Civil Justice Reform Presentation to the Manchester Claims Association 07.03.13 Don Clarke

1. Civil Justice Reform Presentation to the Manchester Claims Association 07.03.13 Don Clarke Keoghs LLP and FOIL

2. Agenda Brief reminder of Jackson package Where are we up to? What is for April and what is delayed Likely timetable for coming months Whiplash and the SCT Post April 2013 landscape Observations and Conclusions

3. Key components of Jackson ATE premium Success fees Notional premiums Part 36 10% uplift In PSLA QOCS DBAs Referral fees Fixed costs Proportion- ality

4. April 2013 – what’s coming – almost certainly! • Referral fee ban • Non recoverability of ATE premium • and success fees • Damages Based Agreements • 10% uplift in PSLA (closer to 20%) • Qualified One Way Costs Shifting (QOCS) • New Part 36 & new Rule on Proportionality • New Portal fees for RTA claims <£10,000

5. April 2013 – what’s delayed FRC’s for RTA > £10,000 and EL / PL FRC’s to £25,000 – end July 2013. Vertical & horizontal extension of the portal – end July 2013. New < £25,000 protocols – end July 2013 July 2013 – date tbc.

6. Referral fees ban Enforced by SRA – outcomes based regulation Restrictions Only B2B claims Only those regulated by FCA, Bar Council, SRA and CMC Regulator Does not catch credit hire, body shops, medicals Competition Commissioner conducting separate review of motor market Preliminary report, Sept 2013 A dislocation of certain parts of the claimant supply chain, but for how long? Can – and will – be circumvented by ABS

7. ATE premium LASPO Act 2012 - Sections 46 & 47 Prohibit recoverability of ATE premium from defendant Where applicable Accident date or ATE policy incepted after 1st April 2013 Premium no longer recoverable from paying party • Premiums claimed where no entitlement exists • Backdating of policy inception • Accident prior to 1st April 2013 but solicitor instructed after that date

8. Success fees LASPO Act 2012 – Section 44(6) Removes Court’s power to order a party to pay success fee to another party under a CFA Where applicable Date of CFA after 1st April 2013 Success fee payable to claimant’s solicitor no longer recoverable from compensator Claimant pays success fee from damages – capped at 25% • Success fees claimed where no entitlement exists • Backdating of CFAs • Accident prior to 1st April 2013 but solicitor instructed after that date

9. Damages based agreements LASPO Act 2012 - Section 45 Allows use of DBAs in personal injury claims Capped at 25% of the claimants damages CFAs more likely to be used unless SCT increases Incentivises claimant lawyers to maximise damages • Damages inflation • Increase in heads of damage claimed for • More willingness to press to an assessment of damages • More “expert” evidence to support additional damages

10. 10% PSLA uplift Simmons v Castle 2012 CoA set out 10% uplift in PSLA in all judgments handed down after 1st April 2013 Exception Where claimant has already entered into CFA before that date Uplift applies to all non CFA cases • Claims for 10% uplift where no entitlement • PSLA inflation given the closer link between damages and costs? • Impact on existing claims

11. QOCS CPR 44 - Section II Defendant cannot make losing claimant pay their costs except in exceptional circumstances Must be PI element to claim for QOCS to apply Will not apply where a CFA / CCFA was in place prior to 1st April 2013 • No practical deterrent to fraudulent claims – an increase in fraud? • Increased use of defendant P36 • Part 36 trumps QOCS • Clarification of QOCS rules via satellite litigation • What does “fundamentally dishonest” mean?

12. QOCS – adverse costs orders QOCS Enforcement Permission needed Costs Cap Mixed claim exception All orders in favour of defendant may be enforced to their full extent provided the court considers it just. Applies to: 1. Subrogated claims and credit hire claims 2. To the extent that the defendant incurred costs in dealing with these claims General Rule All order in favour of the defendant may be set off against and to the extent of damages and interest recovered by the claimant. Applies to: 1. Claimant's failure to beat defendant's CPR 36 offer 2. Costs orders obtained against claimant in the proceedings

13. QOCS – adverse costs orders QOCS Enforcement No permission needed Fraud exception Orders can be enforced to the full extent where the claim is found, on the balance of probabilities, to be fundamentally dishonest. Applies to: Allegations of fraud that will be determined at trial: (a) In all case that proceed to trial (b) In exceptional circumstances only where case settles before trial (c) Upon application if claimant discontinues the claim No Costs Cap Strike out exceptions Orders may be enforced to the full extent of the order where proceedings are struck out. Applies to: A claim being struck out because: (a) There was no reasonable ground for the claim; or (b) The claim was an abuse of process; or (c) The conduct of the claimant or the claimant’s solicitor obstructed the just disposal of the claim (such as failure to comply with a rule or court order)

14. Part 36 LASPO Act 2012 - Section 55 Empowers Court to award additional damages in prescribed circumstances CPR 36.14(1)(b) also amended Where judgment is at least as advantageous to claimant as claimant’s CPR 36 offer they are entitled to additional amount Damages <£500k +10% of amount awarded Damages >£500k +10% of first £500k plus 5% of any amount over that Capped at max £75,000 • Multiple CPR 36 offers against different heads of damage? • Late CPR 36 offers made close to trial? • Low CPR 36 offers to settle in potentially fraudulent claims?

15. Proportionality CPR 1.1 amended Court must deal with cases “at proportionate cost” Court will only allow costs which are proportionate to the matters in issue Costs which are disproportionate can be disallowed - even if they were necessarily incurred • Hopefully a more robust approach from courts • If defendant’s conduct causes claimant to incur cost then very likely that will be recoverable • More litigation to determine if costs are deemed proportionate • Use of “Costs Budgeting” to obtain prior approval to costs being incurred

16. FRC’s RTA < £10,000 – end April 2013 RTA > £10,000 + EL / PL to £25,000 – end July 2013 RTA to £10,000 – trigger to be date notified in portal and not accident date EL disease “fall out” cases to exit FRC regime and remain on hourly rates In cases £10,001 - £25,000, the claimant lawyer can seek independent quantum opinion (eg Counsel) “where justified” A positive step forwards but what behaviours will the non portal costs structure drive

17. Whiplash and the SCT Consultation closes on 8th March 2013 Three key issues Improving the quality of medical evidence Increasing the RTA SCT to £5,000 The “catch all” Question 8 – is there anything else? A key consultation paper but what about joined up thinking? Classic potential example of “unintended consequences”

18. Conclusions Claimant’s to have some “skin in the game” Insurers no longer paying ATE and success fee Part 36 to counter QOCS

19. BUT New rules - immersed in satellite litigation? Claimant lawyers Will they try to circumvent new process and drive more cases to litigation? Use of Part 36 as an aggressive weapon QOCS - will not deter fraud; could drive frequency Damages - upward pressure Costs disputes – which regime applies and when? Referral fee ban – largely ineffectual Ratcheting of costs on portal “exit” cases?

20. Conclusions Change is coming and will commence April 2013 BUT fragmented change with more to follow There will inevitably be skirmishes around the new rules / processes Issues remain as to timing of implementation and transitional arrangements Numerous issues remain for insurers re frequency, severity, costs, fraud and litigation