs Shifting (Personal injury litigation only.) Encouraging greater take-up of BTE insurance (but not compulsory) Table B - Impact by Line of Business
  • 7. 1796-Special Technical Bulletin – March 2010 5 Case management In recent years a number of the larger court centres have been developing specialisation of judges in multi track cases. Where practicable, cases should be allocated to judges who have relevant expertise; as far as possible, a case should remain with the same judge; case management directions for each type of multi track case of common occurrence should be standardised; and case management conferences and other interim hearings should be used as effective occasions for case management, not just formulaic hearings that generate unnecessary costs. Enforcement of rules and directions – the courts should also set realistic timetables for cases and not impossibly tough timetables in order to give an impression of firmness. Courts at all levels have become too tolerant of delays and non-compliance with orders and the balance needs to be redressed. On an application for relief from any sanction imposed for a failure to comply with any rule, practice direction or court order, it is recommended by Jackson that the list of factors to be considered by the court in CPR rule 3.9 be repealed and replaced by: “(a) the requirement that litigation should be conducted efficiently and at proportionate cost; and (b) the interests of justice in the particular case.” This does not preclude the court taking into account all of the matters currently listed but it simplifies the rule and signals a change of balance. It is also recommended that, if and in so far as time allows, judges or clerks on their behalf should contact parties at appropriate stages in order to enquire what progress has been made in complying with orders and directions. Comment: It remains to be seen whether this change in the rules will bring about the change Jackson is seeking. Lord Woolf started with the same aims in his Access to Justice report and those aims were continued by the draftsmen of the CPR, but once the CPR were in force the Court of Appeal often offered escape routes from the sanctions that would otherwise have applied. Court of Appeal guidance – the criticisms of the Court of Appeal for giving inconsistent guidance are not accepted. However, the Master of the Rolls should designate two lords justices to be called upon to consider issues concerning the interpretation or application of the CPR to promote consistency of guidance. Alternative dispute resolution – both mediation and joint settlement meetings have achieved a satisfactory resolution of many disputes, including personal injury claims. These are under-used and there should be a campaign to ensure that all litigation lawyers, judges and the public are properly informed of how ADR works and the benefits it can bring. A handbook should be prepared, explaining what ADR is and giving details of all reputable providers. However, it should remain non - mandatory for all proceedings. There is a widespread belief that mediation is not suitable for personal injury cases – this is incorrect. Mediation is capable of arriving at a reasonable outcome in many personal injury cases, and bringing satisfaction to the parties in the process. However, it is essential that such mediations are carried out by mediators with specialist experience of personal injuries litigation. Witness statements and expert evidence – to curb the problem of over long statements, case management measures and costs sanctions should be used. No rule change is required - all that is required is effective use of the existing rules: • CMC – in appropriate cases (i.e. where proportionate to do so) the best way to avoid wastage of costs occurring is for the court to hear argument at an early CMC about what matters need to be proved and then to give specific directions relating to witness statements and the nature and scope of any expert evidence. • Costs sanctions – these should be applied against the party responsible for adducing overlong or irrelevant statements. An adverse costs order could (in the case of an otherwise successful party) be that the party is not to receive its costs of preparing the statement, or (in the case of an otherwise unsuccessful party) that the party is to pay its opponent’s costs on an increased basis. • Costs estimate - a party seeking permission to adduce expert evidence should provide an estimate of the costs of that evidence to the court. • Annex C practice direction pre- action conduct – this currently provides guidance on instructing experts applicable to all cases, except those where a specific protocol contains provisions about instructing experts. One size does not fit all and this should be repealed. Appendix 1 Detailed analysis and comment
  • 8. 1796-Special Technical Bulletin – March 2010 6 • Concurrent evidence – in a procedure developed in Australia whereby opposing experts give evidence concurrently (known as “hot tubbing”), the experts meet pre-trial to identify where they agree and where they disagree. At trial, experts in the same discipline are sworn in at the same time and the judge chairs discussion between the experts. The pre-trial document recording the matters upon which the experts disagree serves as the agenda. Counsel can put questions to the experts and the experts can put questions to each other. This should be piloted, but only in cases where the parties, experts, lawyers and the judge all consent. If the results are positive, consideration should be given to giving the judge the power to direct that the concurrent evidence procedure be used in appropriate cases. CFA funding Success fees and ATE insurance premiums – these should cease to be recoverable from unsuccessful opponents in civil litigation. Lawyers will still be able to agree CFAs with their clients, but any success fee will be payable by the client, most likely out of the damages awarded to them. ATE can still be taken out by parties if they choose to do so at their own expense. These recommendations, if accepted, would require primary legislation. Comment: • Opposition to these reforms is to be expected from a number of interest groups which may delay or even prevent implementation • Claimant solicitors will face a change of culture with costs pressure from clients - on a CFA, the client will have a direct financial interest in his solicitors keeping their fee to a minimum - the greater the base costs the greater the success fee and the more damages will have to be deducted. Claimants’ solicitors have of course been in this position before i.e.pre-2000. • It is anticipated that lower success fees will be agreed, with success fees in the order of 0 - 20% becoming more common. • One area of concern may be a potential rise in the number of unmeritorious claims where it may be necessary to make a commercially sensible nuisance offer and pay costs rather than incur the higher overall costs of winning the case which will then not be recoverable because of the changes to the costs shifting rules. There is a question mark over whether Jackson’s proposals for deterring frivolous claims and applications (see below) will be enough to do so. However, with lower success fees on offer, claimant solicitors may be more wary of taking on weaker cases and so they are less likely to be pursued in the first place. If the above is accepted, in order to assist individual (but not corporate) claimants in meeting the success fees out of damages, it is recommended that: • The level of general damages for pain, suffering and loss of amenity be increased by 10% across the board. • The amount of success fee which lawyers may deduct be capped at 25% of damages, excluding any damages referable to future care or future losses. • The reward for making a successful claimant’s offer under CPR Part 36 (i.e. an offer which the defendant fails to beat at trial) be enhanced by an award of an additional 10% of any damages (possibly less than 10% in claims over £500,000). Comment: • The increase of 10% will be to general damages as currently set in judicial awards Will judges react to the perceived current low levels by starting to make higher awards before any official change or will current levels of PSLA awards be maintained? In any event it is likely to be the case that the newly calibrated level of damages will be more than 10% higher than that at which defendant insurers settle the vast majority of their claims at present since most settlements are achieved before the claim reaches a judge and typically at lower levels than judges apply. • The Part 36 proposals could be perceived as almost penal in nature but they are intended to encourage defendants to settle where a well judged Part 36 offer has been made. Claimants will need to be adept at making early, well judged offers and Defendants to carefully consider these as before.
  • 9. 1796-Special Technical Bulletin – March 2010 7 Fallback proposals: Control of Success fees and ATE premiums If it is concluded that it is not possible to turn back the clock to a pre-April 2000 regime, the level of recoverable success fees and ATE premiums will need to be rigorously controlled. These proposals could be achieved by a change to the CPR: Success fees • Fixed success fees should be introduced where CFAs are commonly used. • There should be a period in which the defendant has the opportunity to admit liability before a success fee is chargeable or recoverable, particularly in those cases governed by pre-action protocols. • Any element of a success fee which provides for protection against the risk of the claimant not accepting a good Part 36 offer should not be recoverable from the paying party. • Where a two-stage success fee model is applied and a Part 36 offer is made and not beaten at trial, the receiving party should be limited to the level of success fee that applies at the last date when he could have accepted the offer. So for example, in an RTA case with 12.5% success fee for the period up to trial and 100% at trial, a claimant who proceeds to trial and does not beat a pre-trial Part 36 offer is limited to a success fee of 12.5% and is not entitled to 100%. This would overturn the decision in Lamont v Burton [2007 CA]. • Fixed recoverable success fees should not apply to assessment proceedings and no success fee should be recoverable, overturning Crane v Canons Leisure [2007 CA]. • Where a fixed success fee is claimed by the receiving party, the paying party is entitled to be shown evidence that a CFA was in place for the material period so as to justify the charge of a success fee. Where the claimant could have used other funding which would not have resulted in a CFA being used, that should be a valid reason for disallowing any claim for a success fee, but should not otherwise invalidate the retainer or prevent recovery of base costs. This would amend the effect of Kilby v Gawith [2008 CA]. ATE premiums If these remain recoverble: • no ATE premium should be recovered if liability is admitted within the protocol period; • no ATE premium should be recovered for Part 36 risks; • premiums should be capped at 50% of damages awarded; and • in cases where the ATE insurer is currently entitled to avoid the policy, recovery from the insurer should be allowed with rights against the policyholder preserved. Costs control Proportionality - ‘Proportionate costs’ should be redefined in the CPR by reference to value, complexity, conduct and any wider factors such as public importance. The fact that costs were reasonable and necessary should not necessarily make them proportionate. This will allow a judge to stand back and make significant reductions to costs where they far outstrip damages. Comment: This is effectively a comment on the failure of the test proposed by Lord Woolf in Lownds v Home Office [2002] CA to control costs by way of proportionality. The Lownds test has been said by paying parties to have been of very little benefit in controlling costs. Adopting the approach he follows throughout the report, Lord Justice Jackson cuts through the problem and recommends a more radical approach that will be welcomed by insurers. The Indemnity principle – this prevents a party recovering more by way of costs from an opponent than it is obliged to pay to its own lawyers and in recent years has generated extensive satellite litigation. This should be abolished and in its place CPR Rule 44.4 be amended so that the court will allow “reasonable amounts in respect of work actually and reasonably done.”
  • 10. 1796-Special Technical Bulletin – March 2010 8 Summary and detailed assessment Summary assessment - this procedure generally works well, and should be retained: • Guideline hourly rates - the new Costs Council should review and revise the GHRs. Insurers will welcome the pointer that the aim of the GHR should be to reflect market rates for the level of work being undertaken, rates which an intelligent purchaser with time to shop around for the best deal would negotiate. GHRs can only be guidelines or starting points. The judge doing the summary assessment should move up or down from those rates, as appropriate. Existing anomalies to be looked at: — Is there any justification for paying “City” rates to firms of solicitors based in the City of London but not doing “City” work? Jackson believes “City” rates should only be paid for heavy commercial work. — What reductions should there be in hourly rates for personal injury work, if referral fees are banned or capped, as recommended? — With Jackson noting typical defendant rates often half those of claimant solicitors, what factors justify higher rates for claimant solicitors than those paid to defendant firms and what allowance should be made for those factors? Detailed assessment – changes are recommended including: • Bill of costs - a new format for bills of costs should be developed and a package of measures to improve proceedings should be adopted. This may take some time to develop. • Procedure – reforms to procedures ought to be made in the near future including provisions for interim payments, shorter points of dispute and reply, Part 36 offers, provisional assessment and guideline hourly rates. Costs management - the judge should decide in any individual case whether to adopt costs management as an adjunct to case management. This course would be appropriate in any case where there appears to be a risk of costs becoming disproportionate either to the sum at stake or to the complexity of the case. A pilot of costs management is proposed for multi track clinical negligence litigation. When the results of the pilot are known, consideration should be given to drawing up a scheme for costs management of all “heavy” personal injury cases, both pre-issue and post-issue. Court fees – the current level of court fees is too high. It is recommended that there be no further increases, save in line with RPI rate of inflation and that fees should be ploughed back into the civil justice system. Fixed costs in the personal injury fast track The costs recoverable for all fast track personal injury cases should be fixed by October 2010. These reforms, if they find favour with the Lord Chancellor and the Master of the Rolls, could all be implemented rapidly by the Civil Procedure Rule Committee, without any need for primary legislation. • Two alternative matrices are proposed for RTA, EL accident (ELA) and PL accident (PLA) claims. • For EL Disease claims there will be further data collection and time for written submissions. • The proposed fixed costs would not apply in a case where a party acts so unreasonably that the court makes an order for indemnity costs against that party. Escape clause - the escape clause in the existing fixed recoverable costs scheme applies where (a) the court considers that there are exceptional circumstances and (b) upon assessment the costs turn out to be at least 20% higher than the fixed costs. It is recommended that a similar escape clause be incorporated in the new fixed costs regime. There should be no further escape clauses - if a case is of particular complexity, it may be allocated or re- allocated to the multi-track. If a party acts unreasonably (as opposed to presenting its case in the normal way and losing) the court can override the fixed costs regime by making an order for indemnity costs. The matrices - of fixed costs for adoption in RTA, ELA and PLA cases can be found in appendix 5 to the report at pages 538 and 539. The difference between the two matrices is that the second (table B) incorporates an allowance for early admission of liability. If table B is adopted, where the defendant admits liability within the protocol period, discounts of £250
  • 11. 1796-Special Technical Bulletin – March 2010 9 pre-issue or £500 post-issue (i.e. where quantum only proceedings are issued) will apply at each stage. As a consequence of this discount being available, the fixed costs in table B have been inflated by £50, to take into account the fact that in a proportion of these claims the discounted figure will be paid. This is designed to influence behaviour, so that defendants are incentivised to admit liability at an early stage, thereby increasing the chance of early settlement. Example EL claim between £5,000 and £10,000 in value: • Post issue, pre-allocation: £3,175 + 20% of damages • Post allocation, pre-listing: rises to £3,875 + 25% of damages • Post listing, pre-trial: rises to £4,775 + 30% of damages • Trial fee as before • Add success fees as before Medical reports and other disbursements - the sums recoverable for obtaining medical reports and records should be capped at the levels currently specified in the Medical Reporting Organisation Agreement. (This agreement, dated 2nd April 2009, was made between liability insurers and “compensators” and MRO and provides for capped recoverable costs in respect of certain expert medical reports in RTA, EL and PL claims where general damages do not exceed £15,000.) These should be regularly reviewed by the new Costs Council (see below). Prompt steps should also be taken to secure the fixing of other disbursements. Defendants’ costs - the same fixed costs regime should apply when costs are recoverable by defendants as when costs are recoverable by claimants. Where the defendant wins on liability, the damages which were in issue must be assessed for the purpose of ascertaining the fixed costs to which the defendant is entitled. This figure should be the pleaded value of the claim, or its apparent value on the basis of the facts pleaded. In the absence of agreement between the parties, the court when making an order for costs against the claimant should state what damages were in issue. Where the defendant wins on quantum, in cases where the claimant fails to beat a defendant’s offer, the amount of damages will, of course, be known. The court is likely to order (a) the defendant to pay the claimant’s costs up to the date when the offer should have been accepted and (b) the claimant to pay the defendant’s costs thereafter. The claimant will then recover his fixed costs up to the relevant date. The defendant will recover his fixed costs (from the matrix) for the period between the date when his offer should have been accepted and the date of judgment. There can then be a set off between the two sums of fixed costs which each party is entitled to recover. Employers’ liability disease cases - it is not accepted that these cases are a special category, which should be excluded from the fixed costs regime. However, some do have complicating features, which necessitate allocation to the multi-track despite the fact that the damages claimed fall within fast track limits. It is proposed that Professor Fenn continues his collection and analysis of data and provides that material to the claimant and defendant representatives from the CJC for facilitative meetings by 31 March 2010. They will then have until mid May to submit their written observations which Jackson will then consider and then recommend a matrix of fixed costs. Again, this could potentially be in place by October 2010. RTA cases not involving personal injury – these should have a separate set of fixed costs. The main heads of claim are usually vehicle damage and cost of hire. Proposed costs: • for claims resolved pre-issue - £626 plus 4% of damages • for claims resolved post-issue - £1,583 plus 9% of damages. • if case goes to trial - the trial advocacy fee in CPR Part 46 should be added to those fixed costs. Comment: There are potential costs savings here for insurers. However, if the above recommendations are accepted, Jackson himself comments that the rules to implement them will need to be drawn with care, in order to prevent opportunities for satellite litigation. It will also be necessary to watch closely how those rules operate in practice. Assuming a regime of fixed costs for personal injury claims is put in place by October 2010 and then at a later date, success fees and ATE premiums become irrecoverable and the payment of referral fees is banned or capped, how should these reforms be integrated? Jackson puts forward a ‘roadmap’ which both rule makers and the legislature might consider following:
  • 12. 1796-Special Technical Bulletin – March 2010 10 • All provisions in the rules entitling parties to recover success fees will be repealed including the provisions regarding recoverable success fees in the rules and matrices concerning recovery of fixed costs. Solicitors will be free to advertise the levels of success fees which they will charge and will compete upon the basis of which solicitors are charging the lowest success fees to clients, rather than which solicitors can pay the highest referral fees. • There should be an easy mechanism available for clients to resolve any disputes or complaints over deductions from damages e.g. a simple arbitration service. Fixed costs in litigation generally Costs cap - the report proposes a limit of £12,000 on the pre-trial costs that can be recovered in any non-personal injury Fast Track case unless an order for indemnity costs is made. This sum to include counsel’s fees, experts’ fees, disbursements and all other pre-trial outlays. Costs council - if a fixed costs regime is adopted, a Costs Council should be set up to review the fixed costs matrices and overall upper limit for fast track fixed costs. It could also set Guidelines Hourly Rates for summary and detailed assessments (which should come into effect on 1 April each year) and give guidance upon recoverable fees for counsel and experts. Litigants in person – if all costs in the fast track are fixed, then the amount recoverable by litigants in person in fast track cases should never be more than two thirds of the level of fixed costs that would have been recovered if they had been legally represented. The hourly rates for litigants in person should be increased to £20 and reviewed periodically. Fixed costs outside the fast track – it is premature to introduce fixed costs for lower value multi-track cases for the time being but this should be considered further after evaluation of the fast track regime. General damages in personal injury – Neutral calibration The two main software systems currently used by insurers in England and Wales are Colossus and Claims Outcome Advisor (COA). There is also a recently launched online quantum assessment tool, “SMART Evaluate” which is currently being piloted by a number of law firms. Calibration - Jackson believes it should be possible to produce a transparent and “neutral” calibration of existing software systems to assist in calculating general damages, which could encourage the early settlement of claims. A working group should be set up by the CJC consisting of representatives of claimants, defendants, the judiciary and others to take this matter further. The calibration should accord as nearly as possible with the awards of general damages for PSLA up to £10,000, which would be made by the courts if cases were litigated. Jackson believes that the presence of two district judges on the working group should enable a reasonable view to be taken of the data derived from settled cases. Format of medical reports - if a particular format of medical report would assist in the effective use of properly calibrated software tools, the working group should also give guidance on how medical reports should be prepared. Comment: • This should remove an area of dispute/ extra costs. • Jackson envisages that such calibrated software systems are likely to be more widely used and to carry greater weight in negotiations. However, he stresses that in contested cases, the judge will still consult textbooks and law reports, as now. The judge will be free to have regard to the computer generated figure but any figure for general damages derived from textbooks, law reports or software systems can only be a starting point - the judge will then adjust that figure as necessary, in order to take account of the particular features of the case. Non CFA funding Jackson envisages several methods of available funding in addition to CFAs: BTE insurance – there is no recommendation that motorists or any other potential defendants be compelled to take out BTE on behalf of those they might injure. However, positive efforts should be made to encourage the take up of BTE insurance by householders as an add-on to household insurance policies. There is also an indication of support for making an amendment to Reg. 6 Insurance Companies (Legal Expenses Insurance) Regulations 1990 to provide that the insured’s right to choose a lawyer arises when a letter of claim is sent on his or her behalf to the opposing party – however, before any such amendment is considered, the effect upon BTE insurance premiums must be considered.
  • 13. 1796-Special Technical Bulletin – March 2010 11 Comment: A number of BTE insurers receive referral fees and the proposed abolition of referral fees is likely to increase the BTE element of the insurance premiums and may make this element prohibitively expensive or stifle the take up of BTE. Contingency fees – these should be per- mitted i.e. fees which (a) are payable if the client wins and (b) are calculated as a mul- tiple of the ordinary fee or a percentage of the sum recovered. The defendant will only be liable for the ordinary fee, the balance being paid out of the claimant’s damages. These agreements should also be regulated and should not be valid until countersigned by an independent solicitor to ensure proper advice has been given as to the most ap- propriate funding arrangement. Personal injury litigation should not be exempted. However, the cap on deductions from damages should be the same for CFAs and contingency fee agreements. It is recom- mended that no contingency fee deducted from damages should exceed 25% of the claimant’s damages, excluding damages referable to future costs or losses. Self funding schemes – these had been proposed as means of funding litigation in the event that the present regime for CFAs is changed. However, there is no strong indication of financial viability of either a Contingency Legal Aid Fund (“CLAF”) or Supplementary Legal Aid Scheme (“SLAS”) but the use of these as forms of legal fund- ing for civil litigation should be kept under review. Legal aid – no recommendation for the ex- pansion of legal aid but a plea for no further cutbacks in availability or eligibility. Third party funding – in principle this is beneficial and should be supported – it is most readily obtained for high value cases with good prospects of success. Regulation is not currently required but it is recommended that (i) a satisfactory voluntary code, to which all litigation funders subscribe, should be drawn up. This should contain effective capital adequacy requirements and should place appropriate restrictions upon funders’ ability to with- draw support for ongoing litigation; (ii) the question whether there should be statutory regulation of third party funders by the FSA ought to be re-visited if and when the third party funding market expands; (iii) third party funders should potentially be liable for the full amount of adverse costs, subject to the discretion of the judge. Pre-action protocols General protocol - substantial parts of the 2009 Practice Direction – Pre- Action Conduct (PDPAC) should be repealed as it often leads to pre-action costs being incurred unnecessarily. Cost sanctions will apply to curb unreasonable behaviour. This will not absolve parties from the obligation to conduct sensible pre-action correspondence. For the avoidance of doubt, Jackson proposes that the PDPAC should contain a provision along the following lines: “In all areas of litigation to which no specific protocol applies there shall be appropriate pre- action correspondence and exchange of information.” Personal injury and clinical negligence - the majority of personal injury claims and a substantial minority of clinical negligence claims are resolved during the protocol period. The CJC is intending to conduct a review of pre-action protocols during 2010. Professional negligence – the report recommends that the existing protocol be retained without amendment. Enforcement - there are serious problems of non-compliance and both claimants and defendants (or their insurers) are culpable. The remedy is for primary legislation to permit applications to be made before proceedings have been commenced, in respect of breaches of pre-action protocols. The remedies which should be available upon such application should be any of the following directions: • That the parties are relieved from the obligation to comply or further comply with the protocol. • That a party do take any step which might be required in order to comply with the protocol. • That the party in default do pay such costs as may be summarily assessed by the court as compensation for losses caused by that default. • That the party in default do forego such costs as may be specified in the event that it subsequently secures a favourable costs order. • If the case is in the fast track, that the fixed costs regime do cease to apply to that case.
  • 14. 1796-Special Technical Bulletin – March 2010 12 Comment: • Is this a dangerous proposal with potential to generate, rather than save costs? This is a completely new procedure which even Jackson himself stresses must not be allowed to “get out of hand.” Jackson recommends that the Court of Appeal take an early opportunity to give firm and consistent guidance to stamp out frivolous applications under the new provision and pre-action conduct which makes a mockery of the protocols. • This addition would need primary legislation and may therefore, even if accepted, take some time to be implemented. Process and procedure MOJ new process for RTA claims - the MOJ’s new process for handling personal injury claims arising out of road traffic ac- cidents where the amount in dispute is up to £10,000 and liability is admitted, should be monitored to see whether it leads to costs being kept proportionate, or whether costs in fact increase due to satellite litiga- tion. Jackson has concerns about the sheer complexity of the new process. There should be discussions between claimant and defendant representatives, under the CJC, to develop a simpler and shorter pro- cess for all fast track personal injury cases. Personal Injury Multi-Track Code – this code for handling personal injury claims above £250,000 was agreed between APIL, FOIL and a number of insurers and has been piloted since July 2008 and has just been extended. One of the underlying aims is to focus on rehabilitation of the injured claimant, agreed timetables and case plan- ning that promotes resolution by negotia- tion rather than trial and it has worked well. However, it should remain a voluntary code. Part 36 offers - CPR 36.14 should be restored to its original wording so that costs consequences depend on the claimant failing to better an offer, rather than failing to “obtain a judgment more advantageous” than an offer. So, even if the claimant fails to beat the offer by a matter of pennies, the costs consequences will flow and if he beats it by a matter of pennies, they will not. This reverses the effect of Carver v BAA plc [2008] CA. Medical reporting organisations – the use of these is sanctioned by para 2.15 of the protocol and has expanded since Wool- lard v Fowler (in which Senior Costs Judge Hurst held that fees paid to an MRO were recoverable as a disbursement under the fixed recoverable costs scheme): • MROs have had the overall effect of controlling costs of obtaining medical evidence and at the moment, no change in the rules is recommended to reverse the effect of Woollard v Fowler. • However, the effect of MROs upon costs must be kept under close scrutiny, possibly by the new Costs Council. If ever it appears that their involvement is increasing the costs of the process, serious consideration should be given to rule change. • Direct communication should always be allowed between a solicitor and any medical expert whom the MRO instructs on behalf of that solicitor and this should be dealt with in the MRO Agreement, when it comes to be renegotiated in March 2010. Medical reports in fast track cases – paragraph 2.14 of the protocol is intended to promote the use of one medical expert only in lower value personal injury cases. Concerns have been expressed that this is not working effectively. There is force in the proposal that the defendant should have a limited period in which to put questions to the claimant’s expert. There is also force in the proposal that the defendant, having approved the claimant’s choice of medical expert, should not then instruct a separate expert without good reason. However no separate recommendations are made as the CJC is about to embark upon its own review of protocols. Rehabilitation - rehabilitation is an essential part of the overall cost of the compensation process and all stakeholders involved in per- sonal injury claims are urged to support the Rehabilitation Code but no specific recom- mendations are made. Qualified one way costs shifting in personal injury litigation In return for ATE insurance premiums not being recoverable, Jackson proposes one way costs shifting: where the claimant will not be required to pay the defendant’s costs if the claim is unsuccessful, but the defendant will be required to pay the claimant’s costs if the claim is successful. However, this should be qualified by a safeguard: • costs ordered against the claimant shall not exceed the amount (if any) which is a reasonable one for him to pay having regard to all the circumstances including (a) the financial resources of the parties to the proceedings and (b) their conduct in connection with the dispute to which the proceedings relate.
  • 15. 1796-Special Technical Bulletin – March 2010 13 • This is intended to mean that a successful claimant will pay the Defendant’s costs if (a) he has behaved unreasonably (including the pursuit of frivolous and fraudulent claims and in declining a Part 36 offer which he fails to beat) or (b) the Defendant is uninsured and not self insured or (c) where the Claimant is conspicuously wealthy. Jackson proposes qualified one way costs shifting for bodily injury claims and believes that this may, subject to consultation, be ex- tended to certain other types of claims but does not propose it applying to commercial disputes. There is therefore no proposal that one way costs shifting apply in professional negligence claims. Referral fees Lawyers should not be permitted to pay referral fees. If this is accepted, it could be implemented by primary legislation, which would prohibit anyone from buying or selling personal injury claims or the Solicitors’ Code of Conduct could be amended, so that solicitors are prohibited from paying referral fees. If not accepted, referral fees should be capped at a more modest figure, say £200, to reflect normal marketing costs. Comment: • This proposal could be difficult to implement with parties finding a way around any ban. • If referral fees are removed, where does that leave current fixed costs which clearly allow for a substantial referral fee – will fixed costs levels need to be renegotiated? • The landscape will change dramatically in or after 2011 when Alternative Business Structures come into being but Jackson does not believe that the existence of a ban upon referral fees could be a serious fetter upon their operations. Disbursements – these are paid for by clients, claimant law firms or external funders. This will not change with any of the Jackson proposals, whether qualified one way costs shifting applies or not. Currently many disbursements are covered by an ATE policy so that if the Claimant loses, the ATE insurer pays the disbursement. ATE insurance could therefore still remain as a funding option for claimants to insure the claimant’s own disbursements whether there is qualified one way costs shifting or not. If ATE premiums become irrecoverable and the claimant chooses not to take out an ATE policy, disbursements will have to be met by the client or by the solicitor. Comment: Jackson himself has commented: “Claimant solicitors may see fit to re-allocate some part of the referral fees saved towards paying disbursements in unsuccessful cases.” However, in motor cases, the risk of not recovering disbursements is very low - there will be a large windfall for claimants’ solicitors if referral fees are banned and the fixed costs regime remains at the same levels. Small claims limit (Personal injury) The upper limit for personal injury claims on the small claims track in respect of general damages is currently set at £1,000 and there has been no increase since 1999. Despite Jackson noting considerable force in the arguments for raising the limit, if a sat- isfactory system of fixed costs is introduced, the small claims limit will not be increased until inflation warrants an increase to £1500. However, if fixed costs are not introduced or the process reforms prove unsatisfac- tory, the question of raising the limit more substantially should be revisited at the end of 2010. Comment: • Looking back over the period since the £1,000 limit was set in 1999 and applying the same inflationary trends going forward, this could arise in around 2017. • An increase in the small claims limit would pose a serious threat to the business model of most claimant solicitors’ firms. If they oppose Jackson root and branch, as they will be tempted to do, they risk the raising of the SCT limit which may have greater impact on claimant firms in the decade ahead.
  • 16. 1796-Special Technical Bulletin – March 2010 14 Disclaimer This publication has been produced by QBE Insurance (Europe) Ltd (“QIEL”). QIEL is a company member of the QBE Insurance Group. Readership of this publication does not create an insurer-client, or other business or legal relationship. This publication provides information about the law to help you to understand and manage risk within your organisation. Legal information is not the same as legal advice. This publication does not purport to provide a definitive statement of the law and is not intended to replace, nor may it be relied upon as a substitute for, specific legal or other professional advice. QIEL has acted in good faith to provide an accurate publication. However, QIEL and the QBE Group do not make any warranties or representations of any kind about the contents of this publication, the accuracy or timeliness of its contents, or the information or explanations given. QIEL and the QBE Group do not have any duty to you, whether in contract, tort, under statute or otherwise with respect to or in connection with this publication or the information contained within it. QIEL and the QBE Group have no obligation to update this report or any information contained within it. To the fullest extent permitted by law, QIEL and the QBE Group disclaim any responsibility or liability for any loss or damage suffered or cost incurred by you or by any other person arising out of or in connection with you or any other person’s reliance on this publication or on the information contained within it and for any omissions or inaccuracies. QBE Insurance (Europe) Limited and QBE Underwriting Limited are authorised and regulated by the Financial Services Authority. QBE Management Services (UK) Limited and QBE Underwriting Services (UK) Limited are both Appointed Representatives of QBE Insurance (Europe) Limited and QBE Underwriting Limited.
  • 17. 1796/SPECIALTECHNICALBULLETIN/MARCH 2010 QBE European Operations is a trading name of QBE Insurance (Europe) Limited and QBE Underwriting Limited. QBE Insurance (Europe) Limited and QBE Underwriting Limited are authorised and regulated by the Financial Services Authority. QBE Management Services (UK) Limited and QBE Underwriting Services (UK) Limited are both Appointed Representatives of QBE Insurance (Europe) Limited and QBE Underwriting Limited. QBE European Operations Plantation Place 30 Fenchurch Street London EC3M 3BD tel +44 (0)20 7105 4000 fax +44 (0)20 7105 4019 enquiries@uk.qbe.com www.QBEeurope.com

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