PI Focus | Civil litigation costs reform

On 1 April, key changes to the funding and costs of civil litigation come into force that will have a profound effect on the clinical negligence landscape for patients and their legal representatives. It is difficult to see that these changes will not produce a marked reduction in access to justice for many injured patients, despite the government’s view to the contrary. In particular, the reforms do not seem to sit very comfortably with the findings of Robert Francis QC in his report into care at Mid-Staffordshire NHS Foundation Trust: with an NHS that has recently been identified as critically failing some of its patients, a corresponding reduction in access to justice and proper redress would appear simply to be adding insult to injury.

The changes follow Lord Justice Jackson’s review of civil litigation costs published in January 2010, as a consequence of which the government decided that the recent development of disproportionate legal costs necessitated fundamental reform. In October 2012, the Ministry of Justice (MoJ) on their website commented (and subsequently removed) that “the civil justice reforms would restore a much needed sense of proportion and fairness to the existing regime, not by denying access to justice, but by returning fair balance to the system”. However, is that really likely to be the case?

The abolition of public funding provided by the Legal Services Commission (now the Legal Aid Agency) for all cases except for those claimants brain-injured by negligence during pregnancy, labour or up to eight weeks after birth will remove crucial state funding for a very significant proportion of claimants who would previously have been entitled to it, and who will now have to find a funding alternative. This is of particular note in the context of claims against the NHS, in which it is an allegedly negligent state body that has necessitated the call on state funding in the first place.

Bridging the gap?

The main alternative form of funding remains the conditional fee agreement (CFA), which was made available in 1995 “to plug the access to justice gap for those who did not qualify for legal aid but ?had insufficient funds to afford to pay ?for legal services”. We can, of course, ?therefore expect a significant increase in the ?number of CFAs after 1 April to plug that ?widening gap.

However, as the government considers that the pre-1 April CFA regime has been significantly responsible for the escalation in costs over the last few years, because it “allows for claims to be pursued with no real financial risk to the claimant and with the threat of excessive costs to the defendant”, it has taken steps to reduce the costs impact of CFA funding, moving the burden away from defendants and towards claimants and their legal advisers, while maintaining that CFAs remain a viable funding alternative. The government’s abolition of the recoverability of both CFA success fees and the after-the-event (ATE) insurance premium from the losing party (with a limited exception relating to insurance for expert medical reports on liability) will have the effect that these will now have to be paid by the claimant from their damages, which will of course cause a reduction in the level of those damages.

The government has, however, attempted to reduce the negative impact of the new CFA regime on claimant’s damages by three further reforms. First, a 10 per cent increase in general damages, as recommended by Lord Justice Jackson in his report, while not legislated for, has been put into effect by the courts following the case of Simmons last year. Unfortunately, given that general damages are so low in this country in any event, to increase them by a tenth is unlikely to compensate the majority of clinical negligence claimants for their additional costs.

Secondly, a limit of 25 per cent has been placed on how much of a claimant’s damages their lawyers can take by way of a success fee (meaning both solicitor and counsel success fees and VAT on both); however, this limit applies to damages excluding future losses, so it bites only on general damages and past losses. While on the face of it this would appear to be better for each individual CFA claimant (and the MoJ has suggested that this was designed to protect a claimant’s damages), it may reduce the likelihood of claimant lawyers taking on complex, low to modest value and/or risky cases because of considerably less ‘reward’ for winning, traditionally used to pay for the losing cases, ultimately with the effect of reducing access to justice for some claimants.

Thirdly, the introduction of qualified one-way costs shifting (QOCS), where the losing claimant will not have to pay the winning defendant’s costs, except where the claimant fails to beat a defendant’s Part 36 offer, capped at the level of damages recovered. The intention is to negate the need for ATE insurance. However, the continued existence of CPR Part 36 undermines QOCS, at least to some extent, because insurance will still be required to protect against a Part 36 offer and such insurance will now be payable from a claimant’s damages, albeit possibly with lower premiums. In an attempt to encourage early settlements, Part 36 has been amended and there is now a 10 per cent uplift on damages where a claimant beats at trial their own Part 36 offer, to a maximum of £75,000. This may encourage defendants to make much earlier Part 36 offers, which is the intention; however, in turn, this may necessitate early insurance, potentially resulting in little significant reduction in the need for ATE insurance from the pre-1 April position.

Damages based agreements (DBA) are also being introduced as a new form of funding, where a lawyer may take up to 25 per cent of a claimant’s damages, again excluding damages for future loss, if the case wins and nothing if the case loses. It remains to be seen how effective this will be in clinical negligence cases, but it is very unlikely that either lawyers or clients will find this a more attractive option than ?a CFA.

Playing the budget game

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The government also hopes that before-the-event (BTE) insurance (legal expenses insurance) will become more commonplace, but the current problem ‘issues’, of fettering a claimant’s choice of specialist lawyer, limits to hourly rates and the degree and level of cover, will likely remain.

The rules on proportionality have changed, such that there will be a greater emphasis on claimant costs having to be proportionate to the value of a case and, where costs exceed the damages in issue, it is likely that such costs will be unrecoverable. This rule change on proportionality is very likely further to reduce the chance of claimants with low to modest value claims, especially those that are complex and thus costly, from finding a lawyer willing to take on their case. Many clinical negligence cases are by their very nature and subject matter complicated and the cost of running such cases can quite easily exceed the monetary value of the claim, even when those cases are run efficiently and cost-effectively. To be profitable, it is likely to be increasingly difficult for lawyers to run such cases properly, if at all. It must also be remembered that many cases which are of low to modest value, and which may suffer due to the proportionality rule change, are only of such value because general damages in this jurisdiction are so low.

It is also intended that the courts will closely monitor costs by way of costs budgeting as cases proceed, with recoverable costs very possibly being restricted to the amount in the last costs budget. Claimant lawyers will need to be very accurate in their assessment of the likely future costs of a case or run the risk of losing significant costs even if they win. With the introduction of QOCS, and the fact that a losing claimant will not have to pay a winning defendant’s costs, there is little or no incentive to a defendant to file a realistic budget; it is possible that defendants will simply seek to undermine claimants’ costs budgets with unrealistically low budgets. This will mean that claimant lawyers must not only become very astute at budgeting but be prepared to argue strongly at costs management hearings why their budget ?is reasonable and the defendant’s budget ?is not. This may create a considerable ?amount of time-consuming and expensive ?satellite litigation.

All of the above changes are due to the government’s desire to control, and to place very significant downward pressure on, costs. In turn, this is likely to impact upon most clinical negligence practitioners’ profit margins, such that lawyers will need to become more efficient at running cases, better ‘geared’ in relation to the nature of the work being performed by particular levels of fee-earners, and more skilled in managing costs as cases proceed through the courts. Firms will need to be especially good at risk assessing new client enquiries, so that they minimise the chances of having cases that do not proceed after investigation or that lose at trial, or which are not profitable to run. Cases that may suffer include low to modest value ones, which will be difficult to run properly at profit, especially fatal accident cases where there are no dependants, such as infant or child death cases; risky cases, even valuable ones, may not be taken on because the global reduction in profitability may result in firms considering they can no longer afford to take such risks; and complex, labour-intensive cases, which need considerable ‘front-loading’, may represent too great an investment for the degree of risk of little or no gain. There will be a balance to be struck between taking on complex, difficult cases, in which the complexity can justify the increased costs, and risking that, at the end of a lengthy, expensive investigation there is no case and there are no costs. The quality of case investigation may also suffer, as firms will want to do the minimum to establish whether a case is a likely winner and then quickly shed the likely loser.

Many patients may now not be able to afford to litigate, as most claimants cannot afford to pay for disbursements in clinical negligence cases because experts are an expensive necessity, and often a number of them are required. It is not clear what insurance products will be available after 1 April to help with disbursement funding, but firms that cannot enable their clients to afford to litigate run the risk of being out-muscled by the competition that can. It is likely that clients will become very price-aware and will shop around for the lawyer who can offer them the best deal. While specialist expertise will hopefully remain important, price is likely to become a factor of much greater significance in determining which firm a client eventually instructs.

The funding and costs changes herald a new era for clinical negligence, and one that seems to be heading towards austerity in redress for patients.