This week’s Law Gazette brings further bad news as to the prospects for the new claims process in an article (link to external site) and in its lead opinion (link to external site).
Further despair for new claims process
Reply
Tag Archives: fixed fees
New claims process facing problems
Another quick update on an issue I have being covering in previous blogs. This is the problem over drafting the rules to cover the new claims process for low value RTAs. The recent edition of Litigation Funding reports: “We understand that talks between all the stakeholders to define the process are not going well (they were meant to have been concluded by Christmas), and that the Civil Justice Council has been drafted in to run a mediation over the next three months. The planned implementation date of 1 October 2009 is starting to look more than a little optimistic, and the thought arises afresh as to whether it is really worth the bother”.
Legal costs uncertainty continues for costs draftsmen and lawyers
In previous posts I have been commenting on the proposed new claims process and the problems that arise as to what the relationship will be between the proposed new staged fixed fees under the new claims process and the existing fixed predictable costs (CPR 45.7-45.14).
This problem is beginning to look more acute as time goes on. At the recent Legal & Medical conference, Amanda Stevens, President of APIL, raised concern over the level of consultation yet needed to deliver a tight and clarified costs process by the expected reform start date of October 2009.
There will be a continuing period of uncertainty for insurers, lawyers and law costs draftsmen.
Don’t be surprised if the whole concept is scrapped and they go right back to the drawing board. You heard it here first.
New fixed fees v old fixed fees
In an earlier post I discussed the proposed new claims process and questioned what the relationship would be between the proposed new staged fixed fees under the new claims process and the existing fixed predictable costs (CPR 45.7-45.14). It was far from obvious how the existing fixed fee system could survive alongside the new proposed fixed fees. Equally, it seemed contrary to all common sense to scrap a system that had just about bedded-in and was, for the most part, working reasonably well.
It appears that this problem has been giving those responsible for trying to draft the new rules similar headaches. At last year’s Motor Accident Solicitors Society annual conference, Janet Tilley, who sits on the Ministry of Justice stakeholder group, told the conference that certain issues had been "parked", including the interface with the current predictable costs regime.
Having abandoned the idea of having the new claims process cover anything other than low value RTAs, surely the sensible way forward was simply to introduce some simple, staged, fixed fees for the litigated cases on top of the current fixed fees, and dispense with the new claims process idea entirely. The failure to introduce fixed fees for all stages of low value RTAs was the main weakness in the existing scheme and could have been easily solved.
It will be fascinating to see how the problems created by the proposed new claims process and the proposed new staged fixed fees will be resolved.
Fast Track Trial Costs
The limit for claims allocated to the fast track is to be raised from £15,000 to £25,000 for proceedings issued on or after 6 April 2009.
As a consequence of this change, the fixed fast track trial costs recoverable by counsel, or other advocate, will increase to £1,650 for claims with a value of more than £15,000 where the claim is issued on or after 6 April 2009.
It will be important to keep an eye on the date proceedings were therefore issued. If a claim was issued before 6 April 2009, is allocated to the fast-track and the damages recovered are more than £15,000 the old maximum amount of £1,035 will continue to apply.
Ministry of Justice Response
The Government has now published its Response to the consultation paper: Case track limits and the claims process for personal injury claims.
This has already received a mixed reaction in the legal and insurance press but here we will simply deal with the costs issues, which appear to have only received limited commentary to date.
The Straightforward Bits
The small claims limit for personal injury claims will remain unaltered and so there will be no costs implications as a result.
The fast track limit will be increased to £25,000. This will have limited impact in terms of costs. There may be some reduction in trial costs as more claims will now be subject to fixed advocates fees. Whether this leads to a demand for the level of these fees to be increased remains to be seen.
The radical proposals to prevent recoverability of ATE premiums if the policy is taken out at the outset of a claim have been entirely abandoned.
The New Claims Process
A new claims process will be introduced. Although it was previously envisaged this would apply to all personal injury claims, except clinical negligence ones, that fell within the new fast track limit, it has now been decided that this will only apply to RTA claims with a value of no more than £10,000. This will significantly limit the impact of the new scheme, and as a result has met with much disappointment from defendant organisations. Nevertheless, RTA claims do account for 70-75% of the personal injury market.
The new claims process will be divided into three stages which, in simple terms, will cover:
Stage 1 – The initial consideration of the claim and submitting a “claim notification form” to the defendant and the defendant’s response on liability, within a 15 day time limit.
Stage 2 – Where liability is admitted: obtaining medical evidence and details of special damages and the making of the claimant’s offer to settle, and settlement negotiations.
Stage 3 – If quantum is not agreed at Stage 2, an application will be made to the court for a quantum hearing.
It is proposed that each of these three stages will be subject to fixed fees. The amount of these is yet to be determined and this will be done by the Advisory Committee on Civil Costs.
The Problems
A claim will leave the new claims process in a number of situations. These include: the defendant not dealing with matters within the very tight deadlines, liability being disputed, contributory negligence being alleged, causation being disputed. There is no suggestion in the Response that there will be fixed fees for a period when a case falls outside the new claims process.
Consider these examples:
Example 1
An RTA claim with a value total value of £6,000 that includes a personal injury element of over £1,000. The defendant initially disputes liability but the claim then settles without proceedings needing to be issued.
Currently
This case would currently be subject to the Predictable Costs fixed fee regime, under CPR 45.7, in relation to the whole claim.
Under the new scheme
This case would start in the new claims process and would therefore attract the new fixed fees for Stage 1. Once liability is disputed it would leave the claims process. What costs will apply at this stage? Will there be a combination of fixed fees, for Stage 1, and costs on the standard basis thereafter? If so, an enormous number of cases that currently have fixed fees applying throughout will now be subject to negotiation or detailed assessment in respect of at least part of the costs claimed. It is suggested in the Response that it may be possible for this type of case to return to the claims process once liability is resolved and that the Ministry of Justice “will be working with stakeholders to see how this might work.” Indeed. How will this work in relation to costs? Will costs on the standard basis be recoverable for the interim period when the claim is outside the process? What would be the interrelationship between the two? If a claimant solicitor has obtained medical evidence whilst the claim is outside the process, can they claim the costs of doing this work on the standard basis and then claim the full Stage 2 fixed costs in addition once the claim returns to the process, despite the Stage 2 fee being designed to cover the same work? If not, how will the rules deal with this issue? Unless there are fixed costs introduced for periods when a case falls outside the process, and the Response makes no suggestion that they will be, how would one begin to draft the rules? One would need the wisdom of Solomon to get this right and the end result would be likely to be an incredibly complex set of rules.
Example 2
An RTA claim valued at £6,000 but not involving a personal injury element. Liability is admitted within 15 days and quantum is agreed shortly after details of the claim are presented.
Currently
This case would currently be subject to the Predictable Costs fixed fee regime, under CPR 45.7, in relation to the whole claim. There is current criticism of this in that it often produces a costs figure far higher than the minimal work justifies.
Under the new scheme
This case would not fall to be dealt with under the new claims process as there is no personal injury element. There is no mention within the Response that the current Predictable Costs regime will be scrapped. Would this case therefore still attract the current fixed fees? Will there be two fixed fee regimes applying to RTA claims? If so, it seems that the current Predictable Costs regime will need to have its figures amended if only non-personal injury claims are left within the regime. If the old regime is to be scrapped, will these cases now have the costs assessed on the standard basis rather than attract a fixed fee?
Example 3
An RTA claim with a value total value of £6,000 that includes a personal injury element of over £1,000. Liability is admitted within 15 days but quantum cannot be agreed without court intervention.
Currently
The costs in this case would be assessed on the standard basis in relation to the whole claim.
Under the new scheme
This case would be dealt with under the new claims process throughout. The new fixed costs would also apply throughout. This is the one type of claim that would now be covered by fixed fees where previously it would not have been. However, the number of these cases would appear to be less than the number which are likely to fall outside the new claims process and outside the new fixed fee regime for at least part of the claim.
As mentioned above, there is no mention in the Response that the current Predictable Costs regime is to be scrapped but it is hard to see how it can survive the other changes. These rules were introduced on 6th October 2003 and have been subject to virtually unabated test litigation since then: Nizami v Butt [2006] EWHC 159 QB (concerning whether the indemnity principle was disapplied for these cases), Woollard v Fowler [2005] EWHC 90051 (Costs) (concerning whether medical agency fees were recoverable in addition to the fixed fee), Lamont v Burton [2007] EWCA Civ 429 (concerning whether the 100% success fee is payable if a matter that reached trial was one where the claimant had failed to beat an earlier Part 36 offer), Kilby v Gawith [2008] EWCA Civ 812 (concerning whether a success fee was recoverable even if BTE insurance was available). Is it seriously being suggested that this set of rules, that has just about bedded-in, is now to be abandoned and a whole new set of rules will be introduced? Just as clarity was beginning to emerge from the last major rule change the whole process seems to be about to start again.
Unless, the Advisory Committee on Civil Costs produces proposals that introduce a new fixed fee regime for all periods on an RTA claim under £10,000, and again, the Response does not suggest this is intended, there are likely to be more claims where, at least part of, the costs are not fixed than is currently the case. Surely this is not the intention.
So far as the costs aspect was concerned, the missing piece of the Predictable Costs regime jigsaw was that it did not extend to issued cases. The answer was surely to extend it to cover that aspect of the claims process. Having abandoned the idea of having the new claims process cover non-RTA claims, the current proposals are unnecessary upheaval in the one area that was becoming less of a problem.
Insurers, who have been upset by the fact the new claims process will be limited to RTAs have already threatened to renew the “costs war”. Norwich Union director of claims Dominic Clayden was quoted, in the Insurance Times, as saying: “It’s going to be messy. … It’s back to the courts. We have been sitting down with our lawyers – we are going to make every technical point [in court, challenging cost settlements] that we can.”
And Zurich technical claims director Steve Thomas was quoted as saying: “We will be applying increased scrutiny to costs that are submitted and we will challenge through the courts any exaggerated or dishonest billing that we come across.”
In relation to Part 36 offers within the new claims process, the Response has stated that the old provisions should continue to apply but “that more emphasis should be placed on judicial discretion. If a party has made an unrealistic offer that has unnecessarily caused the need for a quantum hearing they should be penalised”. For “judicial discretion” read “increased uncertainty” and “more test litigation”.
Those in the legal costs industry planning early retirement may want to reconsider.
Lamont v Burton
The Court of Appeal’s decision last week in Lamont v Burton [2007] EWCA Civ 429 is likely to have serious costs implications for defendants and impact on the way personal injury claims are conducted.
The case concerned the application of the fixed success fee regime under Part 45. Although the case itself concerned an RTA the Court recognised that it had equal relevance to EL and EL disease claims that are also subject to fixed success fees.
The claim related to an accident on 10th September 2004 being conducted under a CFA and was therefore subject to the fixed success fees allowed for under CPR 45.15:
“…the percentage increase which is to be allowed in relation to solicitors’ fees is:
(a) 100% where the claim concludes at trial; or
(b) 12.5% where –
(i) the claim concludes before a trial has commenced; or
(ii) the dispute is settled before a claim is issued.”
The Defendant admitted liability early and subsequently made a Part 36 payment in the sum of £1,800 which was not accepted. The matter proceeded to a disposal hearing where the Court awarded damages of £1,774.32. The Claimant was therefore awarded his costs only up to the last date he could have accepted the Part 36 payment without needing the Court’s permission and was ordered to pay the Defendant’s costs from that date onwards.
As the matter had concluded at “trial” the Claimant sought a 100% success fee on his costs.
The Defendant argued before the trial judge, and on appeal, that the Claimant should have accepted the Part 36 payment within the time for acceptance; and that had he done so, the claim would have concluded before trial, so that the percentage increase for solicitors’ fees prescribed by CPR 45.16(b)(i) would have been 12.5%. Accordingly, it was argued that the trial judge should have exercised his discretion to allow the Claimant an uplift of 12.5% rather than the 100% claimed.
This argument was rejected by the trial judge and by the Court of Appeal on the grounds that the wording of CPR 45 is mandatory as to what success fee should be allowed and the Court has no discretion, either directly or indirectly, to award a different amount to that provided for by the rules. The wide discretion as to the order that a court can make under CPR 44(3) does not extend to making an order which circumvents CPR 45.
The Court of Appeal observed:
“Section III of Part 45 contains a carefully balanced scheme for the award of success fees in road traffic accident cases. The object of the scheme is to provide certainty and avoid litigation over the amount of success fees to be allowed to successful parties. … It is inherent in the scheme that in some individual cases, the success fee will be unreasonably high and in others unreasonably low. But that is the price that has to be paid for achieving certainty and avoiding litigation over the amount of success fees. Rule 44 cannot be invoked to circumvent the careful structure of rule 45 and to undermine its objective of achieving certainty.
One issue not considered in the judgment is the effect of CPR 44.3B which states:
“(1) A party may not recover as an additional liability –
(c) any additional liability for any period in the proceedings during which he failed to provide information about a funding arrangement in accordance with a rule, practice direction or court order;
(d) any percentage increase where a party has failed to comply with –
(i) a requirement in the costs practice direction; or
(ii) a court order,
to disclose in any assessment proceedings the reasons for setting the percentage increase at the level stated in the conditional fee agreement.”
Do either, or both, of these rules apply to Part 45? Is the combined effect of 44.3B(1)(c) or 43.3B(1)(d) and Part 45 that although the percentage success fee that applies is fixed the period that it will be recoverable for, or whether it is recoverable at all, still requires appropriate disclosure? Alternatively, do neither of these sections apply where the success fee is fixed? Is the success fee recoverable regardless because of the mandatory nature of Part 45?
The possible impact of Lamont on future litigation tactics is significant. The following two examples give an indication of the potential issues:
Example 1
A Claimant is involved in a fast-track RTA conducted under a CFA. A month before trial the Defendant makes a Part 36 offer of £10,000 which represents a reasonable settlement. The Claimant’s solicitors have incurred base profit costs to date of £6,000. To take the matter to trial will require a further £1,000 base profit costs to be incurred by the solicitors. The Claimant’s counsel’s trial costs will be fixed at £500. The Claimant solicitors will recover the following costs if they advise the Claimant to accept the offer now:
Base profit costs – £6,000
Success fee (12.5%) – £750
Total recovered – £6,750
If the solicitors advise the Claimant to reject the offer, and the offer is not beaten, they will recover the following:
Base profit costs – £6,000
Success fee (100%) – £6,000
Total recovered – £12,000
This example ignores VAT and other disbursements. Of course, the solicitors will have “lost” £1,000 of profit costs (assuming the Claimant is not liable for the shortfall) and the £500 brief fee. In addition, there will be an adverse costs order in respect of the Defendant’s costs. Assuming that these are at the same as those of the Claimant (ie profit costs of £1,000 and counsel’s fees of £500) and assuming that the solicitors are prepared to cover the third party costs themselves this still results in a balance in their favour of £9,000 (ie £12,000 less £1,500 own “lost” costs and less £1,500 third party costs). This is £2,250 more than if they had advised their client to accept the “reasonable” offer.
Example 2
A Claimant is involved in a high value EL claim conducted under a CFA. A month before trial the Defendant makes a Part 36 offer of £100,000 which represents a reasonable settlement. The Claimant’s solicitors have incurred base profit costs to date of £50,000. To take the matter to trial will require further costs of £20,000 to be incurred, to include profit costs, counsel’s fees and disbursements by the Claimant. The Claimant solicitors will recover the following costs if they advise the Claimant to accept the offer now:
Base profit costs – £60,000
Success fee (25%) – £15,000
Total recovered – £75,000
If the solicitors advise the Claimant to reject the offer, and the offer is not beaten, they will recover the following:
Base profit costs – £60,000
Success fee (100%) – £60,000
Total recovered – £120,000
This example ignores VAT. The solicitors will have “lost” £20,000 own costs and disbursement (assuming the Claimant is not liable for the shortfall). In addition, there will be an adverse costs order in respect of the Defendant’s costs. Again, assuming that these are at the same as those of the Claimant (ie £20,000) and assuming that the solicitors are prepared to cover the third party costs themselves this still results in a balance in their favour of £80,000 (ie £120,000 less £20,000 own “lost” costs and less £20,000 third party costs). This is £5,000 more than if they had advised their client to accept the “reasonable” offer.
Of course, different examples will produce an endless number of different outcomes but the potential problems are obvious. This will often create a clear conflict of interest between a claimant’s and a solicitor’s interests. Further, a claimant solicitor only needs to succeed on a small number of cases at trial to significantly adjust the figures in their favour. Different potential conflicts arise because of the various fixed success fees that counsel in entitled to depending on the stage a case settles.
Evidence has already emerged that there has been a 37% increase in claimant solicitors issuing proceedings in low-value road traffic accident cases so as to avoid the fixed-fee payment scheme (according to a study for the Civil Justice Council). It will therefore hardly be surprising if the decision in Lamont has a significant impact on the advice given to claimants as to whether to accept late Part 36 offers. It will become increasingly important for defendants to make reasonable offers at as an early a stage as possible to give some protection. Extreme caution is needed before proceeding to trial simply on quantum.
The Court of Appeal did recognise that their interpretation of the rules was not without problems:
“…although we accept that there may well be a case for deciding that, where a claimant fails to better a Part 36 offer or payment, he should be allowed the same success fee that he would have recovered if he had accepted the offer. For the reasons that we have given, that is not the effect of the rules in their present form. It will be a matter for the Rule Committee and the Civil Justice Council to consider whether to amend Part 45 to make special provision to deal with the Part 36 issue.”
Where, for a variety of reasons, a defendant has not made a strong Part 36 offer at an early stage the only option appears to be to make an overly generous offer in settlement. If accepted, any overpayment on damages is likely to be less than the higher success fee that would otherwise be recoverable. If the offer is generous enough, then the Claimant’s solicitor may be vulnerable to a claim in negligence by his client if he does not recommended acceptance. However, whether paid out in increased damages or success fees it will produce the same result – greater cost to defendants.
This case highlights a potentially much bigger danger to defendants that does not yet seem to have been widely appreciated. The fixed success fees apply regardless of the stage at which the CFA is entered into. There is therefore nothing within the rules that prevents a claimant solicitor waiting until liability has been admitted and then entering into a CFA and claiming the fixed success fee. In RTA cases to which the fixed-fee scheme applies the success fee will apply to the full fixed fee. In other cases it will only apply to work conducted after the CFA is entered into but this is likely to represent the majority of the work if liability is admitted at an early stage and the solicitors promptly enter into a CFA. There appears to be a very real danger that even where claimant solicitors are accepting referrals under BTE insurance policies they will now routinely enter into CFAs from the stage that liability is admitted leading to significant additional costs liabilities to defendants with no corresponding risks to themselves.
The problems with the rules that this decision has highlighted requires urgent attention.
Woollard v Fowler – Medical Agency Fees
Judgment has just been handed down in an important case, Woollard v Fowler [2005] EWHC 90051 (Costs), concerning the recoverability of the charges made by medical agencies in costs covered by the predictable costs regime of CPR 45. This was a decision of the Senior Costs Judge, Master Hurst, sitting as a Recorder.
Medical reports and records had been obtained by the claimant’s solicitors through a medical agency, Mobile Doctors Ltd, in a road traffic accident where the costs were covered by CPR 45. The costs claimed included fees paid to the medical agency which included both the amounts paid to the actual expert, GP surgery and hospital but also further charges for the work performed by the agency in obtaining these items. For example, the fee for the medical report was £435 of which only £275 went to the surgeon, with the balance going to the agency.
The defendant argued, successfully at first instance, that the fixed profit costs allowed for under Part 45 were to include all work of a fee earner nature. The rules did not contain any provision to enable an element of profit costs work to be subsumed within a disbursement and awarded in lieu of profit costs. Therefore the additional costs of medical agency were disallowed.
That decision was not followed by Master Hurst who concluded that the wording of the rules that specified that the recoverable disbursements included “the cost of obtaining – (i) medical records; (ii) a medical report” was not accidental and was because the rule drafter was well aware of the common practice of the use of medical agencies. The charges raised by medical agencies had previously always been treated as disbursements and CPR 45 did not alter the position. He therefore held that the medical agents’ charges were recoverable.
Worryingly for defendants, he also held that “the test on all assessments is one of reasonableness and proportionality but there seems to be no reason why an agency should not be used to obtain an engineer’s report if, in all the circumstances, it was reasonable and proportionate to do so”. This seems to be an open invitation to solicitors to seek to delegate further items of work to agents. This will inevitably lead to more and more elaborate schemes where certain claimant solicitors will seek to do less and less work to obtain their fixed fees whilst simultaneously obtaining various kick-backs from the agents they instruct to perform the delegated work.