Briefing for the Legal Aid, Sentencing and Punishment of Offenders Bill Committee. An interlocking package of reforms

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1 Briefing for the Legal Aid, Sentencing and Punishment of Offenders Bill Committee An interlocking package of reforms March 2012

2 Briefing for Members of the Legal Aid, Sentencing and Punishment of Offenders Bill Committee in relation to the interlocking nature of the reforms to the civil justice system.

3 The interlocking nature of reforms to civil justice Introduction As the Legal Aid, Sentencing and Punishment of Offender (LASPO) Bill enters Report stage in the House of Lords on 5 March, it is timely to take stock of how the reforms to civil justice that form part of the Bill fit with the wider programme of civil justice reform. Parts 1 and 2 of LASPO deal with reforms to civil justice with the former tackling legal aid and the latter dealing with civil litigation costs and funding, as well as referral fees. The purpose of this paper is to highlight the different key areas of proposed reform and the background to them, including by which vehicle those measures will be taken forward to implementation. The paper aims to show how those measures are linked and that once implementation is achieved (by whichever route), they will provide a balanced package of reform to the civil justice system as we know it for the good of both those involved in the litigation process and the general public at large. A balanced package of reform The current package of civil justice reform encompasses a range of measures that are being pursued through different legislative and regulatory vehicles. As the LASPO Bill goes through the final stages of the parliamentary legislative process, it is important to bear in mind that it is one part of a wider, and balanced, package of civil justice reform. The diagram that accompanies this briefing provides a visual representation of the other initiatives being pursued and how they relate to the LASPO Bill. The driving force for civil justice reform has been the review by Lord Justice Jackson. His recommendations (as set out in his Final Report) are being implemented through secondary as well as primary legislation. When taken in isolation, the reforms to civil justice that are included in the LASPO Bill could be seen as favouring the defendant over the claimant. However, when the wider interlocking package of civil justice reform is considered, it is apparent that a balanced and fair outcome will be delivered to those involved in the litigation process. The Jackson review In 2008 the Master of the Rolls, Sir Anthony Clarke, appointed Lord Justice Jackson (Sir Rupert) to lead a fundamental review of the rules and principles governing the costs of civil litigation and to make recommendations in order to promote access to justice at proportionate cost. Sir Rupert s Final Report was published on 14 January 2010 and made 109 recommendations to tackle the problem of excessive costs. The Lord Chief Justice

4 and the senior judiciary issued a strong endorsement of the report and supported the implementation of the package of reforms. The recommendations are being taken in a number of different ways. Some measures require primary legislation and these reforms are included in the LASPO Bill. Other reforms will be implemented through rule or policy changes. Following the publication of the Final Report, the Ministry of Justice issued a consultation: Proposals for Reform of Civil Litigation Funding and Costs in England and Wales implementation of Lord Justice Jackson s recommendations. This consultation outlined the measures that the Government wished to see taken from Sir Rupert s recommendations as a priority. These included the package of proposals on the reform of conditional fee arrangements (CFAs) and on damagesbased agreements (DBAs). In its consultation, the Ministry of Justice said it believes implementing these proposals should lead to significant costs savings, while still enabling those who need justice to obtain it. The Ministry of Justice s consultation sought views on the following of Sir Rupert s recommendations: Conditional fee agreements and success fees After the event (ATE) insurance premiums 10% increase in general damages Part 36 offers Qualified one way costs shifting (QOCS) Supplementary legal aid scheme Alternative recommendations on recovery Proportionality Damages-based agreements Litigants in person The consultation did not cover, but provided a brief update, on the following of Sir Rupert s recommendations: Referral fees Fixed recoverable costs in the fast track Costs Council Costs and case management Before the event insurance (BTE) Third party funding Predictable damages The indemnity principle Clinical negligence (in detail) Intellectual property In its response to the consultation, the Ministry of Justice set out its intention to abolish the general recoverability of the CFA success fee from the losing side; abolish the general recoverability of ATE insurance premiums; and introduce the

5 package of associated measures as set out by Sir Rupert. The response set out that changes to the CFA regime requiring primary legislation would follow as soon as Parliamentary time allowed while other changes would require changes to the Civil Procedure Rules or other secondary legislation. Sir Rupert s recommendations, the Government s response and the type of legislation required are shown in the table below. Jackson Review proposal Government response Legislation required Abolish the recoverability of conditional fee agreement (CFA) success fees from the losing party. Abolish the recoverability of after the event (ATE) insurance premiums. Enable the use of contingency fees or damages-based agreements (DBAs) in most civil litigation. Enable the Court to permit the payment of additional amounts to successful claimants in circumstances where the claimant is given judgment that is at least as advantageous as an The Government intends to abolish the general recoverability of CFA success fees from the losing side. In future any CFA success fee will be paid by the CFA funded party, rather than the other side. The Government intends to abolish the general recoverability of ATE insurance premiums. In future any ATE insurance premium will be paid by the party taking out the insurance. DBAs will be allowed to be used in civil litigation. DBAs will provide a useful additional form of funding for claimants, for example in commercial claims. DBAs will be subject to similar requirements for parties to the agreement as for CFAs. Where a money offer is beaten at trial, by however small a margin, the costs sanctions applicable under CPR Part 36 will apply. Primary legislation LASPO Bill

6 offer made to settle the claim. Qualified one way costs shifting (QOCS) for personal injury cases. Additional sanctions and rewards under Part 36. Proportionality test where only reasonable and proportionate costs may be recovered from the losing party. A regime of QOCS will be introduced for personal injury cases, including clinical negligence. Part 36 of the Civil Procedures Rules (offers to settle) will be amended to equalise the incentives between claimants and defendants to make and accept reasonable offers. A new test of proportionality in costs assessment will be introduced. This will mean that only reasonable and proportionate costs may be recovered from the losing party. Secondary legislation changes to the civil procedure rules Referral fees In his Review, Sir Rupert recommended that referral fees should be banned in personal injury cases. He did not consider that referral fees offered real value to the process of litigation or that they were necessary for access to justice. He said that they were wrong in principle and that they added to the high costs of personal injury litigation. In the instance that his recommendation to ban referral fees was rejected, Sir Rupert suggested that referral fees should be capped at 200. He also said that if either recommendation was accepted, serious consideration should be given to the question of whether referral fees should be banned or capped in other areas of litigation. Jack Straw MP criticised the practice of details about car accidents being sold to personal injury lawyers. In September 2011 he introduced a ten minute rule bill (Motor Insurance Regulation Bill ) which included proposals to prohibit the payment of referral fees in personal injury road traffic accident claims. On 9 September 2011, the Ministry of Justice announced that rising insurance costs will be tackled by a ban on referral fees in personal injury cases. The Government

7 is of the opinion that the current arrangements have led to high costs, encouraged a compensation culture and led to the growth of an industry which pursues claimants for profit. The ban on referral fees is included within Part 2 of the LASPO Bill. Solving disputes in the county courts In his Review, Sir Rupert recommended that the system of fixed recoverable costs be extended. The Ministry of Justice published a consultation on 31 March 2011: Solving disputes in the county courts: creating a simpler, quicker and more proportionate system. The consultation set out proposed reforms to the civil justice system in the courts in England and Wales. In its response to the consultation, the Government agreed a package of measures to reform the civil justice process: Extending the financial limit of the road traffic accident personal injury (RTA PI) scheme, and introducing similar schemes for other types of personal injury claims Developing mandatory pre-action directions Implementing a system of fixed recoverable costs (similar to that proposed by Sir Rupert in his Review) Increasing the small claims track limit to 10,000 with the aim of a further increase to 15,000, only after full evaluation of the increase to 10,000 Automatically refer all small claims to mediation Measures on debt recovery and enforcement It is anticipated that most of these measures will be addressed through changes to the relevant sections of the Civil Procedure Rules and/or pre-action protocols, contained therein. Specifically, changes to the pre-action protocol will be required for vertical and horizontal extension of the RTA PI scheme (followed by changes to the company who administers the scheme), and alterations to a fixed costs system and small claims track will require amendment to CPR Parts 44 and 26, respectively. Automatic referral to mediation may require a new pre-action protocol. It is presumed that statutory instruments will implement those changes, as so required. Technical implementation of Jackson: costs The following of Sir Rupert s recommendations have been taken forward through secondary legislation: Qualified one way costs shifting (QOCS) CPR Part 36 offers Proportionality test

8 The Civil Justice Council convened an expert working party to develop practical proposals to assist with the implementation of secondary legislation through regulations and court rules. The working party considered the key options and issues raised by respondents to the Ministry of Justice s consultation as well as additional issues identified as a result of members own experience. Following discussions, the working party produced a paper that sets out realistic optional solutions in each of the three areas as well as the advantages and disadvantages of each option. On 31 October 2011, this paper was considered by a workshop that was attended by approximately 80 experienced practitioners. This included claimant and defendant experts in all key civil law areas affected by the proposals, such as personal injury, clinical negligence, housing, defamation, nuisance, actions against the police and judicial review. Justice Minister Jonathan Djanogly provided concluding remarks at the workshop and said that the Ministry of Justice considers that the changes proposed comprise a balanced package of measures. Not all of these are contained in the LASPO Bill, he said - some will be implemented through changes to the procedural rules. Feedback from the workshop will be considered by the Civil Procedure Rule Committee who will make the necessary changes to the Civil Procedure Rules, implemented through Statutory Instruments. Closing remarks There is no doubt that the measures proposed and under consideration are extensive and far reaching. When considered in isolation, many of those suggested measures seem to favour one party or the other. However, it is vital to take a holistic approach and view the individual measures as part of a collective. As long as the process of implementation is co-ordinated, a comprehensive package of reform is available, which should provide greater balance and fairness than the current system provides.

9 About Kennedys Kennedys is a top 50 specialist national and international legal firm with unrivalled expertise in litigation and dispute resolution. Our lawyers provide a range of specialist legal services across many areas such as: insurance/reinsurance, general liability, including motor, personal injury, employers and public liability and product liability, as well as property and construction, professional indemnity, healthcare, life and health, occupational disease, employment and health, safety and environment. We handle a wide range of insurance disputes and litigation with a client base that includes general insurers, global composites, Lloyd's syndicates, underwriters, selfinsured PLCs and self-insuring government bodies.

10 The interlocking nature of civil justice reform initiatives 2008: Master of the Rolls asks Lord Justice Jackson to conduct Review of civil litigation funding and costs as a result of concerns that the senior judiciary had over the escalating costs of civil justice December 2009: Jackson Review published Ban referral fees Abolish recoverability of CFA success fees from losing party Abolish recoverability of ATE insurance premiums Enable use of contingency fees or DBAs in most civil litigation Permit payment of additional amounts to successful claimants QOCS introduced for personal injury costs Additional sanctions and rewards under Part 36 Proportionality test only reasonable costs may be recovered System of fixed recoverable costs should be implemented for fast track PI claims Jack Straw Motor Insurance Regulation Bill February 2011: MOJ consults with industry on Jackson Recommendations March 2011: MOJ publishes response to consultation March 2011: MOJ consults on County Courts MOJ announce referral fee ban LASPO Bill: Article 54 Brings in referral fee ban Agree with Jackson proposal any CFA paid by CFA funded party LASPO Bill: Article 43 Amends section 8, Courts and Legal Services Act 1990 Agree with Jackson proposal any ATE premium paid by losing party Agree with Jackson proposal DBAs to be used in civil litigation Primary legislation required LASPO Bill: Article 45 Inserts section 58 C into Courts and Legal Services Act 1990 LASPO Bill: Article 44 Amends Section 58AA of Courts and Legal Services Act 1990 Money offer beaten at trial: costs sanctions under Part 36 will apply LASPO Bill: Article 46 Omits section 30 from Access to Justice Act 1999 LASPO Part 2: Implementation delayed until April 2013 QOCS introduced for personal injury cases including clinical negligence Part 36 amended to equalise incentives between claimants and defendants Most of group favoured a costsbased sanction rather than a damages-based sanction recommended by Jackson New test of proportionality in costs assessment to be introduced Secondary legislation required Apply QOCS to: PI claims where costs fixed; counterclaims; multiparty claims; mixed claims. Uncertainty about ATE and QOCS. Fraudulent claim should lose QOCS Civil Justice Council CJC QOCS Group CJC Part 36 Group CJC Proportionality Group Four alternatives: Long stop model; reversal of Lownds model; Hybrid model; or Retention of Lownds model November 2011: White paper on recommendations Civil Procedure Rule Committee Feb 2012: MOJ publishes response RTA portal extended to include claims worth up to 25,000 and employers and public liability claims Secondary legislation required changes to CPR and/or pre-action protocols Interlocking package of civil justice reforms

11 Kennedys is a trading name of Kennedys Law LLP. Kennedys Law LLP is a limited liability partnership registered in England and Wales with registered number OC and registered office at 25 Fenchurch Avenue, London, EC3M 5AD.

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