The Jackson reforms: winners & losers
Date: 12 August 2011
Authors: Dominic Regan
Issue: Vol 161, Issue 7478
Categories: Opinion, Costs
“Inevitably, there will be winners and losers as a result of my proposals” declared Lord Justice Jackson on that bitter January morning last year when he introduced his radical proposals for reform. Intriguingly, some perceived “winners” are looking like losers. Who and why so?
Clause 43
Before we delve into this there is one out and out loser and that is the after the event (ATE) insurance market. Clause 43 of the Legal Aid Bill precludes the recovery of such premiums (except where cover is taken out in clinical negligence cases in respect of expert fees).
The planned extension of the existing portal claims scheme will remove vast tranches of work from the land of risk. The present road traffic accident portal is risk free in the opening stages. Only a tiny minority of cases enter stage 3 where there is the possibility of an adverse costs outcome.
One-way costs shifting will mean that a claimant who loses will not be liable for the costs of his opponent unless the claim is false or unreasonable so, again, why insure? A false claim justifies avoidance by the insurer anyway.
The Court of Appeal earlier this year in Sibthorpe and Morris v London Borough of Southwark [2011] EWCA Civ 25, [2011] 2 All ER 240 concluded that solicitors were acting lawfully when they elected not to insure with a third party against the risk of adverse costs, choosing instead to indemnify out of the firm purse. This was not champertous. This conspiracy of adverse events leaves the ATE market high and dry.
Claimants
Claimants are the great losers under Jackson. Except that they might be better off. How come? Clause 41 of the Bill ends the recoverability of success fees. Of course, the legislation will not be retrospective and so, where conditional fee agreements already exist, additional liabilities will be payable by the defendant and so we will still see claimants getting their extra bunce for years yet to come.
From the date of reform, probably October 2012, the claimant will be liable to forfeit up to 25% of their damages. This deduction will go towards meeting the funding gap as the defendant will only be liable to pay out base costs. Sir Rupert has observed that the 25% element is the maximum deductible. It need not be the actual amount deducted. How long, I wonder, before the Dutch auction begins culminating in someone agreeing to work for base costs only, leaving the claimant with their full damages intact? Part of the Jackson plan is to enhance general damages by an uplift of 10% (see below), a contribution to alleviate the burden of meeting additional liabilities. The claimant would, paradoxically, be better off as their damages would be enhanced yet they would not be making any costs contribution. Strange but true.
Pt 36 reform
Clause 51 of the Bill empowers Pt 36 reform and the government has accepted the Jackson proposal that a claimant making a successful Pt 36 offer should see a simple 10% uplift in their damages. Imagine a claimant, post reform, who offers to settle for £45,000. At trial they are awarded £50,000.
On learning of the Pt 36 offer which the rueful defendant failed to accept, the judge applies the automatic uplift so now the claimant collects £55,000. The claimant is demonstrably and significantly better off than now.
Defendant insurers
Defendant insurers are the great beneficiaries under Jackson, right? Wrong. The National Health Service Litigation Authority has suggested that, despite everything, it might be worse off. Some insurers have said the same thing. How could this be? One-way costs shifting is intriguing. In essence, a claimant who wins will win but won’t lose if they lose. This is because, if successful, they get base costs from the defendant but will not normally pay costs if they lose. Less than straightforward claims for, say work-related stress, might blossom. An astute defendant, confronted by such a claim, will recognise that a successful defence will leave it out of pocket, having to bear its own costs. There will be an economic imperative to settle.
Referral fees
As I write, the whole question of referral fees has blown up again with the government stating it will, after all, consider a total ban. The eminent insurance lawyer, Sue Bright, of leading insurer RSA Group, is bemused at why the government has not accepted the clear Jackson proposal to kill them off. Another insurer, much more dependent upon the easy money that flows from the receipt of referral fees, tells me that they just break even on premium receipts and profit flows only from referral fees. Ban them and premiums will rise dramatically. A ban on referral fees could have yet another intriguing consequence and that is that claims managers would buy aggressively into claimant firms and so operate from within the entities to which they presently sell claims.
In my next article I will look at more winners and losers and, believe me, there are many whom we have yet to encounter.
Professor Dominic Regan provides in-house training on both Pt 36 and Jackson reforms.
E-mail: krug79@gmail.com. Website: www.profdominicregan.blogspot.com
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