In conjunction with the Jackson reforms discussed below, the Government has begun a consultation to reform litigation in the county courts. According to the introduction to the paper, the aim is “a shift from a culture where we look to the law to resolve conflicts to one where we take more responsibility for addressing them ourselves in the first instance”. The paper refers both to Jackson LJ’s reports and to Lord Young’s recent review of health and safety, “Common Sense – Common Safety,” which drew attention to “the phenomenon of individuals suing employers and businesses for disproportionately large sums, often for trivial reasons and without regard to personal responsibility”. The main aim of the reforms is to reduce the number of court claims made against businesses and thereby to reduce the cost of resolving disputes by increasing the use of mediation and ensuring that more claims are heard in the small claims and county courts.

The methods proposed include the following:  

  • Increasing the financial limit below which claims cannot be commenced in the High Court from £25,000 to £100,000.
  • Increasing the small claims threshold from £5,000 to £15,000, but retaining the £1,000 limit for personal injury and housing disrepair cases.
  • Increasing the fast track financial limit from £25,000 to £35,0000.
  • Increasing the financial limit of the chancery jurisdiction of the county courts from £30,000 to £350,000.
  • Introducing automatic referral to mediation in small claims and a compulsory mediation information session for higher-value cases up to £100,000.
  • Introducing mandatory pre-action directions for money claims under £100,000 in the county courts, encouraging parties to use alternative dispute procedures, rather than resorting to court proceedings and following a staged process with fixed costs at each stage.
  • Establishing a single county court across England and Wales.

Specific proposals for injury claims include the following:

  • Extending the financial limit of the Road Traffic Accident Personal Injury Scheme (RTA PI Scheme) to £25,000 or £50,000, and introducing a variation of the RTA PI Scheme for public and employers' liability personal injury claims and low value clinical negligence claims.
  • Introducing fixed recoverable costs for all fast-track personal injury claims not covered by the RTA PI Scheme and similar schemes.

The consultation closes on 30 June 2011 - http://www.justice.gov.uk/consultations/solving-disputes-county-court.htm

Jackson reforms

The Government has published its response to the consultation on Jackson LJ's recommendations for reforming civil litigation funding and costs, only six weeks after the consultation period ended. This speedy response was possible because it wishes to implement most of the recommendations in full, accepting Jackson LJ’s view that they should be seen as a package and not a list from which some options could be selected.  

The main reforms are as follows. They will require primary and/or secondary legislation (amendments to the CPR).  

  • The recoverability of success fees and after the event (ATE) insurance premiums from the losing party will no longer be possible (with the exception of premiums to cover the cost of expert reports in clinical negligence cases).
  • The maximum success fee will remain at 100 per cent of base costs. In personal injury cases, the recovery of the success fee from the claimant will be capped at 25 per cent of the damages awarded, excluding special damages for future care and loss.
  • Non-pecuniary general damages (such as pain, suffering and loss of amenity) in tort cases will be increased by 10 per cent.
  • Qualified one way costs shifting or QOCS will be introduced only for personal injury cases, including clinical negligence, at this stage. This means that a claimant is not at risk of paying the defendant’s costs if the claim fails, removing much of the need for ATE insurance.
  • Contingency fee agreements (now called damages-based agreements or DBAs) will be allowed in civil litigation. The Government has rejected Jackson LJ’s view that claimants would need to obtain independent legal advice before entering into a DBA.
  • CPR 36 will be amended to make it clear that, where a money offer is beaten at trial, by however small a margin, the Part 36 costs sanctions will apply (reversing Carver v BAA PLC). Defendants who do not accept a claimant's reasonable offer that is not beaten at trial will be subject to an additional sanction equivalent to 10 per cent of the value of the claim.
  • A new proportionality test will be introduced in costs assessments. The costs judge should assess each item of costs for reasonableness and then consider whether the total which remains is proportionate. If it is not, the total should be reduced to a proportionate sum.
  • The prescribed rates recoverable by successful litigants in person will be increased.  

Comment

The Government’s response should not come as a surprise, given the judiciary’s support for the Jackson proposals and David Cameron’s endorsement of Lord Young’s report on the compensation culture which urged the implementation of the proposals to end the recoverability of success fees and ATE premiums as soon as possible. The Government’s desire to reduce NHS legal costs by a third was also a significant factor. What is perhaps surprising is the scale of the opposition to the proposal to end recoverability: 71 per cent of those responding opposed the proposal to end recoverability of success fees, with 69 per cent opposing the proposal for ATE premiums. This may indicate that the passage of the necessary legislation through Parliament will not be entirely smooth.

What we do not know is when this legislation will come into effect, although if the speed of the response to the consultation is anything to go by, there is obviously appetite to do it as soon as possible. It does seem clear, on the other hand, that the proposals will not have retrospective effect and that recovery of success fees and premiums where CFAs and ATE insurance have been entered into before the legislation comes into effect will not be affected.

These reforms are generally favourable for defendants and so it is perhaps only fair that defendants should be subject to a new penalty if they fail to settle meritorious claims. The proposal is to increase the reward where the claimant obtains a judgment at least as advantageous as the claimant’s own offer, by an amount equal to 10 per cent of all damages or the value of the claim as awarded by the court. This will happen where the claimant equals or beats his own offer at trial. The idea is that a claimant who has entered into a CFA and who equals or beats his own (rejected) offer at trial will be able to use the additional amount awarded under Part 36 towards paying the success fee and ATE insurance premium that will no longer be recoverable from the defendant. This penalty will be added to existing sanctions under CPR 36.14 which entitle the claimant to enhanced interest of up to base rate plus 10 per cent on the claim and costs, and indemnity costs.

The pressure on defendants to settle before trial will be dramatically increased, particularly in a substantial claim where an increase of 10 per cent on the damages recovered could be a significant sum. In his response to the consultation, Jackson LJ suggested that for higher value claims there might be a case for scaling down the uplift as follows: where the claim was between £500,001 and £1 million, the additional sum would be £50,000 + 5 per cent of excess over £500,000, and claims of more than £1 million would attract a flat rate of £75,000. Following the strong majority of views of the respondents to the consultation, the Government has decided not to follow Jackson LJ’s recommendation. What the Government’s response does not say is whether the court will have a discretion to award less than the full sanction, something Jackson LJ considered to be essential to prevent injustice.

It is important to remember that the new sanction won’t affect many cases - only about 2.5 per cent of claims are decided at trial, which represents about 25 per cent of those that are defended – although, as Jackson LJ noted, once a claimant’s offer has been rejected, any subsequent settlement negotiations will be conducted under the shadow of that unaccepted offer. The response sensibly favours exploring an alternative sanction linked to costs rather than damages for claims where a remedy other than damages is sought, to avoid almost certain satellite litigation about the court's valuation of non-pecuniary claims.

As a footnote to this discussion about claimants’ offers, the recent trademark infringement case decision in AB v CD has raised a question mark over what is a valid Part 36 claimant’s offer. Henderson J expresses a view about Part 36 offers which many will disagree with but which is likely to be adopted by defendants looking to escape the already punitive sanctions attached to successful claimants’ offers where the case goes to trial. He concluded that a claimant’s offer cannot be a valid Part 36 offer and carry with it the CPR 36.14 sanctions where the offer does not make a “real concession of significant value”. In his view, the policy of Part 36 is to encourage the settlement of claims before trial. He considered the claimant’s offer to have been designed to lay the foundations for an argument that success at trial on liability would inevitably mean that the claimant had matched or beaten its Part 36 offer (as required by CPR 36.14). In framing the offer in this way, the claimant was not intending to give up anything of real value and for this reason the offer was not a Part 36 offer and the claimant was not entitled to the favourable treatment afforded by CPR 36.14, although the offer would be relevant to the exercise of the court’s general discretion on costs.