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Latest Department of Health proposals suggest claims of higher value are moving closer to having claimant costs fixed

12 August 2015

Insurers are rightly interested in the potential for extending the remit of the existing fixed costs regime in order to be able to exercise greater control over exposure to claimants’ costs. In the past, the momentum for those changes has largely come from the pioneering work of Lord Justice Jackson, and fixed costs have now been implemented at least in part for cases entering the RTA, EL, PL and EL disease portals.

There is now a new and perhaps unexpected force at hand that may help in taking the question of fixed costs a stage further from where we are now. The momentum to drive the existing level of costs reform a stage further now comes from the Department of Health (the DH).

Proposals from the DH

The proposals of the DH for more fixed costs were seen in more detail last week, having been originally announced in principle by Health Minister Ben Gummer in June, though they had not been included in the Queen’s Speech. The proposals relate of course to clinical negligence cases, and are driven by the need to save public money, in a situation where the DH think the strain on NHS resources should be reduced.

In is informative to look at them in the broader context of all types of injury claim, as what happens in clinical negligence at this point in time, may follow in other claims types soon afterwards.

Current costs issue in clinical negligence claims

The DH says that this type of claim against the NHS cost a total of £1.3bn in 2013/14, of which £260m or 22% was paid as claimants’ costs. But specifically, the problem is seen to be at its greatest in the smaller and medium value claims, as the graph below shows. The aim is to save around £80m if the new proposed fixed costs are introduced for claims worth up to £100k. If in fact the limit under which the proposals would apply were raised to £250k, then the DH say they might save around a further £25m.

Mr Gummer’s examples were of one claim where the claimant’s lawyers claimed £175k in costs for settling damages at £11,800, and another where £80k of costs were claimed in a case where damages had been £1k. Extreme examples perhaps, but ones that add fuel to the fire of the argument that the strengthened proportionality test introduced in April 2013 has yet to deliver real claimant costs savings.

The graph below sets out the relationship between damages and claimant costs paid in clinical negligence claims worth up to £250k. It is only above £50k in damages that the average costs figure is less than the damages. And up to £100k, the average costs are almost three-quarters of the damages. It’s only between £100k and £250k that costs reduce to just over 50% of the damages.

SU 120815

The DH’s intended way forwards

The DH’s intentions are to hold a consultation on their intended introduction of fixed costs into this type of claim to work out what the fixed costs process would look like, and of course what the level of those fixed costs would be. It seems that the consultation will open in November, and will close before Christmas. This is with a view to the new rules coming out by July 2016 with an implementation date of October 2016.

There are a number of key areas of interest in this news where there can be a potential effect on other types of claim beyond clinical negligence.

Fixed costs

Fixed costs reaching out to include claims worth more than £25k

The first is the size of claim to be included in the new fixed costs scheme. When the proposals were originally announced by the DH in outline form, they were to be limited to claims valued at up to £100k. But the DH says they are now “exploring the possibility of consulting on claims up to £250k.”

In support, they refer to Lord Justice Jackson’s keynote speech in September last year when he not only spoke about fixed costs in the “lower reaches of the multi-track”, but also to them potentially applying to cases worth up to £250k. At that time, Jackson seemed to be looking into the future, and saw the possibility of a fixed costs regime where costs would be calculated by reference to the damages recovered and paid by the unsuccessful defendant on top of the damages. With the percentage varying depending on the stage at which the claim settled, varying from 10% at the pre-proceedings stage, up to 40% at trial.

There is also other recent momentum on this. Last week we had released the report of the Civil Procedure Rule Committee’s sub-committee on costs management. This has been considering how to improve the current issues with the costs management process which is seen as adding time and cost to claims in the low parts of the multi-track. That sub-committee was unanimously agreed that fixed costs were required for all cases worth up to £50k.

The use of fixed costs is of course currently limited to claims worth up to £25k, and even then they only apply to claims which start in the portal (with them also not applying to EL disease claims outside the portal). An increase by a factor of 10 in the level of claim subject to fixed costs so as to include claims worth up to £250k would be a significant one, but it would be influential in creating momentum towards fixing costs in larger claims across the piece, even if after the DH consultation it is decided to implement the change only in clinical negligence claims worth up to £100k.

Fixed costs in all types of lower value claims

Secondly, an effect may be towards filling in the other gaps which exist in fixed fees currently. Clinical negligence claims are one of those gaps but there are others. The CPRC sub-committee also see the need for claims of all types to be included in the fixed costs process. If that is taken forward by government, then at the same time they will clearly have to decide on the level of claim affected, which brings us back to the first effect already referred to.

The MoJ are already acting on another type of claim which is largely excluded from the fixed costs process, that is deafness/NIHL claims. They have decided to refer the issues around the substantially increased number of that type of claim as well as the cost of them to the Civil Justice Council for advice as to what to do.

We may find that the way the DH are intending to fill the fixed costs gap in clinical negligence claims is an incentive to do the same in the other claims types where the same issue arises: namely any disease claim which does not start off in the portal; any disease claim which drops out of the portal; or any non-injury claim.

After all, if it is OK to fix costs in cases worth up to at least £100k and perhaps even £250k in clinical negligence claims, why should the system not move to something similar in other types of claim?

Can an argument be presented that what is needed to defend the public purse in clinical negligence claims so as to ensure costs remain proportionate, should also be seen as desirable in all claims types? And in that way to remove the temptation to build costs unnecessarily and instead to put the emphasis on reinventing claimant lawyer processes so that only key actions important to the eventual outcome are taken.

The system to be used to fix costs

Thirdly, the route chosen by government to fix costs in clinical negligence cases and the exceptions from the process that will undoubtedly be allowed may also have broader influence. The DH seems to be likely to consult on a system that will take account of damages recovered, and the stage the case reaches. These after all are the 2 main factors on which the current RTA/EL/PL fixed costs system is based.

The DH is keen for the link with damages to be recognised as the best way to achieve proportionality. This will concern the claimant lobby, which in turn will be keen to have a wide category of potentially excluded types of claim, whether by reference to the number of disciplines of expert evidence or otherwise. This may be a key battleground during the consultation.

Under the current fixed costs processes used in RTA/EL/PL claims there is the opportunity for claimants to use the “exceptional circumstances” exclusion to seek higher costs. So to that extent a process of this type already exists. No doubt the DH will, as would insurers in other types of claim, be keen to keep any exclusion limited so that it would only apply to similarly exceptional cases.

Hourly rates

The fourth potential factor is in relation to the currently parked subject of hourly rates. In their paper, the DH notes what it calls the wide disparity between the rates often claimed by claimants “well in excess of current GHRs” and those paid by the NHSLA to its defence solicitors. Perhaps this position is not really much different than what is found in some other types of litigation faced by insurers?

In response, the DH say that they are even looking at the possibility of consulting on the use of legal aid rates as opposed to GHRs for claimant lawyer work in clinical negligence cases, at least in the lower value claims, as a way of achieving an overall proportionate level of costs.

We see this aspect of the proposed consultation involving reduced rates as unlikely to be justified where the better prospect seems to be fixing the overall level of costs. The other hurdle is that such a change would be likely to be thought politically unacceptable where legal aid rates have a very different origin, and are currently less than £100 per hour.

Insurers may well be interested in the future development of the DH plans, in order to be able to make the case for them being a guide to what should follow in all other types of claim.

Contact

For more information please contact Simon Denyer, Partner on +44 (0)161 604 1551 or email simon.denyer@dwf.co.uk

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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