How insurers' position is affected by yesterday's news on Coventry v Lawrence and even higher court fees
Things can get busy in late July as both the parliamentary and legal terms come to an end before the summer. So it has been this week with developments from both the Supreme Court and from the Ministry of Justice which are worth looking at to see if there are effects on the cost of claims being handled by insurers.
Coventry v Lawrence in the Supreme Court
It was 12 months ago that the case was last in the Supreme Court. Reviewing the issues raised then we saw as unlikely any outcome which might declare the pre-LASPO regime of successful claimants being able to recover success fees and ATE premiums from defendants as being in breach of the European Convention of Human Rights.
Yesterday’s judgment from the Supreme Court by a 5:2 majority reached that conclusion. The court decided that there was a legitimate aim of achieving wide access to legal services in civil litigation being funded privately and not by the State in the form of legal aid, and that the pre-LASPO regime was a proportionate way of achieving that. The court was of the view that it was impossible to have a system which was fair to all, and that the fact that the one selected in fact operated harshly in certain individual cases (like in Coventry) could not affect its conclusions.
The only way forwards for the defendants in Coventry is now, as in fact happened in the Naomi Campbell case of MGN v UK, would be to take the point further to the European Court of Human Rights. Time will tell on that.
The “blackmail” and “chilling” effect from the old process
The main systemic point about the old system which concerned the court and which will be recognised by insurers was the “blackmail” or “chilling” effect which obliged defendants to settle claims given the potential level of costs recovery from them if they lost. But the existence of that point was not sufficient to change the outcome of the court’s decision.
The Supreme Court were concerned about the fact that the old system effectively meant that defendants paying costs in CFA cases under the old regime would be also be paying (through the success fees and ATE premiums) the costs of funding other claims which did not affect them at all. The court did though also note that where a defendant won its case, it could usually recover costs from the ATE insurer. No mention was made in the judgment of the difficulties which would arise not infrequently in making that recovery.
Criticism of the current post Jackson regime?
The Supreme Court included in their judgment the comment that under the current post-LASPO regime, the claimants in Coventry would not have had their case taken on by a lawyer. That may be open to some doubt as no lawyer in fact had to make that decision which would have come down to whether the considered prospects of success justified the risk and potential rewards still available in the form of the base costs.
But on the basis of that comment, the lead judgment of Lords Neuberger and Dyson went on to remark that the Jackson-inspired LASPO regime “has inevitably curtailed access to the courts in some respects”. Claimant commentators will have noted the point, but the result of the General Election has dispelled any risk to the contrary and clearly the current LASPO system is now here to stay.
Position of insurers
The position of insurers was referred to in some of the judgments from the Supreme Court yesterday. It was said they had been able to spread the cost of their involvement in the pre-LASPO regime among their policyholders, and comment was made that the court did not think that insurers would be concerned with the result in a particular case, as they would be able to balance premium income over a long period.
The result of the judgment overall is a pragmatic one, and the Supreme Court has backed away from some of its more trenchant comments made 12 months ago, having looked at the points in more detail, with the Secretary of State for Justice and 7 other parties having joined the hearings as interveners. The result avoids any Francovich claims against the UK government, the value of which had been estimated at £15bn.
Whether or not Coventry is taken to the Strasbourg court, yesterday’s judgment effectively draws a line under most of this affair, and in our view, as far as insurers are concerned, we are now largely back to the position where we were before these costs issues were first looked at in this case by the Supreme Court. Even if there is a different ultimate result for the Coventry defendants specifically reached on the basis that they are individuals in an extreme case, any such outcome would not seem likely now to affect the position of insurers.
Moving on to the other news from yesterday, it was only in March that the new substantially increased court fees were introduced, the new level being 5% of the claim’s value up a maximum fee of £10,000. At the time, the government’s stated expectation was that litigation rates would only fall 0-2%, with a likely maximum drop of 10%. There remains no actual data yet as to what the effect has been in fact, and we will not see that before early September when the MoJ publish their quarterly statistics for April to June.
Giving evidence to the Justice Select Committee last week, the Secretary of State for Justice Michael Gove accepted that while the MoJ had done some modelling before the changes were introduced, upon which no doubt their percentage estimates for marginally reduced litigation rates were based, that the real impact could only be discovered from what actually happened in practice.
Mr Gove told the JSC that the MoJ would keep the effect of the new fees under review, and that if there were cases of “rough justice”, they would revisit them.
Yesterday’s announcement on increased fees
It was no doubt the problem which Mr Gove explained to the JSC, of the MoJ being an “unprotected department” and so exposed to the need to make savings as the Chancellor of the Exchequer looks to eradicate the deficit, which is behind the news in this area which emerged yesterday. The smaller part of that news was that fees for interim applications will rise, so that the cost of on-notice applications will rise from £155 to £255, and without-notice fees will increase from £50 to £100.
Yesterday’s announcement on likely further increased issue fees
The more significant news on court fees from yesterday is that even though there is as yet no published data as to what effect the March increased court issue fees has had, the government is holding a new consultation open until 15 September as to whether issue fees for claims which are not for personal injury or clinical negligence should rise yet again.
The proposed new issue fee would remain at 5% of the claim’s value, but the capped maximum fee for non-injury types of claim would instead of being £10,000, rise to £20,000 or even higher. In fact, the government ask whether there should be no cap at all with the fee simply being 5% of the amount claimed, though how this would work in cases where the claim could not be quantified remains unclear.
The MoJ team think that faced with the need to raise revenues, that the type of claim affected would “involve large multi-national organisations or wealthy individuals” who can pay more, but as of course all non-injury claims would be included in this proposed change, the reform would affect claims valued at over £200,000 dealt with by insurers away from the injury field, as it would any individual or company wishing to issue a non-injury claim of this value.
The MoJ’s decision which it will make after the consultation cannot of course be taken as read, and it will no doubt be strongly criticised, but it seems to us highly likely that these new further increased issue fees will be introduced.
Difference in approach in injury-related claims
It is though interesting that a difference is being drawn for the first time as between injury claims on the one hand, and non-injury on the other. While it seems that a drop-off in litigation will have to be stark when the statistics on numbers of issued proceedings are available if they are to cause the government to change its approach in this area, the recognition that there is in the field of injury claims a limit as to the fees that can expected to be paid by claimants or their lawyers, and then recovered from insurers if those claims succeed, is surely worth something.
Budgetary constraints no doubt are behind the other MoJ consultation just launched which is also open over the summer, this time until 8 October. The plans are to close or amalgamate a number of courts, including 35 county courts. In general terms, they are smaller courts, in locations where the MoJ can say that there are larger courts in regional centres not too far away able to absorb the work.
The reasons given by the MoJ for the proposed changes, apart from the need to make savings, is that there is “surplus capacity”, with a third of courts being used for less than 50% of the time they are open. It is probably true as they say that there are fewer hearings than there used to be, but the MoJ expectation is that the reform is compatible with the move to greater use of technology, in the form of use of video and telephone hearings, as well as on-line conferencing. Again, the reform is likely to happen either in the form proposed, or something close to it.
Regular litigants like insurers would be forgiven for being concerned if at the same time as a higher price is being paid for court services, the level of the services provided is going to deteriorate further. There will continue to be attraction in alternative methods of dispute resolution.
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.