Access to Justice Action Group

Transcription

1 Access to Justice Action Group Access to Justice Action Group Briefing House of Lords stages Legal Aid, Sentencing and Punishment of Offenders Bill, part 2 Reforming Civil Litigation Funding in England and Wales Contact: Andrew Dismore AJAG info@ajag.co.uk andrewdismore@ajag.co.uk Accident Advice House Merrion Avenue Stanmore HA7 4RP 1

2 Access to Justice Action Group Briefing House of Lords stages Legal Aid, Sentencing and Punishment of Offenders Bill, part 2 Reforming Civil Litigation Funding in England and Wales 1 Executive summary 2 Introduction 3 The Government s plans 4 Why this is the wrong way to go Contents 5 Conditional fee agreements (CFAs) and success fees: clause 43 6 A 10% increase in General Damages: claimant to pay success fee: clause 43 7 Success fees: a better way: clause 43 8 Proportionality: rules of court 9 After the Event Insurance (ATE): clause Qualified One way Costs Shifting (QOCS): clause Before the Event Insurance ( BTE): an Inadequate Alternative: policy 12 Disbursements: no Provision for Funding: clause Clinical Negligence: clause 43 and After the Event Insurance: a better way: clause Part 36 Offers: clause Damages Based Agreements (DBAs): clause Claims Management Companies and referral fees: clauses 54 to Impact Assessment 19 Dealing with the Public s Concerns: our proposals for reform 2

3 Access to Justice Action Group Briefing Commons Report and Third Reading Legal Aid, Sentencing and Punishment of Offenders Bill, part 2 Reforming Civil Litigation Funding in England and Wales 1 Executive summary 1.1 There is no compensation culture, only a perception of one, as every study of the issue has shown. Much of what is therefore proposed is put forward on a false premise. The Government s proposals to deal with this non-existent problem will result in a major denial of access to justice for claimants. It has become increasingly clear as the Bill has progressed that one of the key drivers behind the Government s plans is the rising cost of motor insurance premiums. Research we have conducted based on the Association of British Insurers (ABI) own data shows that the average premium increases are far lower than the insurers suggest. The irony is that the reforms in the Bill and elsewhere do practically nothing to impact on the cost of road accident claims, (which the ABI argue is a major cause of increased premiums) yet throw in the air the whole of civil litigation: the road accident tail is wagging the civil justice dog. The Office of Fair Trading (OFT) is now conducting an investigation into the cost of motor premiums: it would have been better to have had the evidence and their conclusions before the Government legislates, not after. 1.2 However, AJAG recognises the Government s concerns over the cost of litigation, and in commenting on the proposals we advance alternatives which we believe achieve the Government s policy objectives whilst maintaining access to justice for the many. AJAG does not agree that success fees and ATE premiums should cease to be recoverable in their entirety, but accepts that some restrictions may be appropriate to meet the Government s objectives. 1.3 No win, no fee claims are not the preserve of the wealthy. The typical male claimant is aged under 39 and has an income of just over 29,000. The typical female claimant is aged under 44 and has an income of just over 19, % of claimants earn less than 25,000 per year and only 18% over 40, Overall it can be calculated that almost 3 million people benefitted from this form of funding over the last 5 years, mainly but not exclusively for personal injury cases, an average of almost 600,000 per year. The system has therefore been a very important contribution to access to justice for ordinary people on average and below average incomes. The total of personal injury claims, according to 3

4 DataMonitor a publication reporting on the insurance industry, was 861,325 in 2009/10: not all will have been funded through no win, no fee. 1.5 The Government s plans cannot be seen in isolation from developments since the Jackson report, and others in the pipeline. For example, the Jackson report was followed soon after by the new portal system (which includes a fixed base costs and success fee mechanism) and the Government plans to extend fixed recoverable (base) costs to all fast track cases by April Given that by the end of these plans, only a tiny proportion of personal injury cases will not be subject to fixed costs, the proposals are a sledgehammer to crack a nut. The cases that will be affected are those which are of higher value and more complexity, precisely those which should not be subject to the regime proposed. 1.6 The plans as they stand will undoubtedly generate considerable satellite litigation at a time when the costs wars of the last few years have drawn to a close and negotiation between the two sides of the system has been shown to bear fruit, for example in the portal system. There is the potential for many years more of litigation as the parties struggle to make sense of the proposed new regime. 1.7 As we demonstrate in detail, it is essential to recognise that success fees and ATE insurance provide important checks and balances, acting as a brake on both unmeritorious cases and cherry picking, which the proposed QOCS alternative does not. Many more weak cases would proceed without these case reviews, especially in clinical negligence, which would significantly increase NHS litigation costs. Without recoverable ATE, risk aversion by claimants will mean many perfectly good but problematical cases will fall by the wayside, as claimants will not be able to afford to take the risk of adverse costs orders. 1.8 Moreover, the lack of disbursement funding is one of the inevitable consequences, if ATE recoverability is ended generally. Without ATE, the claimant is left in the position of having to underwrite what could be a very high and unaffordable bill, especially for high cost, pre investigation, uncertain merits cases, like industrial disease. The disbursements in maximum severity cases would be prohibitive. The proposed use of ATE for clinical negligence disbursements is not commercially viable. This is a real barrier to access to justice. In the same context, we believe that not for profit membership organisation self insurance should be continued. 1.9 It should be remembered that the system of recoverability of success fees and ATE premiums was mainly to solve the access to justice problems of the MINELAS ( middle income not eligible for legal aid ) who did not qualify for legal aid, as much as it was a replacement for legal aid in personal injury claims, when that ceased as a result of the Access to Justice Act The proposed changes, especially QOCS, will reproduce that lacuna in access, especially for the middle classes. 4

5 1.10 Whilst AJAG in principle does not believe it is right or fair to deduct costs from a claimant s damages in principle, AJAG considers that a fair compromise would be to permit success fees to remain partially recoverable on a 50% basis, giving the claimant a stake in the costs decisions, but not losing the benefits of the wider spread of risk that recoverability brings. AJAG accepts the proposition that an early admission by the defendant during the pre action protocol period should lead to no recoverability of a success fee, subject to the definition of a defendant s acceptance of liability, because causation or contributory negligence cannot be dealt with in this context as mere quantum issues Fixed success fees are part of the only recently formed comprehensive agreed package for RTA cases in the portal system and are working. We see no merit in interfering with a system that is bedding down well, is seen to be fair, based on consensus, and was only recently introduced after a long and difficult genesis The proposed 10% uplift in general damages would not compensate claimants for losing up to 25% by way of success fee. We question the statistical basis on which it is suggested a high proportion of claimants would be better off. General damages for pain, suffering and loss of amenity for personal injury are too low anyway, as many studies have shown. The suggested inadequate 10% general damages uprating is long overdue, irrespective of the costs debate. Any such increase should not face being eaten away by costs bills We agree that there needs to be better incentives to claimants to advance part 36 settlement offers, and incentives to defendants to accept them. This process should apply at all stages. If an early offer is not accepted, then that nonacceptance and the consequences should inform later settlement negotiations The biggest barrier facing a claimant considering bringing a claim is the claimant s fear of the personal costs consequences of litigation. The subjectivity of the proposed QOCS arrangements leads to uncertainty for litigants, and in particular claimants. Such a system would not provide the claimant with the certainty he needs. With no objective definition of the very wealthy exemption in the operation of QOCS, the claimant is in limbo. The liability insurers will inevitably commence enquiries into, and request disclosure of, a claimant s means, as they already do in car hire claims. It is not clear if the original proposal that a defendant s impecuniosity or lack of insurance cover should be taken into account remains in play. The QOCS proposal will only apply to personal injury, but the removal of recoverability applies to all types of case. This creates prohibitive risks for all non-pi litigants The proposal that a claimant who behaves unreasonably in bringing a claim or bringing applications during the course of the claim introduces yet another subjective element to QOCS. 5

6 1.16 QOCS does not provide an answer as to who would fund the disbursements in a claim which does not prove successful, again leaving the claimant exposed to an uncertain legal bill. Accordingly, claimants would still require ATE to provide the certainty they need, but the costs of such policies may well become unaffordable if recovery is restricted as proposed. The more restricted ATE recoverability becomes, the higher the premiums will be, unless other steps are taken to limit the risk exposure AJAG does not believe that BTE insurance provides the answer, given both the extent of coverage of BTE but more importantly the significant restrictions imposed on claimants by BTE polices, which in practice can work out significantly more expensive for the claimant. The system should permit the best form of funding (if other alternatives are available) for the particular case and client concerned AJAG believes a better alternative to QOCS through a revised ATE system can be developed that would achieve the objectives of the Government by controlling both claimants and defendants costs, maintaining access to justice, reducing unmeritorious claims, solving the disbursement conundrum, and preserving the ATE market, fully worked details of which we set out in this paper The essential features include acceptance of non recoverability if liability is fully admitted during the protocol period; the ATE industry also pledges to develop policy models to cover disbursements in this period with very modest premiums. If liability remains in dispute, recoverable premiums would be staged. Up to the commencement of proceedings, recovery of disbursements only premiums would be permitted. Post proceedings recoverability would be capped at 50% of a compulsory defendants costs budget, approved by the court at allocation and listing questionnaire stages. Recoverability would also depend on when the policy is taken out, with percentage proportionate restrictions on the recovery of premiums for later policies. The balance of any unrecovered premiums would be for the client to meet, subject to an overall cap set at 25% of damages. Special considerations are proposed for clinical negligence, industrial disease, and injuries of maximum severity At Commons report stage, the Government introduced new clauses to the Bill to ban referral fees in personal injury cases only. This has been done without consultation with those affected, with no consideration of the implications for access to justice, and contrary to the conclusions of the Legal Service Board report published in May 2010, which found no case for a ban The Government is acting against its own principles of good regulation. Such a ban will be unenforceable, except against legitimate claims management companies who are disadvantaged as against unregulated businesses responsible for the abuses that concern the public; allows those abuses such as cold calling and SMS texting to continue; and will not lead to a reduction in insurance premiums. 6

7 1.23 The Government s proposals do not take account of the rapidly changing legal market, including the growth of Alternative Business Structures encouraged by the Government which will make the ban meaningless. Solicitors marketing costs will increase and access to justice reduce One of the main shortcomings of the Bill and Jackson s proposals generally is that they do not deal with what the public perceive as the real issues like data protection, cold calling, inducement advertising, insurance fraud or excessive referral fees. In our final part of this brief, section 19, we advance some ideas that would address these concerns. Our proposals: SMS texting: mobile and landline network co-operation with powers to disconnect offending numbers, as they do with prostitutes phone card advertising. Data Protection and cold calling: no approach to the claimant to be permitted without either: the claimant s specific authority relating to the accident in question, preferably in writing; or in response to direct contact from the claimant seeking assistance, the details of which are properly recorded. financial inducements in advertising just to make a claim should not be permitted fraud: liability insurers required to produce evidence to support fraud allegations at the earliest opportunity Credit hire and bodyshops: The ABI s sweetheart anti-competitive deal with the credit hirers as to the charging rates must be ended. The primary obligation to provide a replacement vehicle should lie with the liability insurer. Bodyshops should be manufacturer approved and industry accredited, not just insurer approved. There should be a protocol timetable for maximum default hiring periods and repairs at a fair cost. effective enforcement: ensure by consolidating regulation with the Legal Services Ombudsman funding effective regulation: liability insurers as introducers should register as CMCs and pay registration fees, if they wish to introduce claimants to solicitors to support the cost of effective regulation. Referral fees: empower the regulator to require a CMC or liability insurer to justify either their referral fee structure or the fee in a particular case, in response to a complaint. 7

8 2. Introduction: the present system and background to the proposed changes 2.1 The Access to Justice Action Group (AJAG) is an ad hoc body set up to coordinate action to protect access to justice for claimants, particularly but not exclusively in the field of personal injury. It is not a formal membership organisation and participation is open to organisations, representative bodies, law firms and businesses that support claimants. This includes claimants and victims support groups and charities, consumer organisations with a particular interest in legal services, solicitors firms and barristers, claims management companies, after the event insurers, trade unions and other membership organisations, and representative bodies. A list of our public participants is attached at appendix 13 Some of our supporters prefer not to be identified. 2.2 We believe there are much better ways of achieving the policy objectives of reducing costs, giving the claimant a stake in the costs decisions, and funding disbursements, whilst preserving the certainty the claimant needs to maintain access to justice. AJAG has put forward a detailed alternative plan to the MoJ, to which they have no answer, as it met their objectives. This includes restricting success fees and reducing the cost of ATE premiums and the circumstances in which they can be recovered. We set out the detail of our proposals in this paper. 2.3 By way of preamble it needs to be restated yet again that there is no compensation culture, only a media and public perception this is the case. Every one of the many studies looking at this has revealed the overall number of cases is stable or falling and found no such phenomenon actually exists. Despite all the evidence to the contrary, including the report of Lord Young, the Government base their case on the non-existent compensation culture, allowing policy to be developed from tabloid hysteria rather than hard evidence. 2.4 We commissioned (jointly with APIL) research to establish who were the main users of the CFA system. This research is attached as appendix 5. This research demonstrates that CFA clients are not serial claimants: 74% of those who bring no win, no fee claims have only done so once, 19% twice and only 7% more than three, including for all uses of such claims, not only personal injury. 2.5 AJAG also commissioned a consumer survey of public opinion, the results of which are set out in appendix 1 to this document. The survey also confirms that the compensation culture is a myth: even if someone else was to blame, only 52% were likely or very likely to claim for an injury at work, for example. Whilst claims for road accidents would be more likely, overall the survey confirms that even if another was responsible for an injury, a high proportion would not claim. 2.6 The present Conditional Fee Agreement (CFA) system ( no win no fee ) was introduced by the previous Government to replace legal aid and plug the access to 8

9 justice gap for the Minelas (Middle income people not eligible for legal aid). It has been successful in doing so. Without No win, no fee arrangements, claimants can be at considerable personal financial risk, and in extreme cases could even lose their home. As the legal aid system contracted, so CFAs became and remain a major improvement to provide ready access to justice for ordinary people. 2.7 The appendix 5 research shows that no win, no fee claims are not the preserve of the wealthy. The typical male claimant is aged under 39 and has an income of just over 29,000. The typical female claimant is aged under 44 and has an income of just over 19, % of claimants earn less than 25,000 per year and only 18% over 40, Overall it can be calculated from appendix 5 that almost 3 million people benefitted from this form of funding over the last 5 years, mainly but not exclusively for personal injury cases, an average of almost 600,000 per year. The system has therefore been a very important contribution to access to justice for ordinary people on average and below average incomes. The total of personal injury claims, according to DataMonitor a publication reporting on the insurance industry, was 861,325 in 2009/10: not all will have been funded through no win, no fee The success fee and ATE insurance premium which underpin these cases became recoverable from the defendant s insurance company as a result of the Access to Justice Act The CFA system depends on the losing insurer paying the success fee, now tightly constrained by rules, and the After the Event Insurance (ATE) premium, which insurance underwrites the risks of losing On the one hand, this gives certainty and protection to those who claim for an injury they have suffered, which is someone else s fault. If the accident is not someone else s fault then a claim will not succeed. On the other, they ensure lawyers can take more challenging cases: they compensate for the difficult ones that they lose or extensively investigate and take no further. Without these swings and roundabouts, cases which require more effort to win would not be taken Our research at appendix 5 demonstrates that users of CFAs are well satisfied with the outcome and process, their solicitors, and the amount recovered. Even those who were unsuccessful still had a reasonable satisfaction rate, despite the failure of their cases Although many people have benefited from CFAs, CFAs did not cause an explosion of claims. Indeed, the number of cases has been pretty well static since before the system came in. Many people with good cases still do not bother to claim, as our consumer survey also demonstrates. The biggest barrier to bringing a claim is fear of legal costs and lack of certainty: the present system provides certainty; the proposed changes take away that certainty. 9

10 2.14 By way of example, insurer DAS reports a decline in the incidence of public liability claims as a percentage of the overall total, which confirms the survey findings: % % % % % Only 40% of public liability cases succeed, which is evidence of the local authorities improved ability to defend cases through demonstrating compliance with their statutory duty. For example, Norfolk County Council are successful in repudiating 84% of the claims submitted to them, as reported in Insurance Times, September Whilst this paper focuses on personal injury claims, The CFA system is not just for personal injury. It is used extensively for small business litigation for example, consumer cases, and by those in the developing world bringing cases against UK companies for breach of human rights or environmental damage. It is also used for judicial review and for many other types of civil litigation, including defamation, breach of privacy like phone hacking, professional negligence, insolvency, as well as important public interest cases In early 2010, Lord Justice Jackson produced a report recommending radical changes to the system. In November 2010, the Government published a Green Paper consultation document aimed at implementing these recommendations. In doing so, LJ Jackson relied heavily on information from the liability insurance industry (especially the ABI), but took very little evidence into account from the claimants point of view In publishing their response to the consultation and their policy plans, the Government also ignored practically every submission on behalf of claimants. Their plans are not evidence based, as is revealed by the lack of data in support of their arguments, especially in the impact assessment. Moreover, these plans cannot be seen in isolation in light of developments since the Jackson report and other proposals in the pipeline or under active consideration, set out in the next section of this paper A particular problem arises when trying to collect statistics which would be meaningful, as most concluded cases predate developments such as the RTA fixed costs portal mechanism introduced last year. Costs figures from before that time, for example, are of little use when a fixed capped costs regime, including success fees, is now in place; this is also demonstrated by the paucity of evidence 10

11 behind the impact assessment. We understand that the Regulatory Policy Committee told the MoJ that their legislative proposals, based on the original impact assessment were not fit for purpose. The new impact assessment is little better and a subsequent assessment for the referral fee ban is even worse The planned changes are unnecessary. 75% of cases already have a fixed costs regime, intended to increase to at least 95% coverage next year. The changes run the risk of destabilising the existing fixed costs system, and will leave very serious cases potentially unfunded, for example fatal cases, disease claims, and injuries of maximum severity The changes mean the claimant will have to pay the success fee and ATE premium (if he has one) out of his damages, though the ATE market will probably cease to exist. The clamant will also have to fund the disbursements in the case. The only exception is clinical negligence: the proposal here assumes this will be covered by ATE, but the ATE providers have already said this is not an economic proposition and will not underwrite this risk. For all other cases, the claimants will have to find hundreds of pounds, and for clinical negligence, thousands. The Government s planned alternative of Qualified One Way Costs Shifting (QOCS) is very uncertain, and will lead to means testing of claimants and after the event assessment of their conduct in bringing the claim. The amount for which a claimant will potentially be liable will only be clear at the end of the claim, creating the very uncertainty which is the biggest deterrent to access to justice. This is especially serious for non-pi litigants, as the QOCS system will not apply to them, though the abolition of recoverability will The consequences of the Government s changes will be an overall drop of 25% in meritorious cases, but with an increase of unmeritorious claims in some types of case (e.g. clinical negligence). Successful claimants will lose up to 25% of their pain and suffering compensation in legal costs, presently met by the insurers. The proposed 10% uplift in this compensation element represents the negotiating margin and will not meet the gap: most claimants will be worse off The Government talks of rebalancing the civil justice system, but this risks creating a major denial of access to justice for ordinary people. The Government say the plans will reduce unfair costs for those faced with CFA actions (i.e. insurance companies): but the mere fact of a claim being supported by a CFA does not mean the costs involved are unfair. The Government say in terms, that the winners will be the insurance companies (and their shareholders) and the losers will be claimants. Insurers stand to gain between 2.25bn and 2.725bn as a result of the changes at the expense of accident victims. The Government has been unduly influenced by the insurance industry, (a major political donor of almost 5 million to the Conservative Party since Mr Cameron became leader). 11

12 Liability insurers have a total premium income of 13.2 billion including Motor premiums of 9.96bn. A mere 20 liability insurers have cornered 94.86% of the motor liability market; just 5 companies have 55.8%. Admiral, almost exclusively motor, recorded a pre-tax profit of 266m for 2010, up 23% on 2009 ( 216m.) and a further increase of 29% after tax in the first half of this year, as their turnover surged 53% to 1.1billion. Huge amounts in free shares were paid as staff bonuses. French-owned insurer Axa saw its UK and Ireland motor revenues jump 10 per cent in the first six months of the 2011 to 258million. It has put up average car insurance premiums by 38 per cent over the past 12 months. Axa said : Motor was up 10 per cent to 293million ( 258million) primarily due to tariff increases within the UK and Ireland. 7/9/11 Daily Mail website money page 2.23 One of the key drivers behind the Government s plans is the desire to reduce the cost of litigation to liability insurers. Their argument is that the insurers access to justice is restricted or denied by the current funding arrangements, but there is no evidence of this: insurers always have and always will defend the claims they wish to fight. The current system encourages them to do so, in that if they defend a case successfully, the insurers costs will be met by the losing claimant s ATE insurer. The real barriers to access to justice from funding and costs rules are for claimants not defendants, which will be increased by these plans. Even so, there seems to be mixed views about the consequences of the Jackson report s costs consequences within the insurance industry. There has been no suggestion that the result will be a fall in premiums: indeed there have been on the record comments to the contrary, to suggest that premiums will actually increase as the result of implementing the Jackson report. Speaking at the Law Society Civil Justice Section annual conference, Dominic Clayden, director of technical claims at Aviva, said: the insurer has computer-modelled Jackson s final report and found that civil litigation costs under the proposed system would increase, rather than fall as intended. He said the extra costs would have to be passed on to all policyholders in the form of higher premiums. Law Society Gazette 25 Feb 2009 This sort of comment from within the liability insurance industry challenges the basis of what is being proposed, if the consequences will be to cost the general public more, not less, in their insurance premiums Moreover, statistical research AJAG has carried out ( summarised at Appendix 10) drawn from ABI sources, has shown that the average increase on motor premiums for private vehicles between 2003 and 2010 was a mere 4.8% in total, below inflation. In three of those years premiums fell. If all vehicles, including commercial, are taken into account the average premium fell by 3.3%. This is a reflection of the insurance market overall. When the market is soft, premiums are reduced to increase market share; where it is hard, premiums rise to build 12

13 reserves. The market has been hard recently as a result of the overall world downturn. Indeed as long ago as 2004 the then CEO of major insurer Allianz warned of the need to move away from this damaging cycle, though his appeal fell on deaf insurance industry ears The Government argue that unmeritorious cases are used to force settlement on economic grounds, when all the evidence is to the contrary and the logic counterintuitive: no win, no fee means there is no incentive to pursue cases without merit, as the lawyer will have wasted his time on a case for which he will not paid. The Government say that meritorious claims will be resolved at more proportionate costs; and unnecessary or avoidable claims deterred from progressing to court, but the contrary is likely to be the outcome due to the loss of the checks and balances of the current system, and in particular ATE risk assessment The Government talk of proportionate costs. This is a misunderstanding of the system. There is an irreducible minimum of costs in any case, but the insurers drive how much costs are incurred by their attitude to defending the claim: as in Parliament, the opposition call the votes, so in litigation the insurers decide how far to take the case. It costs pretty well the same to fight a claim for 2,500 (the average accident at work) as it does a 10,000 claim, as the work is roughly the same: but the costs will look more proportionate in one as compared to the other Yet there is no attempt to control defendants insurers costs, which represent the other half of the legal costs equation, and remain uncapped and uncontrolled. Under whatever system operates, the principle of equality of arms in litigation should mean action to ensure claimants with restricted costs can bring their claims on equal terms with defendants, who presently can outspend claimants by whatever factor they choose, in the cases they pick We also believe it is right to point out that higher costs are often the result of the defendant s insurers conduct. We illustrate this in some of the case studies in appendix 4. At appendix 2 we show how defendants already make unnecessarily intrusive enquiries about claimants means and in appendix 3 we show how insurers go behind the back of solicitors on the record to pressurise claimants improperly, leading to extra work and costs incurred to deal with the consequences as well as trying to intimidate claimants with threats about fraud and thus drop or undersettle their claims This is confirmed by the response to the Green Paper of three very experienced costs judges of the senior courts costs office: The Costs Judges deal with many bills in which the costs have been significantly but avoidably increased by the conduct of Defendants. In some cases, the litigation is conducted with hostility, thereby requiring claimants to address each and every point. In others, defendants delay, thereby causing unnecessary additional costs. In others still, settlements are left to the last minute, thereby often triggering the third 13

14 stage of a three stage success fee (always 100%) whereas had the defendants opened the negotiations earlier, the figure would have been significantly less. Where this happens, the fact that success fees are claimed at 100% is not a reason to criticise the recoverability regime. On the contrary, culpability lies with the defendants who, nonetheless, are always the first to complain on detailed assessment about having to pay success fees at levels which they contend are unfair, disproportionate and impede their access to justice. In reality, the fault lies with defendants such as these and not with the recoverability regime as a whole. (p13) (emphasis added) We would like to comment on the Scottish experience which the Government suggests works well. There, there is no recoverability of success fees or After the Event insurance premiums. Whilst it can be difficult to prove a negative, CRU statistics show that there are 26% less recoveries in Scotland than in England and Wales, pro rata by population. In addition, county court (equivalent) cases are 37% fewer, pro rata by population. When adjusted for non personal injury cases, the figures again suggest a shortfall of approximately 25%. Although not conclusive, prima facie this shows that fewer injured people are able to access justice in Scotland compared to England and Wales and confirms our assessment of a fall in claims of 25% as a result of the Government s plans In his Review of Civil Justice in Scotland, Lord Gill acknowledges that questions of funding and expenses lie at the heart of many current controversies in civil justice. He expresses concern about the extra burden on the courts that is caused by unrepresented parties bringing unmeritorious claims for low value cases and is in no doubt that the limited recovery of expenses under the present Scottish system is a barrier to access to justice. The figures to which we have just referred would confirm that view Respondents to the Scottish review..drew attention to the cost of litigation and observed that only those with considerable wealth or who are eligible for legal aid can afford to litigate. There were concerns about the shortfall between what clients have to pay their legal advisers and what they can recover in expenses from the other party, and also about the taxation of judicial accounts. (Chapter 2, paragraphs 25 28) 2.33 AJAG believes that the Scottish system cannot be prayed in aid in any proposed reform of the England and Wales civil justice system when it would appear that there is less access to justice in large part due to the funding regime; and of the cases that are brought, problems are caused by unrepresented parties and a higher incidence of unmeritorious claims, both of which create additional burdens on the court system and waste time and costs, including for the defence. We would suggest that before any further arguments are advanced relying on the Scottish experience as providing successful access to justice funding arrangements, far more detailed 14

15 research is required to establish whether this is the case, or in fact if the contrary is the true position Overall in practice, as this paper will show in detail, the outcomes will be the opposite of what the Government intends to happen There will not be any savings, especially for the NHS. At present 2/3rds of clinical negligence cases are screened out by ATE insurers refusing to underwrite them on the merits. There will be nothing to stop those cases proceeding, and the NHS picking up its own resulting defence costs. As there will be more of these type of cases it will cost more. To this can be added the loss of reimbursed NHS treatment costs (presently repaid as part of a settlement), and defence costs which are presently recovered but would not be under the new QOCS system. Overall, the net costs of the Government s plan (fully worked calculations in section 13 of this paper) will be: Additional cases: 74.43m Impact of QOCS (1/3 increased caseload): 26.35m Loss of recoupment (25% drop overall): 42.20m Offset predicted savings: ( 50.00m) Total: 92.98m 2.36 As we have seen above, the insurers also suggest it will cost more, with consequent increased premiums There is also no account taken of loss of income to Government by way of non-recoupment of DWP benefits. For example, in the last 3 years, the CRU recovered on average m. The Government has failed to produce any figures for the likely fall off in cases. The MoJ state that the original figure quoted by the Justice Select Committee of 50,000 fewer cases, which we calculate represents 8.33% of all cases, was an error. Our more robust estimate suggests a fall of 25%. If CRU recovery falls by 25% of cases, this represents a loss of income to the Government of 36.08m There will also be losses of VAT and Insurance Premium Tax. No account has been taken of the loss of general taxation from the likely contraction in the market of 25%; nor of the cost to the economy of the increase in unemployment through the contraction of this sector of the legal services market and ancillary suppliers. No consideration has been given to the additional costs of caring for accident victims presently funded out of compensation, which will fall on local authorities and the NHS. 15

16 2.39 The plans are discriminatory, especially against minorities and women and those with serious disabilities, especially children, as we describe in detail in our section on the impact assessment The Government tabled new clauses to ban referral fees in the LASPO Bill at Commons Report stage. This was done with no consultation with interested parties (beyond the Legal Services Board consultation, which concluded that a ban was not in the consumer interest). Moreover this does not comply with the Government s own principles of good regulation and is contrary to the evidence base. We comment on this issue in section 17 of this paper The ABI make unfavourable comparisons with other jurisdictions. Comparative law is always more complicated than at face value. In common law jurisdictions like Canada and the USA, for example, contingency fees are the norm. Comparisons especially with continental Europe which has a completely different legal system are of even more limited value. The ABI claim that Germany has a fixed fee of 300. This is not accurate. Germany works on a fixed fee basis with the rates for claims up to 2000 ranging from to (in our jurisdiction, this equates to the small claims court, where there are no costs awarded, so their system is more generous); for claims up to 5,000, the range is to 1, (roughly equivalent to our portal costs for claims up to 10,000); and for claims up to 10,000, the range is to , again more than here, except for a very early settlement. In the event of a lost case, the costs increase by approx 50% to meet the defendants costs.( see appendix 11) 2.42 It also has to be acknowledged that compensation cases in many European jurisdictions are often piggy backed on criminal cases. The judge plays a much more important inquisitorial and investigatory role which also means the amount of work to bring a claim is very different, too Overall, the costs of claims in the UK are not out of line with international comparators: International tort costs as a percentage of GDP in 2005: Denmark 0.4% United Kingdom 0.6% France 0.8% Canada 0.8% Japan 0.8% Switzerland 0.9% Spain 1.0% Australia 1.1% Belgium 1.1% Germany 1.3% Italy 1.7% 16

17 United States of America 1.9% 2.44 The Government s proposals will also inevitably lead to another costs war of satellite litigation, bogging the courts down for years, as happened before when major changes to the civil justice system were introduced. This is particularly fed by the decision of the Government not to propose any changes to address the indemnity principle, which is the root cause of much of the bureaucracy and complication and indeed additional cost of the existing system This represents a lost opportunity to implement the recommendation of the Jackson review, that the indemnity principle should be abolished. It causes confusion and satellite litigation based on technical challenges, which undermine the developing certainties that are needed in the costs regime for both sides in litigation. If other mechanisms to control costs are to be introduced, building on those already in place, then there is little need for the anachronism of the indemnity principle, which has no longer any real purpose or benefit. We would urge the Government to reconsider their decision not to implement this recommendation from Sir Rupert Jackson. It is a necessary deregulatory measure that removes a rule that has no benefit to society. We note that Sir Rupert again recommended the abolition of the indemnity principle in his response to the Green Paper One of the key errors of the Government s approach is that their plans are one size fits all. The main type of case that causes concern is the road traffic claim. The reforms are geared to deal with this issue (which in fact they barely touch) yet cause massive disruption to all other forms of civil litigation; and fail to deal with the public s main concerns, such as cold calling, data protection and improper advertising at all. The CFA system is not just for personal injury but many other types of civil litigation, too. Even within personal injury, there is a wealth of difference between a straightforward road accident claim (probably funded by before the event insurance) and a complex industrial disease case or injuries of maximum severity claim. The perceived solution for one does not work for others, as this paper demonstrates. In the end, the proposals are a sledgehammer to crack a nut and run the risk of wholesale change for change s sake, with little real impact on the underlying problems whilst creating yet more problems than are solved. There are better ways of achieving the policy objectives, as this paper will explain The Government has now introduced primary legislation in part 2 of the Legal Aid, Sentencing and Punishment of Offenders Bill. Other changes will be implemented by amendments to the Civil Procedure Rules or other secondary legislation. The Government s plan is to implement all the changes together, with a target date of autumn The Civil Justice Council have a working group looking at QOCS, proportionality, and part 36. The senior judiciary are considering levels of general damages. 17

18 18

19 3. The Government s plans (The Bill only deals with those plans needing primary legislation: other changes will be in rules of court and delegated legislation). 3.1 Policy objectives: Restoring fair balance to justice system Deter unmeritorious claims and meritorious cases will still be pursued Prevent cherry picking of cases Cut legal costs NHS legal costs will fall by 1/3 Give the claimant a stake in the costs of the claim Maintain access to justice 3.2 The plans in summary: Abolition of recoverability of success fees Success fees can be charged to the claimant subject to 25% cap on damages 10% increase in general damages to compensate Abolition of recoverability of After the Event insurance premiums Abolition of recoverability of self insurance arrangements (eg Trades unions) Qualified One-way Costs Shifting introduced for PI only Part 36 incentives to encourage claimants offers Damages Based Agreements (contingency fees) allowed New test of proportionality Abolish referral fees 3.3 Future proposals under consultation extend RTA scheme upper threshold to 25,000 or 50,000 Extend the RTA scheme to other types of PI, with fixed recoverable costs Fast track claims not within the process covered by fixed recoverable costs Fast track limit increased to reflect general increase in small claims limit (not clear if this includes PI) Emphasis on mediation( impact on PI not clear) 3.4 Still outstanding (with Judicial Steering Group) Evaluation of costs pilot standard case management directions costs budgeting 3.5 Still outstanding (other) Predictable costs pilot 19

20 4. Why this is the wrong way to go 4.1 In summary: Access to justice denied Cherry picking encouraged A sledgehammer to crack a nut The Government s self interest The proposals are anti-competitive There is a better way 4.2 Access to justice denied: a) The Government expect 50,000 fewer cases, yet all statistics and studies show only a third of good PI cases are ever brought even now. A conservative estimate is a reduction of 25% or 150,000 in the number of claims, though it could be up to 1/3rd. Cherry picking will be encouraged. b) Paradoxically, there is also an increased risk of unmeritorious and fraudulent claims proceeding, due to removal of existing screening processes, a factor not considered by Jackson or the Government. c) Exclusion through unaffordable justice (especially for the middle classes) because the proposed alternative (qualified one way costs shifting or QOCS ) is subjectively means and merits tested and is uncertain in its application: this is especially so, for non-pi claimants. d) Uncertainty for claimants: natural risk aversion to costs risks means good cases will not be brought: see our consumer survey: 77% would be put off, however small the risk. e) Exclusion of small businesses from commercial cases: they risk victimisation by big suppliers or customers with no redress. f) Exclusion of victims of medical malpractice: medium range and smaller cases will be entirely excluded as they will be unviable. g) Exclusion of human rights and environmental claims for developing world claimants. h) Exclusion of serious consumer claims i) Exclusion of insolvency recovery cases, especially important to the Treasury 20

21 j) Exclusion of most professional negligence cases, including for example against lawyers, surveyors, accountants, and banks for negligent advice or conduct k) Exclusion of media cases, including breach of privacy and phone hacking l) Exclusion of public interest cases, such as MPs expenses m) Exclusion of judicial review, challenging unlawful or unfair administrative decisions n) Exclusion of those with lower value personal injury cases o) The proposals will seriously damage trades union legal assistance schemes, most of which will have to contract significantly and some may become unviable altogether. p) Claimants will lose a large part of their compensation (up to a quarter of the damages will go to the lawyers, not the claimant). q) A very high proportion of claimants will be worse off. r) Claimants will not be able to fund the expenditure needed to bring their cases ( disbursements ), for example medical and police reports. s) More people will be unable to use lawyers, so there will be many more inexperienced unaided litigants in person vs. the big legally represented insurance companies, resulting in a worse outcome and more strain on the court system. 4.3 A sledgehammer to crack a nut: a) There is no compensation culture, only a perception. Every study including that of the Prime Minister s (then) adviser Lord Young has so concluded: the number of cases is stable or falling. b) 75% of cases already have industry agreed fixed legal costs: (Road Traffic Accidents) and with planned expansion of fixed costs for most other cases only a tiny proportion, less than 5%, ( the most serious cases) are left. c) Costs can become high because of the liability insurers litigation tactics and strategies for which they only have themselves to blame, with very late 21

22 admissions of liability and inadequate poor first offers, meaning more work has to be done. d) Some costs are inevitable e.g. disbursements for medical reports and court fees. e) The three costs judges have said:... the rules already provide the court with sufficient weapons on detailed assessment to ensure that on completion of the process, costs are reasonable and proportionate. An additional test on the lines suggested is not needed. (p27) 4.4 The Government s self interest: a) The Government is often a defendant in its own right: their policy is neither objective nor evidence based, but self-serving. The MoJ has averaged 1,400 cases against it over the last 3 years. The Government is moving the goalposts to suit itself at the expense of injured citizens. b) The Government will be believed to be covering up medical accidents as cuts bite and waiting lists and times grow and standards fall. Lessons will not be learned. If Doctors said sorry more quickly there would be a lot less litigation. The National Health Service Litigation Authority (NHSLA) has a poor record; they lose too many and settle too many cases too late. c) The Government will be seen as covering up for other public bodies to conceal the consequences of the cuts. E.g. broken pavements not fixed and public buildings not well maintained, resulting in more injuries. d) The Government will be seen as covering up the consequences of big cuts to the court service including court closures, by taking steps to reduce the number of cases at the expense of injured people. e) The Government are ignoring the loss of income and additional costs for ideological reasons, including benefits and NHS treatment costs repaid if the case is successful and loss of IPT and VAT receipts. The extra costs of caring for accident victims presently paid out of compensation will fall on Local Authorities and the NHS. f) The Government are in too close a relationship with the liability insurers. 22

23 4.5 The proposals are anti-competitive: a) Loss of choice in the market place, as there will inevitably be contraction in the market with fewer solicitors able to make Personal Injury work viable and with fewer (if any) ATE insurers. b) Further restrictions on access to justice locally. This has been happening as firms withdraw from legal aid for other types of legal work. 4.6 There is a better way: a) alternatives that control costs and guarantee access to justice; and respond to the public s real concerns. b) some restrictions on recoverability of CFA success fees and ATE premiums can be made to work, rather than wholesale abolition with charges to claimants. c) Our proposals would achieve the Government s policy objectives of reducing costs, giving the claimant a stake in the costs decisions, funding disbursements, and maintaining screening controls whilst also maintaining access to justice. This paper sets out in detail our critique of the Government s plans, with the evidence base to back our arguments, highlights particular issues that arise, and proposes our detailed alternatives. 23

24 5 Conditional fee agreements (CFA) and success fees: clause Government policy: CFA success fees should no longer be recoverable from the losing party; claimants may be charged a success fee deducted from their damages. 5.2 The benefits of recoverable success fees in summary: Maintains access to justice for all Gives claimants certainty as to their costs exposure Discourages nuisance claims Resources problematic but meritorious claims Finances investigation of difficult cases 5.3 The problems created by the Government s policy in summary: Removes access to justice for 25% of claimants Encourages cherry picking Encourages speculative claims Creates financial uncertainty for all claimants Transfers litigation costs from insurance companies to injured claimants Cuts claimants damages Has little overall impact on reducing costs 5.4 There are better ways to limit costs without full abolition of recoverability 5.5 AJAG does not agree that success fees should cease to be recoverable from the losing party. It is neither just nor fair to transfer to the person suffering it, in whole or in part, the burden of the consequences of an injury, disease or other loss caused by another s fault, rather than expecting the person responsible, through his insurers, to bear that loss through insurance, the purpose of which is to spread that risk widely. This includes the cost of bringing the claim. 5.6 In AJAG s view any civil justice system must have accident victims and claimants centre stage as the people who lose out. The Green Paper Impact Assessment made clear that the Government expected far fewer cases in the courts, estimated at up to 50,000 fewer; and that the winners will be the liability insurance companies and the losers will be claimants and their lawyers (and by extension, legal expenses insurers and others involved in supporting claimants). We believe the public at large would view such a proposition as grotesque. 24

25 5.7 Based in part on the Scottish experience of non-recoverability, the likely fall in cases can be predicted to be greater. CRU statistics show that there are 26% less recoveries in Scotland than in England and Wales, pro rata by population. In addition, county court (equivalent) cases are 37% fewer, pro rata by population. Adjusting for non-pi work, this would also produce a drop of around 25%. Although not conclusive, it suggests fewer injured people are able to access justice in Scotland and that the Scottish pattern will be repeated in England and Wales if the changes proceed. The sample of almost 70,000 cases analysed at paragraph 5.19 below suggests that around a third of claims that proceed now would not be taken up. 5.8 In AJAG s consumer survey, only 20% believed the Government should make it harder for ordinary citizens to get compensation if an accident was not their fault; and only 19% of respondents to the survey disagreed with the current no win, no fee structure. 5.9 Having said that, we recognise the Government s concerns over the cost of litigation and wish to work with the Government to find solutions that help reduce costs, whilst at the same time maintaining access to justice for those who would otherwise not be able to pursue legitimate claims. The risk is that those parts of the system that work well are overshadowed by the very occasional and rare cases that proceed through the appeal mechanisms to test the system and which most practitioners would regard as unjustifiable. We comment further and make our own proposals below, in sections 7 and It seems the Government does not understand the purpose of success fees, describing them pejoratively and erroneously as a bonus for winning the case. When the present system of CFAs with success fee recoverability was introduced, it was to ensure that there was a compensatory system for the withdrawal of legal aid, to ensure that solicitors were funded for the cases they investigated and could not pursue on the merits; and for those cases which were pursued but ultimately failed. This was the swings and roundabouts of the new system, which enabled meritorious but problematical or difficult cases to be investigated and pursued This included important test cases on appeal, as often as not defending insurers picked appeals on major points of law (where the claimant has little choice but to defend) as well as pursuing appeals on behalf of claimants. The Government has no additional or alternative proposals for exceptions for these high risk appeal cases Moreover, the criticisms advanced by the Government are mutually exclusive. On the one hand, with no evidence whatsoever to back their claims, they say the system encourages unmeritorious speculative cases, trying to force settlement on the basis of nuisance value; and on the other, that only strong cases are taken by cherry picking, and weaker cases fall by the wayside. Both allegations cannot be true: in fact, neither is. 25

26 5.12 The appendix 5 research also shows that most claimants only bring one case; there are few serial claimants taking advantage of the system The arguments are mutually contradictory and fly in the face of common sense. But if the Government s plans are implemented, the outcome will be exactly the opposite and will actually create those very evils that they criticise: the unintended consequences of the changes will be to encourage both nuisance claims and cherry picking, creating the problems they say they wish to remove from the current system, which are not actually there In fact, the CFA and recoverable success fee system actively discourages unmeritorious nuisance value speculative claims. Under a CFA, The solicitor is only paid if the claim succeeds. If it fails, the insurer recovers the costs of defending the case, at present from the claimant, probably through an ATE policy. If the claim has no merit the solicitor gets nothing: he is the one who loses out, not the insurer or the claimant. The Government s proposals for QOCS (discussed elsewhere) will actually create this problem, not resolve what is presently not an issue. The concern may apply in other types of litigation in the commercial world, or where there are no costs consequences of failure, but not in personal injury litigation. There is simply no point in running a hopeless case. The solicitor will have worked for nothing, the claimant will get no compensation, and the defendant s insurers will recover their costs from the claimant or ATE provider if the case litigates Turning to the Government s cherry picking allegation, the evidence of the present system disproves this. In fact, again the consequences of the Government s proposals will be to encourage cherry picking, as solicitors will see no advantage in taking on the more problematic cases, without the success fee to compensate for the work in investigating cases that in the end turn out not to be strong enough so cannot go ahead, or the losers. Far from dealing with the perceived vices of the current system, the Government s plans will create them Those affected will be people whose cases are not straight forward but nevertheless have merit. The consequences of ending recoverability of success fees will mean that cases will inevitably be cherry picked, so that any risk of failure is eliminated so far as is humanly possible in civil litigation. Success fees in winning cases underwrite the costs of investigation and not pursuing those which turn out not to have merit; and of pursuing those cases which are ultimately unsuccessful This is best illustrated by a very large sampling of cases undertaken by AAH, one of the country s largest claims management businesses. Their caseload demonstrates that the current risk assessment systems which support CFAs do not prevent harder cases proceeding through cherry picking After initial enquiries, where obviously hopeless cases are screened out at a call centre, the claimant submits a form which is further screened before being referred to panel firms. Just under half of the cases are finally accepted, as the 26

27 following table shows. This reflects the sort of acceptance rate of around a half that Jackson suggested was appropriate and has become the generally accepted benchmark Completed claim form 100% Put to Panel for Consideration 79% Taken on by Panel Solicitor 46% 5.19 The following table shows how the cases fared when referred to the panel firms. It can be seen that just under a third are taken by the first firm to which the case is referred; 67%, two thirds, need up to three referrals; and the remaining 33% need four or more referrals, including one case that was only accepted by the 24 th firm to which it was offered- and which case was successful. Number of referrals before acceptance Proportion of Cases Number accepted % % % % % % % % % % % % % % % % % % % % % Grand Total % 27

28 5.20 This table demonstrates that progressively more difficult cases are not rejected by cherry picking under the recoverable success fee system. Without the balancing effect of the success fee, it is the inevitable consequential of cherry picking that the harder cases will not find a solicitor. If a case has been turned down by three firms, it is not realistic to believe that another firm is going to be willing to take the risk of the case without a success fee. AJAG argues that this third of harder to place cases, representing 22,838 claimants from this one claims management company alone, represents the sort of proportion of cases that will fall by the wayside and not be pursued as a consequence of withdrawal of recoverable success fees The Government has indicated that it intends full implementation of the complete Jackson package. However, this is to ignore what has actually happened since the Jackson report was published early in The sequence of events is informative. The Jackson report was followed soon after by the new portal system (which includes a fixed base costs mechanism with recoverable fixed success fees) for resolving issues by agreement in 75% of cases, these being road traffic accident (RTA) cases valued below 10,000 with no dispute on liability. To implement change on the basis of full Jackson is to ignore progress post Jackson. The portal system, with its fixed base costs and success fees was the result of a long and difficult negotiation leading to agreement between claimants and insurers representatives Recoverable success fees have already been fixed for cases outside the portal including RTA and employers liability. The Consultation Paper Solving Disputes in the County Court indicates the Government intends to extend the RTA fixed recoverable costs scheme in two ways: upwards to higher value claims, possibly as high as 50,000; and outwards to employers liability, public liability, and low value clinical negligence. Fast track cases not within the process (because of disputes on liability) would be covered by a new matrix scale of fixed costs. Such changes would extend fixed costs to at least 95% of personal injury cases The Government confirmed at the MoJ round table meeting on 2 nd December 2010 that they were not planning to unstitch what had already been agreed so recently between representatives of the two sides in the RTA scheme, but they are doing precisely that, by removing the recoverable success fee element (and recoverable ATE premiums) from the agreement. This runs the risk of destabilising the scheme s carefully negotiated financial arrangements just at the time when the portal teething problems are finally working through If the issue is therefore largely resolved for 75% of all personal injury cases by agreement in the portal (i.e. RTA cases) and probably in the near future for over 95% of all PI cases, what is the point of proceeding with the other changes: it becomes a sledgehammer to crack a nut, the nut being the remaining under 5% of complex 28

29 and high value multi track cases, where the risk of loss of access to justice as a consequence of ending recoverability is the most serious for the potential claimant. We annex at appendix 4 case examples to illustrate empirically the likely effect of withdrawal of recoverable success fees (and the other consequences of the Government s plans) on real people with real cases It should be remembered that a high proportion of personal injury claims are not high value. Some estimates suggest that up to 90% of cases are worth less than 5,000. Our survey at appendix 5 demonstrates that 30.5% of cases are valued below 3,000, 19.1% below,5000 and 22.3% below 10,000, giving a cumulative total of 71.9% settled at under 10,000. The LEI insurer DAS reports that for , CWU Law, who deal with many of their claims, state that 98%of their cases were fast track and only 2% multi track, which also supports this analysis The result will be a significant denial of access to justice to many victims of injury or disease. Whilst a claim may be valued at below 5,000 or 10,000, such an amount is of great importance to the individual concerned: it may represent the difference between being able to pay the mortgage and becoming homeless, or of being able to replace a written off car to get to work or losing a job So what are these types of case at risk of denial of access to justice? the starting point should be to look at the balance of the 25% of cases currently outside the RTA scheme, which comprise: Employers liability accident fast track Employers liability disease fast track Employers liability accident multi track Employers liability disease multi track Public liability/occupiers liability/ other misc. fast track Public liability/occupiers liability/ other misc. multi track Clinical Negligence fast track Clinical Negligence multi track RTA cases fast track liability disputed RTA multi track Fatal cases 5.29 The above classes of case can be sub-divided into early admission or liability disputed; and between fast track and multi track Subject to consultation, the Government propose to extend the fixed recoverable costs regime to all fast track cases and to increase the upper value threshold anyway, so why get bogged down in wholesale changes if such fixed costs are to be introduced, for most of these cases? 5.31 Having said that, there are certain exceptional types of case, including in the fast track, for which a fixed costs regime is not really suitable due to the intensive 29

30 nature of investigation, often pre-claim, to establish if there are grounds on which to claim. Such cases should not be excluded from success fee recoverability, as explained elsewhere, as such cases have the highest degree of possible failure after investigation. These particularly problematic types of case include: clinical negligence; EL disease; exceptional / test cases 5.32 What remains is the very small proportion of claimants, below 5%, for whom access to justice is yet even more important, given the extreme consequences for them: RTA multi track serious injuries up to maximum severity RTA multi track liability disputed EL/PL/misc multi track accidents EL disease Clinical Negligence Fatal cases Exceptionally difficult cases 5.33 In liability admitted multi track accident cases (EL/PL/OL/misc) investigation and litigation can still be problematical as causation and /or quantum especially in more serious cases can be in dispute. Success fees also offset the various risks involved, though it is accepted that those risks are lower if there is an early admission of liability Multi track liability disputed cases (RTA/EL/PL/OL/Misc) are too risky to run without cover from recoverable success fees. Without this, risk aversion by solicitors will inevitably impose a very high threshold of success as there will be no swings and roundabouts to compensate for unsuccessful cases. It should be remembered that the important practice development of risk assessment was the product of the introduction of CFAs and success fees. Prior to the introduction of CFAs and success fees, such case analysis was rarely considered necessary and did not occur. Many perfectly good but problematical cases will fall by wayside, as the proposed system will encourage, not dissuade, cherry picking on the one hand; and on the other, without success fee led risk assessment, poor cases could occasionally slip through As the AAH statistics above reveal, the present system provides a series of checks to eliminate poor and fraudulent cases: if a CMC is involved, through their initial call centre and subsequent more detailed review; and solicitors, by assessment of the case as against litigation risk and success fee benefit; and then by ATE insurers, to whose role we refer further below. 30

31 5.36 Disease cases are very risky to pursue due to high early investigation costs often including highly specialised medical evidence; and the comparatively high proportion of cases that ultimately cannot proceed. Success fee recoverability is essential to cover these investigation costs. Fast track disease cases will hardly be taken at all under a fixed costs/non-recoverability of success fee regime, as these cases are especially unpredictable. As for multi track disease claims, a high proportion will not even be considered for viability without recoverability of success fees, as even cherry picking can be difficult in advance of substantial investigation We consider the impact on clinical negligence cases in the section of this paper devoted to that issue Exceptional cases which develop the common law are a vital part of our justice system. Without special provision for a costs regime including success fee recoverability for test cases and other cases of public importance, which by definition are entirely unpredictable and often only concluded on appeal, this development of the law from the claimants perspective will not happen. However, insurers will still be able to choose the cases they want to defend so as to establish a new principle of law (as recent test cases have demonstrated, particularly in relation to asbestos related claims) using all their resources against a costs limited claimant legal team There should be provision not just to lift any costs cap if they are in the fast track in these exceptional cases, but also any restrictions on recoverability of success fees. Even a lower value test case or group of cases can have an impact after an appeal that can run into millions of pounds for claimants generally, as the pleural plaques litigation demonstrated Moreover, the sledgehammer to crack a nut analogy can also be applied to the policy objective of costs reduction. Success fees are calculated as a percentage of base costs, linked in the main to fixed scales. For example, cases settled in the RTA fixed costs portal system attract a success fee of 12.5% of fixed base costs; employers liability accident cases are fixed at 25%, reflecting their lower success rates, with differing rates for different types of disease claim The highest permitted rate of 100% is only recoverable on the very tiny fraction of cases that succeed at trial, (approximately 2% of the overall total on our survey which chimes with other estimates) and is high to reflect the increased risks of litigation at that stage. If the real policy objective is to control costs, then the Government s approach is starting from the wrong end of the telescope The start point should not be to remove the success fee recoverability, but to look at the base costs rates on which it is based. This is exactly what is now being done through the fixed costs regimes and the consultation on extending those regimes, coupled with the use of costs budgetting and estimates in more complex 31

32 cases that are the subject of litigation, giving the courts increasing supervision over projected costs before they are incurred It is an established principle of English Law that a wronged party should be restored financially to the position they were in prior to the tortious act. This will be compromised if the claimant s lawyer were to deduct costs from recovered damages. It is wrong that in those cases which prove to be wholly successful the claimant will see a reduction in the amount of his damages, as they would be reduced by up to 25% of general damages to meet the success fee: even if general damages for pain suffering and loss of amenity were increased by 10% and success fee recoverability from the client capped at 25%, the claimant would still be the loser. We consider this in more detail in the next section As the three costs judges say in their submission referred to earlier:... we do not agree with the proposals set out in the Report about success fees. The CFA regime has undergone many changes and improvements since implementation. Having taken a decade for these to have been achieved, now is not the time to made radical changes which give no guarantee that access to justice at reduced costs will be delivered under Jackson where it failed under Woolf. (p20) 5.45 Overall, we do not believe the Government are right, or need, to stop the recoverability of success fees. However, we recognise that reform is needed, and make alternative proposals in section 7 of this paper. There are better ways of doing it. 32

33 6 A 10% increase in general damages; claimant to pay success fee: clause 43 (10% uplift not on the face of the Bill: will probably be done through court judgements) 6.1 Government policy: that there will be an increase in non-pecuniary general damages of 10% and the success fee should be recoverable from the claimant subject to a maximum of 25% of general damages 6.2 Government s policy objective: to give claimant a stake in the finances of the claim, without losing out 6.3 Problems: Damages are already too low Proposed damages uplift within margin of negotiation for most cases Proposed uplift does not take account of global offers Data behind Government figures not published Claimants will not receive full restitution Deterrent effect of costs fears reduces access to justice Caps on deductions from damages unclear There are better ways of giving claimant a stake in the claim 6.4 General damages for pain, suffering and loss of amenity for personal injury are too low in the first place. The Law Commission inquiry into damages in the mid 1990s reported that personal injury damages were between a third and a half too low, and required uprating. Heil v Rankin, several years later, did not achieve this outcome, yet the Government are planning to follow the same route: the senior judiciary are looking at how this can be taken forward, we are told. The general view that general damages are too low is also acknowledged in the impact assessment. It follows that the suggested 10% uprating is long overdue, irrespective of the costs debate, and is already inadequate. Any uprating should be a much greater figure to reflect the true extent to which damages have fallen behind, irrespective of the costs debate, but there is little confidence that this will be achieved through judicial intervention and it could take a considerable time for an appropriate case to reach the higher courts. 6.5 Such uprating should not be used as a vehicle to pass costs to the claimant that should properly be met by the defendant or his insurers. In most cases the practical effect would be to leave the claimant worse off because in practice it would not have a huge impact on smaller claims, as a 10% increase, when translated into cash 33

34 terms, would be within the margin of error of the valuation in negotiations for settlement in any event. The theoretical outcome of an academic application of an uplift statistically does not reflect the reality of the cut and thrust of a settlement negotiation in an individual case. 6.6 Moreover, the Government proposes to introduce a predictable damages pilot, now overdue from their original timetable of June 2011, for cases up to 10,000 and which will also put downwards pressure on damages, eliminating the benefit of the proposed 10% general damages uplift. If this is based on systems such as the insurers computer model Colossus, then the loss could be even greater, as this system on average appears to undervalue general damages by about 20%, according to the Personal Injury Bar Association (PIBA). When PIBA surveyed barristers on the issue, they found that in 99% of 1349 cases where offers were made on the basis of the computer model, the claimant beat the offer. 6.7 A further problem with uprating in this way (i.e. as a counterbalance to costs) is the global offer, which is common in the kind of fast track cases the policy will particularly affect. In such cases there can be no guarantee that the 10% (inadequate) uplift had been properly applied. This is particularly so, when there may be liability issues in dispute, including contributory negligence. 6.8 Moreover, it is not clear on what the calculations of Professor Fenn, on which this increase is in part predicated and which is reflected as a consequence elsewhere in the recommendations, is based. Whilst a simplified graph has been produced, the data from which it is calculated have not been made available. This is an important and necessary clarification, as much of the argument for non-recoverability of success fees and ATE premiums is based on the consequences of this calculation. Furthermore, whilst Prof. Fenn s sample was a large one, it was based on statistics supplied by the liability insurance industry and cannot be accepted as an objective sample as a result. Our calculations, based on a sample of cases, do not show that claimants will in large part be better off, but the contrary, an overall loss of 5% demonstrated by our sample at appendix Even then, the Fenn figures reveal significant differences in impact between different types of case, for example RTA when compared with accidents at work or public liability claims, both of which fare considerably less well, with far more losers than winners Whilst the calculations take into account certain assumptions, they make no allowances for the variables of the negotiation process itself. The spikes in the graph are at or close to the breakeven point, and the downward pressures of the negotiation process referred to above can easily push the gainers spike into the losers side of the equation. 34

35 6.11 The purpose of the increase is to compensate claimants for the legal costs they will be expected to pay. As has been seen, it is questionable whether the increase would have that effect in practice The three costs judges also have this view: For the reasons given in paragraphs 2 and 3 above, the Costs Judges do not support the abolition of recoverable success fees and ATE premiums, in which case the proposal to increase general damages is otiose. If, however, the increase is implemented, 10% will be inadequate to compensate a successful claimant for the additional amount he will lose from his damages to pay his lawyer s success fee. (p25) 6.13 The Government s objective is to create a system in which the claimant has a financial stake in the claim and its outcome This does not address the key policy issue, though, of whether it is right that the claimant should be expected to pay legal costs out of his damages. It flies in the face of the basic principles of tort law, that the claimant should be put in the position he would have been in, but for the tort, so far as compensation can do so. By expecting the claimant to lose a significant percentage of his damages, the claimant will not receive the restitution to which he is entitled This also chimes with the public s expectations. AJAG s consumer survey showed that 86% believe that if they were to win their claim, the defendant s insurance company should meet the costs of the claim, and only 4% believed the costs should be shared between the claimant and the defendant, when the claimant wins It also fails to recognise that the fear of costs is the biggest single deterrent to someone bringing a claim, and if the client may be charged, especially if certainty as to the amount cannot be given, many claimants would not run the risk. AJAG s consumer survey indicated that 72% of people would be extremely likely or likely to be deterred from claiming due to concerns about legal costs, even under the existing system. This can only get worse, if the Government s policy is implemented. There will be a serious impact on access to justice It is not entirely clear what the caps on charging claimants success fees out of damages will be. The overall 100% of base costs cap is clear, but there is confusion as to the 25% maximum deduction from damages, due to the imprecise use of legal terminology in the Government s policy document, which confuses special and general damages. In particular whilst it is clear that damages for future care and loss are not included in the 25% (which are in fact general, not special damages) and that damages for pain suffering and loss of amenity and special damages proper (i.e. past pecuniary losses) are included, (confirmed by parliamentary answer, c135w 26 35

36 April 2011) the position is not clear for other general damages heads of loss. The Government need to clarify more precisely what is proposed We do not believe the claimant should meet the success fee, as indicated above. To compare success fee costs and damages on the basis intended is to compare apples and oranges. The one is not linked to the other, especially in high value cases. The most problematical area requiring the most work to investigate and producing the greatest uncertainties in such litigation, and on which any real measure of success should be considered, are not the general damages for pain and suffering issues, but the very areas that are to be excluded. The reason for the cap is to restrict the amount that can be recovered. It is neither honest nor logical to to suggest a cap based on a link that does not in logic or law exist We believe there are better ways of resolving the success fee issue than the inherently contradictory and speculative proposals advanced here. We consider these further in the next section of this paper. 36

37 7 Success fees: a better way: answer to clause Government policy: abolish recoverability of success fees; allow success fees to be charged to the claimant. 7.2 Government s policy objective: Reduce costs Give claimant a take in costs decisions Deters weak cases 7.3 Problems: Loss of access to justice Costs deterrent for claimant No funding for difficult but meritorious cases Reduces risk spread for difficult cases Pressure on base costs No deterrent to weak cases 7.4 A better way: Minimise disruption to the system Maintains access to justice Minimises uncertainties for the claimant Gives claimant a stake in costs decisions Provides sufficient resources for more difficult meritorious cases Fixed, staged success fees Equal shared recoverability No recoverability for early admissions No recoverability for costs proceedings No success fee after part 36 failure Reduce overall costs 7.5 Without recoverable success fees, access to justice for claimants will inevitably reduce. We have set out the reasons for this in section 5 of this paper. 7.6 The Jackson review and the Green Paper worked on the erroneous assumption that success in this context is defined by the issue of liability on a case by case basis, on the grounds that any costs risk in the particular case is eliminated (with 37

38 some exceptions) once liability is resolved, and the sole purpose of the success fee is to reward the claimant s solicitors for the result in the individual case. 7.7 When recoverability of success fees was introduced as part of the replacement for legal aid in personal injury matters, one of the principal purposes of the success fee was to generate a financial cushion drawn from the winning cases to compensate claimants solicitors for those more difficult cases they took on, which either could not otherwise proceed after investigation as they were insufficiently robust, or would otherwise take too much work to investigate before a decision could be made, or were pursued but ultimately failed. In other words, the concept was not linked in principle to an individual case, but to the overall caseload of the solicitor concerned, even if the fee was calculated from the base costs in the individual case. It is the basis on which most firms will take on more problematic cases, balancing the losers against the winners. 7.8 Recoverability was part of the system because this spread the overall cost of the legal aid replacement (previously paid by the taxpayer) as widely as possible across society through the insurance industry, rather than causing an individual claimant to bear what would be an unfair share of supporting another unrelated claimant. 7.9 It would be iniquitous to expect a single winning claimant to underwrite the consequences for another losing claimant of the costs of that loss, especially in the context of the more complex litigation not currently covered by fixed fees. This burden more fairly ought rightly to lie with insurers who are in a better position to spread this risk One additional advantage of preserving some form of recoverability of success fees (and ATE premiums) is that it might be possible to implement such changes without primary legislation, which will be needed for complete abolition Removing recoverability will inevitably bring pressures on base hourly rate costs. It would also not compensate for the high risks of, say, a clinical negligence case proceeding to full trial on liability, for example. Staged, fixed recoverable success fees are a more appropriate way of reflecting the contingent risks in different types of case at different stages. The rates could be set to reflect this Dealing firstly with the pre action protocol period, AJAG accepts (subject to the definition of a defendant s acceptance of liability) the proposition that an early admission by the defendant should lead to no recoverable success fee from that defendant. This will incentivise defendants to take early decisions and thus reduce costs overall, though this should also recognise the consequences may be that access to justice for more complex cases will be constrained as a result This assumes a clear defendant s admission. Causation or contributory negligence cannot be dealt with in this context as a mere quantum dispute. For 38

39 example, if causation is in issue, an admission on liability often does not take the case much further, disease cases being cases in point. Similar problems apply to contributory negligence allegations, for example in EL cases. Considerable risk remains in both examples, as the case will require full investigation, the costs of which can be high and may end up not being recoverable as base costs, depending on the outcome of the claim We agree that there should be no success fee recoverability linked to detailed costs assessment proceedings, on the assumption that the only issue is the quantum of the costs involved, not matters of law of wider application or other principles of entitlement Fixed recoverable success fees have worked well, as the Government previously accepted, in the Green Paper. Indeed, they have only recently formed part of the comprehensive agreed package for RTA cases in the portal system. We see no merit in interfering with a system that is running well, is seen to be fair and based on consensus, and was only recently introduced after a long and difficult genesis. We do not see the advantage in unstitching this agreement, which could destabilise it There is clear scope for extending fixed success fees, through a matrix system, and this is proposed in the MoJ consultation on solving disputes in the county court for fast track cases. There is little data available to establish a norm for complex matters, including EL disease and clinical negligence. This will need a significantly larger statistical data base on which to base such an assessment. The key question is how and at what percentage success fees would be fixed, to determine whether this would provide sufficient cushion to enable the loss of riskier but worthwhile cases to be underwritten by success fees in winning cases, though this is dependent on recoverability The maximum success fee (recoverable or otherwise) should be 100%, though normally it will be a lot less, especially as fixed and staged success fees become more common, with the percentage being lower or higher, weighted to reflect the lower or higher risks in the case. These levels of success fees normally only occur in cases that proceed to full trial, or close to trial, before conclusion. They are high risk for the claimant s solicitors, and late settlement or a court judgment against a defendant are the consequences of that defendant s own decisions One of the main policy objectives behind the proposed abolition of recoverability is to give the claimant a stake in the costs of litigation, on the assumption that this will strengthen the market; provide an incentive to the claimant to keep costs down; and deter weak cases. 39

40 7.19 In fact, this will be a major barrier to access to justice, as explained elsewhere in this paper and clearly confirmed by our consumer survey. This shows the biggest deterrent to bringing a claim is fear over legal costs, especially if that liability is uncertain. The major element in costs is base costs, not success fees, so this has little impact on reducing costs; and for the reasons argued elsewhere, there is no benefit to anyone pursuing a weak case under the present system (though there will be under the Government s plan for QOCS) Nevertheless, if the Government wish to proceed on the basis of requiring the claimant to pay, there are better ways of doing so A sensible compromise option would be to permit shared recoverability, with the fixed success fee uplift charge split equally between claimant and defendant. This would achieve the objective more effectively of strengthening the market, especially in RTA claims including those in the portal scheme. It would be less of a deterrent to claimants, yet would give them a stake in the litigation costs decisions If this is capped at 25% of damages, then the claimant would face a deduction of 12.5% maximum deduction, which would be more in line with the proposed 10% uplift on general damages This compromise enables the original intention of recoverability, to spread the risk more widely, to continue; whilst also giving the claimant a more direct interest in the success criteria for his own case, which brings into play wider considerations, from the claimant s perspective The individual claimant is likely to judge success on several criteria. Whether he wins or loses (the liability issue) is of course the most important. But also important to the claimant is the amount he recovers as against his expectations (hopefully on an informed basis founded on his solicitor s advice), the length of time it takes to conclude the case, and what if anything it costs him, by way of solicitor s and other fees. It would not be unreasonable as part of this suggested compromise for the shared success fee to be chargeable to the client if realistic agreed objectives set at the start of the case are achieved For this reason, we agree that there should be no success fee, recoverable or otherwise, if a defendant s part 36 offer is not beaten on solicitor s advice, in relation to base costs incurred after the part 36 offer. 40

41 8 Proportionality (Not on the face of the Bill: will be done through Practice Direction) 8.1 Government policy: there will be a new test of proportionality in costs assessment 8.2 Problems: Low damages awards in less serious cases may give the impression of disproportionality Risk of loss of access to justice due to proportionality test Applicability to fixed costs regimes Risk of satellite litigation Defendants conduct must be a factor taken into account 8.3 The Government refer to a new proportionality test, so that only reasonable and proportionate costs may be recovered from the losing party, as a long stop to control the costs of activity that is clearly disproportionate to the value, complexity and importance of the claim. 8.4 A general concern about misunderstandings over proportionality can usefully be addressed here. There is always going to be an irreducible minimum amount of costs on any case, representing the mix of disbursements and professional fees. Inevitably, if the damages are low, then the ratio of costs to damages will be close and even occasionally in inverse proportion. This does not mean that the work done was excessive, and is in fact more of a reflection of how low damages are in less serious cases. Costs are also increased by the defendant s conduct as we explain at paragraphs 2.27, 2.28 and The average employers liability case will have damages of around 2,500. The costs are unlikely to be much less: but the costs equally would not be much more if the damages were 10,000, as the amount of work needed is about the same in both instances. 8.5 As our survey at appendix 5 demonstrates, over 50% of personal injury claims are settled for less than 5,000 and almost 72% for less than 10,000. Any proportionality rule linking overall costs to damages which could be the outcome of these proposals would probably lead to a very high proportion of these lower value claims ceasing to be viable for legal representation. Bearing in mind the Government accepts that the limit for small claims for personal injury should remain at 1,000, with the inference that beyond that legal representation is needed, there is a real risk of a loss of access to justice from these proposals, if claimants are unable to find competent representation due to the impact of a new proportionality test on recoverable costs overall. 41

42 8.6 The risk is that if costs are forced down through a misguided understanding of proportionality, cases such as the average accident at work will no longer be pursued as they would not be economically viable. It would be a major retrograde step for access to justice, if injuries and losses that represent an average type of case can no longer be compensated due to the lack of a competent lawyer to take the case. 8.7 As the three costs judges say: We disagree with this proposal [proportionality] which was considered and rejected in Lownds, since its implementation would introduce an element of double jeopardy. Where a court has reached a figure for costs that are reasonable (viz reasonable costs reasonably incurred) following an item by-item assessment, it should not then make a further reduction of an arbitrary amount if the costs still appear to be too high. (p26) 8.8 The difficulty in responding to the Government s plan is due to the uncertain nature of the proposals. If it is intended only to be used in a very small number of cases, as a long stop, then it would not be objectionable, but this would depend on seeing the proposed, presumably worked, examples it was suggested in the Green Paper that would be incorporated in the Practice Direction. However, in the paper for the CJC working group which the MoJ has asked to consider the issue. From the CJC work it now looks like the Government is moving away from using illustrative examples and towards indicative principles only. It also seems that the rule will not be merely used as a long stop in extreme cases. 8.9 The reference to costs assessment would imply that it would not be applicable to fixed costs; but where there is a fixed costs regime, there should be no question of applying this rule, as to do so would undermine the principle of fixed costs. The CJC working group paper suggests the Government agree with Jackson, that such costs should always be considered proportionate. This now seems to be the considered view emerging from the CJC work Our concern is that in its application such a rule change becomes a Trojan Horse for a wider attempt to reduce legitimate costs and thus provokes satellite litigation The three costs judges say:... the rules already provide the court with sufficient weapons on detailed assessment to ensure that on completion of the process, costs are reasonable and proportionate. An additional test on the lines suggested is not needed. (p27) 8.12 A key factor in the level of costs is caused by the liability insurers strategies for which they only have themselves to blame, including late admissions of liability causing claimants investigation costs to rise, and the insurers poor first offers, 42

43 leading to claims becoming more protracted than they need to be. For these reasons the conduct of the paying party should be added to the proportionality test, but we would expect this to be a lesser test than that required for misconduct leading to an award of indemnity costs. We quote from the experienced costs judges paper, which confirms this view: The Costs Judges deal with many bills in which the costs have been significantly but avoidably increased by the conduct of Defendants. In some cases, the litigation is conducted with hostility, thereby requiring claimants to address each and every point. In others, defendants delay, thereby causing unnecessary additional costs. In others still, settlements are left to the last minute, thereby often triggering the third stage of a three stage success fee (always 100%) whereas had the defendants opened the negotiations earlier, the figure would have been significantly less. Where this happens, the fact that success fees are claimed at 100% is not a reason to criticise the recoverability regime. On the contrary, culpability lies with the defendants who, nonetheless, are always the first to complain on detailed assessment about having to pay success fees at levels which they contend are unfair, disproportionate and impede their access to justice. In reality, the fault lies with defendants such as these and not with the recoverability regime as a whole. (p13) (emphasis added) For the avoidance of doubt, this test could be firmed up to include more specificity concerning the defendants conduct, for example whether the case was unreasonably defended or issues were raised and not pursued with an impact on costs; it could reflect the need for complex expert evidence, medical and other; and there needs to be special consideration for complex low value cases, including clinical negligence, disease, and low speed road accident claims; and those test cases which involve developing the law However the issue is approached, though, there is a very real risk of extensive satellite litigation to interpret the new rule. There is a risk of double jeopardy in the assessment of costs, and if there is judicial discretion in the application of the rule, which seems likely, even if that discretion is applied in just 1% of cases it creates the risk of uncertainty in 100% of cases. 43

44 9 After the Event Insurance (ATE): clause The Government s policy: ATE insurance premiums should no longer be recoverable from the losing party. 9.2 AJAG believes that ATE premiums should remain recoverable from the losing party. We accept that change is needed to meet the policy objectives of reducing costs, and we have therefore developed an alternative package for reduced recoverability and other reforms which we set out in section 14. Our comments here should also be read in the context of our criticisms of the proposed QOCS scheme, which we believe loses many of the advantages and in particular the checks and balances against unmeritorious claims that ATE provides. 9.3 The benefits in summary of ATE: Maintains and supports access to justice Provides equality of arms against powerful opponents Covers wide range of claims, not just personal injury Gives claimants certainty Covers disbursement and investigation costs Deters fraudulent cases Weeds out unmeritorious cases Provides defendants with costs cover to avoid nuisance payments Does not have policy restrictions like BTE (qv) Operates in a competitive market with tight margins There is a better way of both cutting costs and maintaining these advantages 9.4 Recoverability of the ATE premium is an essential support to access to justice for most claimants, who are not able otherwise to fund, or risk funding, the cost of their claims. Recoverability was introduced as part of the package of measures to replace legal aid in personal injury litigation and to provide an alternative method of support for the MINELAS. 9.5 Moreover, ATE is not solely about personal injury cases. By way of example, Amtrust provide ATE products in many classes of businesses as follows:- 44

45 Actions against the police Appeal Assault Building Disputes Consumer Protection Contract Disputes Dental Negligence Employers/Public Liability Employment Financial Irregularities Industrial Disease Insurance Claims Intellectual Property Miners Lung Disease Misc Occupiers Liability Product Liability Road Traffic Accident 9.6 The ATE market is highly complex as this range of products demonstrates. Not every insurer provides such a full range, as there is specialisation too, both in the type of claims covered and the stage at which cover is offered. Much of the litigation carried out by small business is supported by ATE, for example. It is important to note that the proposed QOCS system will only apply to personal injury, yet it is proposed to remove recoverability of ATE premiums from all forms of civil litigation, including all those listed above, so small business litigants or consumers or those involved in disputes with their builders for example, will face a double whammy of the risk of an adverse costs order on the one hand, and no insurance to meet it on the other. 9.7 If ATE premium recoverability is abolished for any category of case, it will lead to a reduction in the consumer s right to redress for the wrong they have suffered. This would be especially evident for personal injury cases, where negligent third parties would go unchecked. Abolishing recoverability of premiums would distort the level playing field between vulnerable claimants and powerful insurers and public or private bodies. 9.8 Restricting recoverability in certain categories of case would result in either a withdrawal from the market by ATE insurers in their entirity, or much higher 45

46 premiums on those high risk cases which still require cover. If the claimant was then expected to pay for the premium themselves, most would opt to take the risk and not insure or even more likely, not bring the case at all. AJAG s consumer survey is a clear indication of behaviour patterns: claimants are extremely risk averse to legal costs, especially when uncertain. 9.9 ATE premium levels are largely based upon the amounts paid for uncapped defendants costs in lost cases. It is they who are in large part responsible for the level of the premiums due to their disproportionate costs claims. It is interesting to note that there are no proposals from the Government to control defendants costs expenditure in any way whatsoever. Whilst the QOCS proposal may reduce this exposure, it does not elminate it entirely. We do not accept that it would work out cheaper in the end, anyway, except by reducing the overall number of claims and thus access to justice for ordinary people When considering any changes to the current system for ATE insurance, which after 10 years of challenge and legal precedent has now finally settled down, the Government should remember the basic principles of insurance The purchase of insurance, involves an exchange of uncertainty (risk) for certainty (premium). Premiums, set actuarially by underwriters, are held in the "common pool" to meet the liabilities of future claims, plus an allowance for costs and expenses and a small profit margin. It is the basic principle of all insurance, that the premiums of the many pay for the claims of the few Any proposal to reduce or remove ATE premiums from "the common pool" would undermine the basic insurance principle, as there would be a much reduced common pool of money to meet the same level of future claims costs. ATE insurers would still meet the same level of claims but from a much reduced common pool. The claims of the few would have to be paid by the premiums of the few. QOCS does not provide the answer to the problem, as will be explained in the later section relating to this proposal However, QOCS only affects post litigation liabilities, which suggests that it would have little effect on the overall claimant costs exposure, at the least for unrecovered disbursements. The uncertainty of QOCS does not remove the need for ATE insurance, as we explain further in our comments on QOCS and on disbursements ATE is an essential element of access to justice for ordinary people, who need the certainty that ATE guarantees. One of the main barriers to good claims being pursued is the claimant s fear of the personal costs consequences. ATE can entirely remove that fear in way that any QOCS system cannot, due to the subjective application of the disqualifying provisions of QOCS, which inevitably will be retrospective. 46

47 9.15 Recoverability is key to this. It is not fair that the claimant should meet the cost of the claim or litigation which is only necessary due to the fault of the defendant Very few ATE policies are voided for the very genuine reason that ATE keeps unmeritorious claims out of the system (at no cost to the defendants). One of the advantages of the ATE system is that cases are risk assessed by the ATE insurer, as we explain below Moreover, ATE insurers help discourage fraud. ATE policies do not pay the claimant s costs when fraud, false or misleading information is provided by claimants, who are themselves liable for the consequences of their fraud. It is to the benefit of everyone in the system, claimant and defendant alike, to eradicate fraud, and ATE insurers when assessing claims help to achieve this. QOCS does not provide such an additional check There needs to be a reality check between the extent of allegations of fraud and the actual incidence of fraud, including the screening and detection efforts of the claimant side of the industry, by both solicitors and ATE providers. The insurance industry claim high figures, but have not produced any evidence to substantiate them. There is no benefit to anyone in pursuing such illegitimate cases and if there is evidence of fraud when a case is proposed for cover, then the ATE insurer will not support that case. They and their solicitors are successful in deterring fraud, as the true figures on the incidence of fraud reveal ATE provider DAS reports that whilst defendant liability insurers routinely allege fraud in hundreds of their cases, in only a small proportion of those allegations are they substantiated. Whilst liability insurers regularly use this tactic, it does not mean that there is a general issue with fraud. In 2010, DAS 80e had only 6 cases where the allegations could not be refuted and those cases were therefore discontinued. Given DAS s case load in 2010, this represents a rate of less than 0.018%. ARAG encounters fraud in 0.02% of cases, a similar percentage. Most of these relate to either staged accidents or exaggerated claims. Their typical costs liability as a consequence is in excess of 10,000. Templeton report that they have only had to repudiate around a dozen claims in the last 12 months on the basis of misrepresentation of the facts. The Experian Fraud Index (July 2011) also confirmed the real figures: only 12 in every 10,000 applications and claims These small numbers demonstrate that the ATE insurers vetting procedures and those of their solicitors are extremely rigorous and that it is highly unusual for an insured case to have any element of fraud A real grievance of the ATE insurers is the fact that liability insurers could do more to assist ATE insurers and claimant solicitors in combating fraud. When they allege fraud before proceedings, the liability insurers do not produce the evidence to support the allegations. If they did so, and the allegations were well founded, then 47

48 the case would be rejected. Templeton s further view is that not enough is done to make the public aware of the penalties for lying Should ATE premiums no longer be recoverable, then this important brake on fraud would be lost, as QOCS does not provide such a second stage check, beyond the initial assessment by the solicitor. The additional costs of fraud to the industry and to society that would result have not been factored into the impact assessments Of course, it is not just fraud claims that are screened, but all cases are reviewed for their prospects of success before cover under ATE will be offered. This function of ATE, which also is not reproduced by QOCS, means that many cases, which solicitors thought to be worthwhile and in which they have already offered a CFA, are subjected to a second litigation risk assessment by the ATE providers, who reject a significant proportion of cases as not suitable to proceed, cases which liability insurers often never see. This is a double check which helps weed out unmeritorious cases, an advantage ATE has over the flawed QOCS proposed alternative, which does not provide a similar reassessment of the case Whilst some straightforward cases can be dealt with by solicitors under delegated authority against strict criteria, higher risk and higher value cases are individually assessed. Overall, Financial and Legal reject around 25%, but looking at individually risk assessed cases Elite and Templeton each reject 63%; ARAG rejects 67% of such cases; Amtrust rejects 61.37%, and LAMP rejects 55%. DAS 80e declined 38.7% 9.25 Clinical negligence provides an excellent example of how ATE helps prevent unnecessary claims and litigation: we give more detail on this in section ATE premium levels are based in large part on the amounts paid for uncapped defendants costs in lost cases. Whilst defendants may complain of high ATE premiums (which comparatively they are not), they are largely responsible for the premium levels because of their disproportionate (uncapped in contrast to the claimant) costs bills when they succeed As an example, Elite s average ATE premium is 682 across the full range of personal injury to commercial litigation with up to 5m of cover. Templeton s average premium is currently 632. Financial and Legal s average ATE premium is 395 with up to 100,000 of cover. ARAG s average premium is 1017 and LAMP is Looking at the difference between different types of risk: DAS average: motor 360, EL 860, PL 1,400, industrial disease 3,000 and clinical negligence, 8,000. Amtrust s average premium rates, determined by actuarial reviews: RTA, 395; EL/PL/OL, 800; Industrial disease,

49 9.29 Turning to the other side of the equation, Elite s average claims payment on a policy is 8,222. Their highest overall payment was 1.75m. Financial and Legal s average payment is 2,840, with the highest in 2010 being 20,100. ARAG s average payout is ARAG report that the percentage of cases in which they pay defendants costs varies by type of case, ranging from 1% in motor cases to over 10% in industrial disease cases Abolition of ATE recoverability outright will further distort the already unlevel litigation playing field which favours defendants, which distortion will be further exacerbated by the QOCS alternative. The vulnerable in society will be prejudiced as their access to justice will be reduced because they will be discouraged from litigation through the financial uncertainties they will face as individuals under QOCS, which pressure is not felt by insurance companies Without recoverability, for the reasons outlined above, there will be an inevitable increase in fraud and frivolous and unmeritorious claims. ATE provides a benefit to the defendant, in that claimant ATE cover means that a defendant does not need to consider an economic settlement or nuisance value payment, because if the insurer successfully defends the claim, the defence costs will be met by ATE. This benefit is lost under QOCS Without recoverability, the ATE personal injury insurance market may cease to exist and other ATE markets will be affected by the changes. These are expensive businesses to run, as shown by the limited margins illustrated below. If ATE does survive in the absence of recoverability, it could only do so in a very different form. The market will move from insuring high frequency/low value risks to low frequency/high value risks. The shift will lead to less certainty and more volatility for ATE insurers who would need reinsurance support to protect ATE solvency margins and protect adequate capital requirements. Reinsurance support is currently not widely available for the ATE market due to (1) the catastrophic losses incurred by Lloyd s in connection with the former Claims Direct and TAG failures and (2) existing relationship interests amongst reinsurers and defendant insurers Without recoverable ATE, risk aversion by claimants will mean many perfectly good but problematical cases will fall by wayside, as claimants will not be able to afford, nor solicitors to bear, the cost of the premiums in these cases; nor will claimants risk litigating without the certainty of protection ATE provides It should be borne in mind that the more restricted ATE recoverability becomes, the higher the premiums will be, unless other steps are taken to limit the risk exposure (see our suggestions in section 14). This is the inevitable operation of any insurance market. If ATE becomes the preserve only of the complex high cost risk, high disbursement claim, without less riskier ATE insured cases to spread more generally the overall risk, it is inevitable that premiums would rise. If this were to 49

50 occur, they may well become unaffordable to the average claimant if he was to be expected to meet the premium personally The cases where ATE recoverability is particularly necessary include those cases where ATE protection is needed to cover potentially high pre and post litigation investigation costs and high costs risks to the claimant in the event of failure in meritorious but complex claims. We do not believe QOCS offers a viable alternative, for the reasons advanced in section Such serious matters would include those liability admitted multi track accident cases where causation and consequential quantum are in dispute. Disbursements are potentially high, as is the defendants costs risks, including in the context of a part 36 offer. ATE is essential to underwrite these. Realistically, they are little different in risk to multi track liability disputed cases Disease cases, whether fast track or multi track, can be problematical due to high early investigation costs, often including very specialised medical evidence, and the comparatively high proportion of cases that ultimately cannot proceed. Recoverable ATE is essential for these cases so the winning cases can balance out the losing ones, or those that cannot be taken forward Elite were offered 212 industrial disease cases and 117 industrial deafness cases last year. They rejected 134 or 63.21%, and 67 or 57.26% respectively. DAS believe disease cases are already unprofitable. Any changes to recoverability will mean this class of risk is uninsurable The problem is particularly acute for clinical negligence claims, which we deal with in detail in section Recoverable ATE is essential for those test cases with implications beyond the individual case in point including responding to defendants appeals. Without provision for such matters of public importance, which by definition are unpredictable and only concluded on appeal, the law may not develop, as the claimant may not wish to take further uncertain, difficult to insure, risks DAS insured the important retained organs test case at Alderhay Hospital, in which claimants eventually won damages. Elite were offered 55 appeal cases last year, of which they accepted 23 or 41.82% 9.42 Elite insured 5 of the 21 judicial review cases proposed to them last year, a rejection rate of 75.24%, ensuring meritorious cases could proceed; and poor cases were not supported ATE insurers operate in a highly competitive market. There are no excess profits to be made, and indeed certain types of business are generally loss making, such as disease claims. There is no evidence to suggest that if the claimant was liable to pay the premium, market forces would push premiums down. As indicated 50

51 below, there is already an active and competitive ATE market, and margins are not excessive A typical example is ATE insurer Elite, one of the largest ATE insurers, who have provided policies for over 2,500 law firms. Their net margin is only 7%. Financial and Legal s net margin for 2011 is forecasted at 14%. DAS 80e net margin is circa 10%: their first 5 years of trading resulted in technical losses. ARAG works to a combined ratio of 95% producing a margin of 5%. Amtrust Europe does not solely deal with ATE, but on the basis that operating costs are applied proportionately, their net margin is circa 10%. These margins are not excessive and reflect the competition amongst ATE providers Indeed, many insurers put their ATE portfolio into run- off in the early days due to incorrect pricing, and not appreciating the number and costs of claims. These include NIG, Wren, Goshawk, Catlin, Atrium, Lexington, St. Paul and Europ Assistance The disproportionate power imbalance between ATE and liability insurers is demonstrated by the fact that in 2009, just 20 liability insurance companies owned a 94.6% share of the UK private motor insurance market. Motor liability insurer Admiral recorded a pre-tax profit of 266m for 2010, up 23% on 2009 ( 216m.) If there are fat cats, it is the liability insurance companies not the ATE providers, whose margins are tight in a competitive market The small scale of the ATE market is in contrast to that of liability insurance, with total premium income of 13.2 billion (Motor, 9.96bn, General Liability, 3.3 bn.). Although the liability insurers complain about the impact of claims on their business, they have not indicated by how much they would reduce premiums or even that premiums would be reduced at all, if the Government s plans are be implemented. Indeed, there is evidence that premiums may actually increase. Speaking at the Law Society Civil Justice Section annual conference, Dominic Clayden, director of technical claims at Aviva, said: the insurer has computer-modelled Jackson s final report and found that civil litigation costs under the proposed system would increase, rather than fall as intended. He said the extra costs would have to be passed on to all policyholders in the form of higher premiums. Law Society Gazette 25 Feb In 2008, the ATE market generated just 96m in premium income, only half the amount spent in 2009 by one of the UK s largest insurers in advertising alone (mainly television), of 182m. In 2008, the BTE market, predominantly liability insurers, generated 447m in premium income (to which could be added the significant revenue generated by referral fees) for a seriously inferior product from the consumers viewpoint. Only 53million was paid out in external claims. 51

52 9.49 Not for profit membership organisation self insurance under section 30 of the Access to Justice Act 1999 should also be allowed to continue. There should be a level playing field between ATE and membership organisations providing similar cover. Under the pre recoverability regime, membership organisations subsidised the system generally and legal aid in particular Membership organisation schemes, such as those of trades unions, are not profit making in the same way the organisations themselves are not. If there is a surplus in any one year, such a sum represents the reserve for future payments of defendants costs and disbursements. There is not a profit margin in any event, as they are non-commercial organisations unlike the liability insurers Such changes would also risk undermining health and safety in the workplace, as membership organisations would not be able to pursue the more difficult cases as vigorously as at present. 52

53 10 Qualified one way costs shifting (QOCS): relates to clause 45 (Not on the face of the Bill: will be done through civil procedure rule changes) 10.1 The Government s plan: qualified one way costs shifting in personal injury cases only 10.2 The problems caused by QOCS: Uncertainty for the claimant After the event means and merits tests Intrusive enquiries, esp. for MINELAS Possible minimum contribution to defendant s costs Claimant s risk of liability for own costs Encourages repudiation by liability insurers ATE still needed (but unlikely to be viable) to cover residual risk Loss of access to justice No ATE screening, so more unmeritorious cases and speculative claims No disbursement funding More satellite litigation Liability insurers have a virtual cartel Loss of income to Government Risk of undersettlement due to part 36 hazard Questionable savings: ABI member says there will be an increase in costs and premiums Only applies to personal injury 10.3 In this section we also refer to our comments in section 9 on recoverability of ATE premiums, where a number of concerns about QOCS are expressed in that more appropriate context for comparison purposes. The MoJ have referred behavioural matters arising from QOCS to the CJC Working Group to consider QOCS would be subject to: Behaviour: where the clamant has acted fraudulently, frivolously or unreasonably in pursuing proceedings Financial means in particular a very wealthy claimant or an impecunious defendant. Possible minimum (sic) payment to defendant s costs 10.5 The subjectivity of the application of the proposed QOCS arrangements leads to uncertainty for litigants, and in particular claimants. One way costs shifting 53

54 can only work if there is no qualification (except quite rightly for cases of fraud). The only certain protection, if one way costs shifting is qualified in any way, is through an ATE policy, provision for which would have to continue to provide claimants with the security and certainty they need. QOCS runs the risk of the worst of both worlds: creating a system under which ATE is no longer commercially viable, yet at the same time producing a system that undermines the certainty that claimants need and expect, concerning their financial exposure when legitimately bringing a claim It should be remembered that the system of recoverability of success fees and ATE premiums was mainly to solve the access to justice problems of the MINELAS ( middle income not eligible for legal aid ) who did not qualify for legal aid, as much as it was a replacement for legal aid in personal injury claims, when that ceased as a result of the Access to Justice Act The proposed QOCS will reproduce that lacuna in access, especially for the middle classes, especially given the Government s proposals on the level of means for QOCS: see below Moreover, the benefits of ATE case screening would be lost, resulting in more speculative claims. In fact, not only is the screening of ATE lost, QOCS will actively encourage speculative claims as the primary sanction for pursuing such cases, the risk of an adverse costs order, is in general removed, subject to the overall QOCS disapplication proposals, which remove the degree of certainty claimants need Under the proposed QOCS, claimants would only be liable exceptionally for defendants costs in a lost case, when costs would be assessed summarily, assuming the Green Paper details are carried through into the final package But the risk of the claimant facing a costs bill, even if unlikely, is a massive deterrent to individual claimants. In addition to the question of costs generally being a problem for 54% of potential claimants, AJAG s consumer survey asked whether respondents would bring a claim if there was a risk, even if it was very small, that they could end up being expected to pay the defendants legal costs if the claim was lost. 77% said they would not start a claim at all even if the risk was very small; and a further 15%, only if the maximum liability would be below 1, Moreover, the costs risks facing the claimant are not just those of the defence. The claimant would be liable for his own costs in the event of the claim failing, losses currently protected by ATE but in relation to which the claimant would have no protection whatsoever under QOCS. It may be the case would still be funded on a no win no fee basis as far as his solicitors are concerned, should they be prepared to continue with CFAs if success fees are unrecoverable, but that does not deal with the problem of the claimant s own disbursements, for which he would remain liable. This very real risk under QOCS also acts as just as much a barrier to justice as the risk of an adverse costs order in favour of the defendant. We deal with this barrier to justice in our section on disbursements. 54

55 10.11 Under QOCS, even if the qualifications disapplying QOCS are unlikely to materialise (and it is not accepted that is the case, for the reasons set out below), they would still be a major barrier to claimants pursuing their cases. The proposed QOCS system is doomed to create as many complications as it may solve, due to the subjective nature of the proposed qualifications to the general rule. These will result in a tsunami of satellite litigation The behaviour qualification poses considerable subjective issues, working against the certainty that claimants need and expect Of course, we would not in any way condone the claimant who brings a fraudulent claim. He has only himself to blame, and should suffer the full costs consequences of what is his criminal conduct But the suggestion that a claimant who behaves unreasonably in pursuing proceedings (or possibly as originally proposed also during the course of the claim) introduces yet another subjective element This is an invitation to insurers to raise allegations about conduct even prior to a claim being brought. For example, they might argue that it was unreasonable to bring a claim if an accident was not promptly reported in the accident book at work, or to the police after a road accident. Or the claimant was at fault in unreasonably not seeing a doctor earlier to get a disease diagnosis. Arguments that presently may sound in liability or contributory negligence will now sound in defendants insurers arguments over unreasonable conduct to avoid QOCS If a claim fails, by definition it could be said to have been unreasonable to bring it in the first place, as the test for negligence is rooted in reasonableness. Applying common law principles of reasonableness in this context, Is there to be a reasonable claimant test, which can only mean the courts will be required to devise their own threshold of likelihood of success, (applied retrospectively to either a case in progress or to a failed case after trial) to decide if it was unreasonable in all the circumstances to bring the claim? If not, how is this test to be applied: although on the face of it an objective criterion, in practice will it be the subjective view of the judge? Would it be unreasonable conduct to go on for a relatively small increase in damages, potentially undermining the part 36 system? Or to decide to pursue a test case that the judge concludes retrospectively was an unreasonable attempt to push back legal frontiers? If a claim is discontinued or struck out, was it unreasonable to bring it in the first place? The CJC Working Group was asked to consider a trigger point for this: they produced a series of options, but no clear view And what may be a frivolous claim for a relatively small amount to an insurer or judge may not be frivolous to an impoverished claimant. The CJC Working Group brief from the MoJ suggest as possibilities for disapplication of QOCS a claim failing 55

56 on summary judgement, or one that is struck out or with a wasted costs order. All these suggestions are fraught with danger, as there could be good reason unassociated with the frivolity or otherwise of the claim for such sanctions to be imposed Turning to financial means, it is not clear if this is only going to be a test for the claimant, or whether the defendant s means (including impecuniosity or lack of insurance) will also be relevant, as originally suggested in the Green Paper. It certainly appears that the defendant s means are back on the agenda, from the CJC Working Group The Government paper suggested that if the parties were on an equal footing financially, QOCS would not afford protection With no objective definition of very wealthy, the claimant is in limbo. The MoJ has attempted to come up with a solution to this. It suggested that the threshold should be set reasonably high, but in practice that is not reflected in their suggestions. If the test was income based, one option the MoJ propose is to link it higher rate tax ( 35,000). They also acknowledge the complications of capital, and whether the income test should be gross, net or disposable income; and whether the test should be of the claimant alone or include family resources.this level is not far above the income of the average no win, no fee claimant of 29,000 for males. Furthermore 18% of claimants earn over 40,000, all of whom would be caught The CJC s round table consultation meeting which looked at the issue found the MoJ s financial paper threshold unwelcome and unnecessarily high and comlpex The general view was that it was better to give up on the wealth test and either have QOCS for all or no QOCS at all The Government paper identifies a series of options as to when the means test should apply, ranging from the date of the accident to the start of the claim and possibly identifiable further stages in the proceedings.they suggest that QOCS could apply unless challenged by the defendant; and claimant lawyers would be expected to determine whether the claimant was protected by QOCS. On notification of a claim, the liability insurers will inevitably commence enquiries into, and request disclosure of, a claimant s means to include both capital and income, particularly but not exclusively for middle class claimants, who would be especially targeted. This may well produce no material result for them in applying the test adversely to the claimant, but would undoubtedly soften up the claimant into unnecessary concern about the financial risks (even if low) he is taking in bringing the claim; and create unfair pressure and worry about unnecessary intrusion into his private financial affairs Even though such enquiries may rarely produce a formal outcome detrimental to the claimant, they will have a not unnatural deterrent psychological effect on him, particularly on the more prudent and risk averse claimant. 56

57 10.23 If they are to stand in the Government s plans, the Green Paper proposed insurers applications to the court, especially when made early, will add to this effect, even if unsuccessful Similar problems already arise in relation to temporary replacement vehicle claims in RTAs, which can depend on the finances of the claimant, where such enquiries are already put forward almost automatically by insurers. We attach as appendix 2, by way of example, the series of questions raised by Parabis on behalf of CIS, which begin: Your client will be required to demonstrate that he was impecunious at the time of hiring, in order to recover credit hire rates. If he fails to do so by disclosing bank/building/society/credit card statements, then he will be entitled to spot rates only as per Lord Nichols judgment in Lagden v O'Connor. We shall bring our correspondence to the attention of the Court. The interrogation then continues with a lengthy list of detailed means test and personal finance questions. Under the proposed QOCS, such enquiries will be inevitable and become routine It was not clear if the original Green Paper proposal that the suggestion that the defendant s impecuniosity or lack of insurance cover should be taken into account still applies, though it now looks like it from the CJC working party. If so, it also complicates the matter and operates unfairly as against the claimant. We particularly comment on the hazard of repudiation at para below Firstly there is the lack of an objective definition of impecuniosity. This too is an uncertain subjective test, where similar examples and comparisons to the very wealthy claimant can be made. Should the spendthrift defendant who is impecunious through his own improvidence having squandered his inheritance be on the same basis as a defendant who has fallen on hard times through no fault of his own? And how can one compare other than subjectively the two parties means, if they both fall into the brackets of the means test? Moreover, when the claimant puts forward his claim, he cannot generally be expected to know the defendant s personal financial position. Usually, it would also be fair for the claimant to assume the defendant has adequate insurance cover, especially in those circumstances when such cover is required by the law. Is the claimant also expected to take early steps through disclosure requests or otherwise to satisfy himself as to the defendant s personal means and the extent of his insurance cover, if any? If it turns out the defendant is uninsured or otherwise impecunious, what is the claimant to do? Is he expected to abandon the claim, and suffer the costs consequences of doing so, (even though he could not predict them 57

58 in advance) as he is on personal risk for the costs, because it was his bad luck not only to have been injured, but also to have been injured by the wrong person? This system also provides a perverse incentive for liability insurers to look to the small print of the policy, to see if there are grounds to repudiate it. This is particularly so in employers liability, where there is no Employers Liability Insurance Bureau, equivalent to the Motor Insurers Bureau ( MIB), to meet the residual liability of uninsured employers. In long tail disease cases such as those caused by asbestos, it is often already difficult to track the insurance company, in the absence of a formal employers insurance register. These proposals would also create a further perverse incentive for insurers generally not to co-operate with insurance enquiries in such cases If the defendant is uninsured, why should the claimant bear the consequences of the lack of prudence, or even illegal conduct of the defendant? If a small employer fails to take out a (compulsory) EL insurance policy and negligently injures one of his employees, is he to be allowed the benefit of his illegality, because he is on a similar financial basis to his injured member of staff? If a motorist is uninsured, he will be the first defendant to the claim, even though there is the fall back insurer of last resort, the MIB. The MIB is entitled to pursue the uninsured motorist for its outlays in settlement of the claim, including any costs liability: where will that leave the claimant: on risk for costs, or not? What if a doctor fails to take out adequate professional liability insurance for his private practice and negligently treats a patient? Are they considered to be on equal terms, even though the patient could reasonably have expected the doctor to have such insurance? Or what if the occupier of a small shop or restaurant which the claimant lawfully visits and where he is negligently injured does not have public liability insurance? How is the problem of changing company structures or companies going out of business to avoid liabilities going to be addressed? In each of these examples, it would be fair to expect the defendant to have insurance, the defendant may be less well off or on an equal financial footing with the claimant, yet the claimant will be on risk of an adverse costs order which he could not have anticipated when bringing his claim All these questions indicate the extent of the satellite litigation which QOCS will inevitably provoke in the costs wars that will result should it be introduced The third qualification is new, and was not suggested in the Green Paper consultation: a possible minimum (sic) payment to defendant s costs, to prevent speculative claims. The MoJ has produced proposals itself. That in effect completely 58

59 undermines the whole concept of QOCS, and again exposes the claimant to a potential uncertain costs risk, again presenting a barrier of uncertainty, especially if the payment is expressed as a minimum: this means the costs awarded against the claimant could be substantial, irrespective of his means. The MoJ accept that such a payment would fall to be met by those who qualify for QOCS on the means test (i.e. excluding the wealthy) and their proposals suggest a payment range of 500 to 1,000. This would be a major risk to claimants and effectively this would not be QOCS at all, but a Qualified Two Way Costs Shifting system The underlying problem is that the claimant will have no certainty from the outset as to whether he will face an adverse costs order; and will not know until the claim is concluded. Judges will have a wide discretion throughout the case which would in practice be unappealable So the subjective nature of the suggested qualifying exclusion rules in practice would inevitably deter claimants from either bringing claims or pursuing them as vigorously as they should, because of the uncertainty and potential risks, even if they do not materialise This is also demonstrated by the Green Paper part 36 proposals for QOCS: it is not clear if the Government intend to implement this, as their policy paper has little detail in it, but it would appear to be a fair assumption that they will do so. In the section of this paper on part 36, we comment on the proposals to give the claimant an extra 10% uplift on damages, if the defendant fails to beat his part 36 offer to settle. That is a welcome rebalancing and encouragement to claimants to make sensible offers. However, that benefit is immediately offset by the QOCS proposal, that the claimant will be expected to meet all the defendant s costs from the date of a defendant s part 36 offer, if the claimant does not beat it, which is the position being advanced by the CJC working party: i.e. part 36 trumps QOCS. That is a major hazard for a claimant who will no longer have the security of ATE. This will create a very risk averse approach to defendants part 36 offers, and will lead to undersettlement on the part of claimants due to the fear of an adverse costs order. The claimant would not want to hold out for an extra say 10% by putting at risk 100% of his damages. It will immediately wipe out any benefit there may be from the proposed general damages increase, and probably more If QOCS is to be implemented, a fairer way would be to cap the claimant s costs exposure under the QOCS disapplication exceptions to 10% of the claimant s damages, mirroring the defendant s exposure to the claimant, in additional damages if the defendant fails to beat the claimant s part 36 offer; or 25% of the claimant s past losses, mirroring the proposal for the success fee cap Claimants would still need ATE to provide the certainty they need, but they would be expected to meet the costs of the premiums themselves. The costs of such policies would become unaffordable as the nature of the risk to be insured is so 59

60 uncertain for the insurer. Insurers need a degree of certainty as to their possible exposure to quote for a policy, and the subjective issues that cannot be determined with any such certainty at the time a policy would be needed inevitably mean the cost of a policy in these circumstances would be higher to cover all the possible permutations Moreover, the bureaucracy in applying for and administering such a policy would also expand. ATE insurers would need to means test the client to assess the risk of QOCS not exempting them and to ensure their ability to pay. This may also give rise to credit agreements sold by unchecked intermediaries to vulnerable clients to cover either ATE or their own disbursements. Anticipated premiums are likely to be greater than what the claimant can afford The claimant would also be potentially vulnerable given the utmost good faith nature of an insurance contract, in the absence of full and complete means disclosure, even if inadvertent In the end, it is hardly surprising that the ATE insurers believe that an ATE market for residual QOCS risks, with premiums paid by the claimant, is commercially not viable The CJC brief throws up additional complications, too. What is the position with a counter-claim or cross claim, or an outcome with split liability; or multiple parties on one or both sides, especially if some succeed and others do not. The MoJ then raise what they call mixed claims, where part is for personal injury, and part for property, for example vehicle damage. They suggest artificial percentage splits may be appropriate to decide if QOCS applies. So what if someone has the same injury in a new car worth more as opposed to an old one, thus taking it over this threshold? Finally, it should be borne in mind that QOCS will only apply to personal injury claims and will not apply to other forms of litigation. This is not what Jackson recommended, when he wished to include asymmetric litigation, such as defamation, housing disrepair or actions against the police. For non- PI litigation the position is very bleak. On the one hand, litigants will still lose recoverability of ATE premiums; but on the other they will not have the dubious benefits of its replacement, QOCS. Thus the unsuccessful non-pi litigant will not only have to meet his own costs and disbursements, as will the PI claimant, but also in addition the full assessed costs of the defendant too, without the benefit of a funded ATE policy to meet the claim This will be a huge double whammy costs risk barrier to anyone attempting to litigate a non-personal injury case, without the protection of ATE or shield of QOCS, such as it is. An example could be a building dispute, where a builder has built a domestic back extension for say 20,000. Suppose the builder has not done the job properly, and the consumer householder wishes to claim 60

61 compensation, after negotiation and mediation attempts have failed. He would be putting his house at risk in bringing the claim. Equally, supposing the builder had done a good job, but the householder defendant refused to pay on spurious grounds. The small businessman builder would also normally have used a no win, no fee agreement to recover his due. He would also be putting his assets at risk. Or a small property lettings business which had bought a new property on the basis of a surveyor s report which turned out to have been negligent, in omitting serious faults with the property: they too would take a significant costs risk in bringing a professional negligence claim. Or even the no win, no fee claimant, who finds that his case was negligently conducted by his lawyer: again, he would take a huge risk in trying to claim for such professional negligence This also raises the very real definitional problem of what constitutes a personal injury claim, when other issues form part of the case. If a claim is brought for personal injury, it must, under the rules, include all heads of damage arising out of the same claim, for example the cost of car repairs, credit car hire, or loss of earnings to be repaid to an employer who conditionally advanced them. It can be seen that in many of these examples, the personal Injury element is dwarfed by the other heads of the claim, which are in fact mainly brought for the benefit not of the claimant personally, but for his insurers or employers. Is this still a personal injury claim attracting the protection of QOCS? And what of other mixed claims, for example, housing disrepair cases, where a small personal injury claim may be included? Or a professional negligence claim arising out of the mishandling of a personal injury case by the lawyers or expert witnesses? This is a recipe for encouraging claims not dissuading them There is also the issue of more complex cases, such as counterclaims or multiple defendants. The CJC suggest QOCS should apply to both parties in a counterclaim; and multiple defendants should not have the benefit of QOCS between them in contribution proceedings At the CJC round table meeting, the local authorities made clear that they preferred the existing system of recoverable ATE to QOCS for public liability claims. Their success rate is approximately 80%. They are concerned that the changes will create serious burdens on their finances and the council tax payer, as the cost of QOCS to them is much higher than the cost of ATE recoverability offset by the receipts from ATE in successfully defended claims It also became clear at the round table that there will be significant residual costs risks for claimants, and a rump of cases for which ATE would be needed: but it was also clear that the prospects of a residual ATE market for those risks would be unlikely. The risks would be comparatively high and not offset by the wider basket of lower risk cases, as now. The Government has not examined the extent to which there will be ATE, post the ending of recoverability and the introduction of QOCS, but has nevertheless assumed there will be such a market. The ATE 61

62 insurers have indicated that the prospects of such a market being viable are very slim and there is no certainty whatsoever about what may happen The plea from the CJC was that QOCS should be kept simple: but it seems inevitable this will not be the case. Satellite litigation will be extensive and the system will be uncertain for litigators for many years as a result The better way is to reform, not abolish recoverability of ATE premiums, as we propose in section 14 of this paper. 62

63 11 Before the Event Insurance (BTE) : an inadequate alternative (Not on the face of the Bill: will be done exhortation of the public) 11.1 Government policy: to welcome greater use of existing BTE polices and the development of the market to expand BTE Problems: Not necessarily the best funding for the case Restrictions on cover under BTE policies Higher merits tests Cap on cover Restriction on choice of solicitor ATE needed to replace cover when run out Low take up 11.3 The Government has suggested that BTE provides an alternative, cheaper model of legal expenses insurance. This overlooks the restrictions and conditions that apply to most BTE policies, which make many not fit for purpose beyond the most simple of cases The first problem is that even after prompting, the claimant may well be unaware of other funding sources, for example a membership organisation or a bolton BTE policy attached to his home or car insurance Solicitors are already under a duty to investigate with the potential client what sources of funding are available to him. The correct position should surely be to permit the best form of funding (if other alternatives are available) for the particular case and client concerned. Any other arrangement brings the risk of detailed defendant s enquires, requests for disclosure and the prospect of consequent satellite litigation to establish whether in fact other means of funding was available At the time the funding decision (i.e. ATE or other) is made, the variables may be such that the restrictions on the alternative policy suggest that ATE is the better option, but if the anticipated risks fall away or do not materialise as expected, then the alternative might retrospectively be judged to have been appropriate, but this can only be seen after the event. The biggest risk is to embark on litigation with inadequate cover under BTE, then find that ATE is needed to cover a possible shortfall: this cover would be more expensive than an original ATE policy for the whole of the action It is interesting to note the oral evidence of the Secretary of State to the Justice Select Committee on BTE generally. He said that he did not expect a huge take up 63

64 of BTE, because people did not think they would be involved in litigation and would not take out insurance on the off chance that they might be. He was sure that BTE cover would not be likely to be comprehensive; it has limitations as to whether it meets what is desirable to cover people for eventualities. The likelihood of continued low take up of BTE is illustrated by the low take up of home contents insurance, despite the risks of theft and burglary, which are more obvious than the risk of litigation to most homeowners This view was supported in a well argued article (New law Journal 14/1/11) by Prof. John Peysner and Dr Angus Nurse, who concluded that BTE:...is unlikely to be the cure all solution to access to justice In a report prepared on behalf of the MoJ on BTE Insurance (The Market for BTE legal expenses insurance July 2007) Dr Oonagh McDonald concluded that: "there may be a problem with some families with limited budgets but above the eligibility limits for legal aid, who may not buy an add on policy, but in the event of an accident, they may not be covered and will need to access justice then. BTE is obviously preferable but ATE may still be required" BTE insurers operate in an extremely competitive market that is geared to BTE cover being sold as an inexpensive add-on to mainstream insurance. This demands low BTE premiums that are achieved only by restricting cover. The entire focus is on providing cover for low cost and low frequency risks so that low premiums can be maintained. In many cases, this proves to be inadequate for the policyholder So even if such alternative funding exists, the restrictions on cover under the policy may be such that it provides little or only limited protection from the possible risks in the case. Such restrictions may include a cap on the amount the policy may underwrite; an unnecessarily high merits test requirement; or a restriction on which solicitor may be instructed (though such restrictions may be subject to future legal challenges) This can mean an imposed panel solicitor, whose geographical location at a distance from the claimant can lead to poor service or lack of communication; the imposition of restrictive terms of appointment; and restrictions on freedom of choice and detailed reporting requirements This is illustrated by the way liability insurers use their BTE cover policies. For an additional fee, a motorist can have added to his or her policy BTE legal expenses insurance. If the insured then claims on that policy for legal assistance, the liability insurer will refer the insured to one of its panel firms- who pay a referral fee to the liability insurer for the privilege of taking the case. In 2008, the BTE market, predominantly liability insurers, generated 447m in BTE premium income (to 64

65 which could be added the significant revenue generated by referral fees) for a seriously inferior product from the consumers viewpoint. Only 53million was paid out in external claims. In contrast, in 2008, the ATE market generated just 96m in premium income From inception, the claimant may face lack of cover for a breach of policy condition, or an excluded event. BTE will not cover industrial disease claims, many clinical negligence claims, group actions, claims against financial institutions, defamation and mid to large contract disputes. The limits of indemnity are insufficient to pursue complex or high value cases (BTE LOI is generally from 25-50,000) often proving to be completely inadequate. BTE is aimed at low value, predictable cost cases only The wider use of ATE is needed because BTE insurance cover is so restrictive and therefore unsuitable for supporting certain types of claim. As litigation progresses, BTE insurance cover does not provide adequate protection and more often than not when BTE providers are approached to provide additional cover or authority they decline and come off risk. There are restrictions or exclusions set out within the cover provided. So the risk is to embark on litigation with inadequate cover under BTE, only to find that ATE is needed to cover the possible shortfall: inevitably, this cover would be more expensive than an original ATE policy for the whole of the action. Top up limits of 50,000 ATE (opponents costs only) are common As an example, DAS 80e dealt with a claim against a package tour operator, where the client had BTE cover with a limit on indemnity (LOI) of 25,000. Proceedings were issued and the case was listed for trial, so the claimant s solicitors asked for top up cover with an additional 30,000, to ensure the client was fully protected. The premium for this was 12,222, inc. IPT. The case subsequently settled successfully without going to trial. If the case had not had BTE cover and had been submitted to 80e under their delegated scheme, the ATE premium would have been only 1, inc. IPT, for 100,000 of indemnity. The top up premium reflected the additional risk created by the lateness of the application and the potential for the ATE insurer s position to have been prejudiced prior to their involvement. There was also a heavier overhead due to having individually to assess and rate the premium which would not have been incurred if the case formed part of the greater basket of risk within a delegated scheme The use of BTE is widespread in continental Europe, where the problems of BTE are apparent. BTE premiums in Europe are expensive. Basic family legal cover costs approximately 250 pa (including a 500 excess for each claim). In many cases, this would be more expensive than ATE under our current system. And whilst the Government wishes to promote BTE, without the contribution of referral fees underpinning the costs of BTE ( see section x below), the price of the BTE element would have to rise significantly from around 30 per policy to 65

66 European levels. This in turn would mean take up would substantially be reduced, the opposite of what they wish to see. The cost and the excess deter many households from buying it. Embedded products provide limited cover as shown particularly in France and Scandinavia, mirroring the UK experience. The objective in Scandinavia was to lower the Legal Aid burden and this has proved to be unsuccessful. ARAG Norway believes it is far inferior to how ATE operates in the UK, particularly for high damage/high costs cases In Germany, only BTE (and not ATE) insurance is available. Despite BTE being a mature insurance market, only 2/3rds of the population choose to purchase the insurance. The remaining 1/3 rd, who are mainly the most disadvantaged, have no such cover. The penetration rate of 2/3rds has peaked so the prospect of this improving is extremely unlikely. Because of this, there is a polarisation of those who have access to justice, with those with means to pay for BTE able to pursue their rights and those without it excluded The appendix 5 research also confirms this trend, with uptake of BTE in personal injury claims being in similar proportion, and comparatively few at the lower end of the income scale with BTE policies. Less well off people do not see insurance as a spending priority, as also evidenced by the low take up of household contents insurance by poorer households. 66

67 12 Disbursements: no provision for funding (Consequence of clause 45) 12.1 The Government have provided no solution to the issue of disbursement funding 12.2 Problems Lack of disbursement funding Some costs are inevitable QOCS does not provide an answer Amounts involved are not trivial Legal aid alternative ruled out Disbursement only ATE policies do not provide a solution. Risk of loans at rates of up to 16%. Regulation would inevitably be needed 12.3 This is one of the most serious failings of the Government s proposals. The solution for clinical negligence is unworkable, and is covered in the section of our paper dealing with clinical negligence. This section deals with the wider implications for other types of case, including disease cases, injuries of maximum severity, and accidents at work (EL) needing liability expert evidence Some costs are inevitable and amount to an irreducible minimum, for example disbursements for medical reports, police reports, and if a case is litigated court fees. The outstanding question for the Government is, who is to fund these costs? 12.5 At present these disbursements are generally covered by recoverable ATE insurance. The lack of disbursement funding is one of the inevitable consequences, if ATE recoverability is ended generally. This will become a major barrier to access to justice in the absence of a workable solution It is clear that QOCS does not provide an answer to this problem. The legal aid fund has also been ruled out: indeed historically, one of the reasons for introducing recoverability of ATE premiums covering disbursements and defendants costs was the consequence of legal aid being removed from personal injury work Some straightforward medical reports for fast track claims are financed under credit arrangements through the Association of Medical Reporting Organisations agreement (AMRO). AMRO have made clear that for commercial reasons, they are unable to extend these credit arrangements beyond these basic reports (GP, orthopaedic and accident and emergency consultants, with the possible exception of basic psychology reports, presently under discussion. In fact, there are early signs of 67

68 the AMRO agreement breaking down, as some liability insurers have, or are considering, withdrawing from it The recent case of Sibthorpe and Morris v L.B.Southwark suggests some solicitors may cover costs of minor disbursements in house rather than taking out a formal insurance policy to cover such costs, though it is not likely that this will be widespread, particularly in higher disbursement or higher risk cases. To expect the claimant s solicitor to bear the cost of disbursements is to attempt to get a quart out of a pint pot, given the Government s plan to end recoverability of success fees and other costs restrictions anticipated to be on the way, such as further fixed fee regimes. Banks are increasingly reluctant to lend to personal injury practices, due to the long tail of personal injury litigation. Such an approach will lead to risk aversion by claimants solicitors, who would fear exposure to costs orders, in turn leading to a loss of access to justice for claimants unable to fund their cases. This is especially so in non-personal injury cases, as QOCS is only intended to apply to personal injury so the costs risks are even greater. It is not a viable proposal for higher value cases either, where the disbursements are large; nor more generally for a high caseload in one firm, as too many underwritten cases leads to too much risk being carried, potential jeopardising the firm s overall future The amounts involved are not trivial to the ordinary claimant. By way of example, Amtrust s claims experience shows that their claimants have an average potential disbursement liability of 1,280, should the case fail without recourse to litigation; but if legal proceedings are commenced and the claimant is unsuccessful, that liability is an average of 5,847. The overall claims average is 1,739. The average premium recovered is Whilst a premium at this level would be affordable to some, it is beyond the disposable income of most claimants; and this assumes a market continuing as at present, which would definitely not be the case under the Government s plan, which if implemented unamended will probably mean an end to the ATE market except as an adjunct to general insurance for high cost commercial cases With QOCS, the average failed claim cost remaining to the claimant to meet through unrecoverable ATE or from his own resources would at best be reduced to the unrecovered disbursement figure of However, it is more than probable that without other steps being taken, the ATE reduced pool comprising only riskier cases would result in an adverse impact, with an increased proportional incidence of claims at a greater average claim cost and consequent significant increase in premiums, in the unlikely event that the ATE market survives We do not agree with Sir Rupert Jackson s comments that disbursements in unsuccessful claims are well within the means of claimants and their solicitors. This is both patronising and inaccurate. Claimants are in large part ordinary working people on modest incomes with little disposable capital or income, particularly if they have had an injury which itself brings increased expenditure to the claimant and his 68

69 family, at the same time as the claimant s income is likely to be reduced if the claimant is unable to work due to his injuries, even temporarily, when he is dependent on sick pay only, yet with his usual outgoings also to be met Moreover, Sir Rupert s suggestion of a legal aid alternative (which only applied to clinical negligence and not to other high front loaded costs claims, such as industrial disease or cases of maximum severity) has been ruled out by the Government The suggestion for clinical negligence, is that ATE premiums covering investigative expert medical reports only would still be recoverable. For the reasons given in the next section of this paper, that is not a workable solution. The Government do not propose to permit recoverability more generally of disbursement only policy premiums; and in any event, disbursement only based ATE polices are not commercially viable, either: we illustrate this in detail in our section on clinical negligence Compared with clinical negligence claims, there is a clear inconsistency for other serious cases in that there are no proposals as to how such high cost disbursements cases should be funded, such as medical and care expert reports for claimants with injuries of maximum severity like serious brain damage from a road accident, quadriplegia from a serious accident at work like a building site fall, the medical reports needed to establish liability for diseases like mesothelioma or industrial cancers, or the engineering expert evidence often needed to show liability in work related accidents or disease claims. These claimants are presumably less deserving than clinical negligence victims Using Amtrust as an example, based on current volumes and claims experience, Amtrust believe they could offer a pre litigation starting premium of 150, which is only viable due to recoverability and volume, based on the alternative model we propose in section 14 of this paper. An increased claims frequency of 25% would result in a pre litigation premium of circa 188, with a further staged premium of 1177 payable to cover post litigation risk Amtrust s current model is based on an average claim of 1739, ( 1280 pre litigation and 5875 post litigation). If disbursement only policies were permitted, the average claim would be reduced to 1373, ( 1280 pre litigation and 2211 post litigation) For such a model to work it would be essential to retain both a critical mass volume and recoverability, to ensure that there is a viable market and consumer uptake, with policy volumes remaining the same and the claims experience not altering significantly. If the premium was not recoverable, many claimants would not take out insurance; and when they did, would only do so in the more risky cases, thus reducing the volume of policies and increasing the frequency and value of any claim, and thus pushing up premiums to beyond what is commercially viable. 69

70 12.18 For these reasons, we believe that disbursement only ATE policies funded by the claimant do not provide a solution The risk the Government is running is a repetition of the former Claims Direct problems. The former Claims Direct funded insurance premiums and disbursements through loans at rates of up to 16%. This led to consumer campaigns in the media (especially the Sun and BBC s Watchdog) when claimants were ending up with zero (or worse) damages as the result of the loans. This led in turn to a Government consultation on the regulation of funders. Now, there is no need for this and there are no litigation funding businesses operating in this mass market. Whilst self regulation is sufficient for the current remaining high end litigation funding, regulation would inevitably be needed for the wider market if loans become the alternative funding system The best solution to the disbursement funding problem is to continue with recoverability of ATE premiums, on the restricted basis we propose in section 14, which includes provision for disbursements as part of a comprehensive package. 70

71 13 Clinical Negligence (consequences of clauses 43 and 45; and legal aid withdrawal from scope, clauses 7 to 11) 13.1 Problems Medical report disbursements not funded Savings will not materialise NHS costs will rise by 74.43m NHS losses of unrecovered costs from unsuccessful claimants ATE policies of 26.35m NHS losses from reduced treatment recoupment of 42.2m Total net costs to NHS of 92.98m Not realistic to expect the solicitor to fund these claims Shared reports on liability are also unlikely to be practical Disbursement only ATE policies are not commercially viable Loss of the ATE screening function Perverse incentives under QOCS to pursue weaker claims at least 12% more unsuccessful cases extra 8% failure rate Potential increase in claims will be up to 1/3 rd more 13.2 Clinical Negligence claims are caught in the lacuna between the ending of legal aid for these cases and the Jackson alternative, such as there is one. Lower value cases may be less likely to be pursued due to the high investigation costs including the need for specialist medical evidence and the uncertainty of outcome, but paradoxically the number of clinical negligence claims overall will probably increase, for the reasons we explain below It is interesting to note Lord Justice Jackson s comments on the interrelationship between his original proposals and legal aid: Legal aid is still available for some key areas of litigation, in particular clinical negligence, housing cases and judicial review. It is vital that legal aid remains in these areas. However, the continued tightening of financial eligibility criteria, so as to exclude people who could not possibly afford to litigate, inhibits access to justice in those key areas. In my view any further tightening of the financial eligibility criteria would be unacceptable. I do not make any recommendation in this chapter for the expansion or restoration of legal aid. I do, however, stress the vital necessity of making no further cutbacks in 71

72 legal aid availability or eligibility. The legal aid system plays a crucial role in promoting access to justice at proportionate costs in key areas. Jackson repeated this view in his recent talk to the Cambridge Law Faculty As the Government is proceeding with its legal aid reforms, then it is not just failing to preserve access to justice for claimants in these areas of the law, it is also cherry picking Jackson s report AJAG s consumer survey results show that 64% of people do not think cuts should include reducing compensation for clinical negligence in the NHS Legal aid is particularly important in children s cases. It is not clear how these claims will be funded in the future, given their very high disbursement costs. Parliamentary answers have demonstrated that over the last 3 years to 2010/11, legal aid cases for minors claiming clinical negligence accounted for 36% of the overall total of legal aided clinical negligence claims, averaging approximately 650 cases per year. The figure is much higher for the most serious of cases including birth injuries. Based on the figures for periodic payment settlements, which represent the most catastrophic injury claims, the average was 87% over the last 3 years, representing just over 100 cases per year. These are extremely expensive claims to pursue and continue over a long period. There is clearly a strong case for arguing that this comparatively small in number but highly important type of claim should remain within legal aid scope, as other forms of funding may be neither available nor practical The Government recognise that there is a problem with the funding of high cost medical report disbursements in clinical negligence cases. They suggest the solutions are for the claimants solicitor to finance these, with the costs to be recovered from an interim payment; joint reports with the defendant; and recoverability of ATE premiums for expert reports only In analysing the consequences of this proposal, a good starting point is to explain some of the basics of clinical negligence litigation. The initial investigation of a claim requires expert evidence from very senior consultants, who are asked to review and report on the actions and omissions of their peers who treated the claimant, and give an opinion as to whether they have fallen below the very high threshold needed to establish negligence. Given the seniority of the experts concerned and the amount of work involved, these reports are very expensive. Moreover, in many cases, the opinion will be that the case is insufficiently strong to pursue. In such cases, the costs of the report and other investigations such as obtaining and sorting the medical records, are wasted, but still need to be paid. If the case is considered sufficiently strong, then a further report on the extent of the injury and any consequent disability for quantum purposes will also be needed. 72

73 13.9 Multi track clinical negligence claims face high costs even before they get to the stage of a claim, and many cases are weeded out before then. Success fees are essential to cover these non-starters. An additional complication is that liability admissions generally come far too late, leaving the claimant and lawyers anticipating a dispute at trial and preparing accordingly. Multi track disputed liability clinical negligence claims are not viable without recoverability of success fees due to the volume of work involved, high disbursements, and the uncertainty of success Given all the other restrictions on solicitors income proposed and expected, it is not realistic to expect the solicitor to fund these high costs. The medical reporting organisations will not offer their credit arrangements, either, given the uncertainties and high costs in these cases Moreover, disbursement only ATE policies as proposed by the Government are not commercially viable, given the high failure rate of clinical negligence claims. The screening process we describe below can be seen to weed out between 2/3 rds and ¾ of claims, pre litigation. Assuming medical reports were obtained generally to enable an informed decision then under the Government s proposals, the recoverable premium in the 20% or so of cases representing the successful claims total would have to be sufficient to meet the written off disbursement costs in the remaining unsuccessful cases. This would mean the premium, before any operating costs or profit element, would have to be a multiple of the average cost of a report. This is clearly an uneconomic option. At appendix 9 we provide an indicative calculation based on an ATE insurer s real figures experience to illustrate the premium consequences in practice. For an average cover of 2,000 needed for preliminary investigations (which average does not include the high investigation cost cases like catastrophic birth injuries), the premium would need to be 11, Lord Justice Jackson s latest suggestion, (in his Cambridge talk) that legal aid should be retained for disbursements only is not viable, because this would expect solicitors to write off their costs in 80% of cases, compensated only by the base fees in the 20% that succeed. In the absence of legal aid for clinical negligence litigation generally, success fees are essential to provide the cushion needed to make this type of litigation even approach viability Shared reports on liability are also unlikely to be practical, given that the proposal is that they will be commissioned by the defendants themselves: the claimant will have no confidence that justice is done in the event of a report that does not find negligence, even if it is correct, when it is the NHS itself that has produced the report. Moreover, this would only occur in those cases where the NHSLA see that the claim is likely to succeed leaving a smaller number of higher risk cases, without medical report funding except through ATE, which would not be viable, for the reasons just described. The rating set out there is based on current claims experience: if there is a gearing to reduce the pool to higher risk cases, then the 73

74 premiums would be even higher, again emphasising how uneconomic the Government s disbursement funding proposals for these report are It is important to recognise the impact of the potential increase in unscreened claims that would result from the removal of ATE recoverability (and of course the same risk applies through the withdrawal of legal aid). If a solicitor believes that a claim is worthy of pursuing, then the solicitor will approach an ATE insurer to underwrite the claim. The ATE insurers are very risk averse, given the high costs of these types of case, and screen out a high proportion of those the solicitors consider to be viable. The NHSLA themselves share this view in their paper, in the context of legal aid: 5.3 Ironically, whilst a so-called perceived compensation culture (which does not actually exist currently when it comes to healthcare) is said to be one of the drivers for reform, the proposed changes will do more to promote the unsavoury aspects of a compensation culture than deter them. For example relinquishing the degree of quality control afforded by the legal aid system for clinical negligence will throw the market open completely to non-specialist and less scrupulous solicitors and claims farmers. There would in all likelihood be an increase in this type of activity Parliamentary answers have demonstrated that in round terms, 1/5 th of cases are presently funded by legal aid; 2/3 rds with the benefit of CFA/ATE support; and the remainder through other systems The role of CFA funding (including success fees and ATE) in weeding out unmeritorious claims is well illustrated from the statistics for clinical negligence (HC Deb 8/12/10 c342w) For the last year (2009/10) self funding/bte cases that were concluded totalled 1,509; legal aid, 1,822; and CFA, 5,842. The success rates with damages were, respectively, 61%, 69% and 73%. This demonstrates that the checks in CFA cases weed out a higher proportion of unmeritorious cases than other forms of funding. QOCS has no mechanism to deliver such a review, so even on these figures there could be at least 12% more unsuccessful cases under QOCS which the NHSLA would have to deal with at a cost to them, even if those cases fail to secure damages Moreover legal aid starts also suggest that NHSLA will face an increased unsuccessful claims level in the absence of legal aid and CFAs. In 2009/10 7,470 clinical negligence cases benefitted from legal aid. Of those, 3,446 required representation, and 4,024 received advice help only. (HC Deb 7/12/10 c198w). Based on the differential success rate between legal aid cases and self-funders, there would be an extra 8% failure rate (69% less 61% damages awards). However, if the CFA regime was maintained, there would be 4% fewer. 74

75 13.19 A good illustration of the screening process is given by Amtrust. Under their clinical negligence policies, 69.55% are individually assessed by an underwriter, with 14.29% being rejected at the outset. Of the clinical negligence policies that are accepted, 75% fail during the pre-litigation investigation period, but only 12% fail post litigation. This demonstrates that ATE assists the investigation of clinical negligence cases (providing access to justice) but, prevents unmeritorious claims proceeding through litigation. There is a real risk that under QOCS, more cases will litigate without ATE screening LAMP reviewed 30 cases presented to them but which failed on investigation by the solicitors before the claim to the NHSLA. None of the 30 cases were frivolous. All failed for medical reasons principally due to causation ARAG rejects 64%, mainly due to the restricted prospects following medical expert evidence, or disproportionate damages to costs risk ratios For clinical negligence cases, DAS s 80e declined 245 cases which represents a rate of 18.9% of the total, once the records had been obtained. The bulk of these were declined due to a lack of positive medical evidence Elite were offered 836 cases of clinical negligence, of which they rejected 546, or 65.31% Overall, it can be seen that the ATE insurers and legal aid act as an important brake on clinical negligence cases, screening cases, screening out claims that might well be otherwise brought under the QOCS scheme. QOCS does not provide a deterrent to such cases; indeed if anything they incentivise them, as the impact assessment suggests. This is because QOCS (subject to its qualifications) removes the check on the claimant s enthusiasm represented by the risk of meeting the defendants costs, albeit covered by ATE. Even if they fail, such speculative cases would result in considerable extra costs to the NHSLA The savings proposed in the Government s rather thin impact assessment are predicated on the assumption that the number of claims remains the same. That will not happen for two reasons. Firstly, the loss of the screening function provided by the ATE insurers and legal aid who weed out less strong claims; and secondly, the perverse incentives under QOCS to pursue weaker claims in the general absence of the costs risks of losing. 75

76 13.26 The impact assessment suggests the total legal bill to NHSLA was 460.3m in 2009/10: Damages: 296.6m, representing 64% of the total budget Claimant costs: 121.5m, representing 26% of the total budget Defence costs: 42.2m, representing 9% of the total budget The Government predict savings for the NHS Litigation Authority from ending recoverability of success fees and ATE premiums. The predicted savings are 38m and 19m from ending recoverability of success fees and ATE premiums respectively, offset by 3m extra in damages for the 10% general damages uplift. Overall savings are predicted at approximately 50m, c 11% of the overall costs bill However, the impact assessment makes clear that the assumptions are on the basis of the current level of cases and do not take account of the incentivisation to pursue more cases under QOCS; nor the impact of the Part 36 offer rule changes (which we do not consider will be substantial). Moreover, it does not reflect the consequences of the loss of ATE screening for the proportion of cases funded by CFA, which has been established by parliamentary answers as 2/3 rds of the current caseload If on a conservative estimate less than half of those claims presently weeded out by ATE and legal aid proceed, the potential increase in claims will be over 1/3 rd more, as over 83% of cases are presently funded that way (63.69% ATE, 19.86% legal aid) and 2/3 rds are weeded out by ATE and probably a similar or higher proportion for legal aid. And even if only half of these succeed (and the success rate can be expected to be higher than that), then that will be an increase of just over 15% in costs on successful cases; to which can be added the additional damages in those successful cases, with the 10% uplift in general damages also to be added. Defence legal costs under the present system are estimated in the impact assessment of the overall total at 9%. If there is an increase of 1/3 rd in cases, that would represent an increase equivalent to 3% of current costs. 76

77 13.30 The effect of this predicted increase of a third more cases (say 30%) of which half (15%) are successful is as follows: Extra claimants costs: 15% X 121.5m = 18.23m Extra defence costs (without QOCS, present system): 30% X 42.2m = 12.66m Extra damages, current system: 15% X m = 44.49m Extra 10% general damages: 15% X 3m = 00.45m Total: = 74.43m The costs of successfully defended claims will no longer be recoverable under QOCS. The impact assessment has not accounted for the potential loss associated with QOCS, which should also be added. Parliamentary answers have shown that defence costs over the last 3 years to 2010/11 totalled 134,073,184m for ordinary claims, plus 43,751,490 for periodic payment cases, an average of 59,275m for the 3 years. This includes all costs. The defence success rate was 34% over the last 3 years, so under the non-recoverability rules of QOCS, the NHS would not recover 34% of that total, which it presently receives from the ATE insurers of unsuccessful claimants, a further loss of 19.76m. based on current case loads, and not reflected in the above calculation. Of course, if there is an increase in the number of cases of 1/3 rd as we predict, this figure would also increase pro rata to 26.35m, which is not reflected in the overall total for extra cases above To this can also be added the loss of recoupment of NHS treatment costs, due to the overall fall in cases, totally ignored in the impact assessment, as it also ignored the reduction in recoupment of DWP benefits. The NHS reclaims treatment costs from the insurer of the person responsible for the injury, subject to an overall cap. Whilst this is not confined to clinical negligence, it is best referred to in the context of the impact on the NHS. AJAG s research has identified that there are approximately 600,000 CFA cases in total in all categories per year, as described above, though other research we have quoted above suggests the total could be in excess of 850,000. In the year 2010/11, the NHS recovered 169,050,152 in 77

78 repaid treatment costs. On our estimate of a 25% fall in the number of personal injury cases overall, this would amount to a loss of 42.2m Overall, the net costs of the Government s plan on these conservative predictions will be: Additional cases: 74.43m Impact of QOCS (1/3 increased caseload): 26.35m Loss of recoupment (25% drop overall): 42.20m Offset predicted savings: ( 50.00m) Total: 92.98m The answer to these problems is to maintain restricted recoverability of success fees (as in our proposals in section 7), recoverability of defendant s costs through abandoning the misconceived QOCS proposals, and maintaining restricted recoverability of ATE premiums (as in our proposals in section 14), which also resolves the funding of disbursements problem. 78

79 14 ATE: a better way: answer to clause Government policy: to end recoverability of After the Event Insurance premiums 14.2 Problems: Reduces access to justice QOCS alternative not practical and only applies to personal injury cases No disbursement funding Claimant at risk of costs Loses screening out of fraudulent and unmeritorious cases 14.3 The better way: Maintains access to justice Gives claimant certainty Reduces costs overall Spreads risks Covers disbursement funding Gives claimants a stake in decisions on costs 14.4 Elsewhere, we have explained how the Government s proposals provide no answer to how disbursements should be funded ( section 12) especially for clinical negligence ( section 13), the problems with their QOCS plan (section 10) and the advantages of ATE for access to justice, including certainty for the claimant and the screening out of poor cases.(section 9) 14.5 We believe a better package can be developed that could achieve the objectives of the Government, maintain access to justice, and preserve the ATE market, based on the following propositions. 1 No recoverability if liability is fully admitted during whatever protocol period applies, or 42 days if there is no protocol. 2 The ATE industry pledges to develop policy models to cover disbursements in this period with very modest premiums. 3 Clients can be charged for any such policy in this period by the ATE insurer. 79

80 4 If liability is not admitted during the protocol period/ 42 days, recoverable premiums will be staged with a minimum of 3 stages: up to proceedings; proceedings to listing; listing to trial. 5 If liability is not admitted in the protocol period up to the period of issue, recovery of the ATE premium limited to disbursements only will be permitted, assuming the case settles before proceedings. 6 Post proceedings: recoverability from the defendants will be capped at 50% of a compulsory defendants costs budget, approved by the court at allocation questionnaire and at listing questionnaire. (i.e. capping defendants costs on a case by case basis), matching the staged premium timeslots. 7 Subject to the above, recoverability will also depend on when the policy is taken out. If taken out within the protocol period, there would be no further restrictions; if after the protocol period, recovery will be limited to 2/3 of the above maximum figures pre litigation; and 1/3 post litigation (e.g. 1/3 of 50% of the defendants costs budget if the policy is taken out post litigation). 8 The balance of any unrecovered premiums caused by the taking out of a delayed policy would be for the client to meet, subject to an overall cap set at 25% of damages (as the client could also lose 25% from a success fee liability, this could cumulatively add up to a maximum of 50%) 9 Special consideration is needed for clinical negligence, industrial disease, and injuries of maximum severity. This should provide for full recoverability of disbursement policies up to the commencement of litigation, (including the pre action protocol period) then the same restrictions as above We now analyse the arguments for, and details of, our proposals by reference to the different stages of the claim and the ATE risks involved Protocol period 1 No recoverability of ATE premiums if liability is fully admitted during whatever protocol period applies, or 42 days if there is no protocol. 2 The ATE industry pledges to develop policy models to cover disbursements in this period with very modest premiums. 3 Clients can be charged for any such policy in this period by the ATE insurer 80

81 14.8 The first issue to be addressed is the question of restriction of recoverability of the premium in the event of an admission of liability early in the claim; and if there is such a restriction, what the impact would be on premiums As to the issue of recoverability, we agree that the same basic principles should apply, as we state in relation to success fee recoverability: a period of grace for the insurer to admit liability linked to the pre action protocol period; and a clear unambiguous admission that does not keep in play causation or contributory negligence, both of which still carry costs risks However, this will undoubtedly impact on the overall level of premiums, unless other action is taken to maintain the spread and/or reduce the value of the risks to which the insurer is exposed Amtrust s figures show that at present 65% of their business is insured within the pre-action protocol period. DAS reports that most of their cases are taken out early within protocol period and in about 50% of those cases, liability is admitted in the protocol period. In the absence of action to maintain the spread of risk, they predict premiums could increase possibly fivefold for cases in which liability remains in dispute We set out below proposals both to encourage the maintenance of risk spread and to limit risk exposure Amtrust s modelling demonstrates that, based on current volumes and claims experience, a starting premium of 150 pre litigation would be viable, but only if there is an element of recoverability if the defendant fails to admit liability within the relevant timescale. This model would also be reliant on the existing volumes of insured cases continuing to ensure that a wide spread of risk is available. Such a model would attract further premiums as the case progresses: see our following staged premium proposals We suggest that the ATE insurer should be enabled to pass on the cost of such a modest premium to the client. This would give the claimant a level of financial interest in the outcome outside the recovery of damages, which we believe would be in line with the Government s objective of expecting the claimant to have a stake in the cost of the litigation Post protocol, pre litigation period 4 If liability is not admitted during the protocol period/ 42 days, recoverable premiums will be staged with a minimum of 3 stages: up to proceedings; proceedings to listing; listing to trial. 81

82 5 If liability is not admitted in the protocol period up to the period of issue, recovery of the ATE premium limited to disbursements only will be permitted, assuming the case settles before proceedings Recovery limited in this way represents the costs exposure of the claimant up to the commencement of litigation and also solves one of the unanswered questions of how disbursements could be funded Amtrust s claims experience shows that on average a claimant will have a potential liability of 1,280 should the case fail without recourse to litigation, effectively representing unrecovered disbursements. These proposals encourage staged premiums linked to the important costs points in the case, which should also have the effect of controlling premiums Post litigation 6 Post proceedings: recoverability from the defendants will be capped at 50% of a compulsory defendants costs budget, approved by the court at allocation questionnaire and at listing questionnaire. (i.e. capping defendants costs on a case by case basis), matching the staged premium timeslots The first point to make is that linking ATE premiums to defendants costs rather than claimants damages represents the true relationship of the proportionality of the risk against which the ATE policy is taken out. It is to insure against a costs risk, not to guarantee or insure against an inadequate level of damages This also aligns recovery to one of the principles underpinning Rogers v Merthyr Tydfil (Court of Appeal), that ATE premiums should not be linked to damages awarded By linking the rate of recovery in this way, it exercises downward pressures not just on the ATE premium itself, but also on the overall cost bill of the case, which of course also includes the defendants costs A reform that is clearly overdue and which would significantly impact on premiums positively is a restriction on defendants costs, in a way that replicates the restrictions on claimants costs. The introduction and potential growing use of costs budgets in litigation is to be welcomed. It also provides the opportunity to benchmark ATE premium recovery to a proportion of defendants costs This would reduce the potential exposure of the ATE insurer in lost cases. The premium is calculated according to the risk. That risk has two factors: the likelihood 82

83 of having to pay out, and the amount that would have to be paid if the risk materialises If on the one hand the balance of the risk is increased (by removing recoverability in liability admitted cases at the protocol stage) the corresponding action can be taken to reduce the quantum of the exposure by capping defendants recoverable costs through budgeting, and thus the burden on the policy Of course, defendant s solicitors costs are not the only element in the potential liability under the ATE policy, but they are a major factor in calculating the premium, due not just to them representing a significant share of the exposure, but also their unpredictability, unlike claimant s capped costs, which are also likely to be limited further through budgeting, for which the liability insurers can make fairly accurate provision in their reserve on a case by case basis, due to capping creating predictability If the liability insurer is able to make reasonably accurate predictions of its costs exposure, why should the ATE insurer not be in the same position? If defendants costs were limited and predictable, premiums would reduce for both reasons Defendants costs are usually estimated to be equivalent to 66% of those of claimants, due to a reduced level of work generally (though not at trial) Capped costs in disputed cases would in the round make insurance more certain. If an ATE insurer s maximum exposure and costs liability were known at the outset with greater certainty, as well as other data such as claim frequency, then a matrix of standard or fixed premiums could be possible, for example for fast track cases, by case type There are also good policy reasons to introduce such capping. The Government say the objective is to rebalance the civil justice system, implicitly in the favour of the liability insurers. However, any rebalancing ought to create the level playing field which has been sadly missing so far, with no controls (other than on assessment) on defendants costs and their spending in defending a claim A fair justice system needs equality of arms, so far as is practicable. This requires not just restrictions on defendants costs to the extent to which claimants costs are capped, but in addition an overall cap on maximum spend by defendants, irrespective of recoverable capped costs, so as to prevent defendants running up costs on their cherry picked test cases, which claimants cannot match due to the cap on their individual spend

84 7 Subject to the above, recoverability will also depend on when the policy is taken out. If taken out within the protocol period, there would be no further restrictions; if after the protocol period, recovery will be limited to 2/3 of the above maximum figures pre litigation; and 1/3 post litigation (e.g. 1/3 of 50% of the defendants costs budget if the policy is taken out post litigation) ATE insurers cannot insist on all cases being insured and claimants often only insure risky cases which cause average premiums to rise. Claimants who insure at the latter stages of a case also inevitably pay much higher premiums Without steps to encourage early ATE insurance it is unlikely that many cases will be insured until such time as the defendant has denied liability, or even litigation is contemplated. ATE insurers would then be left with a smaller risk pool with a greater degree of exposure in those cases, with consequent substantial increase in the average premium If there is no incentive to take ATE cover early, then the risks and losses percentages escalate, as would the premiums to cover those risks Whilst it is not possible to model consumer behaviour, our proposal is intended to provide powerful incentives to act responsibly in obtaining early insurance An early decision on ATE brings several advantages, beyond ensuring the continued wider spread of ATE risk. It means that cases will be reviewed for their merits at an early stage by ATE insurers, maintaining the benefit referred to in section 9 above, of screening to deter unmeritorious cases as early as possible Such a wider spread of risk would contribute to keeping average premiums down The proposal would also limit the extent of the defendant liability insurer s contribution to the premium Linked to the next recommendation, the proposal also gives the client a stake in the running of the case, as an early decision to insure the risk mean the client s exposure to a contribution to the ATE premium is minimised, whilst a later decision increases the possible liability The balance of any unrecovered premiums caused by the taking out of a delayed policy would be for the client to meet, subject to an overall cap set at 25% of damages (as the client could also lose 25% from a success fee liability, this could cumulatively add up to a maximum of 50%) We do not agree with the proposition in principle that recovery of the ATE premium should be linked purely to damages as to do so is to compare apples and 84

85 oranges: costs are not damages, nor related to them. In practice, this could even bring in an increase in ATE premiums. Pre issue premiums would be overrated, and trial window premiums would probably be underrated. There is a real chance that premiums based on damages and not risk exposure could be more costly. For example, a premium could be simply priced at 50% of damages, without further qualification. In high value claims, the ATE policy would be significantly higher The suggestion of a link to damages is that without it, the claimant has little interest in the cost of the premium, the inference being that market forces have not operated effectively to create competition in the price of the policy. For the reasons given above in section 9, this is not the case. There is a competitive market The proposal we suggest ensures that the overall premium is limited by reference to the risk insured, whilst at the same time providing a backstop which gives the claimant the potential stake in the claim which the Government wishes to see Special cases 9 Special consideration is needed for clinical negligence, industrial disease, and injuries of maximum severity. This should provide for full recoverability of disbursement policies up to the commencement of litigation, (including the pre action protocol period) then the same restrictions as above It has been acknowledged that high disbursements are incurred even at the investigation stage of these categories of case. Moreover it is unlikely that there will have been an admission during the protocol period, anyway. As has already been demonstrated, the failure rate of disease and clinical negligence claims is high and ATE insurance is needed to cover the cost of the disbursements of the investigation stage: this is especially so, given the planned termination of legal aid for clinical negligence. High preparatory costs also apply in maximum severity cases. Apart from the protocol period, when cases are undergoing investigation and neither side is in a realistic position to make a very informed decision, it is likely that the other principles of recovery we propose would be adequate to cover the costs of ATE policies for these cases Given our concerns over QOCS, we believe two way costs shifting should be maintained, but this makes provision for ATE essential. In fact that is the guarantee that the defendant s insurers would be able to recover their costs outlay in practice as well is in theory, rather than face the prospect of attempting to recover costs from a claimant s personal capital or income. If a costs order is made against a claimant under QOCS, this problem will always arise. An ATE policy is as much for the benefit of the liability insurer as for the claimant, at the practical level. 85

86 14.57 Repudiated polices are a very rare occurrence, and normally only arise in cases of fraud. We do not disagree that the ATE insurer should meet the claimant s costs liability and thereafter seek to recover their outlays from the claimant in those unusual circumstances Premiums are sensitive to risk as well as the market. The Government s plans will have an upward pressure on premiums, so far as an ATE market would remain, which could best be offset by capping defendants recoverable costs If it is desirable to ensure the claimant has a stake as an alternative to our detailed proposals, we would suggest that the claimant should be asked to pay a small percentage unrecoverable element of the premium, with the remainder being recoverable as now. The claimant would then have a stake in the cost of the premium, but not at such a level as would unfairly deter him seeking to bring his claim The ATE insurers have produced modelling of indicative premiums, shown at appendix 7, to reflect these proposals. They do not include the consequences of the incentivisation to take out earlier policies, which can also be anticipated would create major savings. The overall effect when modelled across the whole caseload is to produce savings of 69m to 140m, depending on whether the model includes the suggested restriction on defence costs or not Membership organisations should continue to be able to recover the selfinsurance element on the same basis as ATE insurers. 86

87 15 Part 36 Offers: clause Government policy: that Part 36 of the Civil Procedure Rules (offers to settle) should be reformed 15.2 Government plans are an improvement to the present system 15.3 We agree that the application of part 36 offers requires a level of certainty which the present system does not provide. The less certainty, the less is the incentive to make part 36 offers. A clear rule based on the final court award figure, as used to apply in the old payment into court system, provides that certainty to both parties. We note that Lord Justice Jackson agrees with this, in his response to the Green Paper. We are pleased to see this has already been acted upon, with a rule change taking effect from 1 st October The present system does not provide sufficient incentive to insurers to consider claimants offers sufficiently seriously nor claimants to make them, and does not provide a level playing field as between the parties when considering each other s formal offers Therefore AJAG welcomes the proposal for an additional 10% on damages, if the claimant makes an offer which the defendants do not beat at trial. This will both encourage claimants sensible offers and defendants to accept them The object of the uplift is to encourage claimants to propose sensible settlements, not to apply penalties, which only arise in the last resort, if an offer is not beaten. A larger potential uplift in the same percentage as in a larger case provides the same incentive as in a smaller one: the percentage risks do not change It is interesting to note that AJAG s consumer survey indicated that the second most important factor in preventing people from bringing a claim (after the fear of legal costs) was the low level of compensation: 54% expressed the view that this was likely or most likely to deter them from claiming This process should apply at all stages. If an early offer is not accepted, then that non-acceptance and the consequences should inform later settlement negotiations. Whilst the ultimate sanction is an adverse judgment of the court, the object is to encourage early settlement and if either side believes it is likely not to beat the other side s offer, that is an incentive for that party to be more reasonable in subsequent negotiations without formal sanction, as would apply now For liability only offers in personal injury the principle can still be applied by uprating the liability finding or its consequences appropriately. If, for example, the claimant offers a 50% discount settlement to take account of contributory negligence, 87

88 and the court finds only 25% contributory fault and gives judgment for 75%, then that can be reflected in either a 10% uplift on the damages as assessed; or as an alternative to compare like with like, uprating the liability percentage finding by 10%. I.e.in this example, uprating the 75% liability judgment to 82.5%. This approach should encourage early disposal of liability issues when quantum is not capable of sufficiently clear assessment to make a full part 36 offer. This in turn would make a settlement of the remainder of the claim easier in due course, with the early disposal of one of the key issues and consequent costs savings in removing the need for further liability investigation. 88

89 16 Damages-Based Agreements (DBA): clause Government policy: Damages-Based Agreements ( contingency fees ) should be allowed in litigation 16.2 Problems Little obvious benefit to claimant Risk of undersettlement in high value cases Risk of nuisance value cases 16.3 The DBA model as proposed does not seem to offer a great deal more to the claimant than the existing system, given the proposed restrictions hedging the proposals, and could leave him significantly worse off Such a scheme would be unlikely to be attractive in lower value claims compared to other funding mechanisms with the DBA percentage linked to general damages only and capped at 25%; and could produce both a disproportionately high fee and a lower settlement in cases of maximum severity The system works on the assumption that in a winning case, the claimant s solicitor would recover costs from the defendant on the conventional hourly rate basis, which base costs will be offset against the claimant s costs liability solicitor to his under the DBA The DBA will provide an additional charge (in a similar way to a success fee uplift) but will bear no relationship to the amount of work undertaken, creating the risk that the client may end up paying more in the larger cases than would be the case with a conventional success fee linked to the amount of work done and charged to the client, that also being capped at 25% of damages Thus, in the event of an early settlement of a high value claim for example, the solicitor would be the winner and the client the loser. The perverse incentive for the solicitor is not to go to for the highest settlement in such a case, but for the quickest. This is because the quantum of general damages in such a case ( indeed in most cases) is usually the easiest part of the claim to assess, and the lion s share of the complex and time consuming work is in collecting the evidence, calculating and negotiating the financial losses, especially future losses, for example care and accommodation costs. As the DBA is to be solely linked to general damages, why would the solicitor work to maximise the hardest elements of the damages from which he does not benefit other than the basic hourly rate other than for reasons of professional obligation and pride? 89

90 16.8 It is difficult to see therefore, the types of case where a DBA arrangement would be advantageous to the claimant. Moreover, as there can be no obligation on a solicitor to work on a DBA basis, it is difficult to envisage the circumstances in which a solicitor would offer such a deal to the client, other than when it is of benefit to the solicitor, in preference to a traditional CFA success fee uplift Unfortunately, the superficial attraction of the DBA masks such inevitable conflicts of interest between the client and the solicitor, as their interests are different. The only way to eliminate this conflict is the system in play in the Employment Tribunal, for CICS claims, or indeed under the US tort system, which would be to allow DBAs to be calculated on the whole of the damages, including pecuniary loss. However, that again runs the risk of significant overcharging of the client, compared with the work done Contingency fee systems sit very uneasily with the English litigation tradition, as there is a general risk of undersettlement through the conflict of interest between the claimant and the solicitor, as has been seen in some Employment Tribunal claims Moreover, since the introduction of contingency fees in the Employment Tribunal, there has been an increase in nuisance value claims where advocates initiate proceedings in cases with little or no merit on the chance that an employer will pay off a claim rather than go to the expense of mounting a defence. It is a reasonable assumption that this practice will also occur in other forms of litigation if DBAs are implemented more widely, particularly if combined with the proposed QOCS regime Nevertheless, having expressed our reservations, AJAG would not oppose any extension into new forms of funding that create further options for the claimant, so long as the claimant has informed consent to a proposed DBA deal We do not agree with the Government over the need for advice on a DBA. We believe that the client should have the opportunity to take independent advice. The problem is how to arrange for that advice to be genuinely independent and from a competent specialist PI lawyer; and who should pay for it A further problem with DBAs is the lack of provision for funding disbursements. The same problems arise as through the other proposed changes to the system. We deal with this in section

91 17 Claims Management Companies; Referral Fees: clauses 54 to Government policy: to abolish referral fees to reduce insurance premiums and legal costs and reduce the number of claims 17.2 Problems: Insurance premiums will not reduce Access to justice will reduce Competition will be reduced Solicitors overheads will be increased BTE insurance premiums will rise to European levels Legal Services Board report ignored Government better regulation principles ignored Important overseas referrals will not occur Abuses like cold calling will not be prevented Insurance industry referral fees will continue for certain services 17.3 In March 2001, the Office of Fair Trading (OFT) report on Competition in the Professions recommended changes to the Solicitors Code of Conduct to improve competition including permitting referral fees. Prior to these amendments referral fees were not allowed, leading to convoluted business models which were in effect back-door referral fees resulting in technical challenges, satellite litigation, malpractice and high profile failures like Claims Direct and The Accident Group. These 2004 changes led to simplification and transparency of business models with light touch regulation of solicitors. This created stability for the personal injury profession and increased access to justice. Before CMCs, many potential claimants were either uninformed about their legal rights or too nervous to approach solicitors direct, especially due to concerns about costs risks Claims Management Companies (CMCs) promote access to justice by increasing the public s awareness of their rights to claim compensation and by facilitating the claims process, funded in the main through referral fees. Even so, contrary to perceptions, only 33% of claimants find a lawyer through advertising or on line. 31% go through personal recommendation; 16% go to their existing solicitors; and 14% are referred by their own insurers. rising to 22% of own insurer referrals in road accident cases Claims Management Companies (CMC) funding arrangements developed to include not just what would be generally recognised as referral fees but also acquisition costs, marketing and advertising fees, introduction fees, and so on. For many firms, outsourcing to the most cost effective marketing provider, usually a CMC, provides the best solution. Bulk purchase of advertising by CMCs creates 91

92 economies of scale that allow solicitors to benefit from the results, in turn allowing investment in other areas of the practice. Referral fees are a cost effective marketing expense, mainly used to pay for advertising and preliminary screening and processing, saving the solicitor expensive professional staff costs as a result. CMCs provide the marketing and case management skills that are essential in any service industry where the product is opaque and most people use the service only once: 74% of claimants have only made one claim. The impact assessment itself states that solicitors advertising costs are likely to be higher as a result of the ban. Referral fees come from the solicitors income and not the clients pockets CMCs oversee the quality of the advice and assistance provided to the client by the solicitors and provide a speedier form of complaint handling and redress. If an individual client s case is handled incompetently, he/she only has formal redress through the official channels which are difficult, slow, intimidating and cumbersome. However, a CMC has to protect its business and cannot afford complaints against its panel firms. It will investigate any issues quickly and require the solicitor to provide the correct, competent level of service, or face removal from its panel CMCs help maintain competition. The promotion of legal services which they fund provides the public with a wider choice of providers. Before the Access to Justice Act 1999 (AJA), personal injury litigation was mainly the preserve of a relatively small number of large firms. After these reforms, CMCs considerably widened the market, introducing more competition through a larger number of specialist firms. Key to this expansion of market choice was a predictable workload. enabling law firms to plan with a degree of certainty Clients are not matched to the highest paying firm, but are referred on the basis of geography and/or specialism. Otherwise the inference can only be that the best way to provide legal services is to offer the cheapest deal to the client- but that cannot correlate to the quality of advice and representation: it is counter-intuitive 17.9 It is also important to recognise various not for profit membership organisations rely on arrangements that could be classed as referral fees as enabling them to provide a comprehensive service like employment advice and representation or will writing, Referral fee income supports the work of charities helping some of the most badly injured and disabled in society, too As could be expected, the liability insurance industry, through the ABI argue for abolition of referral fees. They erroneously claim that the payment of referral fees comes at a disproportionately high cost to the insurance industry, that referral fees can be removed without affecting access to justice, and that referral fees contribute to excessive legal costs without adding value to the services provided to the consumer But Admiral Insurance Chief Operating Officer David Stevens said 92

93 banning referral fees is not a fundamental reform - it will not have that material an impact on car insurance premiums," Insurance Times 24/8/ The ABI also do not broadcast what has become known as the insurance industry s dirty secret : they make huge profits from referral fees themselves. Ancillary income including referral fees made up 54% of Admiral's first half UK motor profit before tax. (The OFT have raised the issue of ancillary products in their call for evidence on motor insurance premiums.) Henry Englehardt, Admiral CEO, in rebutting the ABI position, said: We are not doing anything illegal and we are not doing anything immoral. We are not doing anything that I would not tell my mother about. Insurance Age 25/7/ The markets have recognised how important this income is to insurers: The likely loss of a lucrative business referring accident victims to lawyers sent shares in car insurer Admiral down 13 percent on Wednesday, after the group failed to reassure investors it could ride out the blow. Reuters 24/8/ The ABI quote outlandish and extreme figures for referral fee amounts, which are not the norm, as is evident from a close reading of what they say: in fact, the highest fees are those levied by the insurers themselves Many of the insurers own general marketing arrangements are very similar to CMCs and solicitors advertising. If referral fees impact on legal costs (which they do not) then insurers own marketing practices by the same token are passed on to the consumer and impact equally disproportionately on the cost of their premiums. In 2009, motor insurers spent 182m on advertising, mainly TV. These sums dwarf what the claimant personal injury world invests in marketing in all its forms, including referral fees Insurers also pay what are in effect referral fees to price comparison sites in a way that is virtually identical to referral fees, to attract a consumer s business in buying their motor insurance policies, for example. Such price comparison websites advertise in the same media, in the same way, as CMCs. Virtually since the insurance industry started, insurance companies have paid (non-transparent) fees effectively referral fees- to insurance brokers, who bring them clients Without the contribution of referral fees paid to liability insurers arising from the 22% of claims they introduce to their panel lawyers, the BTE element of the insurance premium would have to rise significantly from around 30 per policy to continental European levels where basic family legal BTE cover costs approximately 250 pa (plus a 500 excess) One of the key issues the Government has not addressed is the fragmentation of regulation. The CMC rules and the Solicitors Code on introductions, referral fees, and cold calling are clear. They are not the problem: the 93

94 issue is one of enforcement. The regulatory regime is fragmented, with the MoJ, through the Claims Management Regulator, responsible for regulating CMCs; the SRA for solicitors; and the FSA for insurers. No-one is regulating the marketing companies. Each of the regulators has a differing regime and enforcement mechanism, but all have responsibility to oversee referral fee and introduction arrangements. The content of marketing is regulated by the Advertising Standards Authority; and data protection is a matter for the Information Commissioner. There is a strong case to consolidate the diverse bodies involved in regulation, to ensure consistency and effective enforcement The Solicitors Code of Conduct 2007, Rule 9 regulates solicitors financial arrangements with introducers, i.e. referral fees. Whilst rule 9 permits payment for referrals, this is subject to strict conditions, Before a referral the introducer must give the client all relevant information and in particular the fact of and the amount of the financial arrangement with the solicitor. Before accepting instructions the solicitor must give the client in writing all relevant information concerning the referral. This includes the amount of any payment to the introducer CMCs are also regulated by the Claims Management Regulator through the Conduct of Authorised Persons Rules (CAPR). Rule 8 states that when business is introduced to a solicitor, the CMC should not put the solicitor in breach of the solicitor s rules (i.e. Rule 9). CAPR 11 requires a CMC to provide a client, in advance, information about any referral fee or other financial arrangement in respect of introducing the claim. The CMC must also inform the client about any relationship with a particular solicitor or panel of solicitors The Government tabled in haste new clauses to ban referral fees in the LASPO Bill at Commons Report stage. This was done with no consultation with interested parties (beyond the Legal Services Board consultation, which concluded that a ban was not in the consumer interest, see below). Moreover this does not comply with the Government s own principles of good regulation Prior to introducing the ban, the Government said it wished to await the outcome of the Legal Services Board (LSB) consultation and review of the referral fee system. In their report of May 2011, the LSB concluded that there was no compelling case for a ban on referral fees. The Government have entirely ignored their findings and recommendations. 94

95 17.22 The LSB concluded that: the level of referral fees paid today is linked to the services provided by introducers as well as to issues such as economies of scale and bargaining power; there was no evidence that increases in referral fees had led to an increase in the price of legal services; there was also no evidence that referral fees are causing consumer detriment through a reduction in the quality of services. It was observed that success rates had remained fairly constant and compensation levels were found to be rising; consumer evidence supported the link between marketing and making additional claims which would not otherwise have arisen. The increase in claims probably led to higher insurance prices although it was difficult to describe this as causing consumer detriment where consumers have valid claims; referral fees aided access to justice; transparency could be improved, with a series of detailed recommendations The Government has not considered its own Department of Business five principles of good regulation, with which we agree. These principles state that any regulation should be transparent, accountable proportionate, consistent, and targeted. Nor does the Bill comply with the Coalition s strategy of introducing regulation only as a last resort and to move to less onerous and less bureaucratic enforcement regimes. The BIS Better Regulation Framework is also ignored: Regulation should only be used as a last resort, when all other policy alternatives have been exhausted. But where a decision has been taken to impose regulation, it is important that it should be enforceable. If regulation cannot be enforced, it not only undermines the intentions behind the law, but also places an unfair burden on the majority of businesses that seek to comply, by giving their less conscientious competitors an advantage The Government s proposals will not be enforceable due to definitional problems. Because they do not deal with the unregulated side of the market they will not tackle the abuses but will unfairly increase the burden on legitimate CMCs with increased regulatory costs and reduced income. 95

96 17.24 The referral fee provisions apply both to those introducing claimants and those paying referral fees (e.g. both CMCs and solicitors), creating regulatory rather than criminal offences; a breach would also make the referral contract unenforceable It is not completely clear yet, the extent to which these rules will apply to insurance companies acting as introducers, but probably would catch BTE referrals. Whilst the Government say they wish to do so, the new provisions in the Bill are convoluted and rely on both the Treasury and the FSA to act The new law will only apply initially to personal injury and fatal accident claims, but powers are being taken to allow extension to other areas of work Unregulated persons remain outside the scope of the Bill, so the major cause of the current criticisms remains unaddressed because the Bill does not deal with those who don t operate as CMCs. This includes, eg marketing firms, as they are not regulated persons, and in particular the offshore marketeers responsible for spam texts and calls. The Bill does not provide for any other action against rogue traders operating outside the regulatory regime. In other words, it does not deal with those actually causing most of the problems The regulators specifically the Law Society, Bar Council, Claims Management Regulator and Financial Services Authority (reserving the power to add others) will be required to monitor and enforce the restrictions imposed. But regulation and enforcement remain fragmented, as the opportunity has not been taken to reform the regulatory regime Payment of a fee includes any form of consideration except the reasonable provision of hospitality The new clauses apply to a regulated person who pays or is paid for arranging for someone else to provide services to the client; however, the regulators will be allowed to stipulate that such a payment is not a referral fee if the regulated person can show it was consideration for the provision of services or for another reason. So referral fees will not include payments for services (i.e. other than giving mere contact details of potential claimants), for example (presumably) advertising, screening and preliminary investigation, to the extent that any fee relates to that work. The Government are taking powers to cap the amount that can be paid under these categories through regulations setting the maximum amounts for such payments, above which they would be treated as referral fees The new law will also apply solicitor to solicitor: one problem here is what happens if a solicitor finds a case that he does not feel comfortable dealing with; e.g. a high value case beyond his abilities. The solicitor should be encouraged to pass it 96

97 on, rather than keep it, for the sake of the client. Stopping inter solicitor referrals works against this Also in this context, there is the issue of international referrals: it has been the practice (long before this issue arose) for a UK solicitor to refer cases to e.g. a US attorney if there is a cause of action in America, in return for a share of the US attorney s contingency fee or a flat rate payment. Obviously the UK lawyer can t do the claim, but why should he go to the effort of finding the right lawyer in the US if there is nothing in it for him? This is standard practice in the US, where lawyers refer cases between each other if beyond their competence, and also between state jurisdictions. It is not in the client s interest to prevent such arrangements, as the fee comes from the US attorney s share, not from the client Also to be banned are payments to solicitors, when the solicitor refers the client for another service: e.g. car hire or ATE insurance. Also, if on the conclusion of a claim, the client is referred for investment advice for their damages and a commission or brokerage fee taken, that would be against this provision But rather unfairly not banned are referral fees paid to insurers by for example car hirers, vehicle recovery companies, vehicle repairers and body shops, as this would not be within the definition of prescribed legal business. If these businesses were to receive referral fees for an introduction they would be caught: double standards again! Overall, the proposed ban is a recipe for satellite litigation The Government s proposed ban reflects a view of the future which is out of line with the modern commercial world and is an attempt to legislate against market forces. The effect of the recommendations would be to outlaw outsourcing, a very common and generic business practice, for just one comparatively small component of one specialist part of just one profession s business arrangements. This would presage a return to the under the counter deals that would resurrect former malpractices, technical challenges and instability within the marketplace. In practice referral fees, in a disguised form, would continue to be paid as they were before they were formally permitted Moreover, the forthcoming radical changes to the legal world that will flow from Alternative Business Structures (ABS) have also not been taken into account by Government, even though Justice Minister Jonathan Djanogly MP said they wished to encourage law firms and CMC s to join forces, with CMC's become the marketing arm of law firms ( oral evidence to the Transport Select Committee). The referring party could well end up owning the law firm and channelling all their referrals into that firm. With the advent of supermarkets joining the legal market, (the first is the Co-op), it is clear that the provision of legal services will be very different in 10 years time. 97

98 17.38 Of course, there are abuses that need dealing with, but the Bill does not do so. CMCs are in the main sophisticated organisations, providing a range of services beyond marketing. They are large employers with staff deploying a range of skills. Legitimate, well-run CMCs make a major financial contribution to regulation through their registration fees and should be seen as legitimate businesses Unfortunately there is a rogue element who avoid regulation and are responsible for a very high proportion of the perceived problems: very small CMCs who ignore their obligations under the rules; and unregulated cowboys and marketing companies who farm claims without registering as CMCs with the regulator at all. It is unfair to tar with the same brush those properly managed and regulated CMCs, as they do not approve of these operators bad practices any more than do the industry s severest critics. The Bill ignores this problem For example, with issues such as unsolicited SMS texting (which unfortunately is common place) it is the perception that CMCs are doing this, when in fact it is unregulated marketing companies (who are not CMCs) who are looking to cash in. All serious CMCs are very much against the practice (except where the clamant has opted in) as it hurts, not helps them. Indeed at the last RCG meeting, it was recognised that CMCs were not responsible The real problem of the so called merry go round of referral fees is not the CMC/solicitor referral relationship. The real problem occurs with no consumer benefit: referral fees paid to insurance companies (who rely on the captive market of their own insured and charge the highest fees of all to), by their panel solicitors, to garages and vehicle recovery companies, even (already unlawfully under data protection rules) to the police or NHS medical staff. The use of cold calling, SMS texting and third party capture techniques and excessive referral fees are also abuses which are condemned by legitimate CMCs. We make a series of practical recommendations ( summarised in section 19 ) to resolve these issues. Any proposals for reform need to recognise the realities of what is happening and ensure that changes are targeted at the real abuses and abusers of the system, not those who operate legitimately It is accepted that some advertising has attracted criticism, particularly if thought to be offering inducements to claimants to bring forward claims. We agree that financial inducements to make a claim are inappropriate and should not be permitted by the ASA code Due to the Government s irrational and unlawful approach to the issue, the Claims Standards Council, which is the trade organisation which represents CMCs, instructed solicitors to send a letter before action to the Government threatening judicial review, due to the complete disregard of both the evidence and correct legislative procedure. 98

99 18 Impact Assessment 18.1 Problems: No evidence base Data is skewed Claimants worse off Defendants are the winners Contraction in market overlooked Impact on small business overlooked Efficiency gains only at expense of worse outcomes No assessment of loss of revenue to Government No assessment of additional costs to Government Plans are discriminatory against those with disabilities, women, minorities Increased regulatory costs Increased solicitors overheads Reduced access to justice 18.2 The impact assessment is extremely thin, based primarily on assertion with no evidence base. Such few statistics as are provided are not robust and open to challenge. They certainly do not provide the evidence needed to embark upon such radical changes to the legal system. For example, such calculations as are provided are drawn from one costs draftsman s company, which works primarily for insurers. It is apparent that the 10% uplift statistics they have modelled, (even without seeing the raw data which is not given) is almost certainly applied not just to General Damages as the Government s plan proposes, and thus gives a completely wrong impression of the impact of that uplift. The impact assessment is not fit for purpose. We comment further on this below It is correct that claimants will be worse off overall It is correct to say the winners will be defendants It is not correct to assume that legal services providers and ATE insurers reduction in business income will be offset by other business activity. Under the Government s plans there will inevitably be a contraction in the market with fewer solicitors able to make personal injury work profitable and fewer (if any) ATE insurers, as this market could well disappear completely. Fewer suppliers of services inevitably will create local monopoly suppliers with consequently reduced pressure on maintenance of quality of representation and which will drive up costs in the long run. This means further restriction on access to justice at the local level; and the growth of bigger more distant legal operations, as has already been 99

100 happening as firms have progressively withdrawn from legal aid more generally, as they consider it insufficiently viable Small businesses will find it harder to pursue their disputes especially with larger corporate suppliers or customers in the absence of recoverability of success fees and ATE insurance. There will be a significant impact on them The assessment against policy objectives is very hesitant and accepts that those objectives might conflict with securing fairness in relation to case outcomes The economic rationale suggests that efficiency gains might result from worse outcomes, with lower value claims not being pursued. This must put in issue whether it is right that individual claimants who lose out must do so for this objective There is no assessment of the loss to Government revenue from fewer cases, in terms of reductions in CRU (DWP benefits) recovery and NHS treatment costs recovery from fewer cases; nor of the loss of Corporation Tax, IPT and VAT to the Treasury; nor the loss of general taxation from fewer people being employed in legal services For example, in the last 3 years, the CRU recovered on average m. Our evidence based estimate conservatively suggests a fall of 25%. If CRU recovery falls by 25%, this represents a loss of income to the Government of 36.08m Revenue generated by the ATE market by way of Corporation Tax, IPT, and VAT, will not be replaced under any the QOCS system proposals. Financial and Legal pay Corporation Tax of 598,583 and IPT 869,410. Templeton pay 0.8 million in IPT. DAS pay circa 1.7m in IPT per year, circa 750k in VAT claims & 1m corporation tax. Elite s last accounts show corporation tax of 611,705, IPT of 1.466m, PAYE and NI of 374,352 and VAT of 165, There is no assessment of the additional costs to Government in supporting people who would otherwise have been able to care for themselves out of their damages and who will now need to have recourse to public funds Such data as there is, is skewed towards RTA claims and does not fairly represent e.g. EL and PL claims. The EL data set specifically excludes disease cases which are the most expensive and problematic to pursue. Clinical negligence claims are also excluded. Moreover, the RTA statistics in large part predate the fixed fee regime and are thus of little use in establishing the true impact The remainder of the figures are very sloppy, too. In the table in Annex A, the assumption is made that the analysed figures for current average general damages and new average general damages represent damages for pain, suffering and loss of amenity only; yet in para 1.18 vi), it is stated in terms that cases in the data set included global settlements and were not so confined; this therefore included 100

101 damages other than pain, suffering and loss of amenity and thus the analysis is immediately open to question: it can only be plainly wrong Moreover, simple maths suggests an apparent discrepancy for EL cases, in that the chart at para 1.23 states that 75% of general damages are below 10,000 and 10% between 10,000 and 20,000, whilst the average (working on the mean basis excluding extremes) in the results table is said to be 10,436. Not only is that way out of line with the experience of solicitors who specialise in EL claims, it is either mathematically wrong or gives a wholly misleading impression of the overwhelming majority of the cases, for analysis purposes The conclusion of annex A (data analysis; policy impacts) that it has not been possible to quantify the costs and benefits is something of an understatement The conclusions of annex B (savings to defendants- NHSLA) are dealt with above in our section13 on clinical negligence. There will not be a saving: there will be a substantial increase in costs and losses to the NHS, as explained in the section of this report on clinical negligence. To this can also be added the loss of NHS recoupment income generally, in respect of medical treatment of claimants which will no longer be recovered from those cases that are no longer pursued. The overall total is a shortfall to the NHS of 92.98m. (see section 13 of this paper) The equality impact assessment admits that such data as they have cannot be used to assess the potential impact of the proposals on different groups There is a strong argument that the proposals infringe the human rights of claimants, especially in the more serious cases, under Articles 6 (access to justice) and 14 (discrimination) ECHR. The recent ECtHR case of Campbell can be distinguished from these principles, as that was based on Article 10 (freedom of expression). The proposals for recovery from claimants of success fees (which are intended to subsidise other claimants losing cases) could also infringe Article 1 to the first protocol (protection of property) It is inevitable that there will be a disproportionate impact on people with disabilities, being the claimants who wish to bring claims for personal injury who suffer injury leading to permanent or temporary disability. They will suffer restrictions on their access to justice to claim compensation. This is especially so for children, when combined with the consequences of taking clinical negligence out of scope, as explained in the section of this paper on clinical negligence Claims brought by women tend to be of lower values and as the proposals are particularly likely to impact on lower value cases, they will discriminate on grounds of gender. 101

102 18.22 ATE insurer LAMP has reviewed their portfolio of 12,800 industrial disease ATE policies. The sample is statistically significant. They were able to identify ethnic origin with reasonable confidence in 12,416 cases % of claimants were from non-caucasian ethnic backgrounds, approximately six to seven times the national average. This can be relatively easily explained, because those who were employed in the relevant industries during the 1960s, 70s and 80s when exposure to occupational health hazards was not effectively controlled, came disproportionally from ethnic minority backgrounds and were also employed at a discount to national average pay levels, before discrimination laws were in place or effectively enforced. Whilst the plans for example in their impact on RTA claimants, generally affect the population on racial grounds reasonably evenly, the impact on industrial disease claimants is disproportionate and racially discriminatory Whilst this is a robust and statistically significant sample (the only one in this impact assessment exercise) it is dismissed on an unevidenced assertion that these claims are thought to have peaked Moreover, minorities, especially people whose first language is not English, will be disadvantaged as they will not be able adequately to represent themselves and will have difficulty finding other representation Overall, the impact assessment is so thin and the lack of evidence provided within the impact assessment so great that there is no certainty that the proposals will provide central and local government with any savings whatsoever. In fact if claim volumes were to increase due to the lack of ATE intervention to reduce the incidence of unmeritorious claims, there would be an increase in general damages and no, or limited, costs recovery for local and central government in their successful cases, the probability is that there will be an increase in costs to Government A further impact assessment was published with the new clauses on referral fees. As has been the case throughout the Government s implementation of the civil justice reforms, this impact assessment also appears as an afterthought, with no evidence base to support it nor accurate forecasts of the outcomes. The assessment relies on anecdotal evidence, supplied by the ABI and those who support them. There has been no input from those who use the present system, the CMCs However the assessment confirms that lawyers will face increased advertising and marketing costs, which supports the argument in this paper, that the existing system is the most cost effective form of marketing The assessment confirms that claimants may pursue fewer cases as they will be unaware of their rights and others might make worse choices as to their lawyers. 102

103 18.29 There will be increased regulatory costs, which the Government expects the industry to meet; but with a dramatic loss of income and fewer providers (as suggested in the assessment) it is difficult to see how this can happen It makes the brave assumption that a referral fee ban will be enforceable, but only suggests that insurance premiums may lower. Overall it says in terms that the benefits of a ban are not quantifiable - but the insurers will be the winners. 103

104 19 Dealing with the Public s Concerns: Reforming the system 19.1 Our proposals: SMS texting: mobile and landline network co-operation with powers to disconnect offending numbers, as they do with prostitutes phone card advertising. Data Protection and cold calling: no approach to the claimant to be permitted without either: the claimant s specific authority relating to the accident in question, preferably in writing; or in response to direct contact from the claimant seeking assistance, the details of which are properly recorded. financial inducements in advertising just to make a claim should not be permitted fraud: liability insurers required to produce evidence to support fraud allegations at the earliest opportunity Credit hire and bodyshops: The ABI s sweetheart anti-competitive deal with the credit hirers as to the charging rates must be ended. The primary obligation to provide a replacement vehicle should lie with the liability insurer. Bodyshops should be manufacturer approved and industry accredited, not just insurer approved. There should be a protocol timetable for maximum default hiring periods and repairs at a fair cost. effective enforcement: ensure by consolidating regulation with the Legal Services Ombudsman funding effective regulation: liability insurers as introducers should register as CMCs and pay registration fees, if they wish to introduce claimants to solicitors to support the cost of effective regulation. Referral fees: empower the regulator to require a CMC or liability insurer to justify either their referral fee structure or the fee in a particular case, in response to a complaint Whilst much of the debate over recent months has been focussed on the Jackson proposals and the Legal Aid, Sentencing and Punishment of Offenders Bill, (LASPO Bill), the real complaints of the public remain largely untouched by them. The Government reforms will have no impact whatsoever on the issue of data protection and cold calling, inducement advertising, insurance fraud or excessive referral fees (though this latter point is more of an obsession for the insurance industry than the public). Whilst they will deny access to justice to many thousands of people, way beyond the world of personal injury as whole, they barely touch the perceived problems raised by road accident cases which have been the biggest source of concern. 104

105 19.3 It is not in the interests of any legitimate CMC, solicitor or claimant to see such abuses continue and we wish to contribute constructively to the debate as to how these problems can be ameliorated. CMCs are in the main sophisticated organisations, providing a range of services beyond mere marketing. They are large employers with staff deploying a range of skills. The legitimate, well-run CMCs make a major financial contribution to the regulation of the industry through their registration fees and should be seen as legitimate businesses Unfortunately there is a rogue element who avoid regulation and are responsible for a very high proportion of the perceived problems: very small CMCs who ignore their obligations under the rules; and unregulated cowboys and marketing companies who farm claims without registering as CMCs with the regulator at all. It is unfair to tar with the same brush those properly managed and regulated CMCs, as they do not approve of these operators bad practices any more than do the industry s severest critics For example, with issues such as unsolicited SMS texting (which unfortunately is common place) it is the perception that CMCs are doing this, when in fact it is unregulated marketing companies (who are not CMCs) who are looking to cash in. All serious CMCs are very much against the practice (except where the clamant has opted in) and it hurts, not helps them. Indeed at the last RCG meeting, they recognised that CMCs were not responsible Any proposals for reform need to recognise the realities of what is happening and ensure that changes are targeted at the real abuses and abusers of the system, not those who operate legitimately Cold calling is clearly not permitted under the Conduct of Authorised Persons Rules. (client specific rule 4) which regulate CMCs, nor under the solicitors Code of Conduct (rule 7.03(1)), though the FSA rules for insurers are far less rigid. If this is happening, then it is an issue for better regulatory enforcement, rather than for a change in the rules, except for the FSA As unsolicited SMS texting is not done by the regulated organisations but by uncontrolled marketing companies and indeed rogue individuals, merely banning it will be largely ineffective. Attempting to police a ban through regulators will be expensive, time consuming and useless. The best response to SMS texting needs mobile and landline network co-operation as the only viable solution, with powers to disconnect offending numbers, as they do with prostitutes phone card advertising Perceptions of cold calling are often not about cold calling as such, though it may seem that way to the claimant. The claimant (well before becoming a claimant) may have given a general consent for data sharing and for unsolicited contact without realising it, for example when taking out a motor insurance policy. General consent to data sharing meant to prevent fraud or misrepresentation when 105

106 initiating or renewing a policy has in practice become taken by the insurers to authorise much wider data sharing by the claimant s own insurer, than the claimant probably intended Data may also have been shared without consent, as seems to be the case behind press coverage of examples of the police, medical practitioners or hospitals and vehicle recovery companies passing on claimant s details. This again is a regulatory matter, this time for the Information Commissioner, who should adopt a much more aggressive and proactive approach to enforcement One such form of contact or introduction which can be perceived as cold calling is third party capture, through which insurers go direct to the claimant to attempt to effect an early settlement without the claimant having the benefit of lawyers or proper medical evidence. This often results in significant and unfair (to the claimant) under settlement, as AJAG s main briefing clearly demonstrates. 19,12 As cold calling is clearly forbidden for CMCs and solicitors, (but not entirely for insurers) this is a challenge for the regulators, as the rules could not be clearer, for CMCs or solicitors. The grey area of 3 rd party capture and other approaches via the insurers needs regulation through better and clearer rules and enforcement from the FSA, to ensure consumer protection both against unwelcome approaches and against the risk of undersettlement. So far they have been unwilling to intervene Approaches to potential claimants should only be permitted in response to contact initiated by the claimant for that specific accident by requiring the claimant s clear authority specifically only for the accident in question. A speculative generic authority, perhaps given months or years before the accident, should not be regarded as adequate. There should be no approach to the claimant permitted without either: a) such a specific authority relating to the accident in question, preferably in writing; or b) in response to direct contact from the claimant seeking assistance, the details of which are properly recorded Some forms of advertising have attracted criticism, particularly if thought to be offering inducements to claimants to bring forward claims. We agree that financial inducements just to make a claim are inappropriate and should not be permitted by the ASA code. Tastefulness or otherwise is a matter for the beholder (and ultimately the effectiveness of the advertisement in attracting potential claimant attention) especially as CMCs and solicitors cannot ever hope to match the advertising spends of the motor liability insurers, but all advertisements have to comply with the principles of the code in being legal, decent, honest and truthful. 106

107 19.15 We consider the problem of alleged fraud at paragraphs 9.17 to 9.22 above. The overwhelming majority of claimants are entirely genuine and should not be castigated for making a legitimate claim. There is no advantage to CMC, solicitor or ATE insurer to pursue an illegitimate case. Cash for crash and phantom passengers are criminal offences and perpetrators should be prosecuted. But while the insurers routinely allege fraud to soften up claimants, the proven number of cases is comparatively small The latest criticism of victims is aimed at those who suffer whiplash. This is a real and painful condition but the insurance industry seem to be arguing that it does not exist. Under our legal system, in every case it is for the claimant to prove the injury and loss, not for the defendant or his insurer to disprove it. If the claimant cannot prove on the balance of probabilities he has the injury, then he does not win the case Liability insurers should do more to assist CMCs, claimant solicitors and ATE insurers in combating fraud. When they allege fraud, the liability insurers should be required to produce the evidence to support their allegations at the earliest opportunity. This would help them and all others involved to avoid running up unnecessary and wholly avoidable costs and giving credibility to a fraudulent case Credit hire and body shop claims are one insurer s scams as against another. Whilst on the face of it, it may appear counter intuitive, it can be explained by market economics. If one insurer can increase another insurer s liabilities, then that will have an upward pressure on the second insurers premium quotes, giving the first insurer a market advantage, if that insurer can inflate its competitors compensation bill more than those competitors can inflate the first insurer s claims bill. Of course, one claim in itself would have little effect but the cumulative impact of large numbers does The most obvious two examples of this are credit hire and body shops. There is nothing in it for the lawyer or CMC to inflate the claim as the work is the same, irrespective of these elements value. There is little in it for the claimant, though the insurance industry itself estimates that credit hire alone adds 44 to the cost of each premium Under the Credit Hire merry-go-round, the object is to beat the other insurer to the claimant. The law quite rightly says that if you have an accident that is the fault of another, you are entitled to have the damage to your car repaired, and while it is off the road, (or until written off) you are entitled to claim for the cost of a replacement If the liability insurer offers the claimant a vehicle, assuming it is roughly equivalent to the damaged car, then the claimant is expected to take it (if he wants a temporary replacement). However, the claimant s own insurer, when notifed of 107

108 the claim, now offer to organise a hire car (banking a referral fee in the process) and that cost is then claimed from the liability insurer. As soon as possible after an accident, perhaps within hours, a credit hire company becomes involved. The deal provides for a replacement vehicle, often of a higher standard than the vehicle that is off the road, at ridiculously high daily rates known as the spot rate (the rates are actually set under an agreement by the ABI itself, known as the GTA agreement ) the cost of which is then included in the claim. Sometimes the clamant doesn t even want a replacement, but is browbeaten into taking one. Hiring periods often start on a Friday, to straddle a weekend which pushes the period up. The costs mount up rapidly, especially if the liability insurer takes its time to inspect the vehicle and authorise repairs or write it off. In the end, it becomes cheaper to write off what may be a perfectly serviceable car of comparatively high value than risk running up hire bills. To demonstrate the impact of this, appendix 12 shows a comparison between the ABI agreement and the rates available to the public wishing to hire a car through the internet The body shop scam works through the claimant s insurer s sweetheart deal with a body shop (in return for a referral fee) The insurer quickly refers the claimant to their preferred vehicle repairer, who produces a repair estimate that is out of all proportion to the damage: replacing a bumper that only needs a touch up of paint, for example. Linked to the car hire s ever increasing bill, the liability insurer is faced with Hobson s choice and the excessive high value repair is carried out. Again, there is nothing in it for the lawyer to inflate the claim as the work is the same, irrespective of the repair cost. This is compounded by the insurers requirements that certain products, such as a particular brand of paint, are used in the repair. There is no benefit to lawyer or CMC in this practice. CMCs get no referral fees from bodyshops. Referrals are mainly through the claimant s own insurer who beat everyone to the draw These ancillary services are vital sources of income to insurers (for example, ancillary income including referral fees made up 54% of Admiral's 2011 first half year UK motor profit) not only costing the claimant as part of the insurance premium but also adding significantly to the claim s overall bill to be met by the liability insurer. As they are in it together, the insurers, car hirers, and body shops all profit and the loser is the motorist in his inflated premium The ABI s sweetheart anti-competitive deal with the credit hirers as to the charging rates must be ended. The primary obligation to provide a replacement vehicle should lie with the liability insurer. Bodyshops should be manufacturer approved and industry accredited, not just insurer approved. There should be a protocol timetable for maximum default hiring periods and repairs at a fair cost Any referral fees for both credit hire and bodyshop repairs should be replaced with a reasonable, fixed price, transparent commission, either agreed within 108

109 the industry or imposed by the court. In any event, the proposals above would have a market forces effect in pushing down such payments. The court, as a failsafe, should be empowered to go behind any claim to enquire into the reasonableness of any charges. These proposals preserve the claimant s right to a replacement vehicle and to have his car repaired, but do so at a reasonable cost and in a fair and balanced way, with appropriate safeguards against exploitation by any party involved There is a strong case to consolidate the diverse bodies involved in referral fee regulation, to ensure consistency and effective enforcement. As indicated in section 16, regulation of the existing rules has not been effective, which has contributed to the perceived problems. One option would be to transfer responsibility for regulation across the industry of all matters relating to client introductions and referral fees to a single regulator. A possibility for this role could be the Legal Services Ombudsman: not only for CMCs, but also for solicitors and insurers when acting as referral agencies. This would achieve effective end to end consistency in regulation and enforcement, presently absent The liability insurance industry, which is the most vocal critic of CMCs, accounts for 22% of road accident claimant introductions to solicitors. Indeed the high figures they quote as examples of referral fees are actually those charged by insurers themselves to their own panel firms, rather than those raised by CMCs, who are in a more competitive place in the market. Data transfer issues are also primarily due to insurers sharing information. The liability insurers are thus a major contributor to the problem, whilst being the most lightly regulated introducer When adopting the role of a de facto CMC in this way, liability insurers should face the same regulatory regime as CMCs. Liability insurers should therefore be expected to register as CMCs, if they wish to introduce claimants to solicitors for a referral fee. CMCs, especially the larger ones, pay substantial fees to meet the cost of regulation when registering with the regulator. Liability insurers should pay registration fees similar to CMCs, to support the cost of effective regulation Critics of the referral fee system infer that the profit margin is very large, but this is not the case. The margins are tight. Critics overlook the services that referral fees pay for, including not just the design and commissioning of advertising in the media and on line, but also the administration of call centres, including screening of claims; and the maintenance of law firm panels. Referral fees are the most cost effective way of providing these services. However, one way to address any concerns would be to empower the regulator to require a CMC or liability insurer to justify either their fee structure or the fee in a particular case, in response to a complaint. 109

110 APPENDIX 1: CONSUMER SURVEY AJAG Public Opinion Survey Results Source: Opinion Health, UK General Population Online Survey, n=1,002 Only just over 50% would claim if someone else was to blame for an accident at work Extremelylikely Extremelyunlikely5 At work 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 30% 22% 23% 12% 14% As the result of a road accident 54% 23% 12% 6% 5% Due to bad medical treatment 46% 25% 17% 6% 6% Because of a defect in a building open to the public 33% 27% 25% 10% 5% Because the council had not maintained your area properly 31% 26% 26% 10% 7% Q.2 On a scale of 1 to 5 (where 1 is extremely likely and 5 is extremely unlikely), how likely would you be to make a compensation claim if you were injured or became ill because of someone else s fault Source: Opinion Health, UK General Population Online Survey, n=1,

111 Legal costs and low level of compensation biggest deterrents to claiming Extremelylikely Extremelyunlikely5 Concern over the legal costs 0% 20% 40% 60% 80% 100% 44% 28% 16% 6% 7% Fear of lawyers and the legal system 14% 24% 24% 19% 20% Fear of victimisation 15% 20% 26% 19% 20% Level of compensation not worth the hassle 26% 28% 24% 15% 7% Criticism from friends or relations 9% 12% 21% 21% 38% Other On a scale of 1 to 5 (where 1 is most likely to affect your decision and 5 least likely to affect your decision), which of the following factors would make it less likely that you would bring a claim? Source: Opinion Health, UK General Population Online Survey, n=1,002 Overwhelmingly defendant s insurance should bear the costs of litigation 100% 80% 86% 60% 40% 20% 0% 1% 4% Me (the claimant) My insurance company The defendant^s insurance company The costs should be shared between me and the defendant^s in 4% 5% Don't know Q.5 If you made a compensation claim and won, who do you think should pay the legal costs? Source: Opinion Health, UK General Population Online Survey, n=1,

112 77% would not start a claim even if costs risk was very small 15% 5% 2% 2% 77% Â 1,500 Â 5,000 Â 15,000 Â 50,000 No, I would not start the claim If there was a risk, even if it was very small, that you could end up being expected to pay the defendant s legal costs if you lost, would you still start a claim if those costs were Source: Opinion Health, UK General Population Online Survey, n=1,

113 Only 19% do not agree with no win, no fee Agreestrongly5 31% 4 22% 3 27% 2 11% Disagreestrongly1 8% 0% 10% 20% 30% 40% 50% On a scale of 1 to 5 where 5 is agree strongly, do you think no win, no fee are important to access to justice for ordinary people and should be retained in their current form? Source: Opinion Health, UK General Population Online Survey, n=1,002 Only 20% thinks Government should make it harder to get compensation due to someone else negligence 0% 20% 40% 60% 80% 100% Yes 20% No 58% Don^t know 21% Do you think the Government should be making it more difficult for people to claim compensation as a result of suffering injury or illness as a result of someone else s carelessness / negligence? Source: Opinion Health, UK General Population Online Survey, n=1,

114 64% thinks cuts should not include reducing compensation due to NHS negligence 0% 20% 40% 60% 80% 100% Yes 19% No 64% Don^t know 17% Should the Government cuts extend to not paying or reduce compensation for injuries caused by NHS negligence? Source: Opinion Health, UK General Population Online Survey, n=1,002 APPENDIX 2 : CREDIT HIRE MEANS TEST ENQUIRIES QUESTIONS To: The CHO members CIS and Parabis credit hire arrangements ( ) A member has been in touch as follows: We have observed that CIS have started to outsource some of their claims work to Parabis Limited and outlined below is a typical questionnaire we have received. Is this something other CHO s have received? Is there anything that can be done, bearing in mind this indicates the claim is being taken outside of the GTA. Questions: 114

115 Your client will be required to demonstrate that he was impecunious at the time of hiring, in order to recover credit hire rates. If he fails to do so by disclosing bank/building/society/credit card statements, then he will be entitled to spot rates only as per Lord Nichols judgment in Lagden v O'Connor. We shall bring our correspondence to the attention of the Court. Please ask Mr xxxx to confirm the following: Why couldn't they have hired on spot rates? Are you pleading impecuniosity? If so, please confirm how they intend to settle the outstanding hire Kindly, let us have copies of their bank/building/society/credit card statements 3 months pre and post period of hire. What overdraft facilities does your client have? Please confirm why your client did not hire elsewhere. Please confirm whether the hirer obtained alternative quotes from other credit and/ or spot hire companies? If so, who from and what were they? Please confirm hirer s VAT status. Please confirm how many vehicles your client owns, and why they needed a replacement vehicle? Did your client have funds available to replace the vehicle if it was a total loss? If so, why did you not do so? What is the nature of the hirer s job? Please confirm the employer s name, address and contact details. Is a Company vehicle supplied? Is a parking space supplied? Documentation to prove the hirer s daily earnings, we require signed statement from employer, or a letter from an Accountant detailing average daily income/profit for 3-month period pre-accident and during time of hire. Please note that we are unable to consider this claim further until we have received full and detailed answers to the above together with the documentation requested, and a signed statement of truth from your client. Should your client refuse to answer what we have raised and proceeds via litigation, we will issue a formal part 18 request and will not grant any extension of time. We shall also request that the Court stays the claim, pending satisfactory replies There seems to be the basis for a complaint against the CIS but it would strengthen any complaint if there was evidence from a number of GTA first tier subscribers. Any information to assist welcome. 115

116 Regards Tony Tony Baker Director General, The CHO APPENDIX 3: INSURER CORRESPONDENCE, ZENITH INSURANCE 116

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126 APPENDIX 4: INSURER CORRESPONDENCE Example of unfair pressure on claimants resulting in increased costs 126

127 APPENDIX 5: CASE STUDIES Index to AJAG s case examples Success fees and access to justice: Appendix1, cases 1,6,9,10,11,12,13,14,17,19,20,23,25,26,28,33,35,36,37,39,40,53,54 Prohibitive disbursements without ATE: Appendix 1,cases 2,3,4,7,8,18,28,29,30,31,32,33,34,35 (MoJ case), 37,39,40 Prohibitive disbursements, clinical negligence 43,44,45,46,47,48,49,50,51,52: Prohibitive disbursements, clinical negligence, currently legal aid: 41,42,45 ATE needed to support claim: 15,16,17,19,23,24,25,26,27,28,30,32,33,34,35,36,39,40,52,60 Claimant worse off: Appendix 2 cases 21,22,23,29,39,41,43,44,45,46,47,48,49,50,51,52,53,54,55,56,57,58,59,60 Part 36: 21 Causation: 19,20 QOCS and means testing: Appendix 3, cases 31,38 Defendants conduct: Appendices 3 and 5, cases 2,3,4,5,6,7,8,14,21,32,35 (MoJ case) 127

128 Case study number: 1/49 Issue in case: Case would not have proceeded but for CFA Name of Solicitors: Davis Simmonds & Donaghey Solicitors Name of Clients: Martyn and Christine Harrison We are the parents of Sophie Louise Harrison who tragically died as a result of a road traffic accident on the 4th April She died two days later from her injuries after we had to agree to turn off her life support machines. She died as a result of the negligence of the driver of the vehicle in which our daughter was travelling. Sophie and three friends were on a night out. They were waiting for transport when she and her friends accepted a lift from a male acquaintance who had stopped. Sophie and her three friends accepted the lift and all got into the rear seat of the vehicle and he drove towards Canterbury. The driver knew that there were only supposed to be three passengers in the back but he allowed four so there was not enough seats or seatbelts for all passengers. Unfortunately for Sophie this was a tragic decision. We have no confirmation of why Sophie took off the middle seatbelt which she was sharing with another girl on the 8 mile journey. The driver lost control on a small roundabout doing a speed of between 43 and 54 mph and turned the vehicle over. It is our belief that Sophie was thrown partially out of vehicle, through the sun roof. As a result of this dreadful accident, Sophie was rushed to a London Hospital. We were notified by the Police who then took us by car all the way to London. This in itself was a traumatic experience as the two young officers had no idea of the location of the Hospital and became lost, having to stop and ask directions on three separate occasions. This resulted in a much delayed arrival at the Hospital by which time we were inconsolable. When we arrived the position was very serious. Sophie was on life support machines and we remained at the Hospital for the next two days. We were advised on the following day to allow the medical staff to turn off the machines. They said that she would die within a few hours. In fact she nearly lasted a full day before she actually died. This was the hardest decision anyone could ever made and the most traumatic for us both and our son and all the family. We had to borrow the money to cover the cost of the funeral from Sophie's grandparents as we did not have the money ourselves. This got even worse when we decided to seek legal advice about this terrible episode. We made a number of telephone calls and it soon became clear that Lawyers were not really interested in helping us because Sophie was 18 years and one month old. This meant that as she was over 18 were not entitled to bereavement damages. No lawyer seemed to want to help and many said that they only acted for the defendant. Had Sophie been four weeks younger we would have been entitled to a bereavement payment of up to 12,000 as she would still 128

129 have been a child in the eyes of the law. As Sophie was still at school as a 6th Form pupil at the time of the accident and we were still in receipt of Child Benefit for her it is extremely difficult to understand why we were not entitled to bereavement damages for a child who was totally dependent on us. We finally contacted Robert Harvey of Davis Simmonds & Donaghey, Solicitors, in Sittingbourne. He agreed to take on the matter under the terms of a Conditional Fee Agreement (no win no fee) arrangement. He had already advised us that of course we were not entitled to bereavement damages because Sophie was over the age of 18. He expressed the view that the law should be changed because it is so unfair. However, he took on our case on the basis that he would try and recover the funeral costs and some damages for Sophie's pain and suffering because she survived for nearly two days following the accident. He had also informed us that we were not entitled to any damages for psychological injuries to us as parents. We had to sit and watch Sophie in this state, as did our son, and we all then had to make the decision to turn off the machines. The psychological damage to all of us was tremendous. These memories will stay with us forever and we are all still suffering now. However, Mr Harvey advised us that the law also did not provide for any damages in this respect. Mr Harvey, having taken on the case on a Conditional Fee basis and eventually after some persistence, persuaded the Insurers to pay for the funeral cost and a small amount of damages for pain and suffering that Sophie will have undoubtedly experienced. Although she was alleged to be in a vegetative state for effectively a couple of days, there was some reaction and Mr Harvey persuaded the Insurance Company that we were entitled to some compensation. As a result of his efforts we recovered the funeral costs of 3151 and for pain, suffering and loss of amenity he recovered a further These amounts were paid after a deduction of 25% in respect of Sophie not wearing a seatbelt at the time of the accident. The driver pleaded guilty to causing death by dangerous driving and was sentenced to two years imprisonment in a Young Offenders Institution. He subsequently appealed against this sentence which was reduced to 15 months on the ground that he had suffered a psychological injury. He in fact only served a total of seven and a half months before his release. It is our understanding that if the proposed changes put forward by Lord Justice Jackson take place, then it will make it harder for victims such as ourselves to recover anything. If people in our position have to pay Solicitors costs out of damages, we would not have even recovered the funeral costs. The law should be concentrating on the rights of innocent victims of accidents. They should be introducing bereavement damages for the family of anyone who dies through no fault of their own, no matter what age. They should also be introducing psychological damages for people such as ourselves who were actually watching our daughter slowly die over a period of two days and then having to make the decision to turn off the life support machines. We have been destroyed 129

130 psychologically and financially, Mrs Harrison having been unable to return to work due to severe depression, anxiety and stress. Mr Harrison has been forced to return to work in order to meet mortgage payments and general living expenses. He is a broken man. This is what Lord Justice Jackson should be concentrating on and support victims or their families. The net sum of 4750 included the funeral costs as we have stated. The costs paid to Mr Harvey were on a fixed scale and came to If that amount had to be taken out of the derisory sum that we received, then we still would not have had enough for Sophie's funeral. However, for families such as ours, not to receive any bereavement damages and not to be able to claim psychiatric illnesses as a result of such a tragedy is wrong. The law should be concentrating on protecting the victims and not denying them access to Justice. Had Mr Harvey not taken on this matter on a Conditional Fee basis, we could not have received any help. Take that away and people like us will have nothing. 130

131 Case study number: 2/60 Issue in case: Defendant s insurers conduct increasing costs Claim not sustainable without ATE and success fee Name of Solicitors: Wheeler Law Name of claimant : Miss H The claimant was injured in a hit and run accident. The defendant s registration was noted and it was established the car was a hire car. The insurers for the hire car refused to deal with the claim and passed it to the hirer s insurers. They in turn denied liability on the basis that the claimant could not identify the driver of the offending car (despite the registration of the car being an exact match of the car that matched the recorded registration). They claimed she could not prove who had caused the accident but admitted they had not been able to speak to the hirer to find out if he actually denied involvement. They did not pay out for 3 years but eventually settled when court proceedings were issued. The claim settled for 2500 global sum in damages. The costs incurred trying to track down the driver and dealing with the insurers were almost double that amount, because the insurers refused point blank to deal with the claim. The claim was supported by a CFA with success fee of 12.5% / 100% and ATE (premium 336). The overall costs recovered were and disbursements of

132 Case study number: 3/59 Issue in case: High costs due to defence tactics High disbursements not funded under QOCS Name of Solicitors: Wheeler Law Name of claimant : Ms S The claimant was a child passenger in a car in a RTA. The defendant denied that the claimant was even in the car with her parents (their other two children were, so it was inconceivable they left a 6 year old home alone, but that was the defence case). They also alleged that even if she had been in the car she could not have been injured, as it was a low velocity impact. The case settled a matter of weeks before the trial for 5000 mainly general damages, but not until after the judge refused to approve settlement until more medical evidence was obtained and the defendants increased the offer. The case was supported by a CFA with success fee of 12.5%/100% at trial and ATE (premium ). Costs were 4500 and disbursements 3,

133 Case study number: 4/61 Issue in case: High costs due to defendant s conduct of the case QOCS would not cover disbursement issue Name of Solicitors: Wheeler Law Name of Claimant: Miss K The claimant was injured whilst travelling on a bus. The bus driver hit an overhanging tree. He had been recorded on CCTV earlier driving the bus whilst reading a news paper on his lap). Liability was denied. The insurers alleged the tree had spontaneously fallen over onto the bus. One lady had been killed in the accident. The claim eventually settled for 2900 The insurers spent almost as much money on a report from a tree expert as they did on the claimant s damages. For the insurers it was always worth the spend on the scientific report, because they could spread it across several passenger claims, including the fatal claim. Under the proposed system the claimant could never afford her own expert evidence. The claim was funded by a CFA with a success fee of 12.5 % and ATE (premium ). Costs were 5741 and disbursements , due to the defendant s conduct of the case. 133

134 Case study number: 5/23 Issue in case: Risks of third party capture through unrepresented claimant Name of Solicitors: Tollers Solicitor s reference number: Kingman Name of Claimant: Emma Kingman The claimant had an RTA and her insurance company referred her to their solicitors. They dealt with the case using a report from a GP and not having obtained any GP notes. They said her case was worth around 3,000. The claimant sought a second opinion. The case settled for 19,500 after obtaining proper evidence. 134

135 Case study number: 6/32 Issues in case: Case would not be pursued without recoverable success fee Costs high due to defendant s conduct in late offer Name of Solicitors: Gill Akaster LLP Name of claimant : anon The 4 year old claimant had an accident at school when he hit an unpadded pillar with a sharp corner in the dining hall. He was left with a scar to the forehead. Liability was disputed to shortly before trial. General damages were 8,500 Costs were 13,000 including 50% success fee, due to the late settlement of the claim. The claim could not have been run if there was no recoverable success fee or ATE. 135

136 Case study number: 7/6 Issues in case: Need for ATE QOCS no substitute as claimant on own costs risk Unreasonable conduct of defendants, with late settlement Name of Solicitors/ATE: Amtrust Europe Legal Solicitor/ATE reference number: Policy Number Name of claimant: anon The accident occurred in August The claimant had suffered a broken leg in a fall. He was provided with crutches that had not been checked. Whilst using the crutches the pin broke causing further significant injuries. Liability was denied immediately, proceedings were commenced in August 2005 and settlement finally achieved in April 2010 in the sum of 375,000. The defendant Primary Care Trust refused to accept liability until the very end when the case settled without admission. This case would not have proceeded without ATE insurance. In this particular case top up cover was required in addition to the initial premium of 1,312 and, has been recovered in the sum of 30,375. Top up cover would not have been needed if the defendant had accepted responsibility to pay damages at an earlier stage. The costs risks facing the claimant would not have been met by QOCS in the event of the case failing and were such that the case would not have gone on, in the absence of ATE to cover the claimants own costs risks. 136

137 Case study number: 8/7 Issues in case: Need for ATE to cover costs risk ATE case screening QOCS would leave claimant on own costs risk Unreasonable behaviour of defendants increasing costs Name of Solicitors: Amtrust Europe Legal Solicitors reference number: Policy Number TPC0001RTA Name of claimant: anon The claimant was injured in an RTA. She had hit the rear of the vehicle in front of her which had braked heavily because an articulated lorry had swerved into the path of the vehicle in front of the claimant. It was always accepted that the claimant was contributorily negligent in not keeping a sufficient braking distance but the defendant refused to make any concession and denied liability. An ATE insurance policy application was initially rejected but following a meeting with the solicitor concerned, was issued. The defendant was given the opportunity to settle without the ATE insurance policy being incepted but they did not. Insurance was incepted at a much reduced premium of 780 for the purpose of issue of proceedings with a total premium of 6,500 if the case was defended. The defendant filed a defence but then settled. The costs incurred in litigating could have been avoided had the defendant offered a reasonable compromise pre-litigation. The premium was questioned but ultimately paid in full. 137

138 Case study number: 9/55 Issue in case: The claim would not be viable under the Green Paper and would not be brought Name of Solicitors: Tollers Solicitor s reference number: /MB Name of Claimant: Faye Clements The claimant was injured when a delivery van to the site under the control of the defendant blocked the pavement. There was no alternative route to take and no pedestrian control. The delivery company refused to move the truck. The claimant was forced into the road and fell. The defendant has now gone into administration. and it is not yet known whether it had any valid insurance, though this now seems likely. The claim is valued at 1500 to 2000, and funded by a CFA, with a success fee of 100% and ATE. 138

139 Case study number: 10/54 Issues in case: Claim would not be pursued without recoverability due to risk Uneconomic without recoverability Name of Solicitors: Tollers Solicitor s reference number: /MB Name of Claimant: Susan Telfer The claimant suffered a dog bite injury, valued at 2,000. It was not known if the defendant had insurance until the reply to the letter of claim, because the defendant was an individual rather than a business. In fact there was a policy, but the defendant denies liability. The case is being pursued with a CFA and ATE. Without recoverability, the case would not have been pursued because of the risk of lack of insurance. 139

140 Case study number: 11/51 Issue in case: Case would not have proceeded without recoverable success fee Name of Solicitors: Tollers Solicitor s reference number: /MB Name of Claimant: John Lund A Benign Post Positional Vertigo case. The claimant was hit on the head with a large brass cap that was blown off by pressure inside a tank. It was difficult to understand how a head injury could have caused the claimant s vertigo. Counsel was also not entirely convinced it could be linked, but accepted the case because the claimant s expert confirmed the link. It was less than 1 year from limitation at that point. A response was received only 4 months prior to limitation from the claimant s consultants, but this was inadequate to enable a decision to be made on the case. The defendant denied liability on the grounds that the claimant was adequately trained and the tank was not defective. They intended to get engineering evidence which would have significantly increased the costs, as the claimant would have needed engineering evidence too. However the claim settled before this evidence was commissioned. If the causation of BPPV client was linked, damages would be at least 15,000 but if not, probably about 3,000. The case was settled on the defendant s Part 36 offer of 7,500 (a compromise deal to take into account litigation risks). Under the proposed rules the case would not have been accepted because the causation issues would not have given enough of a success fee if taken out of damages ( set at 25% (100% after litigation) to make the case financially feasible. The case was supported by ATE. 140

141 Case study number: 12/19 Issues in case: Costs risk to client would prevent claim Success fee needed due to identification of liability insurer issue Name of Solicitors: Tollers Solicitor s reference number : /AEM Name of Claimant: Keith Scott Deafness case. The claimant worked for the same company all his life until he moved to Spain as a result of stress. He was diagnosed with deafness. The claim succeeded case but the claimant certainly would not have pursued the claim if there had been costs risks to him. It was also difficult proving which of several different insurance companies were responsible for the relevant time period. The case would not have proceeded without a recoverable success fee. 141

142 Case study number: 13/30 Issue in case: Impact on claimant of non-recoverable success fee contribution Claim would not proceed without CFA success fee Name of Solicitors: Tollers Solicitor s reference number: Name of Claimant: Mrs Kamlesh Kaur Bhatti The claimant had a slip accident at a Tesco store. She slipped on water that had originated from a leaking freezer. The case could have been very difficult to prove (as they have a standard defence and documentation) so the CFA success fee was set at 85% Liability was later admitted. She lost her job due to ill health, and in consequence is now in a difficult financial situation meaning that damages would be used to pay off debts. It would be unfair to force a contribution towards the success fee. 142

143 Case study number: 14/31 Issues in case: Case would not be pursued without recoverable success fee Costs high due to defendant s conduct in late offer Name of Solicitors: Gill Akaster LLP Name of claimant: anon The claimant was crossing a road junction and tripped in a pothole. Liability was disputed to just before trial, on the grounds that the defect in the road was not an actionable defect. Damages were agreed globally at 6750 The case was supported by a CFA with success fee and ATE. It was a risky case and would not have been pursued without a success fee or ATE. Due to the late settlement costs including 60% success fee uplift amounted to 15,

144 Case study number: 15/4 Issue in case: Importance of ATE in supporting claimant in negotiations Name of Solicitor/ATE: Amtrust Europe Legal Solicitor/ATE reference number: policy number Name of claimant: Client A This was a multitrack case. The ATE premium was 325. The damages claimed were well in excess of 500,000 and towards the conclusion of the claim the defendant made an offer of 500,000. The solicitors advice was that the minimum settlement value was 525,000. In view of the 50,000 limit of ATE indemnity and the solicitors advice to reject the offer, top cover was requested. ATE top up cover was offered, the defendant so advised and reminded of the 14 day cooling off period. A revised offer of 525,000 was made and no additional premium was charged to either the insurer or the client. This case demonstrates that defendants insurers attempt to reduce their liability on the basis that the claimant cannot protect themselves but when faced with increased costs and a determined claimant with ATE protection they will settle cases on a sensible basis. 144

145 Case study number: 16/10 Issue in case: Need for ATE cover to support litigation Name of Solicitors/ATE : Amtrust Europe Legal Solicitor/ATE reference number: Policy Number Name of claimant: anon The claimant was a child at school. The class had been split into two groups, one doing IT work and the other left to its own devices in a classroom 30 metres or so away from the IT group. The teacher was on his own and had deliberately organised the lesson on this way. The children in the classroom were being rowdy but were left unsupervised for significant periods of time. One child was messing with a pencil which became embedded in the claimant s eye causing a significant eye injury. Liability was denied. Proceedings were commenced before settlement at 250,000 without admission of liability. The need for legal proceedings required top up cover and a policy was incepted on a staged basis. The case settled within the first stage and so the initial premium of was payable in addition to a further 7,

146 Case study number: 17/11 Issue in case: Need for ATE and success fee to support complex case Name of Solicitors:, Pannone Name of Claimant: Mrs Patricia Swift The claimant suffered a hand injury when she was trying to close a security door at the casino where she worked as customers approached the door. The door should have closed on its own but had been sticking and not closing, and repairs had not been effected. There was no handle to pull it closed. The injury meant she cannot deal chips so her ability to work as a croupier has been compromised, with her loss pleaded at over 150,000. The claimant has no other qualifications. Liability was admitted after proceedings but is still in litigation. The case was funded by ATE with success fee of 25% The solicitors would not have taken the risk of the case without success fee and ATE. 146

147 Case study number: 18/33 Issue in case: ATE needed to cover disbursements Name of Solicitors: Khan and Co Solicitor s reference number: ABKIMEL-EAO Name of claimant: anon The claimant works for a large property investment company. The company was managed by a person purporting to be a surveyor. To maintain the portfolio it employed a team of builders including the claimant (whose previous job was a jeweller). When staff asked for safety gear, the stock answer was a sarcastic "Mind you don't slip". Most of the builders had 3 or 4 accidents a year ranging in severity but out of fear of losing their job did not complain or claim. The claimant had at least 3 accidents for which he did not claim. The claimant was asked to dig and locate a water leak and as he did so his kango struck 11KW electrical cables causing him severe burns. He had to be air-lifted to hospital where he stayed for 11 days with the family being advised for the first 2 or 3 days that he would die. Liability has been admitted. The claim is being supported by ATE and success fee CFA. 147

148 Case study number: 19/27 Issue in case: Need for ATE and success fee Complex causation, for which liability admission little use for costs Name of Solicitors: Tollers Solicitor s reference number: Name of claimant: Anon The claimant tripped over a cable for temporary traffic lights when walking along the pavement. The claimant banged her head and also sustained an injury to her chest and knee. Liability has been admitted but subject to causation. Causation is complex. The case is multi-track case, with two medical disciplines and is being litigated. The orthopaedic surgeon recommended a psychiatric examination. The psychiatrist s opinion is that the claimant suffered from post concussion syndrome and recommended CBT with a psychotherapist. The defendant s solicitors dispute that the post concussion syndrome is connected with the accident, as the claimant has a history of traumatic events. The claimant is Somalian. She fled from Somalia in 2001 as a refugee, leaving her family and children behind. She has not been in contact with them since and does not know if they are still alive. The claimant speaks poor English so needs an interpreter for appointments or medical treatment. Given the language barrier, with no ATE insurance to cover disbursements the claimant would not have pursued the claim. The success fee is 100%. 148

149 Case study number: 20/28 Issue in case: ATE cover needed for causation issue High success fee needed for difficult claim Name of Solicitors: Tollers Solicitor s reference number: Pyle Name of Claimant: Gillian Pyle The claimant suffered an RSI injury to her wrist through excessive workload repetitive activities at work. She had suffered RSI in the same wrist several years ago. Her employers paid for treatment at the time so she did not pursue a claim until the second occurrence four years later. Her employers did not provide her with the assistance they promised after the first occurrence. Liability has been admitted subject to causation and we are currently obtaining medical evidence. This case would be too risky to take on without ATE insurance and a success fee of 100%. 149

150 Case study number: 21/20 Issue in case: Importance of ATE protection after part 36 offer Claimant worse off under Green Paper Problem of 10% G.D. uplift with global offer Name of Solicitors: Tollers Solicitor s reference number: /NC Name of Claimant: anon. The claimant was involved in a serious multiple car accident at around 1.30 am on the M4 the road was in total darkness. The defendant s HGV collided with a third party HGV which caused the third party vehicle to jackknife across all the lanes on the M4. The claimant was driving in his coach and as there were no lights on the side of the third party lorry, he failed to see it in time to stop and collided. The claimant sustained serious injuries. He could not recall the accident circumstances and had to rely upon what he was told by the police. Even though the defendant was prosecuted for careless driving the claim was fiercely contested, The defendant made an early 20% / 80% liability offer in the claimant s favour, with a global sum of 37,500. Counsel s advice was sought and medical reports were obtained under ATE. The case was litigated and a part 36 made by the claimant of 58,472. Towards the end of the time for complying with directions (which had not been completed) a counter offer was made by the defendants of 47,500 with a deduction of 19% contributory negligence. This is an offer which would have probably been accepted by the claimant had he not been supported by a CFA and ATE by the insurers, as he would not have dared to risk losing 12.5% of the costs. The counter offer was rejected by the claimant as he was safe from costs and he eventually settled at 47,500 on a full liability basis with no element of contributory negligence. This was acceptable to the claimant on the basis that he did not wish to have any element of contributory negligence due to the potential for other people to make claims against him arising out of the same accident. If the claimant had had to pay an ATE premium and success fee from his compensation his damages would have been significantly reduced. It was also a global offer, so difficult to work out a 10% uplift, if that were to be in force. 150

151 Case study number: 22/16 Issue in case: Need for success fee and ATE Claimant worse off under proposed system Name of Solicitors: Pannone Solicitors reference number: Name of claimant: Mr. David Tyrell The claimant tripped over a defective paving slab, suffering fractured ribs, muscle damage to his left hand and tissue damage to his face. Liability was denied throughout by the Council, relying on a section 58 defence. The claim was successful at trial and the claimant was awarded 5, Including general damages of 5,000. The case was supported by ATE and a success fee. The solicitors would not have taken the risk to take the case to trial, as the prospects were 50/50, under the proposed system, a 10% increase in general damages would not have made up for a success fee out of the damages. 151

152 Case study number: 23/17 Issue in case: Need for success fee and ATE Claimant worse off under proposed system Name of Solicitors: Pannone Name of claimant: Mr. Alistair Lamble The claimant was employed as a drayman and suffered injuries to his shoulder whilst making a delivery due to stiff cellar doors. Liability was denied throughout. The claim was successful at trial. The claimant was awarded 2150 inclusive of interest and 100 in expenses. The case was funded by ATE and a success fee of 100%, as the case went to trial. The solicitors would not have taken the risk of taking the case to trial under the proposed system as the prospects were 50/50. A 10% increase in general damages would not have made up for a success fee out of damages. 152

153 Case study number: 24/15 Issue in case: Need for ATE Name of Solicitors: Pannone Solicitors reference number: Name of claimant : a minor; Litigation Friend: Mrs L Greenwood (mother) The claimant was walking through a covered tunnel in a theme park, slipped on water and broke his arm. Liability is now admitted and updated medical evidence is awaited. This was a risky case to take on because there was no evidence where the water had come from and how long it had been there, so there was no prima facie evidence of negligence to start with. The case was funded with ATE. Under the proposed system, the solicitors would not have taken the claim on due to litigation risk. 153

154 Case study number: 25/13 Issue in case: Need for ATE and success fee to support complex case Name of Solicitors: Pannone Name of claimant: anon The claimant tripped over a metal bolt protruding from the pavement as she was about to get on the bus. Liability was denied by the Council and also JC Decaux who install the bus shelters. This is a difficult case to run to trial but just better than 50% chance of success on evidence available. The case is being funded by ATE. The solicitors would not have taken the claim under the proposed system due to litigation risk. 154

155 Case study number: 26/14 Issues in case: Need for success fee and ATE Claimant unable to resolve case alone Name of Solicitors: Pannone Name of Claimant : Mrs Sylvia Belcher The claimant tripped over a depression in a grass verge near her home, breaking her left humerus in the process. The case is now multi-track and awaiting obtaining occupational therapy evidence. Liability was eventually admitted. When instructions were accepted the claim was already 2.5 years old and the claimant had tried unsuccessfully complaining to the Council herself previously. The claim is supported by ATE and success fee CFA. The solicitors would not have accepted the case under the proposed system due to litigation risk. 155

156 Case study number: 27/5 Issue in case: Importance of ATE in supporting claimant in negotiations Name of Solicitor/ATE: Amtrust Europe Legal Solicitor/ATE reference number: policy number Name of claimant: Client A This was a multitrack case. The ATE premium was 325. The damages claimed were well in excess of 500,000 and towards the conclusion of the claim the defendant made an offer of 500,000. The solicitors advice was that the minimum settlement value was 525,000. In view of the 50,000 limit of ATE indemnity and the solicitors advice to reject the offer, top cover was requested. ATE top up cover was offered, the defendant so advised and reminded of the 14 day cooling off period. A revised offer of 525,000 was made and no additional premium was charged to either the insurer or the client. This case demonstrates that defendants insurers attempt to reduce their liability on the basis that claimants cannot protect themselves but when faced with increased costs and a determined claimant with ATE protection they will settle cases on a sensible basis. 156

157 Case study number: 28/25 Issues in case: High value disputed claim that would not proceed without ATE and success fee recoverable High level of disbursements that would not be funded under QOCS Name of Solicitors: Tollers Solicitor s reference number: /0001 Name of Claimant: F. This is an RTA claim, being pursued against the defendant and the MIB. The driver of the vehicle in which our client was a passenger was uninsured. The defendants are arguing that the claimant allowed himself to be carried when knowing the vehicle was uninsured. There is also a question of whether the claimant used a seatbelt. The claimant asserts that he thought the vehicle was properly insured or had no reason to suspect otherwise. Liability is in dispute and proceedings are about to be issued. The claimant suffered a brain Injury. There are 5 medical experts so far and one care report. The claim could be worth in excess of 1,000,000, with substantial disbursements so far of 8,200. Without ATE the claimant would be unable to fund disbursements and would have been unable to proceed with claim. There is a success fee of 12.5% (100% after proceedings). 157

158 Case study number: 29/26 Issue in case: Prohibitive cost of disbursements would not be met by QOCS Need for ATE Claimant significantly worse off under Green Paper Name of Solicitors: Tollers Solicitor s reference number: mcall Name of Claimant: David Stuart McCall In this accident at work, the claimant was attempting to fix an electrical cable. His hands were burnt and he had flash burns to his face. After litigation, liability was admitted at 100%. (Initially contributory negligence was alleged). The claim is worth over 1,000,000. A large proportion of the damages would be lost if the claimant had to pay the success fee of 25%. The claimant would have been unable to fund the disbursements of 5,685 to date, without the support of ATE 158

159 Case study number: 30/8 Issue in case: QOCS would have left claimant bearing own costs liability as case lost Case would not have been fought without ATE Name of Solicitors/ATE: Amtrust Europe Legal Solicitor/ATE reference number: Policy Number 906 Name of Client: anon The claimant tripped on a defect in the highway. She was walking with her children towards her home and knew the area well. The defendant fought the case to trial originally on a s58 defence, before withdrawing it and arguing causation. The claimant had fallen, hitting her head rendering her unconscious. She was found with her feet in the defect that was eventually accepted as such. One of her children ran home and alerted her partner to the incident. An ambulance arrived and the crew found the claimant unconscious. They recorded the claimant had fainted. There was no witness, other than her children, and so there is no knowledge as to what evidence their note was based on. The reference to the claimant fainting was transcribed throughout her medical records despite the claimant being unconscious when the ambulance crew arrived. The claimant was credible in her evidence stating that the cause of her fall was the defect but the case was dismissed at trial resulting in a 75,000 adverse costs order. The ATE policy provided for 50,000 indemnity which was paid. The claimant s solicitor bore the rest of the liability. 159

160 Case study number: 31/29 Issue in case: Claimant at risk of conspicuous wealth test under QOCS, and would not bring claim as a result Cost of disbursements need ATE backing Name of Solicitors: Tollers Solicitor s reference number: Name of Claimant: Mr John Thurston The claimant fell down an open manhole walking along the street sustaining injury. Liability is disputed. The accident has affected the claimant s mobility and he was unable to work. As he is self employed he suffered major financial loss and would not be able to make a claim under the Green Paper proposals. The claimant is a director of a small company and would be at risk of being seen as conspicuously wealthy and having to meet the defendants costs if unsuccessful under QOCS. In spite of this he is not in a position to fund disbursements estimated at up to 3,000. He has an ATE policy with a premium of The case has 100% success fee. 160

161 Case study number: 32/47 Issue in case: High costs risks without ATE Prohibitive level of disbursements would not be met by QOCS Name of Solicitors: Ralli Solicitors Name of Client: Miss. W, Newcastle-upon-Tyne The claimant was 17 at the time of the accident. She fell down an open lift shaft at a council-owned block of flats. The claimant had entered the lift with friends. The lift came to a stop between floors. They tried to contact the concierge through the lift intercom system but received no response. The claimant began to panic. One of her friends opened the lift doors and lowered himself onto a corridor which was a few feet below. The claimant followed but slipped underneath the lift, falling down the shaft. The injuries included 3 fractures to her vertebrae, a fractured skull and fractures to her leg, ankle and heel. She also sustained significant soft tissue and psychological injuries. There were 3 potential defendants in the case: the council, the lift maintenance company, and the company responsible for installing and servicing the intercom system. It was a difficult case, the prospects of success being assessed at 55%. Liability was denied by all 3 defendants. The case settled on the morning of the first day of a 3 day trial for 100,000. The case required considerable expert evidence, medical and non-medical. Reports were obtained from engineers relating to liability. Medical evidence was obtained from experts in several fields including orthopaedics, neurology and psychiatry. The disbursements were over 25,000. The defendants estimated costs were more than 150,000. The case was run on a conditional fee agreement basis with 100% success fee backed by an after the event insurance policy. The level of indemnity needed was such that the insurance premiums amounted to 70, If the after the event insurance policy was not available the claimant would not have been able to pursue the claim. 161

162 Case study number: 33/50 Issues in case: Case would not proceed under Green Paper due to disbursements which QOCS would not meet need for CFA success fee and ATE Name of Solicitors: Tollers Solicitor s reference number: /MB Name of Client: Helena Sheppard The claimant works as a casualty reduction officer (a speed camera operator) which involves a significantly long period of time in the back of a van (around 6 hours per day, 6 days in a row over around 4 1/2 years). The chairs in the van were not fit for purpose: they were wheeled office chairs: when parked on an incline, the operator was forced to push against gravity to keep the chair from moving away. There was a lack of space within the van and due to the cramped seating conditions the claimant developed back pain. She was told that the workplace aggravated, exacerbated, or caused the back injury, but the scan showed degenerative changes. The defendant denied liability on the grounds that the work station was not defective and no complaints were received. The claimant would not be in a position to pursue the case under the proposed rules, because of the unusual facts, the nature of the denial and expected disbursements of The claim is being funded by a CFA with a success fee of 25% (100% after expected litigation and ATE. 162

163 Case study number: 34/46 Issues in case: Prohibitive costs risks without ATE in difficult case Disbursement funding would not be met by QOCS Name of Solicitors: Ralli Solicitors Name of claimant: Mr. C, Cheshire Mr. C. was the Mayor s chauffeur and the claim was brought against the council, his employers. He was at a function being held at the defendant s premises. The layout of the room was such that space was very limited. It was whilst he was in the process of squeezing through a tight space between a chair and a table that he tripped and fell sustaining a severe fracture to his femur. The injuries prevented him from working again. Although there were clear risks in the case, Ralli took it under a Conditional Fee Agreement with standard success fee of 25% pre trial and 100% at trial. backed by an after the event insurance policy, after the claimant s previous solicitors and counsel felt the risks of losing were too high to continue to act. Liability had been strenuously denied throughout and the prospects of succeeding were assessed at no more than 55%. The case settled on the morning of trial for 35, If the claim had failed, the claimant s exposure to trial costs were in the region of 30,000. The claimant s disbursements were between 5, and 10, If the case had not been successful, liability for those disbursements would have rested with either the claimant or Ralli in the absence of ATE insurance. The claimant confirmed that had ATE insurance not been available then he would not have exposed himself to the costs risks involved in pursuing the case. 163

164 Case study number: 35/62 Issues in case Disbursements risk not funded under QOCS QOCS would not indemnify claimant against both defendants Case would not be economic given risks without ATE and success fee Name of Solicitors: Ralli Name of claimant: Mr. Chapman The claimant was a contractor working in Brixton Prison when he was assaulted by an inmate, whilst repairing a cell which had been vandalised. The MOJ denied responsibility, arguing the claimant s employer was responsible, they refused permission to obtain the prisoner s inmate record without a court order this was needed to show that they were on notice that the prisoner should not have been given any access to the claimant and had a propensity for violence. This necessitated a pre action application with 500 costs. Orthopaedic and psychological expert evidence then had to be obtained and proceedings commenced against both the MOJ and the employer. Both denied liability in their defences. At an allocation hearing, the MOJ requested the case went to the multi track and wanted their own evidence. The claimant did not qualify for fee exemption and was responsible for pre action costs, medical fees, court fees and counsel fees. The case settled for only because the claimant accepted an offer, which included all the costs of pursuing both defendants would be paid by MOJ. Under QOCS the claimant could have been required to pay the employer s costs, as he could be at risk of being vexatious for bringing the employer into the action, even though the MOJ had brought allegations against them prior to proceedings. The claimant would have lost 25% for the success fee under the proposals. The defendants intransigence led to the claim taking 4 years to resolve. The claimant would get substantially less, and given the complexity in the case without success fees and ATE, it would not have been pursued. The claimant would have been responsible for the pre-action disclosure costs. 164

165 Case study number: 36/58 Issue in case: QOCS would not cover own costs of losing case Case would not be pursued without ATE and success fee Name of Solicitors: Wheeler Law Name of Claimant: Miss O The claimant was hit by a car whilst crossing the road suffering multiple fractures leading to her losing her job, There were no witnesses and liability was denied. The claim went to trial where she lost. Without a CFA and ATE( premium) the cost of disbursements alone would have been prohibitive ( ) and the defendants recovered their own costs of Without success fees being available the claim would not have been pursued given the risks on the case. 165

166 Case study number: 37/52 Issue in case: Case would not be pursued without recoverable success fee Disbursements too high to fund, so QOCS no assistance Name of Solicitors: Tollers Solicitor s reference number: /MB Name of Client: Thomas Creighton The claimant was burned with hot molten liquid in an incident at work and has been left with a significant burn deformity on his arm The defendant employer denied liability on the grounds that the machine was not defective at time and that due to previous self-harm issues, the only possible explanation for the accident was a self-harm act. The claimant has mental health issues that caused him to previously self-harm, although he was not self-harming at time of incident. The defendants also raised credibility issues: - fraud for claiming loss of earnings as they believe the claimant was working; previous criminal convictions for dishonesty (over 10 years ago); and exaggeration, including the temperature of the liquid. This required the obtaining of documentary evidence to disprove the allegations, including reports from psychologists, the police, the GP and other agencies. What should be a straightforward claim is now out of proportion: the claimant s costs to date are 14,500, with disbursements of 14,000. The claim has a modest value of around 6,000. Amended Directions have just been filed to set the case down for trial. The original trial was adjourned due to lack of judicial time. If the claimant was liable for a success fee, this would eliminate most of the damages. The case is being supported by ATE and the success fee is 25 % (100% after litigation) 166

167 Case study number: 38/53 Issue in case: Uninsured defendant: impecuniosity of defendant could expose claimant to costs under QOCS Name of Solicitors: Tollers Solicitor s reference number: /MB Name of Claimant: Katie Louise Percival The claimant was burned as the result of a broken sunbed the defendant has no insurance. This was unknown until the letter of claim was submitted. The claim does not have a significantly high value, probably around 2,000 but she would have been unable to pursue it without ATE insurance. 167

168 Case study number: 39/48 Issues in case: Case that would not have proceeded without success fee and ATE Own disbursement risks would not have been covered by QOCS Claimant worse off: 10% GD increase offset by costs deduction Name of Solicitors: Simpson Sissons & Brooke LLP Name of Client: Mrs.PB The claimant was employed by an agency and placed in factory premises as a receptionist/security assistant. During the course of her employment, the factory owners required her to move manually large post bags which caused injury to her shoulder. Medical evidence detected a pre existing shoulder injury which had been exacerbated. Both the factory s insurers and the agency denied liability. It was apparent that the claim would not be resolved without litigation. There were arguments relating to the application of the Manual Handling Regulations, the knowledge of the employer and the factory of the claimant s pre existing shoulder injury, the duty of care of the factory to the client (given the fact that the work done was outside the claimant s job description with the agency and was carried out under the direct instruction of the factory) and causation putting quantum in issue. Prospects of success were assessed at 55%. The case settled just before the filing of listing questionnaires for 5,000. Although not set out in the settlement, this was roughly 80% general damages and 20% special damages. (a) Without success fees compensating for potential losses, it is likely that this case would not have been accepted. (b) Without ATE provision covering own disbursements it is highly likely that this case would not have been accepted. QOCS would not remedy this situation. Cost of own disbursements to trial would be prohibitive. (c) Without ATE provision covering opponent s costs this case would certainly not have been accepted. QOCS may remedy this situation but due to (b) above the case would still be rejected. (d) On a fixed fee basis it is highly likely that this case would not be accepted as it was already apparent that the defendant s position was one incapable of being overturned without significant work and subsequent litigation. (e) An increase of general damages would result in a further 400 for client but a deduction of 25% fixed success fee in EL cases to overall damages would result in damages to the client of ( 4400 generals specials 1350 success fee) an overall reduction of

169 Case study number: 40/18 Issues in case: Claimant still on costs risk in late liability admitted claim Shows need for ATE to cover disbursements QOCS would not cover Claim would not be pursued without success fee in multi track Name of Solicitors: Tollers Solicitor s reference number: /AEM Name of Claimant: Richard Harding Liability was initially denied and there were disbursements to fund of 4000 up to issue. Liability has since been agreed in this multi-track case, but the medical evidence from the psychologist/psychiatrists in the case completely differ and there is a dispute on the medical evidence with the defendant s expert. The case is proceeding to trial on quantum only basis. No part 36 offers on quantum have been made, but certainly there could be risks if any offers were received. The client would not have been able to pursue this if ATE was not in place and recoverable success fee. 169

170 Case study number: 41/63 Issues in case: Clinical negligence case funded by legal aid that would not have proceeded under new system Extensive disbursements Claimant would be worse off under proposed system Name of Solicitors: Grayston Solicitors Name of Client: anon The claimant was an elderly widow who had suffered from polio since childhood. Her pre-existing polio had caused her to have a right dropped foot. She was nevertheless mobile. She alleged that as a result of the negligent nursing care provided to her at the local hospital she sustained a fracture in her (good) left foot. As a result of her injury, she suffered deterioration in her disability and was extremely limited in terms of mobility. This had an impact on her ability to look after herself and compromised both her independence and her quality of life which she found extremely distressing. Liability was not admitted. Settlement was reached between the parties. Her legal costs were underwritten by legal aid and were recovered from the defendant and repaid to the Legal Services Commission. Under the proposed changes, the claimant would not have had the benefit of legal aid to investigate her claim. Although the allegations were straightforward, the matter of causation was complicated by her pre-existing medical history. If a CFA had been available, it is likely that a large proportion of her damages would have been eaten up by the success fee that she would be required to pay. Without ATE she would have faced extensive disbursements. It is unlikely that the claimant would have proceeded. 170

171 Case study number: 42/64 Issues in case: Legal aid funded case that would not have proceeded under proposed system Disbursement risks would not be covered by QOCS Name of Solicitors: Grayston Solicitors Name of Client: anon The claimant obtained legal aid to investigate allegations arising out of the circumstances of the medical treatment provided to him by his GP. The claimant had presented to his GP with urinary symptoms, including retention. After numerous attendances at the GP and the local hospital, some fifteen months later it was arranged for the claimant to undergo investigations, namely a cystoscopy. This revealed that the claimant had cancer of the urethra. The claimant died shortly after diagnosis and the claim was continued by his widow, who obtained a further legal aid certificate. Evidence obtained from an expert oncologist was that but for the 15 month delay in diagnosis, the deceased would have received appropriate treatment and survived. Settlement was reached between the parties. Under the proposed changes, legal aid funding would not have been available to the deceased or his widow. Cases involving delays in diagnosing cancer are often fraught with difficulties in showing that earlier intervention would have made a difference to the outcome. Without recoverable success fees and ATE premium this case would not have proceeded. The high disbursement risks would have been prohibitive to the claimant. 171

172 LINDER MYERS CALCULATIONS 1. The calculations in the following cases are based on assumptions founded on the Green Paper proposals, that : a) Legal aid funding will no longer be available for clinical negligence. b) There will be an increase of 10% on general damages. c) There will be no recoverable success fees on an inter parties basis. d) The success fee will be limited to 25% of general damages and past losses on a solicitor and client basis. e) There will be no recoverable ATE premium. The calculations are on the following assumptions:- 1. disbursement funding either through the solicitors practice or an independent loan company would be available but not including what would be commercial interest rates to be additionally deducted from claimant s damages. 2. counsels fees will be a disbursement. Barristers are unlikely to continue doing clinical negligence cases on a success fee, when there is no recoverability from the defendant and they will be sharing success fees limited to 25% with the solicitor. 3. that the ATE market remains the same. 4. the longer the case proceeds the higher the disbursements, higher the ATE premium and higher the success fees potentially will be; the longer the defendants fight cases ( irrespective of merit ) the worse off claimants will be. 172

173 Case study number: 43/36 Issues in case: Claimant worse off Disbursement funding prohibitive under QOCS, ATE needed Name of Solicitors: Linder Myers Name of claimant : Miss B In this NHSLA case the claimant suffered a severe anaesthetic brain injury during a gynaecological procedure. Liability and causation were disputed until the round table meeting. The case was settled at the round table meeting but subject to approval and prior to final listing for trial. Originally legal aid, the claim was later funded by a CFA success fee % and ATE. Damages agreed 2,470,000 Damages under the proposed system 2,485,000 Success fee deductible under proposed system 44,500 ATE premium deductible under proposed system 30,000 Shortfall in claimant s damages 74,500 Disbursement funding required 123,

174 Case study number: 44/37 Issues in case: Claimant worse off Disbursement funding prohibitive under QOCS, ATE needed Name of Solicitors: Linder Myers Name of Client: Mrs P This was a private medical treatment clinical negligence case with 2 defendants, the surgeon and the private hospital. The claimant suffered left leg compartment syndrome leading to permanent nerve damage, following a heart operation (injury by catheter initially). Liability was disputed. The claim was settled at a joint settlement meeting before exchange of expert evidence. Damages agreed 247,500 Damages under the proposed system 251,500 Less deduction for success fee 22,500 Less ATE premium 17,880 Shortfall in claimant s damages 36,380 Disbursement funding required 35,

175 Case study number: 45/38 Issues in case: Claimant worse off Disbursement funding prohibitive Case would not be pursued under proposed system Name of Solicitors: Linder Myers Name of claimants: the two minor children of the deceased (law reform claim not FAA claim) of Mr W deceased; next friend was grandparent The deceased was a PTSD victim arising out of combat exposure. Liability was disputed. The victim died from unrelated causes before the case settled. The claim was pursued by the two orphans through a grandparent. The claim was litigated and settled at the round table meeting before fixing for trial. This case would not have been accepted under the proposed system due to the risks. It was a legally aided funded case. Damages agreed 50,000 Damages under the proposed system 55,000 Less deductible success fee 13,500 Less deductible ATE 13,750 Shortfall from claimants damages 22,250 Disbursements required to fund the case 10,

176 Case study number: 46/39 Issue in case: Claimant worse off Disbursement funding prohibitive under QOCS Name of Solicitors: Linder Myers Name of claimant: Mr L, widower of Mrs L dcd. This was a NHSLA clinical negligence fatal case arising out of a failure to avoid dehydration and renal failure. Liability was disputed, but the claim settled after commencement of proceedings. The case was supported by a CFA with success fee and ATE Damages agreed 35,000 Damages under the proposed system 35,100 Less success fee 10,250 Less ATE premium 6,440 Shortfall from claimant s damages 16,410 Disbursements to fund the case 6,

177 Case study number: 47/40 Issues in case: Claimant worse off Disbursement funding prohibitive under QOCS Name of Solicitors: Linder Myers Name of claimant: Mr R; deceased was his widow. This was a NHSLA clinical negligence case involving a failure to identify haemorrhage and reverse over anticoagulation leading to death. Liability was initially in dispute but later accepted. The claim settled prior to service of the defence. The case was supported by a success fee and ATE. Damages agreed 35,000 Damages under proposed system 35,500 Less deductible success fee 8,750 ATE premium 6,440 Shortfall 14,690 Disbursements required to fund the case 5,

178 Case study number: 48/41 Issues in case: Claimant worse off Disbursement funding prohibitive under QOCS Name of Solicitors: Linder Myers Name of claimant: Mr C This was a clinical negligence claim against the MOD for failure to diagnose and treat PTSD following combat exposure. It was not recognised or treated by the MOD and became a chronic condition. Liability was disputed..the case settled at a round table meeting prior to listing for trial. The case was supported by legal aid. Damages agreed 141,000 Damages under proposed scheme 143,500 Less success fee 8,500 Less ATE premium 13,750 Shortfall 19,750 Disbursements required to fund the case 27,

179 Case study number: 49/42 Issues in case: Claimant worse off Disbursement funding prohibitive Name of Solicitors: Linder Myers Name of claimant: adult children of Mrs F deceased. This was a NHSLA clinical negligence fatal case, involving a failure to follow up CT scan showing a lung lesion leading to premature lung cancer and death. Liability was disputed, but the claim settled on service of the defence with admission. The case was supported by a success fee and ATE. Damages 40,000 Damages under proposed scheme 43,000 Less success fee reduction 10,000 Less ATE reduction 6,440 Shortfall 13,440 Disbursements required to fund the case 2,

180 Case study number: 50/43 Issues in case: Claimant worse off Disbursement funding prohibitive under QOCS Name of Solicitors: Linder Myers Name of claimant : Mrs S, widow of the deceased. This was a NHSLA clinical negligence fatal case, where the defendants failed urgently to refer the deceased for triple bypass surgery. Liability was initially disputed then admitted. The claim settled upon service of the defence with an admission. The case was supported by legal aid. Damages agreed 125,000 Damages under proposed system 125,500 Less success fee 8,750 Less ATE premium 6,440 Shortfall 14,690 Disbursements required to fund the case 3,

181 Case study number: 51/44 Issues in case: Claimant worse off Disbursement funding prohibitive under QOCS Name of Solicitors: Linder Myers Name of claimant: Mr M. This was a NHSLA clinical negligence involving failure to diagnose and treat a serious finger injury.. Liability was disputed initially, but the claim settled upon receipt of the defence. The claim was supported by legal aid. Damages agreed 35,000 Damages under proposed system 36,500 Less success fee 8,750 Less ATE premiums 6,440 Shortfall 13,750 Disbursements required to fund the case 4,

182 Case study number: 52/45 Issue in case: Claimant worse off Disbursement funding prohibitive QOCS would not cover disbursement risk, ATE required Name of Solicitors: Linder Myers Name of Client: Miss L A NHSLA case involving failure to identify a vesco-vaginal fistula. Liability was disputed. The claim settled at post protocol but pre issue. The case was funded by CFA and ATE Damages agreed 35,000 Damages under proposed scheme 36,200 Less deductible success fee 3,300 Less ATE premium 1,512 Shortfall 3,612 Disbursements to fund claim 3,

183 Case study number: 53/22 Issue in case: Client worse off under Green Paper Case probably uneconomic under Green Paper and would not be pursued Name of Solicitors: Tollers Solicitor s reference number: LXT/ Name of Claimant: Kathleen Jenkins The claimant was a passenger in a taxi. She was approaching her place of work and the taxi driver had begun to slow in preparation for stopping at the client s destination. The claimant released her seatbelt and reached forward to her handbag on the floor of the taxi, to get her purse to pay the driver. As she did so, the defendant, who was arrested by the police and prosecuted for drink driving, pulled out from a side road into the path of the correctly proceeding taxi, causing the taxi driver to brake sharply. The claimant was thrown forward from her seat and sustained facial injuries and a soft tissue injury to her knee and ongoing headaches. Liability was admitted but causation disputed on the basis that had the claimant been wearing a seatbelt, she would not have sustained any injuries. The claimant s solicitors proposed that a 25% reduction in respect of contributory negligence was all that was applicable. The defendant continued to deny damages are payable and proceedings will now be issued. The claim is valued at approx 2,000. When a reduction of 25% is applied for contributory negligence, this decreases the value to approx. 1,500 If the claimant was required to pay a success fee & ATE premium from a settlement she would be left with very little. 183

184 Case study number: 54/1 Issues in case: access to justice: unlikely to be pursued without success fee claimant worse off Name of Solicitors/ATE:CW Law Solicitor/ATE reference number: / Name of claimant: a child. The litigation friend is: anon The claimant (a minor) was playing in the garden of a house in her cul-de-sac when she tripped over the drain cover located on the boundary of the property / road sustaining a laceration to her chin with residual scarring. A highway public liability matter, liability was initially denied based upon the statutory defence and lack of supervision, then 80:20 & 50:50 offers were made by the defendant s insurers which were rejected. They have since conceded liability in full. The vast majority of these claims fail because the statutory defence is available to the Highways Authority. To continue with the claim once the statutory defence has been raised is inherently high risk. Even after liability was eventually admitted, the defendant persisted with allegations of contributory negligence before eventually conceding liability in full. Damages in this case will be modest (probably about ). Because of the known risks at the outset of the claim the success fee is 100%. Because the defendants were slow to admit liability and then persisted with allegations of contributory negligence (and court approval will be needed) base costs are likely to be about 3,000. The success fee will be 3,000. Under the proposed reforms the general damages would be 10% higher say 250. The success fee will be 3,000 but capped at 25% of the client s damages (say 625). The claimant loses either because: The solicitor won t take the claim as the maximum real success fee is only 20% on a type of claim that ordinarily does not succeed) or A 10% increase in damages of 250 does not compensate for the nonrecoverable success fee of 625) 184

185 Case study number: 55/21 Issue in case: Claimant worse off under Green Paper Name of Solicitors: Tollers Solicitor s reference number: LXT/ Name of Claimant: anon The claimant was crossing a cross-roads in his car. The defendant had come through a red light, from the opposite direction and turned right across his path, colliding with the front right hand side of his vehicle. The defendant s insurer alleged that their insured had not gone through a red light and that the claimant had in fact, proceeded before the traffic lights controlling his lane of traffic had turned green. There were no independent witnesses. A 25/75 split on liability was agreed preissue in the claimant s favour, with the claim settling in the sum of 1,600 net of the 25% liability reduction. If the claimant had to pay an ATE premium and success fee from his compensation as under the proposed system, his damages would have been significantly reduced by 25% or 400. The claimant would have been left with

186 Case study number: 56/56 Issue in case: Client worse off under Green Paper proposals Name of Solicitors: Farley Dwek Solicitors reference number: Name of Client: Bianca Jarvis The claimant recovered in damages. A 10% increase on that would total damages of Deducting the ATE premium ( 393) and success fee (12.5%) amounting to would leave the client with , a shortfall of under the proposed Green Paper rules. 186

187 Case study number: 57/57 Issue in case: Claimant worse off Name of Solicitors: Farley Dwek Solicitors reference number: Name of claimant: June Wynn The claimant recovered in damages. A 10% increase on that would total damages of Deducting the ATE premium of and success fee of 12.5%, , results in a reduction, which would leave the claimant with , a shortfall of under the proposed Green Paper rules). 187

188 Case study number: 58/2 Issue in case: Claimant worse off Name of Solicitors/ATE: CW Law Solicitor/ATE reference number: / Name of claimant: a child. The litigation friend is: anon The claimant is a child who fell into a manhole whose cover was not secured. Prospects are reasonably good but there are significant risks. The value of the claim is modest, about 2,500. Liability has now been admitted. Damages increased by 10% = 200. Likely success fee: 850 capped at 625. The claimant is worse off because the increase in general damages does not compensate for the likely success fee. 188

189 Case study number: 59/3 Issue in case: Claimant worse off Claim would not be pursued without ATE/ success fee recoverabilty Name of Solicitors/ATE: CW Law Solicitor/ATE reference number: / Name of claimant: anon The claimant was a spectator at a motorsport event. He stood by the barrier watching the track and whilst he did so a piece of aggregate flew up from one of the car s tyres and struck him in the eye. Liability is in dispute on the basis of forseeability. The success fee has been set at 100%. General Damages are likely to be c. 10,000 with total damages in the region of 20,000. Costs estimate if the claim settles before trial is 8,000. Success fee of 2,500 would not be recompensed by an extra 1,000 general damages. 189

190 Case study number: 60/24 Issue in case: Client worse off under both CFA and DBA Benefit of claim identifying true medical condition Name of Solicitors: Tollers Solicitor s reference number: Darren Greenhead /1 Name of Claimant: Darren Greenhead The claimant suffered an RSI injury to the back at work. There were no accident book entries or other records of a build up over time until the claimant had advice from his osteopath to leave his job. The claim was complicated by signs of chronic pain and possible fibromyalgia/illness behaviour. On this basis it was classed as high risk and very difficult on causation. Liability and causation were disputed throughout. The claim settled a few weeks before trial for 25,000. The claimant was improving, but only due to the medical investigation within the claim, which identified the most appropriate treatment. In 5 years, this had not been identified or pursued by his treating doctors. This case is an example of access to justice providing rehabilitation support rather than just compensation. Under the Green Paper it is open to claimants and their advisors to enter into a DBA. If that was undertaken in relation to this case then a contingency fee of 25% would have meant a loss of damages of If a cap on 25% of damages for a chargeable success fee in a Conditional Fee Agreement was applied, then the loss of damages would also be 6,

191 APPENDIX 6: AJAG/APIL ICD RESEARCH PROJECT INSIGHT CONSULTANCY DELIVERY No Win - No Fee Usage in the United Kingdom Who makes no win no fee claims The No Win No Fee Funnel 100% People surveyed 15,441 7% People who have made a legal claim against another person or organisation on a no win no fee basis. 1,033 If we consider the adult population of England and Wales to be 43,167,000 then it can be determined that 2,887,892 people have made a no win no fee claim in the past 5 years. The vast majority of these people have used no win no fee for personal injury claims. 191

192 Average No Win No Fee Profile Aged 39 years Income 29,953 News from the BBC and The Sun Aged 44 years Income 19,166 News from the BBC and The Daily Mail Age/Gender Men are more likely to make NWNF claims than women. Among males year olds are most likely to undertake a NWNF claim Base size: 1,

193 Personal income before tax No win no fee claims are NOT the domain of the rich. Half of those who have made a claim on a no win no fee basis have a personal income below 25,000. Less than 20% of people who have made a no win no fee claim earn over 40,000 per year. Base size: 1,033 Claiming via trade union/membership organisation NWNF claims made via Trade Union More likely to be males aged years Base size: 1,033 Base size: 181 Two thirds of no win no fee claims are made independently of trade unions/membership organisations. However men under 34 years are considerably more likely to use a membership organisation than not. Base size: 348 Those in the middle income brackets are more likely to make a no win no fee claim via a trade union or membership organisation than the upper and lower ends. 193

194 Claiming via trade union/membership organisation *Business services includes industries such as market research, IT, design, printing, recruitment, and other ancillary and clerical services. Base size: 348 Frequency of NWNF claims Most NWNF claimants have only made one NWNF claim. There are clearly very few so called serial claimants. Base size: 1,

195 Types of injury sustained Physical injury, illness or mental trauma Accident involving a motor vehicle 39% Accident at my place of work 22% Negligence on behalf of a local council, government body or agency Negligence on behalf of a private company or business 9% 10% Negligence on behalf of a public transport operator 6% Medical misdiagnosis or due to medical malpractice Taking part in a sporting or leisure activity Result of another activity not listed above 2% 1% 3% None of the above 8% Base size: 1,033 How was solicitor found How solicitor was found? 35% 30% 25% 20% 15% 10% 5% 0% 33% Advertising/online 31% Personal recommendation 16% 14% 6% Existing solicitor Referral from insurer Other Advertising and the internet are clearly powerful sources when it comes to recruiting a solicitor for a NWNF claim. It would appear that respondents consider a referral from a trade union to be a personal recommendation given that a third of all NWNF claims are made via a trade union or other membership organisation. As such, referral from trade union and personal recommendation have been merged into a single category. Base size: 1,

196 Outcome of NWNF cases What was the outcome... 23% of all NWNF claims had to be pursued through court proceedings. Base size: 1,033 How settlement was reached in successful cases Base size:

197 NWNF Satisfaction Ratings Base size: 909 Satisfaction of WON cases Satisfaction of LOST cases Base size: 55 Claim satisfaction levels are undeniably linked to the outcome of each claim. As would be expected, satisfaction levels of speed and amount of settlement, solicitor performance and general outcome of claims were much higher amongst cases which were won. Nearly a third of all claimants who lost were still satisfied with their solicitor s performance. NWNF compensation levels NWNF claims tend not to yield high levels of compensation with nearly 50% of pay outs being under 5,000. Only 8 cases amongst survey respondents provided compensation of more than 100,000, meaning that across the total population fewer than 26,000 cases over the last five years would have yielded this amount. Base size:

198 Before the event insurance... Base size: 5,143 Base size: 1,033 Rates of BTE penetration rise with income. Those with BTE policies are disproportionately represented in NWNF cases. However, it is unclear whether the claimants took out BTE insurance prior to making their claim or after their claim. Base size: 730 Methodology Notes Fieldwork conducted May 4 th to May 11 th All ages cited in this document represent the survey respondent s age at the point the study was undertaken, and not at the point that the NWNF claim was made. Averages quoted on slide 4 are set as follows: The mean average is used to calculate age and salary; The mode average (being the most frequent occurring variable) is used to calculate voting intention and readership Sample sizes for the study are as follows: 15,441 total surveys 3,706 total legal claim respondents 1,033 total NWNF respondents 954 total NWNF personal injury respondents The 5,143 BTE respondents are a sub-set of the total surveys, based on those that have completed the full study and those that answered additional questions after screenout. 198