Monday, 19 November 2012

First thoughts on the proposed new costs regime for Personal Injury cases

Today Helen Grant, Parliament Under-Secretary of State for Justice, has provided details of her proposals for fixed costs for RTA, EL and PL personal injury cases.  This new regime, ostensibly to commence on 1st April 2013, is part of a substantial reform of the legal costs of civil litigation which is known as the Jackson reforms (or simply Jackson), named in honour of its progenitor Lord Jackson.

The proposals are all focussed on costs for Claimant personal injury lawyers, that is that vanguard of lawyers who act to help clients claim compensation when they have been injured through no fault of their own. 

The Portal

There has been considerable speculation about just what would be done to the costs of road traffic accident claims through the portal.  These are currently £400 for stage 1 costs plus £800 for stage 2 costs, a total of £1,200.  For claims under £10,000, some were suggesting £800 or even £600.  The actual proposal from the Ministry of Justice is in the end £500.  That’s a more than 50% reduction on the current amount.  Feed that into your business plan.

The portal is due to be expanded in two dimensions. The vertical extension takes the upper ceiling to £25,000 and the total costs up to stage 2 for a case of that size is according to the Ministry going to be £800. That’s right. For dealing with a claim of £25,000 the Ministry thinks that a lawyer should recover base costs totalling £800 from the Defendant. 

On the face of it, the lawyer could charge lets say a 100% success fee to their client and recover an additional £800 for costs. It is not clear at the moment whether the market would stand this sort of thing. There is clearly now a long tradition of offering clients a 100% guarantee concerning their compensation and clients, or consumers as we are now expected to call them, may come to demand this.  But in this regime, it maybe that lawyers have to do what they can to stand up for themselves.

It is also the government’s intention that employment and public liability claims are to be pursued through the portal.  There have been misgivings about this both by Professor Fenn, who wondered whether in fact this was worthwhile as it would appear many of these sorts of cases would fall out of the portal, and by a representative from the portal company itself who appeared unsure it would be ready in time for the government’s deadline of 1st April 2013.

That said, the costs the government is suggesting for these sorts of cases for both stage 1 and stage 2 an eye watering £900 for cases less than £10,000 and £1,600 for cases between £10,000 and £25,000.  Claimant lawyers who are familiar with this sort of work will, quite simply, be stunned at the suggestion that they will only be able to recover £1,600 for a £25,000 employment liability claim even if liability is admitted early as it would have to be for a case to remain in the portal to the end.

These figures will I suggest have very important implications for firms carrying out this line of work.

It is still not clear even at this advanced stage how exactly a portal for EL and PL claims would work.  The RTA portal works because there is a big database of available information linking defendants directly to their insurers. If you know a vehicle’s registration number you can look up the insurer on the MIDIS database and lodge a claim through the portal against that insurer.

There is no similar database that can so easily link defendants in EL and PL claims directly to their insurer. Just knowing who a defendant employer is does not immediately suggest who its insurer might be.  Even if the portal is set up to deal with EL and PL claims it would appear that as a claimant solicitor I would still need to write (in a very old fashioned pre-internet manner) to the defendant company to make polite enquiries as to who their insurer is and then lodge it on the portal.  If I’m going to do that, wouldn’t it be quicker simply to write a good old letter of claim to them to pass to their insurers as we do now? 

In the absence of a MIDIS style database this would seem to be the only way to do this.  I would be very glad to hear from anyone who knows what exactly is involved with this. 

Fixed Recoverable Costs

As noted above, many people expect that even after 1st April 2013 many claims, especially EL and PL claims, are going to exit the portal anyway, most importantly because liability is denied.  We are then back in the familiar world of litigation as it is at present. The Ministry of Justice has set out its thoughts on a fixed costs system for dealing with these sorts of claims on the fast track and this will also cover RTA claims that have exited the portal as well.  This is based on a similar system proposed by Lord Jackson in his report, although the figures the Ministry of Justice has put forward are rather lower.

At present these costs are dealt with either by the predictive costs regime for pre-litigation RTA cases under £10,000 or normal costs based on chargeable units of time.  The new system set out by the Ministry of Justice is based on a fixed figure relating to the type of case and the stage it has reached with an addition of a percentage based on the damages recovered for the client. The calculations are set out in a matrix provided in the correspondence from the Ministry of Justice on this. 

Again, the first impression is that they are tremendously restrictive and mean lawyers are going to have seriously re-think the way they operate when dealing with these cases.

For example, let’s consider a typical RTA case that settles for £3,000.  An RTA case can easily exit the portal and the most important reason for doing so will be that liability is denied. This can entail a full fire fight in trying to prove the case with the taking of statements, obtaining additional evidence and so forth.  If the case is settled without issuing, the matrix suggests costs should be set at £700. 

This figure seemingly does not include VAT or disbursements although the figures post issue might suggest otherwise.

If this case was issued and then settled before allocation (for example it was settled very quickly after proceedings were issued and served as sometimes is the case) the costs would according to the Ministry’s matrix be £1,760. 

Interestingly, the steps in the matrix after issue suggest the court fees are included in the fixed costs and I would be grateful for this point to be clarified.  If you examine the calculation for RTA cases settled post issue but pre allocation this is exactly £720 less than for a case with the same quantum if settled after allocation but before listing.  This figure of £720 is interesting as of course it is obviously £500 plus the appropriate Allocation Questionnaire fee of £220.  One can only hope the £220 fee is not then deducted from these costs as the figures might suggest. 

Another typical case a busy personal injury practitioner might deal with is a low end RTA case where the Defendant’s insurer or solicitor has alleged the accident happened at too low a velocity too cause the injury suggested.  If fraud is alleged, these cases can be allocated to the multi-track, in which case the matrix will not apply.  If not allocated to the multi-track in this way, the case will still have to be fought at every stage. Witnesses will have to be called, more evidence obtained including perhaps an engineering report and their might be the odd interim hearing for directions or a CMC.  Let us say such a case involving damages of £1,500 was ultimately settled very shortly before trial when the Defendant’s solicitor decides enough is enough.  Here the matrix calculation indicates recoverable costs of £2,955. 

With the larger, £15,000 plus EL and PL claims things start to look a little more realistic in terms of existing practise particularly as a claim gets ever nearer trial.  With the interplay of qualified one way costs shifting and its exception for cases where a claimant fails to beat a Defendant’s Part 36 offer, it’s possible that fewer claims will actually go to trial as clients are likely to want to settle rather than lose the costs protection afforded by the QOCS rules.

The proposals are of course up for consultation and it will be interesting to see what further developments will arise and to think through the implications of FRC on QOCS and DBAs.  With the lower level of costs suggested, do DBAs start to look more attractive? If so, what about the conflict inherent in suggesting them to clients?  Is all this really going to be resolved by 1st April 2013?

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