Procedural irregularities may leave the MIB exposed to review where claims have been settled on behalf of children & protected parties, says Nicholas Bevan
Every year, hundreds of children and protected persons are injured by untraced drivers. Their claims are investigated by the Motor Insurance Bureau (MIB) free of charge in its capacity as the UK’s duly appointed compensating body. But are their best interests served by the current arrangements?
The duty to compensate
The primary source of law for the MIB’s role is to be found, not in our domestic law, but in what is now Art 10 of the consolidated Sixth Motor Insurance Directive (2009/103/EC).
Article 10 of the Sixth Directive opens thus: “Each member state shall set up or authorise a body with the task of providing compensation, at least up to the limits of the insurance obligation for damage to property or personal injuries caused by an unidentified vehicle.”
Our domestic provision
The UK has implemented this through a series of agreements between the secretary of state for transport and the MIB: culminating in the Untraced Drivers Agreement 2003 (the 2003 agreement). This agreement sets out the procedure and principles that underscore the compensatory regime for victims of untraced drivers.
The secretary of state has effectively outsourced the administration of its compensatory regime to the MIB, as an independent contractor. It is a private company owned and managed collectively by every insurer authorised to sell compulsory motor insurance in the UK.
Flaws in the safeguards for children & protected parties
There are two particular causes for concern with the 2003 agreement, as it applies to children and protected parties. First, although cl 10 contains a general provision that provides for a limited legal fee, there is no requirement that this particularly vulnerable class of victim must be legally represented. Second, while cl 25 confers a power to set up a trust for disabled persons, there is no specific provision for a routine independent appraisal to vet the fairness and sufficiency of settlements.
Applicants are encouraged to apply to the MIB direct from the government’s official website, with no recommendation that independent legal representation be sought. No hint is given of the numerous procedural and substantive irregularities that pepper the scheme and that enable the MIB to reduce or even to reject legitimate claims entirely. The 2003 agreement is currently under review by the minister. The European Commission is also investigating a number of potential infringements.
Practical issues
Two questions arise:
- First, whether the interests of minors and protected persons can be adequately safeguarded if there is no suitable provision for independent legal representation; still less when there is no equivalent of CPR r 21 settlement approval?
- Second, is a settlement or compromise reached with the MIB in these circumstances binding?
What is the appropriate standard?
A good starting point is to compare the protection afforded under our normal procedural rules as they apply to personal injury claims. While there is no requirement that every injured claimant is legally represented, CPR r 21.10 is crystal clear in stating that an out of court settlement of a child or protected party’s claim is not valid unless and until it has been approved by a court.
Furthermore, the Practice Direction to r 21 assumes that independent legal advice has been obtained. CPR PD 21.6 provides that in all but the simplest of cases an opinion prepared by the claimant’s barrister or solicitor on the merits of the settlement or compromise must be filed with the application for settlement approval.
At first blush the Criminal Injuries Compensation Scheme, which insists neither on independent legal representation nor on court approval, might serve as a suitable comparator. However, there are strong reasons against such a proposition:
- the Criminal Injuries Compensation Authority (CICA) is a government agency, one that is supervised by the Ministry of Justice;
- the CICA operates a compensation scheme that is entirely distinct from and independent of our civil courts and the tort law compensation scheme that requires legal expertise to quantify general damages;
- the CICA is unaffected by Community law minimum standards; the scheme is published and regularly updated in a format that is relatively easy to understand which fulfils the legal certainty principal and which obviates the exercise of discretion; and
- finally but by no means least, the awards are predetermined by means of a highly prescriptive tariff.
Wide discretion & reduced standards
It is well established that the Sixth Directive confers a wide discretion on the minister as to how he should implement Art 10. There have been a number of unsuccessful legal challenges concerning the 2003 agreement and its predecessors, but none have addressed the sufficiency of provision for children and protected parties.
In Evans v Secretary of State for Transport and the MIB [2003] ECR I-14492 (ECJ Case C-63/01) the Court of Justice of the European Union (CJEU) ruled that the UK’s obligation under what is now Art 10 is to set up and maintain a system to provide compensation to victims of injury caused by untraced drivers “equivalent to, and as effective as, that available to persons injured by identified and insured vehicles”. This wording incorporates two important Community law principles which are explained further in the same judgment: “It is settled case law that in the absence of Community rules governing the matter it is for the domestic legal system of each member state to…lay down the detailed procedural rules governing actions for safeguarding rights which individuals derive from Community law, provided, however, that such rules are not less favourable than those governing similar domestic actions (the principle of equivalence) and do not render virtually impossible or excessively difficult the exercise of rights conferred by Community law (the principle of effectiveness).”
There is a quantity of esoteric case law on the precise meaning of these twinned Community law principles. A useful summary is to be found in Hickinbottom J’s judgment in Carswell v Secretary of State for Transport and MIB [2010] EWHC 3230 (QB) at paras 15-18. Suffice to say here that “equivalence” does not require a mirror image to our civil procedures. Regard must also be had of the fact that the Sixth Directive’s objective is to provide a simple mechanism for compensating victims. There is no requirement that the MIB be put on exactly the same footing as an insured driver: equivalence is not to be confused with identicality.
The burden of establishing that a domestic law provision breaches the “effectiveness” principle is even more onerous. Provided the national law provision does not render it impossible or excessively difficult in practice to exercise the right to compensation conferred by Art 10, then it is probably sufficient and various aspects of the 2003 agreement have passed muster on this basis.
The MIB states that over the past three years it has settled 2,259 claims from infants under the 2003 agreement. The vast majority of these had the benefit of independent legal advice, but 72 didn’t. The MIB claims that its policy is to routinely recommend that independent legal advice is sought, which is commendable. It also claims that there appears to be no evidence of widespread dissatisfaction with the present arrangements from its customer feedback. There is certainly no indication that the MIB’s administrative staff have acted in bad faith, recklessly or even negligently; so why the concern?
The answer lies in the fact that these are particularly vulnerable victims who, are denied the basic safeguards conferred by our civil courts since at least the 1950s. Surely a protective measure deemed necessary under the CPR, is essential under an outsourced non-governmental regime that is neither supervised by the Ministry of Justice nor regulated by the Solicitors Regulation Authority. The MIB has a huge tactical advantagein that it controls the investigation of the claim, including the appointment of experts and the timing of its disclosure of evidence. It determines which claims are valid, then quantifies the award, sometimes presenting an applicant with a fait accompli in which there may be insufficient time to obtain an independent expert report within the six week time limit for appealing. There are also many irregularities in the 2003 agreement itself that do not conform with Community law minimum standards. One should also be suspicious of any organisation that professes to act in the public interest but declines to provide statistics on its claims and settlement outcomes.
It will be recalled that Sir Rupert Jackson’s recent investigation into civil litigation costs included a detailed evidence based examination into personal injury claims. This revealed wide-spread concerns that defendant insurers’ first offers in settlement are set significantly lower than what would be awarded by a judge in court. The Association of Personal Injury Lawyers’ membership survey revealed that final settlements were 53.14% higher than the defendant insurers’ first offers. The Personal Injury Bar Association’s assessment was that the insurers’ computer-generated offers undervalued claims by 20% on average. It also claimed that claimants failed to beat the Pt 36 offer in only 19 out of 1,349 cases; in other words, the defendants’ offers were undervalued in 99% of disputed claims where barristers were instructed. As one might expect, defendant insurers and their business contacts were unanimous disputing this.
The risk of under-settlement was one of the reasons why the small claims limit was not increased for personal injury, to enable claimant’s to recover the cost of obtaining independent legal advice. If chronic under-settlement really is on this scale, little wonder then that even the most naïve of us should be suspicious of those who not only seek to deny basic safeguards to children and protected parties but who also hide their settlement outcomes from public scrutiny.
There is also a trail of recent case authorities that reveal that the MIB’s first instinct is not to act invariably in the best interests of applicants, take for example: Byrne v the Secretary of State for Transport & MIB [2008] EWCA Civ 574, where the MIB attempted to reject a claim by an injured child during his minority, where the claim was presented more than three years after the accident, and more recently Bloy v MIB [2013] EWCA Civ 1543 where the MIB wrongly sought to reduce a catastrophically injured child’s award to the paltry levels pertaining to Eastern Europe.
The failings are systemic. They are attributable to the way in which successive ministers have chosen to exercise their discretion and in the way they have abnegated responsibility for the proper supervision of the MIB.
It is a basic rule of law concept that legal rights should be safeguarded by operation of law in preference to the exercise of discretion. This applies even more strongly where it concerns particularly vulnerable victims and where the discretion is exercised by a private company that is entirely funded by commercial interests: interests opposed to the victims it is supposed to serve. It is to the MIB’s credit that the system, flawed as it is, seems to work as well as it appears to do. However, this is no cause for complaisance, since without proper scrutiny there is no way of telling whether or not this is merely a superficial semblance of the fair and just treatment that children and protected parties are entitled to expect.
While the minister has a relatively free hand in the exercise of his discretion, the standard of domestic law is still a relevant factor, even if it is not determinative.
More to the point, the CJEU has repeatedly ruled that the provision of legal certainty and the protection of particularly vulnerable victims of the use of motor vehicles lie at the very heart of the Community law objectives in this area.
Call for reform
While a claimant of sound mind can forgo the right to independent legal representation if he pleases, in the case of a child or protected party it should be an invariable rule under the untraced driver compensation scheme. Otherwise, these individuals are ill-equipped to comprehend the issues, assess what is a fair offer in settlement, still less to challenge or test technical points raised by the MIB or even to know whether an appeal or complaint is called for.
Arguably, this in itself constitutes a breach of the Community law equivalence and effectiveness principles. Settlements or compromises should also be referred to an arbitrator for approval, in anything other than the simplest of cases. It would appear from Andrews v MIB (2012, unreported) that an arbitrator has a discretion to award costs in these cases notwithstanding the misleading wording within cl 24 of the 2003 agreement.
Loose ends
Knowing the predilection of insurers for “closure” it is worth noting that the present arrangement is rather untidy. As a matter of common law, while a compromise or settlement with an infant is capable of binding effect without the approval of the court, it is nevertheless avoidable on the infant attaining majority. This issue was considered by the House of Lords in Dietz v Lennig Chemicals [1969] 1 AC 170, [1967] 2 All ER 282.
Nicholas Bevan, legal consultant & trainer (mail@nicholasbevan.com; www.nicholasbevan.com)
