The Ministry of Justice has proposed reforms to the claims process in the UK. Philip Tracey outlines what they mean and how they could affect the issue of costs
In his review of the legal system almost ten years ago, Lord Woolf concluded the civil process to be too complex, lengthy and expensive. He proposed a complete overhaul of the civil justice system, with the twin aims of speeding up the process and reducing costs. While his reforms may have achieved the former objective, a ‘costs war’ has raged for nine years, almost spiralling out of control.
Published this summer, the Ministry of Justice’ s (MoJ) recommendations for improving the claims process may be a far cry from their initial proposals, but do offer companies the scope to readdress the issue of costs and lobby for the introduction of a fixed costs regime.
The Woolf Reforms
Introduced in 1999, Lord Woolf’s reforms were broadly welcomed by insurers, defendants and claimants alike. They introduced the fast track and multi track system, fast track covering all cases up to £15,000. The aim was to ensure that appropriate resources of the parties and the court were devoted to cases of limited value. It was also intended that cases of this level should attract fixed legal costs. At the last minute, however, following lobbying by claimant groups and trade unions, the fixed costs scheme was abandoned. This meant that, for the first time, all claims could attract unlimited costs. Meanwhile the Government had extended conditional fee arrangements (CFAs) which allowed success fees and after-the-event insurance premiums to be recovered from the defendant.
Prior to 1999, costs were determined in the County Court according to the two scales. Scale one costs were fixed costs and applied to all claims valued below £3,000. If the claimant’s legal bill for such a claim was likely to exceed the fixed scale maximum of £1,315 , the court‘s approval was needed. This approach worked very well in restricting costs in the very low value cases and ensuring that proportionate time was spent on those cases. The failure to introduce fixed costs and at the same abandon the old scale one system is one of the fundamental flaws of the Woolf Reforms.
Another major feature of the reforms was the introduction of pre-action protocols to encourage better and earlier exchange of information so as to narrow the issues in dispute. The hope was that parties would then settle cases early and avoid expensive litigation. When the protocols were introduced, it was expressly stated that they should not be used as a “tactical weapon”. Sadly, they seem to have become just that. Their arrival has placed a far greater demand for documentation (be it risk assessments or training records), and separated the issues of liability and quantum. In many cases, particularly those involving issues of credibility and possible fraud or exaggeration, defendants must assess a case based on all the evidence, including an investigation of quantum as well as liability.
We have also had Court of Appeal decisions on many aspects, to include what is meant by a joint expert, the impact of pre-action admissions, and the extent to which disclosure is necessary and desirable prior to the issue of proceedings. In most of these decisions, the Court of Appeal has sought to redress the balance of justice over process.
There is no doubt that the aims of the Woolf reforms were laudable and, in principle, should have worked, had they not overlooked two fundamental points.
Firstly, by abandoning a fixed costs regime, there is no incentive for claimants to adopt a proportionate approach. Nor would the ‘costs war’ over CFAs, success fees and after-the-event insurance have been waged. Secondly, the reforms overlooked how litigants behave in practice. In litigation, wherever possible, one party is likely to seek to use the rules to its advantage at the expense of the other. This is particularly true in our adversarial system.
Ministry of Justice proposals
“The failure to introduce fixed costs and at the same abandon the old scale one system is one of the fundamental flaws of the Woolf Reforms.
The last three or four years have seen an increased perception of a compensation culture gripping the nation. As a result, the Ministry of Justice published a consultation paper on 13 April 2007 and, after a lengthy delay, released its response to the consultation paper on 22 July 2008. The results are a far cry from the initial proposals set out in the consultation paper.
The aim of the proposals is, once more, to speed up the process. The intention was to increase the fast track limit up to £25,000 and shorten the time limits for dealing with motor, employers’ liability and public liability claims. It was proposed that the claimant’s solicitors should send a letter of claim five working days after meeting with their client. The defendant would then have thirty working days to investigate and respond with a decision on liability. The Ministry of Justice expressly advocates the use of rehabilitation if liability is admitted. Medical evidence would be in a standard template and the claimant would then send a settlement pack offer within fifteen days of receiving the medical evidence. The defendant would then have ten days to respond to the offer and twenty days to negotiate if there was a counter offer.
If quantum was not agreed, the papers would be sent to the court for determination.
If liability was denied, the claim would fall out of the scheme and proceed through the litigation process.
It was proposed that there be a computerised tariff for general damages based on the Judicial Studies Board Guidelines, with fixed items of special damage such as care, phone calls and postage. The proposals also include fixed costs which would be staged, although the fixed costs regime would differ for claims over £2,500 and would only apply to those cases where liability was admitted. After-the-event insurance premiums would not be recovered if taken out at the start of the claim.
The Ministry of Justice’s response
The fast track limit has now been increased to £25,000, but the new claims process is to apply to road traffic accident claims only with a value of not more than £10,000. The main proposals are:
The claimant's solicitors will have five working days to send out a claims notification form. This time limit is open and it only starts to run once the claimant's solicitor has 'all the required information to complete the claims notification form'.
The insurers will have fifteen working days from notification to respond on the issue of liability.
No extension of time for decisions on liability will be granted, although the Government has not indicated what sanctions there will be for non compliance.
In making an admission, the admission relates to breach of duty only and leaves open the issues of causation.
Once an insurer alleges causation or contributory negligence, the claim will no longer follow the new procedure and fixed recoverable costs will not apply.
“The last three or four years have seen an increased perception of a compensation culture gripping the nation.
When those issues are resolved, the claim may return to the new process.
There will be provision for a paper only quantum assessment, but only if the parties agree.
Fixed costs are to be applied to the new claims process, but the level of fixed costs has not yet been determined.
The pre-action protocol currently requires an answer on liability to be given within three months of the defendant acknowledging the letter of claim. How many times have defendants been able to respond in sufficient detail within that time frame? Are these proposals realistic? Is there not a real danger that, once more, process will (as with the Woolf reforms) take precedence over justice?
The new process will not apply to EL or PL claims or RTA claims over £10,000. Introducing any further reform without first addressing the issue of costs compounds the problems created by the Woolf reforms. Therefore, rather than proposing amendments to the process first and then sorting out costs, the approach should be to set and agree what the level of costs should be and then amend the process accordingly or, at the very least do both at the same time.
There are many other jurisdictions where fixed costs regimes apply and work reasonably well, Northern Ireland and Scotland being notable examples. Claimant lawyers argue that it takes considerable time to look at what business model would work in relation to fixed costs to ensure that they can provide a fair service for their clients. This, however, overlooks the fact that most claimant firms are fully familiar with a fixed costs regime which was in place prior to 1999 when scale one and scale two costs operated.
At this stage companies might be tempted to say "So what? This will be for my insurers to sort out.” It is, however, important to bear in mind that, in any claim, it is your company that will be the named defendant on the court proceedings. Without your active involvement in the process, the chances of achieving the right result, be it an appropriate settlement or defending the claim to trial, is greatly reduced.
Having acted for many companies since the introduction of the Woolf reforms, I am aware that most have felt disenfranchised by the process. Decisions on liability are taken very quickly, with little opportunity to explain to the defendant precisely why liability has been conceded, and more importantly, what steps could or should be taken from a risk management perspective to reduce further claims. This, of course, is significant for any large corporation which has to manage the effect of claims within its work force, particularly when there is a strong trade union presence.
Despite the recent changes announced, there remains a very real opportunity to influence the direction of further reform. Risk and insurance managers should consult on action with their health and safety colleagues and liaise with their insurers to ensure that their views are heard in this process and importantly, are being represented to the MoJ.
Access to justice should mean access to justice for all. In seeking to change the claims process without addressing the key issue of costs at the outset, the Government is once more in danger of allowing a process to dictate justice. Unless fixed costs are introduced at the right levels, tinkering with the claims process is bound to fail. It will become uneconomic, not just to defend claims but to investigate them, and therefore admissions of liability will be made not on the grounds of the merits of the case, but solely on the issue of economics and lack of time. This in turn could lead to a no fault approach to claims by defendants.
The MoJ is working with stakeholders to consider the finer points of detail, particularly what costs regime should apply. There remains time and scope to influence the direction of these reforms.
Philip Tracey is a partner in the Injury Risk Group at national commercial law firm, Beachcroft LLP. www.beachcroft.co.uk