Effect on litigated claims volumes of changes on court fees and fundamental dishonesty
9 March 2015
Increased levels of litigated claims in the short term should be expected as a result of recent developments in parliament, as claimants and their lawyers have been rushing to beat the incoming changes not only in the substantially increased levels of court fees, but also to avoid the introduction of the courts’ new ability to dismiss fundamentally dishonest claims.
What are likely to be both the short-term and longer-term issues that need considering?
Enhanced court fees approved by Parliament
Wednesday last week, 4 March, saw the agreement in the House of Lords of the government motion to implement the proposed enhanced court fees, following similar approval in the Commons the previous week. On the following day, 5 March, the statutory instrument needed to bring in the new level of court fees was signed – the Civil Proceedings and Family Proceedings Fees (Amendment) Order 2015. The increases introduced affect all claims worth over £10k and involve the payment of a court fee at the level of 5% of the value of the claim as stated on the claim form, up to a maximum fee of £10k.
The government have moved on this in double quick time. The initial expectation was that the new fees would be introduced at the end of March, as the indications from the government’s impact assessment were that that was to be the implementation date. This would have been in good time for the new financial year. However, it then seemed that the date was to be brought forward to 16 March, and then, last week, it was announced that the MoJ’s intention was to bring in the change from today, 9 March.
A bulge in the number of issued claims
As soon as the hurdle of the House of Lords was cleared and the intention to implement from today was obvious, claimant solicitors were advised by the Law Society to issue claims urgently and before the end of last week. The receipt by the Court Service of the draft proceedings for issue accompanied by the issue fee would, said the MoJ, suffice. Many solicitors did this in volumes insofar as they had enough time to do so.
It will be some time before any statistics are available as to how high the number of claims issued last week actually went. The MoJ does release quarterly statistics which are usually 2 months in arrears – for instance we have just had the stats for Q4 of 2014. From these, the most useful are those for “unspecified money claims”, the majority of which will be for personal injury. These show that in Q4/2014 there were 34,651 of that type of claim issued, consistent with a quarterly average for 2014 of 34,555. But the quarterly average number of issued claims of this type has been falling, as in 2012 the average was 43,147, in 2013 it was 40,065 and now it is 34,555. That is a drop of 20% over 2 years.
As we have seen, the rises in fees will affect all claims worth over £10,000 but will impact most significantly on claims in the £50-250k bracket. But the mass issuing of proceedings is likely to involve a significant number of claims of all values worth over £10k. Court offices will currently be struggling with high volumes of claims received up to last Friday which now need issuing, as claimant lawyers were anxious to ensure that their claims were started under the former lower fee regime.
When will the additional proceedings be served?
In the short term, insurers should not expect to see as soon as tomorrow a higher number of claims where proceedings are served, but instead this will occur over the next 4 months. This of course is the period over which those claim forms will be valid for service.
In most cases the claimant solicitor will have requested the claim form be returned to him/her before service, allowing those 4 months to prepare the particulars of claim, and to ensure the claim is ready for service, whatever the type of claim being dealt with. So the temporary effect of more claims going into proceedings will actually take up to 4 months to be felt.
And where the claimant lawyer is not ready at the end of those 4 months, insurers should still expect service of the claim form within that period, as solicitors will know they will have big procedural issues otherwise. But there may be requests to extend the time for service of additional documents that should ordinarily accompany the claim form, which should be looked at carefully before any agreement is reached.
Opposition to the new levels of fees
Opposition remains significant in parts, but patchy in others. The senior judiciary remain opposed to the changes on an access to justice basis. But Labour did not oppose the government motion proposing the new fees in parliament. Andy Slaughter MP from the shadow MoJ team promised only an early review of the effects of the changes if his party wins power in May.
The cross-bencher Lord Pannick speaking in the Lords last Wednesday tabled a motion of regret on the basis that the draft government order “unfairly and inappropriately increases fees for civil proceedings above costs and so damages access to justice.” His view was that the new fees created “an unreasonable and disproportionate barrier to access to the courts”. As expected in these situations in the Lords, the motion was withdrawn rather than put to the vote, but Lord Pannick contented himself instead with expressing optimism that the intended judicial review of the change would succeed.
Opposition has now therefore switched from parliament to the courts themselves.
A pre-action letter of claim setting out the grounds of a proposed JR was sent a fortnight ago by a group of bodies led by the Law Society. Usually a response to such a letter is due within 14 days, a period which ran out at the end of last week, just before the reform was introduced. In view of the bringing forward of the implementation of the increased fees, the Law Society’s lawyers are presumably pressing for a prompt response if one has not been delivered already, and considering their next steps urgently.
They will need to move swiftly with their JR where the position has been made more complex by the fact that the changes are no longer just proposed, but have been implemented. Perhaps this was part of the MoJ’s strategy? Anyway, we should see in the next few weeks what happens with the JR. It is difficult to say what the outcome will be, but Lord Pannick’s expectation of success cannot be discounted as a potential result.
We cannot see the court fees issue in isolation when looking at future litigation trends. The Criminal Justice and Courts Act 2015 has Royal Assent and section 57 dealing with fundamental dishonesty awaits implementation via a statutory instrument to be signed by the minister. The MoJ are unable to give a date when they expect this to happen, but we would expect the change to go live either later this month or in April. When it does, it will apply to claims which are litigated after that date. This reform is certainly happening.
The change will of course require a court to strike out an entire claim where fundamental dishonesty is shown, unless it would create “substantial injustice” to do so. How significant the change will be in practice remains to be seen. But we would expect it to be a key new weapon for insurers to use in response to not only fraudulent claims, but also those which involve significant exaggeration. And many claimant lawyers take the same view and so are concerned.
So this too has been creating an additional temporary effect of more claims being litigated, in this case to avoid the fundamental dishonesty law from the new Act. There remains reason for this trend to continue till section 57 is implemented, but there was more reason for increased litigation up until the end of last week when the increased court fees could be avoided too.
Longer term issues
Perhaps the more important issue though is what, beyond the temporarily increased number of new claims, will be the effect of these changes on future in relation to litigation, and the conduct of claims generally by claimant law firms?
Unless the JR succeeds, or the next government thinks again with the benefit of evidence of likely decreasing (beyond the initial bulge) litigation trends set against the need to ensure access to justice, it will clearly be the case that claimant firms will need much more cash to issue claims, assuming that they are to continue to fund those costs as they often do currently. Some larger firms may be able to achieve this, smaller ones may not. In other words, if there is a trend on their part to try to avoid litigation, it may be stronger in the case of some law firms as opposed to others.
A trend towards ADR
It looks clear that the raised fee levels will encourage more ADR. What type of ADR remains to be seen. The fees increase could join claimant fears on costs budgeting to provide an impetus towards existing ideas which are yet to be significantly advanced which include a form of arbitration on agreed rules suitable for the type of claim in question, or some form of neutral facilitation. Or we could expect to see more dialogue towards settlement, either in direct discussion or in larger claims at a JSM.
The comments of the government minister, Lord Faulks, proposing the increased fee levels in the Lords are worth noting. He spoke (presumably as a government future hope rather than a comment on current reality) of litigation being “very much an optional activity”, and of a belief that claimants would want, after the changes, to see at the very least at least a better than 50% chance of success before litigating, and probably in fact a 75% chance.
Other trends we may see
The increased fees are likely to dissuade claimant lawyers from litigating claims which they think they may lose on liability. Currently, they risk their own fees in this type of claim, but they may well be unwilling to risk a large sum on a court fee as well.
There will be more requests for limitation waiver or standstill agreements. If there is good reason for the insurer to agree, because of the circumstances of the case itself, or the relationship with the claimant lawyer, the insurer may consent to some appropriate type of agreement. But if the claimant lawyer seems reluctant to commit to litigation in the specific case, or is thought not to be able to easily afford the issue fee, it may not be appropriate to enter any such agreement.
The handling of certain claims by insurers where litigation has not been started may change. If the view is taken that what is sometimes seen as the claimant’s main weapon, the option to issue proceedings, has become more difficult to use, at least for some claimant firms, then the dynamic has changed and new strategic planning is appropriate.
It is worth scrutinising the claim value disclosed on the claim form. Sometimes these are inaccurate now, with claimant lawyers relying on the fact that the limitation is usually not binding against the claimant. But an undervaluing of the claim when proceedings are issued should if appropriate be responded to by a reference of the issue to the court which is likely to want to see the claimant paying an additional fee.
It is possible to gain exemption from fees via a fee exemption form. But there are both capital and income limits which mean in effect only a small number of claimants will qualify. But claimant lawyers can now be expected to show more interest in this process.
The trend towards large more efficient claimant operations, ones which are able to effectively respond to the challenge of these further reforms, will continue.
It is early days to be dogmatic. Under a claim value of £50k the increases are less significant, and the effect on claims handling and litigation trends may be less significant in turn. Estimated claims values are likely to be pushed down to more realistic levels when paying fees. Will smaller claims for injury, when litigated, whether for accidents or for NIHL, now be limited to £10k rather than a higher sum?
In injury cases involving potential fraud, or even significant exaggeration, section 57 will create uncertainty for the claimant and his/her lawyer both when taking the case on, and when considering litigation. The claimant lawyer may be looking for higher success fees from the claimant if such a case is taken on. Both factors may tend to decrease volumes of both claims and of litigation in this area. This after all is the government hope in relation to unmeritorious claims.
In the claims worth £50k upwards into catastrophic levels there will be new pressures on claimants towards a consultative approach generally, and we may also find that this feeds into the forthcoming issue of the Rehabilitation Code 2015 expected in the summer, and will point towards a greater use of collaborative processes.
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.