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Government gives backing to Jackson reforms

17 November 2010

The Government has, this week, published its consultations on Lord Justice Jacksons recommendations for costs in civil claims and, simultaneously, the future of Legal Aid with potential cuts of £350m. The scope of the Jackson Green Paper is narrow, with a focus on funding and a particular emphasis on personal injury claims.

Speaking last week in Birmingham, Jackson described ATE as an expensive form of one way costs shifting, the Conditional Fee Arrangements regime as inadequately targeted and discussed experiences of lawyers he had met in other jurisdictions who considered, we are mad to operate the funding regime we do.

It appears the Government agrees with many of these criticisms and sees an opportunity to address the imbalances which often exist between claimants and defendants cost risk. In particular, the Governments recommendations are focused on reducing the burden on defendants, including public bodies, to create a more equal division of litigation risk between parties to claims.

Conditional Fee Agreements and success fees

In January, Jackson proposed that success fees and Conditional Fee Agreements (CFAs) should not be recoverable against the losing party. He points out that this was the position in England and Wales prior to 2000 and that it remains the way CFAs are operated in other jurisdictions, including Scotland. Jackson recognises the need to protect claimants against excessive liabilities and proposes that the current cap of 100 of success fees should be maintained, with a lower cap on personal injury claims of 25 of damages (excluding future care and future losses).

The proposal raises additional difficulties where a claimant is seeking some form of relief other than damages, for example specific performance in relation to housing repairs, or judicial review. The Government moots the possibility of retaining the recoverable success fee in these classes of claim, with a cap (perhaps 25) to limit defendants liabilities.

Jacksons proposals on CFAs have proved some of his most controversial. Claimant bodies argue that they breach a principle that claimants should be entitled to receive 100 of their damages. Jackson and others point out that, if this has become a principle of our legal system at all, then it is a very recent introduction and does not mirror practice in many other jurisdictions. Jackson argues in any event that, taken in conjunction with his other recommendations (for example an increase in General Damages and stricter Part 36 penalties), the proposals ought not to leave claimants in a worse position than they are at present.

Jackson considers that the removal of recoverable success fees is essential if the risk of litigation is shared fairly between the parties and is also an important step towards encouraging claimants to shop around for legal services and create a competitive market amongst claimants solicitors to provide services at attractive fees. The Government has indicated its support for reform in this area, both prior to the consultation, and within the document.

After The Event insurance

The primary recommendation in the Green Paper is that After The Event (ATE) insurance premiums should no longer be recoverable from the losing party. A strong concern is raised in the paper that ATE premiums are self insured and that as a result defendants bear the costs in all cases. Further, that there is an issue as to whether ATE premiums are overly generous to insurers.

Lord Justice Jackson recommended that the recoverability of premiums ought to be abolished and, that to protect vulnerable parties, one way cost shifting ought to be introduced.

One issue that did not come out in the Jackson report but, which is looked at here, is the question of what happens in relation to claimants disbursements and who should be responsible for payment of the same. Various options are mentioned including that the claimant ought to pay, that limited ATE insurance could continue in this very narrow instance or that the claimants solicitors could pay. What is rejected is any suggestion that this ought to be picked up via public funding. The ATE insurers response will be interesting on whether they would be prepared to stay in the market for disbursement only funding.

The implication is that by introducing one way cost shifting, the most vulnerable are assisted in that they are no longer at risk on costs orders. However one way cost shifting is only recommended for certain types of claim (see below). Further, in the Ministerial Foreword, the Ministers highlight the fact that bringing litigation has become "disproportionate and unaffordable" for many litigants and businesses, particularly small businesses. However, no solutions appear in the report to deal with this.

It should be noted that the "fall back" provisions from the Jackson report also appear in the Green Paper and are also up for debate.

10 increase in General Damages

Within his report, Jackson took up a recommendation of the Law Commission, made some years ago, to increase General Damages. He suggests that a modest increase of 10 in damages for pain, suffering and loss of amenity would counter-balance the financial loss posed to claimants if success fees were to become irrecoverable.

The Government proposes a more narrowly defined increase, whereby an element of recoverability would be retained, but this would be limited to 10 of General Damages (where awarded). This would restrict the payment of additional damages to claims funded by CFAs and Damages Based Agreements.

In many respects, Jacksons original proposal was a compromise intended to limit the extent to which changes in funding would reduce sums recovered by Claimants. However, Jackson has made use of a broader proposal for reform made by the Law Commission at a time when it saw General Damages as inadequate. Jackson therefore adopted a principled approach, even if he was doing so for pragmatic reasons.

The Governments proposal is much more focused upon compromise and has little regard to principles of damages. The Government is concerned that privately funded claimants would benefit from a windfall in the form of increased General Damages if awards were increased across the board. The counter argument likely to be raised is that if claimants are prepared to put their own money at risk in order to fund litigation then they ought to be compensated for the risk.

The Governments proposal also opens the door to inventive claimants who will look for opportunities to get around the proposals. For example, it may be possible to use a discounted fee agreement to privately fund a claim whilst, at the same time, securing the benefit of increased General Damages.

Part 36 offers

The Green Paper suggests the reform of Part 36 of the CPR. The proposal is that if a claimant succeeds in obtaining an award at the same level or more advantageous than his own offer then his award ought to be increased by 10 and this is proposed in relation to all damages.

In conjunction with this, there is the suggestion that Carver v BAA plc ought to be reversed so that a much more straightforward test is applied at trial namely "has the claimant managed to obtain a more advantageous judgment at trial than that on offer?". We will then at least be spared the tedious arguments that we encountered in Carver as to who should pay the costs based on a view taken on £51! We believe that this will at least bring certainty to this area of law and this is to be welcomed.

Qualified one way costs shifting

The Government proposes a scheme of qualified one way costs shifting (QOCS) whereby in most cases an unsuccessful claimant would only bear their own costs. A defendant, even where successful in defending a claim, would not be able to recover. The proposals are similar in many ways to the Legal Aid shield.

Jacksons reasoning is that qualified one way costs shifting is already in place, in effect, via ATE insurance. Whilst under the present scheme, defendants may recover their costs from an ATE insurer on success they are ultimately paying for the privilege through the premiums recovered by Claimants in other cases.

Under a QOCS scheme, Judges will be able to award costs against a claimant where this is justified by their conduct (for example, where they behaved unreasonably or bring a frivolous/fraudulent claim) or where claimants are conspicuously wealthy.

Defendants would also recover their costs where they have made a Part 36 Offer and subsequently bettered it. Critics point out that this would open a door to defendants to make minimal offers in claims they defend, with a view to securing costs protection.

The Government supports introduction of QOCS for individuals bringing personal injury claims or defamation claims under a CFA. It seems the Government does not consider it necessary that privately funded claimants should have the benefit of QOCS and the Government also expresses reservations as to the appropriateness of this approach for judicial review claims.

What else does the Green Paper consider?

Supplementary Legal Aid Scheme (SLAS) - this will be looked at as part of the legal aid consultation but the suggestion is that, from the cases to which legal aid will continue to be applicable, a percentage of the general damages obtained would be given to a SLAS to help fund other cases.

Proportionality - it is recommended that there ought to be a new test of proportionality of costs adopting the Jackson proposed definition. There is a danger that there will be satellite litigation in relation to this.

Contingency fees/Damages Based Agreements - there is a proposal that they ought to be allowed in litigation going forward.

Litigants in person - this is worth noting as a large increase is proposed by way of hourly rate to successful litigants in person from £9.25 per hour to £20 per hour.

Lord Justice Jacksons other proposals

These are touched upon in the Green Paper with an update given and an indication as to where these proposals may go. The most important are:

Referral fees - the government will announce its views upon publication of the LSB s report into the same.

Fixed recoverable costs in the fast track - the Government is reviewing this in conjunction with the new motor process. It aims to bring in a new extended process by April 2012 with a consultation proposed.

Costs Council - the proposed establishment of the Costs Council has been put on hold.

Costs and case management - this will be looked at by a Judicial Steering Group.

Before The Event insurance - the Green Paper states that the Government "supports" Lord Jacksons views on BTW insurance and that it would "welcome a change in culture". Lord Young will be consulting with the insurance industry on stand alone policies for both individuals and small businesses.

Third party funding - it is noted that there is presently a consultation on a self regulatory code and that this expires on 3 December 2010.

Predicable damages - the CJC is setting up a working group with a pilot scheme to be developed by June 2011.

The Legal Aid consultation

This consultation has already attracted media attention due to its aim to deliver savings of £350 million from the annual Legal Aid budget by 2015. In fact this amounts to a relatively modest saving of 17 against the £2 billion per annum Legal Aid bill, and many of the measures proposed relate to efficiency rather than a reduction in availability of Legal Aid.

Many of the proposals within the consultation focus upon criminal and family Legal Aid. For most categories of civil claim, Legal Aid is already a relatively rare method of funding.

The main focus in civil claims is upon a tightening of eligibility criteria so that contributions towards claims are required for any Claimant with £1,000.00 or more in disposable capital. The Government also aims to squeeze the fees charged by both legal advisors and experts.

The Legal Aid Consultant forms an important back drop to the Governments work on Jacksons recommendations. If Legal Aid criteria are tightened the Government must ensure, in order to comply with its international obligations, that adequate access to justice is maintained.

At the same time, as established Legal Aid practices become less able to rely upon this source of work they will look elsewhere to find funding for their clients. Under the new regime, impecunious claimants may be some of the first to take advantage of slackening of the rules in relation to damages based agreements in litigation, as this will offer the opportunity to tie costs liabilities to receipt of damages.

Responses to both consultations are due by 14 February 2011.

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