Lord Justice Jackson's Report - Good news or bad for insurers and P & I Clubs?
The difficulties defendants face when reserving public liability cases was brought home to us recently when one of our clients was presented with a 6 figure bill of costs. This was in a case where there had been an early admission of liability, proceedings were issued merely to protect time and a settlement was reached prior to judgment being entered or completion of an allocation questionnaire; needless to say we are challenging the bill and a date for detailed assessment is awaited.
Against this background Lord Justice Jackson's (see photogragh) January report was eagerly awaited. His 557 page report on the costs of litigation takes some reading but, in a nutshell, he has confirmed what many of us already knew, the costs of litigation are out of all proportion. Lord Justice Jackson's views this as a double-edged problem that has prevented some claimants having access to justice and denied some defendants a valid defence. We can certainly endorse the latter viewpoint.
From a defendant personal injury perspective (EL & PL) some of his key recommendations are:-
- Damages in personal injury claims and other civil claims should be increased by 10%. This recommendation needs to be viewed in the context of Lord Justice Jackson's recommendations on success fees.
- US style contingency fees in contentious matters should be introduced allowing lawyers to receive a proportion of the claimant's damages as payment. These would be regulated and may require the claimant to receive independent advice. Costs from an unsuccessful defendant would be recovered in the conventional way (not by reference to the contingency fee). It remains to be seen how this will work out. We suspect this will be a less attractive option to claimant and legal advisor; in valuable cases losing a percentage of your damages may be unattractive. In low value claims the contingency fee will presumably act as a top up on what is recovered from the defendant. This may be unattractive to the claimant's lawyer.
- All fast track claims with a damages value of up to £25,000 should be governed by a scale of fixed costs, the scale to be reviewed annually. This will be a first for EL & Pl claims.
- Lawyers' success fees in "no win no fee" cases should be capped at 25% and be paid by the claimant out of his or her damages rather than by the unsuccessful defendant. This is a major departure from the current position and would make a significant difference to defendants when reserving. It is also likely to encourage earlier settlements' as the average CFA funded claimant currently bears little or no costs' risk. If he/she loses nothing is payable. If he/she wins against an insured defendant the only potential risks relate to breaches of indemnity (relatively rare) or the deduction of irrecoverable legal costs from damages under the terms of the CFA. On the basis that we are almost never asked to make a damages' cheque payable to the claimant's solicitor these days we are guessing this is relatively rare too.
- Unsuccessful defendants will no longer have to bear ATE insurance premiums for "no win no fee" claimants. This is welcome but the quid pro quo is enhanced Part 36 payments in certain circumstances - see below.
- The longstanding principle that "the loser pays" should go and unsuccessful claimants would make only a small contribution to costs if they had "behaved reasonably", removing the need for insurance. We can see more litigation on the horizon as the courts decide what amounts to "behaved reasonably"; however civil defendants should be no worse off than they were back in the pre 2000 days of "legally aided plaintiffs".
- Part 36 payments - he recommends the reversal of Carver v BAA plc's (2008) EWCA Civ 412 and an enhanced recovery of 10% where the defendant rejects a Part 36 offer but fails to do better at trial. The reversal of Carver v BAA plc will provide for certainty and consistency.
- Tighter costs management - a number of practical suggestions are made including the earlier involvement of costsdraftsmen. Parties will be required to prepare budgets on costs earlier and more carefully. Parties that significantly exceed their budget will have an uphill task persuading the court to accept increases at assessment. This is not a massive departure from the current position given that costs' estimates are supplied by the parties at allocation, but a clear disinclination by the court to allow costs beyond those early budgets should encourage a focused approach at an earlier stage in the claim.
Lord Justice Jackson's proposals have the backing of senior judiciary including the Lord Chief Justice, Lord Judge. It remains to be seen to what extent his proposals will be adopted many of which will require legislation or changes in the Civil Procedure Rules before being effective.
If his recommendations on success fee are implemented the CFA funded claimant will bear a costs' risk. This will bring to an end the days of risk free claimant litigation, requiring the facts and the evidence to be properly evaluated by both parties at pre action protocol stage.
We welcome Lord Justice Jackson's proposals. On the whole we think his proposals are good news and that the interests of defendants and claimants are likely to be more evenly balanced post implementation.