Damage limitation

Date: 14 August 2009
Authors: Richard Scorer
Issue: Vol 159, Issue 7382
Categories: Features, Limitation, Personal injury, Damages

Claimants cannot afford to lose part of their damages in legal costs, says Richard Scorer

Assuming the claimant is successful, who should pay the legal costs in a personal injury (PI) case? Should costs be paid by the defendant, by the claimant, or should they be apportioned between both and if so in what proportions?

The traditional rule in civil cases in England and Wales is that costs follow the event—the loser pays the winner’s reasonable costs. A successful claimant in a PI case can expect to recover most, if not all of his legal costs from the defendant—the tortfeasor, or, in practice, the tortfeasor’s insurers. This contrasts with the position in employment tribunal cases, for example, where costs are not recoverable inter partes and a successful claimant can expect to forfeit some part of his damages to meet the costs of the claim. The issue has now come to the fore in the debate on Lord Justice Jackson’s review of civil litigation costs. One area put forward for consultation by Jackson LJ is the question of whether a claimant’s damages should be sacrosanct or whether part of the burden of the costs of a PI claim should fall upon the injured claimant.

Deductions from damages

Those who argue for change point out that deductions from damages to pay the costs are already a feature of certain types of PI claims, so why should extending this approach be a problem? For example, the Criminal Injuries Compensation Authority (CICA) and the Motor Insurers’ Bureau (MIB) Untraced Drivers’ Scheme do not pay legal costs, except to a very limited degree, and therefore costs will eat into client damages. However, these schemes are essentially ex gratia statutory compensation schemes. They involve the state, in one form or another, stepping in to pay damages to an injured person where the tortfeasor is either unknown, or has no assets with which to meet a claim. They do not involve civil litigation against the tortfeasor (or his insurers), and therefore may not be relevant to the situation where the tortfeasor is paying the claim.

Another argument put forward by those who maintain that claimants should meet part of their costs from damages is that this approach is known to work successfully in other jurisdictions, for example the US, where PI litigation is usually funded by contingency fees. However, damages in the US are generally much higher than in the UK, and frequently go beyond the purely compensatory.

The compensatory principle

By contrast, PI damages in England and Wales are based almost entirely on the compensatory principle, ie the purpose of damages is to put the claimant, as far as money can, back in the position he would have been in but for the tort. Awards are made by judges by reference to past cases and common law and statutory rules; they are not made by juries and, with the limited (and generally modest) exception of exemplary and aggravated damages in cases of assault/trespass to the person, do not involve a punitive element. In theory, in English law the claimant should generally be in no better and no worse position after receiving compensation than he would have been had the tort not been committed. In practice, however, the greatest risk to a claimant in PI litigation is the risk of under compensation.

Research shows that compensation awards, particularly in serious injury cases, tend to fall short of the claimant’s true lifetime financial needs arising from the injury. This can occur in a number of ways; General damages for pain and suffering are lower than public expectations and have not kept pace with inflation; Lump sum compensation for future financial losses is currently calculated using a discount rate which assumes a net real return of 2.5% per annum.

However, for investments between 2001 and mid 2008, the real rate of return has been 1.15%. The difference is highly significant. For a male child aged 15, the multiplier for future lifetime losses is 49.96 assuming a rate of return of 1.0%, but only 32.72 assuming 2.5%. If such an injured child has care costs of, say, £50,000 per annum the difference over a lifetime would be £862,000—a significant shortfall in damages which the claimant could only meet by having less care or equipment than necessary, or by relying on state support.

It is arguable that any system under which the claimant loses any significant proportion of his damages in legal costs conflicts fundamentally with the justice which the system purports to dispense. The situation of claimants losing part of their damages in legal costs may be regarded as particularly objectionable in those cases where damages include the costs of future care and other essential needs. Personal injury claimants are frequently short-changed as it is—why should they be penalised further? It remains to be seen what view Jackson LJ will take in this debate.
Richard Scorer is head of personal injury at Pannone LLP, Manchester. E-mail: Richard.Scorer@pannone.co.uk

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