Litigation reform on hold

Theresa May's decision to hold a snap election on 8 June 2017 placed the future of the whiplash reforms in question. The Prison and Courts Bill, which contained the whiplash reforms, was not pushed through in the 'wash-up' period (the days between the announcement of general election and the dissolution of Parliament, meaning any unfinished Bills are lost).

However following the election result, which saw Theresa May forming an alliance with the Democratic Unionist Party (DUP) to prop up her Conservative minority government, the Queen's Speech set out the Government's plans to reinstate the proposals on whiplash reforms. However the future of the discount rate consultation remains uncertain.

Amongst the 27 laws the Government hopes to pass in the next two years are eight separate Bills in relation to Brexit. Brexit will be the new government's main priority; therefore the reforms and the discount rate are likely to take a back seat with the timeline for continued implementation remaining uncertain.

Whiplash reforms

The Government will press ahead with personal injury reforms with the honourable aims of combatting fraud and tackling the endemic compensation culture, in a bid to reduce average motor premiums by £35. The reforms will now be introduced in separate legislation to the reforms to the court system, in a new Civil Liabilities Bill.

The Bill will echo many of the proposals contained in the Prisons and Courts Bill, including introducing a tariff system for claims with an injury duration of between 0 and 24 months (to replace the JC Guidelines) and a ban on offers to settle without medical evidence in RTA-related whiplash claims.

However it is unclear whether an increase to the small claims limit will reappear as the briefing notes to the Queens Speech failed to include this as a main element of the Bill. The Government’s previous proposals had sought to increase the small claims track to £5,000 for RTA-related PI claims and £2,000 for non-RTA PI claims. However, as these changes will only require amendment to the Civil Procedure Rules and not via statute, this may have been the reason it was omitted at this time.

In light of Brexit, this government has an awful lot on its agenda so it’s hard not to see the potential for this legislation to slip down the running order. Insurers will need to be vocal in their support if they want to ensure these measures maintain momentum.

Discount rate

The latest consultation closed on 11 May 2017 and a government response was expected in August 2017, however it remains to be seen whether one will be forthcoming. Decisions regarding changes to the methodology calculating the rate and crucially the rate itself will also suffer delay as a consequence.

Speaking recently at the Association of British Insurers "Brexit – the road ahead" event, UK City Minister Stephen Barclay has hinted that a significant change to the discount rate and the methodology used for calculating the rate is to be expected. He said the current mechanism (utilising the rate of return of index-linked gilts) is outdated and does not reflect the way people invest in the real world.

This is the first indication following the Government's consultation in May 2017 that the discount rate may be amended in a favourable way for insurers. Indeed, the Queen's Speech on 21 June 2017 failed to mention any legislation in relation to the revision of the discount rate. However, as the briefing note to the Queen's Speech noted there would be room in the Civil Liabilities Bill for wider personal injury reform, it is hoped this much needed reform will be addressed in this legislation.

Scotland – Limitation [Childhood Abuse (Scotland)] Bill

The Scottish Government is pressing ahead with legislation to abolish limitation for actions relating to childhood abuse. The Justice Committee heard evidence from interested parties, including our partner Graeme Watson, and recommended that the Bill proceed.

Although the Justice Committee supported the Bill, their report to Parliament and the Minister’s response both quoted Graeme Watson's evidence on why the Bill should not be widened to allow cases settled by payment of damages to be reopened – a point claimant lawyers had sought to argue before the Committee.

The Scottish Parliament unanimously passed the Bill at the third and final legislative stage on 22 June 2017. Royal Assent to the Bill is now awaited, and it is expected to come into force in April 2018.

The effect will be that any action alleging abuse of an individual under 18 will not time bar and any actions which are already time barred could be raised, or re-raised, if they have already been disposed of.

This is likely to lead to large numbers of historic claims and an increase in costs. Operational issues, such as record retention, increased investigative costs and claims farming are all potential concerns for insurers. We also anticipate that there may be forum-shopping from claimants who would otherwise litigate in England. Additionally there is the possibility that the English public inquiry, IICSA, may recommend similar legislation for the rest of the UK.

The Bill will apply to claims where the alleged abuse occurred after September 1964. In Scotland 'prescription' runs parallel to 'limitation', with the relevant time period for prescription being twenty years. Any legal obligations are extinguished after this period and the court cannot exercise their discretion to allow the claim to proceed.

Following amendments to the law in 1984 prescription no longer applies to personal injury claims and any claims which already "prescribed" were not revived by the 1984 Act. Therefore any legal rights arising from claims that occurred in 1964 will have outrun the twenty year prescriptive period.

Slater & Gordon developments

Slater and Gordon's immediate future may be looking brighter with the firm securing extra funding. The firm has reached an agreement with its new lenders to provide up to £22.7m of working capital in a three year loan. It is noted it ‘is intended to provide the company with a sustainable level of senior secured debt and a stable platform for its future operations in both Australia and the UK’.

As part of the recapitalisation deal group managing director, Andrew Grech, has stepped down and the entire board has been replaced. Lenders will now own 95% of the company’s equity, with existing shareholders' stakes being diluted to less than 5%.

The firm plans to close a number of offices and reorganise to create 'centres of excellence' in city centre venues. Significantly it also plans change its approach to noise-induced hearing loss claims (NIHL), which were acquired mainly through the takeover of the professional services division of Quindell in 2015. Contrary to speculation, the market has not seen the deluge of NIHL claims from the firm, likely due to the claims quality being even worse than anticipated.

Slater and Gordon is seeking £637m in damages, equivalent to the amount the firm reportedly paid for the legal services unit, from Watchstone PLC, formerly known as Quindell. High Court proceedings were issued at the beginning of June, claiming ‘but for fraudulent misrepresentation’ the firm would not have bought Quindell’s professional services division.

The acquisition was reportedly for £637m. However since then the firm has written off hundreds of millions of pounds of worthless claims, which in light of the recent inactivity in relation to NIHL claims, may be the bulk of claims purchased.

Whilst NIHL claims remain at a high level in England & Wales they do appear to be tailing off generally. Given the high successful defence rates, the claimant market is no longer profiting from these claims, resulting in a drop off in numbers. It is perhaps surprising it has taken the claimant market so long to realise this was not the cash-cow it promised to be. Recently fewer claims have been made, however these are of a better quality than those seen previously suggesting a change of approach from claimant firms. It is to be hoped this continues.

Litigation funding

One of the central themes of our third annual Global Legacy Conference which took place on 4 May 2017 was growth of international litigation funding, which continues apace. Key developments have been seen both domestically and internationally indicating this new funding model is becoming more accepted. For example, the Paris Bar recently confirmed third-party litigation funding does not contravene French law, and the Dubai International Financial Centre Courts has introduced a new practice direction that requires any party entering into a litigation funding agreement to notify the other parties.

UK

Historically third party funding was refused by the courts on public policy grounds. The involvement of a third party may negatively impact access to justice because the third party funder may be tempted to manufacture evidence or inflate claims. In particular, the torts of maintenance and champerty have historically prohibited unconnected parties from funding litigation.

Maintenance is the improper support of litigation whereby the third party funder does not have a genuine interest in the claim. Champerty is an aggravated form of maintenance where the third party funder is given a share of the proceeds.

Whilst under common law maintenance and champerty are not recognised and therefore any agreements are unenforceable, exceptions have been provided by statute where third party funding is allowed.

Conditional Fee Agreements (CFAs) and Damages-based Agreements (DBAs) are permitted and enforced under section 58 of the Courts and Legal Services Act 1990 and section 45 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012, respectively.

Courts have taken a relatively relaxed approach to third party funding in recent years as it is seen as a means of providing access to justice and replacing the legal aid fund. For maintenance and champerty to arise, the courts will look for an element of impropriety in the funding arrangement; for example, the funder having excessive control over the litigation or the amount of profit the funder stands to make from the litigation.

In the UK, third party litigation funding has been cited in new research by Thomson Reuters, as one of the driving forces of the increase of major claims against the UK’s biggest companies. The number of High Court cases involving FTSE100-listed companies in 2016 hit a five-year high of 279, up 6% on the previous year and nearly 150% up on the 114 cases of five years ago. According to the study, the increasing number of litigation funders are helping finance cases that might not otherwise have been pursued.

We are also seeing litigation funders extending their attention from high value commercial actions to clinical negligence and group/test litigation projects. Litigation funders do not just provide capital, but improve risk assessment and triage of individual prospective cases and improved technical support and expertise and quality control of potential investee firms. This could lead to a more formidable opponents and improved quality from claimant law firms.

Ireland

The Irish Supreme Court recently confirmed maintenance and champerty remains part of Irish law and litigation funding in therefore prohibited. However questions were raised as to the continuing legitimacy of these principles, which should be addressed by the legislature.

In Persona Digital Telephony and another v Minister for Public Enterprise and others [2017] IESC 27, the plaintiff entered into a third party funding agreement as they lacked the funds to bring proceedings. The plaintiff sought a declaration from the High Court that they were not engaging in an abuse of process or contravening the rules on maintenance and champerty. The High Court refused to grant the declaration and held such funding did constitute maintenance and champarty. The plaintiff appealed to the Supreme Court.

The Supreme Court upheld the High Court's decision; however a number of the judges expressed serious disquiet over the case and its outcome. The court acknowledged the law regarding maintenance and champerty is now ancient and the state should address these principles with a view to putting them in line with the reality that access to justice is becoming increasingly difficult.

US

Improved opposition is already a reality in the US due to the innovative litigation funding alternatives in use. Historically underfunded personal injury attorneys struggled to obtain sufficient capital through traditional lending facilities in order to issue and progress proceedings. As a result, established, well capitalised firms are stepping in to fill this funding void.

This "co-litigation model" involves larger, better resourced firms obtaining referrals from smaller plaintiff firms who do not possess the working capital to advance and progress these claims. These firm funders offset the high investigative costs of many of these types of cases, for example, mesothelioma and environmental exposure cases. Aside from capital, these larger firms also provide a mentoring service which has greatly improved the level of opposition nationally. Indeed this practice has had a significant impact on asbestos litigation, and is driving all other litigation in the US.

Germany

The position in Germany is also changing, with firms recently collaborating with UK litigation funders which may be set to change the claims landscape.

A website (www.myright.ge) has been set up by UK litigation funders Burford Capital to recruit German consumer claimants arising from the 'dieselgate' scandal. Under the terms of the agreement they will take 35% of any damages. Global claimant law firm Hausfeld has partnered with Burford Capital, who has provided at least €30m in financing to fund German claims. These initiatives are hoping to change the litigation culture in Germany, to increase the volume and type of consumer claims, instead of the social security compensation systems which traditionally provided redress.

It appears that Dieselgate is also a 'game changer' in clearing a route through for other class action litigation. In comparison to the USA, collective redress not well known or utilised in Germany and it has not been very efficient historically. This may also be changing. The German legislature has been passive for a long time but they considered taking action after the VW scandal. A bill was drafted by the Department of Justice last year. It hasn’t been successful thus far and has faced opposition, but after the General Election later this year renewed action may be seen. The VW litigation is a significant driver for collective claims and it is thought that appetite for claims may well extend beyond that, to other environmental and consumer actions.

South Africa

South Africa is also at the forefront of innovation, as UK and US funders cast an ever wider net. The cost structure in the developing world provides much more opportunity for return on investment than developed jurisdictions. It is this appetite that is driving litigation in South Africa.

Political and social reform in 1994 resulted in a constitution and for the first time significant human rights. Class action potential was also introduced at that time. From a social perspective, mining companies represented the exploitation of black people in South Africa and US firms and funders seized upon this opportunity. A silicosis class action currently in the courts and consists of around 25,000 claims. The estimated costs of bringing and running these claims is only $10m over ten years, whilst revenue is many multiples of this outlay. For well capitalised litigation funders and US plaintiff firms this is easily achievable.

Accordingly, future claims growth in addition to what has already been seen is inevitable. Moreover the costs recovered from these large class actions will recapitalise these firms and prime pursuit of claims for all other industrial diseases and environmental claims.

Lung cancer claims

England & Wales

It has been a quiet year for respiratory claims in the UK. However there is a lung cancer case scheduled to be heard by the Court of Appeal on 14 June 2017, which could have wide implications for insurers. Judgment has been reserved and is currently unpublished.

Blackmore v Department for Communities & Local Government is an asbestos lung cancer case, where the Court of Appeal will decide whether a reduction of 80-90% in damages for contributory negligence should be awarded to reflect the causative role of the Claimant's smoking. It was agreed by the parties the Claimant's death was caused by the combined effects of smoking from the age of 14 until his death aged 74 and exposure to asbestos dust whilst working for the Defendant during the period 1966 and 1986.

At first instance the court held a deduction for contributory negligence should not be calculated by reference to a mathematical calculation based on the smoking and asbestos exposure alone, as argued by the Defendant.

Cancer is an indivisible injury and there are possibly other factors which could be taken into account and contributed to the condition, such as genetics. Accordingly, although the risk from smoking was between double and treble the risk from smoking, having considered all the relevant factors, the court assessed contributory negligence at 30%. The contributory negligence appraisal was largely influenced by policy considerations and the general practice in employers’ liability cases that where there is a breach of statutory duty the contributory negligence figure cannot exceed 50%. Permission to appeal was granted to the Defendant who is seeking a reduction of 80-90%.

If the appeal is successful it means insurers could make significant saving in relevant lung cancer claims. Additionally, it may also mean that the new approach to causation in asbestos-related lung cancer claims postulated in Heneghan (damages apportioned in accordance with proportionate share of exposure) will need to be reconsidered.

Whilst case law appears to be developing in insurers' interests domestically, the same cannot be said for further afield.

US

In the US, the claimant bar has begun targeting lung cancer claims due to the increasingly competitive market for mesothelioma claims. Indeed there is a vast cohort of 250,000 lung cancer cases per year, which could lead to significant difficulties for insurers. These claims are also harder to defend as three or more medical experts are required, leading to significantly increased defence costs.

Whilst claimants also previously encountered difficulties because of competing causation issues, notably in respect of smoking, things are changing. In October 2016, judgment was given in a lung cancer case which noted the claimant bore no responsibility for his smoking habit because he was addicted and therefore was not held to be responsible. The causation element attributable to smoking was therefore disregarded. This is a worrying development which will result in significantly larger pay-outs by insurers.

Australia

Australia has also seen a worrying development regarding occupational exposure to smoking to a Royal Navy serviceman. In Cooper and Military Rehabilitation and Compensation Commission (Compensation) [2017] AATA 429 (6 April 2017) the claimant developed fatal tongue cancer and heart disease as a result of smoking. His widow was awarded workers’ compensation after the Administrative Appeals Tribunal found the deceased’s employment contributed to his smoking habit and eventual death.

The tribunal stressed that compensation is not available to every former service member who commenced smoking cigarettes whilst enlisted and went on to suffer a smoking-related illness. Rather, there must be a causal relationship between the commencement of smoking and a person's service. The tribunal found that the Navy "tolerated and even tacitly encouraged" smoking during the worker's years of service. This case may open the floodgates for smoking-related cancer claims in circumstances where employers do not prevent smoking in the workplace.

Developing treatment for mesothelioma

Another key issue addressed at our Global Legacy Conference was the developing treatment for mesothelioma. The last 10 years has seen a significant increase in the proportion of living claimants, either because of improved medical detection or earlier intervention by lawyers. There has been a three-fold increase in claims since 1996, which shows no sign of abating. Claim numbers are only expected to plateau in 2020, with a gradual reduction thereafter.

Medical advances are increasing life expectancy in the early stages of the condition. The one year survival period seen for the condition ten years ago, has now doubled to two years. Life expectancy is set to increase further in the future with significant developments in treatment. Historically radiotherapy and chemotherapy have been deployed to treat the cancer. However both treatments are relatively blunt instruments that have demonstrated limited success. Recent developments in immunotherapy medication looks set to change this.

Keytruda is a promising treatment that credible research has established provides a benefit to certain mesothelioma patients by halting/reducing tumour growth, thereafter extending life expectancy by 3-10 months. It is authorised by NICE for use privately and in drugs trials but, pending further trials and research, is not currently available on the NHS in England and Wales (it is in Scotland).

As a cytotoxic therapy, its suitability in indivisible cases must balance the benefits against its toxic effects. It will be a clinically appropriate treatment in 10-15% of mesothelioma cases dependant on the presence of PDL-1 protein marker (which is currently regarded as required for a patient to benefit). In addition, the absence of certain comorbidities may prevent a patient from being fit enough to tolerate the treatment. The tumour development stage in also significant as the treatment is administered after a first cycle of conventional chemotherapy has taken place, meaning only patients in the early stages of the disease are likely to receive clinical approval for treatment.

Courts will look at the issue sympathetically and take a subjective approach to treatment entitlement. If the claimant wants to have life prolonging treatment, the onus is on the insurer to assist with this. Claims for treatment costs are beginning to be seen between £30,000 and £250,000. Lawyer presented claims are often inflated and do not take account that most patients are unlikely to tolerate more than 2-3 treatment cycles over an 8 months period (until tumour growth indicates the treatment no longer provides benefit).

Treatment regimes and costs will vary dependent upon results of CT monitoring of tumour size after each cycle and so each initial approval should be for initial appropriate cycles, with provision for further approval/support on an ongoing basis (subject to a longstop of 24 months after which existing trials have demonstrated that toxic side effects outweigh benefits in all cases).

In light of its current limited application and inherent treatment risks, any claim for treatment costs must be supported by confirmation of suitability from the patient’s treating physicians and oncologists who will be required to prescribe the treatment (and not medico-legal experts). Accordingly, claims submitted on the basis of medico-legal reports alone should not be accepted as they will not be in a claimant's best interests.

Given the significant treatment costs, insurers must be careful not to take steps which either represent a wholesale acceptance of liability for treatment or which prejudice the prospects of Keytruda being extended to mesothelioma within the NHS. For this reason involvement in the funding of Keytruda treatment or drug trials (after engagement with pharmaceutical companies) should be resisted.