Personal injury and clinical negligence costs: the gathering storm

The past 10 years or so have witnessed a seemingly never-ending series of ‘reforms’ to personal injury costs. No sooner have firms adjusted to one set of such ‘reforms’, the next set is being loaded up. The change is always in one direction: reducing the amount of legal costs, and, in some cases, the compensation such claimants can recover. The absence of knowledge as to who is calling for these reforms, or how they benefit the public, is no impediment to this fixed trajectory.

I have seen the disastrous impact of these so-called reforms first hand. True, each so-called reform is met with logical criticisms in the Gazette comments section, but who is listening? The only real audience being reached is the profession itself.

Reflecting on both the recent change to the operation of qualified one-way costs shifting (QOCS), and proposed fixed costs in clinical negligence cases got me wondering: does the public have any idea what is being proposed, why and how it will impact them? Is anyone actually holding the government to account here? Whilst the government needs parliamentary approval of legislation, for this to be effective people need to actually understand what is being proposed and what the real-world impact will be.

When I began researching this article, and came across government consultation papers (if they can be termed as such) on both topics, and regarding the QOCS change, the actions of the Civil Procedure Rules Committee, it struck me that we need to be very concerned about how such changes, which will have very substantial impacts on the public’s access to justice, are being made. 

The present system, and proposed changes, are increasingly founded upon fallacies. I wish to expose three fallacies which appear integral to the government’s proposals, and will reflect along the way on the impact they are having.

The prospective assessment fallacy

What I mean by this is the myth that cases can be reliably predicted at the outset. As far as I can glean, one of the key drivers of fixed costs, portals etc. has been to ‘simplify’ the smaller, simpler, lower damages cases in order to minimise legal costs and/or lawyer input in them. The epitome of this to date appears to be the new Whiplash Portal, whereby lawyers are all but excluded, given the inability to recover fees. 

Here’s the big problem: how can any lawyer tell whether a client weeks or months after a car accident will indeed recover within months, or whether they will have lingering symptoms or even develop a full-blown chronic pain disorder? I have encountered many chronic pain cases, following ostensibly minor car accidents. Say a client has what they anticipate to be a minor ‘whiplash’ injury and has to use the portal on their own; a GP with little to no experience in chronic pain prognosticates they will recover in six months, the client trusts that, accepts say a few hundred pounds from the defendant’s insurers and then they’re done. What happens if three years later it becomes apparent that they have unfortunately developed chronic pain, which has a sizeable impact on their life? 

Another consequence is that anticipating a case as being smaller at the outset often results in firms handing such cases to paralegals on the basis that ‘If we’re only making a hundred pounds or so profit we can only give the case to someone paid a relatively small amount.’ The issue with this though is ‘unknown unknowns’, i.e. the things you don’t know you don’t know. Such an inexperienced fee earner may be unable to spot that there is more going on with an injury than first appears to be the case. 

I am dealing with an example of this at present in that a lady came to me who had been represented by a paralegal at another firm following a road traffic accident. The paralegal was evidently perplexed as to why the client was complaining of ongoing symptoms beyond the prognosis period offered by the GP and had suggested an offer of c. £5,000. Well, multiple senior expert reports and scans later, we now know she has a rotator cuff tear, spinal damage and chronic pain, which she will unfortunately suffer from for life. That lady found me as her daughter worked for our firm, but what about those thousands of others who follow the advice of their ‘fee earner’? 

The joint enterprise fallacy

This is the myth that the claimant and his legal advisers are participating in a joint commercial venture. This is best explained using a real-world example, on the issue of proposed fixed costs in clinical negligence cases:

From the gov.uk webpage: https://www.gov.uk/government/consultations/fixed-recoverable-costs-in-lower-value-clinical-negligence-claims:

‘This includes:

• a new streamlined process for claims; and
• limits to the amount of legal costs that can be recovered by claimant lawyers for lower value clinical negligence claims.

The proposals would only affect the amount of legal costs that claimant lawyers can recover following a successful claim, not the compensation that a claimant could receive.’

How wonderful! Claimants receive the same level of compensation but those pesky lawyers have to make do with lesser fees! 

Not so fast: the proposal is for fixed recoverable costs and the costs in question are not those of claimant lawyers – it’s the claimant’s costs that are in question. The proposal does not hold back with the misrepresentation, going full force with ‘[…] not the compensation that a claimant could receive.’ In a nutshell, the government is capping what successful claimants can recover from opponents towards their legal fees. Now, if law firms treat cases as joint enterprises, whereby they take whatever they can get from the opponent then, yes, that would reduce the legal costs, but this presupposes law firms will suddenly start doing the same work for (likely much) less than they currently recover. Will law firms go along with this as the government needs them to? Well, let’s look at what has happened in those personal injury (PI) cases that have been subject to fixed recoverable costs (FRC).

The low level FRCs that were initially set at up to £25,000 for PI cases, combined with them then falling far behind inflation, have had devastating consequences for access to justice, including:

• Counsel refusing virtually all FRC cases below near-certain prospects of success.
• Medical experts disregarding the FRC limits and making the, admittedly valid, point that payment of their fees is a contractual provision between the firm and them, leading to shortfalls.
• Firms having to charge a proportion of fee shortfalls to clients, via so-called ‘contribution’ mechanisms. At least one firm I know of is deducting up to 50 per cent of a client’s compensation. Considering the various cases being reportedly brought by costs challenge firms regarding such shortfall recoveries, clients aren’t happy.
• Cases subject to the prospective assessment fallacy described above, resulting in cases being handled by inexperienced fee earners and being unable to access counsel input where needed.

I have read many government and insurance lobby group posts that begin with something along the lines of: ‘Following the success of fixed costs in personal injury cases [we should extend them to X or Y etc.]’. I struggle to select ‘success’ as the optimal word for clients recovering 50 per cent of their compensation, firms leaving the market, firms rejecting fixed costs cases, or handing them to inexperienced staff.

Imagine what would happen if the government simply announced that, following consultation with insurance and medical defence lobby groups, it has been agreed that either more complex albeit below £25,000 PI and clinical negligence cases were to be either banned outright or that damages were to be reduced by 50 per cent across the board? There would be uproar; any such legislation, if even dared to be proposed, would be subject to immense parliamentary and media scrutiny, likely Human Rights Act challenges etc. Well, what’s the difference between that and saying people can only recover a contribution to their legal costs, thereby leaving many such cases either not economically viable for the firm or not worth it for the client? A rose by any other name…

The suitable oversight fallacy

The government is being sufficiently held to account on these issues, aren’t they? There has to be consultations doesn’t there? Again, a real-life example illustrates this problem best, being the upcoming substantial amendment to QOCS.

The QOCS system, introduced in 2013, means that defendants can only recover legal costs from a claimant up to the level of damages recovered. The motivator for this was that defendant insurers were fed up with paying big success fees and after-the-event (ATE) insurance premiums, but to put them onto the claimant necessitated the adverse costs risk being reduced. Insuring only up to the level of damages recovered, rather than the adverse costs at large, was of course a much lower risk for ATE providers, hence the premiums could be absorbed by the clients.

In the wake of Ho v Adedokun II (in which the Supreme Court confirmed that a defendant’s costs could only be enforced up to the level of a claimant’s damages plus interest, and such an enforcement cap does not include the claimant’s costs), various online articles on the defendant side raged about ‘radical shifts’ and ‘unexpected and unfair consequences’ that would need to be looked in to by the Civil Procedure Rules Committee (CPRC).

It is of course nonsense to describe Ho as ‘an unexpected shift’. Adverse costs were always specifically intended to be capped at damages (undertake an internet search along the lines of ‘QOCS limited to claimant’s damages Part 36 2012’ to find numerous government confirmations of this).

This is where things start to get murky. Notwithstanding Ho merely confirming the position as it had been since 2012, the matter was indeed referred to the CPRC, who duly reversed this Supreme Court decision (along with another Supreme Court decision). The CPRC did exactly what the defendant insurers called for: increased the adverse costs cap to include the claimant’s costs.

Therefore, continuing with Part 36 as the reference point, when advising on a Part 36 offer the advice can no longer be along the lines that adverse costs could wipe out any compensation recovered; now the advice must be that not only can adverse costs wipe out any compensation received, liability will instead be extended to the amount of your own costs, which in a larger case could be hundreds of thousands of pounds. How could something so radical be done so quietly, and quickly? Didn’t LJ Jackson always say QOCS was a complete package, that you can’t pick and choose?

Considering the various CPRC monthly minutes, para 61 of the November 2021 minutes states: ‘More recently, the Forum of Insurance Lawyers (FOIL) has written to the CPRC and this was duly noted; a copy of the letter had also been provided to the MOJ Costs Policy.’

The Ministry of Justice duly launched a consultation process in May 2022. The wording therein is very concerning: Para 13 states ‘Lord Briggs felt bound by the drafting of the CPR to decide [Ho] in this way, but noted that the decision appeared to be “counterintuitive and unfair”.’

The judgment actually reads:

Para 44: ‘We recognise that this conclusion may lead to results that at first blush look counterintuitive and unfair […]. […] Any apparent unfairness […]. […] is part and parcel of the overall QOCS scheme devised to protect claimants against liability for costs and to lift from defendants’ insurers the burden of paying success fees and ATE premiums in the many cases in which a claimant succeeds in her claim without incurring any cost liability towards the defendant.’

Para 45: ‘No one has claimed that the QOCS scheme is perfect. It is, however, the best solution so far that the opposing sides in the ongoing debate between claimant and solicitors and defendant insurers have been able to devise. It works to achieve the aims for which it was introduced in the great majority of straightforward cases in which one side or the other is entirely successful.’

Para 13 of the consultation paper is therefore misleading in giving the impression Lord Briggs was calling for change; his actual position evidently was that whilst the system can produce decisions like this that appear unfair, when taken in the round, bearing in mind the savings defendant insurers have had in not paying large ATE premiums and success fees, it’s the best system we’ve got.

Paras 14 and 15 misrepresent the decision as a change to the intention of QOCS, for example:

Para 14: ‘It is not just the decision in Ho that creates problems […].’

Para 15: ‘The Ho decision now makes it clear that any offset must be limited to damages only and not costs […].’

Ho was not ‘new’, nor did it ‘create problems’ – it recognised that QOCS is not perfect and decisions like that were the trade-off for the other benefits to both sides. 

The consultation paper goes on to call for change in discouraging ‘adverse behaviours in litigation’, but what is this based upon? This one instance? Can it truly be said that the claimant acted without risk to themselves in pursuing the point in the underlying action if both solicitors and counsel acted on CFA bases, funding court fees etc.? Even if that was to have been the case there would have been another much simpler solution such as providing for an exception to QOCS for bringing a procedural or costs point without merit.

Why instead did the Ministry of Justice not present the matter in a neutral manner to parliament such as: ‘When we introduced QOCS we capped adverse costs at damages recovered as a trade-off for defendant insurers no longer having to pay success fees or large insurance premiums. A particular scenario has been brought to our attention wherein a procedural or costs point could be unsuccessfully advanced by a claimant with limited adverse costs risk, albeit they would have to self-fund the point. Whilst this scenario appears somewhat unusual, would it be worth considering some form of mechanism to discourage it, without upsetting the overall balance of QOCS?’

One might expect MP responses such as: ‘Is it a widespread issue or just one case?’, ‘Could we limit set-off to costs litigation points such as Ho, so as to not disturb the general litigation balance of QOCS?’ and ‘Wasn’t capping adverse costs at damages the trade-off for the client paying the ATE premium?’ Instead, we are straight to ‘the nuclear option’ of increasing the adverse costs cap potentially far beyond damages.

As parliamentary scrutiny is denied, has anyone on the CPRC reflected on points such as:

1.      QOCS, and its specific wording, went through years of consultation, with the idea that a claimant is only generally risking their own compensation. ATE premiums were tailored accordingly. ATE premiums will have to increase now (a senior contact of mine at a leading ATE insurance provider has confided with me that premiums will have to increase given the greater risk being insured). Any increases would be tantamount to a reduction in damages, which would be a blow for access to justice.

2.      As the changes will impact cases issued after 1 April, the insurance policies for these cases would often have been granted months or even years ago, meaning that those policies and their accompanying insurance product information document (IPID) requirements etc. are instantly rendered inadequate. What if ATE providers decide to simply say that it’s not their problem and the client will have to apply for a new and more expensive ‘late’ policy to deal with this? Dependent upon their provider, claimants could be left stranded. 

3.      Given many ATE providers have left the market in the past 10 years and thus, it can be harder to obtain insurance altogether, what will happen to those claimants who cannot obtain a policy, who would now be risking their personal finances, possibly even their homes, in bringing a claim? 

The CPRC should have done two things:

1.      Accept that it is extremely unlikely its role was ever intended to be so equal to that of parliament that it could radically alter a law that went through years of consultation and parliamentary scrutiny; and

2.      Point out to the government that its consultation paper was misleading and that it is not content to proceed on that basis.

It should then have insisted that the issue be returned to parliament for proper oversight and scrutiny, given the substantial impact the proposed change would have.

Conclusion

We won’t all agree on contentious subjects such as personal injury and clinical negligence. The point of this article is not to persuade people to join the ‘claimant’ camp; it is to make the point that if we have a government that thinks nothing of misleading the public and/or does not understand how cases work ‘on the ground’ and who cannot be realistically held to account by a public that a) has no idea what is going on and b) no knowledge as to how things work, the chances of us ending up with a legal system that meets the public’s needs are essentially nil. 

The clouds of that storm are now gathered, but for the vast majority of the public who will never read articles such as this, the first point at which they are going to find out about it is when their otherwise viable case is rejected, or when they receive a baffling explanation as to why they may only receive a fraction of their compensation, or when they learn of their under-settled chronic pain case.

It’s time to turn the lights on.

James Winterbottom is a solicitor with Aston Knight Solicitors
astonknightsolicitors.co.uk