SERVICIO UNO IP BÁSICO

10.1 The Government‟s plan: qualified one way costs shifting in personal

injury cases only

10.2 The problems caused by QOCS: Uncertainty for the claimant

 After the event means and merits tests

 Intrusive enquiries, esp. for MINELAS

 Possible minimum contribution to defendant‟s costs

 Claimant‟s risk of liability for own costs

 Encourages repudiation by liability insurers

 ATE still needed (but unlikely to be viable) to cover residual risk

 Loss of access to justice

No ATE screening, so more unmeritorious cases and speculative claims No disbursement funding

More satellite litigation

Liability insurers have a virtual cartel Loss of income to Government

Risk of undersettlement due to part 36 hazard

Questionable savings: ABI member says there will be an increase in costs and premiums

Only applies to personal injury

10.3 In this section we also refer to our comments in section 9 on recoverability of ATE premiums, where a number of concerns about QOCS are expressed in that more appropriate context for comparison purposes.

10.4 QOCS would be subject to:

Behaviour: where the clamant has acted fraudulently, frivolously or unreasonably in pursuing proceedings

Financial means in particular a very wealthy claimant. Possible minimum (sic) payment to defendant’s costs

10.5 The subjectivity of the application of the proposed QOCS arrangements leads to uncertainty for litigants, and in particular claimants. One way costs shifting can only work if there is no qualification (except quite rightly for cases of fraud). The only certain protection, if one way costs shifting is qualified in any way, is through an ATE policy, provision for which would have to continue to provide claimants with the security and certainty they need. QOCS runs the risk of the worst of both worlds: creating a system under which ATE is no longer commercially viable, yet at the

50 same time producing a system that undermines the certainty that claimants need and expect, concerning their financial exposure when legitimately bringing a claim.

10.6 It should be remembered that the system of recoverability of success fees and

ATE premiums was mainly to solve the access to justice problems of the “MINELAS” (“middle income not eligible for legal aid”) who did not qualify for legal aid, as much as it was a replacement for legal aid in personal injury claims, when that ceased as a result of the Access to Justice Act 1999. The proposed QOCS will reproduce that lacuna in access, especially for the middle classes.

10.7 Moreover, the benefits of ATE case screening would be lost, resulting in more speculative claims. In fact, not only is the screening of ATE lost, QOCS will actively encourage speculative claims as the primary sanction for pursuing such cases, the risk of an adverse costs order, is in general removed, subject to the overall QOCS disapplication proposals, which remove the degree of certainty claimants need.

10.8 Under the proposed QOCS, claimants would only be liable exceptionally for defendants’ costs in a lost case, when costs would be assessed summarily, assuming the Green Paper details are carried through into the final package.

10.9 But the risk of the claimant facing a costs bill, even if unlikely, is a massive deterrent to individual claimants. In addition to the question of costs generally being a problem for 54% of potential claimants, AJAG’s consumer survey asked whether respondents would bring a claim if there was a risk, even if it was very small, that they could end up being expected to pay the defendants’ legal costs if the claim was lost. 77% said they would not start a claim at all even if the risk was very small; and a further 15%, only if the maximum liability would be below £1,500.

10.10 Moreover, the costs risks facing the claimant are not just those of the defence. The claimant would be liable for his own costs in the event of the claim failing, losses currently protected by ATE but in relation to which the claimant would have no protection whatsoever under QOCS. It may be the case would still be funded on a “no win no fee” basis as far as his solicitors are concerned, should they be prepared to continue with CFAs if success fees are unrecoverable, but that does not deal with the problem of the claimant‟s own disbursements, for which he would remain liable. This very real risk under QOCS also acts as just as much a barrier to justice as the risk of an adverse costs order in favour of the defendant. We deal with this barrier to justice in our section on disbursements.

10.11 Under QOCS, even if the qualifications disapplying QOCS are unlikely to materialise (and it is not accepted that is the case, for the reasons set out below), they would still be a major barrier to claimants pursuing their cases. The proposed QOCS system is doomed to create as many complications as it may solve, due to the subjective nature of the proposed qualifications to the general rule. These will result in a tsunami of satellite litigation.

51

10.12 The “behaviour” qualification poses considerable subjective issues, working against the certainty that claimants need and expect.

10.13 Of course, we would not in any way condone the claimant who brings a fraudulent claim. He has only himself to blame, and should suffer the full costs consequences of what is his criminal conduct.

10.14 But the suggestion that a claimant who behaves unreasonably in pursuing proceedings (or possibly as originally proposed also during the course of the claim) introduces yet another subjective element.

10.15 This is an invitation to insurers to raise allegations about conduct even prior to a claim being brought. For example, they might argue that it was unreasonable to bring a claim if an accident was not promptly reported in the accident book at work, or to the police after a road accident. Or the claimant was at fault in unreasonably not seeing a doctor earlier to get a disease diagnosis. Arguments that presently may sound in liability or contributory negligence will now sound in defendants’ insurers’ arguments over unreasonable conduct to avoid QOCS.

10.16 If a claim fails, by definition it could be said to have been unreasonable to bring it in the first place, as the test for negligence is rooted in reasonableness. Applying common law principles of reasonableness in this context, Is there to be a “reasonable claimant” test, which can only mean the courts will be required to

devise their own percentage threshold of likelihood of success, (applied

retrospectively to either a case in progress or to a failed case after trial) to decide if it was unreasonable in all the circumstances to bring the claim? If not, how is this test to be applied: although on the face of it an objective criterion, in practice will it be the subjective view of the judge? Would it be “unreasonable” conduct to go on for a relatively small increase in damages, potentially undermining the part 36 system?

10.17 And what may be a frivolous claim for a relatively small amount to an insurer or judge may not be frivolous to an impoverished claimant.

10.18 Turning to financial means, it is not clear if this is only going to be a test for the claimant, or whether the defendant’s means (including impecuniosity or lack of insurance) will also be relevant, as originally suggested in the Green Paper.

10.19 With no objective definition of “very wealthy”, the claimant is in limbo. Will this take into account a claimant’s personal outgoings and liabilities or only his income and capital?

10.20 On notification of a claim, the liability insurers will inevitably commence enquiries into, and request disclosure of, a claimant‟s means to include both capital and income, particularly but not exclusively for middle class claimants, who would be especially targeted. This may well produce no material result for them in applying the test adversely to the claimant, but would undoubtedly “soften up” the

52 claimant into unnecessary concern about the financial risks (even if low) he is taking in bringing the claim; and create unfair pressure and worry about unnecessary intrusion into his private financial affairs.

10.21 Even though such enquiries may rarely produce a formal outcome detrimental

to the claimant, they will have a not unnatural deterrent psychological effect on him, particularly on the more prudent and risk averse claimant.

10.22 If they are to stand in the Government’s plans, the Green Paper proposed insurers’ applications to the court, especially when made early, will add to this effect, even if unsuccessful.

10.23 Similar problems already arise in relation to temporary replacement vehicle

claims in RTAs, which can depend on the finances of the claimant, where such enquiries are already put forward almost automatically by insurers. We attach as appendix 2, by way of example, the series of questions raised by Parabis on behalf of CIS, which begin:

“Your client will be required to demonstrate that he was impecunious at the time of hiring, in order to recover credit hire rates. If he fails to do so by disclosing bank/building/society/credit card statements, then he will be entitled to spot rates only as per Lord Nichols judgment in Lagden v O'Connor. We shall bring our correspondence to the attention of the Court”.

The interrogation then continues with a lengthy list of detailed means test and personal finance questions.

10.24 Under the proposed QOCS, such enquiries will be inevitable and become routine.

10.25 It is not clear if the original Green Paper proposal that the suggestion that the

defendant‟s impecuniosity or lack of insurance cover should be taken into account

still applies. If so, it also complicates the matter and operates unfairly as against the claimant.

10.26 Firstly there is the lack of an objective definition of impecuniosity. This too is an uncertain subjective test, where similar examples and comparisons to the “very wealthy” claimant can be made. Should the spendthrift defendant who is impecunious through his own improvidence having squandered his inheritance be on the same basis as a defendant who has fallen on hard times through no fault of his own?

10.27 And how can one compare other than subjectively the two parties’ means, if

they both fall into the brackets of the means test?

10.28 Moreover, when the claimant puts forward his claim, he cannot generally be

53 also be fair for the claimant to assume the defendant has adequate insurance cover, especially in those circumstances when such cover is required by the law. Is the claimant also expected to take early steps through disclosure requests or otherwise to satisfy himself as to the defendant’s personal means and the extent of his insurance cover, if any? If it turns out the defendant is uninsured or otherwise impecunious, what is the claimant to do? Is he expected to abandon the claim, and suffer the costs consequences of doing so, (even though he could not predict them in advance) as he is on personal risk for the costs, because it was his bad luck not only to have been injured, but also to have been injured by the wrong person?

10.29 This system also provides a perverse incentive for liability insurers to look to the small print of the policy, to see if there are grounds to repudiate it. This is particularly so in employers’ liability, where there is no Employers’ Liability Insurance Bureau, equivalent to the MIB, to meet the residual liability of uninsured employers. In long tail disease cases such as those caused by asbestos, it is often already difficult to track the insurance company, in the absence of a formal employers’ insurance register. These proposals would also create a further perverse incentive for insurers generally not to co-operate with insurance enquiries in such cases.

10.30 If the defendant is uninsured, why should the claimant bear the consequences

of the lack of prudence, or even illegal conduct of the defendant? If a small employer fails to take out a (compulsory) EL insurance policy and negligently injures one of his employees, is he to be allowed the benefit of his illegality, because he is on a similar financial basis to his injured member of staff?

10.31 If a motorist is uninsured, he will be the first defendant to the claim, even though there is the fall back insurer of last resort, the MIB. The MIB is entitled to pursue the uninsured motorist for its outlays in settlement of the claim, including any costs liability: where will that leave the claimant: on risk for costs, or not?

10.32 What if a doctor fails to take out adequate professional liability insurance for his private practice and negligently treats a patient? Are they considered to be on equal terms, even though the patient could reasonably have expected the doctor to have such insurance?

10.33 Or what if the occupier of a small shop or restaurant which the claimant lawfully visits and where he is negligently injured does not have public liability insurance?

10.34 How is the problem of changing company structures or companies going out of

business to avoid liabilities going to be addressed?

10.35 In each of these examples, it would be fair to expect the defendant to have insurance, the defendant may be less well off or on an equal financial footing with the claimant, yet the claimant will be on risk of an adverse costs order which he could not have anticipated when bringing his claim.

54

10.36 All these questions indicate the extent of the satellite litigation which QOCS will inevitably provoke in the costs wars that will result should it be introduced.

10.37 The third qualification is new, and was not suggested in the Green Paper consultation: a possible minimum (sic) payment to defendant‟s costs, “to prevent speculative claims”. That in effect completely undermines the whole concept of QOCS, and again exposes the claimant to a potential uncertain costs risk, again presenting a barrier of uncertainty, especially if the payment is expressed as a minimum: this means the costs awarded against the claimant could be substantial, irrespective of his means. Effectively this would not be QOCS at all, but a Qualified Two Way Costs Shifting system.

10.38 The underlying problem is that the claimant will have no certainty from the outset as to whether he will face an adverse costs order; and will not know until the claim is concluded. Judges will have a wide discretion throughout the case which would in practice be unappealable.

10.39 So the subjective nature of the suggested qualifying exclusion rules in practice would inevitably deter claimants from either bringing claims or pursuing them as vigorously as they should, because of the uncertainty and potential risks, even if they do not materialise.

10.40 This is also demonstrated by the Green Paper part 36 proposals for QOCS: it is not clear if the Government intend to implement this, as their policy paper has little detail in it, but it would appear to be a fair assumption that they will do so. In the section of this paper on part 36, we comment on the proposals to give the claimant an extra 10% uplift on damages, if the defendant fails to beat his part 36 offer to settle. That is a welcome rebalancing and encouragement to claimants to make sensible offers. However, that benefit is immediately offset by the QOCS proposal, that the claimant will be expected to meet all the defendant‟s costs from the date of a defendant’s part 36 offer, if the claimant does not beat it. That is a major hazard for a claimant who will no longer have the security of ATE. This will create a very

risk averse approach to defendants’ part 36 offers, and will lead to

undersettlement due to the fear of an adverse costs order. It will immediately wipe out any benefit there may be from the proposed general damages increase, and probably more.

10.41 If QOCS is to be implemented, a fairer way would be to cap the claimant‟s

costs exposure to say 10% of the defendant’s costs or 10% of the claimant’s

damages, mirroring the defendant’s exposure to the claimant, in additional damages.

10.42 Claimants would still need ATE to provide the certainty they need, but they would be expected to meet the costs of the premiums themselves. The costs of such policies would become unaffordable as the nature of the risk to be insured is so uncertain for the insurer. Insurers need a degree of certainty as to their possible exposure to quote for a policy, and the subjective issues that cannot be determined

55 with any such certainty at the time a policy would be needed inevitably mean the

cost of a policy in these circumstances would be higher to cover all the possible

permutations.

10.43 Moreover, the bureaucracy in applying for and administering such a policy would also expand. ATE insurers would need to means test the client to assess the risk of QOCS not exempting them and to ensure their ability to pay. This may also give rise to credit agreements sold by unchecked intermediaries to vulnerable clients to cover either ATE or their own disbursements. Anticipated premiums are likely to be greater than what the claimant can afford.

10.44 The claimant would also be potentially vulnerable given the “utmost good faith”

nature of an insurance contract, in the absence of full and complete means disclosure, even if inadvertent.

10.45 In the end, it is hardly surprising that the ATE insurers believe that an ATE market for residual QOCS risks, with premiums paid by the claimant, is

commercially not viable.

10.46 Finally, it should be borne in mind that QOCS will only apply to personal injury claims and will not apply to other forms of litigation. For non- PI litigation the position is very bleak. On the one hand, litigants will still lose recoverability of ATE premiums; but on the other they will not have the dubious benefits of its replacement, QOCS. Thus the unsuccessful non-PI litigant will not only have to meet his own costs and disbursements, as will the PI claimant, but also in addition the full

assessed costs of the defendant too, without the benefit of a funded ATE policy to

meet the claim. This will be such a huge barrier to anyone attempting to litigate, for example a high value consumer dispute with a builder, that the claimant’s rights will be worthless.

10.47 The better way is to reform, not abolish recoverability of ATE premiums, as we propose in section 14 of this paper.