Small Claims, Fraud and Whiplash Andrew Hogan
Introduction 1. We live in interesting times. In April 2013, the biggest shake up to the civil justice system in a generation is due to take place with the implementation of the Jackson reforms and the key provisions of LASPO coming into force. In parallel, the shape of the legal services industry is being fundamentally recast by the introduction of significant numbers of Alternative Business Structures, the relaxation of rules on ownership of law firms and the introduction of outside capital. 2. Even more reforms are on the horizon. The horizontal and vertical expansion of the Ministry of Justice sponsored Portal scheme for low value, quantum only personal injury claims is to encompass not only road traffic accident claims, but employer s liability and public liability claims, as well as those with a higher value. However, the implementation of this expansion has been delayed beyond April 2013. 3. Just before Christmas 2012, the Ministry of Justice published a further consultation document, entitled Reducing the number and costs of whiplash claims: A consultation on arrangements concerning whiplash injuries in England and Wales(CP17/2012). The key proposal on which the government is consulting upon is that the Small Claims Track should become the default track for the allocation of either whiplash claims in RTA cases worth up to 5000 in respect of damages for pain, suffering and loss of amenity (the narrower proposal) or personal injury claims in RTA cases worth up to 5000 in respect of damages for pain, suffering and loss of amenity generally (the wider proposal). The paper also makes proposals for the diagnosis of whiplash injuries, which is thought to warrant reformed procedures. This article will confine itself to the costs considerations that the consultation raises. The rationale behind the Small Claims Track proposals 4. The rationale behind raising the SCT limit is stated at paragraph 8 of the executive summary: Insurers report regularly that it is simply not rational to challenge many claims given that the value of the claim is often less than the costs of challenge. As such, the present arrangements might not provide the proper incentives as to allow fraudulent claims to be tested properly. A beneficial result of an increase to the damages threshold for personal injury claims in this area would be for more 2/7
fraudulent and/or exaggerated claims to be challenged, potentially reducing the number of such claims made. 5. The executive summary continues: Claims pursued through the small claims track usually result in both sides bearing their own costs, meaning that it would become more economically viable for defendants to challenge exaggerated or fraudulent claims given that there is reduced risk of funding high costs if the case is lost. In addition, the costs rules would make it more likely that claimants would be deterred from making such claims unless they were genuinely injured. 6. The executive summary blithely notes at paragraph 12: The Small Claims track is designed to deal with relatively straightforward claims and to serve self represented litigants. District Judges usually preside and have a responsibility to equalise any uneven playing field where one party is self represented. 7. The summary concludes (hubristically?): Taken together, the changes being consulted upon will make it less likely that fraudulent or exaggerated claims will be made, and if they are that they can be properly tested. Such reductions in claims numbers should be reflected in the insurance premiums each motorist pays, given that the insurance industry has committed to pass on savings to policy holders. Comment 8. It can readily be concluded that if the authors of the paper really believe that fraudulent claims are best tried in the Small Claims Track they are naïve and have never had the pleasure of undertaking backto-back small claims hearings all day in the Mansfield County Court. The Civil Procedure Rules and in particular parts 26 and 27, with their accompanying practice directions, are extremely clear that the Small 3/7
Claims track is not the appropriate track, whatever the value of the claim where an allegation of dishonesty is made. 9. The reasons are simple. Evidence is not given on oath (the witnesses are presumably free to lie without fear of perjury), there is no formal disclosure process, no rules of evidence and expert evidence is extremely limited. The track cannot deal with cases that are complex in fact or law. The notion that low velocity impact claims or the adduction of database and social media evidence can be marshalled or rebutted within the confines of a small claim is simply bizarre. Any District Judge considering such a case on allocation will, in accordance with rule 26.6, simply allocate it to the Fast Track, or more likely the Multitrack. 10. Moreover, the paper, with its concerns that insurers face huge bills of costs for challenging fraudulent claims, seems to miss the point that if an insurer fails to establish fraud and is ordered to pay costs, that it would indicate that the claim, was not, in fact, a fraudulent claim. The insurer would have been well advised to pay the claim speedily if it wanted to avoid a large bill of costs. 11. Equally, the paper misses the point that under the regime of Qualified One Way Costs Shifting, (which will apply in April 2013), that insurers will have to stand their own costs in all personal injury claims, whether rightly or wrongly made, save for a number of limited exceptions; of which the principal one is fraud! But on this proposal that concession to common sense and justice will seemingly be negated. 12. In truth, the motivation and meaning behind the paper is about moving a considerable tranche of personal injury claims out of the costs bearing tracks, in order to reduce the overall bill of costs to the insurance industry. In turn, this means a reduction in the overall levels of premium which motorists pay. It would be a great deal more satisfactory to have the consultation and debate put forward on this premise which is grounded more in genuine considerations of economic utility, than to have it dressed up with a rationale that could be described to be a fiction of fraud. 13. This would enable the considerations of onerous insurance premiums to be weighed against considerations of access to justice. It is something of a pity that this is not the route the paper has taken, as there is a lot to be said on both sides of that debate. 4/7
14. However, the more significant point is that the law of unintended consequences is likely to defeat the rationale behind the proposal; namely to discourage the promotion of such claims. Although such claims will no longer attract an award of inter parties costs (unless, oddly enough, fraud is raised as a defence and the case is allocated to a costs bearing track) does not mean that solicitors will not wish to take on and prosecute such claims. 15. Consider the other parts of the reforms. The introduction of damages based agreements (DBAs), which are enhanced awards of damages for pain, suffering and loss of amenity by 10%, costs protection through allocation to the Small Claims track, which reinforces the system of qualified one way costs shifting. This means that there is little or no need for ATE, indicating that solicitors representing claimants will have every incentive to run as many of these claims as they can find in the Small Claims track; provided that they can do so profitably for a fee representing 25% of the award of damages. 16. If the average level of damages for pain suffering and loss of amenity in a whiplash claim is 2500, that figure will become 2750 after April 2013. With a couple of hundred pounds of special damages for a total award of say, 3000 in damages and interest, a solicitor might recover 750. Potentially, with clever drafting, the limited Small Claims track costs can be awarded under part 27, if acting under a DBA, permitting them to charge 25% of the value of the claim. 17. This might well be thought to be a more attractive option for solicitor s firms than the Ministry of Justice Portal costs, particularly as it should be noted that a fairly drastic reduction in those costs is proposed as part of the reforms. 18. A key consideration from April 2013 will be the formation and structuring of a solicitor s retainer with his client. Should it be a CFA? Or a DBA? How will the retainer signed at the start of the case contemplate the possible disposal of a claim through the Portal or on the Small Claims Track or, if fraud is raised, on the Multi-track after a two day trial? How will it permit a solicitor to retain costs if they are awarded or a slice of the damages if they are not? 5/7
19. Because DBAs are subject to the indemnity principle, a clear danger of a simple DBA is that in a case of fraud, where a Claimant is victorious in recovering 3000 after a 2 day trial, but notionally incurs costs of 50,000 along the way, any award of costs inter partes, is liable to be capped at 750! Careful thought and drafting of the retainer at the outset should avoid this possibility. My costs blog can be found at www.costsbarrister.co.uk Please do visit and register at the site. In March I am offering individual firms of solicitors and costs lawyers training seminars on the Jackson reforms of a half day duration. Please contact me in chambers for a discussion and to find out rates. Andrew Hogan January 2013 Andrew Hogan Andrew Hogan was called to the Bar in 1996. His specialisms include personal injury litigation, including disease and credit hire. He is recognised nationally for his work in costs litigation and has strong practices in employment and discrimination law, and planning environmental and local government law. He is recognised nationally for his work in costs and also attracts instructions internationally to advise on the law of costs in England and Wales. His expertise is recognised in the leading directories. He undertakes work in all areas of practice including litigation costs, costs in the various tribunals, insolvency proceedings and the area of solicitor/own client disputes. andrewhogan@ropewalk.co.uk 6/7
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