LASPO – Insolvency cases exempt from reforms

Further news to the LASPO Bill, which was given Royal Assent last month; with the recoverability of success fees and ATE insurance premiums being unavailable with effect from April 2013, insolvency cases will now be exempt from no-win, no-fee reforms until April 2015.

LASPO is still progressing but there are still big issues and small yet significant concessions that bring into question how it will be implemented as early as spring 2013. As discussed in a Legal Futures article, problems with QOCS still exist, the government is “seeking further advice from the Civil Justice Council” with speculation that there may be some issues making the “qualifications work”. QOCS is an important aspect to get right as claimants are intended to be protected from defendants’ costs in most circumstances, even when they lose.

On the concessions side, Mesothelioma cases were excluded during the ‘ping pong’ stage between the Houses until an impact review has been undertaken. The latest exemption from the April 2013 date brings us to the insolvency cases.

As reported in Law Society Gazette, Justice Minister Jonathan Djanogly made a written statement to the House of Commons, “Insolvency cases bring substantial revenue to the taxpayer, as well as other creditors, and encourage good business practice which can be seen as an important part of the growth agenda with wider benefits for the economy. These features merit a delayed implementation to allow time for those involved to adjust and implement such alternative arrangements as they consider will allow these cases to continue to be pursued.”

The Law Society Chief has welcomed the latest decision asking that “this logic applied to other types of cases, where a similar implementation delay, until 2015, would help to avoid unwelcome impacts on ordinary people’s right to secure legal redress.”

The LASPO rollercoaster continues, be sure to check back soon for more news!

Justice for business and supporting growth

On 8 May, the Ministry of Justice (MoJ) published a report; Justice for Business, summarising its programme of reforms. According to the document, these reforms are aimed at transforming the justice system by making it more effective, less costly and more responsive to the public. So how does it measure up?

The report highlights the MoJ's progress against their Action Plan for Growth in the Legal Services Sector which was published May 2011, and its achievements under the coalition government.

“[The MoJ is] supporting increased competition and growth within the UK legal sector by implementing Alternative Business Structures (ABS)”. In October 2011, the MoJ began legislation allowing the creation of ABS; provided for non-lawyers to partially/fully own, or to control firms providing legal services. Some legal expenses insurers have taken steps to become an ABS but at ARAG, we have no intention to join up. Instead, our aspiration is to work with legal practices as partners, not compete against them.

"We [the MoJ] are working to ensure that costs for participants in civil court cases are proportionate.” ARAG is a member of the Consumer Justice Alliance (CJA), which has been formed to highlight the impact that Lord Justice Jackson’s proposals on civil litigation will have on injured victims. Despite opposition, the reforms, contained within Legal Aid Sentencing and Punishment of Offenders Bill received Royal Assent on 1 May 2012. The government is now considering other measures necessary in the implementation of the Act such as the introduction of Qualified One-way Cost Shifting (QOCS), which could have a negative impact on third parties insurers and local authorities.

“The MoJ is moving towards implementing fees for employment tribunals. This will ensure that tribunals are able to focus on genuine claims and help to avoid business being faced with unnecessary or unfair costs.” These changes aim to encourage potential claimants to consider the strength of their case, which they hope will lead to “more realistic expectations for individuals and greater certainty for employers.” There have been mixed reactions to these changes but ARAG is closely following developments to ensure that our products provide the best cover for clients.

“We [the MoJ] are taking forward measures to reform the civil justice system, helping individuals and businesses resolve disputes.” The MoJ is implementing a range of measures which will benefit businesses by making dispute resolution quicker and less gruelling. These include proposals to speed up the process of resolving small claims, increase the small claims limit from £5,000 to £10,000 and refer more cases to a Small Claims Mediation Service. ARAG is working in partnership with Go2mediation to provide an online mediation service. The aim is to reduce costs of litigation and save policyholders the time and stress involved in court proceedings.

A boost for the campaign against the Jackson reforms?

The campaign against the civil litigation reforms proposed by LJ Jackson received a boost recently after the response by three cost judges to the Green Paper was revealed by the Access to Justice Action Group (AJAG).

According to the Law Society Gazette the judges, “have broken ranks to object to radical reform of civil litigation” and were “unable to agree with the majority view of the costs judges”.

Backed by the Ministry of Justice (MoJ), the reforms include proposals to end the recoverability of success fees and After-the-Event (ATE) premiums, cap success fees at 25% of compensation awarded and increase general damages by just 10%. ARAG, AJAG, the Consumer Justice Alliance (CJA) and many others believe that such changes will significantly reduce access to justice and it seems the cost judges agree.

Describing many of the proposals as “inappropriate”, the judges have said in their response, “claimants who have suffered serious medical injuries could lose thousands of pounds intended to pay for their care”. They go onto say that it is often the conduct of the defendant that increases costs, so shifting the payment of success fees and ATE premiums to the claimant will cause “injustice”.

For ARAG and other legal expenses insurers who believe that ATE insurance helps access to justice as well as reduce costs by rooting out unmeritorious claims, a further comment describing the reforms on ATE as having “gone much too far” is a welcome one.

As pointed out in a Legal Futures article “the fact that important voices in the judiciary have such serious doubts about the reforms will give campaigners heart.” The fight continues!

A round-up of responses to the Jackson Review Consultation

Valentine’s Day 2011, normally a day of romance but for ARAG and many other organisations and companies it signalled the end of the consultation period for the Ministry of Justice’s Proposals for reform of civil litigation funding and costs in England and Wales.

The proposals are based on recommendations from Lord Justice Jackson’s Review of Civil Litigation Costs (December 2009), in which he puts forward “a coherent package of interlocking reforms, designed to control costs and promote access to justice”. Some of the recommendations contained in the consultation paper include:

• Introduction of qualified one way cost shifting
• Abolishing the recoverability of after-the-event insurance (ATE) premiums and success fees
• Increasing general damages by 10%

The responses from across the industry have been submitted and it is now a waiting game to see how the government proceeds. In the meantime, this blog summarises a selection of the responses.

• Consumer Justice Alliance (CJA): The CJA describe the proposals as “misguided and ill-considered”, as they feel that they will “ultimately hinder the ability of injured victims to seek fair and reasonable access to justice”. More specifically, the CJA believe that it would be unfair to shift costs onto the injured victim and worry that capping success fees will mean it is not “commercially viable” for law firms to take cases with lower prospects of success. They also add that “there is no alternative that provides the certainty for claimants or defendants that a robustly regulated ATE market does”. Read more...


• Legal Expenses Insurance Group (LEIG): As laid out by Tony Baker, LEIG’s director, "the LEIG response will to preserve access to justice by putting forward practical alternatives to Government proposals while delivering significant and proportionate cost savings." Reiterating that there is only a ‘perceived’ compensation culture; the group propose a revised ATE system that will “control claimants’ and defendants' costs, maintaining access to justice, reducing unmeritorious claims, solving the disbursement conundrum, and preserving the ATE market”. Read more...
  
• Independent panel of law academics: Reported on the Law Society Gazette website, an independent panel of law academics described the proposals as ‘”misleading and inconsistent with a fundamental principle of civil justice.” They point out that they “would reduce the availability of legal services to injured persons, and benefit defendants at the expense of the injured.” Ultimately, the panel recommend that the “government should reject Jackson’s key proposal to allow lawyers to recover success fees from an injured person’s damages.” Read more...


• Medical Defence Union (MDU): According to Post Online the MDU are backing the Ministry of Justice proposals to reform civil litigation costs, claiming that they will “make the civil justice system fairer but will not impact a patient's access to justice.” Representing medical professionals, the MDU state that they “wholeheartedly” support the proposals that tackle “excessive and disproportionate costs, without affecting the ability of patients to seek compensation when they have been negligently harmed.” Read more...
  
• Association of British Insurers (ABI): The ABI is backing Jackson’s proposals stating that it is “time to put the brakes on the legal costs gravy train that is costing UK consumers £2.7 million every day.” They describe how, in their opinion, “high legal costs are at the heart of a compensation system that is too slow, too complex and fails too many genuine claimants.” The ABI believe that Jackson’s proposals will “deliver faster, fairer, more cost-effective compensation and care to those who need it.” Read more...
  
• Access to Justice Action Group (AJAG): “Access to justice for ordinary people will be severely curtailed by the proposals” reports AJAG’s press release which outlines its response. Citing their consumer survey, the AJAG Co-ordinator notes that “the biggest fear people have when enforcing their rights is the risk of legal costs.” Therefore they present a “comprehensive package that both maintains access to justice and helps keep costs down.” Read more...

As a member of the LEIG and CJA, ARAG of course support their responses to the consultation. However, with the view that the proposals will negatively impact access to justice ARAG also submitted their own response.

• ARAG maintain abolishing success fee recoverability would “have a catastrophic effect on injured victims” as “any deduction of damages would result in a victim receiving an unfair settlement”.


• As an ATE insurer ARAG know first-hand how valuable this cover is to claimants and have serious doubts that qualified one way cost shifting will “be sufficient to remove the other side’s costs risk.” They point out that insurance will still be needed to plug the gap but that few insurers could “respond to providing such limited forms of cover.” Additionally, the premium may have to increase and it will still be taken from the claimant’s damages producing “a significant barrier to taking legal action.”


• On unmeritorious claims, ARAG note that “ATE insurance acts as a significant filter on unmeritorious claims”, with ARAG declining “approximately 2/3rds of all individual quotes”.


• In response to the proposal to increase general damages by 10% to balance out the costs deducted, ARAG cite the 1999 Law Commission report that describes general damages as “already too low”. They therefore back plans for an increase but not at the expense of abolishing recoverability of success fees and ATE premiums.


• Regarding qualified one way cost shifting, ARAG state that it “would create a significant element of uncertainty and the likely prospect of satellite litigation.” Furthermore, ATE insurance would not be “available to protect those risks that would remain by virtue of the qualified rules” and will therefore deter genuine claimants from bringing valid claims and encourage more unmeritorious claims.