Costs are holding up injury claims reform

The Ministry of Justice has now announced its response to the consultation paper for the reform of the claims process for personal injury claims. Unsurprisingly it contains no proposals on costs for reasons touched on below. In essence it recommends that:

• The small track limits remain unchanged (£1,000 for personal injury claims and £5,000 for others).

• The fast track limit is increased to £25,000 (as expected).

• After the event insurance (ATE) proposals shelved.

Also proposed is a new claims process for motor claims up to £10,000 similar to the original proposals, namely:

• Five days to claim.

• Fifteen days to respond on liability.

• Proposals for admissions, causation and contributory negligence.

• Fixed costs (similar to predicted costs where claims are settled before litigation).

All these proposals demonstrate that the underlying problem with the system is that all too often the legal costs incurred are wholly disproportionate to the value or complexity of the claim.

While many of Lord Woolf’s Access to Justice reforms benefited claimants and litigants (examples include Part 36 offers,

pre-action protocols and case management by the courts), Woolf’s failure to tackle legal costs still rumbles on 10 years later.

In fairness to him, the fact that the government withdrew legal aid from personal injury claims at around the same time as the introduction of the new procedural rules, while coincidental, was extremely unfortunate.

It should, therefore, come as no surprise that the Ministry of Justice has announced a review of the ‘no-win, no-fee’ system, as it has developed a number of unforeseen consequences including:

• Additional costs of success fee.

• High ATE premiums.

• Front loading of costs.

• Claim farmers and referral fees.

All of these issues need to be looked at afresh.

While justice minister Bridget Prentice recognises the value of conditional fee arrangements (CFAs) in giving access to justice, she also appreciates that they do not always operate in the best interests of the public.

“Traditionally the government has rejected contingency fees, but in the present climate of spiralling costs
perhaps this approach needs to be rethought.

Hugh Price

She has appointed a panel of three academic experts (Professor Richard Moorhead of Cardiff Law School, Professor Paul Fenn of Nottingham University Business School and Professor Neil Rickman of the University of Surrey) to conduct a full review of the system, particularly as it operates in the field of defamation, where success fees can often double the winning party’s legal costs.

For example, in 2005, Mirror Group Newspapers was ordered to pay the supermodel Naomi Campbell success fees of more than £250,000.

Furthermore, local authorities have been hit recently by a spate of equal pay claims brought on ‘no-win, no-fee’ arrangements.

It is anticipated that Professor Moorhead (who is chairing the panel) will report his findings by the autumn.

One suggestion is that success fees should be abandoned. Such a proposal is likely to produce howls of outrage from claimant lawyers who have to carry all of the risk of a case being lost. With success fees, they argue, they are able to fund the cases that do not succeed.

With personal injury claims, the statistics reveal a different trend from that of defamation claims. According to the Citizens Advice Bureau only 31% of personal injury accidents result in claims, a fall in numbers since CFAs were introduced.

Interestingly, the Association of Personal Injury Lawyers (Apil), the claimant lawyers’ association, while welcoming the review, argues that the system is settling down and that the review should concentrate on resolving existing issues, such as the proposal for fixed costs and the whole of the claims process, which Apil regards as being more worthy of urgent review. It appears that there are some influential people who agree with Apil.

It is therefore timely that while three academics are asked to review the ‘no-win, no fee” arrangements, the Head of the Courts Civil Division, Sir Anthony Clarke, is planning to appoint a senior judge to carry out a nuts and bolts review of costs including :

• Hourly rates.

• Third party litigation funding.

• Fixed fees.

• ATE market.

• Costs capping.

• Proportionality.

• Contingency fees.

Plainly such a review cannot be effective if carried out in isolation from the courts’ procedural rules. The review should examine the causes of increased costs, including disclosure of documents and experts’ costs.

Different courts are operating different procedures, with some insisting that the parties and lawyers attend preliminary direction hearings, while others use the trial date itself as a device to focus minds.

Traditionally the government has rejected contingency fees (where the lawyer is paid a percentage of the damages), but in the present climate of spiralling costs perhaps this approach needs to be rethought.

In any view, insurers and lawyers face another period of uncertainty. However, this time there appears to be a real appetite on the part of all stakeholders to resolve finally this ongoing problem with costs

Hugh Price is a senior insurance partner at Hugh James Solicitors.