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Claims Forum 2011


6th July 2011

Jonathan Djanogly's speech to the annual Claims Forum conference on the Ministry of Justice's response to the Jackson Review and proposed legal reforms.

Introduction

Good morning.

Following the introduction of the Legal Aid, Sentencing and Punishment of Offenders Bill last week, I am grateful of the opportunity to come and talk to you today. I will set out some comments about the changes and improvements the Government is making to the civil justice system in a wider context; on the changes to no win no fee CFAs and associated reforms; on the proposals in our ‘Solving disputes in the county courts’ consultation; changes to the legal services market, with the advent of alternative business structures; referral fees; and, finally, the importance of the insurance industry in assisting us in implementing some of these reforms.

I should start by reminding you that the Government is taking forward important reform to Legal Aid and the public funding of claims. Reducing expenditure on legal aid is one of the key reasons behind our proposals, but irrespective of the current economic situation, the Government believes that legal aid is, in any event, in need of fundamental reform. Legal aid has expanded far beyond its original scope, and is available for a wide range of issues, many of which should not require any legal expertise to resolve.

The reforms are designed to ensure that legal aid is targeted at those who need it most, for the most serious cases in which legal advice or representation is justified.

As far as civil justice is concerned, we have a system that can be expensive, slow and adversarial. Sometimes it encourages protracted disputes, which is too often characterised by issues being brought to court that have no place there. The Government would like to see a justice system that promotes sensible conversation, not senseless litigation.

There are too many claims being brought in to the legal system inappropriately. Once in the system they are being resolved too late, too expensively, with business in particular often exposed to high and disproportionate costs. Civil justice administration and processes can all too often become overly complex, bureaucratic and inefficient.

Individuals are frequently suing employers and businesses for disproportionately large sums, often for trivial reasons and without regard to personal responsibility. This has been fuelled by no win no fee CFAs that mean cases can be opened with very little, if any, financial risk to claimants and the threat of very substantial costs to defendants. Partly as a consequence, we have seen problems being brought to the court room that should have no place there.

That is why the Government intends to implement a number of recommendations set out in Lord Justice Jackson’s report. As you will know, these include radically reforming CFAs and restoring the balance between claimants and defendants – a shift that should start to challenge one of the roots of the compensation culture.

That is also why we are taking such a strategic look at the delivery of civil justice to see if it can be better designed to respond to what matters most to citizens – better information, earlier dispute resolution options, preventing the escalation of cost.

Civil Litigation Funding and Costs

I’ll start with the reforms to civil litigation funding and costs, which the Secretary of State announced to the House of Commons on 29th March this year. We intend that the reforms to the no win no fee CFA system and related issues will begin to restore proportion and confidence in our system of justice, for both claimants and defendants.

I won’t go into the detail of the rationale for the reforms. That was set out, at some length, by Lord Justice Jackson, and in more summary form in our consultation paper and response document.

However, it is worth remembering that our current all embracing recoverable CFA regime is not seen in any other jurisdiction in the world. And that there are several examples – as we set out in the response – of consistently rising claimants’ costs over the past 10 years, in respect to damages, at a time when defendant costs have been falling.

One liability insurer has informed me that whilst average damages paid have increased since 1999 by 33%, average claimant costs paid (including disbursements and ATE premiums) have increased by 234%.

In 1999, costs were 50% of damages, but by 2010 costs were 150% of damages. One self-insuring supermarket has told me that they spent £26million in 2010 to settle “slips and trips” claims, which is the same as the running costs for 10 stores; lawyers are receiving 60% of the money they pay out.

The AA British Insurance Premium Index indicates that the average Shoparound premium for an annual comprehensive car insurance policy is now £892, a rise of more than 40% over the 12 months ending March 2011.

We are seeking to return the no win, no fee system to the first principles on which it was set up. To that end, we plan to end the recoverability of insurance premiums that drive legal costs; and to ensure that claimants take an interest in controlling the costs being incurred on their behalf by expecting them to pay their own lawyers’ success fee. You will be aware that the Bill includes provisions to

  • Abolish the general recoverability of CFA success fee from the losing side
  • Abolish the general recoverability of ATE insurance from the losing side, except for expert reports in clinical negligence cases
  • Permit damages-based agreements in civil litigation
  • Allow for Part 36 of the Civil Procedure Rules (offers to settle) to be amended to equalise the incentives between claimants and defendants to make and accept reasonable offers

The Senior Judiciary have agreed to look into how the 10 per cent uplift in general damages for non-pecuniary loss such as pain, suffering and loss of amenity should be taken forward.

We are also implementing most of the associated measures in the package, including plans to protect the majority of personal injury claimants from paying a winning defendant’s costs, through qualified one way costs shifting, or QOCS. These reforms will require changes in the Civil Procedure Rules or other secondary legislation. There is still much work to be done on many of the details as we prepare for implementation. We propose to continue the constructive engagement with stakeholders across the spectrum, and look forward to working with you further on the detail of the policies to be framed in rules and regulations. I should add that I am very grateful for those who have engaged with us over the last year or so.

As you will know, there is an issue on which we have departed from Lord Justice Jackson’s recommendations, and that is in relation to clinical negligence where expert reports are essential, but can be expensive.

As part of the reform of Legal Aid, the Government considered that for clinical negligence cases, there is a viable source of alternative funding to legal aid in CFAs which are more readily available in such cases than for other claims. We therefore consider that legal aid is not justified in these cases and that our limited funding would be better targeted at other priority areas, such as those concerning physical safety, liberty or homelessness. However, given the representations made on the unique circumstances of clinical negligence the Government decided to respond.

So we are discussing with the NHS Litigation Authority and other stakeholders how the commissioning of expert reports can be improved in clinical negligence cases so that joint expert reports can be commissioned wherever possible.

Having said that, for those cases where a joint report cannot be commissioned, the Government proposes to have a tightly drawn power to allow the recoverability of the ATE insurance premiums in clinical negligence cases. The details would be set out in regulations.

Under our changes, meritorious claims will be resolved at more proportionate cost, while unnecessary or avoidable claims will be deterred from progressing to court. The Government believes this is sound common sense. It will help businesses and other defendants who currently have to spend too much time and money dealing with avoidable litigation, actual or threatened.

I know that many of you here are supportive of our reforms. I am particularly grateful that the Association of British Insurers publicly welcomed the Government’s announcement by stating that motorists can look forward to cheaper car insurance in the future.

Solving disputes consultation

You are probably also aware of the Government’s wider programme of civil justice reform. As I have mentioned, we have recently consulted on the reform of the civil court system and our consultation paper ‘Solving disputes in the county courts’ proposed the first major (post Woolf) overhaul of the civil court system in 15 years. The paper proposed measures to help people avoid court where possible, and cut costs where it is unavoidable. It also presented options to improve judgment enforcement, to restructure the county court system and to reserve the higher courts for higher value or complex claims.

We consulted on a proposal to expand the current road traffic accident personal injury scheme for cases valued up to £10,000 to other types of personal injury claims. The scheme has a three staged approach to handling claims with fixed legal fees at each stage. We also asked whether the current limit for such a scheme should be increased to £25,000.

The consultation also proposed increasing the small claims track limit, outside of personal injury cases, to £15,000. The limit has been unchanged for ten years, with the result that many of the typical cases that would have fallen into the higher end of the small claims track in 2000, are now, due to inflation, falling into the fast track, with consequent cost implications.

Under these proposals, by raising small claims thresholds and by extending mediation, as with our reforms to civil litigation funding and costs, we intend that meritorious claims will be resolved at more proportionate cost, while avoidable claims will be deterred. Taken together, our proposals aim to protect access to justice, encourage earlier and more efficient solving of civil disputes, and reduce cost and disproportionate risk. The objective is to give people and businesses access to quicker justice without a reduction in the service available for more complex and high-value cases.

The consultation closed on the Thursday 30th June – I am sure many of you here took the opportunity to make your views known, and I am grateful for your engagement. We are now considering all the responses and will announce the way forward in the autumn.

Legal Services Act changes

The Government believes that the changes introduced under the Legal Services Act will also help drive down costs, in particular through alternative business structures. Preparations for ABSs are now well underway. While the Government is keen to see this happen as soon as possible, it is important to get all the regulatory arrangements in place. The expectation remains to have the first licensing authority responsible for licensing bodies to operate as ABSs in the Autumn.

You do not need me to tell you that the law is already big business nationally and globally, with the legal industry making a substantial contribution to the UK economy. Once introduced, alternative business structures should have the potential to revolutionise the legal services market.

For the first time, law firms will have access to external investment which should help business-minded and enterprising law firms to adapt the way they run their businesses. Legal professionals will no longer be restricted to working in specific organisations, but will be able to work together with other professionals as one entity to provide a variety of legal and non-legal services.

By allowing law firms to structure themselves more flexibly and seek external investment, this should help to attract even more new business into the UK, boosting both the economy and the UK’s reputation as a world leader in legal services. Legal Services make an important contribution to the UK economy, they generated £23.1bn - 1.8% of the UK’s gross domestic product in 2009.

By generating more competition between providers, ABSs should also attract more interest into the legal system and lower the pricing of services.

At this stage, we cannot predict the exact level of take-up and so cannot predict with absolute certainty what the impact of ABSs will be. . But there appears to be a good degree of interest.

Overall, a more enterprising legal services industry will produce benefits for consumers, practitioners, the legal profession and the economy.

I shall now turn to the issue on which many of you, and indeed the public, hold strong views: referral fees. As I’m sure you are all well-aware, Lord Justice Jackson recommended that the payment of referral fees should be banned in personal injury cases.

In light of the Legal Services Board’s report being prepared, the issue of referral fees was not included in the consultation on our proposals. Rather than the cause, the Government considers referral fees to be a symptom of the compensation culture driven by, recoverable success fees, ATE premiums, and resulting significant amounts of money washing through the system. Having said that, we are minded to address this symptom and are looking at the implications of a ban. This is also being looked at in the context of other symptoms, such as: inducement advertising, SMS text approaches, and the sale, say by garages, of personal information. We are still considering this issue, and will announce the way forward in due course. But let me say that we do feel that there is a sickness within the system which is acting against the overall public interest.

Finally, on insurance, we know that, even where individuals have before the event, or BTE insurance, CFAs with recoverable success fees are nevertheless used by claimants, for example in RTA claims. However, the Government is aware that BTE insurance can be and is used as an alternative to ATE insurance as a means of covering the risk of having to pay the opponent’s legal costs.

There is no reason why that should not continue, but on a more widespread basis. The Government supports Lord Justice Jackson’s suggestion that positive efforts should be made to encourage the take up of BTE insurance by householders as an add-on to household insurance policies and by small and medium enterprises. The Government would welcome a change in culture so that there is a greater use of existing BTE insurance policies and the development of the market to expand BTE insurance coverage.

The Government will be interested to see how the insurance industry responds to this call for the development of the legal expenses insurance market.

These are challenging times, and we have much to do. We believe these changes are in the public interest, that they will see costs come down as claimants take a greater interest in costs incurred on their behalf, but that meritorious cases will still be brought. We have experienced high levels of engagement - from all sides - with our proposals and reforms - and I hope this continues as we move forward with the legislation over the coming months and then on to implementation.

Thank you.



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