Monday, 27 February 2017

MOJ announcement is Not about 'more' - it is about right!

Today was one of those peculiar days when a piece of news sent some lawyers rushing to their laptops to share one of the most exciting developments in recent years. Some were happy, some were angry but nobody ignored it. It was one of those announcements that was of great interest to lawyers, insurers and possibly accountants. The rest of the world would happily have let it pass them by. They would probably wonder what the fuss was about.

This was the news that the discount rate on damages is to be reduced from 2.5% to -0.75%.

It has led to some shockingly poor reporting from some quarters – particularly the BBC. It is not clear whether the misleading stories are based on a one sided sympathy for insurance companies or whether it is simply a lazy way of reporting a story that is important if not well understood.

It looks like a story about people getting more damages and our car insurance premiums going up. In fact it is all about bringing common sense to a formula that has been used to reduce compensation payable to victims of the most serious injuries.

So what is it all about? Here is a very oversimplified example.

Alan, who is 45, has an accident at work. He is so badly injured that he will never work again. He earns £20k a year and would have worked to 65. So he has lost 20 years earnings at £20k. But if he wins his case he does not simply get 20 x £20k - £400k. Because that would not be fair on the insurers who pay the damages. Alan would be receiving money now that he would not otherwise have earned for many years. If he was to put that money on deposit, it would earn interest and he could end up with a lot more that £400k in 20 years time. So the number of years that he actually receives is calculated by reference to what his money might be worth at that time. Under the current rules the assumption has been that the money would earn 2.5% per annum. A victim is assumed to place the money in sensible, safe investments. This significantly reduces the amount of any lump sum that the insurers pay out. The £400k will be discounted to less than £350k - the idea being that he ultimately ends up with his £400k. There are complex tables used by lawyers to help with the maths.

So far so good, so long as compensation earns 2.5% per annum, the rate that we have had for 16 years. But in reality we have not had interest rates of that sort of level for years. The current Bank of England Base Rate is 0.25% per annum. It hasn’t been 2% since 2008. So Alan is in fact worse off if the payment he receives would not get him to £400k in 20 years. This is why the rules have had to change. And this is why the rate announced today, is the right one.

In Alan’s case we have talked about earnings. The issue is even more important for victims who need to be looked after for many years. Let’s say Alan is so badly disabled that he needs constant care for the rest of his life. If the amount of compensation is not calculated properly, the money could run out in the future with catastrophic consequences. In fact it isn’t as simple as that but you get the point!

The differences will be significant. This table from NESTOR is helpful. Under the current rules £100k a year for 10 years will cost defendants £886,000.00. When the new rules come in on 20th   March they will pay £1,038,000.

But today’s announcement is not about people getting more money. It is about victims getting the right money. Insurers and their media friends complain about the cost. But in fact, victims have been under compensated for years.

You will not often hear me support the current government. But on this issue that have it right and have removed an injustice that has affected victims of negligence for years.

Wednesday, 8 February 2017

Responding to the Fixed Costs Consultation - in the real world!

One subject that is going to exercise lawyers seeking justice for victims in 2017 is Fixed Recoverable Costs or FRC to its friends. The process has already begun in earnest.

Last week saw the publication of the Consultation Paper from the Department of Health on the extension of FRC to clinical Negligence cases claims up to £25k (Why is the DOH deciding how much they should pay in legal costs to victims of its own negligence?) 

I have published a brief summary of the main points on LinkedIn –

Under the proposed scheme costs payable in a case that settles pre issue will be a maximum of £4k and issued cases that settle post listing will result in maximum costs of £9k. The biggest surprise is that cap on experts fees at £1200 for all reports on breach of duty, causation, condition and prognosis. The good news is that the scheme will not extend to all cases up to £250k – at the moment. The NHSLA is thought to prefer an extension to cases up to £100k. On the basis of the options set out in the consultation, firms that act for victims will face significant challenges.

The date for responses is 1st May 2017 and work needs to begin now. In addition, Jackson LJ is working on a report on FRC generally. He began his fact finding road trip in Leeds yesterday and will report by the end of July. He is known to favour an extension to all civil cases up to £250k.

So here are some thoughts on possible responses now that the dust has settled a little.
I think we have to be realistic and accept that we are going to see the extension of FRC to Clinical Negligence and other types of litigation. 

Jackson has nailed his colours to the mast. Indeed his terms of reference are – to develop proposals for extending the present civil fixed recoverable costs regime in England and Wales so as to make the costs of going to court more certain, transparent and proportionate for litigants and  to consider the types and areas of litigation in which such costs should be extended, and the value of claims to which such a regime should apply.

Note that his brief assumes that there will be an extension of FRC.

Fixed costs themselves are not necessarily a bad thing. In fact they can produce good returns for those who work quickly and efficiently. They also introduce a level of certainty and reduce the likelihood of expensive costs litigation.  Commentators including Kerry Underwood have been saying this for years –

Like it or not I think we must accept the inevitable. This is why I don’t think that a response to the Clinical Negligence Proposal should oppose the idea altogether. That will a bit like hiding in a tent to escape an avalanche.

But we should still respond robustly, particularly in relation to the payment options. Table 3 in the Consultation (Page 16) is flawed. This summarises claimant’s legal costs as a % of damages from 2013/14 – 2015/16. Those cases will include many – possibly a majority that pre-date LASPO but have concluded after 2013. So the figures are skewed by those cases where the NHS paid out success fees and fully recoverable ATE Premiums. If an analysis is limited to cases begun post LASPO then the comparison is bound to be less stark. So the first thing we need to do is come up with a realistic assessment of costs as a percentage of damages once those additional liabilities are stripped out. Those who do a lot of Clinical Negligence work should also look at their own cases and suggest realistic alternatives based on their experience.

Kerry Underwood has done a similar exercise in relation to FRC generally –

His calculations come up with significantly higher figures than the DOH. A measured, carefully calculated response is more likely to be effective than a simple rejection of the idea altogether.

We all face months of uncertainty. Could the Clinical Negligence Consultation be torpedoed by Jackson in July? But that does not mean we can sit back. There needs to be a carefully co-ordinated response focussing on realistic payment for the work required to secure justice for victims. 

It is encouraging to see that Leeds Law Society has made a start –