The costs reforms and dishonesty

In this blog, we offer some thoughts on the impact of the costs reforms for compensators defending dishonest claims.

The changes – in brief

As of 1 October 2023, fixed recoverable costs were extended to cover the majority of cases in the fast track and in a new intermediate track for claims valued between £25,000 and £100,000.

A claimant succeeding with a claim is limited to recovering fixed costs for personal injury claims for accidents occurring after 1 October 2023 and for non-injury claims issued at court after 1 October 2023.

Claims allocated to either track will be assigned a band of complexity, each attracting a different fixed recoverable cost, increasing at various pre-defined stages as the case progresses towards trial.

Of note to UK handling agents for foreign insurers is that the reforms extend to claims involving foreign vehicles, previously exempt from fixed costs.

The finer details of the reforms are beyond the intended scope of this blog, but Kennedys' webinar found here covers the issues in much more depth. Kennedys’ focus hub can be found here and includes a very useful fixed recoverable costs calculator.

It is worth noting that at the time of writing, there is a pending Ministry of Justice consultation and a judicial review. Further detail and comment can be found here.

What do the new rules mean for compensators?

Vitally, the changes will give compensators greater certainty on the potential cost exposure for cases they want to defend on grounds of fraud.

Under the new costs rules, it is difficult to see how dishonesty issues will lift a case out of fixed recoverable costs and into the multi-track circumventing fixed costs.

The new rules state that there are some specific exceptions where a court must allocate a case valued under £100,000 to the multi-track and then fixed costs will no longer apply. The exceptions relate to complex matters such as claims for lung disease, harm/abuse/neglect, and some clinical negligence claims. Housing disrepair claims are also exempt but for public policy reasons rather than complexity.

There is not an exception relating to fraud or fundamental dishonesty, nor is it anticipated that defending a claim on those grounds alone would render a claim sufficiently complex, or in the interests of justice, to warrant a multi-track allocation. With the intermediate track intended for cases that can be heard in three days or less and with no more than two expert witnesses giving oral evidence for each party, it is expected that the vast majority of claims valued at under £100,000 will fall within the fast track, or the new intermediate track, seeing successful claimants limited to fixed costs.

The fundamentally honest view

Prior to the costs reforms, dishonesty did not amount to sufficient complexity to guarantee a multi-track allocation and it is not expected that will change.

It is far more likely that compensators will see arguments that a case should be assigned to the highest band as possible within a track because of the dishonesty issues. Then there is the possibility of securing costs for additional extras such counsel/specialist lawyers advising on statements of cases, advising in writing or in conference after the service of a defence.

The new rules provide very little guidance on complexity but if the current approach is a barometer, the judiciary may not routinely permit increased costs simply because there are dishonesty issues.

Even if a claimant is successful in bolstering the costs, the costs will still be fixed and a compensator will understand their potential exposure from the outset or early into the defence of a claim. This alone may encourage compensators to fight more suspected fraudulent claims with less risk.

That is not to say that compensators should allege fraud or fundamental dishonesty more freely or without a thorough analysis of the merits. The new rules continue to provide courts with a general discretion to award costs exceeding fixed recoverable costs where there are exceptional circumstances. A further risk is that a party can apply for an order for a 50% increase in fixed costs where the court considers a party has behaved unreasonably.

Both, in theory, could extend to costs implications following a judge’s finding that the claimant has been dishonest, the defendant has been dishonest or either party’s unreasonable pursuit of a dishonesty allegation.

Experience tells us there will be mixed decisions from the courts as the reforms bed in and some satellite litigation on the issues.

We know from the previous costs reforms that claims exempt from fixed costs will surge. Compensators therefore may see the current trend of housing disrepair continue (see this blog).

It is anticipated that further fraud risk to compensators will arise from the behaviours the cost reforms will generate, such as the introduction of fabricated or exaggerated injuries and loss of amenity to otherwise genuine claims. That may take the form of inflated loss of earnings/Smith v Manchester/care and assistance claims, lengthier credit hire periods, claims layering and deliberately incubated claims.

We know from the whiplash reforms and the Official Injury Claim data that there has been a growth in psychological injuries, multi-site injuries, and an increase in injuries beyond objective testing, such as tinnitus. It is expected that similar behaviours will arise with the overarching purpose of attempting to add value, complexity and a 'need' for multiple expert reports to tip claims into the multi-track.

The new fixed costs rules offer both reassurance to compensators but an equal measure of increased risk, as fraudsters and those enabling claims, will look to maximise their potential rewards.