- Why were PI Reforms introduced in April 2010?
- These latest batch of changes follow on from Lord Woolf’s reforms which included the introduction of the Civil Procedure Rules (1999), Personal Injury Protocols and efforts to reduce the costs of litigation. Those changes followed issues that arose from the abolition of Legal Aid for personal injury cases in 2000 and the development of Conditional Fee Agreements that allowed for Success Fees with recovery on success of an increase on legal fees of up to 100%. There was also the rise of Claims Management Companies, advertising of ‘no win –no fee’ cases, payment of referral fees for new cases by claimant solicitors, high premiums of ATE policies etc.
- The Personal Injury Protocol applied to all types of personal injury claims except medical negligence. The parties were required to follow a certain course of action (unless limitation was imminently expiring) whereby the claimant’s solicitors would write a letter of claim setting out the detail of the claim being made and why they thought the defendant was liable. This triggered a timetable whereby the defendant had 21 days to acknowledge and 3 months to reply admitting or denying with reasons and provide supporting documentation. If they didn’t the claimant could issue proceedings without cost consequences. Further, parties who failed to comply with the protocol could face cost consequences.
- For personal injury cases there were two main court processes (County Court generally for claims less than £50,000 and High Court for higher value claims) and there were three tracks established, Small Claims, Fast Track and Multi track. There was also emphasis placed upon Fast and Multi track cases for case management and also costs management with explanations to the court being required as to how case issues were going to be established and the costs of so doing.
- Fraudulent issues included staged accidents, phantom passengers and low-velocity impact claims where minor impacts allegedly caused whiplash and other injuries, losses and lengthy hire claims. These were expensive to investigate and defend – for example if fraud was suspected in a low velocity impact claim it would usually involve medical and engineering experts to disprove that any injury could have been sustained as alleged.
- Costs wars developed - an example was the Simcoe case, where the claimant’s lawyers Irwin Mitchell came under fire for their costs in a personal injury case after the Master of the Rolls, Lord Neuberger, said agreed costs of almost £75,000 were disproportionate to a damages award of £12,750.
- The case, Simcoe v Jacuzzi UK Group, saw plumber Adrian Simcoe bring a claim against Jacuzzi UK after suffering pain as a result of repetitive work assembling shower cubicles for the company. Simcoe agreed to accept £12,750 in damages with claimant's costs of £74,000 subsequently agreed and paid to Irwin Mitchell.
- In delivering his Civil Court of Appeal verdict on an issue concerning when interest on costs should run from, Neuberger said: "Unless this is an exceptional case, the fact that, without even incurring the cost of a trial, it costs the claimant nearly six times as much to pursue the claim as it was actually worth, suggests that something is out of kilter in at least some parts of the civil justice system." Irwin Mitchell defended its pricing policy, saying "delays and tactics" ramped up the cost of pursing plumber Adrian Simcoe's claim and prolonged it for three years.
The case came amid Lord Justice Jackson's review of civil litigation costs, which included the abolition of the recoverability of success fees and associated costs in 'no win, no fee' conditional fee arrangements, with claimants to pay their lawyers' success fees instead.
In his concluding remarks, Lord Neuberger stated: "It is to be hoped that the changes which are in the process of being enacted and implemented in relation to civil costs and civil procedure will help ensure that costs become more proportionate."
- The Woolf reforms were considered inadequate and so the reforms of 2010 were developed to help streamline the current compensation system for low value personal injury claims.
- The drive was to help speed up the process of establishing liability and finalising payment of low cost RTA injury claims and thereby make a considerable saving in costs.
- RTA Claims Portal
- RTA portal was developed by CRIF Decision Solutions Limited – accessed by using web browsers or in-house systems.
- The portal and process encountered a number of problems resulting in joint submissions being issued by APIL, MASS and the TUC.
- Common problems included unauthorised submission of claims notification forms, answering the rehabilitation needs question, not all vehicle damage information fields appearing, pre-medical offers being made outside the portal and admissions of liability direct to the client. Also, requests for interim payments before a medical report is available, requesting treatment where the Claimant is a minor, offers made inclusive of costs and early submission of the Stage 3 pack.
- The MoJ published their response at the end of February. There were a number of changes ranging from small fixes to new workflow processes to deal with some of these issues. One of the main complaints from claimant representatives was that Fixed fees in RTA cases worth less than £10,000 were reduced from £1200 to £500 from the end of April for Stage 2 settlements.
- Extension of RTA Portal Process to claims up to £25,000
- In February 2012 the Government announced its intention to extend the RTA portal process to claims up to £25,000. This was due to be implemented on 1st April 2013 but was put back to the end of July 2013.
- Extending the RTA portal involved some reworking of the relevant protocols and of the portal itself. This was particularly to cover the need for additional medical reports, witness statements and other evidence.
- The Law Society warned it was unlikely to be in place by April and that proved to be the case.
- Defendants had argued the £1,200 that had been paid as claimant solicitor costs under the process should be reduced due to the impending referral fee ban. Claimant solicitors argued that the sum was adequate as it was calculated based on the Solicitor’s Guideline hourly rates allowing for approximately 10 hours work. For higher value cases they suggested that the fixed fees should be increased to reflect approximately 24 hours work.
- Claimant solicitor firms are very concerned about access to justice being prevented by low fixed fees and we have already seen a number of firms in financial difficulties following a failed application for Judicial Review.
- Insurers and Defendant solicitor firms appear to be welcoming the changes as costs will be saved.
- Extension of Portal to EL/PL Claims
- Again, in February 2012 the Government announced its intention to extend the portal process to EL/PL claims. This was also due to be implemented on 1st April 2013 but was delayed until the end of July 2013. Section 4.1 of the EL/PL Protocol available on the claims process website states:
‘This Protocol applies where-
- the claim arises from an accident occurring on or after 31 July 2013; or
- in a disease claim, no letter of claim has been sent to the defendant before 31 July 2013.
- These claims are more complex making it difficult to apply a fixed fee or to determine timescales across the board.
- The completeness of insurance coverage is much weaker in these areas. Only employer’s liability has a compulsory insurance requirement and for example PL insurers are not required to indemnify as in the case of road traffic claims.
- EL/PL has a different timeframe to RTA cases as 3 weeks is insufficient to investigate liability particularly if a meeting with the policyholder or site inspection is required. However it has been said that the manner in which claims are investigated may have to change with photographs being provided instead of site inspections.
The new protocol will apply to injury and disease claims valued between £1,000 and £25,000. This limit may change in respect of cases below the small claims limit
There are some other exceptions including fatal accident and mesothelioma injury cases, claims where a Defendant is insolvent and there is no identifiable insurer or, for disease claims where there is more than one Defendant so these will all be outside the new PAP provisions. If the protocol should apply, it will be open to the Court to apply cost sanctions when the protocol is not followed.
Any reference to "days" in the PAP and below, means business days (i.e. Monday to Friday) excluding weekends, and excluding public holidays so a reference to 30 days for example is in fact a six week period.
Under the PAP, Claimants are required to complete and submit a Claim Notification Form (CNF) to the intended Defendant and their insurer (if known). The form will be submitted by email via a portal, or posted if that isn't possible. An electronic acknowledgment should be sent the day after receipt of the CNF and a response submitted:
- to an employers liability claim within 30 days
- to a public liability claim within 40 days
All communications are to be by e-mail.
The protocol then continues to apply to cases in which there is an unqualified admission of liability and the value remains under £25,000. For cases that fall out of the portal then the Fixed Costs Regime will apply allowing for a greater recovery of costs. As an example, the base costs for an employer’s liability case worth £25,000 would increase by over six times if settled at a hearing.
In employers' liability claims, the Defendant has 20 days from the date of his admission to verify any loss of earnings claim made. That will conclude Stage 1 under the PAP. Non-compliance at any stage will take the claim out of the PAP.
If the claim survives Stage 1 then in Stage 2 of the PAP the Claimant needs to obtain, check, and approve a medical report (no time limit yet specified). Once approved, the Claimant has 15 days to complete and submit a Settlement Pack (SP) to the Defendant. This will include a SP Form, the medical report (and any other expert evidence relied on if permitted), evidence of financial loss and disbursements incurred, medical records which the medical expert considers relevant, photographs of injuries, and witness statements which are needed to value the claim. The SP form should include an offer of settlement from the Claimant with breakdown.
When submitting the SP to a Defendant a Claimant can also seek an interim payment of £1,000 (more than one interim payment can be sought if the claim is valued at over £10,000). Defendants must make the interim payment within 10 business days of receiving the SP. The payment is on account of the compensation that will be payable for pain and suffering so is ‘ring fenced’ from any deduction for repayable benefits. If a Claimant asks for more than £1,000 as an interim payment then the Defendant must pay at least £1,000 within 15 days, or any higher sum less deductible benefits. If benefits are deducted they must be repaid to the Compensation Recovery Unit at the same time that payment is sent to the Claimant.
In addition to any interim payment, Defendants must pay Stage 1 fixed costs within 10 days of receipt of the SP.
Defendants then have 15 days to consider the SP and either accept the Claimant's offer of settlement or make its own offer. A further 20 days is then permitted for further negotiation. Both of these periods though are extendable by agreement, and in any event will be extended by 5 days if an offer is made 5 days or less before the end of the total 35 day period. If a Defendant makes an offer it must break it down by reference to the types of compensation claimed (i.e. £x for pain and suffering, £x for loss of earnings etc) and where this is less than what is sought by the Claimant, explain the reason for that. Any offer to settle which is accepted will bind the Defendant to pay Stage 2 fixed costs and disbursements (and for disease claims any success fee due if the Claimant's solicitors have a conditional fee agreement which they entered into before 1 April 2013).
If agreement is not reached within the Stage 2 PAP period, the onus is then on the Claimant to send a Court Proceedings Pack (CPP) to the Court and to the Defendant. The Defendant must within 15 days of receipt of the CPP pay its previous final offer of damages to the Claimant (less deductible benefits and any interim payment already made) plus the Stage 2 costs and disbursements.
The court proceedings are then to be governed by CPR Practice Direction 8B, http://www.justice.gov.uk/courts/procedure-rules/civil/rules/pd_part08b, which was originally introduced to deal with low value road traffic claims.
Within 14 days of service a Defendant must file an Acknowledgement of Service and indicate any objection to the matter proceeding to Stage 3.
Where the Court considers further evidence is needed to value the claim or for any reason thinks the claim is not suitable to continue to Stage 3 then the claim will be put on the appropriate track and directions issued and the case comes out of the PAP route.
If however the Court agrees the matter can go to Stage 3, then the Court may assess the claim on the papers, or request a hearing on 21 days notice. Stage 3 costs payable to a Claimant's solicitor will also be fixed.
It will generally be very much in a Defendant's interests to try and have cases determined under the PAP to limit its liability. Claimants' solicitors will be able to recover Stage 2 costs of £900 for EL/PL cases up to £10,000 and £1,600 for those worth up to £25,000. For RTA cases the claimant’s Stage 2 costs are £500 for cases up to £10,000 and £800 up to £25,000. There will be additional amounts allowed under Stage 3 if the matter proceeds to a paper or oral hearing. The above is a summary but from a Defence perspective, though the key timetabling you as Defendant representatives need to be achieving based on the PAP, will be as follows:
Click here to view the table.
Click here to view the table.
Click here to view the table.
Because Defendants will not generally be entitled to costs in an injury claim after July 2013, where your assessment is that primary liability will be established, our advice would be to think very hard before pursuing contributory negligence arguments at all once a CNF is received, since a response to raising such arguments will take you outside the scope of the PAP and the protection of having to pay only fixed costs.
- The overriding objective
The overriding objective is there to guide the Civil Courts in everything they do. The parties are under a duty to assist the Court in furthering the overriding objective. On 1 April 2013 the overriding objective changed in two important respects:
The principal aim of the overriding objective changed from
‘… enabling the Court to deal with cases justly.’
‘… enabling the Court to deal with cases justly and at proportionate cost.’
The definition of ‘dealing with cases justly’ (and at proportionate cost) now includes the additional aim of ‘enforcing compliance with rules, Practice Directions and orders.’
As with the existing rules, where costs are to be assessed on the standard basis, the Court will only allow costs, on an inter partes assessment, that are reasonable and proportionate. The new rules provide a definition of ‘proportionate’, which will be found at Rule 44.3 (5):
‘(5) Costs incurred are proportionate if they bear a reasonable relationship to –
- The sums in issue in the proceedings;
- The value of any non-monetary relief in issue in the proceedings;
- The complexity of the litigation;
- Any additional work generated by the conduct of the paying party; and
- Any wider factors involved in the proceedings, such as reputation or public importance.
The Rules are intended to reverse the pre 1 April 2013 approach, which required that the Courts should, as a minimum, allow costs that were necessarily incurred (the Lowndes test). In other words, necessity no longer means proportionate.
The new rules provide for a ‘long stop’ test, and expressly state that costs which are disproportionate may be disallowed or reduced even if they were reasonably or necessarily incurred. We refer further to costs below.
- Changes in Case Funding
- Litigation funding also changed significantly with effect from 1 April 2013 following Lord Justice Jackson’s review of civil litigation costs.The Legal Aid, Sentencing and Punishment of Offenders (“LASPO”) Act 2012 came into effect on 1 April 2013. Amongst other reforms the following will have a significant impact on litigation funding
- Success fees and After The Event insurance premiums are no longer recoverable from the losing party. Premiums and success fees will continue to be recoverable where the policy or CFA was entered into before 1 April 2013.
- The Act introduces contingency fees or Damages Based Agreements (DBAs). A contingency fee is an agreed fee payable to a lawyer if the claim is successful, calculated as a percentage of the sum recovered. Contingency fees were prohibited in contentious business in the UK. However, the reforms recommended the introduction of contingency fees under a DBA. Under a DBA the contingency fee is a percentage of the damages recovered. Recovery of costs from the losing party is limited to the lawyer’s normal costs. A further limitation, introduced in the DBA Regulations 2013, is that the lawyer may not take more than 50% of the client’s damages in commercial matters. The cap is inclusive of VAT and Counsel’s fees. Any recoverable costs must be deducted from the contingency fee rather than added on top (in other words, the percentage cap includes recoverable and non-recoverable costs).
So although Lawyers will be able to conduct litigation in return for a share of damages, Defendants will be liable for costs only on conventional basis and Claimants will have to pay any shortfall out of damages. The cap on the amount of damages that can be taken as contingency fee is 25% for personal injury, 35% for employment tribunal cases and 50% for all other claims.
- The range of funding options that are legally available to a potential litigant have not significantly varied after April 2013, except for the introduction of DBAs. CFAs and ATE policies will still be allowed, as will third party funding. The introduction of DBAs simply allows solicitors and barristers to offer to self fund in return for a share of the damages. However, the economic implications of the reforms will have a practical effect on funding options. All litigation funding involves a cost over and above the normal cost of litigation if a funded party is successful. This is to compensate the funder for the risk it takes in funding the case. At present, the legal system places the burden of paying the funding costs on the losing party in cases involving CFAs or ATE insurance, but on the successful party in third party funding cases. The effect of the Jackson reforms is to shift that burden to the successful party for all types of funding.
- Litigation Issues
General Damages: The changes haven’t been all to the advantage of the Defendant as there is a 10% increase in non-pecuniary general damages such as for pain, suffering and loss of amenity applicable to all tort cases, however funded. The details are set out in the Court of Appeal judgment in the case of Simmons v. Castle  EWCA Civ 1288. The increase applies to cases which settle or where judgment is given after 1 April 2013, unless there is a funding agreement, such as a CFA, which pre-dates 1 April 2013.
Part 36 offers: Furthermore, there is an additional sanction for Claimants’ offers equivalent to 10% of damages and costs. So a failure to beat a Claimant’s Part 36 offer will mean an extra 10% penalty on damages and indemnity costs (from 21 days after the offer was made) unless the Court decides it would be unjust to allow this entitlement. The onus will be upon the Defendant to challenge the entitlement. This provision is limited for larger claims to give maximum £75,000 payment for claims of over £1 million. So there is 10% for the first £500,000 and a further 5% up to the next £500,000.
Disclosure: The presumption in favour of standard disclosure has been replaced by a “menu” of disclosure options in multi-track cases. Two weeks before the first case management conference parties will have to file and serve reports describing what documents exist, where and how stored, and likely costs of giving standard disclosure. The parties will have to be able to give detailed information on disclosure, verified by a statement of truth, at a very early stage and it will be very important to make the clients aware of this as soon as possible and the implications of the statement of truth.
Experts: Any parties seeking permission for expert evidence will have to identify the issues the evidence will address and provide a cost estimate as a pre-requisite. Judges will make a detailed assessment on what is required for the issues in question. Concurrent expert evidence (or “hottubbing”) may be adopted at the judge’s direction. It is difficult to see how costs will be saved by this process.
Witness statements: Courts will have express powers to: identify or limit the issues for witness evidence; identify which witnesses may give evidence; limit the length of witness statements. We expect that this ‘hands on’ approach will probably be implemented after Disclosure when the nature and extent of the supporting documents to the issues in question can be assessed.
Case management: There are amendments to the rule on granting relief from sanctions for breaches of rules or Court orders. The previous criteria was replaced with a requirement to consider all the circumstances of the case with emphasis on the need for litigation to be conducted efficiently and at proportionate cost and the need to enforce compliance.
Small Claims limit: This has now increased from £5,000 to £10,000 although the £1,000 threshold for personal injury claims currently remains in place. The general rule for such claims is that no costs will be awarded to either party other than in limited exceptions apart from the court issue fees and hearing related expenses to a successful claimant.
- Further changes in costs
Costs management: Judicial costs management procedures for multi-track cases commenced on or after 1 April 2013. Parties will have to file and exchange detailed costs budgets before the first case management conference. The Court may make a costs management order recording the extent to which the parties’ budgets are agreed or approved and when assessing costs, will not depart from the budget without good reason. The procedures will not apply in the Commercial Court, or to claims over £2 million in the Chancery, Technology and Construction, or Mercantile Courts, unless the Court so orders.
Proportionality: There is a new test of proportionality, requiring costs to bear a reasonable relationship to the value and complexity of the claim, any additional work generated by the conduct of the paying party, and any wider factors involved in the proceedings (e.g. reputation or public importance).
Qualified one-way costs shifting (QOCS) for personal injury claims: Claimants will be awarded costs if successful but will not have to pay the Defendant’s costs if they lose. Exceptions are where the Claimant has failed to beat a Defendant’s Part 36 offer, or where the claim is fraudulent or struck out e.g. as abuse of process. So this will mean that a Defendant will not be able to recover costs if a case has been successfully defended unless he can rely upon an effective Part 36 offer!
Welcome to the brave new world of personal injury litigation!