Simmons v Castle [26.07.12]

The Court of Appeal has confirmed that general damages will increase by 10% where judgment is given after 1 April 2013 - Simmons v Castle.

The Court explained that early notice was being given of the increase to enable all parties engaged in or contemplating litigation to be aware of the impending change. However, what does this mean in practice now?

The recoverability of conditional fee agreement (CFA) success fees and after the event (ATE) insurance premiums have been abolished by the Legal Aid, Sentencing and Punishment of Offenders (LASPO) Act 2012 - set to come into force on 1 April 2013. From 1 April 2013, parties will still be able to enter a CFA in personal injury cases with their client but the success fee will be subject to a cap of 25 per cent of damages (excluding future care and loss).

The abolishment of those success fees is not retrospective. With CFAs entered into up to 1 April 2013 that carry, for example, a 100 per cent success fee, will the claimant still recover a 100 per cent success fee and ATE insurance at the conclusion of the case? Could the defendant, therefore, be exposed to a period of time where, in cases concluded after 1 April 2013, it is required to fund both an increased payment of general damages plus payment of up to a 100 per cent success fee, an ATE premium, and indeed, a further 10 per cent"“award" (capped at £75,000) under the new Part 36 regime (where the defendant does not beat the claimant’s offer)?

If so, in the absence of guidance, this would create a period of significant overlap and uncertainty.

Intended fairness

We doubt this was the intention of Jackson who was keen for all of his cost saving proposals to be introduced as a clearly defined package, and for all parties to take an interest in the costs of litigation. Part of the reasoning behind Jackson’s recommendation for an increase in general damages was to compensate the claimant for paying success fees out of his own damages. Simmons appears, therefore, to put the claimant in a position to tactically seek the benefit of a 10 per cent increase in damages in any event:

Will claimants look for ways to have their cake and eat it? Could this include, for example, a claimant solicitor offering to "waive" a staged ATE premium in the run up to trial on the basis that the claim is uplifted by 10 per cent (as it is imminent anyway)?

Will defendants have to try and predict whether the claimant’s solicitor considers they are better serving their client by proceeding now under the regime of recoverability of a success fee from the defendant and not the claimant? In other words, will some claimant solicitors consider they are under a professional obligation to maximise their client’s damages and hold off agreeing to resolution (subject to limitation)? This, of course, must be balanced against the fact that claimant’s solicitors can take up to 25 per cent of their client’s damages if they enter a new style funding arrangement.

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.

Nevertheless, clarification is clearly required surrounding transitional measures to replace existing funding arrangements on 1 April 2013 – namely transferral to damages based agreements and capped success fees (as encapsulated in the LASPO Act).

Reserving now

The full extent of the financial impact of this less than perfect situation will be dependent on how claimant’s deal with these reforms. At the very least defendants are going to need to review both their own and claimant 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. In short, despite the Court’s reassurance about time to plan, this development impacts on cases now and indeed any case where judgment would be given post April 2013 - which is likely to be the majority of any cases proceeding to trial.

One solution is for the Ministry of Justice to consider amending the Court of Appeal’s ruling and apply the increase in general damages to all accidents on or after 1 April 2013. Alternatively, where a matter goes to trial with (current version) CFA funding – could it not be confirmed the increase in general damages will not apply or, at the very least, any CFA success fee will automatically be reduced to 25 per cent (in line with current proposals)?

Clarification is, therefore, required to ensure realisation of the aim of fairness and balance.

See our case review on the increase in general damages