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Civil justice: Costs reforms, Jackson/LASPO update

Our monthly round up of progress with the Jackson and associated civil justice reforms including updates this month on referral fees, case management/costs budgeting and whiplash.

Case management and costs budgeting – update

Cases issued before 1 April 2013

Salford County Court has issued guidance about whether Form H costs budgets are required in cases issued before 1 April 2013. There has been confusion about whether receipt from the court of Form N149C means that in cases issued before 1 April 2013 there is an obligation to file costs budgets.

Following concerns raised by practitioners with the County Court Money Claims Centre (Salford Business Centre), the centre manager has said:

"... I am able to confirm that a cost budget by way of the precedent H form is not required for cases issued pre 1st April 2013. The guidance issued to courts incorrectly told staff to use the new Directions Questionnaire form from 1 April irrespective of whether the claim had been issued before 1 April. Therefore in the event that solicitors receive a notice asking them to file precedent H for a claim issued before 1st April, they can ignore this unless otherwise told to file one by the Judge. We will be publishing an eNews article to this effect for court staff and judiciary."

We understand that the Senior Costs Judge Master Hurst has also confirmed to the Association of Costs Lawyers that "a costs budget cannot be required for a case commenced pre 1 April 2013, unless ordered by the court. If one is not done, a party should not be criticised."

Case law round up

Several recent cases provide an early indication of the courts‟ strict approach to case management and costs budgeting:

Variation to costs budget - Elvanite Full Circle Ltd v AMEC Earth & Environmental (UK) Ltd (2013) illustrates how variations to cost budgets will be treated. The High Court (TCC) refused to allow a successful defendant to apply to revise an approved costs budget after the trial had taken place. It was held that an approved budget can only be revised by making a formal application to court; filing a revised budget at court is not sufficient. An application should be made as soon as it becomes apparent that the original budget has been exceeded “by a more than minimal amount”. Coulson J reiterated that the court will permit a departure from an approved costs budget only if there is good reason to do so.

An increase in the defendant's experts' fees constituted a significant part of the increase in costs. This justified a departure from the costs management order only to the extent that the increase related to evidence on issues that had not been anticipated to require expert evidence. Coulson J held that the defendant's costs should be assessed on the standard basis but was of the opinion that, even where indemnity costs are awarded, the approved costs budget should be the starting point for assessment.

Late amendments to statements of case during trial - the High Court has given two apparently conflicting decisions in this area and also raises the question of how far-reaching the addition of CPR 1.1(2)(f), to enforce compliance with rules, practice directions and orders in considering the overriding objective, will be.

In Versloot Dredging BV and another v HDI Industrie Versicherung AG and others (2013), Popplewell J refused to allow the defendant’s permission to re-re-amend their defence at the end of the evidence at trial. Having considered the factors set out in Swain-Mason and others v Mills & Reeve (a firm) (2011), the judge concluded that the defendants had not discharged the heavy burden upon them to justify the amendment and that, to allow it, would be unfairly prejudicial to the claimant.

However, in JW Spear & Sons Ltd and others v Zynga Inc, Peter Smith J allowed an amendment made by the defendant part way through the trial, following an order for additional disclosure by the claimant given by the judge during the trial. Peter Smith J rejected the notion that there was some extra requirement on an application for a late amendment; that of a “heavy onus” on the party seeking the amendment to justify it. He considered that such a view was contrary to the principles of the CPR and the overriding objective.

The cases also raise the question of how far-reaching the addition of CPR 1.1(2)(f), to enforce compliance with rules, practice directions and orders in considering the overriding objective will be. Commentators had expected that this might be strictly interpreted so that late amendments would rarely be allowed and yet another recent case, Re Atrium Training Services Ltd (below), demonstrates that this is not always the case.

Approach to implementation of overriding objective - in a case emphasising a more balanced approach, in Re Atrium Training Services Ltd and Connor Williams Ltd (2013), the High Court considered an application for an extension of time to comply with a disclosure order and, whether any extension should be an unless order, in light of the changes to the overriding objective resulting from the reforms.

The applicants applied for a fifth extension of time for disclosure. After the previous extension, they had appointed new solicitors who had to restart disclosure because the quantity of documents meant it was in the interests of the parties and the court that disclosure be carried out through an e-platform, rather than manually, as before.

The respondents relied on two post-Jackson decisions to show that the court should now take a stricter approach to non-compliance with directions, given the change to the overriding objective (Fons HF v Corporal Ltd and another (2013) and Venulum Property Investments Ltd v Space Architecture and others (2013)).

Henderson J granted a fifth extension of time for disclosure but did so on strict "unless" terms that the claim be struck out if the applicant failed to comply. He considered that the respondents had been unable to demonstrate any significant additional prejudice and to refuse the extension would be disproportionate and unfair in the circumstances. In reaching his decision, he noted that, following the changes to CPR 1.1(2), a court will scrutinise extension applications more rigorously than it might have done before 1 April 2013. However, he stressed the importance of not going to the other extreme and encouraging unreasonable opposition to extensions, applied for in good time, involving no significant fresh prejudice to other parties.

Costs management and detailed assessment - in Slick Seating Systems and others v Adams and others (2013) the court dispensed with the need for detailed assessment following costs management. HHJ Simon Brown QC, following his assessment of the quantum of the claimant's damages, considered the claimants' application for costs. The defendants did not participate in the hearing. The case had been actively case managed and subject to a costs budget under the costs management pilot scheme in the Birmingham Mercantile Court. A budget had been approved of £359,710.35. The judge considered this to be proportionate to the damages award of £4.4 million. The claimants' costs were within budget at £351,267.35 and the judge was prepared to award that sum be paid within 14 days without the need for detailed assessment.

The defendants' conduct of the litigation by effectively dropping out but occasionally sending e-mails to the claimants, placed a greater burden on the claimants in proving their loss. This meant that costs budgeting would not have come into play even if the claimants had exceeded their budget, because it would be for the defendants to show the costs they incurred (whether within the budget or not) were unreasonable. The judge considered this case to be a good example of where a defendant would find it hard to show costs were unreasonable as they were within budget and one of the factors resulting in the level of costs was the defendants' own failure to engage properly in proceedings.

Appointment of appeal judges for costs appeals

While we await the first costs appeal to give guidance to judges and practitioners on the new regime, the Master of the Rolls, Lord Dyson, has announced the members of the Court of Appeal he is designating for the purposes of hearing appeals to the Court of Appeal arising from the Jackson Review reforms. The judges will be himself, Lord Justice Stephen Richards (Deputy Head of Civil Justice) and Lord Justices Jackson, Davis and Lewison. At least one of the designated group will be on the bench for all appeals arising from the reforms.

Consultation on costs budgeting exemptions

The Civil Procedure Rule Committee has announced a consultation on the current exemption from costs budgeting of higher value commercial cases. It is also considering whether any other claims currently within the mandatory costs budgeting regime should be exempted.

The consultation paper notes that the steps taken to exempt claims worth over £2m in the TCC, Chancery Division and the Mercantile Court from the regime “were something of an emergency solution” to the problem of forum shopping if the exemption had only applied in the Commercial Court as initially proposed. The aim now is to agree new wording for CPR r.3.12(1) which refers to the exemptions.

The preliminary view of the sub-committee is that a blanket exemption may be unnecessary and inappropriate bearing in mind that individual cases can be exempted as required under the current rules. Views are sought, particularly with regard to the impact of the costs budgeting regime on international litigation and the use of England and Wales as a jurisdiction of choice.

Consultation meetings are taking place on 10 and 16 July and written evidence is sought by 20 July.

Referral fees

SRA inducement guidance

The Solicitors Regulation Authority has rejected Lord Young’s calls in his review of health and safety back in 2010, to ban solicitors from offering cash or gift inducements to potential clients, stating that there is no evidence to suggest clients are harmed by law firms offering advance payments for their cases.

The SRA has now produced a guidance note to remind solicitors of their obligations to the code of conduct, which states that publicity should not be inaccurate or misleading. The note reiterates the mandatory outcomes and indicative behaviours set out in the SRA Handbook.

ABSs

The Government has promised to revisit the terms of the personal injury referral fee ban if it appears as though alternative business structures and other arrangements are being used to get around it. The pledge came from Justice Minister Lord McNally in response to Lord Hodgson of Astley Abbotts raising the issue in the House of Lords.

Whiplash

Evidence to Transport Select Committee – main themes

The opportunity came on 17th June for insurers, lawyers and claims management companies to set out their positions on the current whiplash debate before the Transport Select Committee. The Committee, it will be recalled, is considering whether the UK has a whiplash problem, and if so what should be done about it, and that the Ministry of Justice has agreed to defer its response to its consultation on whiplash which closed on 8 March until after the Committee has reported in the autumn.

Most of the themes already running in this debate were aired again, and the views expressed mainly set out established positions, but views in some areas were developed further than they have been previously. It was a chance for representatives of claimant lawyers to be asked for their views again having of course been excluded from some of the MoJ's recent discussions with other interested bodies around portal and costs reform, and having failed with their judicial review when challenging that position. The Committee made it clear that this was a chance for claimants to set out their positions.

The problem of fraud within whiplash claims

Views were polarised in this area. Insurers spoke of 7% of whiplash claims being known to be fraudulent, but that if exaggeration was included, the figure could be 60% or even more. The claimants saw the statistics as unreliable, suggested that they were in line with other major Western European states, and denied that the UK was "the whiplash capital of Europe". It seemed clear that the Committee saw the number of fraudulent or exaggerated whiplash claims as a significant one, they seemed surprised at the increasing number of whiplash claims against a report of falling number of accidents, and were clearly unwilling to accept the suggestion from MASS that the fact that more traffic might travel at lower speeds on UK roads as opposed to elsewhere in Europe was likely to be a relevant factor.

The quality of medical evidence in whiplash claims

The insurers set out their views that the medical experts currently used in whiplash cases were not adequately independent, and they favoured a new scheme along the lines of the Government's proposals in the whiplash consultation, involving accreditation, training and peer review. They saw a need for any medical evidence in this type of claim to be based on all of the evidence available including the defendant's account of events. They also saw merit in having a minimum vehicle speed before whiplash could be diagnosed.

The claimants' views varied between their spokesmen, but ultimately there was an acceptance that a rounded view of all of the evidence available in a case was needed, and that there was a recognition that at present diagnoses were given based solely on the claimants' evidence. Claimants were opposed to having a minimum speed threshold, arguing that even a collision with four or five miles per hour was enough to cause whiplash in some claimants.

Small claims track limit

There was a wide variation of views between the sides to the debate. Insurers who spoke were in favour of the SCT limit being increased quite considerably, in an attempt to remove claimants' costs as the fuel which drove claims numbers. They saw there to be no need for lawyers in all cases, that software should be introduced to value PSLA, and that where lawyers were involved DBAs could be used, but if claimants decided to advance claims themselves, they could expect to be given access to the portal.

Claimants argued that any increase in the SCT limit would be deeply discriminatory of the old and the unfit who it seemed to be said would be more likely to develop whiplash type injuries. The claimants saw the likelihood of a new market developing to handle those types of claims even if the limit was increased, so that those claims would not go away, but a view was expressed that claimants' solicitors would be unlikely to be willing to take on a £2,500 whiplash claim on a DBA as the contingency fee would be insufficient for the work involved. 

Andy Wigmore, policy director of the Clams Standards Council was vocal in cautioning against any increase in the SCT limit, saying that the claims would not go away but instead the whole cycle would start again of working out how those types of claims could be profitably handled. "Everyone will become a claims management company" he advised, and that there would be a reinvention of new marketing companies. He strongly advised the Committee that a watching brief should be kept following the introduction of the current reforms before additional measures were considered.

Reduced insurance premiums

The insurers reaffirmed their categorical commitment to a reduction, and agreed to write to the Committee to explain how they calculated that of an average £440 motor premium, £90 could be attributed to the cost of fraudulent claims. Claimants continue to be doubtful that the reduced costs in the system brought about by the current reforms would be passed on, and were in favour of capping insurers' advertising costs that would otherwise be incurred so keeping premiums high, complaining that consumers were "besieged with adverts" from insurers.

Judicial changes

The insurers wanted the courts to be stronger on fraud and did not see the result of Summers v Fairclough Homes as adequate, preferring instead that if part of the claim was tainted by fraud, or the whole claim was exaggerated, that the claim should fail. The claimants on the other hand identified no specific area from the court process that they saw as requiring change.

Conclusion

The Select Committee will continue its work. It is difficult to predict outcomes but in relation to this area of potential further reform, both in relation to whiplash specifically, and to SCT limit issues beyond that, the claimant side may think that at least its voice has a forum in which it can be heard this time. The Committee has of course a political balance, and while its conclusions will therefore be difficult to predict, they are likely to be influential on the line taken by Government in this area.

The insurance industry were represented before the Select Committee by James Dalton of the ABI, Dominic Claydon of Aviva, David Fisher of AXA Insurance and Steve Maddock of Direct Line Group. The claimant lawyers were Desmond Hudson of The Law Society, Andrew Ritchie QC of PIBA, Matthew Stockwell of APIL and Craig Budsworth of MASS. Nigel Teasdale, the DWF Head of Motor was the FOIL representative before the Committee. Also appearing were Andy Wigmore of the Claims Standards Council, Russell Atkinson of National Accident Helpline, and Peter Gradwell of Exchange Insurance Services.

For further information please contact Nigel Teasdale, Partner, Motor team, on 01772 554264 or at nigel.teasdale@dwf.co.uk or Simon Denyer, Strategic Legal Development Partner on 0161 604 1551 or at simon.denyer@dwf.co.uk

By Simon Denyer

This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.

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