1 April 2011
The Law Society believes the Government's adoption of Lord Justice Jackson's root and branch reforms to the civil justice system, and in particular to costs, will “spread joy in the hearts of our Insurance Companies and their shareholders” .
Claimants will now have to dip into their awards of damages to pay their legal costs. If the proposals are implemented in their entirety, professionals and their insurers should feel a noticeable difference in the way negligence claims are handled and could benefit from a significant reduction in the legal costs associated with litigated disputes.
The Government is proposing to abolish the recoverability of success fees and ATE insurance premiums from defendants; these will now have to be paid by the claimants. For the last 11 years professional defendants and their insurers have faced claimants’ costs bills which were often manifestly disproportionate to the damages claimed and the insurance market should be delighted with these proposals. Savings achieved by professional indemnity insurers on claims payments can only help keep premiums down.
The restriction on damages-based agreements (aka contingency fees) will be lifted allowing lawyers to take a proportion of the claimants’ damages in fees. Claimants' solicitors will have to make a realistic assessment of the prospects of success and value of any claim before they enter into such an agreement if they wish to retain a profitable practice and this could have a significant impact on the overall valuation of professional indemnity claims and the number of matters which are litigated.
In order to keep costs in check, a new emphasis on proportionality (which has all too often merely been given lip service) should go some way towards redressing the often stark imbalance between claimants' and defendant insurers' costs. It is hoped that as a result parties will refrain from embarking on expensive and avoidable costs-incurring exercises and claimants may be encouraged to deal with disputes pre-action and in a more reasonable manner, particularly in respect of defendants’ pre-action requests for information and early disclosure of all relevant documents. Because of the relatively esoteric nature of professional negligence claims (in contrast to, for example, personal injury claims), many claimants' solicitors have in the past relied too heavily on Counsel in the conduct of such claims and have failed to control expert witnesses' costs.
Notwithstanding that, it is not all good news for professionals and their insurers. The proposed amendments to Part 36 of the Civil Procedure Rules (offers to settle) aim to equalise the incentives between claimants and defendants to make and accept reasonable offers. In all civil cases where a money offer is beaten at trial, it's proposed that the costs sanction applicable under Part 36 will automatically apply. More controversially, the Government is proposing the introduction of an additional sanction (equivalent to 10% of the value of the claim) to be paid by defendants who do not accept a claimant’s reasonable offer that is not beaten at trial.
Worryingly, the Government is also proposing to increase the rates that successful litigants in person (ie unrepresented claimants) can recover from losing defendants. This could encourage individuals to sue their professional advisors without first seeking legal advice and, as a result, increase the costs burden of insured professionals who have to deal with unduly aggressive and misguided procedural steps.
Details of the Government’s proposals will be put to stakeholders in due course, and it remains to be seen whether all they will be implemented in their entirety. There is no question that these proposals together with Lord Justice Jackson’s recommendations will affect the manner in which professional negligence claims are managed and the associated legal costs.
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