Reform of the perceived "Compensation Culture" has been at the heart of the government's long promised review of the justice system. For a number of years it has promised to make sure that school outings, charity fundraising and community events can operate without the blight of unwarranted personal injury claims. It has campaigned long and hard to remove the fear of such claims so as to allow the voluntary sector to flourish and to create David Cameron's "Big Society".
But the indications are that the government is now getting cold feet.
Under the last government a review of the personal injury claims process was carried out by Lord Justice Jackson. It was very detailed but focused primarily on speeding up the claims process and cutting down on the cost of it. He made two main recommendations: firstly he recommended that claims companies should be banned from charging for their work – (effectively banned from operating – their advertising would obviously disappear)1
. His reasoning was that claims companies charge for the work they carry out and if they could be eliminated from the process then solicitors would no longer have to buy cases from them. Solicitors would then have lower overheads and the costs they recovered from defendants could be proportionately reduced. Secondly he recommended that claimants should no longer be able to recover the cost of legal expenses insurance which most of them purchase at the beginning of a claim2
. His reasoning was that although the insurance was obviously useful, the operating costs and profit of those legal expenses insurer's could be saved if they were removed from the claims process.
It all sounded sensible until the detail was looked at. The problem was that a vital ingredient of his recommendations was that important parts of the British legal system needed to be changed – it meant abolishing the long-standing rule that if someone brings a claim and loses, then they must pay the costs of the successful defendant3
. This has always seemed fair - the claimant should be penalised for claiming what he was not entitled to receive, and the defendant should be compensated for the costs he needlessly incurred. In order to achieve this cost saving however, Jackson recommended that this existing rule should be abolished - from now on claimants would not normally be required to pay costs if they bought an unsuccessful personal injury claim, and defendants could not recover the money they spent successfully defending it.
This may reduce the costs involved in personal injury claims (although even Jackson conceded that this was relatively small)4
but it appears set to promote just the sort of compensation culture which the government has promised to tackle. Introducing a rule that whatever the outcome, no costs are paid in personal injury actions appears to be a charter for promoting unmeritorious claims. Although at present it is possible to insure against paying the other side's legal costs, those claims are carefully filtered and monitored by legal expense insurers. What is now proposed is that even claimants with hopeless cases will never have to pay costs - it is going to be a major boost to the claims industry and every potential claimant is going to realise that they have nothing to lose by "having a go".
This will have a spiraling effect. Defendants (which normally means their insurance companies) will know that whatever is spent successfully defending a claim will be money they cannot recover. Any sensible insurer will realise that rather than spend £1-2000 successfully defending a poor claim, it will be cheaper to simply pay the claimant £500 or so "to go away". In other words it will be cheaper to pay out on a ridiculous claim than to fight it. And once this is widely known, the floodgates will be open!5
And it gets worse. A number of reports have concluded that the problem we face as a society is not necessarily that there has been a rise in the number of personal injury claims but that potential defendants have reacted disproportionately to the fear of them6
. Village fetes, school expeditions, traditional village activities on the common, and charity events have all suffered as a result. What will the proposed changes do to these activities? We already have a climate of excessive caution hampering these events. Local authorities and event organisers need to be persuaded that their fears are misconceived (in reality the level of claims is extremely low – one government report says £800 per year per local authority). Spurious personal injury claims should simply be strongly resisted and the costs recovered from those who make them. If Lord Justice Jackson's recommendations are brought into being however this will no longer be possible. Event organisers will know that they have to avoid not just legitimate personal injury claims (which they can do just by making their events reasonably safe) but that they now have to avoid even the risk of a personal injury claim
, because even ridiculous claims are going to cost them money they can ill afford which they will not be able to recover. Who would think of making such a change?
Well strangely Lord Young - just the very person who has been carrying out a review of the compensation culture says that he fully supports Lord Justice Jackson's recommendations which presumably includes abolishing the costs rule which for years has enabled us to avoid the worst excesses of the American legal system.
This is all extremely worrying. Everybody believed that the government was committed to reducing the fear of compensation claims not increasing it. The government may wish to save the high legal costs being incurred in clinical negligence claims against the NHS. That may be legitimate and an area ripe for review, but its support for the relatively small savings which Jackson's recommendations will achieve are dangerous and ill-conceived. It is amazing that David Cameron would even consider them, and if they are introduced, his hopes of a Big Society appear doomed before they have begun.
1. Review of Civil Litigation Costs – Lord Jackson. December 2009 ("Jackson Report”). Referral fees should be banned: Page xvii Para. 2.5 and Pages 203 – 206
2. Jackson Report: Page xvi Para. 2.2 and Pages 87 & 88 Paras. 4.1 – 4.6
3. Jackson Report: Page 17 Para. 2.7 and Page 89 Para. 5.8 and Page 188 Para. 4.2
4. Jackson Report: Page 86 Para. 3.16 and Page 87 Para 4.1
5. "Access to Justice – balancing the Risk” The Adam Smith Institute. Page 5 http://www.adamsmith.org/publications/justice-and-civil-liberties/access-to-justice%3A-balancing-the-risks/
6. Safety & Health Practitioner” http://www.shponline.co.uk/news-content/full/legal-fees-study-could-obstruct-compensation-culture-proposals
"According to Lord Young, the compensation culture – whether real or perceived – has influenced individuals and organisations to act in a more risk-averse manner for fear of being sued if an injury, or death occurs that can be linked to their action, or inaction.”
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