The big issue - Who should meet the cost of funding personal injury litigation?

If a 584-page report can be distilled into one basic question it is this: who should meet the cost of funding personal injury litigation?

Sir Rupert answers his own question emphatically: defendants should no longer meet the cost of these additional liabilities, and the Back to the Future solution is for the burden to fall onto the individual claimant.

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What has changed in 10 years that makes it now so iniquitous that defendants should continue to pay success fees and after the event (ATE) premiums?

Liability insurers have certainly complained long and loud over this additional expense and the system has been mired in satellite litigation. Success fee percentages have gone down over this period, so that in the vast majority of PI cases success fees are fixed at 12.5% or 25%. ATE premiums have, however, increased significantly, partly because there is no effective mechanism whereby the payer can control the cost. But necessity currently trumps proportionality, as it has to if ATE insurance is the vehicle for costs’ protection for injured people.

No easy solutions

Sir Rupert has recommended an alternative to ATE insurance: qualified one-way costs shifting (see this issue p 519). The principle is fine. Most PI claims are successful and so defendants pay out much more in ATE premiums for those successful cases than they recover in costs for unsuccessful ones. By replacing ATE with one-way shifting the defendant makes significant cost savings while the claimant’s costs protection in losing cases is preserved. Both sides are protected (the “qualified” bit) by a mechanism akin to the legal aid costs protection provision in the Access to Justice Act 1999 that renders the claimant liable for some costs in fraudulent and frivolous claims or where he is “‘conspicuously wealthy”.

There are, however, two important flaws with this proposal:

l the mechanism needs to be refined to offer the claimant proper protection. As drafted it is very wide, allowing a judge considerable discretion to penalise a claimant in costs.

l ATE insurance meets the cost of disbursements (approximately £500 according to Sir Rupert’s figures) in losing cases. Without an ATE policy these costs will be left in the lap of the claimant or his lawyers.

Claimant lawyers already fund disbursements themselves (subject to reclaiming them under the ATE policy in losing cases). Sir Rupert suggests they may afford to write off disbursements in unsuccessful cases because of the savings they make following abolition of referral fees. This is wishful thinking. In short this proposal on disbursements will torpedo the CFA model and will deter many claimants from enforcing their rights.

Disbursement levy

The answer could be to add a disbursement levy on defendants in winning cases. This would be a relatively modest sum when spread across all such cases. However, Sir Rupert is implacably opposes such a scheme—he considers it “perverse” that defendants should have to pay that part of the ATE policy which covers disbursements in losing cases.

Even if abolishing recoverability can resolve the ATE issue it does not follow that it can work for success fees; indeed there are good reasons why it will not. Sir Rupert’s proposals involve a balancing act whereby the claimant takes on the liability for the success fee (subject to a 25% cap) but gains a 10% premium on general damages. He is persuaded by his academic assessor Professor Fenn that the “great majority of claimants (whose cases settle early)” will be better off.

If one tries to model a range of claim values using this formula, whether or not the claimant is better off or not rather depends on what assumptions one makes about the proportion of general damages to specials, the amount of success fee that will be charged to the claimant under Jackson, the time the case takes to settle, and the applicable level of base costs.

For example at the bottom end of the scale, if in a road accident claim in the new road traffic accident claims process that settles at Stage 2, general damages are £1,000, specials are £200, base costs are £1,200, and the success fee is 12.5%, the claimant will gain £100 in general damages but will pay £150 in success fee and so will be £50 worse off.
At the top end of the scale Stewarts Law LLP have demonstrated in their response to the Jackson report that in serious injury cases, where general damages are small as a proportion of overall damages, the increase in generals would be more than offset by payment of the success fee, such that in their dataset the average claimant would lose over £47,000 from his damages.

It is not sensible to proceed with a radical proposal based on doubtful and unsubstantiated assertion about its effect, and as part of the post Jackson report evaluation process the Fenn figures must be published.

Ultimately, claimants are merely seeking compensatory damages for negligently caused injury. They should not be undercompensated to relieve tortfeasors of some of costs burden of litigation. Liability insurers are professional risk managers—it is right that their business models should have to factor in adverse costs. If the additional costs of funding litigation are considered too high then Jackson LJ acknowledges that there are ways to reduce them, such as further fixing and tailoring of success fees and ATE premiums. The answer is not simply to shift the liability to the injured person.

Stuart Kightley, APIL EC member and a partner at http://www.osbornes.net/ If you wish to discuss a personal injury claim, he can be contacted on 0207 485 8811 or at stuartkightley@osbornes.net

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Stuart Kightley

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