Jackson goes forth: the end of 'no win, no fee', but what else?

Jackson goes forth: the end of 'no win, no fee', but what else?

03/05/2011

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Dan Morris

Partner

29 March is remembered for several important events in history: the day on which the last US combat troops departed South Vietnam in 1973; the day in 1886 on which Dr John Pemberton brewed the first ever batch of Coca-Cola in his Atlanta back-yard; and the day, in 1981, that thousands of people ran, limped and sweated their way through the inaugural London Marathon. All notable occurrences, justly recorded and remembered. But for those of us defending NHS Trusts against clinical negligence actions, the date will be remembered for another reason: as the date the Government announcing the death knell for ‘no-win, no-fee’ CFAs which have been such a blight on the litigation landscape for the last decade or so. 

The Government’s response to the consultation on the Jackson reforms

In the December edition of Claims Online, we updated on the Government’s Consultation Paper on the Jackson report. The consultation period ended on 14 February 2011 and the Government has now published its response and proposals for taking Jackson forward.

Click here to view the Government’s response

The Government received 625 formal responses to its consultation, plus 256 identical campaign letters from people objecting to the reforms. Unsurprisingly, in general, Defendant respondents supported the changes, whereas Claimant lawyers opposed them. The Government was clearly unconvinced by the Claimant lobby’s argument that implementing Jackson would deny Claimants access to justice and, as anticipated, now intends to bring forward legislation to:

  1. Abolish the recoverability of CFA success fees from the losing side. In future, CFA success fee must be paid by the CFA funded party.
  2. Abolish the general recoverability of after-the-event (ATE) insurance premiums. In future, any ATE insurance premium will be paid by the party taking out the insurance.
  3. Introduce the package of associated measures set out by Jackson, including:

a. an increase of 10% to general damages for all Claimants

b. a 25% cap on the amount of damages that may be taken as a success fee, but all future losses to be ring-fenced

c. the maximum success fee that a lawyer may agree with a client under a CFA will remain at 100% of base costs. However, in personal injury cases this could not exceed 25% of the Claimant’s award for past losses and general damages

d. a regime of Qualified One Way Costs Shifting (‘QOCS’) will be introduced for personal injury cases, including clinical negligence - 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

 e. Part 36 of the Civil Procedure Rules (offers to settle) will be amended to equalise the incentives between Claimants and Defendants to make and accept reasonable offers

f. Damages-based agreements (DBAs or contingency fees) will now be allowed in civil litigation

g. A new test of proportionality in costs assessment will be introduced.

Comment

Taken together, the Government estimates that these reforms will see legal costs for the NHS fall by about a third, with Defendants benefitting from more proportionate legal expenses. Clearly, the abolition of the recoverability of CFA success fees from Defendants is welcome: they are routinely set at 100% from the outset even in cases where liability is clear-cut and risk to the Claimant is low. Likewise, the abolition of recoverability of ATE premiums which often run to tens of thousands of pounds will be another large area of saving. But the real question is how Claimants’ solicitors now respond to the changing landscape.

A cynic might suggest that any savings on success fees will be nugatory because Claimant solicitors will simply bump up base costs by increasing their hourly rates. The guideline hourly rates are already routinely exceeded in clinical negligence cases, because Claimant solicitors argue that rates have to be enhanced to reflect the expertise and specialism of the fee-earners doing this type of work. Will we now see base rates moving up to the £500, £600 or £700 mark? One would hope that the proposed new test of proportionality would deter such a move, but this has already been roundly criticised by Claimant solicitors as unfair. The argument put forward by them is that the current Lownds rule that Defendants should reimburse the Claimant those costs that have been necessarily incurred already sufficiently protects against disproportionality, because necessarily incurred costs must by definition be proportionate. However, this is specious reasoning, for looking at what the winning party says it had to spend is surely no way to judge objectively what it is reasonable and proportionate to spend. The very fact that the exercise is carried out after the event means the whole assessment is skewed in favour of Claimant recovery.

Which is precisely why the new proportionality test is required – unless and until Claimant lawyers have to think more carefully about the relationship between what they spend and what the claim is worth (something Defendant clinical negligence lawyers have been doing for years), costs will continue to escalate notwithstanding abolition of the recoverability of success fees and ATE premiums. And this is not restricting access to justice; it is simply a reflection of the common sense idea that some games are really not worth the candle. To think about the origin of that phrase just for a moment is enlightening (no pun intended): it refers to the pre-electric lighting era when the stakes in some card games were not worth the cost of burning a candle for light by which to play. Access to justice cannot mean access to justice at all costs.

For those Claimants whose rights do require vindication and for whom litigation is reasonable and proportionate then the package of measures announced to support the withdrawal of recovery of the additional liabilities should go a considerable way to offset any hardship to Claimants. The options for funding are broadened and will require both more imagination and cooperation. CFAs will still be available to Claimants and their lawyers may still set the success fee as 100%, only now this will be payable by the Claimant and subject to a cap of 25% of the damages for past losses and general damages. Practically, this will surely mean Claimant lawyers pushing for higher awards to ensure their success fees are not written off. The 10% uplift in general damages will help but is unlikely to be sufficient on its own – past losses will surely rise also; as one Claimant lawyer has already frankly hypothesised ‘if the maximum a Claimant can pay in unrecovered legal costs [toward a success fee] is 25% of past losses, by definition the longer a case takes to come to trial the higher the past losses. This would encourage [Claimant] legal firms to work as slowly as possible in order to increase the amount of money that they would gain from past losses under a success fee to enable them to plug any funding gap”. Beyond this, there is the option to agree to QOCS (already being used by Defendants in some cases) or damages-based agreements/contingency fees.

Whether these measures really will reduce overall legal costs for the NHS remains to be seen – much will depend on the detail of the legislation and rule changes. However, from what is known now, it would not be unreasonable to speculate that in the post-Jackson world we might see:

  • Increases in Claimant solicitors’ base rates
  • Significant increases in the overall size of awards/settlements, both because of the 10% increase in general damages and because Claimant lawyers will be forced to push harder if recovery of costs is contingent on the size of the award
  • Claimant lawyers focusing on maximising damages for general damages and past losses (the latter by by delaying cases arriving at trial), in order that they can optimise the pool of damages against which they can claim 25% towards success fees
  • More co-operation between Claimant and Defendant lawyers, not only for example where QOCS funding is considered but possibly in the area of experts – the Government has indicated that it will create a tightly drawn power to allow recoverability of ATE insurance premiums to cover the cost of expert reports in clinical negligence cases and is continuing to liaise with Claimant and Defendant representatives to ensure that joint expert reports can be commissioned wherever possible so that ATE insurance is unnecessary
  • A reduction in the number of unmeritorious claims that are issued
  • Perhaps an increase in the number of cases that proceed to trial
  • An increase in the number of costs claims that proceed to detailed assessment.

All of this of course will take time and much will depend on how practitioners on the ground react to the new landscape. But these are interesting times indeed.

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