Update on the Government's consultation paper

The release of Sir Rupert Jackson’s Final Report on civil litigation costs earlier this year led to a flurry of articles speculating on the likely implications of his recommendations. The Government has now (15 November 2010) published its Consultation Paper seeking views on the key recommendation that CFA success fees and ATE insurance premiums should no longer be recoverable from the losing party.  One cannot know whether this recommendation will ultimately find its way into primary legislation but the tone of the Consultation Paper is encouraging …  
Click here to view the Consultation Paper.

Recoverability of success fees/ ATE insurance premiums

The Consultation Paper accepts that the existing CFA/ATE regime impacts disproportionately on defendants.  Abolishing recoverability of CFA success fees and ATE premiums would lead to significant reductions in legal costs and ultimately savings to the taxpayer.  For those of us defending public bodies, where consideration of these additional liabilities has become an important (sometimes determining) factor in recent years, this is good news. However the devil is in the detail and we may yet see certain categories of cases being exceptions to the general rule of non-recoverability. One such category is complex clinical negligence cases, but how easy is it to define such a category? Does complexity equate to: legal and/or clinical complexity, the likely value, and/or the number of experts or Defendants involved? The Government is alert to this difficulty and has asked for views on this issue. 

Access to justice

The immediate claimant lobby response to Sir Rupert’s report was to suggest that the end of recoverability of success fees and ATE insurance premiums would have a detrimental impact on access to justice. If claimant lawyers are not able to recover these additional liabilities in successful cases, so the argument runs, then they will not be able to afford to take on those cases where the prospects of success are uncertain and so some claimants will inevitably go unrepresented.  However, it is far from clear that non-recoverability will detrimentally impact on claimants in the way suggested. Ongoing academic analysis by Professor Paul Fenn (one of Sir Rupert’s assessors during his review) suggests that the majority of claimants in personal injury cases would in fact be better off if Sir Rupert’s key recommendations were implemented.

Sir Rupert’s proposals to assist claimants 

Abolishing recovery of success fees and ATE premiums does not mean an end to “no win, no fee”.  Claimants will still be able to enter into CFAs and obtain ATE insurance but will have to bear these additional costs themselves, possibly by payment from any damages awarded.  As this could have serious financial implications for claimants Sir Rupert recommended several measures to assist them in meeting these additional costs and risks, including:

  • Increasing general damages by 10% in personal injury cases, nuisance and other civil wrongs to individuals
  • Capping the maximum amount of damages that lawyers can deduct for success fees at 25%
  • Introducing qualified one way costs shifting (QOCS) – i.e. the claimant recovers costs if successful but will only be liable for the defendant’s costs if unsuccessful where, and to the extent that, in all the circumstances it is reasonable for him to pay
  • Reforms to Part 36

Increase in general damages

The Government recognises a number of problems with Sir Rupert’s proposal to increase general damages:

  • Adjustment to the levels of general damages has always been a judicial issue, rather than an issue for Government
  • Any increase in general damages which is expressly made for the purpose of assisting claimants to meet costs liabilities would be a fundamental departure from the basic principle that the purpose of compensation is to put the claimant back in the position he would have been but for the alleged negligence or other wrong
  • Sir Rupert’s proposed increase in general damages would benefit all claimants, which would mean a “windfall” for those claimants who are not funded under a CFA

To get around these difficulties the Consultation Paper proposes retaining an element of the success fee which is recoverable by the claimant, but providing for this to be calculated as a sum equal to 10% of the general damages award. The Government believes this would focus matters on cases funded by CFAs without creating a fundamental change to the basis on which damages are calculated.

25% cap on damages that can be deducted for success fees 

The jury appears to be still very much out on this recommendation. The Government recognises the concern of some claimant lawyers that it may become uneconomic to run certain cases (including complex clinical negligence claims) under a capped success fee of 25% of damages. Accordingly, the paper suggests that options might be to have no cap, or a cap of higher than 25% or possibly to allow an exception to the cap where necessary to preserve access to justice. A further option might be to retain some element of recoverable success fee in specific categories of case.

Qualified one way costs shifting

The Government’s view is that QOCS should apply in personal injury claims brought under CFAs and that the costs protection for claimants should be very widely drawn as proposed by Sir Rupert. QOCS should also apply to individuals bringing claims for defamation funded by CFAs.

Reforms to Part 36

Sir Rupert recommended a number of reforms to CPR Part 36, including a rule that where a defendant rejects a claimant's offer but fails to do better at trial then, in addition to the existing sanctions, the claimant's damages should be enhanced by 10% unless there are good reasons not to. The Government seeks views on this proposal but acknowledges the difficulty identified by Sir Rupert that that this proposal may require modification in larger claims, as an additional 10% uplift on damages might provide too great a reward and create a perverse incentive for claimants to proceed to trial when the whole object of Part 36 is to encourage early settlement.

The consultation process will run until 14 February 2011. The Government plans to respond to the consultation in spring 2011.

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