Completing the jigsaw: the likely effect of the 10 percent increase in general damages

CLAIMANT | Integral part of the Jackson proposals

An integral part of the Jackson proposals was a 10 per cent increase in general damages “to assist personal injury claimants in meeting the success fees out of damages”. Jackson LJ recommended that the increase should also apply to “general damages for nuisance, defamation and any other tort which causes suffering to individuals.”

The Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO) implemented the Jackson proposal to abolish recoverability of success fees. However, the proposal to increase general damages by 10 per cent did not appear on the face of the Bill. This absence was raised in parliamentary debate. Ministers held to the line that this was to be taken forward by the senior judiciary. There had been considerable argument about which claimants would be ‘better off’ or ‘worse off’ with 10 per cent, but if there was no increase then all claimants would be ‘worse off’.

No breach of faith

There was real concern that the proposed 10 per cent increase would not be implemented at all. Although some said that an amendment to the Judicial Studies Board Guidelines would be sufficient, it was unlikely that this would be enough to implement such a fundamental change. The JSB Guidelines are only supposed to reflect the underlying case law. But it would not be straightforward to gather a series of appeals for decision by the Court of Appeal as in Heil v Rankin [2000] EWCA Civ 84. If this process only began after 1 April 2013, there would be a significant lacuna with great uncertainty. Indeed in his 10th Implementation speech, ‘Why 10%?’ many thought Lord Justice Jackson might be preparing the way to back track, making comments such as “[Full costs recovery] is an urban myth of recent origin.”

The decision last week in Simmons v Castle [2012] EWCA Civ 1039 is therefore a welcome surprise. The appeal in the case had not been over general damages, but rather in respect of provisional damages. And this aspect had been settled, so the parties no doubt expected this to be rubber stamped. However, the Court of Appeal had to formally agree. Ingeniously, the Court of Appeal used this as an opportunity to make a declaratory statement about the implementation of the 10 per cent increase in general damages from 1 April 2013.

This was a very strong court consisting of the Lord Chief Justice, the Master of the Rolls and the Vice-president of the Court of Appeal. There was no real case for decision before the Court of Appeal, nor was there any legal argument or submissions. However, it would be a brave man to argue that the decision was in some way obiter, per incuriam or in some way not binding. Indeed the court itself said that a failure to implement the 10 per cent increase would be a “breach of faith” by the judiciary.

Temporary anomalies

In practice most cases settle. The most influential tool is the JSB Guidelines. A new edition is ready for publication in autumn 2012. It would be very unfortunate if the new edition did not reflect the decision in Simmons. If necessary, publication should be briefly delayed.

One surprise is that the decision applies to all judgments given after 1 April 2013. Even though LASPO makes it clear that abolition of recoverability of success fees is not retrospective and only affects conditional fee agreements (CFA) made after 1 April 2013. Arguably this produces a ‘windfall’ in current cases, but the Jackson proposals themselves were to apply to claimants who will not pay success fees (such as those with legal expense insurance). The package was always rough and ready, not finely calculated.

One anomaly is the effect on Part 36 offers made in current cases before 1 April 2013 but where judgment is given afterwards. If the only reason the offer is beaten is because of applying the 10 per cent uplift, has the claimant in fact beaten the Part 36 offer or not? Given that significant notice has been given of the impending change, then defendants should review offers if trial is to take place after 1 April 2013. Such a case will have to be decided eventually, but there will doubtless be tactical manoeuvring.

Another anomaly is contract claims. For example, claims against UK tour operators for injuries caused by sub-contractors abroad, or for damages for disrepair from breach of a tenancy agreement. Simmons only refers to tort. But such claimants will also lose recoverability of success fees and it would be wrong to have different levels of general damages in contract and tort. Simmons should therefore be applied to such contract claims too.

David Marshall is managing partner at Anthony Gold Solicitors (www.anthonygold.co.uk)

 

DEFENDANT | Decision goes against the aim to ensure fairness

Last week the Court of Appeal in Simmons v Castle explained that early notice was being given of the increase to enable all parties engaged in or contemplating litigation to be aware of the impending change. What does this mean in practice now?

The recoverability of CFA success fees, together with ATE insurance premiums, has been abolished by the Legal Aid, Sentencing and Punishment of Offenders (LASPO) Act 2012, which is set to come into force on 1 April 2013. From 1 April 2013, parties will still be able to enter a CFA in personal injury cases with their client but the success fee will be subject to a cap of 25 per cent of damages (excluding future care and loss).

However, with CFAs entered into up to 1 April 2013 that carry, for example, a 100 per cent success fee, the claimant will still recover a 100 per cent success fee at the conclusion of the case. Could the defendant, therefore, be exposed to a period of time where, in cases concluded after 1 April 2013, it is required to fund both an increased payment of general damages plus payment of a 100 per cent success fee? If so, this would create a period of overlap and uncertainty.

We doubt this was the intention of Jackson LJ, who was keen for all of his cost saving proposals to be introduced as a clearly defined package. Part of the reasoning behind Jackson LJ’s recommendation for an increase in general damages was to compensate the claimant for paying success fees out of his own damages. Simmons appears, therefore, to put the claimant in a position to tactically seek the benefit of a 10 per cent increase in damages in any event. Will claimants look for ways to have their cake and eat it?

Defendants could have to try and predict whether the claimant’s solicitor considers they are better serving their client by proceeding now under the regime of recoverability of a success fee from the defendant and not the claimant. This, of course, must be balanced against the fact that the claimant’s solicitors can take up to 25 per cent of their clients’ damages if they enter a new style funding arrangement.

Clarifying requirements

Clarification is, therefore, also required surrounding the requirement for other measures to replace existing funding arrangements on 1 April 2013 – namely transferral to damages based agreements and capped success fees (as encapsulated in the LASPO Act).

It should of course be recognised that the increase in damages relates to general damages only. In higher value claims, general damages tend to form the smaller proportion of the overall value of the claim and the maximum addition to general damages would be in the region of £26,500. Whilst the overall long-term gain of the reforms must be borne in mind, the impact is still likely to be felt by defendants and their insurers, particularly for those defending lower value/higher volume claims (like motor claims).

Reserving now

The full extent of the financial impact this less than perfect situation could have for defendants needs further consideration. At the very least defendants are going to need to review both their and claimant offers and build into the reserve the penalties to be awarded, against a background of a longer shelf life for those claims which enter a CFA close to next April and/or more complex claims.

In short, despite the Court of Appeal’s reassurance about time to plan, this development impacts on cases now and indeed any case where judgment would be given post April 2013 - which is likely to be the majority of any cases proceeding to trial.

The underlying premise of the Jackson reforms is to introduce a CFA model that is charged against damages to create market forces in order to control costs and ensure fairness.

This current situation appears not only to go against that aim, but risks creating uncertainties around implementation of the reform proposals.

Clarification is, therefore, required to ensure realisation of the aim of fairness and balance.

Rachel Moore is a partner at Kennedys (www.kennedys-law.com)