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We have welcomed government plans to expand the use of fixed recoverable costs (FRCs) in litigation, but warned that more needs to be done to stop claimants and their lawyers playing the new system.
In particular, we propose an alternative approach to how cases would be placed into four bands of complexity, with escalating levels of FRC.
The Ministry of Justice (MoJ) is planning to implement the recommendations of Sir Rupert Jackson, applying FRCs to all cases worth up to £25,000 and certain cases worth up to £100,000.
Our response to the consultation says that the MoJ need to be aware of unintended consequences, pointing to the “poor litigation behaviours” that followed the introduction of FRC for lower-value personal injury claims and could be replicated under the new regime.
These included: inflated damages, as costs were linked to damages; increased fraud, given that lowering the cost of litigation removes “vital vetting processes to help weed out unmeritorious claims” provided by lawyers, as claims management companies take over their role; limited information provided by the claimant, “making it difficult for defendants to efficiently review liability and quantum”, and claimant lawyers moving into areas not covered by FRC, where their inexperience can “hinder the process and extend life cycle and costs”.
We have stressed that “issues of complexity are not necessarily linked to value”, and expressed concern that linking the claims bands to complexity could lead to ‘band wars’.
To simplify the process, we would suggest a change be made to the current proposal. Should the proposal be implemented, we predict it will lead to the inevitable attempts by claimants to exaggerate or inflate a claim, or the issues within it, to justify allocation to a higher band or outside of the FRC regime altogether.
We stated: “To resolve this issue, and in keeping with how current cases subject to FRC are dealt with, all cases of a particular type should be allocated to one band. This will remove an opportunity to game the system and remove any disincentive not to fight unmeritorious claims.”
We also argued that many of the reforms sought to penalise defendants and encourage them to settle, seemingly irrespective of the merits of a claim.
“The balance is shifting unfairly to impede a defendant’s ability to defend and challenge unmeritorious or exaggerated claims,” the response said. “Defendants should not have their hands tied and their ability to defend diminished.”
We echoed the concerns of others, that much of the data behind the MoJ proposals was limited, particularly for non-injury claims, and was also possibly out of date.
In principle we welcome the extension of FRC to bring a greater sense of proportion and control to the conduct of litigation – this will aid access to justice for those with genuine claims.
Deborah adds: “But the government must be alive to the dangers that they bring with them. FRC change behaviours and introduce incentives for claimant lawyers to do what they can to achieve higher levels of costs.
“The good news is that the use of FRC in lower-value cases in recent years has shown the risks and we hope the MoJ will re-engineer its approach to ensure that these do not recur.”
Insurance and reinsurance
United Kingdom