The four year assessment evaluating the outcome of The Jackson Review and LASPO on ATE, BTE and more. Tony Buss, Managing Director ARAG (UK)

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1 The four year assessment evaluating the outcome of The Jackson Review and LASPO on ATE, BTE and more Tony Buss, Managing Director ARAG (UK) 1

2 Comments on Jackson [The Government s] are seeking to strike the right balance between access to justice for those who need it while ensuring that costs are proportionate and that unnecessary or frivolous cases are deterred." "Implementing Sir Rupert's proposals will help to maintain access to justice at proportionate costs for claimants and defendants but will also deliver significant costs savings for government." Source: Ministerial Forward, Proposals for Reform of Civil Litigation Funding and Costs in England and Wales, Ministry of Justice Nov 2010 "The Jackson reforms, particularly the ending of recoverability, are so profound that it is impossible to predict with any certainty the behaviours of litigants or their lawyers under the new regime." Source: Civil Justice Council Working Group on Technical Aspects of Jackson Implementation Oct

3 Most of Jackson s recommendations are in LASPOA, QOCS or other reforms No recoverability of success fees & ATE insurance premiums from the losing party* A ban on referral fees for personal injury claims To allow Damages-Based Agreements (DBAs) or contingency fees in litigation (currently only allowed for employment tribunal claims) A new test of proportionality of costs to ensure the level of fees to the nature and complexity of the case is adequate A 10% increase in the level of general damages in personal injury cases CPR Part 36 reforms to address defendants who do not accept reasonable offers to settle by claimants Qualified one-way costs shifting in certain cases (QOCS) Fixed costs across all classes of personal injury claims No reduction in legal aid Supplementary Legal Aid Scheme (SLAS) P P P? P P X? X X * Except in Insolvency, Personal Injury & Experts fees in Clinical Negligence & mesothelioma claims 3

4 What s is and what s out In LASPOA / QOCS Non recoverability of ATE Non recoverability of success fees Introduce DBA s Referral fee ban 10% increase in damages One way cost shifting Not in LASPOA / QOCS Mesothelioma cases Experts fees for Clinical Negligence cases Insolvency cases Part 36 risk Fraud Struck out claims Wealth criteria Discontinued claims 4

5 Implementation of LASPOA Because of the interdependency of the interlocking measures, all of the elements need to be introduced simultaneously if they are to avoid giving unfair advantages or disadvantages to either claimants or defendants. With LASPOA coming into effect in April 2013 and other technical aspects (QOCS) possibly around October 2013 this leaves room for uncertainty. 6

6 Effects of LASPOA (1) +10% increase in damages remains uncertain In Simmons v Castle the court considered that general damages should be increased by 10%. It reaffirmed its responsibility to monitor and set guideline rate for general damages. It was decided that in all cases where judgment is given after 1 April 2013 the proper level of general damages for PI will be 10% higher than previously. The case is subject to appeal. In practice it is unlikely that all claimants will receive an extra 10% as most settlement will be subject to individual negotiation 7

7 Effects of LASPOA (2) Referral Fees and Contingency Fees remain uncertain The introduction of ABSs is likely to make referral fees less transparent, thus defeating the objective of the referral fee ban. turning something that is reasonably transparent into something totally opaque Mark Boleat, member of the Governments regulatory policy committee There is also debate over how contingency fees are intended to work; and in particular whether lawyers receive a contingency fee in addition to recoverable costs of both sides 25% cap in personal injury 35% cap in employment tribunals 50% cap in all other civil cases 8

8 QOCS protection and associated claims The MoJ confirmed it is considering the practicality of QOCS protection in associated claims, namely: There is to be an additional sanction to be paid where the judgment is more advantageous than the Defendant's Part 36 offer. This will be 10% of damages and 10% of costs for non-damage claims In mixed damages and non damage claim the sanction will be 10% of the damages element only. The sanction is subject to a tapering system for claims over 500,000 so the maximum sanction is likely to be There would only be one sanction for split trials. 9

9 Non standard claims Non standard claims will be far from straight-forward: Counter-claims Multiple defendants Multi-party claimants / Group Litigation Orders Mixed (both personal injury and property damage) claims 10

10 Understanding QOCS (1) In practice QOCS will apply to all claimants whatever their means; there is to be no financial test to determine eligibility (contrary to Jackson). QOCS protection would be lost if: the claim is found to be fraudulent the claimant has failed to beat a defendant's 'Part 36' offer to settle; the case has been struck out where the claim discloses no reasonable cause of action or where it is otherwise an abuse of the court's process. 11

11 Understanding QOCS (2) The principles set out in Part 36 of the CPR overrides QOCS, but only up to the level of damages recovered by the claimant. QOCS protection would apply in relation to claims that are discontinued during proceedings (subject to the claim not being found to be fraudulent). QOCS protection would be allowed for all appeal proceedings as the requirement for permission to appeal controls unmeritorious appeals. Fraud will bar QOCS protection as set out in the test of Brighton & Hove Bus v Brooks [2011] EWHC 2504 (Admin). 12

12 QOCS and ATE (1) QOCS is intended to negate PI claimants to be protected by ATE insurance against adverse costs. Key policy intentions are to reduce costs for defendants, and to create a risk for the claimant in pursuing their claim. Unsuccessful defendants will not have to pay the ATE premium as an additional liability (except for experts fees in clinical negligence). Claimants will receive an extra 10% of general damages to balance the cost of any ATE premium and solicitors success fee (whether or not the case is pursued under a CFA). Banning the recoverability of the ATE premiums and success fees is linked to the 10% uplift awards 13

13 QOCS and ATE (2) The key risk remaining to claimants is failing to beat a Part 36 offer An ATE policy will provide the necessary protection to ensure claimant lawyers have the confidence to achieve maximum settlement for the claimant (without risking losing all their damages) ATE is therefore necessary and could be extended to cover all of these situations including the possible extension of deficiency of damages cover. 14

14 The possible consequences of QOCS Defendants behaviour may change as they may make more competitive Part 36 offers at the earliest possible opportunity in order to gain costs protection and avoid penalties; or Make less competitive Part 36 offers to exploit the claimants vulnerability regarding QOCS protection. Claimant lawyers, may be more likely to accept low Part 36 offers unless ATE insurance is taken out. A claimant could stand to gain 10% of damages if his offer is beaten, but could stand to lose 100% of damages if he fails to beat the defendants offer. 15

15 Possible defendants response Likely to allege more cases of fraud Likely to make lower Part 36 offers Likely to attempt to strike out more claims Likely to settle more where recoverable legal costs might exceed damages 16

16 The impact of QOCS on claimants will vary by type of injury Motorists slightly better off (increase in damages will be greater than ATE premium & success fees). All other cases will be worse off (costs will be greater than increase in damages). More genuine claimants will be deterred from claiming. More spurious claimants will be encouraged to claim (esp. PL). More litigants in person (esp. Clin Neg) will claim. Low value cases will have difficulty finding lawyers to represent them (esp. EL/PL/Clin Neg/ID). 17

17 ATE Insurance will still be needed (1) Current own costs cover Disbursements (ex barristers fees): following judgment if claim discontinued following failure to beat Part 36 offer when opponent can t pay ATE Premium when opponent can t pay Future own costs cover Disbursements (inc barristers fees): No change No change No change Not needed Not needed 18

18 ATE Insurance will still be needed (2) Current opponents costs cover following judgment if claim discontinued Future opponents costs cover Only when no Qualified protection Only when no Qualified protection following failure to beat Part 36 offer No change 19

19 Other possible impacts on ATE policies Cover own barristers fees? Deficiency of damages? Include funding interest? Premiums structure? Most Unlikely Most likely Unlikely Likely to vary: flat, staged or % of damages (Clin Neg) Disbursement excess? Likely (up to 500) Who pays premium? ATE commissions? Will lawyers self market? Most likely claimant Most Unlikely Likely 100% damages to claimant? Unlikely(in non motor cases) Less low value cases? Likely 20

20 The ATE Market s response is uncertain The combination of less cover (QOCS) and premiums being paid by claimants (non recoverability) makes writing of ATE insurance significantly less attractive. Solvency II (from 2013) will demand greater discipline from Insurers and uncertain classes of risk are likely to be discontinued. ATE insurance will be uncertain. Other classes will generate much better returns on capital employed. 21

21 Adverse effect on society Lack of protection for adverse costs will deter a majority of potential claimants from bringing forward their disputes. It is estimated that 25% of genuine claimants will be deterred. ATE insurers will no longer filter pre-action stage claims, leading to an increase in spurious claims. The complete absence of deterrence against speculative claims will introduce a chancers charter. Practice funding may run into difficulties if not secured by ATE protection. The most vulnerable members of society will be affected most 22

22 Case numbers likely to reduce (1) According a snapshot survey conducted by the Association of Costs Lawyers: Some 78% of respondents predicted that they would have less work after LASPOA comes into force 84% believe it will reduce their profitability 90% expect competition to drive down success fees once they are no longer recoverable from the losing side 70% think the reforms will make their firms less willing to take on riskier cases. 23

23 Case numbers likely to reduce (2) There is uncertainty about who would pay for ATE insurance if needed: 28% said the client, 24% the solicitor and 38% a mixture of both. 62% of firms expect to make staff redundancies as a direct consequence of Jackson, and six in ten firms (58%) are looking to move away from PI and diversify into other areas of law. 24

24 Pricing of ATE risks is far from certain ATE premiums must remain affordable to claimants and be proportionate to damages. The objective would be keep the premiums within the target uplift of general damages of 10%. Allowance must be also made for solicitors success fee within the uplift. Premiums will reduce because of QOCS (provided no selection against occurs) 25

25 And it gets worse. If risks are not insured pre action ATE premiums will need to be increased to reflect the additional selection against risk. This will further reduce the level of demand and again increase selection against which will continue ad infinitum. ATE risks then become uninsurable. 26

26 The impact of QOCS on BTE BTE no referral fee subsidy reduces income (motor) BTE QOCS reduces risk (most types) Damage costs orders increase BTE risks (prosecution covers) Vulnerable part of society (lowest 20%) never buy any insurance BTE claimants will receive 100% of damages (promote as advantage over ATE policies) 27

27 Possible new areas of development for BTE (1) It is predicated that LASPO will cut 350m from the 2.2bn legal aid budget by removing from scope whole areas of law including social welfare and family law. CFAs and DBAs would be less attractive, particularly in cases of little monetary value The removal of referral fees may lead to an increase in BTE premiums but QOCS protection may equally lead to a reduction in premiums 28

28 Possible new areas of development for BTE (2) Not only may these cases become less attractive to solicitors but disbursements such as expert s fees are expected to be squeezed. The measures may include: the minimum value of High Court claims will increase from 25,000 to 100,000 the maximum value for claims in the small claims process is to be increased from 5,000 to 10,000 compulsory mediation is to be introduced for small claims. 29

29 Possible new areas of development for BTE (3) Extending the RTA scheme vertically to 25,000 Expanding the scheme to cover EL & PL claims Reducing fixed costs for all PI scheme claims Increasing PI small claims limit to 5k (for just whiplash?) All these reforms will increase the likelihood of BTE in-house services replacing services currently performed by independent solicitors. BTE premiums would have to increase, possibly reducing take-up levels, leading to further increased premiums due to selection against risks. 30

30 Conclusion LASPOA and QOCS will cause such a paradigm shift that many ATE risks will be unaffordable and possibly uninsurable. The shrinkage in volume of risks accompanied by the substantial uncertainties will combine to question whether the ATE market will survive in its current form. BTE insurance will be less affected but is likely to struggle to fill the void left by the reduction in ATE business. Access to justice for genuine claimants will be the losers. 31

31 Winners & Losers vary Winners Motor claimants EL insurers Low value defendant insurers (except Simmons v Castle) Losers All genuine non-motor claimants PL insurers Low value damage claimants ATE insurers BTE claimants Claimant chancers Claimant lawyers Most vulnerable in society 32