Even before the general election last year, Kennedys recognised the importance of active involvement in the political debate on Jackson, which we saw as a part of our responsibility towards civil justice reform generally. We met with the then shadow justice minister, Henry Bellingham, and following the election we created a Cost Reform Group. This group comprises interested individuals, composite insurers, corporations with a large self–insured element, public bodies and those from the voluntary sector. In addition, we met with consumer groups including the Citizens Advice Bureau and Consumer Focus. The intention behind the group was to provide a cohesive response to the consultation from a wide church of interests (and not just those representing defendant insurers).
The Cost Reform Group met with Sir Rupert (pictured at our London office) in November 2010 and we have also met with Lord Young, in connection with his own health and safety review. These initiatives culminated in a meeting with senior MoJ officials on 28 January. This was timely as it allowed us to gauge which aspects of the consultation required specific focus. These meetings helped shape our response, thereby ensuring that it is as comprehensive as possible in providing views that are relevant to the litigation arena as a whole.
Our response to the consultation emphasises the benefit of wholesale implementation. We recognise that the implementation of some of the recommendations carries adverse implications for the defendant. For example, with regard to the proposed changes to Part 36, we have concerns in the highest monetary claims that an additional payment equivalent to a 10% increase in damages will not incentivise early offers and could create a perverse incentive to proceed to trial merely to obtain the uplift. There is a real risk of late amendments to claims and service of schedules, encouraging late offers to take the benefit of the 10% uplift.
However, our overall stance is that Sir Rupert’s recommendations should not be watered down. As long as the Government is alive to the practical and commercial issues that the proposals entail, wholesale implementation is the preferred method to achieve a desire to see the genuine claimant rewarded, as opposed to his solicitor through generation of costs.
Looking at our response in more detail, the following summarises our position with regard to the main proposals:
- Confirmation of our belief that excessive costs have been largely caused by the recoverability of success fees and ATE insurance premiums.
- Confirmation of our particular concern about the increased use of staged ATE premiums, which we see as a frequently used tactic to make defendants and their insurers consider early commercial settlement in unmeritorious claims.
- A reminder that the principle of "full compensation" is relatively new and does not justify the retention of a costs regime at disproportionate cost to society at large.
- A call for the Government to open the consultation on referral fees beyond the consumer perspective, given our belief that referral fees are a “hidden cost” of personal injury litigation and are not subject to normal market forces.
Section 2.1: CFAs and success fees
- Agreement to abolition of success fees in all categories of cases (including complex clinical negligence) where damages are the main remedy.
- Should success fees remain recoverable in non-monetary claims, the fee should be capped at 25%.
- A maximum 25% cap on damages for all claims including complex personal injury claims.
Section 2.2: ATE insurance premiums
- Abolition of recoverable premiums when combined with proposals for qualified one way costs shifting (QOCS).
- Abolition of recoverable premiums for disbursements i.e. no exceptions.
- Better and cheaper alternatives to fund disbursements e.g. costs indemnity, third-party funders, alternative business structures.
Section 2.3: 10% increase in general damages (PSLA)
- In principle, there should not be an increase but we will accept the proposal as part of support for reform.
- Increase should be across the board and not just awarded to CFA claimants.
Section 2.4: Part 36 offers
- In principle, there should not be a penalty for failure to beat an offer but as with general damages, we will accept proposal of 10% uplift as part of support for reform, except for non-monetary cases.
- Operation of a £50,000 cap.
- Agreement to reversal of Carver.
- Agreement to operation of margin around uplift (as in FOIL model).
Section 2.5: QOCS
- Agreement to QOCS on basis that package is implemented in full.
- QOCS would reduce need for ATE.
- Limited to personal injury i.e. to cases where parties do not have equal bargaining power, subject to a test of financial resources and issues of fraud.
- Onus on claimant to be open about financial circumstances, to include filing details of financial circumstances on discontinuance.
What are others’ views?
In the next edition of Liability Brief we will provide an overview of the key responses that have been submitted. To give a flavour at this stage, we highlight the approach taken by two organisations which are both opposing the reforms:
Access to Justice Action Group - AJAG are an ad-hoc group comprising law firms, representative bodies and claims management companies. Its submission is diametrically opposed to the wholesale implementation of Sir Rupert’s proposals. Instead AJAG calls for moderate adjustments to a system which, in its view, is delivering access to justice and an extension of the MoJ RTA claims’ portal. View the response.
Bar Council - the Bar Council has prepared an 86 page response on behalf of its members. The paper seeks to separate considerations of access to justice from issues of costs and arrives at the standpoint that base costs are high but not the costs of funding (success fees/ATE insurance premiums). Therefore, the major planks of Sir Rupert’s recommendations are rejected and instead the Bar prefers procedural refinements. View the response.
In its business plan, the MoJ has set itself an ambitious timetable. It has indicated that it will analyse the consultation responses and develop an implementation plan by March 2011. Given the high number of responses the consultation is likely to attract and the politically charged nature of the subject matter, we suspect that the response is likely to be published in May, at the earliest. The MoJ’s agenda for this Spring is packed with activity. A significant period of time will be consumed by preparing consultations on fixed costs, the process within the fast track and referral fees, which may push any implementation plan out further.
Thereafter, primary legislation will be needed to implement recommendations on CFAs and on other proposals, such as allowing damages-based agreements in litigation. In our view, it is unlikely that the parliamentary timetable will allow the introduction of primary legislation before Spring 2012.
Although the formal consultation period has now closed it is likely that this debate will retain a level of turbulence over the coming months. We will continue to engage with the Government in the interests of our clients on this and other issues, taking into account the responses of others, which will indicate the tactics being employed to influence the shape of the debate. We will also continue to actively consider the strategic implications that these proposals raise for our clients - from day to day case management to the pricing models we offer our clients. Innovative proposals will be required to prepare us for the impact of these proposed reforms.
At this stage, we believe some of the key issues that require address include:
- To what extent can judicial activism bring about change without legislation?
- What is the future for firms which rely on CFAs as a core funding mechanism?
- How are Alternative Business Models developing in the face of the Legal Services Act 2007?
- How do risk based practices in other jurisdictions operate (particularly Australia, which is much admired by Lord Justice Jackson)?
- How can risk based firms position themselves so as to fill any potential income gap and continue to prosper?
Whilst the shape of the change is yet to be confirmed, significant change to the civil justice system as we know it is imminent. We will ensure that our clients are fully advised on the implications of policy decisions.