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Jacksons final report

21 January 2010

Lord Justice Jacksons 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 LJs 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 claimants 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 claimants solicitor. There is no justification for requiring defendants to pay claimants 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 partys 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.

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