Insurers’ litigation rates were expected to be affected by the introduction of the substantially increased level of enhanced court fees to issue proceedings which came in last March. We now have 2 quarters of data from the MoJ to check whether or not that is the case. In addition, an influential judgment from the High Court was given last week which is likely to restrict the room for manoeuvre of certain claimant lawyers’ who have been in the habit of underestimating the value of the claim at the time it was issued in order to pay a reduced level of fee.

Summary

In summary, when compared to portal data, the MoJ figures seem to suggest that volumes of litigated claims are reduced marginally from where they would have been without the increased fees, and that the effect is up to 10% overall.

The judgment in Richard Lewis & Others v Ward Hadaway confirms that underestimating likely quantum of a claim on a claim form in order to pay a lower issue fee will be an abuse of process leaving the claim liable to be struck out, particularly where it was issued just before expiry of limitation so that the balance of the proper fee was not paid before limitation expired.

Enhanced court fees

Since 9 March 2015 it costs claimants (or their lawyers if the lawyers are paying the fees) a fee equivalent to 5% of the value of the claim as it is stated to be on the claim form when they are issuing that claim at court. This value-related issue fee kicks in when a claim has a value of at least £10k and the fee increases with the claim’s value up to a maximum fee of £10k which is reached at a claim value of £200k.

Proportionately, it is claims worth £50-200k which are affected most. In some cases, the enhanced fees have increased the costs of issue 6-fold. There was opposition to the increased fees at the time of their introduction from Labour and from some of the senior judiciary based on access to justice concerns, but the Law Society pulled back from a threatened JR of the previous government’s decision.

The effect on litigated claims volumes

The impact assessment released by the MoJ at the time of the change anticipated that the number of civil claims would only be marginally impacted despite the significant increase, within an expected 0-2% range, with a maximum effect assessed at 10%.

The MoJ release data quarterly on the number of issued claims in the county court, from where of course most injury claims faced by insurers will emanate. The figures are released more than 2 months in arrears, so we have currently 2 sets of data since the reform, with the next release due in early March which will be for Q4 of 2015. The currently available data is set out in the graph below. (r) denotes revised and (p) indicates provisional.

Click here to view image.

The trends on issued injury claims

What impact if any have the increased court fees had?

As ever there a number of potential conclusions and it is not easy to work out the direction of travel with only 2 sets of data since the change. The point that it is too early to reach clear conclusions was accepted by the MoJ when they responded in December to their latest consultation exercise as to whether to further raise the maximum fee for non-injury claims only from £10k to £20k, and decided it was too soon to decide whether or not to do so.

The figures for Q2 and Q3, the first after the reform, each show the number of issued injury claims at around 34k. This is lower than the figure of 36k for Q1 so that would suggest some drop off after that first quarter. But the Q1 figure may have been artificially high due to an increased number of proceedings issued after the intention to introduce the reform was announced.

The Q2/Q3 2015 figures of 34k each are though higher than an average of 33k per quarter which we saw in 2014, and the Q2/Q3 of 2015 figures are also higher than the corresponding quarters of 2014.

Comparison with Claims Portal data

But it is the comparison with the 12 month cumulative RTA portal data which may in fact give the clearest comparison. While we continue to wait for the portal data to be updated for the last 3 months, the most recent graph is below.

Click here to view image.

There is a striking similarity between the graph showing issued sets of proceedings until Q1 of 2015 and the CNF graph. 3 key trends are present in both: the rise in the pre-LASPO period up till Q1 of 2013; then a fall to a low in Q2 of 2014; followed by a further rise till Q1 of 2015. It may not be surprising that the same factors which have led to an increasing number of RTA CNFs over the 17 months leading up to September 2015 have also led to an increasing number of sets of proceedings in injury claims, at least up to Q1 of last year.

If this is an appropriate analogy as it seems to be, then what is different between the 2 graphs is that the Q2/Q3 proceedings data from 2015 does not show the same increasing trend over those 6 months as the RTA portal did, that is between April and September 2015. Instead, while the RTA portal data on a 12 month basis showed a rise of around 3% over Q2/Q3 2015, the number of issued claims fell by 6% over the same period.

In summary it is reasonable to conclude that the number of litigated injury claims has indeed as expected been impacted by the increased fees, and that current evidence points to a fall of up to the 10% which was seen by the MoJ as the limit of the expected effect of this reform.

Avoidance behaviours

Effects seen so far are more frequent requests from claimants for limitation waiver agreements, or of files being transferred between firms of solicitors to those better able to stand the payment of the increased fees just before issue. This is another factor of course justifying the transition from smaller to larger claimant operations. The increased issue fees should also continue to give credence to the existing gradual move away from litigation to alternatives such as ADR.

One of the effects seen before the latest increase was the practice of some claimant lawyers to underestimate the quantum of the claim specifically so as to be able to pay a reduced fee, on the basis that the court process does not regard any such limitation as binding against the claimant. It was an extreme example of this practice which was put under the microscope last week and which is likely to have an important impact on the practice in the future.

Richard Lewis & Others v Ward Hadaway

The decision was of Mr John Male QC, sitting as a deputy High Court Judge, and may therefore be the subject of an appeal. In a group of commercial claims, the claimants’ solicitors substantially underestimated the claims’ values when issuing them, apparently as part of what was termed a “scheme” which they had devised to deal with the issue that there was no funding in place to pay the court fees.

This problem was encountered even though the issue of these claims predated the introduction of enhanced fees, and were at a time when that the maximum fee payable was only £1,670. It can therefore easily be seen that for the small 4-partner claimant firm in question the problem would have been much greater after last year’s fee increase. Unsurprisingly they had requested but been refused a limitation waiver agreement.

Key points from the case

The judge noted that each claim form which included the necessary statement of value of the claim also had as required its statement of truth, but despite this to give an artificially low claim value was a deliberate act designed to take advantage. There was no good reason for this behaviour and it amounted to an abuse of process. To condone the scheme in use by the law firm would only encourage other claimants and their solicitors to use it.

While undoubtedly there will be costs consequences for the claimants and their solicitors in these cases, most of the claims were not though struck out as it would have been disproportionate to do so where the full fees were paid 4 months after they should have been. The delay in the defence solicitors taking the point only after case management had started was also a factor.

But the judge drew a distinction for those cases which had been issued very late and where the full fee had not been paid before limitation expired. The obligation at the time of issue was to pay the “appropriate fee” and this did not happen where the act of payment of the reduced fee had been an abuse of process. The defendants were given summary judgment in those cases where the full fee had not been paid before limitation expired.

Likely effects going forward

Those solicitors who deliberately underpay the court issue fee do so at their own peril. That conduct may well amount to an abuse of process. Those solicitors are likely to struggle to show they were unaware of the increased risk arising from this conduct following the publicity being given to this judgment. No longer will they be able to see this conduct as relatively low risk on the basis that the limit on value is not binding against their client, and if the point were raised, they could if called upon pay any extra fee at that time. When limitation is near, the point will be critical.

Insurers should be aware of the need to make a prompt challenge when this situation arises. They will be looking to show not only an abuse of process, but that there is sufficient concern about the claim, or in the usual practices of the lawyers in question, set against the warnings from this case, to justify striking out. The point will be of particular advantage to insurers where the claimant has left the matter till the 11th hour and proceedings are issued only on the eve of limitation, while at the same time deliberately underestimating quantum to pay a lower fee.

The case will have its own impact on future claimant litigation practices and as well as improving them, will reinforce the other anticipated changes from the substantially increased level of court issue fees. We will continue to measure the number of claims moving into litigation as the effect of these changes beds in.