The Ministry of Justice consultation on the implementation of Lord Justice Jackson’s (pictured) recommendations on reforming civil litigation and funding costs closed on 14 February. Six weeks later, we have the government’s response to the 600 submissions it received. They must be speed-readers at the MoJ.

As has been widely reported, the government position post-consultation is that the general recoverability of conditional fees from the losing side will be abolished – as will the recovery of after-the-event (ATE) insurance premiums.

There will be an increase of 10% in non-pecuniary damages, and a cap on personal injury success fees. Contingency fees will be allowed, and the rates that can be claimed by successful litigants in person will be raised.

These constitute substantial changes to the litigation landscape.

Creating a case

The reason why so many detailed submissions were digested with such impressive dispatch is perhaps evident in the core of the MoJ’s position, which is laid out in just 13 pages.

Rather than reference those submissions too heavily, ministers cite documents created and commissioned by the ministry itself.

For example, 12 footnotes support the government position on funding and costs. Half of those references are to three MoJ documents – Jackson’s final report, the consultation paper on its implementation, and Lord Young’s 2010 ‘compensation culture’ review Common Sense, Common Safety.

Another three footnotes are case references, and the remainder are asides that could easily have been placed in the main body of the text.

One must observe, then, that the government clearly has the courage of its own convictions. The Jackson and Young reports are the ‘proof’ used to support its own recommendations, once they have been cited by ministers Kenneth Clarke and Jonathan Djanogly.

The problem with this approach is highlighted by Law Society president Linda Lee: ‘Jackson’s recommendations were a series of opinion-based views and did not rely on sufficient empirical evidence or properly conducted impact assessments.’

Recovery position

Since 2000, ATE insurance premiums, taken out by litigants to cover the other side’s costs if they lose, and success fees have been recoverable, over and above other costs and an award, from the losing side.

Opponents of further change argue that the government position, that these should not be recoverable, will be a huge practical barrier to bringing a case.

Katy Manley, of Manley Turnbull Solicitors, cites the example of a professional negligence claim. ‘In the Professional Negligence Lawyers Association (PNLA) response I have taken the example of a £40,000 claim against a barrister and provided detailed figures for the current position compared to post-reforms,’ Manley tells the Gazette.

‘A client of ordinary means bringing such a claim is likely to be faced with the fact that, without an ATE policy, they could lose the case and have to pay the other side’s costs which may well bankrupt them.’

Bar Mutual, she points out, has a reputation for ‘aggressively fighting every case’. So, for a claim of £40,000, costs may amount to £125,000 – the ATE premium under the standard PNLA ATE Scheme policy is staged but would be a maximum of £48,000 if the claim was defended to trial. ‘That goes far further than requiring a claimant to have, as Jackson suggests, a "stake" in their claim,’ Manley concludes. ‘Even a "win" becomes uneconomic.’

Vikram Sachdeva, a barrister and expert in costs at 39 Essex Street, accepts the argument that ‘the current system placed disproportionate costs on defendants’, but adds: ‘However there are other, less extreme methods of dealing with prohibitive costs.’

He suggests assessing a success fee only when the defendant’s response was first known as a way of ‘getting rid of all cases in which liability was admitted’, allowing a lesser success fee once liability was no longer in dispute, or using fixed success fees, as has been in force for some years.

Dubious figures

Unlike Jackson, Kenneth Clarke does use figures. But these are questioned by Paul Turner-Mitchell, technical director at legal costs experts E&N Services. Clarke, Turner-Mitchell points out, told the BBC’s Today Programme that in 2008-9, the NHS paid £213m in damages and £456m in lawyers’ fees.

That did not tally with the NHS Litigation Authority’s annual report for the same year. ‘Clarke clearly over-egged the pudding to the tune of £313m,’ he notes, ‘resulting in the mainstream press branding solicitors as greedy’.

He believes the numbers on the 10% uplift, intended to make up for the non-recoverability of a success fee, certainly fail to add up for claimants, who will still be significantly worse off under the new system.

At present, Turner-Mitchell points out, if an injured person is awarded £2,430 after they are injured, that is the amount they will receive. Under the new rules, they would be awarded £2,673 but will then forfeit £668.25 of that to pay their solicitor’s success fee, leaving them with £2,004.75.

‘Therefore, in reality, the average person injured in a road traffic accident will be worse off to the tune of £425.25 despite the increase in damages being proposed,’ he points out.

‘The potential, therefore, based upon these statistics is that those injured as a result of road traffic claims are set to lose out on compensation of nearly £298m.’

Sachdeva concurs: ‘The idea that the uplift in PI cases should be limited to 25% of damages is difficult to justify in particular cases where risks are great and costs are going to be high – do the lawyers pull out when the 25% is reached? If so, how will there be equality of arms? Increasing general damages by 10% will not make up the difference.’

The result, he predicts ‘will probably be increased cherry-picking by claimant lawyers’, meaning that cases with a 50-50 chance of success ‘will simply not be run’.

One notable reform proposal that has been left out of the MoJ’s response to the consultation is curbs on the referral fees paid to claimant insurers, including trade unions, by law firms who take on these insured clients.

The idea that such fees distort the personal injury market is subject to fierce claim and counterclaim.

Opponents of referral fees are disappointed that curbing these fees was placed by government in the ‘too difficult’ box. John Spencer, director of CS2 Lawyers, and Law Society PI panel member, is one: ‘Many insurers and other organisations charge solicitors fees for introducing clients– essentially "selling" accident victims to the highest bidder,’ he argues.

‘A more comprehensive approach is needed to tackle a system which has resulted in a merry-go-round of warped incentives and profiteering.

‘In the end,’ he adds, ‘a ­genuine industry-wide commitment to challenging deeply entrenched commercial interests, and eliminating elements which add no value to claimants, is the only real solution to guarantee access to justice and the protection of clients.’

Clinical error

Certain types of clinical negligence case have long posed a challenge for policy-makers determined to reform litigation funding. In 1998, the then lord chancellor Lord Irvine rowed back from proposals to completely replace legal aid funding for medical negligence cases with conditional fee agreements.

That this is a problematic area is recognised in the government’s support for ‘qualified one-way costs shifting’ in personal injury, including medical negligence, cases.

Here, an individual claimant is not at risk of paying the defendant’s costs should the claim fail (except in limited prescribed circumstances), but the ­defendant – which typically in personal injury cases is a relatively well-resourced body – would have to pay the individual claimant’s costs should the claim succeed.

Claimants’ lawyers will be watching one of the exceptions proposed for signs that this might not afford the protection needed by their clients.

Protection may be lost by a claimant ‘on behaviour grounds’ – where the claimant has acted fraudulently, frivolously or ‘unreasonably’ in pursuing proceedings.

It is the definition of ‘unreasonably’ that will make the difference between measures becoming welcome protection for claimants, and a deterrent to bringing claims that have merit but lack certainty.

First person

The litigation funding market seems ready to adapt and survive, and will not disappear under these proposals, though some insurers may exit.

As James Delaney, director of insurance brokers The Judge, explains: ‘The changes to recoverability look set to be implemented, and as such there appears little merit in the insurance market protesting further; it would be better served looking at future innovation.’

For the insurers who remain in the market, Delaney notes, under a non-recoverable regime, innovation will be key: ‘Price-led competition will intensify as clients search for the most competitive terms.’

But, he warns, despite price competition, claimants may still not be paying a fair price: ‘Without the benefit of recoverability, clients will not enjoy the previous comfort from insurers over the "reasonableness" of their premiums, gained because they were court-approved.’

Supporters and opponents of litigation costs reform are now watching for the primary legislation and guidance needed to bring the government’s proposals into being.

If the proposals are adopted largely unchanged, Lee says, the Ministry of Justice will have implemented ‘a devastating attack on access to justice in the mistaken belief that ordinary people will be able to stick up for themselves against local and central government, the medical profession, landlords, big business and other authorities’.

‘Stick up for themselves’ is what many claimants will need to do.

As Sachdeva concludes: ‘The changes will probably result in many cases being run by litigants in person, with unknown effects on the speed at which cases can be litigated by courts.’