Rule committee decides against revisiting budgeting limit for PI cases despite discount rate impact

Underwood: major impact of new rate

The Civil Procedure Rule Committee has decided against changing the financial threshold for costs budgeting in high-value personal injury cases, despite the prospect of the new discount rate taking a significant number of claims out of the regime.

A paper before the committee – drafted by member Andrew Underwood, a partner at defendant law firm Keoghs – argued that there was no practical difference between a case that was within the £10m costs management threshold before the discount rate change, and one that moved out of the regime after it.

However, the recently published minutes of the committee’s discussion at its June meeting recorded that “it would not be appropriate to react to this change, as there is an ongoing consultation on how the rate should be calculated, and that the outcome of the Jackson review should also be taken into account”.

Mr Underwood’s paper demonstrated the major impact of the new -0.75% rate.

He said that at least 70% of future losses in catastrophic injury cases reflected damages for lifetime care and case management.

This meant that in any cases where the capitalised value of this head of loss was more than £7m, “then the claim may be capable of being certified as having a value of more than £10m overall (when combined with past losses and all other heads of claim)”.

Under the new rate, a person with 24/7 care needs from a single carer might recover around £140,000 a year, and if they have a life expectancy of more than 50 years, they will be excluded from costs management.

“The arbitrary impact of the threshold is clear to see in my view. The number and type of issues to be resolved are precisely the same for a 140k a year regime in a clamant who might live 50 years as opposed to 20 years. It seems a little odd that one might be excluded from ‘default’ cost budgeting and the other would not be?

“The impact of the change has been to remove a significant proportion of 24/7 single carer cases out of default cost budgeting and to reduce generally the number of maximum severity cases generally from the rigor of default cost budgeting.”

He said the outcome would be the same for cases with lower care costs but with high annual earnings.

While acknowledging that the court has the power to order costs management in cases worth more than £10m, or in unspecified claims where the claimant certified that the claim would exceed the threshold, Mr Underwood said there were problems with this.

Listing the issues, he explained:

  • The certification of value (by the claimant alone) is done on the issue of proceedings and may not be agreed;
  • The certification ignores liability disputes etc and other factors that may bring the value down;
  • By the time the court issues its notice of allocation N149C, “the die is already cast as far as the claimant legal team are concerned and the case in their eyes may be exempted from [CPR] 3.12 and 3.13”;
  • This means that the directions questionnaire will be filed and lodged and the first time the court might address the issue is going to be at the time of the CMC itself; and
  • If the court then exercises its prerogative to require budgets to be exchanged and to then consider cost management, “material costs will have been incurred and case management directions given without regard to budgeting”.

Mr Underwood continued: “There is not a lot of difference in the extent of the work needed in a £5m claim as against a £15m or £20m claim.

“The range and type of issues will be broadly similar, and the features that inflate the value to more than £10m are principally issues of mathematics by virtue of the scale of multiplier that is in turn driven by the discount rate.

“I am not seeking to denigrate this hugely important work, but if an £8m file was capable of being budgeted in January of this year, then it is still capable of being budgeted in May even if the value has jumped to £24m.The issues are exactly the same, they just cost more.

“All these issues are grounds that might mean that the exemption was unjustified from the outset, but the current rules and practice direction may not allow the point to be dealt with till too late in the budgeting and case management process generally.”

Mr Underwood concluded that if the intention was to include the vast majority of personal injury cases within the budgeting regime, “the increase by a factor of two or three in the value of these cases may suggest that that intention is now under threat”.

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