We all know the headlines:
Funding changes – no recovery of success fees and after the event (ATE) premiums, and contingency fees under damages-based agreements (DBAs) to be allowed;
Procedural – increased penalties for defendants who fail to beat Part 36 offers, a raft of disclosure options, court intervention in the management of claims, and “zero tolerance” for parties who fail to comply.
Costs management/budgeting – a strict regime leading to budgets from which it will be difficult to depart.
So what can we predict about future claims trends as a result of the changes?
Costs disputes between clients and solicitors
The rules about DBAs are not even clear, and the potential for dissatisfaction with the service provided is likely to be doubled when the payment of costs is coming from the client’s damages – for the first time since success fees and ATE premiums became recoverable, clients have a interest in what their solicitor is charging. This will result in an increased use of the Legal Ombudsman (LeO) (see Andrew Hipper’s article) as well as full claims.
Claims arising from disclosure
Standard disclosure was simple – you must disclose all relevant papers, whether helpful to your case or not. Now, there is choice. You can seek to limit disclosure to only one issue, or argue there should be none at all. It has become a strategic weapon – useful, but it has the potential to arise in a claim when your insured discloses an apparently innocuous document which later becomes a smoking gun.
Costs management and relief from sanctions
A party cannot recover its costs at all if it fails to file a Precedent H budget in time. Combined with “zero tolerance” where solicitors fail to comply with an order or direction (a source of claims in itself), this will lead to direct claims, and not just in respect of costs. A party can argue that the inability to recover costs prejudices his action against that party. Insurers will need to be prepared to make a quick decision to step in to fund the claim against the party to the underlying action, assuming it has merit.
Costs budgeting and proportionality
Judges are only required to approve budgets which are proportionate. Each party will have to consider well in advance of the first case management conference (CMC) precisely what evidence it is going to need to adduce (including the specific issues – not just "accountancy evidence"), get accurate estimates and then make a case for it being allowed. The same is true of disclosure and witness statements, and will result in a huge front-loading of costs. Insurers can expect to see the welcome decrease in claimant costs reserves, but an increase in defence costs reserves, as result of these reforms. Claims are likely to arise from the court's refusal to allow a party to rely on evidence required to win the case.
While the abolition of the recovery of success fees is expected to reduce the number of overall claims, it may be that speculative claims continue to be issued, linked with use of the more punitive Part 36 consequences, and front-loading of costs, to apply pressure on defendants to consider settlement options.
All of this is dependent on to what extent the courts actually implement the rules – the word on the street so far is that they have limited capacity to do so effectively and so face some real logistical challenges. Inconsistent application does nobody any favours.