bulletin
Jackson's final report
25 January 2010
Lord Justice Jackson’s review of civil litigation costs has
culminated in the publication of a 584 page report, recommending
radical changes to how claimants fund litigation and which party
should bear litigation costs.
Two of the key recommendations are the legalisation of
contingency fees and that defendants should bear their own
litigation costs even if successful, which will likely lead to more
claims. Overall, however, the recommendations are probably more
favourable for defendants than claimants because Jackson also
recommends that claimant ATE premiums and 100% success fees on
claimants’ costs should no longer be recoverable from the losing
side. Instead, any success fee/contingent fee would be payable out
of damages, which would mean that, unlike the present Conditional
Fee Agreement (CFA) structure, the claimant would have an interest
in the level of costs their solicitor was incurring.
The abolition of the recovery of ATE premiums is underpinned by
a recommendation that BTE insurance - such as the legal expenses
cover afforded by household policies - become the main source of
litigation funding. For SMEs, the appeal of a new legal expenses
module within the current MLP book would greatly increase. This
presents an opportunity for the insurance industry.
Jackson LJ’s main recommendations
CFAs, contingency fees, success fees and
ATE
- CFAs are permitted to continue
- Contingency fees should become legal
- The cost of success fees and ATE insurance should no longer be
recoverable from the paying party
- Certain categories of claimant might need protection from the
possible consequences of an adverse costs order. Jackson LJ
recommends one way cost shifting in personal injury cases and
suggests that it may be appropriate to introduce it to other areas
of law, including, housing disrepair, claims against the police
etc. He specifically looked to see if one way cost shifting should
be brought in for professional negligence claims but accepts that
would be difficult for all claims, save for clinical negligence. He
suggests that other categories of claimant are not in need of
special protection
- In personal injury claims the success fee will be capped at 25%
of the damages (excluding damages for future care and losses)
He recommends a fall back position in the event that his main
recommendations are not accepted. For ATE, that means an amnesty
period during the protocol process allowing the defendant time to
admit liability and during that time the claimant is unable to take
out a policy (the suggestion seems to be between 42 days and three
months); no ATE insurance protection in relation to Part 36 risks;
recoverable ATE premiums should be capped at 50% of damages and ATE
insurers should not be able to avoid cover if the claim is
unsuccessful - they will have to pay the costs and then seek
recovery from the policyholder. On success fees, he suggests that
there should be fixed success fees keeping the two stage process,
an amnesty during the protocol period, Part 36 incentives and no
success fees in detailed assessment hearings.
There is a real risk the ATE market will collapse if the
recommendations are implemented. An increase in claims under BTE
legal expense insurance would result, but alongside the endorsement
of BTE insurance, a real opportunity emerges to expand/improve the
BTE insurance offering in policies with legal expenses modules,
with an opportunity to increase rates in some sectors.
Abolishing the recoverability of ATE premiums is likely to lead
to an overall costs saving, despite the likely increase in claims
frequency that would be generated by the recommendation to allow
contingency fees and the qualified one way cost shifting proposal,
below.
One way cost shifting
One way cost shifting means that when the defendant loses, he
pays the claimant’s costs; when the claimant loses, each side bears
its own costs
- Recommendation that the defendant should be able to recover
costs where the claimant has displayed unmeritorious behaviour
- Regarded as being more cost efficient
- Costs should be reasonable taking into account the financial
resources of the parties and their conduct in relation to the
dispute
- Disbursements are to be paid by the claimant or the claimant’s
solicitor. There is no justification for requiring defendants to
pay claimant’s disbursements where the claims are unsuccessful
Claims frequency is likely to increase as claimants would be
able to litigate in the knowledge that, if they fail, they will not
have a liability to pay the defendants costs. However, this effect
will be offset by other measures intended to reintroduce risk to
claimants, such as irrecoverable success fees.
Before the event insurance
- Although Jackson LJ discounts his earlier idea of making BTE
cover compulsory, he is strongly in favour of BTE insurance
- He does not make any recommendations in relation to personal
injury BTE cover but clearly believes that with the abolition of
ATE insurance in such claims that the market will adapt so that
there will be more policies available offering such cover
- Given that he believes that SMEs do not require special
protection from an adverse costs order, he recommends that insurers
work in conjunction with the Department for Business, Innovation
and Skills to encourage a greater take up of BTE insurance
- There should be encouragement for householders to buy BTE
insurance as he regards it as a beneficial product at an affordable
price
This should be a growth area; BTE insurance may well become the
only way in which many SMEs can afford to litigate. In other
markets - particularly household and motor - the appeal of BTE will
increase as risk-free litigation is abolished. Two key issues to
consider are: (i) is cover wide enough? (ii) in view of the likely
increased number of claims on BTE covers and the need to offer
higher limits, it is likely to be necessary to increase
premiums?.
Claims frequency is likely to increase on books which include
BTE cover. Insurers who write BTE as an element of other policies
should review claims exposure and premiums.
Referral fees
- Referral fees in personal injury claims should be banned and
Jackson LJ proposes a wide definition to capture introductions to
solicitors
- Serious consideration should be made to banning referral fees
in other areas of work.
- He offers a fallback position of setting a cap for referrals at
£200 per claim
- The impact on claims management companies is not a factor as he
believes that they increase costs, without adding value
This is likely to have a significant impact on claims farmers
(e.g. companies with the same model as The Accident Group).
Solicitors’ firms with large personal injury practices who are
reliant on referrals are likely to come under significant pressure,
which could lead to a fall in quality and an increase in claims
against those firms.
General damages
- General damages in tortious claims are to be increased by 10%
with the increase being designed to assist claimants in terms of
paying their success fees and ATE premiums, where appropriate
- A windfall for claimants who are not pursuing their claim under
a CFA - a 10% increase with no deductions
Increasing general damages by 10% will obviously increase
damages payments. However, the abolition of the recovery of ATE
premiums and success fees is likely to lead to a saving
overall.
Part 36
- If a claimant beats his or her own Part 36 offer, damages
should be increased by 10% although in higher value cases this
might be scaled down
- If a fallback position on ATE is introduced, the claimant will
face risk on a Part 36 offer and have a financial interest in the
case
- The situation would exist whereby the defendant could expose
the claimant to a cost liability by making a Part 36 offer.
The 10% increase and fallback ATE position are clearly in place
to urge defendants to accept early Part 36 offers. We have
considered whether the 10% increase in damages could be considered
punitive and therefore excluded from indemnity but it is difficult
to see a Court would view the additional 10% as anything other than
normal damages.
Fixed costs - fast track
- Fixed costs should be introduced to fast track cases wherever
practicable
- Fixed cost matrices proposed for road traffic accident (RTA),
employers’ liability (EL) (accident) and public liability (PL)
personal injury claims as well as for non personal injury RTA
claims
- Further research is recommended in other areas such as EL
disease cases
- There should be an overarching cap on fast track costs up to
trial of £12,000
- The costs are to be inclusive of disbursements, save court fees
and trial advocacy costs
This will lead to a significant costs saving in fast track cases
(quantum up to £25,000). For the solicitors’ book, it could lead to
a drop in the quality of work undertaken by firms as the temptation
would be to resource fast track claims with low paid/low rate
paralegals/junior fee earners in order to make money. That is
likely to lead to an increase in the number of claims against firms
doing a significant amount of that type of work.
Cost control on multi-track
- Fixed fees should be considered for lower value multi track
claims
- Each party’s costs budget to be included in directions the
Court orders
If fixed costs were introduced for lower value multi-track
claims, this would reduce costs and the Court set costs budget
would assist in the proper setting of reserves in large claims.
Lord Justice Jackson also recommends…
- On IP matters, a reform of the Patents County Court along with
the introduction of small claims track and fast track, greater
guidance on statements of case, consideration as to whether a
Provisional Applications for Patents are still required
- ADR to be better publicised
- Parties to provide estimate of the costs of expert evidence and
potential for experts to deliver oral evidence to the Court at the
same time
- Primary legislation will be needed for many of the matters -
abrogation of the common law indemnity principle, recoverability of
ATE premium, success fees, contingency agreements, pre-action
applications. Therefore there will be a delay before these measures
are implemented (if at all), and much will depend on the political
will for change
- Lobbying by consumer groups is anticipated, particularly in
respect of claimants having to meet their own disbursements and
potential 25% deduction of damages.
Whether or not all the recommendations will be implemented is an
uncertain political question, given primary legislation would be
required for many reforms.
talk to us
Nick Parsons
0115 976 6255
Partner and Head of Insurance & Public Risk
|
|
|
save to PDF
The content of this bulletin is provided for the purposes of
general interest and information. It contains only brief summaries
of aspects of the subject matter and does not provide comprehensive
statements of the law. It does not constitute legal advice and does
not provide a substitute for it.