Implementing Jackson: the Government’s Plan

Implementation of Jackson: The Government’s Plan The Government have ignored practically every submission on behalf of claimants. The only change is to allow ATE for clinical negligence reports disbursements. Clarke and Djanogly Still go on about unmeritorious cases being used to force settlement on economic grounds Compensation culture is back again Reduce unfair costs for those faced with CFA actions Meritorious claims will be resolved at more proportionate costs, unnecessary or avoidable claims deterred from progressing to court

“The Way Forward” Abolish recoverability of success fees  100% max success fee subject to 25% cap on recovery from claimant: not clear if this is GDs only or specials other than future losses as well. Abolish recoverability of ATE premiums  (But allowed for costs of medical reports only in clinical negligence, details to be in regulations)  No recovery of self insurance (eg Trades unions) 10% general damages uplift

“The Way Forward”2 QOCS introduced for PI only  Exceptions: behaviour: fraud, frivolously, unreasonably pursuing proceedings  very wealthy  possible minimum payment to defendants’ costs if case fails Part 36 incentives  Based on beating claimant’s money offer, even if small margin  10% uplift on value of claim

“The Way Forward” 3 DBAs allowed  Base costs from defendant  Balance from claimant up to 25% cap of damages excluding future loss: ? Include specials to date of settlement? New test of proportionality

The Government’s background argument CFAs used by those able to fund case: unions, commercial Defendants’ proportionality figures MGN, Pankhurst cases Scotland Non recoverable ATE for QOCS Clinical negligence: looking at sharing NHSLA liability expert reports RTA Portal: working well, but no recoverability of ATE or success fee element of costs, can charge claimants, market forces  Majority of portal cases have BTE Encourage BTE take up

The Governments Conclusions Claimant solicitors will adapt to maximise profits while serving clients’ interests Meritorious cases will still be pursued Weaker cases deterred Restoring fair balance to system Defendants should benefit NHS legal costs will fall by 1/3 Further measures being consulted on

Government’s next steps Primary legislation re recoverability as soon as parliamentary time allows Other changes will be to CPR or other secondary legislation Further consultation Reforms enacted together

New MoJ Consultation: “simpler and quicker system” Compensation culture again in the foreword! Consultation closes 30 th June Principles: Proportionality Personal responsibility Streamlined procedures Transparency

Proposals particularly affecting PI RTA scheme threshold extend to £25,000 or £50,000, with modifications for complexity of higher value Extend “the principles” of RTA scheme to other types of PI, with fixed recoverable costs, with modifications: PL, EL, low value clin neg  This would be done without legislation  Early evaluation of portal to decide if and when extension to be introduced Fast track claims not within new process or left eg because liability not admitted, covered by new matrix scale of fixed recoverable costs

Proposals particularly affecting PI 2 Mandatory pre-action directions for money claims under either £25,000 or £100,000: not clear if applies to PI, with compulsory mediation/settlement phase Small claims track limit: no increase "at this stage” in PI threshold set at GDs £1,000 Fast track limit: poss. increase e.g. to £35,000, to reflect general increase in small claims limit, depending on where that is increased to: not clear if this fast track increase includes PI Emphasis on mediation/ADR, including compulsion, at allocation stage: not clear impact on PI of proposal, but on face of it could apply

Other Points Increase in threshold for High Court to £100,000, but PI will remain at £50,000 Single county court ( i.e. losing geographic boundaries) Still outstanding bits of Jackson: costs pilot in Leeds etc, standard case management directions, costs budgeting: under discussion with Judicial Steering group to inform implementation decisions.

Why is this the wrong way to go? Access to justice denied A sledgehammer to crack a nut The Government’s self interest The proposals are anti-competitive There is a better way

Access to Justice Denied The Government predict 50,000 fewer cases, yet all statistics and studies show only a third of good PI cases are ever brought even now. Based on the Scottish experience, the fall will be 25% of all cases. Cherry picking will be encouraged. Paradoxically, there is also an increased risk of unmeritorious and fraudulent claims proceeding, due to removal of existing screening processes Exclusion through unaffordable justice (especially for the middle classes) because the proposed alternative (qualified one way costs shifting or “QOCS”) is subjectively means tested and is uncertain in its application. Uncertainty for claimants: natural risk aversion to costs risks means good cases will not be brought: see our consumer survey: 77% would be put off, however small the risk.

Access to Justice Denied 2 Exclusion of small businesses from commercial cases: they risk victimisation by big suppliers or customers with no redress. Exclusion of victims of medical malpractice: medium range and smaller cases will be entirely excluded as they will be unviable. Exclusion of environmental damage and human rights abuse claimants from the developing world The proposals will seriously damage trades union legal assistance schemes, most of which will have to contract significantly and some may become unviable altogether.

Access to Justice Denied 3 Claimants will lose a large part of their compensation (up to a quarter of the damages will go to the lawyers, not the claimant). A very high proportion of claimants will be worse off. Claimants will not be able to fund the expenditure needed to bring their cases (“disbursements”), for example medical and police reports and court fees. More people will be unable to use lawyers, so there will be many more inexperienced unaided litigants in ‘person vs. the big legally represented insurance companies’, resulting in a worse outcome and more strain on the court system.

A sledgehammer to crack a nut There is no compensation culture, only a perception. Every study including that of the Prime Minister’s (then) adviser Lord Young has so concluded: the number of cases is stable or falling. 75% of cases already have industry agreed fixed legal costs: (Road Traffic Accidents) and this system is planned to expand for most other cases from April 2012, so only a tiny proportion, under 5%, ( the most serious cases) are left. Costs can become high because of the liability insurers’ strategies for which they only have themselves to blame, with very late admissions of liability and inadequate poor first offers, meaning more work has to be done. Some costs are inevitable e.g. disbursements for medical reports and court fees: there is an irreducible minimum.

The Government’s self interest The Government is often a defendant in its own right: their policy is neither objective nor evidence based, but self-serving. The MoJ has averaged 1,400 cases against it over the last 3 years. The Government is moving the goalposts to suit itself at the expense of injured citizens. The Government will be believed to be covering up medical accidents as cuts bite and waiting lists and times grow and standards fall. Lessons will not be learned. The Government will be seen as covering up for other public bodies to conceal the consequences of the cuts. E.g. broken pavements not fixed and public buildings not well maintained, resulting in more injuries. The Government are covering up the consequences of big cuts to the court service including court closures, by taking steps to reduce the number of cases at the expense of injured people.

Ignoring the loss The Government are ignoring the loss of income and additional costs for ideological reasons, including benefits and NHS treatment costs recovered from the insurance companies if the case is successful and loss of IPT and VAT receipts. The extra costs of caring for accident victims presently paid out of compensation will fall on Local Authorities and the NHS. In fact, the changes will cost the NHS £37 million more than the existing system.

The Proposals are anti-competitive Loss of choice in the market place as there will inevitably be contraction in the market with fewer solicitors able to make Personal Injury work viable and with fewer (if any) ATE insurers. Further restrictions on access to justice locally. This has been happening as firms withdraw from legal aid for other types of legal work.

There is a better way Alternatives that control costs and guarantee access to justice: some restrictions on recoverability of CFA success fees and ATE premiums can be made to work rather than wholesale abolition with charges to claimants. Our detailed proposals would achieve the Government’s policy objectives of reducing and rebalancing costs, giving the claimant a stake in the costs decisions, funding disbursements, preserving screening controls whilst also maintaining access to justice. In summary:

AJAG’s proposals No recoverability of success fees or After the Event (ATE) insurance premiums during the initial “protocol” period when the insurers should admit liability Greater use of fixed staged percentage rates for success fees, with 50% of the fee recoverable from the insurers, the balance chargeable to the claimant, subject to a 25% maximum deduction Staged ATE premiums, linked to the key steps in the case, with recoverability capped at 50% of the defendant’s own costs budget after litigation Incentives to take out early ATE to spread the risk, with recoverability reduced for late policies

Implementing the Jackson Proposals: the problems

Conditional fee agreements (CFA) and success fees Government policy: CFA success fees should no longer be recoverable from the losing party; claimants may be charged a success fee deducted from their damages. The benefits of recoverable success fees:  Maintains access to justice for all  Gives claimants certainty as to their costs exposure  Discourages nuisance claims  Resources problematic but meritorious claims  Finances investigation of difficult cases

CFA’s and success fees 2 The problems created by the Government’s policy:  Removes access to justice for 25% of claimants  Encourages cherry picking  Encourages speculative claims  Creates financial uncertainty for all claimants  Transfers litigation costs from insurance companies to injured claimants  Cuts claimants’ damages  Has little overall impact on reducing costs

A 10% increase in general damages: claimant to pay success fee Government policy: That there will be an increase in non-pecuniary general damages of 10% and the success fee should be recoverable from the claimant subject to a maximum of 25% of general damages  Government’s policy objective:  to give claimant a stake in the finances of the claim, without losing out

A 10% increase in general damages: claimant to pay success fee 2 The problems:  Damages are already too low  Proposed damages uplift within margin of negotiation for most cases  Proposed uplift does not take account of global offers  Data behind Government figures not published  Claimants will not receive full restitution  Deterrent effect of costs fears reduces access to justice  Caps on deductions from damages unclear  There are better ways of giving the claimant a stake in the claim

Success fees: a better way Government policy: Abolish recoverability of success fees; allow success fees to be charged to the claimant. Government’s policy objective:  Reduce costs  Give claimant a take in costs decisions  Deters weak cases Problems:  Loss of access to justice  Costs deterrent for claimant  No funding for difficult but meritorious cases  Reduces risk spread for difficult cases  Pressure on base costs  No deterrent to weak cases

Success fees: a better way 2 A better way:  Minimise disruption to the system  Maintains access to justice  Minimises uncertainties for the claimant  Gives claimant a stake in costs decisions  Provides sufficient resources for more difficult meritorious cases  Fixed, staged success fees  Equal shared recoverability  No recoverability for early admissions  No recoverability for costs proceedings  No success fee after part 36 failure  Reduce overall costs

Proportionality Government policy: There will be a new test of proportionality in costs assessment Problems:  Low damages awards in less serious cases may give the impression of disproportionality  Risk of loss of access to justice due to proportionality test  Applicability to fixed costs regimes  Risk of satellite litigation  Defendants’ conduct must be a factor taken into account

After the Event Insurance (ATE) Government’s policy: ATE insurance premiums should no longer be recoverable from the losing party. The benefits in summary of ATE:  Maintains and supports access to justice  Provides “equality of arms” against powerful opponents  Covers wide range of claims, not just personal injury  Gives claimants certainty  Covers disbursement and investigation costs  Deters fraudulent cases  Weeds out unmeritorious cases  Provides defendants with costs cover to avoid nuisance payments  Does not have policy restrictions like BTE (qv)  Operates in a competitive market with tight margins  There is a better way of both cutting costs and maintaining these advantages

Qualified one way costs shifting (QOCS) The Government’s policy: qualified one way costs shifting in personal injury cases only The problems caused by QOCS:  Uncertainty for the claimant  After the event means and merits tests  Intrusive enquiries, esp. for MINELAS  Possible minimum contribution to defendant’s costs  Encourages repudiation by liability insurers  ATE still needed (but unlikely to be viable) to cover residual risk  Loss of access to justice

Qualified one way costs shifting (QOCS) 2  No ATE screening, so more unmeritorious cases and speculative claims  No disbursement funding  More satellite litigation  Liability insurers have a virtual cartel  Loss of income to Government  Risk of undersettlement due to part 36 hazard  Questionable savings: ABI member says there will be an increase in costs and premiums  Only applies to personal injury

Before the Event Insurance (BTE): an inadequate alternative Government policy: To welcome greater use of existing BTE polices and the development of the market to expand BTE. Problems:  Not necessarily the best funding for the case  Restrictions on cover under BTE policies  Higher merits tests  Cap on cover  Restriction on choice of solicitor  ATE needed to replace cover when run out  Low take up

Disbursements: no provision for funding The Government have provided no solution to the issue of disbursement funding Problems:  Lack of disbursement funding  Some costs are inevitable  QOCS does not provide an answer  Amounts involved are not trivial  Legal aid alternative ruled out  Disbursement only ATE policies do not provide a solution  Risk of loans at rates of up to 16%  Regulation would inevitably be needed

Clinical Negligence Problems:  Medical report disbursements not funded  Savings will not materialise  NHS costs will rise by 8% or £37m.  Not realistic to expect the solicitor to fund these  Shared reports on liability are also unlikely to be practical  Disbursement only ATE policies are not commercially viable  Loss of the ATE screening function  Perverse incentives under QOCS to pursue weaker claims  at least 12% more unsuccessful cases  extra 8% failure rate  Potential increase in claims will be up to 1/3 rd more

ATE: a better way Government policy: To end recoverability of After the Event Insurance premiums Problems:  Reduces access to justice  QOCS alternative not practical and only applies to personal injury cases  No disbursement funding  Claimant at risk of costs  Loses screening out of fraudulent and unmeritorious cases

ATE: a better way 2 The better way:  Maintains access to justice  Gives claimant certainty  Reduces costs overall  Spreads risks  Covers disbursement funding  Gives claimants a stake in decisions on costs

Impact Assessment Problems:  No evidence base  data is skewed  Claimants worse off  Defendants are the winners  Contraction in market overlooked  Impact on small business overlooked  Efficiency gains only at expense of worse outcomes  No assessment of loss of revenue to Government  No assessment of additional costs to Government  Plans are discriminatory against those with disabilities, women, minorities