So J Day has arrived. Despite attempts to derail the process, the major changes to the way in which personal injury claims are dealt with as set out in the Legal Aid, Sentencing and Punishment of Offenders Act 2012 came into effect on 1 April 2013. More change will follow in the coming months with the extension of the low value personal injury scheme and the introduction of more widespread fixed costs.
So what practical impact will the change have for local authorities? Here is a run through of the good, the bad, the indifferent and some practical examples of the impact. It is important to bear in mind that as highlighted below, while some of the changes happen immediately, others will only be felt by local authorities over the months and years ahead.
Recoverability of Success Fee
The successful claimant will no longer be able to recover any success fee from a defendant. Depending on the terms of any CFA entered into by the claimant and his solicitor, the claimant may still have to pay a success fee, but out of the damages he or she recovers and this is capped to a maximum of 25% of the pain, suffering and loss of amenity and special damages aspects of those damages. This applies to any CFA entered into on or after 1 April 2013.
Recoverability of Premium for After the Event Insurance (ATE)
This too will no longer be recoverable from the defendant, even if the claimant succeeds in his claim. The rule change also applies to a payment to a membership organisation such as a trade union, and the notional premium that is claimed by Union solicitors. Again this will not be recoverable if the insurance has been taken out after 1 April 2013. This is good news for local authorities as the level of premiums claimed has been significant, particularly in employers' liability claims.
Back in November 2012 the Ministry of Justice set out the proposed fixed costs for both portal and non-portal claims. Essentially despite wide consultation and attempts to challenge the changes under judicial review, the costs set out remain intact save for some limited exceptions. The judicial review has though delayed matters by four months. The most relevant exception from the local authority perspective is that EL disease cases which drop out of the portal are to be excluded from the fixed costs regime pending further work by the MoJ on the costs in those cases.
When seen in conjunction with the lack of recoverability of both success fees and ATE premiums this is the change that is likely to have the most impact on cutting the cost of claims from a local authority's perspective. It does not though apply to accidents occurring (or in disease claims to letters of claim sent) before the end of July 2013.
For example, a highway tripping claim which happens after the end of July 2013 where liability is admitted and damages of £10,000 are agreed, the maximum that can be recovered if the claim settles within the portal is £900 plus disbursements such as the medical report; and the maximum where liability is contested and following a trial is £3,790 plus 27.5% of the damages i.e. £2,750 plus an advocacy fee of £690; a total of £7,230 plus disbursements such as medical report and court fees. When one compares this with the figures routinely paid or awarded in those cases currently, this a significant saving for the local authority.
Whilst this will have a limited impact on local authorities it is new and worth mentioning. In multi track cases issued after 1 April 2013, costs management is likely to apply. The exercise is capable of being used to significantly reduce recoverable costs in multi track claims. At various stages in the case, the parties will have to produce a budget showing costs incurred to date, and anticipated future costs. The court will consider and either approve or reject the costs budget, revising it as it considers appropriate. Once a budget has been set, then the court will pay particular attention to the budget, for example at the end of the case when deciding what costs to award. If a party incurs costs above their budget, they will struggle to recover the excess. Whilst in a claim where liability is not in issue it might on initial consideration be thought that there is little point in filing a budget, in fact the chances are that the defendant's costs budget is likely to be lower than the claimant's, so filing such a budget could help in reducing the level of costs approved by the court. It should also prevent any nasty surprises at the end of a claim and allow more accurate reserving.
10% increase on the level of General Damages
The judicial valuation of compensation for pain suffering and loss of amenity will be increased by 10% with effect from 1 April 2013 and will apply to all judgments given on damages from that date unless the claim is being pursued on a CFA entered into before 1 April 2013. This will be a significant issue for local authorities and will mean an increase on current negotiated settlement levels. However, as the vast majority of claims which were taken onto retainers by claimant solicitors before 1 April 2013 will involve a success fee being claimed from defendants at the end of the case, this change will only take effect over the next months and years. Its impact is essentially reserved for claims taken onto retainers by claimant solicitors after 1 April 2013 and care should therefore be taken in the meantime not to pay the increased level of PSLA where a success fee is going to be claimed.
Qualified One-way Costs Shifting (QOCS)
This is a fundamental change and will be of significant impact, particularly in the routine highways case. It applies only to personal injury or fatal accident claims and only to those cases where there was no funding (CFA, ATE or union funding) in place prior to the 1 April 2013. In any personal injury claim where the claimant does not have the benefit of a CFA or union funding QOCS applies from the 1 April 2013 However, again, as the vast majority of claims which were taken onto retainers by claimant solicitors before 1 April 2013 will involve a success fee, an ATE premium, or a trade union notional premium being claimed from defendants at the end of the case, this change will also only take effect over the next months and years. As with the PSLA changes, the impact of this change is essentially reserved for claims taken onto retainers by claimant solicitors after 1 April 2013. Current and some future claims will not involve claimants having QOCS protection and those claimants will, as now, be exposed to the risk of paying defence costs if claimants are unsuccessful.
With new claims taken onto retainers post 1 April 2013, the general rule which previously allowed a successful defendant to recover its costs will no longer apply and whilst a successful defendant may still obtain a costs order in the normal way QOCS will limit the extent to which the order can be enforced.
There are a limited range of exceptions to the general rule:
- When a case is struck out as disclosing no reasonable grounds for bringing the proceedings; or as an abuse of process or on grounds of conduct. Whilst such cases do not arise routinely, every once in a while a case such as this crops up.
- Where the claim is found on the balance of probabilities to be 'fundamentally dishonest' and the court gives permission for QOCS to be disapplied.
- Where the claim is brought for the benefit of a third party and the court gives permission for QOCS to be disapplied.
- Where the claimant fails to beat a defendant's Part 36 offer, the defendant's post Part 36 costs can be offset against the claimant's damages and interest on those damages (discussed further below in relation to Part 36 offers).
In the Practice Direction to supplement the Rules it is said that the determination of whether a claim is 'fundamentally dishonest' is to be determined by the trial judge, presumably to avoid any satellite litigation as to the meaning of the term.
Given the general rule that costs are unlikely to be recovered, in running a successful defence in a case taken on by a claimant solicitor after 1 April 2013 where the claimant will have QOCS protection a local authority will now have to bear its own costs. With the high success rate in highway tripping cases this is a significant factor. This may influence the decision-making process particularly in those riskier cases. When the fixed recoverable costs are introduced for accidents occurring after the end of July 2013 then a costs benefit analysis can properly be carried out.
Part 36 offers
The sanctions where a defendant fails to beat a claimant's Part 36 offer have been beefed up. If the claimant beats their own offer at trial, then the defendant already faces the following sanctions, unless the court considers it unjust to impose them:
(a) It will have to pay interest on the damages awarded, at a rate not exceeding 10% above base rate, for some or all of the period after the offer should have been accepted.
(b) It will have to pay the claimant's costs on the indemnity basis, not the standard basis, from the date when the offer should have been accepted.
(c) It will have to pay interest on those costs, at a rate not exceeding 10% above base rate.
The court will also now order the defendant to pay an additional payment. For damages awards of up to £500,000 the claimant gets an extra 10% of the amount awarded by the court. For damages above £500,000 the claimant gets 10% on the £500,000, and 5% of anything between £500,000, and £1million up to a maximum payment of £75,000.
The result of these changes means that any settlement offer made by the claimant will need to be even more closely examined. Even in a case where the judge awards damages of, say £10,000, if this exceeds a claimant's offer then the effect of the new penalty alone would be to add another £1,000 to the overall cost of the claim.
This new rule only applies to claimants' Part 36 offers made after 1 April 2013 so watch out for claimants withdrawing and remaking or slightly modifying offers made prior to the 1 April.
There is a small change to the position when a claimant fails to beat a defendant's offer. This is one of the exceptions to QOCS. So again, it will only take effect essentially where the claimant solicitor takes the case onto a retainer after 1 April 2013. The defendant will still be able to seek an order for the claimant to pay its costs usually from 21 days after the date when the offer was made out of damages awarded and interest on those damages. However the defendant may not be able to recover all of the costs that it has incurred in that period of time if the defendant's post Part 36 costs exceed the level of damages and interest. There is no specific reference in the rules to an ability to offset any balance of defence costs which exceed the claimant's damages from the claimant's costs, but there is a school of thought that the existing set off provisions within the rules may allow this and the point will no doubt be tested in the future.
The defendant makes an offer to settle the claimant's case for £7,000. The claimant has incurred costs of £10,000 at the time the offer was made. The claimant does not accept the offer and proceeds to trial recovering £5,000 damages. The defendant seeks an order for its costs incurred after 21 days from the making of the Part 36 offer. Those costs are £8,000. The Order made by the court will include the following:-
- An award of damages to the claimant £5,000.
- An award of costs in the claimant's favour in the sum of £10,000.
- An award of costs in the defendant's favour in the sum of £8,000.
Thus the defendant pays £10,000 to the claimant's solicitors and £5,000 to the claimant but is only able to recover £5,000 of its costs as the defendant can only enforce its costs order against the claimant's damages pursuant to Section II of CPR 44 (CPR 44.13-44.17). As we say, it remains to be seen whether the defendant will be able to raise the argument of set off of the remainder of its costs of £1,000 by setting one costs order against the other.
The Small Claims Track
Without a great deal of fanfare, the small claims track limit for non-injury claims has doubled to £10,000 for all claims issued on or after 1 April 2013. For injury claims where the value of the injury exceeds £1,000 the small claims track will not apply so the position remains unchanged.
That is not to say that this is a finalised position. The government response to the consultation on raising the small claims limit either for all motor claims, or purely for whiplash claims to £5,000 is awaited. The Secretary of State for Justice has indicated that he believes there is an argument to raise the small claims limit for all injury claims to the same £15,000 figure insisting that the reforms will make it less likely that fraudulent or exaggerated claims will be made and if they are they can be properly tested. Watch this space.
We have all seen cases where damages have been agreed at £3,000 and then the costs have been about £20,000 or even more. The new regime introduces a new definition of proportionality. The key point is that costs will be regarded as proportionate only if they bear a reasonable relationship to various factors including the sums in issue. Costs which are disproportionate in amount may be disallowed or reduced, even if they were reasonably, or even necessarily, incurred. In other words the pressure will really be on claimants to keep their costs down. The transitional provision is that the new definition will not apply to work done before 1 April 2013, nor will it apply to future work in cases that went into litigation before 1 April 2013.
To view the rest of the articles in this local authority brief, click on the titles below:
Health & Social Care Act 2012
Northumberland County Council wins dispute over care home fees
Counter fraud focus: contempt of court
Case law update: Highways
Case law update: Other local authority litigated claims
Rachel Coppenhall speaks to William Featherby QC