‘Strategic litigation’ over stage 1 costs

Last month a judgment was handed down in Cardiff County Court which defendant firm Horwich Farrelly claimed could potentially have implications worth millions to insurers.

On its website, the law firm reports the case as ‘Horwich Farrelly takes on the “£400 Club” and wins Round One’. It is an example of the defendant sector bringing what it calls ‘strategic litigation’.

The judgment concerned three combined cases in which personal injury claims had been made against insurer Admiral. Each of the low-value claims was commenced in the road traffic accident portal, and Admiral admitted liability – and does not dispute that the accidents took place, and were due to negligence.

As this was under the old version of the protocol, which changed in July 2013, a fee of £480 became payable to the claimant lawyers at stage 1, and indeed Admiral did stump up the cash.

But then rather than a medical report being submitted and the claim proceeding to stage 2, nothing happened – and the claims went no further.

So the judgment last month (Iqbal & EUI Ltd vs Leake & JC&A Solicitors; Smith & EUI Ltd vs Naylor & JC&A Solicitors; Pitts & EUI Ltd vs Stock & JC&A Solicitors) was to deal with the issue of whether or not Admiral was entitled to get that £480 back.

In July 2013, the rules were changed so that the stage 1 fee is payable only when the stage 2 settlement pack is submitted. But according to Horwich Farrelly, before this rule change was made, the amount paid across the market on what it terms ‘£400 Club’ claims ‘is estimated to run into many millions of pounds’.

In the Cardiff decision, which is being leapfrogged to the Court of Appeal, DJ Phillips held that Admiral was entitled to be repaid its stage 1 costs.

The judge said the fact that the rules have since been changed ‘reinforces my conclusion that it was always the intention that stage 1 costs would only be paid on the basis that the claim proceeded to stage 2’.

He noted that as no damages were paid, the injury victims could not be said to be ‘successful parties’, and therefore entitled to costs.

The judge added: ‘I accept that the claimants’ solicitors will have done some work, but… the [RTA] protocol operates on a swings and roundabouts basis. The work involved in submitting a claim would I suggest be minimal; in practice, some claims will involve less work than others and the profit element will be greater in some and less in others’.

If the Court of Appeal concurs with DJ Philips, then claimant personal injury practices - or the consolidator firms that have now bought them - could be facing a hefty bill.

But the ‘£400 Club’ tag seems to imply that claimant firms, until the rules were changed, were deliberately trying it on – starting a claim that would obviously go nowhere, just to collect the £480 fee.

It is worth remembering that, as the judge acknowledged in this case, there was no dispute that the accident had actually happened. There was no accusation of fraud.

Why the three claims did not proceed further is not explained in the judgment. But sometimes, even in a genuine claim, a claimant will simply not wish to carry on with their action. It seems the cost burden of that lies squarely with the claimant firm – even where the insurer has actually admitted liability for the accident.

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Rachel Rothwell is editor of Litigation Funding