Litigation focus | Changing tack

Whether or not Zhou Enlai said, when asked in the 1970s of his opinion on effect of the French Revolution on western civilisation, that it was "too soon to tell", it is undoubtedly the case that it is too soon to tell what impact of the Jackson reforms is having on civil litigation. News that the number of registered claims management firms has fallen from 2,435 in March 2012 to 1,700 in June 2013 certainly suggests an immediate and significant effect on them, although there may be other factors at work.

What can be said is that the Jackson reforms will make it more difficult and less attractive for some individual claimants to litigate their claims.

But even if claims management firms disappear from the scene, I suspect that potential claimants will still tend to find their way to lawyers, whether solicitors or alternative business structures, and that ways will be found for claims with real merit to be advanced. What will disappear are modest claims which, by the time defendants first learn of them, are accompanied by demands for substantial costs plus uplifts and ATE premiums.

There are signs that ATE insurers have been able to adopt new business models which will make ATE insurance affordable in many if not all cases with sufficient merit. And, to be affordable, the premium will usually have to be payable only in the event that the claim succeeds and be at a level which does not eat up all or most of the damages recovered (not least because claimants will have to fund any uplift under a CFA themselves).

Well-judged offer

One way in which claimants and their lawyers can make it financially viable to bring a claim is by making a well-judged, early Part 36 Offer. The Jackson reforms have resulted in two changes to Part 36, both in favour of claimants.

The first, which was introduced in 2011, reversed the decision of the Court of ?Appeal in Carver v BAA Plc [2009] 1 W.L.R. 113. In Carver the claimant in a personal injury action had beaten the defendant's Part 36 Offer of £4,250 by £51 and sought to recover costs of £24,000 plus an uplift of 100 per cent. The Court of Appeal held that, in deciding whether the claimant had failed to obtain a judgment which was "more advantageous" than the defendant's Part 36 Offer, it was appropriate to take into account not only the amount of money recovered but factors such as the time and cost (both emotional and financial) of litigation. On that basis, the additional £51 recovered was outweighed by the irrecoverable costs and emotional strain ?of trial.

As recommended by Lord Justice Jackson, CPR 36.14(1A) now provides that a judgment is more advantageous if it is "better in money terms by any amount, however small". This brings certainty and reflects concerns expressed about the Carver decision in cases such as Gibbon v Manchester City Council [2010] 1 W.L.R. 2081. It also favours claimants: as long as a claimant beats his own Part 36, even by a penny, the consequences set out in CPR 36.14(3) will follow unless the court considers it unjust to make an order in those terms. Given the wording of CPR 36.14(A), it will not be unjust to make such an order merely because the margin by which the offer was beaten was minimal.

And the consequences of a judgment which is "more advantageous" than a claimant's Part 36 offer are now more drastic for defendants who have failed to accept it: this is the second Jackson change to Part 36. Now not only does the claimant get extra interest, costs from the date of expiry of the offer on an indemnity basis and interest on those costs, but he or she also gets an "additional amount" on top of damages. The new CPR 36.14(3)(d) provides that the additional amount is 10 per cent of the first £500,000 of any award of damages and 5 per cent of the next £500,000 (so the maximum is £75,000).

Informed evaluation

These changes make it even more sensible for a claimant to make an early Part 36 offer either at the lower end of the range of possible awards of damages or just below what he or she anticipates recovering. Acceptance of the offer will avoid the risks and stress of litigation and the deduction from damages for any CFA or ATE premium should be relatively modest at that early stage. Failure to accept could result in significantly enhanced recovery of damages, interest and costs, with the additional sums recovered going at least some way towards discharging liability for the uplift on any CFA and ATE premium.

It follows that from the defendant's perspective the consequences of failing to accept a claimant's Part 36 offer are now significantly worse. Faced with early offers defendants will need to be able to make an informed evaluation of the merits and to take into account the additional liability they will face if the claimant recovers more than he has offered to accept.

The changes were recommended by Lord Justice Jackson because he considered that the sanctions visited on defendants who failed to accept claimants' Part 36 offers which were bettered at trial were considerably less than those which were suffered by claimants who failed to beat defendants' Part 36 offers. I am not sure that he was right about this. Apart from having to pay the claimant's post-offer costs on an indemnity basis (plus in many cases, a CFA uplift and full ATE premium) and extra interest, the defendant had to pay the costs of defending the case to trial. In my experience, defendants who found themselves in that position did not generally think that they had got off lightly. As Hildyard J observed in Procter & Gamble Company v Svenska Cellulosa Aktiebolaget SCA & Anor [2012] EWHC 1257 (Ch): "CPR 36.10 and 36.14 are carefully crafted particularly to incentivise a claimant to make a Part 36 offer. It seems that the rationale for this is that whereas a claimant in a money claim can ordinarily expect to recover his costs if he succeeds to any material extent, and so needs to be specially incentivised to make an offer, a defendant plainly has every incentive already, being to stop the claimant incurring more of the costs for which if the defendant loses he is likely to be required to pay."

Standalone code

Reversal of the decision in Carver v BAA Plc by the new CPR 36.14(1A) and cases such as Gibbon v Manchester City Council, Fox v Foundation Piling Ltd [2011] EWCA Civ 790 and F&C Alternative Investments (Holdings) Ltd v Barthelemy [2012] EWCA Civ 843 make it clear that Part 36 is intended to be a standalone code. It remains open to parties to make offers outside Part 36, but failure by the other party to beat them will not usually have the same consequences. It is therefore essential for any party who wants to make a Part 36 offer to ensure that the precise requirements of Part 36 are met. As Coulson J said in Brit Inns Ltd (in liquidation) v Barber [2012] EWHC 2489 (TCC): "In any consideration of costs issues, the first and most important question is whether there are Part 36 offers and whether or not those have been bettered." An offer which does not fall within Part 36 can be a factor to be taken into account by the court when exercising its broad discretion as to costs under what is now CPR 44.2, but it will only be rarely that a costs order equivalent to that which would have been made under Part 36 will be made as a matter of discretion, as the Court of Appeal emphasised in F&C Alternative Investments.

Although there are some specific provisions in Part 36 for personal injury claims, the consequences of failing to beat a Part 36 offer are the same. The difference post-Jackson is the enforceability of a costs order. The new CPR 44.13 to 44.17 introduce qualified one-way cost shifting (QOCS). Their effect is that, post-Jackson, in claims for personal injuries, under the Fatal Accidents Act 1976 or under section 1(1) of the Law Reform (Miscellaneous) Provisions Act 1934 where the claim arises out of death or personal injuries and survives for the benefit of the estate, costs orders against claimants are only enforceable (i) up to the total recovered by way of damages and interest by the claimant or (ii) in the specific circumstances set out in CPR 44.15 (where permission of the court is not needed to enforce) and CPR 44.16 (where it is).

Personal injury can, of course, be devastating, but may be relatively minor compared to, say, loss of a claimant's home because of the negligence of his solicitor. And the protection provided by QOCs applies to multi-millionaires as well as those who could not afford to run the risk of having to pay a defendant's costs of trial. The result is clearly not perfect, but maybe it is too much to expect perfection.