Proposals for Reform of Civil Litigation Funding and Costs in England and Wales

Proposals for Reform of Civil Litigation Funding and Costs in England and Wales Kennedys response to the implementation of Lord Justice Jackson s recommendations 14 February 2011

Table of contents LEGAL ADVICE IN BLACK AND WHITE...1 PREAMBLE...2 SECTION 2.1 - CONDITIONAL FEE AGREEMENTS AND SUCCESS FEES...7 SECTION 2.2 - AFTER THE EVENT INSURANCE PREMIUMS... 14 SECTION 2.3-10% INCREASE IN GENERAL DAMAGES... 19 SECTION 2.4 PART 36 OFFERS... 22 SECTION 2.5 QUALIFIED ONE WAY COSTS SHIFTING (QOCS)... 25 SECTION 2.7 ALTERNATIVE RECOMMENDATIONS ON RECOVERABILITY... 29 SECTION 2.8 PROPORTIONALITY... 30 SECTION 2.9 DAMAGES-BASED AGREEMENTS (DBAS)... 33 APPENDIX 1A... 36 APPENDIX 1B... 37 APPENDIX 2... 39

Legal advice in black and white The firm is one of the largest and strongest dispute resolution practices in the country' and 'has a deep understanding of the pressures of the client's bottom-line and has developed a reputation for providing straightforward, pragmatic advice cost effectively. Chambers and Partners Kennedys is a top 50 specialist national and international legal firm with unrivalled expertise in litigation and dispute resolution. We have over 800 people globally across nine UK and eight international locations. Our lawyers provide a range of specialist legal services across many areas such as: insurance/reinsurance, general liability, including motor, personal injury, employers and public liability and product liability, as well as property and construction, professional indemnity, healthcare, life and health, occupational disease, employment and health, safety and environment. We handle a wide range of insurance disputes and litigation with a client base that includes general insurers, global composites, Lloyd's syndicates, underwriters, selfinsured PLCs and self-insuring government bodies. The firm has expanded considerably over the last eight years, largely as a result of organic growth but also by selected lateral hires made to strengthen key areas of expertise. Today, Kennedys is well equipped with a regional network that can provide our specialist services throughout the UK. Kennedys' global and national network enables us to meet the current and future needs of our clients, the insurance market and the aspirations of our people. Page 1 of 39

Preamble As practitioners and on behalf of our clients, we have real concerns about disproportionate costs in our Civil Litigation system. These excessive costs have, in our view, been largely caused by the recoverability of success fees and ATE insurance premiums. Given that costs are so high and frequently outstrip damages by a significant margin, they have come to be at the forefront of decision-making in litigation, which must be to the detriment of fairness and access to justice considerations. We do not believe the present system of recoverability of additional liabilities is a sustainable system. We also believe the emergence of CFAs and recoverability has harmed longstanding principles in relation to costs that have held sway for two hundred years. By that we mean principles such as inter-party costs being awarded as an indemnity 1, as opposed to being awarded on the basis of punishment or bonus (as now occurs). Such principles were important and ensured a proportionate cost liability was placed upon a losing party. We would go so far as to say that the present costs regime can operate as an oppressive burden upon a party brought into litigation, thereby preventing access to justice. Claimant lawyers will no doubt refer to the principle of "full compensation". However, such a concept is relatively new and does not justify the retention of a costs regime at disproportionate cost to society at large. Indeed Sir Rupert's proposals will increase compensation to claimants in personal injury claims. Further, the removal of ATE insurance premiums and imposition of qualified one way costs shifting will bring about a more transparent and accessible funding system to would-be claimants. Overall we believe that there should be a return to the position that existed for over two hundred years prior to April 2000. The thrust of Sir Rupert Jackson's proposals seeks to do just that. 1 Harold v Smith (1860) 5 H&N 381 Per Baron Bramwell at 385 Page 2 of 39

EVIDENCE Before we respond in detail to each individual question, we have provided some general comments to assist in this consultation. We have collated both claim data and anecdotal evidence to support our submissions. In his final report, Sir Rupert concluded that "the proper course is to abolish recoverability [of success fees from defendants] and to revert to style 1 CFAs, as they existed before April 2000. Those arrangements were satisfactory and opened up access to justice... during 1996 APIL confirmed that those arrangements provided access to justice for personal injury claimants and that those arrangements were satisfactory..." Sir Rupert went on to ask "whether any measures and, if so what measures, should be taken to assist claimants who will have to pay success fees?" Sir Rupert recommended three measures. Our response considers those suggested measures and answers those questions posed by the Government in its Consultation Paper. We attach at Appendix 1 examples of the data captured by a large composite insurer who mainly deals with volume EL/PL personal injury claims. This data tracks via outside specialist cost consultants the inter-relationship between damages paid, costs claimed, percentage success fee, ATE insurance premium and overall total claims cost to that insurer. We attach at Appendix 2 two graphs showing, in cases up to a value of 5,000, the inter-relationship between damages and costs pre and post-litigation. This shows that claimants' costs account for 66% of the total claim costs paid pre-litigation and are in excess of 75% when the claim enters litigation. In addition, the insurer that captured this data recently reviewed nearly 300 closed/settled personal injury claims when a payment had been made to a claimant. In the vast majority of cases liability was accepted and contributory negligence was raised in only 15% of cases (successful in 10% of cases). Thus the risk of losing to the claimants solicitors was minimal and the claimed success fee resulted in excessive profits for claimant lawyers. In addition, we have noticed with concern the increase in staged ATE premiums, which in our view are often used as a tactic to make defendants and their insurers Page 3 of 39

consider early commercial settlement in unmeritorious claims. The majority of EL/PL personal injury claims we deal with are funded by CFAs with success fees backed by ATE insurance premiums. Use of BTE insurance is rare. We set out below two typical staged ATE insurance premiums in low value cases: Example one Personal injury claim which eventually settled for 2,000 for PSLA (general damages). In October 2010 Claimant's solicitors put the ATE insurance premium at 2,094.75. In November 2010, notification was received that Stage 3 of the premium had been calculated at 24,937.50, which was in addition to Stage 1 and 2 of the premium and without the addition of base costs and success fee. Example two Personal injury claim which eventually settled for 2,500 for PSLA (general damages). ATE insurance limit of indemnity of 25,000 and staged premiums of pre-litigation 757.50, post-issue 1,200 and trial 2,835. Settled at Stage 2, so ATE insurance premium alone was 50% of value of claim, without the addition of base costs and success fee. Thus we agree that implementing Sir Rupert's preliminary recommendations will remove the potential unfairness caused by ATE premiums. In the past ten years or so, claimants have not had to bear any legal costs in relation to bringing a claim and, as recognised by the Government (paragraph 31 of the Consultation Paper), re-distributing some of these costs so that the burden is shared is fair and equitable. This is particularly pertinent when one considers the impact upon society, the public sector, voluntary organisations and UK public limited companies during what is a period of prolonged recession. Page 4 of 39

REFERRAL FEES We note from section 3.1 of the Consultation Paper that referral fees are not within the scope of the present consultation. We consider this is unfortunate and agree with Sir Rupert that referral fees are a significant and contributing factor to disproportionate costs in our present system. We strongly believe that referral fees are a hidden cost of personal injury litigation and are not subject to normal market forces. Referral fees bring about no particular social benefit and create an additional cost burden which the present system cannot sustain. As part of Sir Rupert s interlocking package he considered that referral fees should to be banned or capped. We agree with that proposal, which would free up funds that could be used elsewhere (including for disbursements). Notwithstanding our above comments, we accept that the present LSB consultation is a sound basis upon which to determine the referral fee issue as that consultation is focused upon the consumer. However, the consumer does not pay the referral fee and is not subject to any identifiable detriment because of the preference of a referral fee. Consequently, the point is lost that referral fees do not deliver access to justice yet they are a significant cost factor within our Civil Litigation system. For this reason we believe there should be a Government led consultation on this aspect taking in wider considerations than simply the consumer perspective. Page 5 of 39

FURTHER INFORMATION In drafting this submission Kennedys has taken soundings from a wide interest group, comprising of voluntary organisations, composite insurers, corporations (with a large self-insured element) and public bodies. We have also met with Ministry of Justice officials as well as Lord Young during his Whitehall review of Compensation Culture and continue to remain eager to take part in this consultation process. Any enquiries about the response or requests for further information should be addressed, in the first instance, to: Tracy Head Partner for Kennedys LLP Victoria Court 17-21 Ashford Road Maidstone Kent ME14 5FA T: 01622 625 648 E: t.head@kennedys-law.com Page 6 of 39

Section 2.1 - Conditional fee agreements and success fees The proposal: that CFA success fees should no longer be recoverable from the losing party Question 1: Do you agree that CFA success fees should no longer be recoverable from the losing party in any case? Yes. We agree with Sir Rupert that recovery of success fees in the present regime, whilst providing access to justice to the claimant, arrives at a disproportionate cost and in some cases is a denial of justice to the defendant. This is particularly so in the personal injury area. We agree with and support Sir Rupert s observations about the CFA/success fee regime (as contained in his Final Report under Part 2 Section 10). Lack of control The claimant has no interest in the level of costs and that lack of control leads to disproportionate costs. The CFA model proposed by Sir Rupert where the success fee would be charged against damages would create market forces which would serve to control costs as a claimant will be incentivised to choose the solicitor offering the most competitive deal. We have no doubt that in a true market situation; for certain categories of case with low risk, solicitors will forego charging success fees. Excessive costs burden Sir Rupert found that success fees in particular were a cause of disproportionate cost. If that is accepted, then it is correct that success fees should be removed from all categories of personal injury claims. Currently, whilst success fees are fixed for RTA/EL claims, there are problems with the present system as the claimant can still recover 100% if a matter proceeds to trial (whether or not a defendant has made a valid Part 36 offer). Furthermore, the reality of a 100% success fee being applied to costs leads to a denial of justice as the sensible thing Page 7 of 39

for the defendant to do in such circumstances is to compromise, irrespective of how meritorious his defence may be. A system which operates in this way is neither sustainable nor fair. Cherry-picking Where claimant solicitors potentially seek to take on only winners, fixed success fees can result in excessive profits for those lawyers who cherry-pick their claims. The fixed success fees are based on calculations as to claims won and lost. This is especially so in the RTA area where most claims succeed; a claimant lawyer can substantially increase earnings by only selecting claims which will win. For those reasons made out by Sir Rupert in his Final Report at paragraphs 109-112, we believe his conclusion that the proper course is to abolish the recoverability of success fees is the only option. Question 2: If your answer to Question 1 is no, do you consider that success fees should remain recoverable from the losing party in those categories of case (road traffic accident and employer's liability) where the recoverable success fee has been fixed? Not applicable (see response to Question1). Question 3: Do you consider that success fees should remain recoverable from the losing party in cases where damages are not sought e.g. judicial review, housing disrepair (where the primary remedy is specific performance rather than damages)? In our experience, most judicial review cases are dismissed at the permission stage and if they have merit and proceed, are often resolved before substantial costs are incurred. Assuming the correct pre-action protocol has been complied with, it is usual for the court to make no order as to costs. A further important consideration for cases which reach beyond the permission stage is the proposal for qualified one way costs shifting (QOCS), which will Page 8 of 39

improve access to justice for the applicants by removing (or reducing) the risk of adverse costs. We arrive at this view because hitherto ATE has not developed in this area and the inability to source cover as against adverse costs has been a barrier to access to justice. If QOCS is to be implemented it is necessary for recoverable success fees to be abolished as otherwise there will be unfair pressure on the defendant to concede what they may regard as unmerited judicial review claims. This would be due to the combined effect of success fees which will have to be paid if applications are fought and lost and the prospect of no recovery of costs in cases which otherwise merit defending. There would be an undue pressure to settle judicial review cases and that would impact upon access to justice. For those reasons, we believe a fair balance will be achieved only if recovery of success fees is removed and QOCS implemented. In respect of housing disrepair claims we believe that costs can be disproportionate where CFAs and ATE insurance are concerned; for example, see the facts in Bowen v Bridgend [2004] EWHC 9010 (Costs) where the average damages were 1,631 against average total costs claimed being 8,012. For that reason we believe that recovery of success fees in housing disrepair should be abolished. Many housing disrepair claims fall within the small claims track and can be resolved without a lawyer and legal aid will remain available. Question 4: Do you consider that if success fees remain recoverable from the losing party in cases where damages are not sought, a maximum recoverable success fee of 25% (with any success fee above 25% being paid by the client) would provide a workable model? In principle we believe success fees should be abolished altogether but if success fees remain recoverable from the losing party in cases where damages are not sought, we agree the recoverable success fee should stand at a maximum of 25% but with staged increases. For the natural stages of the judicial review process (pre-action stage, permission stage and full hearing stage), staged CFA success fees should be considered, again with a maximum of 25% success fee to be permitted for the final stage. Equally, in respect of housing disrepair claims where there is no claim for general damages there should be low success fees for claims where Page 9 of 39

there is an admission during the protocol period rising to 25% for claims that proceed to litigation. Question 5: Do you consider that success fees should remain recoverable from the losing party in certain categories of case where damages are sought e.g. complex clinical negligence cases? No, for the same reasons as provided under Question 1. Further, costs in complex clinical negligence cases are already very high because of the nature of that litigation and the high charging rates sought by claimant lawyers. No evidence was supplied to Sir Rupert that clinical negligence litigation could not be conducted if success fees were removed, nor were there submissions from claimant lawyers to the effect they would no longer seek to specialise in this area. We are strongly of the view that high charging rates, which are sought and regularly awarded to claimant lawyers specialising in this area are a cause for disproportionate costs and the additional layer of a success fee which is applied on top of those rates causes an imbalance to access to justice. We have significant experience in handling claims of utmost severity (we act for the NHSLA and large composite motor and EL/PL insurers). When setting reserves for our clients we would expect to face (from the claimant) a base cost of 300 to 400 per hour, which may be subject to (a) a request to the costs judge to disapply the guideline court rates as this is said to be a specialist area and (b) a significant success fee, even in the face of an early admission. Our charges to our clients will often be 25% of those incurred by the claimant s lawyer. In support, we refer to an article written in The Times in March 2009 2 where 750 per hour was cited. 2 http://www.timesonline.co.uk/tol/news/uk/health/article5950420.ece Page 10 of 39

Question 6: If success fees remain recoverable from the losing party in certain categories of case where damages are sought, i) what should the maximum recoverable success fee be and (ii) Should it be different in different categories of case? Subject to our response at Question 4 above, we believe recoverable success fees should be abolished for all categories of case where damages are the main remedy. Question 7: Do you agree that the maximum success fee that lawyers can charge a claimant should remain at 100%? Yes. Question 8: Do you agree that there should be a cap on the amount of damages which may be charged as a success fee in personal injury claims, excluding any damages relating to future care or future losses? We assume this relates to a concern that in complex personal injury cases it may be uneconomic to run these under a capped success fee of 25% of damages (excluding any damages referable to future care or future losses) due to the complexity of the investigation. We do not accept this contention in complex/high value cases, clinical negligence, and disease claims or indeed in any category of personal injury claims. As a starting point one must look at the Guideline Hourly Rate to assess the level of charges claimant lawyers can seek. These range from charges for solicitors of eight years experience (likely in complex or other specialist cases) in London of 409 to national rates of 217 to 201 per hour in 2010. The Supreme Court Costs Office (SCCO) does adhere to the Guideline rates in complex cases and awards of 400 per hour plus a success fee are not unusual. No one has suggested or provided evidence that the removal of success fees would make this work unattractive or uneconomic. Page 11 of 39

By contrast the insurance industry and public bodies use market forces to keep a tight rein on the costs paid to their lawyers. One large composite insurer has assessed that it currently pays between 100 and 170 per hour to solicitors appointed to handle personal injury claims. There is of course no success fee required to be paid on top of this and strict adherence to (often onerous) service level standards ensures focus and pro-activity with costs being kept to a minimum. It is accepted that defendant solicitors manage to enjoy a reasonable return from these level of costs, which also require complexity of investigation. Thus the argument that it is uneconomic to run complex personal injury cases for claimant firms is incorrect. One would hope that in high value cases claimant solicitors would, in the interests of fairness and justice, limit the amount of success fee they seek from their client 25% seems a prudent cap. Furthermore, the introduction of success fees charged against damages will also encourage market forces to operate, so that the most successful claimant lawyers will be able offer the least reduction on damages, or even offer not to deduct damages at all. Sir Rupert s proposals would also encourage claimants to have an interest in the costs which will create a further control and prevention on disproportionate costs being incurred. Question 9: If your answer to Q 8 is yes, should the cap be (i) 25% or (ii) some other figure (please state with reasons)? We agree that there ought to be a cap. reasonable. 25% of the PSLA award is fair and Page 12 of 39

Question 10: If your answer to Q 8 is yes then should such a cap be binding in all personal injury cases or should there be exceptions, and if so what and how should they operate? We believe there should be a financial limit and it should be binding in all cases as to how much a claimant lawyer can charge (retain) as a success fee derived from damages. Otherwise there is the risk of exploitation. 25% of one million pounds is a considerable amount of money. Page 13 of 39

Section 2.2 - After the event insurance premiums The proposal: that the ATE insurance premium should no longer be recoverable from the losing party. Question 11: Do you agree that ATE insurance premiums should no longer be recoverable from the losing party across all categories of civil litigation? Yes, but alongside the implementation of the inter-locking qualified one way costs shifting (QOCS). We agree with Sir Rupert s conclusions that ATE insurance is a very expensive means of delivering the social policy objective of protecting impecunious claimants from adverse costs. Sir Rupert went as far as to define the present regime of recoverable ATE insurance premiums as indefensible. We agree with that observation. To illustrate why ATE insurance in the personal injury arena arrives at disproportionate cost we attach data obtained by one of our clients on the cost of ATE insurance premiums when balanced with overall costs paid. This data shows that modest injury claims valued between 1,000 and 15,000 result in an average cost payment of 6,930.92, of which an average of 12% represents the cost of ATE insurance premiums. In the vast majority of cases liability is admitted or likely to be found against the defendant. Therefore, the risk of a claimant having to turn to his ATE insurance in order to avoid adverse costs is minimal and yet the cost (to the defendant) is significant. The present system also gives rise to absurd consequences particularly with regard to defamation actions where litigants who have means can obtain ATE insurance at significant cost to the other party. QOCS as formulated by Sir Rupert would ensure access to justice by neatly doing away with the necessity of ATE insurance, which we believe should be reserved to those unable to fund litigation. Moreover QOCS would remove the perversity we have just identified, where conspicuously wealthy litigants can obtain ATE insurance premiums at no cost to themselves by being able to pass the entire cost on to the losing party. Page 14 of 39

Question 12: If your answer to Question 11 is no, please state in which categories of case ATE insurance premiums should remain recoverable and why. N/A Question 13: If your answer to Q 11 is no, should recoverability of ATE insurance premiums be limited to circumstances where the successful party can show that no other form of funding is available? N/A Question 14: Do you consider that ATE insurance premiums relating to disbursements only should remain recoverable in any categories of civil litigation? If so, which? No. The reason for this is because the problem with recovery in our present system (which would apply to this proposal) is that in respect of ATE insurance, the purchaser does not pay for the premium. The cost of ATE insurance premiums has spiralled as there are no conventional market forces in operation and the courts have made decisions that make it near impossible for defendants to challenge the level of premiums. Indeed, in Sir Rupert s final report, one ATE insurer stated that none of its premiums had ever been reduced by the courts. Given that ATE insurance is already regarded as an expensive form of one-way cost-shifting, the way in which the present regime operates is not desirable. We also agree with Sir Rupert with regard to the many paying for the few, which is a poor principle upon which to rest considerations about costs. In a reformed costs regime where there is no recovery of ATE insurance premiums and where QOCS is implemented, potential defendants will make a proportionate contribution by bearing their own costs. Why should those who are never brought into litigation have to pay for the few? We believe if ATE insurance recovery remained for disbursements there would be no change from the present regime. There would continue to be no control on the cost of ATE insurance premiums and ATE insurance premiums would continue to be very expensive for the access to justice benefit they deliver. Page 15 of 39

We further believe QOCS combined with contingent CFAs is a better way of delivering the social policy of allowing access to justice to those who are impecunious, whilst rebalancing one aspect of the present system, which does not lead to access to justice at proportionate cost. Question 15: If your answer to Question 14 is yes, should recoverability of ATE insurance premiums be limited to non-legal representation costs such as expert reports? No comment see our reply to Question 14. Question 16: If your answer to Question 14 or Question 15 is yes, should recoverability of ATE insurance premiums relating to disbursements be limited to circumstances where the successful party can show that no other form of funding is available? No comment see our reply to Question 14. Question 17: How could disbursements be funded if the recoverability of ATE insurance premiums is abolished? With reference to Question 14 above, disbursements are not funded by ATE insurance directly. The up-front financing of disbursements is met by claimant solicitors and in some cases by separate finance agreements. Rather, disbursements are insured by ATE insurance but in most cases unless that ATE insurance is combined with a finance agreement a claimant solicitor will front the disbursements. We believe this to be the correct position and we note that Sir Rupert adopts the same view in his Final Report (see 5.1 at page191). In terms of the issue raised by this question, it is essential to consider Sir Rupert s proposals holistically and in the context of the ATE insurance proposal and the proposal for QOCS. The ATE insurance proposal together with QOCS provides for access to justice at proportionate cost and is an altogether more sensible approach to the many paying for the few principle that underpins our present system. Furthermore, Sir Rupert s proposals will encourage the greater use of BTE Page 16 of 39

insurance (which is said to apply to six out of ten people 3 ) and it will be open to claimants or their lawyers to purchase ATE insurance cover at a cost which is regulated by market forces. If this premise is accepted, there will be no significant change to the way that disbursements are funded, save that in claims which are unsuccessful, either the claimant or his solicitor will have to bear the loss. We do not see this as being a bar to the principle aim of access to justice at proportionate cost because the claimant will have received the benefit of QOCS and will not, therefore, face adverse costs. In addition, in successful claims, the claimant s solicitor should be able to finance the loss through the use of funds recovered by virtue of contingent CFAs and DBAs. In short, there are better and cheaper alternatives to fund disbursements (including QOCS). It is evident that claimant solicitors can (and have) provided a costs indemnity to their client in the event of not being able to find insurance (see for example Sibthorpe and Morris v Southwark LBC [2011] EWCA Civ 25). Claimant solicitors can be third party funders and pay for disbursements (those of their client and the defendant) for a fee payable on winning. Such a system of lawyers acting as funders has existed and operated in Scotland for some time. In addition, October 2011 will see the introduction of alternative business structures ( ABS - so called Tesco law', which will introduce new income streams to solicitors that are currently unavailable. All these measures/options should assist claimant solicitors to fund disbursements. We also observe that high referral fees continue to exist. If claimant solicitors are prepared to pay a referrer a sum of between 600 to 900 before they know whether the case has merit, will succeed and provide a return, then they can most certainly fund disbursements. We note the potential concern about funding expensive medical reports during preliminary investigations in certain cases (including clinical negligence claims) and in claims which are subsequently abandoned. We make the following observations based on our practice. Normally, only one report is needed to form a preliminary 3 The MoJ paper The Market for 'BTE' Legal Expenses Insurance (July 2007) revealed that almost six out of ten people (59 per cent) have before-the-event (BTE) legal expenses insurance http://www.justice.gov.uk/publications/docs/market-bte-legal-expenses-insurance.pdf Page 17 of 39

view of breach of duty for the purpose of the letter of claim (quantum reports are not required at this stage). We also wish to highlight the practice of one of our insurer clients which operates a scheme whereby an approved expert provides a preliminary opinion on the viability of the claim at a low/pre-agreed fee i.e. as part of an initial screening process. If defendants are able to develop innovative cost-efficient arrangements, why cannot claimant firms? Finally, we observe an apparent lack of evidence to suggest a high financial exposure to disbursements in abandoned cases. Moreover, we reiterate the principle that the concept of 100% recoverability has only existed since 2000. Question 18: Do you agree that, if recoverability of ATE insurance premiums is abolished, the recoverability of the self-insurance element by membership organisations provided for under section 30 of the Access to Justice Act 1999 should similarly be abolished? We believe the answer to this question must be yes because those claimants who are members of organisations providing section 30 self-insurance will take the benefit of QOCS. Furthermore, the additional amount which a membership organisation recovers for insuring a member is calculated by reference to the likely cost of an insurance premium (ATE) for the risk of incurring a liability to pay costs to other parties. If QOCS were to be implemented there would be no requirement for membership organisations to indemnify members against adverse costs and, therefore, no sums should be paid to such organisations. To do otherwise would result in an unfair advantage ; something which the Government suggests will be the case in its Paper and with which we agree. Page 18 of 39

Section 2.3-10% Increase in General Damages The proposal: that there should be an increase in general damages of 10% Question 19 - Do you agree that, in principle, successful Claimants should secure an increase in general damages for civil wrongs of 10%? In principle, we consider there are a number of reasons why there should not be a 10% increase in general damages (being for pain, suffering and loss of amenity PSLA ). These include the following: The judiciary sets and adjusts levels of general damages, not parliament; Civil damages compensate claimants for loss or injury only, not to meet costs. This increase could create a precedent for increases in other circumstances; and The increase is to assist CFA claimants to meet the success fee, but in fact all claimants would benefit meaning non-cfa claimants receive a windfall. However, as part of our general support for reform and, in particular, our support to abolish the recoverability of success fees in CFAs and ATE premiums, we support Sir Rupert s recommendation, provided this is implemented by means of a guideline judgment as suggested by Sir Rupert (see 4.2 of Sir Rupert s Response dated 14 January 2011). We share Sir Rupert s view on the Government s possible refinement to retain the success fee equal to 10% of PSLA (at paragraphs 4.3 4.5 of his Response). We add that there would be difficulty in implementing this alternative proposal and it would affect the practice of making global offers. Having to quantify the breakdown could lead to trial/satellite litigation. We urge the MoJ not to interfere with the operation in the market place of making offers on a global basis, which currently allows compromise. Claimants serve detailed schedules of special damages and future losses and defendants serve counter schedules. Moreover, in the larger/higher-value cases, these schedules are supported by numerous quantum expert reports. Both parties, therefore, know down to the last penny Page 19 of 39

what each party considers the value of the case is under each of the various heads of damage. However, both parties can then make Part 36 global offers, which cut through everything to get to the bottom line. This commercial approach is accepted practice for all those experienced in litigation. The Government asks whether an increase of 10% in general damages (PSLA) is sufficient for claimants to bring claims in certain circumstances where there are high costs and risks relative to the level of general damages (as opposed to damages for future loss and expenses). We have seen the response prepared by Stewarts Law supporting the proposition that a 10% increase is insufficient (Stewarts Law LLP 22 March 2010). However, the 10% increase is not the only measure recommended to assist the claimant it is a part of the package of reform. By increasing general damages (PSLA) by more than 10%, we believe that the current position will be maintained, namely with the claimant having no interest in the level of costs being incurred in his name. We further note that some claimant groups assert there is a principle of full compensation and this should always take priority over the cost rules. We agree with the Government at paragraphs 100-108 of the Consultation Paper that there has never been such a principle. In fact, it has only been since April 2000 (and only then for CFA claimants) that the pursuit and receipt of damages has been a financially risk-free possibility (which has coincided with an unsustainable increase in costs). Question 20 - Do you consider that any increase in general damages should be limited to CFA Claimants and Legal Aid Claimants subject to a SLAS? No. We consider it is preferable for the recommended 10% increase in general damages (PSLA) to be across the board, not least for ease of implementation. Otherwise: It would incentivise claimants to enter CFAs to recover a net increase after paying the success fee; The level of damages the claimant could recover would be dependent on method of funding; and Page 20 of 39

It would be necessary for reported cases (which all parties consider when assessing the appropriate level of general damages in a particular case) to distinguish between those damages for PSLA which have been enhanced by 10% for funding reasons and those which have not. Otherwise, damages for PSLA would increase unnecessarily. Data of any working group would also be affected (including that set up following Sir Rupert s recommendation to establish a uniform calibration for all software systems used in the assessment of damages for PSLA up to 10,000, Final Report page 215). Page 21 of 39

Section 2.4 Part 36 Offers The proposal: that Part 36 of the Civil Procedure Rules (offers to settle) should be reformed. Question 21 - Do you agree with the proposal to introduce an additional payment, equivalent to a 10% increase in damages, where a claimant obtains judgment at least as advantageous as his own Part 36 Offer? No. However, as part of our general support for reform and, in particular, our support to abolish the recoverability of success fees in CFAs and ATE premiums, we support this proposal (subject to our responses to questions 24 and 25 below). Question 22 - Do you agree that this proposal should apply to all Claimant Part 36 Offers (including cases, for example, where no financial remedy is claimed or where the offer relates to liability only)? Please give reasons and indicate the types of claim to which the proposal should not apply. No, it should not include cases where no financial remedy is claimed. We consider there are a number of problems if this proposal is applied to all types of case as discussed in Sir Rupert s Final Report and the Government s Consultation Paper. Implementing this proposal to include cases where no financial remedy is claimed (e.g. so called liability only cases) will create an imbalance in the existing rules in the claimant s favour. There will be satellite litigation. Sir Rupert recognises there is an issue with cases where the principle relief (or even the sole relief) sought is non-monetary (e.g. injunction or a declaration). Sir Rupert considers the court should ascribe a value to any non-monetary relief which is awarded. It is suggested that this is carried out summarily when the judge is dealing with costs at the end of the case (Final Report, page 425). Sir Rupert recognises, however, that this may cause satellite litigation but considers appeals should be firmly discouraged. In our opinion this is too complex, too uncertain and will without doubt lead to satellite litigation. Furthermore, a party bringing proceedings for an injunction or a declaration is interested in obtaining that relief only. The proposal should not apply to such claims. Page 22 of 39

An additional 10% uplift will be equally difficult to apply in liability only cases where no quantum investigations have been undertaken. We stress here to the MoJ that there is no such thing as a liability only case. A claim for compensation (i.e. damages) can be split and liability can be tried first as a preliminary issue but a second trial or an assessment of damages is still required (in the absence of agreement). It is the latter part or the assessment of damages part that the proposal should apply to; not to the liability only part and not to both. Furthermore, current court rules permit liability only Part 36 offers (Part 36.2(5)) and under Part 36.14(1b) the claimant only has to (since April 2007) obtain a judgment against the defendant at least as advantageous to the claimant as the proposals contained in the claimant s Part 36 offer. In Huck v Robson [2002] EWCA Civ 398 the Court of Appeal considered an offer made by the Claimant to accept 95% was a valid offer and entitled him to indemnity costs. If the Government s proposal is applied to liability only cases, claimants will make 95% or even 100% Part 36 offers. Clearly, these offers are not serious attempts at compromising liability but are a way for claimants to obtain an unjust enrichment. Courts have discretion under existing rules not to award any enhancement. However, whether discretion should be granted is likely to lead to satellite litigation. Question 23 - Do you agree that the proposal should apply to incentivise early offers? Please explain how this should operate. We agree that any proposal should incentivise parties to make early offers. However, we have concerns in the highest value monetary claims that an additional payment equivalent to a 10% increase in damages will not incentivise early offers and would create a perverse incentive to proceed to trial merely to obtain the uplift. There is a risk of encouraging late amendments to claims and/or schedules of special damages and future loss and encouraging late offers to take benefit of the 10% uplift. It would also lead to parties negotiating just over the uplift. Page 23 of 39

Question 24 - Do you consider that the increase should be less than 10% where the amount of the award exceeds a certain level? If so, please explain how you think this should operate. We consider the increase should be 10% in awards up to and including 500,000. Question 25 - Do you consider that there should be a staged reduction in the percentage uplift as damages increase? No see Question 24. Question 26 - Do you agree that the effect of Carver should be reversed? Yes. Carver laid down that in deciding whether a judgment was more advantageous to a litigant than a Part 36 offer, the court had to take account of all aspects of the case, including emotional stress and financial factors. However, the weight to be given to those factors remained a matter for the judge, creating uncertainty as to what would constitute more advantageous in terms of an offer. We agree with Sir Rupert that reversal of Carver would relieve unreasonable pressure on both the claimant and the defendant to better consider the risks of not accepting a Part 36 offer. Question 27 - Do you agree that there is merit in the alternative scheme based on a margin for negotiation as proposed by FOILl? How do you think such a scheme should operate? Yes. Page 24 of 39

Section 2.5 Qualified one way costs shifting (QOCS) The proposal: that there should be a regime of qualified one way costs shifting in certain cases. Our position is that the measures must be seen, as envisaged by Sir Rupert, as a package of measures. Our support for this proposal is dependent upon the MoJ accepting Sir Rupert s recommendations as a whole and not as a menu of options where some and not all are implemented. To do so would lead to manifestly unfair situations where, for example, claimants damages are enhanced without any additional acceptance of risk on their part. Acceptance in full is also inherent in the proposals themselves, as otherwise some are contradictory in nature. For example, without the introduction of QOCS there would be no incentive to remove ATE insurance. Question 28: Do you agree with the approach set out in the proposed rule for QOCS (paragraph 135 137)? If not, please give reasons. We endorse the proposal for the introduction of QOCS on the basis that ATE premiums are no longer recoverable from the losing party. As highlighted at paragraph 132 of the Consultation Paper, Sir Rupert suggests that the test for QOCS should operate restrictively, so that claimants are only exceptionally required to meet defendants costs, thereby ensuring fairness by preventing defendants from exercising financial muscle to force claimants to settle (by increasing a claimant s expenditure on defence costs). Whilst we understand the principle of fairness Sir Rupert is seeking to ensure by developing qualified cost shifting, we do question the premise as to defendants exercising financial muscle. Statistics show that defendants costs are on average less than half those of claimants. We have some concerns about the practicality of QOCS and in which circumstances this would apply. For example, paragraph 137 of the Consultation Paper refers to the equal financial footing of the parties. Where the claimant is represented with the benefit of legal expense BTE insurance (typically in motor cases through the claimant s policy of car insurance or through home insurance), or where he Page 25 of 39

receives union backing, the parties can be said to be on an equal footing. In such circumstances we do not believe QOCS should apply. Where Sir Rupert refers to the financial resources of all the parties we believe that test should encompass the extent to which the claimant is indemnified by pre-existing legal expense insurance or through union funding. Question 29: Do you agree that QOCS would significantly reduce the claimant s need for ATE insurance? Yes. However, where a claimant has means he may purchase ATE insurance to provide further cover over and above QOCS, particularly where such a claimant does not fall within the qualifications as to financial means. In such an instance the ATE insurance premium would not be recoverable but be purchased from the market. We believe existing ATE insurance providers will seek to meet this need where the cost of premiums will be controlled by market forces. Question 30: Do you agree that QOCS should be extended beyond personal injury? Please list the categories of case to which it should apply, with reasons. QOCS should be limited to personal injury claims to ensure the same access to justice exigencies do not necessarily apply to other categories of case. By exigency (in this context) we mean as follows: Sir Rupert sought to develop QOCS to level the playing field where there was an asymmetric relationship between the parties in terms of their ability to fund litigation. Where parties are already of equal bargaining power, the application of QOCS may create unfair and noncommercial situations. If there was a desire to extend QOCS beyond personal injury claims then it should be limited to the following circumstances: 1. Contract: Subject only to public policy considerations (e.g. where the parties are not of equal bargaining power), a pre-litigation agreement whereby the parties determine how the costs of litigation would be distributed should be ratified. 2. Public interest litigation: Proceedings in which a member of the public seeks to enforce an interest or right which is of wider application Page 26 of 39

and benefit e.g. environmental, consumer and employment practices. The current suggestion that QOCS might be extended to judicial review and defamation could be described as public interest litigation if a remedy was being sought which would benefit (directly or indirectly) the public at large and not just the particular claimant. While there will always be exceptions to the rule, most personal injury claims can be litigated at reasonable expense when compared to other types of litigation, albeit still disproportionate to the value of the claim. The defendant s response to litigation is governed not just by the merits of the claim but by the expense to which that defendant will be put to defend it. It is submitted that if QOCS were to extend to, say, professional indemnity cases (which are maintained for the claimant s personal benefit) then the enhanced costs of defending such a claim would force defendants to compromise unmeritorious claims thereby encouraging the flow of such cases. Question 31: What are the underlying principles which should determine whether QOCS should apply to a particular type of case? No comment as this question falls outside our core area of expertise. Question 32: Do you consider that QOCS should apply to (i) claimants on CFAs only or (ii) all claimants however funded? QOCS should apply to all claimants, subject to the test of financial resources propounded by Sir Rupert at p189 of his Final Report. This would include considerations of resources in the wider sense to include whether the claimant had BTE insurance or union funding. Page 27 of 39

Question 33: Do you agree that QOCS should cover only claimants who are individuals? If not, to which other types of claimant should QOCS apply? Please explain your reasons. We agree with the Government at paragraph 166 of the consultation paper that QOCS should not be extended beyond individual claimants. We also refer to our response at Question 30 and the asymmetric relationship considerations which underpin QOCS. Question 34: Do you agree that, if QOCS is adopted, there should be more certainty as to the financial circumstance of the parties in which QOCS should not apply? Yes. Where a claimant abandons his claim by filing notice of discontinuance, the onus ought to be upon the claimant to dispel the implication that the claim was frivolous. He should be required to file details of his financial circumstances to show cause that a cost order should not be made against him by. This would require a suitable amendment to CPR 38. Question 35: If you agree with Q.34, do you agree with the proposals for a fixed amount of recoverable costs (paragraph 143 146)? How else should this be done? Yes, on the basis that the question is directed only to adverse costs where the claimant is under QOCS but has behaved unreasonably and consequently has to pay a fixed amount (unless he would have qualified for legal aid (i.e. impecunious) or is conspicuously wealthy and not, therefore, subject to a fixed amount). Again the default position should be that the claimant should be obliged to pay costs unless he can show cause that such an order should not be made by disclosing his financial means. Page 28 of 39

Section 2.7 Alternative recommendations on recoverability Question 36 Do you agree that, if the primary recommendations on the abolition of recoverability etc are not implemented, (i) Alternative Package 1 or (ii) Alternative Package 2 should be implemented? No. We believe the primary recommendations should be introduced as a package as Sir Rupert intended. The alternative packages do not address the difficulties caused by recoverability. For that reason we do not see that either of the alterative packages is an appropriate remedy for the problems that beset our current system. Question 37 To what categories of case should fixed recoverable success fees be extended? Please explain your reasons. Please see our response at section 2.1 success fees should not be recoverable. Question 38 Do you agree that, if recoverability of ATE insurance remains, the Alternative Packages of measures proposed by Sir Rupert should also apply to the recovery of the self-insurance element by membership organisations? No. We agree with Sir Rupert s Response to the Consultation Paper CP 13/10 where at 4.13 he rightly states that unions prior to April 2000 funded members claims and will continue to do so if recovery of a self-insurance element is abolished. On that basis even under the Alternative Package we believe there should be no recovery of the self-insurance element. Question 39 Are there any elements of the alternative packages that you consider should not be implemented? If so, which and why? No. Page 29 of 39