The changing face of insurance is the over-arching theme for this year's report. Change has been a recurrent theme in the context of our civil justice system in England and Wales since Lord Woolf was appointed in 1994 to carry out a review with a view to improving access to justice. The litigation landscape has changed dramatically in the last five years with the introduction of the 'Jackson reforms' and further significant developments are on the horizon. The focus in the last year has been more one of evolution than of revolution, but work continues on providing access to justice at proportionate cost and creating a modern civil legal system that remains at the forefront of the international field.
In this section, we first look at some of the general and wide-reaching reforms that are taking place. We then consider a selection of more specific developments in relation to funding, costs and civil procedure. Some topics, such as the Civil Liability Bill, which will bring important changes to the whiplash claims process and the way in which the discount rate is calculated, have already been covered earlier in this report and are not repeated here.
General areas of reform
An area where the Jackson reforms do not appear to be working is in respect of disclosure. There has been widespread concern that the cost of disclosure remains disproportionately high, particularly in commercial cases. A disclosure working group was accordingly set up in May 2016 to consider the current regime and how to encourage a more proportionate approach.
The working group found that the volume of data that fell to be disclosed has vastly increased, often to unmanageable proportions. Further, the menu of disclosure options established as part of the Jackson reforms was rarely used by the parties or the courts, with standard disclosure remaining the default position. The current system, which was conceptually based on paper disclosure, is not fit for purpose when dealing with electronic disclosure.
The working group concluded that a wholesale cultural change is needed, in order to achieve proportionate disclosure with no distinction between paper and electronic data, and that this can only be achieved by a completely new rule and guidelines. The working group has recommended a mandatory two-year pilot in the Business and Property Courts.
The proposed new rule provides for basic disclosure of key limited documents with the statements of case. A disclosure review would then take place before the case management conference (CMC), during which a list of issues would be prepared. At the CMC, the judge would then consider which of five extended disclosure models should apply to which issue. The models range from no disclosure for a particular issue to the widest form of train of enquiry disclosure. If adopted, this would provide a flexible and hopefully proportionate approach to disclosure.
At the time of writing, the pilot scheme has been approved in principle by the Civil Procedure Rule Committee and the detailed wording of the Practice Direction is expected to be agreed at the July meeting. It is envisaged that the pilot scheme will operate from 1 January 2019 in the Business and Property Courts.
In his report, Review of Civil Litigation Costs: Supplemental Report, Fixed Recoverable Costs, Sir Rupert (then Lord Justice) Jackson recommended that a fixed recoverable costs regime should apply to all claims in the fast track. He has proposed a fixed costs grid divided into four bands based on the complexity of the case. In addition, he recommended the introduction of an intermediate track for claims between £25,000 and £100,000 which would also operate on a fixed recoverable costs basis. This vertical extension was somewhat less than might have been expected as Jackson LJ's initial suggestion had been a single fixed costs grid for all multi-track claims up to £250,000.
Since the report was published on 31 July 2017, the Government has been considering the recommendations and the best way forward. At the time of writing, we are awaiting the Ministry of Justice's response and consultation.
The report also endorsed the report published by the Civil Justice Council (CJC) recommending a table of fixed recoverable costs for noise induced hearing loss (NIHL) claims. The report sets out the agreement reached by the CJC's working party, chaired by DAC Beachcroft Partner, Andrew Parker, on the level of fixed costs, both pre- and post-issue, for routine fast track NIHL claims involving up to three defendants (which represent the majority of all NIHL claims).
The report has been submitted to the Ministry of Justice with a recommendation that its findings should be adopted as part of the wider review of fixed costs.
Separately, the Department of Health had also published a consultation paper on fixed recoverable costs in respect of clinical negligence claims. Sir Rupert Jackson saw this proposal as a step in the right direction, but called for a consensus approach to improving the claims process and setting the level of costs. In accordance with his recommendation, a working group of the CJC was established in February 2018 at the joint request of the Department of Health and Social Care and the Ministry of Justice. This is again chaired by Andrew Parker. A report providing recommendations for a fixed recoverable costs regime for clinical negligence claims of a value up to £25,000 is expected at the end of this year.
The rise in the number of litigants in person and the growth of the digital economy are just two factors affecting the demands made on our justice system. To meet those demands, digital reform is required. This is taking many forms.
There is the use of CE-File, an electronic filing and case management system, in the courts based in the Rolls Building in London. This has now been compulsory for represented parties since April 2017 and appears to be working well. Although it currently still remains optional for litigants in person, published statistics suggest that use by litigants in person is increasing with only 6% of total cases being issued by post since the system became mandatory for professional users. The intention is to roll out CE-File to the regional Business and Property Courts once the necessary infrastructure is in place.
A more radical proposal was that made by Briggs LJ in July 2016, as part of the Civil Courts Structure Review, for a single online court. The Government decided against a single court for civil, family and tribunal claims with common procedural rules. It is now envisaged that the separate jurisdictions will remain but will be accessed via a single platform. There is to be a new online procedure rules committee, which will draft new rules for the Online Court in simple language capable of being understood by litigants in person. As far as possible the rules should be common to the three jurisdictions.
The civil money claims project is a pilot launched in August 2017 which will continue until November 2019. Until April 2018, when it progressed to the public beta phase, the Online Court Pilot was only available to invited claimants. It enables a claimant with a County Court claim for up to £10,000 to issue online. Although served by the court in a traditional paper-based way, the defendant has the option to respond online. This project is clearly at an early stage but satisfaction ratings in the private beta phase were good. Other pilot online schemes currently operating include those for probate and uncontested divorce claims.
Despite this progress, there are concerns that the £1.2 billion court modernisation programme is not going to plan. A recent progress report from the National Audit Office indicated that, 18 months into the project, less than two-thirds of expected outcomes had been achieved. The programme has already been extended by two years although the budget remains unchanged.
Delegation of judicial functions
An increased use of case officers is frequently referred to in reform documents, including Briggs LJ's review. The intention has been that more routine work should be delegated to non-judicial staff but, according to the minutes of the Civil Procedure Rule Committee in March this year, little progress has been made. However, at the end of May 2018, the Ministry of Justice published the Courts and Tribunals (Judiciary and Functions of Staff) Bill, which includes provisions to enable the more flexible deployment of judges and to authorise court and tribunal staff to exercise judicial functions. The Bill is described as “the first step in legislation to modernise courts and tribunals across the country”. It will be just a first step, but may help to improve efficiency and target judges' time where it is most needed.
Post-implementation review of LASPO
Five years after the majority of the reforms under Part 2 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO) came into effect, the Government has announced that it will carry out a post-implementation review this year. The review will consider the impact of the reforms on civil litigation funding and costs and whether they have achieved the aims of reducing civil litigation costs overall and rebalancing the costs liabilities between claimants and defendants, while ensuring that valid claims can still be brought.
The Government's initial assessment is that stakeholders have adapted well to the reforms and that they are generally working well. A survey was published at the end of June 2018 seeking views on the abolition of the recovery of success fees under conditional fee agreements and after the event insurance premiums, Qualified One Way Costs Shifting, the introduction of Damages Based Agreements, the Part 36 regime and the ban on referral fees. A report by the Ministry of Justice on its findings is expected later in 2018.
Small claims track limit
Alongside the whiplash reforms in the Civil Liability Bill, the Government has proposed an increase in the small claims limit for road traffic accident related personal injury claims to £5,000 and for all other personal injury claims to £2,000. However, the Justice Select Committee has reported that the proposal will create significant access to justice concerns and recommends that the current £1,000 limit should only be increased to around £1,500 to reflect inflation. The Committee concluded that it would be “illogical” to introduce further reforms, including proposals for the small claims limit, before the post-legislative review of Part 2 of LASPO had been concluded. In response, the Government has accepted the recommendation to delay implementation and is now working to a new date of April 2020. However, the Government remains of the view that it is appropriate to increase the small claim track limit for personal injury claims to £2,000 and for road traffic accident personal injury claims to £5,000. The limit for most other claims is £10,000.
Alternative Dispute Resolution
In 2016, an expert working party was set up to review current approaches to Alternative Dispute Resolution (ADR) and to consider how its use could be more effectively encouraged. An interim report was published in October 2017 which included a recommendation to consider the possibility of mandatory pre-action ADR. This has always been a contentious proposal, but the working party thought that now was the right time to reconsider it.
Third-party funding (TPF), where funders typically pay the legal fees and expenses involved in pursuing litigation or arbitration in exchange for a stake in the claim, is a popular choice for many claimants. This rapidly expanding market has seen growth fuelled by highly sophisticated investors, such as private equity firms and hedge funders, investing in groups of cases on a portfolio basis.
The growth in group and representative actions in the UK has helped feed the funders' ever-increasing appetite for new cases to back. Group Litigation Orders, which allow courts to manage numerous separate claims that give rise to “common or related issues of fact or law”, and the new opt-out collective redress regime for competition infringement claims, introduced by the Consumer Rights Act 2015, have encouraged more representative actions. Growth is expected to be fuelled further by the General Data Protection Regulation, which gives consumers a statutory platform to bring representative claims for data breaches, and further still if the EU introduces (and the UK implements) its proposal to allow consumers affected by unfair commercial practices to launch collective representative actions in member states.
The use of TPF to fund claims brought by insolvency practitioners is also a growing area. Since 2016, insolvency claims are no longer exempt from LASPO's abolition of the recoverability of success fees and 'after the event' insurance premiums in cases with conditional fee agreements. Insolvency practitioners have therefore had to consider alternative funding models such as TPF.
Will the TPF market in the UK contract with Brexit looming? Only time will tell but many funders are expecting an increase in litigation as the UK tries to weather the storm of economic uncertainty and, with less finance readily available, businesses may increasingly turn to TPF to pursue claims. London's reputation as a major international dispute resolution hub also means it is likely to remain very attractive to funders and international litigators post Brexit.
Despite calls to impose statutory regulation on the TPF market, following concerns over lack of transparency in the funding process and disproportionate returns flowing back to funders, the Government has shied away from this, preferring instead the current system where funders can choose to subscribe to the Association of Litigation Funders’ voluntary code of conduct. This absence of formal regulation is perhaps further reason why the UK TPF market is likely to remain buoyant for the foreseeable future.
Before the Event (BTE) insurance, a policy bought to cover legal costs in disputes, is expected to be given greater prominence this year. A working group set up by the Civil Justice Council published its report in November 2017 following a comprehensive study on the role this insurance may play in enhancing access to justice. The aim was to assist policy makers and commercial entities in the improvement and development of BTE products and services for consumers.
The working party found that BTE plays an important role in the current legal landscape, but there is a lack of awareness within consumer and business markets that BTE exists and an under-appreciation that it may be included in home and contents policies, for example. It noted that a public advertising campaign promoting the value of BTE and the Government taking a greater role in raising awareness could lead to its greater use.
Damages Based Agreements (DBA), a form of no win no fee agreement in which a successful lawyer's fee is calculated as a percentage of any damages recovered by the client, have remained unpopular with lawyers. There have been calls to allow hybrid DBAs, that is a DBA with a concurrent private funding arrangement. No action has been taken to improve take-up following the CJC's report and recommendations in September 2015. The Government has now stated that it will consider its next steps in the context of the findings from the current post-implementation review of Part 2 of LASPO.
For cases commenced after April 2013, work carried out after that date that is necessary may not be proportionate. Costs are proportionate if they bear a reasonable relationship to the sums in issue, the complexity of the litigation and any wider factors involved in the proceedings such as reputation or public importance. Unfortunately, the hoped-for guidance from the Court of Appeal on the new test of proportionality did not materialise in BNM v MGN Ltd (2017). On detailed assessment, the Senior Costs Judge had reduced costs claimed by about half as, although they had been allowed as reasonable, they were disproportionate. He also concluded that the new test should apply to the additional liabilities (success fee and ATE premium). However, the Court of Appeal held that the old proportionality test applied to pre-commencement and recoverable additional liabilities and declined to give guidance on the application of the new test.
In May and another v Wavell Group Ltd (2017), the judge on appeal increased the amount awarded by the costs judge and placed more focus on the reasonableness of the sums claimed. With permission to appeal to the Court of Appeal having been refused, another opportunity for guidance to be given on the correct application of the proportionality test has now been lost.
It has been suggested that as the proportionality test is a matter of court discretion, predictability and consistency cannot be expected. It does, however, increase the uncertainty of costs recovery.
It has been established that good reason is needed before a court can depart from a receiving party's last approved or agreed costs budget. However, there have been conflicting authorities on whether a reduction in hourly rates for incurred costs at a detailed assessment amounts to a good reason to depart from the costs budget for estimated costs. Two recent decisions, Jallow v Ministry of Defence (2018) and Nash v Ministry of Defence (2018), have stated that a reduction in hourly rates for the incurred costs element of a costs budget did not amount to a “good reason”.
In Gavin Edmondson Solicitors Ltd v Haven Insurance Co Ltd (2018), the Supreme Court has confirmed that, where a road traffic injury claim is presented through the Portal by a solicitor, the defendant's insurer may not avoid a liability for costs by negotiating directly with the claimant. The Law Society intervened in the proceedings and has now advised solicitors to consider taking action against insurers who settled personal injury claims directly with their clients without paying their fees. See further under Cases.
Non-party costs orders
Liability insurers' appeal against an order to pay non-party costs has been dismissed in Travelers Insurance Co Ltd v XYZ (2018). Some of the claims made against the insured in group litigation were insured, but some were not. However, the solicitors jointly retained by the insurers and the insured had advised the insured not to disclose the lack of insurance. A settlement was reached with the insured Claimants. The uninsured Claimants obtained judgment in default against the insured. With the insured having entered insolvent administration, the uninsured Claimants applied for a third-party costs order against the insurers. At first instance, the judge held that the insurers' continued involvement in the defence of the uninsured claims justified the non-party costs order. The Court of Appeal confirmed that the circumstances of the case were exceptional and it was just to make the order.
Electronic bill of costs
A new electronic format for a bill of costs has been introduced for detailed assessments in the Senior Courts Costs Office and in the County Court for work carried out from 6 April 2018. The intention is that electronic bills should be easier and cheaper to prepare and provide more transparency of the detail of costs being claimed.
The Business and Property Courts
The Business and Property Courts of England and Wales came into operation on 2 October 2017. They operate as a single umbrella for the specialist civil courts and the lists of the Chancery Division. Initially operating in London, Birmingham, Bristol, Cardiff, Leeds and Manchester, they have already expanded to Liverpool and Newcastle. There is said to be a 'super-highway' between the Business and Property Courts at the Rolls Building and those in the regions. There is a clear desire to try and ensure that more work is handled in the regions.
Pre-Action Protocol for Resolution of Package Travel Claims
The Pre-Action Protocol for the Resolution of Package Travel Claims and a fixed recoverable costs regime for claims for gastric illness contracted on package holidays have been introduced for claims in which no letter of claim was sent before 7 May 2018. This step has been taken as part of the Government's commitment to tackle the rise in fraudulent holiday sickness claims. See further under Other Developments.
In November 2017, the Practice Direction on Experts and Assessors was amended to allow the court to make an order for hot-tubbing (the giving of expert evidence concurrently).
Litigants in person
The number of litigants in person is increasing. However, in the case of Barton v Wright Hassall LLP (2018), which involved the defective service of a claim form, the Supreme Court declined to grant the unrepresented Claimant any leeway. It held that although a lack of representation will often justify the judge making allowances in case management decisions and in the conducting of hearings, it will not usually justify a lower standard of compliance with the Civil Procedure Rules or orders of the court. The rules do not distinguish between represented and unrepresented parties.
Adjudication – professional negligence
After two pilot schemes, the Pre-Action Protocol for Professional Negligence has been amended to encourage the parties to all non-medical professional negligence disputes to consider the use of adjudication. Based on the statutory scheme that applies to all construction contracts, this new adjudication scheme is intended to produce a quicker and cheaper resolution of disputes with a reasoned written decision being given within 56 days of the appointment of the adjudicator and payment due 21 days after the decision. Although similar to the construction scheme, there are important differences; perhaps the most important is that the professional negligence adjudication scheme is voluntary and both parties must agree to use it. The parties must also agree whether the decision is to be binding or whether it is only to be binding pending final determination by legal proceedings.
Finally, this year has seen the retirement from the Court of Appeal of Sir Rupert Jackson, widely regarded as the architect of change of our civil justice system. He will be missed, but the work of civil justice reform will continue unabated.
The full 'Insurance Remodelled: 2018/19 Market Conditions and Trends' Report can be accessed here: