Perrin: costs budgeting call

Leading third-party litigation funder Calunius Capital has announced the first closing of its second fund, raising an initial £30m of capital.

The fresh cash injection has so far come from those invested in its first fund, but the company hopes that a second closing in three months will have brought in another £30m from new investors.

The Calunius Litigation Risk Fund 1 was launched in December 2010 and is now closed after raising and committing £40m. Both funds are based in Guernsey.

The first fund’s highest-profile investment to date is funding the Elvis Presley estate in its action over unpaid royalties against a German label owned by Sony, which is now in the German Federal Supreme Court.

Other cases include international arbitration proceedings against the governments of Uzbekistan and Venezuela in connection with unlawful expropriations of the assets of listed gold-miners Oxus Gold and Rusoro Mining. It has also made several investments in private recovery actions by victims of cartels.

Calunius said its cases have been heard all over the world, including in London, Paris, Washington and Munich.

Mick Smith, head of origination at Calunius Capital, said: “The first closing of our second fund represents a further advance for Calunius Capital, cementing its place among the world’s leading litigation funders with assets under management in excess of $100m. We are especially pleased to receive the ongoing support of our anchor investors from our first fund.”

Chairman Leslie Perrin added: “Litigation funding is now achieving a very wide degree of acceptance from investors, lawyers, judges and most importantly, from businesses, large and small, who are increasingly seeing our financial products as desirable risk management tools. The CFOs and GCs of the most solvent companies view litigation funding as a rational commercial choice.”

Though it has invested in English litigation, Mr Perrin said the risk of adverse costs made it an unpopular jurisdiction for funders. To ameliorate this, he called for an end to the exemption from mandatory costs budgeting for many worth more than £2m – the results of a judiciary review of this, launched last June, are still unknown.

“I think costs budgeting would be excellent through the system – I can’t think why the cases that need it the most don’t get it,” he said.

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Legal changes “appear to have had an impact”

The impact of LASPO and the decline in the number of claims management companies (CMCs) cut third-party personal injury claims by 10% in 2013, the Institute and Faculty of Actuaries has said.

The Institute said this was the first time in 10 years it had recorded a drop in third-party claims, and there was also a 5% reduction in the average cost per claimant, from £5,000 to £4,750.

In its fifth annual report on the issue, which collated and analysed data for 2013, the actuaries said legal changes “appear to have had an impact on motor insurance claims”.

The report found that the numbers of CMCs fell by 35% in 2013, reducing their turnover from personal injury claims by a third, from £354m to £238m.

“The number of CMCs has now halved since 2011,” researchers said. “Regions with the highest volume of CMCs continue to record the highest frequencies of third-party injury claims. London (2.2%), Liverpool (2.0%) and Manchester (2.0%), all record the highest frequency.”

The Institute said ‘frequency’ measured the number of claims as a percentage of the number of cars, rather than just volume. It said the average density of CMCs across the UK was two for every 100,000 people.

The report also found that insurers had responded to the drop in claims, by cutting third-party premiums for the financial year to the end of March by 19%.

“We believe that the reduction reflects an anticipation of claim frequency reductions by insurers and the impact of a very competitive market,” researchers said. “Net of previous premium increases, motor insurance premiums have increased below the rate of inflation since 2007.”

They said previous reports highlighted discrepancies between falls in the numbers of property damage claims and increases in personal injury claims and the high volume of small claims.

David Brown, chairman of the working party which produced the report, said legal changes in 2013 appeared to have had a “significant impact” on motor insurance injury claims.

“However, we remain uncertain as to what the final impact of these changes will be, as well as that of other legal changes, such as the upcoming whiplash reforms.

“What is clear is that the motor insurance industry anticipated the impact of legal changes and has already passed on the reduction in costs to consumers.”

Males J: For much of hearing AB was “highly distressed”

A High Court judge has said it was not in the “best interests” of a former undercover police officer who used cocaine “on more than one occasion” to sue his police force for psychiatric injury.

Mr Justice Males said going to court had forced the man, referred to as AB, to “relive in the relentless and unforgiving scrutiny of the forensic process the humiliation which he suffered when his misconduct came to light”.

Males J said: “It was only too evident in court that this was (as it was always going to be) a painful experience for him. For much of the hearing he appeared highly distressed. As the experts agreed, the stress of this litigation is likely to have obstructed his recovery.

“This was a man who for many years gave valuable service to his country, at frequent risk to his own life and limb, whose work has contributed to the conviction of major criminals and who in other circumstances could rightly have held his head high amongst his peers.”

The court heard in AB v Chief Constable of X Constabulary [2015] EWHC 13 (QB) that AB was “extremely good” at his job and “greatly enjoyed” it, despite the dangers.

Males J described him as “admired and respected as an outstandingly effective and successful undercover officer” with a “national reputation”.

However, when the misconduct came to light, he used words like “gutted” and “ashamed” and accepted that his behaviour was “at least a cause of a successful undercover operation having folded”.

AB claimed damages for psychiatric injury on the grounds that the police force breached its duty of care in failing to provide him with “appropriate support” during his period undercover.

The defendant denied breach of duty and rejected his arguments on causation.

Males J said the claimant did not accept that he was responsible for his misuse of cocaine.

“He insisted that a situation had been allowed to develop whereby his invented criminal persona had effectively taken over his life. He claimed that it was this invented person and not his true self who had taken the cocaine.”

However, the judge ruled that the mental disorder from which the claimant suffered was “caused by the fact that he was confronted with his own misconduct and that he had to face the traumatic consequences of this”.

Males J ruled that AB’s claim also failed on the grounds of ex turpi causa and his voluntary use of cocaine, which he did not lack capacity to know was wrong.

“The psychological injury suffered by the claimant was caused by his own misconduct,” he concluded. “There will be judgment for the defendant.”

Slater & Gordon acted for AB, but nobody at the firm was available to comment.

Law Society: case raises important policy issues

Proportionality has hit the Competition Appeal Tribunal as it capped a defendant’s recoverable costs at £350,000, compared to its budgeted costs of £637,000.

Tribunal president Mr Justice Roth said that where parties were of very disparate means, it may be necessary to limit what the bigger one received in costs if it won.

As reported in the linked story on Legal Futures, the case involves a competition law challenge to the Law Society’s decision to require firms that are members of its Conveyancing Quality Scheme to use its training to maintain their accreditation; previously other providers could offer it.

The judge put damages at £500,000 at the very most. The case has been allocated to the tribunal’s new fast-track procedure, meaning that the amount of recoverable costs has to be capped.

The claimant, Socrates Training, put forward a budget of £220,000, including almost £56,000 for an expert economist. It is handling the claim in-house, with limited external help from solicitors, and has instructed junior counsel Philip Woolfe of Monckton Chambers.

Having initially instructed an unnamed “well-known” Birmingham law firm, the society quickly turned to City giant Norton Rose Fulbright to handle the case. Roth J said Chancery Lane was “fully entitled to use a City of London firm”, but that did not mean the higher costs that resulted – with partner rate was almost double that of the Birmingham firm – should be carried by the claimant.

This was even though Norton Rose has reduced its fees “below their usual commercial rate”, to £395 an hour for the partner, £315 an hour for a senior associate, and £150 an hour for a trainee.

Roth J accepted that in the circumstances the Law Society’s lawyers would have more work to do on the case than the claimant’s, but in deciding what costs cap was appropriate, he started by looking at the budget.

“In terms of the modern approach to costs, the overall figure in excess of £600,000 is disproportionate for a case of this nature, where the trial is estimated to last three or four days.” He said the proportionality test in CPR 44.3(5) applied.

Commenting on some of the individual elements of the budget, Roth J said that spending 450 hours, at a cost of £140,000, in the two months since Norton Rose was instructed was not reasonable given the amount of work done to date – preparing and amending the defence drafted by counsel, attending a case management conference and considering, but not performing, disclosure.

Further, 40 hours of partner time for reviewing four witness statements – calculated on the basis they were 30 pages each – and up to three statements from the other side was neither reasonable nor necessary given that the rest of the team was devoting 235 hours to the task, plus a charge of £16,000 for counsel under the same head.

The judge was also not impressed that while the economic expert commissioned by the Law Society was charging £33,000 – a figure he considered reasonable – its solicitors and counsel had budgeted more than £50,000 for their time in connection with the report and also that of the other side.

Finally, the £103,000 budgeted by Norton Rose for trial preparation and attendance at a three to four day trial – before counsel’s fees were considered – “seems to me excessive”.

Putting it all together, Roth J estimated that if the Law Society was wholly successful and the claimant was held fully liable for its costs, the society’s costs would be reduced on a standard basis of assessment to “well below” £500,000.

He continued: “However, that is still an enormous potential liability to face a small company [Socrates has a turnover of about £750,000] if it is to bring a case which cannot be dismissed as fanciful…

“In particular, where parties are of very disparate means, it is important that those costs strike a fair balance between enabling access to justice for the claimant and providing a measure of protection to the defendant not only from unmeritorious claims but also from the burden of having to defend a claim which it is assumed for this purpose proves to be unfounded.

“That may mean that in some cases the amount is not the sum required to achieve justice only for the receiving party, but a limited contribution to that party’s costs.

“There is no magic formula which produces an objectively ‘correct’ figure. I have regard to the various factors which I have mentioned, including the fact that the claimant itself is prepared to spend over £200,000 on this claim. And, as I have said, I fully recognise that this case raises some important issues of policy for the Law Society in the way that it provides commercial services.

“Standing back, on the material now before the tribunal, in my judgement the appropriate figure for a cap on the claimant’s recoverable costs from the Law Society is £200,000, and the appropriate figure for a cap on the Law Society’s recoverable costs from the claimant is £350,000…

“I would observe that for most SMEs at the smaller end of the scale, and this is, as Mr Woolfe pointed out, a category that encompasses quite a range, to contemplate bringing a claim where the total costs risk is in excess of £0.5 million is a very substantial sum indeed.”

Kain Knight, a leader in the legal costs industry, is hosting a ‘best practice’ seminar on legal costs for solicitors handling Court of Protection work in the New Year.

The seminar, which is free of charge, will be held at the Crowne Plaza Hotel in the City of London on Thursday 16 January 2014, with registration from 8.00am.

Chairing the seminar will be Kelly Stedman, a senior Costs Lawyer from Kain Knight.

Expert speakers on Court of Protection work will be His Honour Judge Denzil Lush, and Katherine Scott from barristers’ chambers 39 Essex Street. Both speakers will be answering questions from the floor after their presentations.

Court of Protection cases have become a growth area for lawyers, driven by more people living into advanced old age, and by an increase in large personal injury pay outs.

To see the full details and to register for the seminar, visit the Kain Knight website www.kain-knight.co.uk or email Penny Ridoutt at penny.ridoutt@kain-knight.co.uk.

Costs out of control: it’s like reform never happened, says judge

It is difficult for the court to stop parties litigating in a grossly disproportionate way if that is what they want to do, the Court of Appeal said yesterday in a case it described scathingly as “Dickensian” in the way costs were run up.

Gilks & Anor v Hodgson & Anor [2015] EWCA Civ 5 was a neighbour dispute over a boundary and a right of way.

Giving the lead judgment, Sir Stanley Burnton said “the costs so far approach half a million pounds, far more than the value of the rights involved. It is a dispute that could and should have been compromised on terms that both parties could live with. The trial took 10 days, and even then some issues… were left undecided”.

Lord Justice Christopher Clarke said the enmity between the parties had caused them to incur costs and to use up the time of the courts, to the detriment of other litigants, “to an extent grossly disproportionate to what was at stake”.

He continued: “If parties, or one of them, insist on litigating in this way, it is difficult for the court to cut short their wasteful endeavours, however much it may try to do so. I hope that the example of this litigation may encourage others who are concerned in like disputes (and, as importantly, those who advise them) to take every step that they can to avoid the absurd waste of effort, time and cost (for both parties) which this case has involved.”

Lord Justice Bean said: “I only add how dismayed I have been by this Dickensian litigation. The disputed strip of land and right of way do not constitute the sole means of access to anyone’s home. The award of damages to Mr & Mrs Gilks was £3,500.

“Yet, at a time when the courts are under great pressure, the battle between these two couples took up 10 days of court time – more than some murder trials – before Judge Armitage and a further three days in this court; and about half a million pounds has been spent in costs. It is almost as though Lord Woolf and other civil procedure reformers over the years have laboured in vain.”

Geldards acted for the claimants and Ralli for the defendants.

From kebab shop to MRO: “If this makes you sick, we can find a doctor for you”

Claimant personal injury solicitors are deeply unhappy with the MedCo system for sourcing medical experts in portal cases, two surveys have suggested, with questions raised over some of the tier 2 agencies appearing in search results.

There are stories about new medical reporting organisations (MROs) located above kebab shops, at estate agents trying out a new area of work and at residential addresses.

One survey of 300 firms was conducted by a large MROs that has asked us to withhold its name due to “commercial sensitivities”, while the other was undertaken by the Association of Personal Injury Lawyers (APIL).

The first survey found that 94% of respondents recognised no more than a fifth of the medical reporting agencies listed on the portal, while 26% of those who have already processed cases using the portal would not recommend or ever re-use the agency selected.

Two-thirds of users did not feel they were given enough information to choose the appropriate MRO – 68% or respondents felt tier 1 agencies should be identified in the search results – and there were concerns over the number of new tier 2 agencies starting up with no track record.

This perhaps explained why a third of firms requiring medical reports had not used the portal more than a month after its introduction – the survey said some have not even registered yet, creating delays and backlogs, with many blaming administrative delays at MedCo.

Most respondents thought that the implementation of MedCo was poorly handled, that the administrative burden has increased thanks to its introduction and that their clients were receiving a worse service. Every single one believed there should be guaranteed service levels for all MROs on the portal; as it stands solicitors have establish their own service-level agreements (SLAs) with each agency.

Only 95 APIL members responded to a survey sent to all 3,582 members in England and Wales, but the results echoed those of the other poll, with solicitors complaining about the time taken agreeing SLAs with new providers, and the quality of some of the new MROs also questionable.

APIL said solicitors were particularly concerned that the medical experts suggested by MedCo were too far away from clients, with solicitors unable to locate a local expert even when they knew of one who had signed up to MedCo.

Dyson: straightforward matter of interpretation

A party who beats a part 36 offer in a case where fixed fees apply is eligible for indemnity costs, the Court of Appeal ruled today in the wake of conflicting decisions at circuit judge level.

As well as resolving the tension between part 36 and section IIIA of part 45, the court was clear that indemnity costs should not be equated with fixed costs.

Broadhurst & Anor v Tan & Anor [2016] EWCA Civ 94 dealt with two cases started under the RTA protocol where successful part 36 offers were made.

In Broadhurst, HHJ Robinson in Sheffield ruled that part 36 applied but there was no difference between profit costs assessed on the indemnity basis and the fixed costs prescribed by Table 6 of rule 45.29C.

In Smith, HHJ Freedman in Newcastle-upon-Tyne also held that part 36 applied but did not equate indemnity costs with fixed costs.

Giving the judgment of the court, the Master of the Rolls, Lord Dyson, analysed the respective provisions of parts 36 and 45, and concluded that as a “straightforward matter of interpretation” there was no doubt as to their true meaning: “The tension is clearly resolved in favour of rule 36.14A.”

He found further support for his decision in the wider scheme of part 36, where provision is made for it to trump fixed costs in such circumstances. “Where there is an intention for only fixed costs to be recoverable under part 36, part 36 has been modified to make this clear,” Lord Dyson said.

The MR also said that, were it needed, the explanatory memorandum to the 2013 changes to part 36 which went before Parliament could be used as an aid to interpretation.

This stated: “If a defendant refuses a claimant’s offer to settle and the court subsequently awards the claimant damages which are greater than or equal to the sum they were prepared to accept in the settlement, the claimant will not be limited to receiving his fixed costs, but will be entitled to costs assessed on the indemnity basis in accordance with rule 36.14.”

As to indemnity and fixed costs, Lord Dyson described them as “conceptually different”.

He continued: “Judge Robinson considered that Parliament could not have intended that a claimant should recover indemnity costs in a section IIIA case because of the practical difficulties that such an interpretation would entail. I accept that there are bound to be some difficulties of assessment where the costs are partly fixed and partly assessed.

“But I also accept the submission of [Ben Williams QC, for the claimant argument] and the written submissions of [John] McQuater on behalf of the Association of Personal Injury Lawyers that these were overstated by Judge Robinson.

“Where a claimant makes a successful part 36 offer in a section IIIA case, he will be awarded fixed costs to the last staging point provided by rule 45.29C and Table 6B. He will then be awarded costs to be assessed on the indemnity basis in addition from the date that the offer became effective. This does not require any apportionment. It will, however, lead to a generous outcome for the claimant.

“I do not regard this outcome as so surprising or so unfair to the defendant that it requires the court to equate fixed costs with costs assessed on the indemnity basis. As Mr Williams says, a generous outcome in such circumstances is consistent with rule 36.14(3) as a whole and its policy of providing claimants with generous incentives to make offers, and defendants with countervailing incentives to accept them…

“I am not persuaded that the problems identified by Judge Robinson, if they exist at all, are so serious that they cast doubt on the interpretation which I favour or that they justify the surprising conclusion that fixed costs are to be equated with assessed costs.”

As a result, the court allowed the appeal in Broadhurst and dismissed it in Smith.

Confrontation: take the temperature down, says judge

There is an “urgent need for commercial practitioners to bring a sense of proportion” to hard-fought litigation, a High Court judge said yesterday as he called on lawyers to bring down, rather than raise, the temperature of disputes.

Mr Justice Walker said “it is perfectly possible to be vigorous without being insulting”.

He made the comments while ruling on an application for the claimants in Kazakhstan Kagazy Plc & Ors v Zhunus (Rev 1) [2015] EWHC 996 (Comm) to provide security for costs

At the start of a 238-paragraph judgment, he said: “This case is an example of something which the court is seeing with increasing frequency. Claims are made for large sums. Emergency orders are obtained, without notice to the other side, which freeze assets worldwide up to the value of the sums claimed.

“From then on there is a series of interlocutory applications. They are heavier than they should be. Not weeks, but months, are spent assembling material to be put in evidence. Correspondence is exhibited. In some cases it includes something which correspondence should never include, namely the trading of insults between the solicitors for the parties.

“There has been little, if any, attempt to agree facts or issues. Time estimates for pre-reading are given which underestimate the time needed to read the key evidence and gain a grasp of what the real issues may be. The time needed is far more than it ought to be, largely because no expense has been spared in taking every point. There is an urgent need for commercial practitioners to bring a sense of proportion to this type of litigation.”

The judge continued by putting forward some “universal guiding principles which practitioners should always have in mind”, including that “the court expects solicitors and counsel to take appropriate steps to conduct the debate, whether in advocacy or in correspondence, in a way which will lower the temperature rather than raise it”.

He added: “This remains the case even where – indeed particularly where – any concession is perceived as anathema by one or other or both sides. It is perfectly possible to be vigorous without being insulting.”

Walker J said imputations on others should only be made if they are both “necessary and justified”; otherwise they should be “rigorously excluded”. Even then they should be confined to the immediate matter at hand. “What is needed in order to support an application for a freezing order may differ from what may be required if an imputation is to be made and sustained in a different context.”

He urged sides to dispense with criticising each other and instead focus on working out a timetable “which will enable opposing parties to consider what facts and issues can be agreed, and what information and revised estimates for reading and hearing time can be given to the court prior to the hearing so as to ensure that the court’s time is used efficiently and productively”.

His final principle was that “if it is likely that a point which might be taken by a party, or it becomes likely that a point previously taken by a party, will not significantly advance that party’s case, or will require a disproportionate amount of time or resources if it is to be resolved, then notification should be given that the point will not be relied upon for present purposes. The notification can be accompanied by an appropriate reservation as to the position in future”.

Zaiwalla & Co acted for the claimant, and Peters & Peters for the defendant. Mr Justice Walker granted the application for security for costs, but not at the level sought by the defendant, Baglan Zhunus.

“Mr Zhunus has instructed a legal team who command a premium in the market. There is nothing wrong with this, but the premium must be for him to bear,” the judge said.

Injury: RPI increase to damages

Duration of symptoms should not necessarily be the focus when assessing damages for minor personal injury (PI) claims, a High Court judge has said.

The latest (14th) edition of Judicial College Guidelines for the Assessment of Personal Injury Awards recommends increasing damages for PI victims in line with the retail price index – 4.8% over two years.

The new guidelines recommend increased damages for whiplash injuries as well as other kinds of award.

Mr Justice Langstaff, chair of the Judicial College guidelines committee, said in his introduction to the book that an emphasis purely on duration of symptoms “takes insufficient account of the other factors by which quantum of awards for minor injuries falls to be assessed, and may obscure the fact in many cases that recovery may not occur at an even pace over time, but may frequently be much more marked in the very early days of recuperation”.

Langstaff J went on: “Intelligent application of the guidelines, rather than too casual a focus on the length of time for which it is said the injury was suffered – perhaps in the light of a report saying that some minor symptoms are ongoing – is called for”.

City insurance law firm Clyde & Co commented on its website: “This could be good news for insurers in limiting payments in lower-value claims in instances where the claimant largely recovers in the initial prognosis period.

“It should be noted the guidelines are just that and therefore there is room for flexibility from both sides.”

Pete Blackmore, advocacy manager at law firm LPC, described the comment as “a warning to judges against taking an approach where the length of time for which any symptoms are suffered is treated as the critical factor”.

In a further change on minor injuries to the neck, shoulder and lower back, where a full recovery is made within three months, the bracket from a “few hundred pounds to £1,860” has been replaced by “up to £1,950”.

City insurance specialists DAC Beachcroft said: “It is worthy of note that the brackets for minor whiplash injuries, much of which may be rendered redundant if the government implements tariffs for whiplash injuries in accordance with its stated aims, indicate that a number of factors may justify awards in excess of or lower than the brackets, including the intensity of pain, impact of the injuries on work, social activities and day to day living, and the need for medication.”

Steven Snowden QC, a member of the guidelines committee, highlighted the removal of the separate, higher category of damages for female victims of facial scarring.

Mr Snowden, writing on the Crown Office Chambers website, described lower awards for men as “indefensible” and based on an “outdated stereotype”.

He went on: “The consequence has been a widening of the guideline bracket within which awards may fall, though it remains the case that the subjective reaction of the victim (whether male or female) to any scar and the extent, if any, to which scarring has affected them psychologically are of central importance. These will necessarily vary from individual to individual.”

Mr Snowden referred to Langstaff J’s reminder in his introduction that these were “guidelines not tramlines” and that many of the decisions on which the brackets for awards were set were made “many years ago” in the light of existing technology and medicine.

“The pace of technological and medical advance has, however, been quickening. On the one hand, the time during which a chronic or lifetime injury may have effect may be extended by increased life-spans; on the other, technological or medical advances may make injuries less painful, permit return of greater function, or allow for a quicker or more complete degree of recuperation than that which could have been predicted only a handful of years ago.

“There is room to argue that in an individual case such advances may call for an award which falls outside the range previously indicated by the courts.”

Lidington: praised the “wisdom, industry and efficiency” of Jackson LJ

Lawyers have responded positively to Lord Justice Jackson’s report on fixed costs, while expressing relief that he had modified his initial idea of imposing a grid on all cases worth up to £250,000.

However, many remain concerned about his plans to introduce fixed costs for cases worth up to £100,000 on an ‘intermediate track’, and capped costs for business and property cases worth up to £250,000 through a pilot scheme.

Launching his report at Chancery Lane, Jackson LJ stressed the extent to which he had listened to lawyers and the said the intermediate track was “floated” during the course of his review, which began work in January.

Ed Crosse, president of the London Solicitors Litigation Association (LSLA), said the capped costs pilot for cases worth up to £250,000 would “involve the adoption of established and widely endorsed fast-track procedures (similar to those used by the Intellectual Property Enterprise Court and under the Shorter and Flexible Trials Scheme) which, with robust case management, should provide greater procedural efficiency and certainty to the litigation process.”

Mr Crosse, a partner at Simmons & Simmons, added that the LSLA believed that the capped costs scheme should remain voluntary, following the end of the pilot.

Andrew Langdon QC, chair of the Bar Council, said the review had “in our view correctly” steered away from extending fixed recoverable costs to all cases worth up to £250,000.

“Encouragingly, there are also proposals in the report for a grid of recoverable fees which include ring-fencing fees for counsel or other specialist lawyers in more complex fast-track cases and for intermediate track cases. These include trial advocacy fees.”

Joe Egan, president of the Law Society, said he was pleased that Lord Justice Jackson had listened to “strong feelings from solicitors and reduced the scale of his original plans”.

Mr Egan went on: “In particular, we welcome his recognition that clinical negligence claims require a bespoke process, and claims should only be fixed up to £25,000 – this is in line with Department of Health proposals.

“The new ‘intermediate track’ would bring in fixed costs for cases of somewhat higher value. We will need to consider the detail of this very carefully to see whether it can work without harming access to justice.”

Steve Webber, chairman of the Society for Clinical Injury lawyers, backed Jackson LJ’s conclusion to leave clinical negligence out of the cap.

“This has been a detailed review and he has clearly been swayed by the powerful evidence which shows that such a cap could risk patient safety, our main priority, and could have forced specialist lawyers out of business and left innocent victims with fewer places to receive quality advice at a difficult time in their lives.

“We now urge the government to take note and we ask, as do the health charities and many other experts and politicians, to drop their ill-advised plans to impose a cap on fees in cases judged to be valued below £25,000 and to set up the working party recommended by Lord Jackson.

“Such a cap will encourage the culture of ‘defend, deny and delay’ within the trusts and NHS Resolution (formerly NHSLA) and seriously disadvantage patients across England and Wales.”

By contrast, the Medical Protection Society, which represents doctors, said it was disappointed not to see “a bold recommendation on the threshold, with cases up to the value of £250,000 included”.

Emma Hallinan, the society’s director of claims and legal, said: “Disproportionate legal fees are still a significant issue for claims up to this value and the financial benefits to the NHS would be even greater if the threshold was higher.”

David Cooper, council member of the Association of Costs Lawyers, said: “Lord Justice Jackson has, as he promised, looked to complete the unfinished business of his original report.

“Costs Lawyers have put a lot of work into making the costs management regime work over the past four years and, while we all recognise that there are still improvements to be made, he is right to recognise that it now largely works to the benefit of parties and access to justice alike.

“It has long seemed inevitable that the fast-track would be covered by a comprehensive fixed recoverable costs regime, but Sir Rupert is right to recommend that any extension beyond that be done is careful and measured way.

“It is tricky to strike the balance between ensuring that litigation is not prohibitively expensive while also making it economic for lawyers, and Jackson LJ appears to have had that at the forefront of his mind is putting forward a balanced package of reform.”

Brett Dixon, president of the Association of Personal Injury Lawyers (APIL), said “costs control rather than costs limit should, in APIL’s view, be the focus in any discussion” about personal injury claims.

“But we are not opposed to fixed recoverable costs so long as the processes are designed to fix the amount of work involved.

“We note that proposed intermediate track appears complex and that there is no suggestion of a pilot for personal injury, which could be dangerous.

“Thorough scrutiny of how all elements of Sir Rupert’s recommendations would fit and work together is essential. The real issues will, of course, come out in the detail of implementation”.

Stephen Hines, vice president of the Forum of Insurance Lawyers (FOIL) said the organisation had “long supported” the extension of fixed costs.

“There is much detail to be considered but FOIL supports the incremental approach in the report… The proposals will allow time for the reforms to bed down and be refined before consideration is given to extending the regime further.”

Ian Davies, a partner at defendant firm Kennedys, added that Jackson LJ was to be “commended” in taking “a controlled approach” to extending fixed costs.

“As always there will be claimants and defendants who will seek to establish where the exact boundaries lie within test litigation but the clarity provided thus far allows the rules committee the opportunity to draft a workable framework of rules for the intermediate track.”

Daniel Frieze, a barrister at St John’s Buildings, warned that the value of a case should not be the only factor in determining costs.

“These proposals run the risk of denying many claimants access to justice – a topic particularly relevant following last week’s Supreme Court ruling on employment tribunal fees.

“There is the prospect of specialist solicitors in complex cases leaving the market due to the fixed fees, leaving those with lower incomes unable to access the best legal help…

“Even with a fixed-cost regime, there will inevitably continue to be disputes. Efforts to end the ‘cost wars’ have so far failed and this regime may not avoid the use of resources. The current system is underpinned by the notion of fairness, and the focus should be placed firmly on tweaking the current system to prevent misuse, rather than attempting wholesale change.”

The next step will be a consultation. David Lidington, the Lord Chancellor, said: “I am very grateful to Sir Rupert Jackson for the wisdom, industry and efficiency he has demonstrated in compiling this report, which makes the case for extending fixed recoverable costs in order to control the costs of civil litigation.

“Sir Rupert has proposed a range of measures which the government will now consider carefully. As we have said previously, we will consult before any recommendations are implemented.”

Edwards: funding puts legitimate pressure on the defendant

Breach of contract and professional negligence claims – particularly against solicitors – dominate third-party litigation funder Augusta Ventures’ case load, new figures have revealed.

Augusta is targeted at the sub-£1m funding market and said that 41% of the 56 cases it has funded since its launch last year were for breach of contract, and 32% professional negligence, the majority of which are being brought against solicitors.

Augusta has invested a total of £12.8m to date, putting in between £7,000 and £570,000 per case. It has an overall win-rate so far of 93%.

The funder said that “perhaps surprisingly, given that third-party funding is often seen as an option aimed at companies”, 52% of the claimants it has backed are individuals.

It continued: “The evidence suggests that funding speeds up the litigation clock, with those claims that have concluded taking an average of 9.6 months as against an initial estimate of 16.7, even though one in every five cases goes to court.

“This also improves lawyers’ cash flow, and a breakdown of where Augusta’s funding goes shows that 32% has been for counsel, followed by solicitors (27%), disbursements (21%) and after-the-event insurance (20%).” Augusta said it is currently working with 43 law firms, while a further 400-plus have been given access to its online platform to submit cases.

Augusta engagement director Jeunesse Edwards added that there was a high level of demand: “This is not big businesses suing each other for paper money – it is about people who need help to enforce their rights so as to keep their businesses afloat or the roof over their heads.

“Litigation funding puts legitimate pressure on the defendant – it says that the funded party will not be bullied simply because of the costs being racked up and, more importantly, that an independent third party with a lot of money to lose thinks that it is a strong case. It is no surprise, therefore, that claims are settling quicker as a result.”

Defendants leaving claimants to “sweat and often buckle”

The Forum of Complex Injury Lawyers (FOCIS) has hit back after a report for the Civil Procedure Rule Committee (CPRC) recommended that part 36 should be reformed, partly to discourage claimant lawyers from making “cynical” offers.

FOCIS, which represents claimant lawyers acting for seriously injured road traffic or medical negligence victims, has 31 member firms – including Slater & Gordon, Irwin Mitchell, Stewarts Law, Anthony Gold and Leigh Day.

In a letter to the CPRC, Julian Chamberlayne, chairman of FOCIS, said members were concerned to see the reference to “cynical claimant offers” in the report by Ed Pepperall QC.

FOCIS said in its own review of part 36 that its importance had grown following the Jackson reforms, and should be seen as part of his “coherent package of interlocking reforms”.

It said that while some amendments to part 36 might be appropriate, to clarify the operation of the rule “in some very specific circumstances” and help ensure “parity between claimant and defendant”, wider amendments could risk undermining the Jackson reforms and creating greater disparity.

“There is also a risk that the high degree of certainty on how the rule operates, itself an important way of avoiding disproportionate costs, would be lost.”

FOCIS said that, as noted by Lord Justice Jackson, part 36 had been “a success” and “other than addressing the underlying need for the rule to operate with parity between claimant and defendant, any proposed amendments should be viewed with considerable caution”.

The forum said that while defendants got the benefit of part 36 offers as soon as 21 days had expired, claimants rarely did, because the benefits would usually only apply if they obtained judgment.

“As it stands, deep-pocket defendants, well versed in litigation tactics, can and regularly do allow the part 36 offers of one-off claimants to expire, leaving the claimant to sweat and often buckle, accepting a below-value counter-proposal simply to see an end to the case.”

FOCIS said this was the main reason why claimants made many fewer part 36 offers than defendants. “Unless and until this disparity is addressed that trend is likely to continue with the result that cases that might have settled earlier continue to rumble on into their latter stages, with increased costs for both sides.”

FOCIS called for part 36 to be amended to provide for the claimants to have the benefits set out in part 36.14(3) where the offer was accepted outside the relevant period, unless it would be unjust.

It called for a further rule change to address the anomaly that while the additional 10% of damages that could be claimed by claimants under the Jackson reforms was capped at £75,000, defendants’ costs could exceed that amount “by a considerable margin”.

The forum disagreed with Mr Pepperall that part 36 was too technical and offers were failing on technical grounds. “There is no unnecessary technicality which makes compliance with the terms of Part 36 difficult,” FOCIS said. “The rules are clear.

“There is a practice form the parties can, and probably should, use. Moreover, if a party cannot, or choses not, to use part 36, there is still a general discretion on costs under part 44.”

Grayling: people should have access to a proper legal process

Justice secretary Chris Grayling yesterday confirmed that an increase in the small claims limit for personal injury (PI) claims to more than £5,000 is on the table.

The Association of Personal Injury Lawyers (APIL) has attacked him for what it described as a “petulant side-swipe at injured people”.

During justice questions in the House of Commons, Labour MP David Crausby asked whether the secretary of state was satisfied that raising the limit from £1,000 to £5,000 – which is currently the subject of consultation – “will ensure that accident victims continue to find adequate independent local advice and access to justice”.

Mr Grayling replied: “I think the new plans will do that. Indeed, I think there is a case for saying that the small claims court limit of £5,000 is too low. I am keen for people to have access to a proper legal process, but the benefit of the small claims court is, in part, arbitration. The plans make the process simpler and cleaner for people who have been through a difficult time.”

Last week an unsourced story in the Daily Telegraph suggested that ministers were considering raising the limit to £15,000 in response to the judicial review of the proposal portal fee cut issued by APIL and the Motor Accident Solicitors Society.

APIL president Karl Tonks attacked Mr Grayling’s comments. He said: “Any arbitrary increase in the small claims court limit for personal injury would just force injured people into a system which is fit only for settling disputes about faulty goods and services, not for dealing with complex matters of law.

“I find it hard to believe that a responsible government would react in such an irrational and indiscriminate way to a legitimate legal challenge, as suggested in press reports. A petulant side-swipe at injured people as punishment for an attempt to exercise the democratic right to scrutinise the government’s competence and motives would be a very sinister precedent indeed.”

Mr Grayling’s reply also appeared to rule out the ‘do nothing’ option present to consultees in the whiplash consultation. The consultation runs until 8 March and does not indicate a strong preference. The most it said was that “many small value whiplash claims are relatively straightforward and that the small claims track might be a more suitable venue in which to determine them than the fast-track”.

More generally Mr Grayling warned that, as a result of new Cabinet Office guidance, the Ministry of Justice will no longer automatically run 12-week written consultations.

He told MPs: “I want to be clear that although the government still want to hear the views of stakeholders and the public on many matters, they should no longer expect a 12-week consultation, even where that has been the practice in the past.

“Instead, in line with the new Cabinet Office principles, we will take a fresh look across all areas at whether, how and for how long we should consult, according to what is appropriate and proportionate in each case.”

Spencer: huge reduction

The number of whiplash claims has fallen by 29% in only four years, John Spencer, president of the Association of Personal Injury Lawyers (APIL), has revealed.

The figures, which APIL obtained by a freedom of information request to the Compensation Recovery Unit (CRU), show that there were just under 567,000 claims in the financial year 2010-11 but only 401,584 in 2013-14.

Other freely available CRU figures show that the total number of registered motor claims fell from around 828,489 in 2011/12 to 772,843 in 2013/14, a drop of 6.7%.

Speaking to the Motor Accident Solicitors Society (MASS) conference in Manchester last week, Mr Spencer said that, according to government figures, there had been an overall decline of 3% in personal injury claims during the last three years.

He said this was despite an increase of 16% in clinical negligence and employer’s liability cases.

Mr Spencer said the reduction in whiplash claims predated implementation of LASPO in April 2013. “Two areas where you can see genuine claims being turned away are access to justice for vulnerable people, including children, and those with complex, riskier and high-value cases.”

Mr Spencer said the 25% cap on success fees as a percentage of damages prevented some “very worthy claims by these groups from proceeding”.

Further, the 60% cut in fixed fees was also to blame. “You cannot reduce fees on that sort of scale without dramatically affecting the market,” Mr Spencer said. “There has been a huge reduction in whiplash claims.

“There are some people with low value cases which can and ought to be brought, but no longer will be.”

Speaking at the same conference, Derek McCann, head of motor claims at Zurich Insurance, said some claimant law firms were not taking any of their clients’ damages.

“If some don’t need to do this, is it because they are effective, well-run organisations?” he asked. “If they do, is it because they are ineffective?”

Mr McCann said the number of portal RTA claims was “heading back to 800,000 and pre-reform levels” and the “emergence of legal supermarkets” suggested there was growth in the personal injury market.

As for the future, he said a lot depended on the result of the general election. “If Labour get in will they go back on some of the reforms? Or if the Conservatives get in, will we have a higher small claims limit?”

Blackburn: “exciting” ruling applies across the board

Irwin Mitchell is claiming to have won the first ever ruling punishing a losing defendant for rejecting an offer to mediate the costs of their dispute.

Partner Tom Blackburn said the ruling was “exciting” because it applied to all forms of litigation, not just medical negligence.

All previous cases involving the imposition of sanctions for rejecting offers of costs ADR had involved successful parties, who had seen their costs reduced by a certain amount, Mr Blackburn said.

Delivering judgement at the Senior Court Costs Office (SCCO) in Reid v Buckinghamshire Healthcare NHS Trust [2015] EWHC B21 (Costs), Master O’Hare said: “If the party unwilling to mediate is the losing party, the normal sanction is an order to pay the winner’s costs on the indemnity basis, and that means that they will have to pay their opponent’s costs even if those costs are not proportionate to what was at stake.

“This penalty is imposed because a court wants to show its disapproval of their conduct. I do disapprove of this defendant’s conduct but only as from the date they are likely to have received the July offer to mediate.”

Further, because the claimant also made a successful part 36 offer, Master O’Hare added a 10% uplift of £13,000 onto the defendant’s existing costs bill of £130,000.

Mr Blackburn said the SCCO had taken an even stronger line in another of Irwin Mitchell’s cases against the NHSLA, Bristow, and the ruling would be published before the end of the year. In that case, he reported, the court awarded indemnity costs for the whole of the detailed assessment proceedings, not simply for the period after the offer to mediate should have been accepted.

Despite the two rulings, Mr Blackburn said the NHSLA was still refusing the firm’s offers to mediate.

“You can imagine how much this is going to cost them in 2016,” he added.

Mr Blackburn predicted that Irwin Mitchell would consider changing tactics and pushing for wasted costs orders.

Last year, the NHSLA launched a mediation pilot, but the results of it are not known.

Injury: Quindell comfortable with proposed EL fees

Quindell Portfolio has finally received its alternative business structure (ABS) licence and also predicted that it will be able to operate profitably within the new fixed fees and small claims structure put forward by the government.

In a trading update issued this morning, Quindell said it has now received approval from the Solicitors Regulation Authority in relation to Quindell Legal Services Limited’s ABS application, which takes in its acquisitions of three law firms: Silverbeck Rymer, Pinto Potts and The Compensation Lawyers.

The approval, which has no application specific conditions, is effective from 21 December 2012.

Quindell is building an end-to-end outsourced claims proposition for insurers, which has also included acquisitions of Accident Advice Helpline, Ai Claims, Intelligent Claims Management and Mobile Doctors.

Meanwhile, Quindell has welcomed the government’s recent proposals for a new fast-track fixed fees structure for all road traffic accident (RTA) portal claims, with the £1,200 fee for claims worth up to £10,000 set to be cut to £500, and a new fee of £800 for claims between £10,000 and £25,000. When the portal is opened up to employer’s and public liability claims, fixed fees will be £900 for cases up to £10,000 and £1,600 for cases up to £25,000.

Quindell cited the Law Society describing the proposed costs as “woefully inadequate” and saying the likely result will be that many solicitors will not be able to afford to carry on doing this type of work.

The company said: “In contrast, Quindell has put in place significant expansion plans over the next 12 months to drive the business forward via organic growth, creating over 300 new positions within Quindell Legal Services.

“Even in light of the most recent government announcement to enter a period of consultation regarding whiplash injuries and raising the small-claims track threshold from £1,000 up to £5,000, the board believes that Quindell is uniquely placed to operate post this suggested regulatory change, even at its extremes, and will continue to be able to operate a profitable business model during this period of significant industry consolidation.”

Rob Terry, the chairman and chief executive of Quindell, said: “With the changes to legislation within the UK insurance industry now fast approaching, our solutions and services-based proposition of maintaining income and competitive advantage for our insurance clients and reducing costs for the overall insurance market are proving to be highly attractive.

“Quindell welcomes any proposals that protect consumer rights and champion industry change. Above all else, the market needs clarity. Our combined model and diversified offering means we can still operate profitably within the scope of the new proposals whilst supporting lowering the cost of claims for the industry as a whole.”

Courts: hot-tubbing could make substantial time saving

Concurrent evidence from expert witnesses – or ‘hot-tubbing’ – is worth doing if it even if it just saves court time rather than costs, the senior presiding judge said last week.

Lord Justice Goldring also warned experts over rumours of padding their hours since legal aid rates were cut.

Addressing the Bond Solon expert witness conference in London, the judge acknowledged that it was too early to quantify the benefits of hot-tubbing in England and Wales – although there were positive signs in the initial evaluation of the Manchester pilot earlier this year by Professor Dame Hazel Genn. “Moreover, the Australian experience suggests clear financial and practical advantages to this scheme.”

Noting indications that the pilot saved more court time – as much as 50% – than the parties’ costs, he said: “The knock-on effect enabling other cases to be listed sooner is highly beneficial. There is too the possibility that at least some of the 15 plus cases that settled [in the pilot] did so as a result of this process; that minds were applied sooner to the real issues and the respective strengths and weaknesses on each side.

“It seems to me clear that a substantial saving in court time would alone justify hot tubbing.”

Professor Genn recommended a further evaluation and suggested too that the scheme needed to expand and cover different kinds of cases. On that basis the pilot has been extended to include Chancery cases in Manchester. It is to continue until next April on a voluntary basis.

From April 2013, agreed amendments to practice direction 35 will come into effect, making hot-tubbing an option in all civil proceedings.

Goldring LJ said: “Hot tubbing changes how experts engage with the parties, each other and with the court. If it serves to limit and focus the issues in the case, reduce the extent or opportunity for long-winded or repetitive cross-examination and saves court time, hot tubbing must clearly be a step in the right direction.

“It will be interesting to see in how many cases parties will choose hot tubbing next year. I hope many will.”

On legal aid, he described how the Legal Services Commission’s (LSC) reforms aimed to reduce the expert fee bill of £160m by about 10%. “Their introduction has not been without problems, particularly in London. I understand too that the LSC is currently looking at the extent to which savings have been made, if they have.

“I have heard a very concerning rumour. The number of hours worked, or said to have been worked, per case have increased significantly. If the rumour is right, one is bound to infer that it reflects some people padding out hours. That would plainly be wholly unacceptable. It would call into question the integrity of the expert.

“It would too inevitably lead to a more draconian approach by the LSC, and, as it seems to me, fixed fees.”

Arden LJ: judges cannot “put some factors on one side”

Courts must consider “all the circumstances” before deciding whether it would be unjust to impose costs penalties on claimants who fail to beat offers made under part 36, appeal judges have ruled.

Lady Justice Arden said judges could not “put some factors on one side”, particularly circumstances “so obvious” as those relating to the defendant’s offer.

She went on: “Suppose that a person to whom a Part 36 offer had been made had asked for clarification or more relevant information and been refused it, or the answer misrepresented the position.

“If that information was material and might reasonably have altered his view on whether to accept the offer, and was information within the offeror’s organisation, the court might well find that it would be unjust to order that the normal consequences should follow from non-acceptance.”

Arden LJ said she accepted that the purpose of part 36 was to provide an incentive for parties to make offers and settle cases, but said a “subsidiary purpose must be to prevent injustice from the normal consequences as a result of non-acceptance of a Part 36 offer”.

She was ruling a challenge by MGN (Mirror Group Newspapers) to a costs ruling by Mr Justice Mann, who decided to make no order for costs following a phone-hacking trial involving Alan Yentob, former creative director of the BBC.

Mann J held that, despite obtaining a judgment which found that MGN’s wrongdoing was “far more extensive” than it had admitted, Mr Yentob had not beaten MGN’s offer by obtaining a damages award of £85,000.

Delivering judgment in Yentob v MGN [2015] EWCA Civ 1292, Arden LJ said the trial judge “applied the right test” and the factors he took into account were “circumstances to which he was bound to have regard”.

Mann J held that, under CPR 36.17(5), the relevant circumstances could include a comparison between the terms of the offer and the terms of the judgment, and there might be cases where a party was justified in continuing to trial even though he had received a favourable offer.

Arden LJ said Mr Yentob’s counsel, Simon Browne QC, directed his submissions to the question of discretion.

“He emphasises the procedural history and submits that Mr Yentob was justified in pursuing his claim. For example, MGN had admitted that hacking took place over a two and a half year period as opposed to the period of seven years found by the judge.

“Moreover it only emerged during the trial, from, we are told, the judge’s own questions to a former employee of MGN, Mr Evans (the claimants’ witness), that vital documents, such as private investigator faxes and journalists’ notebooks, had been destroyed.

“Only then did it become clear that Mr Yentob would not be able to have a clear statement of the extent of the hacking he had suffered or obtain an order for post-trial disclosure.”

Agreeing with Mr Browne that Mann J was entitled to look at all the circumstances, including those “pertaining to the offer”, Arden LJ granted permission to appeal, but dismissed MGN’s appeal.

Lady Justice Rafferty and Lord Justice Kitchin agreed.

Small businesses at “greatest risk” from change

Most insolvency practitioners and lawyers believe the end of the exemption for insolvency litigation from the abolition of recoverable success fees and insurance premiums in conditional fee cases will lead to “unscrupulous or illegal behaviour” by company directors, a survey has found.

Three in ten predicted that, as a result of the change, over 40% of claims would not proceed because of lack of funding.

The survey, by commercial data specialists Encompass Corporation, follows the end in April this year of the exemption of insolvency from LASPO, a move strongly resisted by the insolvency industry.

All of the 38 professionals who responded to the survey, including 19 insolvency practitioners and 14 lawyers, said they believed the change would reduce the number of claims.

A large majority, 32, said small businesses were “at greatest risk” from the move. A similar proportion advised businesses and individuals to take more care when entering into contracts.

Wayne Johnson, founder and chief executive of Encompass, said: “This change in the law may make pursuit of a claim too costly for creditors owed money by a company with assets of value but made insolvent by its directors.

“Our advice is to employ a lawyer or other professional before entering into new contracts and request that they thoroughly check the counterparty and establish whether any director has a history of involvement with repeatedly failing companies”.

R3, the representative body for insolvency professionals, fought hard last year to have the insolvency exemption made permanent, enlisting the support of other groups, such as the Institute of Chartered Accountants in England and Wales, the Bar Council, the Insolvency Practitioners Association, and the Federation of Small Businesses.

Phillip Sykes, president of R3, reacted angrily to the government’s decision, announced by Lord Faulks to Parliament in December, to end the exemption.

He warned: “The government is potentially writing off hundreds of millions of pounds per year owed to not just HMRC, but to hundreds, if not thousands, of ordinary honest businesses as well.”

However, Lord Justice Jackson has described recoverability in insolvency cases as “an instrument of oppression, which is liable to crush defendants who have a good defence”.

LASPO: no litigation services provided before 1 April

A law firm which was instructed in the run-up to LASPO coming into force failed to take any substantive steps in the case before 1 April 2013 and as a result their conditional fee agreement fell foul of the Act’s transitional provisions and was unenforceable, a district judge has ruled.

There are said to be many cases of a similar nature in the courts involving clients who were signed up in the rush before 1 April 2013.

According to a briefing by defendant firm DWF, in Choudhury (suing by his Litigation Friend) v Markerstudy Limited, the infant claimant was the passenger in a rear-end shunt on 12 March 2013 and his litigation friend accepted an offer of £1,150, which was approved at a hearing in January 2015.

The defendant requested a detailed assessment after not accepting the outcome of a provisional assessment.

The claimant sought to rely on a collective conditional fee agreement (CCFA) entered into between his law firm and the claimant’s insurer on 19 December 2011 and contended that the CCFA provided a valid pre-LASPO retainer which bound the litigation friend from a date prior to 1 April 2013. The claimant submitted that legal work had commenced before 1 April 2013.

The CCFA provided for a 12.5% success fee in the event that the case settled and a 100% success fee if the case was won after a trial.

The defendant did not dispute that if the litigation friend was bound by the terms of the CCFA prior to 1 April 2013 and advocacy or litigation services had been provided prior to that date that there would be a valid retainer in place.

The claimant maintained that his insurer had instructed the solicitors under the terms of his insurance policy that provided before-the-event insurance. However, the claim was actually brought by the claimant’s litigation friend, who was not insured under the policy.

The litigation friend did not become bound by the terms of the CCFA until she signed and returned the terms of business on 1 April 2013.

The defendant argued that the litigation friend had therefore actually entered into a post-LASPO, CFA and as such, the CFA was unenforceable as it did not provide for a 25% maximum limit of the success fee recoverable.

It also argued that the CCFA would be unenforceable in any event pursuant to the transitional provisions that required any success fee to be capped at 25% unless “advocacy or litigation services” were provided to the litigation friend before 1 April.

The bill of costs recorded just one undated routine telephone call to the claimant prior to 1 April 2013 and a routine letter about what would be involved in the claim. The defendant argued that the conversation probably related to funding matters and did not entail any advocacy or litigation services.

The claimant submitted that the pre-1 April telephone call and correspondence were items of work that fell within the definition of legal services pursuant to section 199 of the Court and Legal Services Act 1990.

District Judge Wildsmith, sitting in York, found that no litigation services were provided to the litigation friend or the claimant prior to 1 April. The telephone call was linked to the letter that outlined the nature of the funding arrangement, he said.

As the agreement was signed on 1 April 2013, it fell foul of LASPO and was unenforceable as between lawyer and client, and so no costs were payable due to the indemnity principle. So he assessed the claimant’s bill at nil and ordered costs of £3,000 in favour of the defendant.

Will Mackenzie, senior managing costs advisor at DWF, who represented the defendant, said: “Pre 1 April 2013, solicitors and counsel were all in a rush to enter into CFAs and CCFAs to ensure that a success fee was recoverable.

“According to the judgment of District Judge Wildsmith, unless substantive work was done to progress the claim, claimants and counsel are likely to be found to have fallen foul of the relevant regulations and lose entitlement to recover their entire claim for costs.”

RTA: fraud allegation

The fixed recoverable costs regime applies to low-value personal injury claims that start under the RTA and EL/PL protocols but then exit and proceed on the multi-track, a circuit judge has ruled in a decision which is said to have implications for the conduct of higher-value cases as well.

HHJ David Grant said the provisions of the CPR effectively realised Lord Justice Jackson’s ambition to introduce fixed costs into the lower reaches of the multi-track.

The case, Qader & Ors v Esure Services Ltd [2015] EWHC B18 (TCC), concerned a claim by three claimants for damages put at between £5,000 and £15,000, but the defendant insurer alleged that the driver had deliberately induced the accident by braking sharply.

A deputy district judge directed that the case be allocated to the multi-track, and listed it for a case and costs management conference, and also set a date by which budgets had to be filed.

The matter then came before District Judge Salmon, who ordered that CPR 45.29A fixed costs would apply to the claimant’s costs, and not costs management. Refusing permission to appeal, he said the rule was clear on its face that the determining factor was not track but value in respect of the operation of the fixed costs regime.

He also noted that CPR 45.29J allowed the court to depart from the fixed costs regime if there were exceptional circumstances, while CPR 3.12(c) “clearly contemplates costs on the multi-track being subject to fixed costs”.

HHJ Grant gave the claimants permission to appeal but then rejected their case.

He said: “I reject Mr Skeate’s key submission [for the claimants] that ‘there is no room whatever for doubt that the fixed recoverable costs scheme was implemented only in relation to the fast-track’.

“To the contrary: the effect of inserting section IIIA into part 45 was to implement a fixed recoverable costs scheme in low-value personal injury claims arising out of a road traffic accident, which start under the RTA protocol but no longer continue under that protocol or the stage 3 procedure, but instead now proceed on the multi-track…

“Insofar as it is necessary to do so, I also note that Jackson LJ expressly contemplated ‘the possibility of introducing a scheme of fixed costs… into the lower reaches of the multi-track’. For the reasons stated above, it would appear that by amendment to the CPR, such a scheme of fixed recoverable costs has indeed been introduced into ‘the lower reaches of the multi-track’, certainly as regards cases which began via either the RTA protocol or the EL/PL protocol.”

Despite the allegation of fraud, HHJ Grant ruled that it was still a low-value claim. He observed that it was “discernibly of a different nature from the types of allegation often made in cases of commercial fraud in proceedings in the Chancery Division, the Commercial Court, or the TCC”.

He explained: “The central factual issue in the present case is simply whether the first claimant applied the brakes in such a manner that he induced a relatively minor road traffic accident to occur.

“While the claimants’ overall probity will no doubt be explored at trial, perhaps involving consideration of their conduct before the accident, at the accident, and indeed after the accident, and it may be necessary to consider some documents (such as relevant medical records), the overall nature of the case to my mind still answers the description of a low-value personal injury claim arising out of a road traffic accident, albeit proceeding on the multi-track.

“It does not therefore appear that the nature of the underlying proceedings is such that the implementation of fixed recoverable costs for such a claim would – of itself – cause affront to the overriding objective.”

Horwich Farrelly acted for the defendant and partner Paul Brandish said: “The application of the decision is wider than low value cases in which fraud has been alleged. There is a current tactic deployed by many claimant solicitors to submit claims through the portal even though the claim is likely to be in excess of £25,000.

“The behaviour seen by many insurers is that the claimant solicitors use the portal to obtain an early admission of liability then stonewall insurers’ attempts to progress the case whilst medical evidence is obtained without reference to the insurer. In these cases the first insurers often know of the full value of the claim is service of the medical evidence with proceedings. The judgment in Qader means that claimants adopting this tactic are now subject to FRC.

“Claims that are valued significantly in excess of £25,000 are likely to escape from FRC under 45.29J. There will, however, be an interesting counter argument as to conduct to be deployed against claimant solicitors who can be shown to consistently use this tactic. Further, if a claim is pleaded in excess of £25,000 but settles under that amount, then claimant solicitors could well find themselves bound by FRC.”

Supreme Court: 5:2 majority

The pre-Jackson regime that allowed the recovery of success fees and after-the-event insurance premiums from losing defendants was compatible with the European Convention on Human Rights, the Supreme Court ruled today.

In the heavily anticipated decision in Coventry v Lawrence [2015] UKSC 50, the expanded panel of seven justices was not united in its ruling, with Lord Clarke, who as Master of the Rolls (MR) commissioned the Jackson report, and Lady Hale dissenting.

The current MR, Lord Dyson, and his predecessor Lord Neuberger, the president of the Supreme Court, gave the main judgment together, with which Lords Sumption and Carnwath agreed.

They said the issue was not whether the system was unfair or had flaws – rather it was whether it was a disproportionate way of achieving a legitimate aim.

“In our judgment, there is a powerful argument that the 1999 [Access to Justice] Act scheme is compatible with the convention for the simple reason that it is a general measure which was (i) justified by the need to widen access to justice to litigants following the withdrawal of legal aid; (ii) made following wide consultation and fell within the wide area of discretionary judgment of the legislature and rule-makers to make.”

The judges observed that the potential unfairness of the 1999 Act scheme on unsuccessful litigants was mitigated by the fact that district judges and costs judges would perform the role of “watchdog”. They added: “Nor should it be overlooked that respondents could themselves enter into CFAs and take out ATE insurance.”

Lords Neuberger and Dyson concluded that while in some individual cases the scheme might be said to have interfered with a defendant’s right of access to justice, it was necessary to concentrate on the scheme as a whole.

“[It] was a rational and coherent scheme for providing access to justice to those to whom it would probably otherwise have been denied. It was subject to certain safeguards.

“The government was entitled to a considerable area of discretionary judgment in choosing the scheme that it considered would strike the right balance between the interests of appellants and respondents whilst at the same time securing access to justice to those who would previously have qualified for legal aid.

“It had to find a solution to the problem created by the withdrawal of legal aid. The government has now produced three different schemes. Each was produced after wide consultation. Each has generated considerable criticism.

“As already indicated, once civil legal aid was constrained to the extent that it was in 1999, it became impossible to come up with a solution which would meet with universal approval.”

They also decided that the fact the Court of Appeal “actively shaped the law relating to additional liabilities throughout the period from 2000 until 2013” implied that they were recoverable.

“In these circumstances, litigants and their lawyers had a legitimate expectation that the court would not (at least without reasonable notice) decide that these fees were in principle incompatible with the convention.”

In his dissenting judgment, Lord Clarke said the scheme was “plainly” a disproportionate way of achieving the legitimate aim “because it did not treat all respondents in the same way but chose a particular class of respondents on whom to impose liabilities far beyond the bounds of what was reasonable or proportionate”.

NHS: The more trusts pay to the CNST scheme, the more likely they are to be in deficit

The cost of clinical negligence to the NHS – which has quadrupled over the past decade – will double again over the four years, the National Audit Office (NAO) has found, as it called on the government to take a “stronger and more integrated approach” across the health and justice systems to rein costs in.

With claimant legal costs in lower-value clinical negligence cases the fastest-growing element of the growing tide, it said NHS Resolution should also work more closely with the Solicitors Regulation Authority over firms found to be grossly overcharging.

The NAO found no evidence yet that the rise in clinical negligence claims was related to poorer patient safety, “but declining performance against waiting time standards is one factor which increases the risk of future claims from delayed diagnosis or treatment”.

Spending on the clinical negligence scheme for trusts scheme (CNST) has quadrupled from £400m in 2006-07 to £1.6bn in 2016-17, and is predicted to rise to £3.2bn by 2020-21.

The number of successful clinical negligence claims where damages were awarded has more than doubled in the 10 years, from 2,800 to 7,300.

The fastest percentage rise was in claimant legal costs, which have gone up 533% over the decade – from £77m to £487m – and was mainly due to an increase in both the number of low- and medium-value claims up to £250,000 and their average cost. Defence costs were £122m over the period.

In 2016‑17, the claimant’s legal costs exceeded the damages awarded in 61% of successful claims.

Over the same 10 years, the total damages awarded rose by 316% (from £330m to £1.4bn), mainly associated with the rising damages paid for a small number of high-value, mostly birth injury-related, claims.

In 2016-17, 590 claims with a value above £250,000 accounted for 83% of the total damages awarded.

The NAO said the cost of claims was rising at a faster rate year-on-year than NHS funding, which was “adding to the financial pressures already faced by many trusts, which can have an impact on patients’ access to services and quality of care”.

Between 2010-11 and 2015-16, the average percentage of a trust’s income that went to the CNST increased from 1.3% to 1.8%. The NAO said this figure was likely to rise to about 4% by 2020‑21.

Trusts spending a higher proportion of their income on clinical negligence were significantly more likely to be in deficit – all 14 trusts which spent 4% or more of their income on clinical negligence in 2015/16 were in deficit.

According to the NAO, the Department of Health and NHS Resolution’s proposed actions to contain the rising cost of clinical negligence claims – fixed costs for cases worth up to £25,000 and a new alternative process for birth injuries – “are unlikely to stop this growth”.

Even if successfully implemented, the watchdog said, these would only save some £90m a year by 2020-21.

There was no “coherent cross-government strategy, underpinned by policy, to support measures to tackle the rising cost of clinical negligence”.

The NAO said: “The Department [of Health] and NHS Resolution, working with others including the Ministry of Justice, have identified many of the factors contributing to the rising costs of clinical negligence.

“But some of the biggest factors influencing costs fall within the remit of more than one government department or are largely outside of the health system’s control. These include developments in the legal market, the increasing level of damages awarded for high-value claims, and changes in the discount rate used by courts to calculate lump sum payments for future damages.

“Although some actions have been taken to control costs, such as reforms to ‘no-win-no-fee’ agreements, ensuring that clinical negligence costs have the minimal impact on the NHS’s ability to deliver health services to patients requires concerted and fundamental action across the government, particularly the health and justice systems.”

The NAO’s four recommendations were first that, by September 2018, the Department of Health, together with the Ministry of Justice and others, should “clearly set out a coordinated strategy to manage the growth in the cost of the CNST”.

Second, NHS Resolution should work with its members and other bodies to promote “better and more consistent data for complaints, incidents and negligence claims across the system”.

Third, NHS Resolution “should build its capability to analyse and provide greater insights on the causes of clinical negligence claims”.

The NAO said: “It should work with trusts and the legal firms representing claimants to better understand what motivates people to make a claim, and clarify how it can best provide the information that trusts need and apply its resources accordingly.”

Fourth, it called on NHS Resolution to work more closely with NHS Protect, the Solicitors Regulation Authority and other regulators to ensure that “risks to its claims operations and to NHS resources are shared and addressed systematically”.

It explained: “NHS Resolution has achieved significant savings from contesting unmerited or excessive claims and legal charges. However, data are not always shared with or addressed by relevant regulators. NHS Resolution and the legal services regulators should routinely exchange information on risks identified, and feed back actions taken as a result.”

On excessive costs, the NAO reported that, in 2015-16, NHS Resolution successfully challenged costs in 2,600 claims (but failed in another 2,500), saving £144m, or a third of the costs claimed.

In one case, it successfully challenged an £8m bill from a single firm and settled the payment for £500,000.

The NAO said that part of the reason for escalating costs was cases taking longer to resolve and also budget restrictions.

Between 2010-11 and 2016-17, the average time taken to resolve a claim following notification increased from 300 to 426 days. “Our analysis indicates that, on average, an extra day taken to resolve a claim is associated with an increase in legal costs of more than £40.”

It acknowledged the need to strike a balance between resolving cases quickly and robustly defending unmerited or excessive claims.

“It is not clear whether or not the time taken to resolve cases is optimal. There are no data against which NHS Resolution’s performance can be benchmarked and the optimum time to take will vary on a case-by-case basis.

“Resolving clinical negligence claims is adversarial in nature, leading to differing views on whether the time taken to resolve cases is optimal. NHS Resolution has limited control over some barriers to resolving cases more quickly, such as the time taken by the court to process its cases.

“NHS Resolution is required to remain within its annual cash budget agreed with the department, and so must manage the pace of settlements to remain within this limit.”

Amyas Morse, head of the National Audit Office, said: “At £60bn, up from £51bn last year, the provision for clinical negligence in trusts is one of the biggest liabilities in the government accounts, and one of the fastest growing. Fundamentally changing the biggest drivers of increasing cost will require significant activity in policy and legislation, areas beyond my scope.”

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Hurley: liability insurers will take heart from the findings

Posted by Paul Hurley, director and head of ATE at ARAG, a Litigation Futures sponsor

A recent survey by Liverpool law firm O’Connors concluded that firms are taking on an unknown credit when agreeing to take on a personal injury claim risk-free.

According to the poll, 23% of respondent law firms are providing client indemnity for the adverse costs risk, stepping into the shoes of a regulated insurance product. Insurance companies, which are regulated by the Financial Conduct Authority (FCA), are required to abide by stringent solvency requirements that are closely monitored by the FCA.

Such a process is in place to protect clients, making sure that insurers have the required capital in reserves to pay for claims that can occur many years in the future. Providing unregulated insurance cannot guarantee the payment of claims that are lost or abandoned, potentially leaving clients with a liability should a firm cease to trade.

This poll will not have passed unnoticed by liability insurers and no doubt they will take heart from the findings. Firms who provide client indemnity for the adverse costs risk will encounter opponents who are financially strong and ready for a fight. There will be cases where the chances of winning are evenly balanced leaving firms in a precarious position. Although firms have a duty of care to the client, they will also have an eye on costs, making it difficult to provide a totally impartial view on the merits of the case. Potentially this could lead to undersettling cases.

Claim reserving is a technical process, requiring years of data and information together with knowledge and experience to accurately calculate reserves by case type. This is no easy task and if not approached in a methodical manner, it can lead to disastrous consequences.

Solicitors cannot safeguard themselves and their clients by simply looking back at a few years’ experience in the hope that this will provide an accurate assessment for future reserving. Claims can take years to settle, and the sting in the tail can prove fatal to a loss or profit. Accounting for reserving can also weigh heavily on the balance sheet and so firms need to consider the lost opportunity cost – that is, of course, assuming that firms are accounting for claim costs!

Also revealing is that just over 10% recommended a policy only when the client’s case had reached a point when the risk to adverse costs materially increased, meaning insurers are picking up only the riskier cases. Insurers rely on a spread of risk and so should this trend be correct, insurance premiums will substantially increase or firms will find they are unable to obtain insurance.

Couple this with 41% already believing that after-the-event insurance premiums do not fairly reflect the client’s risk exposures, and premiums will increase rather than reduce, meaning claimants awarded medium to low compensation could find their damages completely eroded.

The legal expenses insurance industry will provide solutions but firms need to understand that a process needs to be followed to ensure a long-term future, and that a spread of risk is the only way of providing insurance at a reasonable cost, whilst providing peace of mind that claims will be met.

Posted by Neil Rose, Editor, Litigation Futures

The good old days

In some ways it was Lord Justice Jackson’s intention to take us back to the 1990s. While he was not necessarily advocating a return to Rachel haircuts, Girl Power and MC Hammer trousers, he clearly felt nostalgia for the days when claimants had to pay success fees out of their damages.

But it is more than just the end of recoverability that is taking us back to that era, according to a debate on life post-Jackson held in London last week by personal injury mediation provider Trust Mediation.

The event was held under Chatham House rules, meaning I can only identify the broad affiliation of speakers, rather than their names. But one thing that came through strongly was that what goes around, comes around.

One claimant lawyer asked the representative of a large insurer whether qualified one-way costs-shifting (QOCS) will mean a return to the “blood payments” insurers would make to settle a case brought under legal aid where it was cheaper to pay out than settle. (The insurer suggested those days had never really gone away, arguing that claimants are being sold short now in certain circumstances – “some claimant solicitors are doing cases they shouldn’t be allowed near”. He predicted that the changes will not mean more under-settlement.)

Another claimant lawyer reckoned that the lack of additional judicial resources will mean that, like after the introduction of the Civil Procedure Rules in 1999, there will be a short burst of active case management before life returns to how it was. This was countered by the suggestion that the stronger powers of strike-out in new rule 3.9 should encourage close interest in the other side’s compliance.

One thing not reminiscent of the 1990s, however, was the proposed levels of portal and fast-track fees. From the claimant side was the concern they strengthen the economic incentive to churn cases and just settle them – as well as complaints that the figures do not take account of the costs of client care – while the defendant side saw an opportunity for their opponents if they change the way they operate, especially by making “well-judged part 36 offers”. Claimant lawyers acknowledged that part 36 could be a potent weapon for non-portal cases.

There was some debate over whether Jackson LJ was actually right to recommend that clients should have independent advice before entering into a damages-based agreement – which the government rejected – given the greater risk of conflicts of interest between solicitor and client, while after-the-event (ATE) insurers vented their worry about increased cherry picking, making delegated authority schemes unattractive.

Perhaps unsurprisingly, given the hosts, mediation was seen as having a greater role in the new world of personal injury litigation. “The dysfunctional court system means there’s a great opportunity for mediation,” said one claimant lawyer, while an American lawyer said that most large personal injury cases in the US are mediated.

The session finished with the panellists who led the discussion being asked to name one change they would like to see before 1 April 2013. Two claimant lawyers wanted to see a delay in implementation while a proper assessment of the cumulative impact of the reforms is undertaken, while another said ATE should remain recoverable.

There was also a plaintive call for a detailed practice direction on the new proportionality rule, and for a costs council with a lay majority, while an ATE insurer said the reforms, and particularly QOCS and the end of recoverability, should be piloted to test the impact on claims numbers.

The insurer questioned why fixed costs for EL and PL are higher than those for RTA. A claimant lawyer replied that the fact the fee for a £1,000 EL claim is more than that for a £25,000 RTA claim simply demonstrated that those setting the policy do not understand it.

Certainly there was no shortage of expertise in the room, and a feeling of frustration that the government has largely not listened to it. Those at the coalface may know best, but then when you are that close to it, to mix metaphors, can you see the wood for the trees? The government thinks it knows best, and who knows – maybe it does. Just like it did in 1999…

Richards: much less tolerant approach towards non-compliance

The Court of Appeal has rigorously applied the Mitchell guidance for the first time, overturning a decision to grant relief from sanctions for non-compliance with an order requiring service of witness statements by a specified date.

Though the lower court had granted relief because of the potential impact on the reputation of several individuals, the appeal court said such considerations should not carry much weight once the sanction has been imposed.

Durrant v Avon & Somerset Constabulary [2013] EWCA Civ 1624 involved a litigant in person bringing multiple claims over her arrest by the police, and a final order that the defendant file and serve witness statements by 12 March 2013, with the sanction that it would not be able to rely on any evidence served after then.

The defendant served two witness statements on 13 March, a further four in mid-May, shortly after applying for relief from sanctions. Shortly before trial in June it made a further application for relief from sanction so as to allow two more officers to be called.

Having used the nine factors in the old rule 3.9 as a starting point, HHJ Birtles went on to consider the new 3.9 before deciding that he should grant relief given the potential effect on the careers and reputations of individuals and the police force if the officers concerned were unable to give evidence, and on the public interest in scrutinising the actions of police officers in the light of all of the evidence from both sides.

The Court of Appeal, led by the deputy head of civil justice Lord Richards, sitting with Lewison LJ and Mr Justice Coleridge, said the decision was “plainly wrong” in the light of Mitchell – which, it noted, came after the judge’s ruling.

The court said HHJ Birtles should have started by bearing in mind that the sanction was “a proportionate sanction which complied with the overriding objective” and found that he did not approach the new rule 3.9 in a sufficiently tough way.

It said he did not give greater weight to the two considerations specifically mentioned in the new rule – the need for litigation to be conducted efficiently and at proportionate cost, and the need to enforce compliance with rules, practice directions and court orders.

“Nor did he appreciate how much less tolerant an approach towards non-compliance with rules, practice directions and orders is required by the new rule,” said Richards LJ.

The court noted how late most of the statements had been served and the applications for relief had been made, ultimately meaning that the applications were heard on the first day of trial and led to an adjournment.

“Even if on this occasion… it was possible to fill the vacated trial slot with other business, the adjournment of a lengthy trial and the need to relist it for another date is detrimental to the efficient conduct of litigation.”

Richard LJ said the considerations that led to HHJ Birtles granting relief have only a “limited role” to play in the context of relief from sanctions.

“They may be relevant to the question of how much time should be allowed for service of witness statements in the first place, and even to the question of what sanction should be imposed for failure to meet the deadline; but once the court has determined both the deadline and the sanction applicable for failure to comply, we do not think that such considerations can properly carry much weight in determining whether to grant relief from the sanction for non-compliance”.

In light of the history of the case, and of the failure to make a prompt application for relief, the court also overturned the relief granted in relation to the two statements served the day after the deadline, a failure that might otherwise have been deemed trivial.

Perrin: code has to mean something

Third-party funders will need to maintain a minimum of £2m of capital if they are to be members of the Association of Litigation Funders (ALF), after it today strengthened its capital adequacy requirements.

As well as updating its code of conduct, the ALF has introduced a detailed complaints procedure by which each funder member will agree to be bound.

The ALF currently has eight funder members: Argentum Capital, Burford Capital, Calunius Capital, Harbour Litigation Funding, Redress Solutions, Therium Capital Management, Vannin Capital and Woodsford Litigation Funding. Juridica Investments is an associate/overseas member.

Previously the code just required members to cover aggregate funding liabilities under all of their funding agreements for a minimum period of 36 months.

Now they have to maintain £2m of capital or such other amount as stipulated by the ALF, and accept a continuous disclosure obligation in respect of their capital adequacy, including a specific obligation to notify the ALF and clients if the funder “reasonably believes that its representations in respect of capital adequacy under the code are no longer valid because of changed circumstances”.

The new code further requires each member to be audited annually by a “recognised” audit firm and provide the ALF with a copy of the audit opinion on their most recent annual statements, along with “reasonable evidence from a qualified third party” that the funder satisfied the minimum capital requirement.

ALF chairman Leslie Perrin, who is also the chairman of Calunius Capital, said the increasing stringency of the capital adequacy requirements – the £2m is likely to increase next year – reflected the experience members had gained of what was needed to operate securely in the market, while at the same time not introducing “arbitrary obstacles” to potential members.

He added: “If the code and membership of the ALF is going to be some kind of mark of approval, the code has got to mean something.” Similarly, “you can’t have a code without a complaints procedure”, although to date the ALF has never received a complaint about a member anyway – although it has about non-members.

The robustness of the code made it harder for lawyers to steer clients to funders who are not members, Mr Perrin noted.

The changes have been welcomed by the Civil Justice Council (CJC), which is chaired by the Master of the Rolls, Lord Dyson. In a statement, it said: “The CJC wishes the ALF success in its continued efforts to progress and achieve a successful and robust regime of self-regulation for litigation funding in England and Wales.”

The other main change to the code makes it more obvious that it applies to any entity with which an ALF member is connected.