This response is prepared on behalf of the Motor Accident Solicitors Society (MASS) and submitted by the Chairman, Donna Scully.

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1 MOTOR ACCIDENT SOLICITORS SOCIETY RESPONSE TO THE GOVERNMENT S PROPOSALS FOR REFORM OF CIVIL LITIGATION FUNDING AND COSTS IN ENGLAND AND WALES February 2011 Introduction This response is prepared on behalf of the Motor Accident Solicitors Society (MASS) and submitted by the Chairman, Donna Scully. MASS is a Society of solicitors acting for the victims of motor accidents, including those involving personal injury (PI). MASS has 180 solicitor firm Members. We estimate that member firms conduct upwards of 500,000 PI motor accident claims annually on behalf of the victims of those accidents. The Society s membership is spread throughout the United Kingdom. The objective of the Society is to promote the best interests of the motor accident victim. This is central, and core to our activity. We seek to promote only those policy and other objectives which are consistent with the best interests of the accident victim. We seek to set aside any self interest in promoting these arguments, recognising that we are in a position of trust, and best placed to observe the best interests of motor accident PI victims first hand. We are a not for profit organisation, which requires specialism in motor accident claimant work as a pre-requisite for membership. We also have a Code of Conduct which member firms are required to abide by, which is directed to the best interests of the motor accident victim. Contact: If you have any queries or would like further information, please contact at first instance - Jane Loney at: MASS St Bartholomew s Court 18 Christmas Street Bristol BS1 5BT Tel: jane@mass.org.uk 1

2 Executive Summary MASS shares the Governments dual objective of preserving and enhancing Access to Justice at proportionate cost. However, MASS believes that the Government s interpretation of Lord Justice Jackson s recommendations will significantly impact on the ability of the majority of RTA victims to access justice. MASS is particularly disappointed that Lord Justice Jackson and the Government are proposing to significantly alter the Civil Litigation process without first allowing the new RTA process to bed in. MASS suggests that this new process, which was only introduced in April 2010 at a huge cost to all stakeholders involved including the MOJ, should be allowed to develop to optimum level and then be used to develop and improve other types of civil litigation, before considering any other significant changes to the civil litigation system. The new RTA Process has already shown that through negotiation, agreement and collaboration between stakeholders (of which MASS was integral), reduction in costs, improved efficiency and proportionality can be achieved, without adversely affecting the accident victim and reducing Access to Justice. Despite still being relatively early days, the new RTA process is resulting in improvements with prompt liability admissions, quicker settlements, improved efficiency and an overall reduction in cost resulting in greater proportionality. The current process of fixed costs in RTA PI claims, since 2003, was agreed with insurers and is known to have reduced their cost burden by 22% per RTA PI case over the last 5 years. This takes no account of a further significant reduction in cost per case since April 2010 when the new RTA process was introduced. MASS is concerned about the one size fits all approach being taken; we believe that proper care over evaluation, and implementation, are essential. Removing recoverability of costs and success fees will lead to a huge reduction in damages for the most seriously injured victims. This contravenes the principle that the damages are restorative, and that the accident victim should always be returned to the position they were in before being involved in an accident through no fault of their own. MASS believes that the uncertainty that will inevitably follow from replacing recoverable ATE premiums with QOCS will significantly restrict the number of claims made, as legitimate claimants are dissuaded from progressing their case due to the possibility that they will have to pay unaffordable costs. It is widely agreed that damages levels are already far too low, and MASS believes that a 10% uplift will be entirely insufficient to achieve fairness in this regard. It is also woefully insufficient if recoverability of success fees and ATE premiums is removed. MASS primary position is that recommendations for alternatives on recoverability should not be implemented because it is clear to MASS that Access to Justice will be significantly denied. However, Alternative 1, with some adjustments, could mitigate some of our concerns. Alternative 2 offers no such mitigation to the accident victim. 2

3 There is increasing evidence that increased costs in civil litigation are primarily the result of insurer/defendant action, rather than those of claimants or their solicitors. MASS emphasises that the perception that claimants run their case regardless of merit, with no regard to costs, must also be corrected. Solicitors have to carry out strict risk assessments and MASS members estimate that up to 40% of claims received are not pursued. Finally, the proposals repeat the misconception that successful defendants do not recover their costs and disbursements. This is not the case. Where a claimant is unsuccessful, their insurance (ATE or BTE) policy pays out the costs and disbursements of the successful defendant. It is important that this misconception is clarified. Defendants do not pay all costs & disbursements win or lose. When they win, their costs and disbursements are paid. 3

4 The Cost of Road Traffic Accident Personal Injury Claims Background Road accident personal injury (RTA PI) claims represent 674,977 claims a year out of a total of 861,325 claims, according to Compensation Recovery Unit figures published by the Government in respect of the year 2009/2010, which is over 78% of all personal injury claims 1. On 30th April 2010, a new streamlined process for low value RTA PI claims (RTA Process) was implemented by the Ministry of Justice (MOJ), with the aim to improve the efficiency of claims up to 10,000, where there is no dispute of liability. It is estimated that the scheme covers in excess of 75% of all RTA PI claims. In conjunction with this new process, the insurance industry participated collaboratively with claimant representatives and the MOJ in round table negotiations to agree a fixed costs regime. An agreement was reached with the insurers as a result of this process. Prior to that, insurers were also engaged in negotiations facilitated by the Civil Justice Council for a Fixed Recoverable Costs regime for RTA PI claims, implemented in October The figures for legal costs were agreed by insurers as a culmination of the negotiations which took place. The scheme referred to covered RTA PI claims up to 10,000 of damages. Although it was agreed that these figures would be reviewed annually, there has been no review and therefore no increase in the legal fixed costs agreed by the insurers. These fixed costs continue to be applied to those cases that are not handled under the new RTA Process. Furthermore, the costs agreed by insurers in April 2010 are lower than the costs agreed in The Role of Insurers The insurance industry has consistently argued that some of the reasons for high motor insurance premiums is due to high and unacceptable legal costs and uninsured driving. MASS finds this argument extremely surprising given that since 2003 the insurance industry has participated in, and agreed to, two separate fixed costs regimes, for legal costs for RTA PI claims up to 10,000. This represents in excess of 75% of all RTA PI claims since Furthermore, the MIB s Annual Report and Accounts for 2009 makes it clear that there was a reduction of 10 million of the levy called on the previous year and claim payments were 69 million less than the levy called. Consequently, in March 2010 they released 40 million back to its members. MASS therefore questions why, coupled with agreed fixed legal costs, insurers are not releasing money back to their policy holders through reduced motor insurance premiums and why they continue to argue that the current system is disproportionately expensive? The Benefits of Collaborative Decision Making MASS believes that other areas of civil litigation could learn from all that has been done collaboratively in RTA claims to streamline and reduce costs, and case resolution times, while ensuring Access to Justice is preserved. Early signs are that the new RTA Process has been successful in reducing the time each case takes to 1 Department for Work & Pensions Performance Statistics 4

5 reach a conclusion, and as well as reducing costs. However, there are a number of significant issues that must be resolved in respect of the new RTA Process, especially with regard to the Portal, before this system can or should be extended. The Need for Reform Lord Justice Jackson was clear that his review and recommendations were in order to promote Access to Justice at proportionate cost. MASS would however question whether such deep and wide ranging changes would achieve this and opposes the one size fits all approach. Care of evaluation, and over implementation, are essential. MASS acknowledges that the current system is not perfect. It is understandable that the Government has to analyse ways of reducing cost, particularly cost in maintaining the court system. However, there are important principles at stake which must be preserved, specifically Access to Justice, and proper compensation to accident victims. Both of these key principles are under threat with some of Lord Justice Jackson proposals. It would also appear that successive Governments have become fixated on a notion that the United Kingdom is under the grips of a Compensation Culture and that legal costs are too high and unfair on the insurance industry. As reported by the Better Regulation Task Force 2, the facts show that the term Compensation Culture is a myth and perception rather than reality. From 2000/1 to 2009/10 employer s liability claims fell from 219,183 to 78,744; and public liability claims from 95,883 to 91,025, whilst motor accident claims rose from 401,757 to 674,997. [CRU figures for the number of claims made between 1 st April & 31 st March in each year]. A major contributor to this increase [of motor claims] has been insurer activity in the referral fee market, by leading price inflation; and in third party capture by promoting claims which would not otherwise be pursued. Over the last 5 years RTA PI claims rose from 460,000 to 675,000, an increase of 47%. The costs that insurers have incurred over the last five years to 2009/2010, for RTA PI have risen from 8.2 billion to 9.4 billion (ABI Annual Insurance statistics, for the nearest culpable year). This is an increase of 15%. It can be seen from these statistics that, whilst claims have gone up, the amount that each claim is costing has fallen. The fall in cost per claim is 22%. The Need for Caution Consequently, MASS urges caution against attacking legal costs, on the basis of representation from the insurance industry, without first understanding where the problem lies, and why in some cases costs may be disproportionate. In particular, MASS would urge the Government to consider in detail those cases that are taken to trial and on what basis. All too often insurers are defending the indefensible which have the negative effects of increasing costs for all concerned (including the courts) and causing unnecessary delay in settlements and unnecessary anguish for the accident victim. 2 Better Regulation Task Force Better Routes to Redress (May 2004) Compensation Culture; Exploding the Urban Myth 5

6 The current system has much to commend it, especially in RTA PI claims. First and foremost it provides the accident victim with Access to Justice and the right to pursue a valid claim with little or no cost to themselves. The importance of this, we believe, must not be underestimated. It is a fundamental principle of English Law that should be upheld. The present system also ensures: that frivolous and unmeritorious claims are filtered out (MASS Members estimate that up to 40% of claims received are not pursued); affordable funding arrangements are available that enable accident victims to pursue their claim and have access to legal representation to do so; the introduction of fixed legal costs and success fees (agreed by insurers) resulted in greater proportionality; provides the necessary checks and balances that are needed to ensure that claims are handled and settled efficiently and effectively The Need for Proper Evaluation of Existing Systems The Civil Justice system has undergone significant change over the past 10 years, especially in the field of motor accident claims. Successive Governments and the Judiciary have continuously looked to change the law and funding arrangements in particular, without necessarily allowing such changes to settle in, and in many cases rushing them in without allowing sufficient time and thought for any practical implications or unintended consequences that may occur. MASS submits that this appears to be happening again now and this was brought to the Justice Minister s attention on 2 nd December not only by MASS but by most stakeholders present. The RTA Process was only brought in on 30 th April last year and despite this, instead of evaluating how it performs in terms of streamlining claims and reducing costs, the MOJ has proposed further changes as to how motor claims are conducted but more importantly the amount of compensation motor accident victims are going to recover. The Need for Access to Justice for All MASS concerns lie very much at the heart of the principle of ensuring that there is an affordable funding system to allow all consumers, on an equal basis, Access to Justice and high quality, independent legal advice. Changing the funding system to one that requires accident victims to pay for legal advice out of their damages, is, we believe, fundamentally wrong. MASS believes it is important to emphasise that in order to provide true Access to Justice, the consumer must have access to professional and independent legal advice. If costs are driven down much further, legal representation for the accident victim will be inadequate, in an industry where there is such a clear need for independence and representation. This is exemplified with Third Party Capture which MASS has consistently campaigned against. One questions what Justice the accident victim receives when the insurer acts as judge, jury and paymaster. 6

7 Section 2.1 Conditional Fee Agreements and Success Fees The Proposal: That CFA success fees should no longer be recoverable from the losing party Q 1 Do you agree that CFA success fees should no longer be recoverable from the losing party in any case? MASS does not agree that success fees should no longer be recoverable. The concept of recoverability was introduced by the Access to Justice Act 1999 following the abolition of Legal Aid. This Act allowed the recovery of success fees and ATE premiums from the defendant, thereby ensuring an alternative method of funding was made available for the consumer to bring claims for personal injury and to preserve Access to Justice. It is important to emphasise how the current system of legal costs are paid under CFA s. Defendants will only pay the legal costs of claimants (including disbursements, success fees and ATE premiums) if the claimant is successful. If the defendant is successful, then they [the defendant] do not pay the claimants costs. This is paid for by the ATE insurance policy, along with the defendants costs. This we believe is a fair and just system and consistent with the fundamental principle in English & Welsh law that the wrongdoer pays. Therefore MASS cannot endorse or support any system which is designed to put the injured person in a worse financial position than prior to the accident. Notwithstanding the fact that it is proposed that general damages be increased by 10%, the new proposals to no longer recover the success fee would result in a loss in real terms of the clients net damages for Pain, Suffering and Loss of Amenity (PSLA) as set out in the example below: Taking a motor claim under the new RTA Process where a client s injury attracts damages (PSLA) of Taking into account the proposed increase of 10% in damages, this is immediately negated by a deduction of the 12.5% fixed success fee on the solicitors fixed costs of Therefore the client gains 120 (in damages) but loses 150 out of their damages on the success fee element alone. This is without taking into account the proposals to recover ATE premiums and presumes that the case will be settled in Stage 2. Should the claim be settled in Stage 3, the effect is even more perverse. There would be a further reduction in damages of 500 (paper hearing) or 1000 (oral hearing), which includes the 100% success fee payable at trial. The impact on the most seriously injured is demonstrated by the published Stewarts Law analysis of all their cases settled for damages of 250,000 or more concluded between May 2007 and 2009, which applying Lord Justice Jackson s model gave the following results: - Average general damages increase 11,532 - Average reduction from damages from success fees 58,664 - Average net loss to the Accident Victim 47,132. In one case involving a young tetraplegic man, this would have reduced his damages by 236,044. 7

8 MASS recommends that the MOJ looks at a wider range of evidence than just the Stewarts Law data to quantify accurately the broader impact. MASS will be happy to assist the MOJ in this evidence gathering, should a broader range of evidence not already be available. The impact is an attack on an extremely vulnerable group who are in need of maximum protection and support. In the most seriously injured category of accident victims, it is estimated that around 44% of their claims may not be capable of being pursued if Lord Justice Jackson s proposals are introduced. For example, analysis of the Stewarts Law data sample, referred to earlier, and applying Lord Justice Jackson s model, gave the following results: - In excess of 75% success probability required to make a case commercially viable. - Those at risk beyond 25% would be at risk of not being represented. - In 26% of cases, the Accident Victim would not have been represented post implementation. - A further 18% would have been borderline acceptance cases. - Virtually all complex/catastrophic injury claims would be borderline at best without the ability to recover a 100% success fee. Q 2 If your answer to Q 1 is no, do you consider that success fees should remain recoverable from the losing party in those categories of case (road traffic accident and employer s liability) where the recoverable success fee has been fixed? MASS thinks that success fees should remain recoverable in road traffic accident cases. Success fees for RTA claims were fixed at 12.5% for cases settled pre-trial and 100% for cases that succeed at trial in These rates were agreed with the insurance industry. These percentages have been unchallenged by insurers throughout negotiations conducted in the mediation of the new process for admitted RTA claims up to 10,000. The final scheme approved by the MOJ includes the recovery of success fees, at these agreed fixed levels, of 100%, should a case proceed to a Stage 3 hearing. Since the introduction of Fixed Recoverable Costs in 2003, costs, it is estimated to be over 75% of RTA PI cases have been agreed between claimant and insurer representative groups. As a result the claim costs of Insurers for each case have reduced by 22%. We refer to the final paragraph of The Need for Reform of this response (page 5) this reduction in claims cost does not take into account the new RTA Process introduced in April It is anticipated that this will reduce RTA PI claims costs by a further significant percentage. The suggestion by insurers that RTA PI claims costs per case are rising inexorably is flatly contradicted by these facts. By preserving recoverability, two important society benefits are achieved. First, continued Access to Justice. Secondly, cases are kept out of court by incentivising insurers and claimants to settle without the need for a court hearing. If the accident victim rejects a reasonable offer at Stage 2, he or she will not recover Stage 3 costs of 500 (paper hearing) or 1,000 (oral hearing), which figures include the 100% success fee for Stage 3 only. Similarly, if the Insurer does not make a reasonable 8

9 offer in Stage 3, then it will pay these extra costs. This important incentive to settle must not be overlooked by the MOJ, since the early anecdotal evidence is compelling. Cases in the RTA process are only rarely proceeding to Stage 3, thus saving the insurers significant court hearing costs. Removal of this incentive will drive up the number of court hearings, which the MOJ will have to fund. It is clear therefore that the balance of the new RTA process must be preserved, and that this incentive to settle model should be considered for extention to other categories of case once the necessary improvements have been made. If this is not done, whilst compensators, principally insurers will save money, MOJ expenditure will have to increase. More important for MASS, the delivery of settlement to an accident victim will be delayed and more traumatic, as is inevitable, if more cases have to proceed to a court hearing. Q 3 Do you consider that success fees should remain recoverable from the losing party in cases where damages are not sought e.g. judicial review, housing disrepair (where the primary remedy is specific performance rather than damages)? Q 4 Do you consider that if success fees remain recoverable from the losing party in cases where damages are not sought, a maximum recoverable success fee of 25% (with any success fee above 25% being paid by the client) would provide a workable model? Q 5 Do you consider that success fees should remain recoverable from the losing party in certain categories of case where damages are sought e.g. complex clinical negligence cases? Please explain how the categories of case should be defined. Response to Q3/4/5 MASS is unable to comment specifically. However, damages for personal injury are awarded in principal to restore the accident victim to his pre-accident position and the notion that the compensator pays should be preserved. Such fundamental principles of the legal system should not be overturned lightly. Q 6 If success fees remain recoverable from the losing party in certain categories of case where damages are sought, (i) what should the maximum recoverable success fee be and (ii) should it be different in different categories of case? MASS would recommend that the status quo remains for RTA PI claims of 12.5% up to trial and 100% at trial to retain the inventive to settle cases articulated in answer to Q2. Based on our experience of the existing system with road traffic accident claims, we feel that 12.5% is proportionate and reasonable and has worked very well since its introduction. Furthermore, it has provided a significant incentive for the paying party to settle cases pre-issue and in particular, pre-trial. This promotes Access to Justice because the clients receive their damages promptly and also avoids unnecessary court hearings which will be costly to the public purse. 9

10 ii) MASS believes that the maximum recoverable success fees in multi track cases should remain as it currently is. There is no evidence that the 100% cap is denying Access to Justice. Q 7 Do you agree that the maximum success fee that lawyers can charge a claimant should remain at 100%? Yes subject to recoverability remaining. We are also concerned as appears in answer to Q s 8 to 10, that an unintended consequence of reducing the percentage recoverability will be to deny Access to Justice. We believe that recoverability of 100% is a strong incentive to compensators to settle, as appears to be occurring in the new RTA process. Please see our answer to Q2 which is also relevant here. Without the incentive to settle which recoverability of 100% provides, it is clear that many more cases will proceed to a hearing. Since the vast majority of PI cases are RTA and at the lower end of the quantum scale, were recoverability removed, many more cases could proceed to a hearing putting a huge strain on public expenditure. The strong incentive to insurers to avoid paying a 100% success fee with regard to Stage 3 should not be removed. Additionally, in relation to road traffic accident cases, we refer to pages 224 and 225 of Lord Justice Jackson s Preliminary Report which sets out statistics produced by a major insurance company in respect of personal injury claims made against its insured. The following statistics are of significance: - 22,726 PI claims were received from December 2007 to November 2008; - Of those cases only 99 proceeded to trial (less than 0.5%); and - Only 75% of these cases were successful It follows that only 0.33% (1 in 300) of cases, which are funded by a CFA, attracted a 100% mark-up to be paid by the insurer. If so, the average success fee across the entire range of RTA cases, taking into account the 100% success fees at trial, is less than 13%. Whereas the success fee is designed to compensate a solicitor for the risk of losing another case, the risk to claimant lawyers working on this type of case, significantly exceeds 13%. MASS members indicate that of cases where instructions are initially taken, approaching 40% ultimately fail at the initial vetting stage. Lord Justice Jackson suggests that 100% uplift may ultimately drive behaviour. No evidence has been provided by Lord Justice Jackson or the Government to support the contention that CFA s drive litigation from a claimant perspective. If the claimant proceeds to trial and does not beat the defendants Part 36 offer, he/she will forfeit their costs. Therefore, MASS cannot agree with the proposition that lawyers are abusing the CFA system to secure 100% uplifts at trial. The experience of our members is that lawyers do not take cases to trial unless the case has merits. Moreover, often strict and stringent reporting requirements are put in place by both ATE and BTE insurers which would discourage taking cases to trial where there is significant risk. By default, cases can only proceed to trial if the defendant has not offered adequate compensation or addressed the issue of liability properly. In our experience, litigation is driven primarily by defendant conduct, not the personal gain of lawyers. If a defendant wishes to avoid the pitfall of paying costs, a Part 36 offer can be made on either liability or quantum to provide adequate protection. The claimant should not be penalised for poor commercial decisions made by 10

11 defendants. The approach adopted in the new RTA process will maximise the cases which are kept out of court. If the success fee is capped and a 100% recovery is not permitted, MASS submits that the number of trials will increase as the dual incentive to claimant and defendants to settle will have been removed and consequently the MOJ will have to allocate significantly greater resource to the Civil Courts. Q 8 Do you agree that there should be a cap on the amount of damages which may be charged as a success fee in personal injury claims, excluding any damages relating to future care or future losses? Q 9 If your answer to Q 8 is yes, should the cap be (i) 25% or (ii) some other figure (please state with reasons)? Q 10 If your answer to Q 8 is yes then should such a cap be binding in all personal injury cases or should there be exceptions, and if so what and how should they operate? Response to Q8/9/10 The twin principles embedded in our tort system is that the compensator pays and the accident victim is compensated to his/her pre-accident position, as far as is possible, needs to be preserved. These principles have operated successfully over the last decade, and have their roots in our unique legal system. The pre 2000 Legal Aid system is not directly analogous to Lord Justice Jackson s proposal, nor is the position of continental European jurisdictions, which are inquisitorial, not adversarial and therefore not directly comparable. Also other jurisdictions have differences which deny the appropriateness of direct comparison, for example strict liability approaches and so on. MASS opposes a 25% cap for two reasons. First, there is evidence that this will deny Access to Justice. In particular, seriously injured victims will not be able to bring a claim in a significant proportion of cases. Secondly, it will remove the compensators incentive to settle (see our answer to Q2). MASS strongly supports the principle of full compensation being awarded to the accident victim. However, in circumstances where this will deny any Access to Justice, as would be the case with accident victims suffering injury of maximum severity, the Access to Justice point overrides our support for this principle. MASS advocates a system which has industry agreed success fee percentages as has been achieved in cases of different liability types; for example RTA and employers liability cases. MASS also supports the different percentages attaching to different stages in proceedings, as in the New RTA Process. In principle, MASS supports the Government s intention to extend the Portal concept, however we caveat that support by insisting that the Portal is given adequate time to bed in, functions effectively and has the necessary improvements completed and proper statistical data is available and evaluated. MASS would welcome working constructively with the MOJ in this regard. In particular, retention of 100% success fee fully recoverable where an Insurer has failed to make a reasonable offer is essential, if court hearings are to be constrained and reduced (further see our answer to Q2). 11

12 Section 2.2 After the Event Insurance Premiums The Proposal: That the ATE insurance premium should no longer be recoverable from the losing party Q 11 Do you agree that ATE insurance premiums should no longer be recoverable from the losing party across all categories of civil litigation? No - MASS maintains that ATE insurance premiums should remain recoverable and refers to our answer in Q1 which is relevant to ATE premiums as well as success fees. Q 12 If your answer to Q 11 is no, please state in which categories of case ATE insurance premiums should remain recoverable and why. MASS believes that recoverable ATE insurance premiums should remain in all categories of personal injury claims. The principle of ATE insurance is to protect the accident victim from exposure to adverse legal costs and disbursements in the event of their claim being unsuccessful. If the claimant loses their claim, the defendant does not have to pay the ATE premium, costs or disbursements of the claimant. There is a misconception we believe amongst certain parties that successful defendants do not recover their costs and disbursements. This is not the case. Where a claimant is unsuccessful, their ATE policy pays out the costs and disbursements of the successful defendant, as well as the claimants own disbursements in pursuing the claim. It is important that this misconception is clarified. Q 13 If your answer to Q 11 is no, should recoverability of ATE insurance premiums be limited to circumstances where the successful party can show that no other form of funding is available? Yes. MASS believes that the current position provides all the necessary protection required. First, solicitors have to investigate if there are any alternative funding arrangements available to the client. Secondly, that any such funding available is adequate and provides sufficient cover for the client to bring their claim. Consequently, any ATE insurance obtained must be necessary for the pursuit of the clients case in order to be recoverable. Q 14 - Do you consider that ATE insurance premiums relating to disbursements only should remain recoverable in any categories of civil litigation? If so, which? Q 15 If your answer to Q 14 is yes, should recoverability of ATE insurance premiums be limited to non-legal representation costs such as expert reports? 12

13 Q 16 If your answer to Q 14 or Q 15 is yes, should recoverability of ATE insurance premiums relating to disbursements be limited to circumstances where the successful party can show that no other form of funding is available? Response to Qs 14, 15 & 16 MASS offers no comment since these questions do not relate to RTA PI cases. Q 17 How could disbursements be funded if the recoverability of ATE insurance premiums is abolished? MASS understands that there is a real risk of limited or no insurance being available for disbursement only cover and therefore it would have to be funded by the client. This we believe is wholly unacceptable and should not be considered. Q 18 Do you agree that, if recoverability of ATE insurance premiums is abolished, the recoverability of the self-insurance element by membership organisations provided for under section 30 of the Access to Justice Act 1999 should similarly be abolished? MASS believes that recoverability of any self-insurance scheme by membership organisations should be regarded under our overall principle of recoverability. Abolishing recoverability of ATE premiums and the self-insurance element under Section 30, and success fees will adversely affect the accident victim and their Access to Justice. 13

14 Section % increase in General Damages The Proposal: That there should be an increase in general damages of 10% Q 19 Do you agree that, in principle, successful claimants should secure an increase in general damages for civil wrongs of 10%? MASS considers that an increase in general damages (PSLA) awards for personal injury cases is long overdue. The awards that accident victims receive should be maintained for them. Even with the proposed 10% increase, MASS argues that the level of damages awarded are still woefully inadequate, bearing in mind there has been little or no real increase for over 10 years. Over a period of 20 years, from 1990 to date, there has been no effective increase in PSLA in low value cases where the award is 3, or less. MASS presented research to the Department of Constitutional Affairs in 1994 evidencing that approximately 80% of PSLA awards in personal injury claims were less than 3, MASS believes that this proportion remains unchanged today. The Composite Price Index figures published by the Office for National Statistics, show that between 1990 and 2009 (figures for 2010 are not yet available) inflation rose by 69%. MASS considers that PSLA in low value cases should be substantially increased to over 70%, as a minimum, in order to keep pace with inflation. The concern with regard to the failure in general damage awards to keep pace with inflation is nothing new. The Law Commission considered the issue of PSLA with a publication in January 1996 of a consultation paper Damages for Personal Injury: Non-Pecuniary Loss. The Law Commission Report was published in April 1999 and its recommendations bear repeating. (1) Damages for non-pecuniary loss for serious personal injury should be increased. We recommend that: 1) In respect of injuries for which the current award for non-pecuniary loss for the injury alone would be more than 3,000.00, damages for non-pecuniary loss (that is for pain and suffering and loss of amenity) should be increased by a factor of at least 1.5 (i.e. 50%) but by not more than a factor of 2 (i.e. 100%); 2) In respect of injuries for which the current award for non-pecuniary loss for the injury alone would be in the range 2, to 3,000.00, damages for nonpecuniary loss (that is for pain and suffering and loss of amenity) should be increased by a series of tapered increases of less than a factor of 1.5 (so that, for example, an award now of 2, should be uplifted by around 25%) 3) Finally, if the increases recommended by us are not implemented until over a year after publication of this report, the recommended increases should be adjusted to take into account any change in the value of money since the publication of this report. The Court of Appeal in Heil v- Rankin failed to take the opportunity to fully implement the Law Commission s recommendations. No change was made in respect of PSLA awards of 10, or less. For cases valued between 10,000 and 150,000 there was a progressive increase from 0%-33 (1/3 %). 14

15 MASS does not support the reasoning behind the proposed 10% increase. Damages are compensatory and MASS considers it fundamentally wrong that reasonably incurred legal costs and disbursements should be paid out of them. Even on Lord Justice Jackson s analysis almost 40% of accident victims would receive less as a net result of the combined impact of the removal of recoverability and the proposal increase in general damages for PSLA. This is not an acceptable position for the accident victim. Q 20 Do you consider that any increase in general damages should be limited to CFA claimants and legal aid claimants subject to a SLAS? MASS considers that all claimants are deserving of a substantial increase in the value of PSLA. Additionally, there would be a perverse incentive to claimants to proceed by way of a CFA Agreement, which is at least questionable as a matter of public policy. 15

16 Section 2.4 Part 36 Offers The Proposal: That Part 36 of the Civil Procedure Rules (offers to settle) should be reformed Q 21 Do you agree with the proposal to introduce an additional payment, equivalent to a 10% increase in damages, where a claimant obtains judgment at least as advantageous as his own Part 36 offer? As noted in the Consultation Paper, the Part 36 arrangements introduced by Lord Woolf are generally found to have worked well. However, MASS agrees with Lord Justice Jackson s view that under the current Rules the sanctions against the claimant outweigh those against the defendant. Thereby, in MASS view giving the defendants less incentive to put forward reasonable offers to settle. MASS agrees with the proposal to introduce an additional payment equivalent to a 10% increase in damages, as this would encourage both claimants and defendants to settle promptly. MASS does not support Lord Justice Jackson s view that the additional amount could be used towards paying success fee and ATE insurance premiums if no longer recoverable from the defendant. This compensator incentive to settle will be insufficient alone. MASS therefore recommends retaining and extending the compensator incentive to settle present in the new RTA Process, where the amended Part 36 provisions allow the claimant to recover their 100% success fee, a provision agreed with the insurance industry. This will reduce cases which proceed to court and resultant Exchequer savings. Q 22 Do you agree that this proposal should apply to all claimant Part 36 offers (including cases for example where no financial remedy is claimed or where the offer relates to liability only)? Please give reasons and indicate the types of claim to which the proposal should not apply. MASS agrees that this proposal should apply to all claimant Part 36 Offers, even for non-monetary claims such as with the example quoted, as liability will have financial implications to the claimant in relation to costs. Even if the Part 36 offer was with reference to liability only, it would have an impact upon and be applied to, the ultimate quantum involved in the case. The Part 36 proposal could be applied directly to road traffic accident claims as the claimant may be willing to make an offer with reference to contributory negligence. The new proposals could be applied to such offers if the claimant received an award equal to or better than that which has been put forward. Such an example would be where the claimant puts forward an offer to settle a case on a 50% assessment of contributory negligence, and at trial the Judge makes an award of only 25% as against the claimant. Having this facility would focus the defendant s minds on liability and encourage negotiations with a view to settlement prior to trial, with a resultant saving in court time and public expenditure. 16

17 Q 23 Do you agree that the proposal should apply to incentivise early offers? Please explain how this should operate. As with the current system, if the claimant s Part 36 Offer is made early and the defendants choose to reject this there are consequences should the claimant be awarded equal to or greater than their offer. With the proposals this would give the defendants even greater incentive to consider putting forward their own Part 36 Offer as early as possible. The proposal would give both sides incentives to engage in reasonable negotiations with a view to early settlement. It is MASS view, as expressed in answer to Q2 that the best incentive to settle is a fully recoverable success fee of 100% should a case proceed to trial, and a reasonable offer has not been made to settle. This has the effect of reducing to a minimum the number of court hearings. Q 24 Do you consider that the increase should be less than 10% where the amount of the award exceeds a certain level? If so, please explain how you think this should operate. MASS does not consider that the awards should either be scaled or that the Judge have discretion to alter the amount. For sake of clarity and to avoid satellite litigation it is essential that any increase is clearly stipulated within the Rules and have a statutory effect, such as the current success fees under Part 45. Any reduction or alteration to the 10% may dis-incentivise both claimants and defendants in the larger cases. Whereas it is these sorts of cases where there should be an incentive to put forward reasonable offers where possible to achieve early settlement. Furthermore, the larger cases carry a higher risk in terms of Part 36 and therefore the award should reflect this. From a public expenditure perspective, large cases will consume more court time and therefore there is more money to be saved. The purpose of Part 36 is to concentrate the mind of the defendant to put forward reasonable offers. Any dilution of the 10% could defeat this objective. Q 25 Do you consider that there should be a staged reduction in the percentage uplift as damages increase? For the reasons set out above MASS does not consider it appropriate to have a staged process. If such an approach was implemented it may result in negotiations focussing just below or just above the trigger amounts. This would have an adverse affect on both claimants and defendants. Also the Law Commission on damages in 1998 emphasised a particular problem with awards in cases above 10,000 which led to them recommending an increase. 17

18 Q 26 Do you agree that the effect of Carver should be reversed? MASS agrees that the decision in Carver v- BAA Plc should be reversed. In doing so the new provisions would once again allow a Part 36 offer to have a degree of certainty that the current wording and application of Carver does not. Certainty is applicable to both claimants and defendants to allow Part 36 offers to be constructed and applied clearly to both parties. Q 27 Do you agree that there is merit in the alternative scheme based on a margin for negotiation as proposed by FOIL? How do you think such a scheme should operate? For the reasons set out in our reply to Q26 MASS does not agree with FOIL s suggestion based upon a margin for negotiation. FOIL s proposal was also consistently rejected throughout negotiations conducted during the development of the new RTA Process. Not only is there the possibility that it will overly complicate Part 36 assessments, there is also the risk that it could result in claimants potentially under-settling their claims by up to 10%. Current advice, if followed by a claimant, would inevitably and frequently lead the claimant settling for 10% less than they would presently. These proposals would not in MASS opinion encourage an early settlement and may in fact allow the claimant to obtain an award that would be disadvantageous. MASS also considers this would be a factor which would further generate potential satellite litigation where the basis of the reforms for the Part 36 are to encourage parties to reach agreement to achieve early settlement. It is MASS view that this would not assist in achieving that aim. 18

19 Section 2.5 Qualified One way Costs Shifting The Proposal: That there should be a regime of qualified one way costs shifting in certain cases Q 28 - Do you agree with the approach set out in the proposed rule for qualified one way costs shifting (QOCS) (paragraph )? If not, please give reasons. MASS has fundamental concerns regarding one way cost shifting and in particular, believes that overall litigation costs would increase rather than decrease. MASS is of the opinion that there would be little to deter vexatious claims or unreasonable behaviour if one way costs shifting is introduced. Indeed Lord Bingham, when Master of the Rolls, said, in 1992 (Roache v News Group Newspapers Ltd, 19 November 1992 CA), that the principle that in the ordinary way costs follow the event is of fundamental importance in deterring claimants from bringing and defendants from defending actions which they are likely to lose. Whilst the CPR has been introduced since Lord Bingham made this statement, the principles behind the Rules still exist and thus there is no reason to change the current system when this is still a relevant principle and concern. The Rules would have to cover instances that are so diverse that they would themselves result in excessive satellite litigation to establish what is and is not reasonable. It could also be difficult to identify the true claimant for the purpose of cost shifting. In particular, it is frequently the case that: the party at fault issues proceedings first. In those circumstances, why should the innocent defendant lose the opportunity to invoke cost shifting, simply because they did not litigate first? split liability cases in which case, which element of costs will shift? Paragraph 142 of the proposals rightly identifies that the major concern is the uncertainty of what lies ahead for the claimant who brings a claim. It would appear that the claimant is potentially exposed in relation to their own disbursements incurred in pursuing their claim. Whilst it is mentioned in the discussion document that there could be ATE policies to cover this exposure, in reality MASS believes there will be serious commercially viability concerns for ATE insurers. The current system ensures that when a client goes to a solicitor for advice regarding their potential claim, the solicitor is in a position to provide protection, through a CFA backed by ATE insurance if needed, to cover their potential costs liabilities. The proposals for QOCS will remove that certainty and will mean that the client has potential costs exposure and therefore likely to deter them from bringing a valid claim and thereby fettering their Access to Justice. MASS is extremely concerned that a proposal as vague as QOCS would mean a reduction in this fundamental right. 19

20 At the other end of the spectrum, if there are not significant caveats introduced, QOCS could encourage frivolous litigation. The ATE market has adapted to risk in setting premiums. Typical premiums for cases under 10,000 are now less than 100 whereas previously premium ranges were from Consequently, premiums are proportionate. Q 29 Do you agree that QOCS would significantly reduce the claimant s need for ATE insurance? No. Although that is clearly the intention, the reality is that the minimum that would be required is ATE insurance to cover the clients own disbursements which MASS understands there are serious doubts over in the ATE market. In any event, as detailed in Q28 above, QOCS does not put the client in as secure a position as a CFA backed by ATE insurance does. Q 30 Do you agree that QOCS should be extended beyond personal injury? Please list the categories of case to which it should apply, with reasons. MASS does not believe that QOCS is appropriate in PI. We therefore feel it is unlikely that it would be appropriate in any other categories of case where a client is likely to be exposed to potential costs. Q 31 What are the underlying principles which should determine whether QOCS should apply to a particular type of case? As explain above, MASS is of the view that QOCS should not be introduced at all. If one way cost shifting is introduced then the judiciary would have to concentrate on establishing a system that would penalize abuse of vexatious or unreasonable claims and/or behaviours. This would have to involve some sort of administrative body and would inevitably then involve some sort of satellite litigation surrounding the decisions made. This would then defeat the intention of reducing litigation surrounding the issue of costs. Q 32 Do you consider that QOCS should apply to (i) claimants on CFAs only or (ii) all claimants however funded? MASS does not believe that QOCS should be introduced at all. Q 33 Do you agree that QOCS should cover only claimants who are individuals? If not, to which other types of claimant should QOCS apply? Please explain your reasons. MASS does not believe that QOCS should be introduced at all. As personal injury specialists MASS only represents individuals who have personal injury claims and therefore it is inappropriate to comment further. 20