Thompsons briefing for unions – January 2010  


Lord Justice Jackson has published the final report of his Review of Civil Litigation Costs.

It is bad news for personal injury claimants, for unions and their members. It is good news for the insurers and their shareholders. The insurers have got much of what they wanted from the review.

The review runs to 584 pages and we will continue to study the detail. This is intended to be a first summary of the key areas of the report of direct importance to trade unions.

If the report’s recommendations were to be accepted by this or a future government (and there is heavy pressure from the judges and the insurers to see that done) it would impact on all aspects of union legal services and mean in practice:

1. The end of being able to take out After the Event (ATE) insurance or for unions to self insure against losing a case. This will only be partly offset by in most cases not having to pay defendants’ costs where cases are lost.
2. The £millions paid out by ATE insurers for disbursements in unsuccessful cases will no longer be available – Jackson expects injury victims to pick this up.
3. No success fee from insurers to provide a fund for unsuccessful cases – this alone will cut by at least 20% the costs paid by insurers in successful workplace injury cases and undermine the funding of union legal services.
4. A return to the old days of any success fee (to be capped at 25% of damages) coming out of the claimant’s damages.
5. A ban on referral fees whether paid in cash or by discounted or free legal services.
6. Fixed costs for fast track personal injury claims – designed to reduce the costs in well over 80% of union cases.
7. A green light for contingency fees (where the lawyer takes a part of any compensation won and which caused havoc in equal pay cases).
8. A proposal to increase general damages by 10% is put forward to offset the deductions from damages that these changes will bring. But 10% is nowhere near enough to make up for the financial hole created by the proposals.

The only ‘good news’ for claimants and trade union legal services is a decision not to increase the small claims limit. But that is only a temporary reprieve as the small claims limit will be reviewed again (meaning it is likely then to be increased substantially) at the end of 2010 if it is not considered that the reforms on fixed costs, success fees and the new claims process for road traffic accidents have been satisfactory by then.

If those reforms are considered satisfactory then, when justified by inflation, the limit will still go up to £1,500 to reflect inflation since 1999 when the small claims limit was last increased.

The furore about no win no fee lawyers taking money from compensation appears to have been forgotten. Jackson’s proposals make deductions from damages the norm and would mean a potential take from an injured person’s compensation of up to 50% while insurers pocket what they are currently paying out.

Taking the issues in turn:

Small claims (Ch 18)

No costs are payable by insurers in small claims and any increase would seriously damage union legal services. It is good news, therefore, that there is no proposal to increase the small claims limit for personal injury claims, for now. However, the report says there is “considerable force in the arguments” for raising the limits.

The reprieve is made contingent on Jackson finding that the other proposed reforms “bed in satisfactorily”. by the end of 2010.

The report states that the priority is to fix all costs in the fast track and to establish an efficient and fair process for handling personal injury claims. If those reforms don’t “bed in satisfactorily” then the small claims limit will be reviewed. This is clearly an implied threat to increase the limit substantially.

In any event, when justified by inflation, it is proposed the limit should go up to £1,500 to reflect inflation since 1999 (when the small claims limit was last increased).

Fixed costs (Ch 15)

Fixed costs for all fast track personal injury claims. Fast track cases are all those up to £25,000. They represent up to 80% of union backed claims.

The report rejects calls for certain cases, including employers liability disease cases, to be excluded from the fixed costs regime.

Jackson makes no bones about the fact that the aim of fixed costs is a reduction in costs.

All the arguments against fixed costs have been rejected. The fact that the miners scheme cases show that most lawyers on fixed costs do the minimum work possible and undersettle has been ignored. Unscrupulous lawyers will either cut corners by doing less work or reduce the qualification and supervision of those who do the work.

This will be a windfall for employers and their insurers at the expense of union legal services and claimants.

There is also a suggestion that fixed costs in the multi-track (cases above £25,000) be reviewed after fixed costs in the fast track have bedded down.

Success fees, union self insurance and ATE premiums (Ch 9-10)

This is potentially the most damaging part of the report and will leave a gaping financial hole in the funding of union legal services.

Success fees and After the Event (ATE) insurance will no longer be recoverable from defendants in successful cases. It follows from this and the proposals on costs shifting (see below) that union self insurance would also go.

The clear message is that success fees (which pay for unsuccessful cases) should be deducted from the claimant’s damages. This means the end of the fund for lost cases, unsuccessful cases and, in self insurance schemes, unrecovered disbursements. Jackson expects this to come from claimants’ damages (up to a maximum of 25% of that compensation).

As a sweetener for this the report proposes a 10% increase in that part of damages payable for pain, suffering and loss of amenity (general damages). As general damages are only part of a claim (loss of earnings can be a substantial part) against a real cut of up to 25% this will mean an increase of much less than 10% overall.

Ending the requirement for insurers to pay success fees will slash by a fifth at least the costs paid by insurers in workplace injury cases and undermine the funding of union legal services.

ATE insurance and union self insurance to pay disbursements and the other side’s costs in unsuccessful cases would end. The proposal to not pay defendants’ costs in (most) cases that are lost (costs shifting – see below) would only partially offset the impact of this leaving the considerable problem of funding the £millions in disbursements in those unsuccessful cases.

Costs shifting (Ch 19)

The report recommends a regime of qualified one way costs shifting. By “qualified” it means that subject to the qualifications the claimant will not be required to pay the defendant’s costs if the claim is unsuccessful, but the defendant will be required to pay the claimant’s costs if they are successful.

The qualifications to this are that unreasonable (or otherwise unjustified) behaviour by either side may lead to a different costs order. This includes where the claimant recovers less than an insurers Part 36 offer – the assumption is that the opponent’s costs will then be paid out of the claimant’s damages.

Referral fees (Ch 20)

Referral fees are to be banned. They are widely defined to include all free and discount services and this has the potential to seriously undermine union legal services.

If this proposal is not accepted then there is an alternative proposal for referral fees to be capped at £200.

Electronic assessment of damages (Ch 21)

Jackson’s preliminary report was enthusiastic about electronic (software based) assessment of damages. However he now acknowledges that computers cannot replace judges and that calibration should accord as nearly as possible with the awards of general damages that would be made by the courts.

He recommends that a working group be set up to establish a uniform calibration for all software systems used in the assessment of damages.

This is a welcome step back from the preliminary report’s passion for the insurance biased software tools pushed by the Association of British Insurers and the insurance industry generally.

Before the Event (BTE) insurance (Ch 8)

BTE has been used by insurers to attack union legal services by profiting from claims against themselves and taking control of the market to the exclusion of union arrangements. Jackson remains in favour of expanding BTE and recommends encouragement of greater take by small businesses and householders.

The ban on referral fees will have an impact on BTE although the extent of this is an unknown.

The report recommends that where a claimant’s BTE funds their claim, the claimant should have the right to use a solicitor of their choice. This at least is welcome.

Contingency fees (Ch 12)

Jackson gives a green light for contingency fees (where the lawyer takes a part of any compensation won and which caused havoc in equal pay cases). He favours a model where the losing party pays costs in the normal way and where the contingency fees exceeds this, that is borne by the successful litigant.

The report supports the MoJ’s current proposals for regulating contingency fees as a sufficient safeguard.

Indemnity principle (Ch 5)

The recommendation is that this be removed as an issue. If implemented, this is welcome as it will remove many of the technical challenges brought by insurers trying to avoid paying costs. But there have been many recommendations to abolish the indemnity principle and none have ever been implemented.

Third party capture

This growing industry which ‘skims’ injured people off as soon as they approach their insurers and passes them to a captive law firm merits a mention but, unsurprisingly in an insurance friendly response, merits no recommendations. It is effectively glossed over in the section on BTE.

Collective actions (Ch 33)

Jackson appears to support finding ways of funding collective and representative actions. He says that the starting point or default position in collective actions should be (a) in personal injury actions, qualified one way costs shifting, ie the same as for other personal injury cases and (b) in all other actions, retention of the current system.

Part 36 (Ch 41)

The report’s recommendations may be of some limited comfort to injured members.

Where a defendant rejects a member’s confidential offer, but the member is awarded more than that offer at trial, it is proposed that the compensation is increased by 10%.

Policy and Public Affairs
January 2010