Jackson Costs Review – Part 4 – Legal Expense Insurance and Success Fees

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Lord Justice Jackson’s Preliminary Report on Civil Litigation Costs reaches a “tentative conclusion” that: “It seems to me to be in the public interest to promote a substantial extension of BTE insurance, especially insurance in the category BTE1 [Before-the-Event legal expense insurance where insurers pay solicitors to act for the insured when a claim arises]. The cost of litigation in any year by the few insured who need to bring or defend claims will then be born by the many who do not”. The Report records the Bar’s CLAF Group proposal that BTE insurance should be compulsory for motorists (to cover themselves and anyone they may injure), employers and occupiers of buildings (again to cover themselves, employees, visitors or customers). Jackson LJ states that this proposal “merits serious consideration”. The impact of such a proposal if implemented would be, by implication, to largely kill off CFAs and ATE insurers.

In a previous posting I wrote on the subject of Jackson LJ’s proposals for ending two-way costs shifting and moving to one-way costs shifting, at least for personal injury work. The Report comments: “It is, however, worth noting that if cost shifting against claimants were to be abolished, the main purpose of ATE insurance premiums would also disappear”.

Jackson LJ’s expresses the view: “If any layer of activity can be removed from the process (and insurance against adverse costs liability is one layer of activity), it may be thought that this will serve the public interest”. ATE insurers have previously been very successful in lobbying to protect their place in the current costs system. They may well have their work cut out now to maintain the status quo.

Even if costs shifting were to remain unaltered, Jackson LJ nevertheless is considering: “whether success fees and ATE premiums should continue to be recoverable under costs orders”. This would potentially return the position to the pre-April 2000 one where any success fee or ATE premium was payable out of the claimant’s damages. One option that Jackson LJ seems to be considering, and for which he asked for further assistance at the Sweet and Maxwell Conditional Fee Agreement Conference in May, is whether to increase damages to a level that enables a return to the 25% cap on the amount of damages that solicitors can take from their client’s damages, so that claimants would be no worse off than under the current system.

Multi track pilot

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Lord Justice Jackson’s Preliminary Report on Civil Litigation Costs gives details of the meeting he had with the Association of Personal Injury Lawyers (APIL) and the views that they expressed. This included: “APIL and FOIL have agreed a new code for handling high value personal injury cases. It applies to claims above £250,000. The code is currently being piloted (for 12 months from July 2008) and is working well. It is APIL’s experience that the claims handlers dealing with large claims are better and easier to deal with”.

It is somewhat odd if this is the view being expressed by claimant representatives and is one being accepted by Jackson LJ as being accurate. One senior claims manager at a major insurer that we have been in touch with said: “It will probably come as no surprise to you to learn that I’m not aware of any cases under the Multi-track Protocol that have settled yet. One of the main reasons for this is that there are so few cases that are being dealt with under the Protocol! It’s my belief (and this is a belief that I know is shared by others) that claimant firms are not keen to use the Protocol as it restricts their ability to build up costs – though the lawyers would probably say that it restricts their ability to look after their client’s best interests. On the few cases where the Protocol is being used, our experience is that the firms concerned do the absolute minimum to ensure observance of the terms, are not really operating within the spirit of the Protocol and are trying to make sure that it fails from the inside”.

Jackson Costs Review – Part 3 – Cost Shifting

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Lord Justice Jackson’s Preliminary Report on Civil Litigation Costs (see previous post) seriously considers whether the current two-way costs shifting rules should continue. He writes: “The first possible modification would be to introduce one-way cost shifting. One-way cost shifting means that when the defendant loses, he pays the claimant’s costs; when the claimant loses, each side bears its own costs. Such a system would self-evidently benefit claimants. Ironically, such a system would also benefit defendants in certain areas. A one-way cost shifting regime would be cheaper for defendants than a regime under which they recover costs when they win, but pay ATE premiums (as well as all the other costs) when they lose. A crucial consideration, however, would be the need to provide incentives for claimants to accept reasonable offers”.

The Report goes on: “On looking at the data which has come in during Phase 1 of the Costs Review, it seems to me that a one-way costs shifting rule would (a) be cheaper for defendants than the present two-way rule and (b) reduce the burden on claimants. It is therefore necessary to look at this proposal and its implications in further detail. The proposal which I raise for consideration during Phase 2 is whether it would be more cost effective to remove the claimant’s liability for costs in respect of unsuccessful cases. … Whilst there are different arguments for cost shifting for and against claimants, it is appears that in most categories of litigation the case for retaining cost shifting in favour of successful claimants is a strong one. My working assumption is, therefore, that cost shifting in favour of claimants, in the sense that successful claimants should generally expect to recover their costs, should continue”.

Michael Zander QC, writing in the New Law Journal, stated: “If I were a betting man I would put some money on there being a recommendation in the final report that in personal injury litigation we should move to one-way fee shifting (as existed under legal aid) so that the claimant would no longer need, and losing defendants would no longer have to, pay for the claimant’s ATE insurance cover”.These suggestions would have a major impact on two groups if they find their way into the rules. Firstly there would be a significant reduction in work for costs draftsmen, both defendant and claimant. If one-way costs shifting removed recoverability of defendants’ costs this would remove the need for defendants’ bills of costs to be drafted or opposed. Of course, defendants do not win a high proportion of cases but this loss of work would not be insignificant. The second group who would be affected is ATE insurers. I will deal with them in a future post.

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qc march 4 97


Fixed fee deal surprise

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I have previously been predicting, and indeed recommending, that the introduction of the new claims process for low value RTAs be abandoned or postponed pending the publication of Jackson LJ’s Costs Review. Further, disagreement over how the fixed fee structure would work and how the new scheme would operate with the existing predictable costs scheme seemed certain to derail the introduction of the new claims process.

It is therefore with no small sense of wonderment that we read in the Gazette that agreement "in principle" has been reached on the new process. Details of the scheme are currently under embargo pending approval by the Lord Chancellor. However, it is reported that the existing predictable costs scheme will remain in place for cases that fall out of the new process. Quite how this will work with "bent metal" claims remains to be seen. Further, it is suggested that the fees for claims that are in the new scheme will be "significantly less than the level of predictable costs".

The new process is due to commence in April 2010.

Jackson Costs Review – Part 2 – Fixed Fees

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Lord Justice Jackson’s Preliminary Report on Civil Litigation Costs is, in general, careful to avoid reaching any final conclusions or making any firm recommendations (see Part 1). However, even from a cursory reading, it seems all but inevitable that the final report will recommend the introduction of fixed fees to all stages of fast track claims.

Jackson LJ writes: “I have canvassed views from my panel of assessors and it is our unanimous view that we should take forward this work and try to achieve a fixed costs system in fast track cases”. This is as I previously predicted (see previous post). Further, it is suggested that: “There appears to be a strong case for some method of applying fixed costs in fast track cases at all stages” and not just pre-issue as in the current low-value RTA scheme. This is supported by FOIL who the Report states: “believe that there should be fixed costs for all cases within the fast track”. The conclusion reached is that: “It should be possible to devise a fair system of fixed costs for all cases within the new fast track limit”. To avoid one of the perceived problems with the current fixed fee regime, he writes: “I would propose an annual review mechanism to be included in any such fixed costs regime”.

Unlike other elements of his Report, he appears to have reached a clear view already on this issue. Good luck to those who try to persuade him to change his mind.

Of course, the idea of extending fixed costs in fast track cases is not exactly new. That is what was proposed in the Ministry of Justice’s consultation paper: Case track limits and the claims process for personal injury claims. Those proposals were largely abandoned when the new claims process was announced. It remains to be seen whether the final report carries sufficient weight to persuade a (new) government to resurrect this idea. However, at the very least, this Preliminary Report does seem to finally kill off the new claims process. Or, more accurately, delay any implementation of the new claims process pending a decision being taken as to Jackson LJ’s final proposals. The Report states: “It may therefore be sensible to dovetail in the development of the new claims process with whatever implementation programme may be put in place following completion of the 2009 Costs Review. The introduction of two different packages of reforms addressing the same subject matter may be unsettling for both practitioners and court users”. I have previously reported on the problems the new claims process has been facing. The sooner an announcement is made to, at least, put into hibernation the introduction of the new claims process the better. To see how bizarre the whole issue has become read this article on the RTA claims process (external link) from Anthony Hughes, President of the Forum of Insurance Lawyers.

What impact would Jackson LJ’s proposals have if fixed fees are rolled out to all stages of fast track cases? The new fast track limit is £25,000. The Report gives details of “a substantial firm of claimant personal injury solicitors” who informed Jackson LJ that 92% of all personal injury cases which they undertake fell within the bracket £1,000 to £25,000. This would therefore catch the vast majority of such personal injury claims. In addition to impacting on the revenue of claimant solicitors (for better or worse) it would wipe out a large proportion of law costs draftsmen and other costs professionals. This proposal has massive implications.


Jackson Costs Review – Part 1 – Introduction

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Lord Justice Jackson’s Preliminary Report on Civil Litigation Costs was published on 8 May 2009. I did not immediately rush to comment on this report for three reasons:

  1. The Report runs to almost 700 pages plus appendices and takes some reading.
  2. Given the importance of this report to the future of the legal costs system it seemed appropriate to give some time to reflect on the Report before rushing to reach any conclusions.
  3. I was on holiday when the Report was first published.

The first thing to note about this report is how truly masterful it is in its scope, clarity and ambition. Jackson LJ, and those who have assisted in its writing, are to be congratulated on their work. If nothing else, large sections of this report should be compulsory reading as an introduction to the basics of the current costs system.

Over coming posts I will comment on key aspects of this report. These will focus on the elements that will potentially have the widest impact on the legal profession. Inevitably, this will mean some important but niche areas, such as defamation, will not be covered.

Jackson LJ is under no illusions when he states in his opening comments to the Report: “Whatever I may recommend at the end of this year (and at this stage I still have an open mind) one thing is inevitable. My final report will generate protest from at least some directions and quite possibly all directions. … This report does not reach any firm conclusions”. This passage contains two important warnings. Firstly, the Preliminary Report is intended to do no more than set the background and identify the issues that need to be determined. The Report does contain some tentative conclusions and one could read too much or too little into these. However, nothing has yet been decided. Secondly, Jackson LJ does not seem to be afraid to upset certain groups and no doubt sees such an outcome as an inevitable part of any proper overhaul of the current system. His comment that: “The personal injury litigation industry is populated by numerous interest groups and middlemen, all of whom have to meet their overheads and make a profit on top. If any layer of activity can be removed from the process … it may be thought that this will serve the public interest”, should have particular concern not only to ATE insurers but also claimant solicitors dealing with low value claims, costs draftsmen and other costs professionals.

The next two stages of the Costs Review are:

May to July: Phase 2 – consultation
September to December: Phase 3 – preparation of final report

I will comment on some of the specific issues in more detail and the potential options considered over the coming days.

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qc jan 4 97



ATE premiums – What impact market forces?

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The heart of the problem concerning ATE premium levels was identified recently by Paul Ashurst writing in the New Law Journal: "one party buys insurance cover without handing over any cash and then hands the bill to the other party, who has no say in selecting either the cost or provider". The self-insuring deferred premium, which has become the norm, is central to this problem. Although this is a wonderful product from a claimant’s perspective, it removes any real market force from the system.

Lord Justice Jackson’s Preliminary Report on Civil Litigation Costs recognised this problem: "An issue which is sometimes raised is whether ATE premiums generally are unduly generous to insurers. In any given case, the insured demonstrates to the court the reasonableness of the premium paid by producing a statement as contemplated by the Court of Appeal in Rogers v Merthyr Tydfil CBC [2006] EWCA Civ 1134. That, however, is separate from the wider question of whether ATE premiums generally are too high or about right. In relation to this issue, insurers make the point that there are now 36 ATE providers (insurers and agents/intermediaries) active in the field. They contend that market forces bring premiums down to a proper level. This argument may have more force in relation to personal injury and clinical negligence litigation (where many insurers offer cover) than in relation to niche areas (where fewer insurers are competing for business). On the other hand, it has been suggested that the decision in Callery v Gray approving a figure as a reasonable premium in road traffic cases at the time has set that figure as a base-line and has resulted in the eradication of downward pressure in the market; and that the requirement for a Rogers v Merthyr Tydfil statement does not in practice ensure that premiums are competitive".

Later the Report observes: "In Callery v Gray (Nos 1 and 2) [2002] UKHL 28 Lord Hoffmann expressed the view that no market forces restrain the levels of ATE premiums. At paragraphs 43-44 he said this: ‘ATE insurers do not compete for claimants, still less do they compete on premiums charged. They compete for solicitors who will sell or recommend their product. And they compete by offering solicitors the most profitable arrangements to enable them to attract profitable work. There is only one restraining force on the premium charged and that is how much the costs judge will allow on an assessment against the liability insurer. Again, the costs judge has absolutely no criteria to enable him to decide whether any given premium is reasonable. On the contrary, the likelihood is that whatever costs judges are prepared to allow will constitute the benchmark around which ATE insurers will tacitly collude in fixing their premiums.’ Seven years have elapsed since Lord Hoffmann delivered that speech. There appears to have been a substantial growth in ATE insurance during that period. Whether or not market forces now exert any effective control over premium levels is very much a live issue, which I have touched upon in chapter 14 above. It is a fair point made by defendants that claimants have no interest in the level of ATE insurance premiums, because – win or lose – the claimants are never going to have to pay those premiums".

A recent edition of Litigation Funding reported Temple Legal Protection as recently providing ATE insurance for a case with a premium of £2.5 million with another case rumoured to have attracted an even larger premium. The sums at stake are significant.

The Rogers decision has been interpreted in many quarters as giving ATE insurers a blank cheque to set their premiums at whatever level they choose in the knowledge that the courts will not interfere with those premiums. Is that view correct?

Gibbs Wyatt Stone
recently appeared for the Defendant in the case of Priest v CMT Engineering Insulation Ltd (17/3/09) in the Supreme Court Costs Office. The case concerned an asbestos related disease and an ATE policy with DAS 80e had been entered into by the Claimant with a three stage premium. The matter settled pre-trial and therefore only the first two elements of the staged premium were payable. These were calculated at £6,500. A third and final premium would have been payable 21 days pre-trial and that premium would have been individually calculated to reflect the risks of the case. Principal Costs Office Lambert agreed with the Defendant’s submissions that the first two premiums claimed were excessive. Using his own experience of other comparable ATE policies available on the market he reduced the amount to £2,750. The Claimant is appealing. It will be interesting whether the Court on appeal upholds the decision or decides, in effect, that an experienced costs officer or judge no longer has the power to interfere with an ATE premium following Rogers.

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qc oct 14 97