Jackson concluded that the proper course is to abolish the recoverability of success fees and ATE insurance premiums. He went onto ask which, and if so what, measures should be taken to assist claimants who will have to pay success fees. He recommended three measures:
- A 10 per cent increase in general damages
- A change in the Part 36 regime
- The introduction of a regime of qualified one way costs shifting (QOCS)
Liability insurers were understandably concerned about the additional burden which the reform package as a whole would impose upon them. With regard to the 10 per cent increase in general damages, objections included the view that civil damages should compensate claimants for loss or injury only, not meet costs. However, when viewed as part of the overall package of reforms to incentivise reasonable litigation behaviour, the pill became easier to swallow.
The key recommendations of The Jackson Report (including those above) were taken forward in a variety of ways. Some of the major reforms are encapsulated in the Legal Aid, Sentencing and Punishment of Offenders (LASPO) Act 2012 – set to come into force in April 2013. This includes the abolition of CFA success fees and ATE premium recovery.
Changes to Part 36 and the QOCS regime have been taken forward through secondary legislation, the details having been confirmed by way of written ministerial statement in July.
The 10 per cent increase in general damages did not appear on the face of the LASPO Bill, which did not go unnoticed during the Bill’s passage through Parliament. There was, therefore, an element of surprise when the Court of Appeal took the opportunity in Simmons v Castle  to confirm general damages will increase by 10 per cent where judgment is given after 1 April 2013 – whether or not a CFA is in place and irrespective of when the agreement was signed.
The Court gave reassurance that early notice was being given of the increase to enable all parties to prepare for the change and considered that its conclusion would achieve "the great merits of providing a simplicity and clarity". The insurance industry did not agree. Following an application by the Association of British Insurers (ABI), the Court of Appeal confirmed last week that the 10 per cent increase in general damages will not be awarded to any claimant who falls into section 44(6) of the LASPO Act 2012. Put simply:
- Where a claimant has entered into a CFA before 1 April 2013 - he will be entitled to recover a success fee from the losing party, but will not be entitled to receive a 10 per cent uplift on general damages.
- Where a claimant has entered into a CFA on or after 1 April 2013 - he will not be entitled to recover a success fee from the losing party, but will be entitled to receive a 10 per cent uplift on general damages.
The Court also took the opportunity to clarify which categories of general damages awards will benefit from the 10 per cent increase, namely those awarded for pain and suffering, loss of amenity, physical inconvenience and discomfort, social discredit and mental distress - whether claimed in tort or in contract. The core claims covered will be personal injury, clinical negligence, professional negligence, nuisance, defamation and housing disrepair claims. All other types of cases will be dealt with on a case by case basis.
Remaining CFA uncertainty?
We can envisage some situations were there may be uncertainty. What will the outcome be for those cases where there is a change in solicitor from one who has a retainer for recovery of his costs under a CFA which falls into s.44(6), to one where the post April 2013 position applies – how will the 10 per cent uplift in general damages and payment of success fee apply? Will we see claimant solicitors recommending a change in their clients’ funding arrangements before April 2013?
We suspect that these situations will be few and far between and, as suggested by the Court in Simmons, will be dealt with on an individual basis. Indeed, the Court recognised such circumstances would "occur relatively rarely, and it would only be a temporary phenomenon".
Interplay with Part 36
The Part 36 regime will be changed to permit an additional sanction of 10 per cent of damages where the defendant’s offer does not beat judgment. The sanction will be subject to a tapering system for claims over £50,000 so that the maximum sanction is likely to be £75,000. Part 36 will also override QOCS.
There are a number of difficult questions that practitioners now face, and the answer to which is far from clear:
- Should defendants start increasing their Part 36 offers by 10 per cent now – notwithstanding the new regime is not yet in force?
- If the defendant does not do so, will the court consider that the claimant has beaten its own offer by applying the 10 per cent increase in damages – thereby pushing the award above the level of the defendant’s offer which is higher than the court would award now?
- If so, will the defendant be faced with lost Part 36 protection plus liability towards the Part 36 "bonus"?
Looking beyond next April, because of the practice of making global offers (encompassing both general and special damages in one sum), it is also likely to become complicated in practice to see which party has beaten what. As the Part 36 "sanction" will apply only to general damages, there is a risk that in each case the parties or the court will need to dissect any Part 36 offer (claimant’s or defendant’s) to see precisely how much related to general damages.
Whilst some clarity has been reinstated, the full extent of the financial impact on liability insurers will be dependent on how the parties to litigation deal with these reforms. At the very least defendants are going to need to review both their own and claimants’ offers and build into the reserve the penalties to be awarded, against a background of a longer shelf life for those claims which enter a CFA close to next April and/or more complex claims.
It should of course be recognised that the increase in damages relates to general damages only. In higher value claims, general damages tend to form the smaller proportion of the overall value of the claim and the maximum addition to general damages would be in the region of £26,500. Whilst the overall long term gain of the reforms must be borne in mind, the impact is still likely to be felt by defendants and their insurers, particularly for those defending lower value/higher volume claims (like motor claims) in the short term.
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