Recent reforms and developments relating to personal injury litigation The fourth question on our questionnaire was:

Please provide (in the space provided) a short summary of recent policy debate in your jurisdiction on the subject of the performance and funding of personal injury cases. Please list any recent legislation or key consultation documents.

As one might expect, the responses here varied and it is perhaps most straightforward to describe each jurisdiction briefly in turn.

Ireland

2003 and 2004 have seen some dramatic changes in Ireland with the formation of a Personal Injury Assessment Board, publication of a book of damages and amendments to civil procedure. The results of these changes will not be seen for a number of years.

The PIAB has been formed to value all personal injury claims that are not being contested on the merits and excluding medical negligence. To date no valuations have been made although they are expected shortly. No claim can proceed to formal legal proceedings without clearance from the PIAB. If the case is to be contested the PIAB will not value a claim but will give clearance for the case to go to court. If it is not contested the case will be valued and then the claimant and respondent are informed and they can either accept or reject the claim. Once the claim has been valued clearance is given for the claim to proceed to court. It is also the policy of the PIAB not to deal with the lawyers although this has recently been challenged and the court has held that the PIAB cannot refuse to deal with lawyers. This decision is under appeal. The PIAB Act also does not provide for the payment of costs to lawyers for presenting cases to the Board so it is expected that claimants, if they hire lawyers, will have to pay their costs for presenting the cases to the PIAB. It is expected that this will be challenged. As a matter of interest the legal profession are against the formation of the PIAB and were not in the consultation process when it was originally put forward as a solution to the high cost of claims.

A further move has been the drawing up of a book of quantum from a sample of cases settled by insurers and the government claims settlement agency as well as from

judgements in 2003. The damages quoted in this book are (as has been the case in Ireland) still higher than in the UK. A comparison is made (in euros) in Table 4.2, below. The figure in brackets under Ireland shows how much greater the recommended average payment is in Ireland for the particular claim than in the UK. This book of damages has to be followed by the courts as well as the PIAB. There is a suggestion amongst practitioners that the awards

referred to in the book of damages are excessive but without examining settlements in the Irish market occurring at the moment this cannot be tested.

The fact that Ireland now has a book of quantum and all cases have to be presented to PIAB before proceedings commence should see a drop in the use of formal proceedings. A case can be settled at any time prior to presentation to the PIAB or anytime thereafter. This could mean more insurers will attempt to settle early. Also damages may be more consistent across settlements between parties as well as in the courts. This could mean a lessening of the cost of claims. Initially, however, it seems likely that solicitors will be testing the validity of the valuations made by the PIAB.

Table 4.2: Awards recommended by the book of quantum England and Ireland 2003: range, average and ratio of Ireland to England average

Injury Ireland (Euros) England (Euros)

Thumb (dislocation serious and permanent) Range: 39,300-65,200 Range: 15,357-27,857 Average: 52,250 Average: 21,600 Ratio: 2.42

Neck (substantially recovered) Range: Up to 14,400 Range: 1,070-3,571 Average: 7,200

Ratio: 3.1

Loss of both legs Range: 130,000-180,000 Range: 189,258-221,418 Average: 155,000

Ratio: 0.75

Amputation one leg below knee Range: 94,600-127,000 Range: 71,428-101,428 Average: 110,800 Average: 86,428 Ratio: 1.28

Amputation one foot Range: 81,000-120,000 Range: 65,714-85,714 Average: 100,500 Average: 75,714 Ratio: 1.33

Loss of bit of toe Range: 31,800-49,900 Range:

Average: 40,850 Average: 25,000 Ratio: 1.63

Germany

In 2000, Federal government embarked upon substantial reform of civil procedure law in Germany (Zivilprozeßordnung). Legislation was passed by the Bundestag in 2001.18 The reforms aimed to:

· increase the importance of activities at first instance

· have more legal claims decided by a single judge

· foster alternative dispute resolution as a replacement for judicial decisions

· promote specialisation of the various chambers of the civil courts

· decrease the value threshold required for access to the appeals courts

· accelerate the appeals process

· concentrate appeals processes at the Oberlandesgerichte court level (instead of Landegerichte)19

· allow review of judicial decisions regardless of the amount at stake. Substantive proposals to achieve these aims include:

· legal disputes should be encouraged to take place in front of mediators rather than judges,

· if it appears inevitable that a judicial decision will be required, it should be a single judge in the Amtsgericht,

· if appeal and revision are still necessary, access should be made easier for appellants,

· the triple-layered structure of German courts should be made clearer.

Finally, debates also continue to centre around Legal Expenses Insurance and lawyers’ compensation. These debates do not, however, focus on restricting/controlling amounts at stake in tort claims. In this respect, the German debate appears to differ from that in Ireland (see the previous discussion of the PIAB).

18

See BT 14/3750 (draft of a new Civil Procedure Law by the SPD and Green Party), BT 14/6036 (the new law, including the expert hearings), PP 14/170, S. 16630 (the final debate).

19

There are four levels of German court: the local court (Amtsgericht), the regional court (Landgericht), the higher regional court (Oberlandesgericht) and the Federal Court of Justice (Bundesgerichtshof).

Holland

In Holland, as already noted above, an important debate surrounds the competitive position of non-qualified lawyers relative to qualified lawyers. There would appear to be some

likelihood of “no win, no fee” arrangements (for qualified lawyers) emerging from this debate.

Another important goal of the reform debate in Holland is the reduction of reliance on litigation as a mechanism for receiving compensation for injuries. Thus, no-fault

compensation is on the reform agenda, as is procedural simplification aimed at increasing the number of out-of-court settlements. (This is so, despite the fact that there appears to be no compelling evidence of a “compensation culture” in Holland.) A particularly interesting reform debate concerns the standardisation of compensation for pain and suffering losses. The relatively comprehensive nature of Dutch social security means that most economic losses are typically covered by the State, leaving pain and suffering as the main area topic for litigation. It is argued that standardisation here would considerably limit the scope for personal injury litigation in Holland.

Portugal

Between 1995 and 2004, three governments have convened a number of panels to assess the performance of personal injury litigation in Portugal and to suggest reforms. Arguably, few steps have been taken so far. Some notable exceptions are as follows:

· Development of alternative dispute resolution mechanisms sponsored by the state (Julgados da Paz).

· Tightening of access to courts via an increase in the costs of such access (now covering around 35% of the total cost) and a new rule that the plaintiff must deposit a percentage of cost when filing a claim. This will eventually be reimbursed by the defendant if the plaintiff wins.

· Reform of legal aid by allocating a budget and the management of legal aid to the bar. The aim of this measure is to control legal aid expenditure but there is concern that the bar has insufficient interest in exercising this control.

· Reform establishing “execution courts” which will be specialised courts to take care of implementing and executing the decisions decided by a judicial courts (2002, starting 2004). Many cases in judicial courts involve people who have been ordered to pay compensation but ignored this outcome (up to 50% in the late 1990s). In response, the government has decided to take these cases out of the judicial courts and assigned them to a new court system. So far, limited evidence suggests the

policy has not succeeded because the “new judges” have not been able to deliver faster responses than the previous system.

· Minor changes to workplace injuries legislation (Código do Trabalho) seeks to lower the opportunity cost of filing claims against employers.

France

In moves reminiscent of the Irish PIAB (see above), a July 2003 report to the French Minister of Justice, Dominique Perben seeks to improve the transparency and consistency of

damage awards in France.20 In particular, concern has arisen because the same injury may receive different damages depending on the type of accident (at work, medical, etc) and its location. The reason, it is suggested is the lack of a unified scale of damages. Thus, medical experts can use two different unofficial scales to evaluate damages. The report recommends movement towards a unique scale, but reserves a degree of discretion for judges. It recommends the introduction of a file (based on the AGIRA file which reports damages awarded in a large proportion of traffic accident claims), which would compile all the indemnities paid for personal damages (whatever type of accident), thereby aiding comparability.

A second recommendation in the report is to give a clear and precise definition of all types of damage that can be compensated: material damage, personal damage and psychological damage. For personal damage, it would be necessary to distinguish economic losses, professional losses, and the losses specific to the person which are not linked to the profession (aesthetic damage, sexual damage, incapacity to practice a sport, etc).

Finally, the recent Law Badinter requires insurers in road traffic accidents to make a

settlement offer within eight months of the accident taking place. This is aimed at containing delay and ensuring that insurers engage with the claim.

Spain

It was reported to us that no significant reforms are taking place in this area in Spain at present.

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4.1.4. Conclusions

In summarising the above material (and that presented at the Workshop), a number of interesting themes emerge:

· The lack of available/comparable data across the jurisdictions covered was striking. This would seem to be an important research topic – both for individual jurisdictions and for pan-European comparative research – in future.

· There appear to be two broad issues facing the jurisdictions covered in this report: how to generate more certainty in compensation and how to control legal costs. In Ireland, France and Holland, injury-specific damage tariffs are being

introduced/discussed with the aim of improving certainty and (possibly) reducing the need for litigation.

· The interplay between social security and the legal system is something that researchers in clinical negligence have been aware of for some time. It was interesting, however, to see (from Holland) the extent to which this could impact across a wider range of personal injury litigation. It would appear that there may be an interesting link between the social security system and the incentive to sue, with more generous State support schemes making litigation less attractive to injured parties.

· Although all our jurisdictions outlaw contingency fees, elements of output-related pay appear to exist in France and Holland.

Chapter 5 – Conclusions

5.1

Conclusions

This study has attempted to collect sufficient hard data to enable a quantitative analysis to be undertaken of the emerging role of conditional fee arrangements in funding personal injury claims, including those involving clinical negligence. We can summarise our key findings here:

5.1 PERSONAL INJURY CLAIMS OTHER THAN CLINICAL NEGLIGENCE

1. Regardless of referral route, CFAs are now the predominant means of finance for personal injury claims.

For recently opened cases, CFAs now account for 93% of AMC cases, 99% of trade union cases, 91% of BTEs and 86% of the “other” caseload. One possible reason for this is the introduction of Collective Conditional Fee Agreements (CCFAs), which allow bulk purchasers of legal services to agree a success fee across high volumes of claims. The additional certainty and reduced transactions cost offered to the referral agent and the solicitor by such an arrangement (particularly in the light of legal aid no longer being available for such claims) seem likely to have played a role here.

2. The complexity and value of personal injury claims run under CFAs has not changed significantly following recoverability.

In our previous study, we found that 80% of all CFA claims there was no or no significant dispute over liability; in the current study we found the equivalent figure to be 78% (CFA and CCFA combined). This difference is not statistically significant. Similarly, in our previous study we found that in 85% of all CFA claims there was no or no significant dispute over causation; in the current study we find the equivalent figure to be 90% (CFA and CCFA combined). Again the difference is not statistically significant.

3. There are some differences between current funding options in relation to case types.

Using multivariate analysis to explore case characteristics associated with the various funding options, we found that (non-conditional) BTE funding is associated with “softer” cases (i.e. those where the defendant’s liability is clearer) than either CFA or CCFA cases.

4. There are some differences in the litigation rate in relation to current funding options. Using multivariate analysis to explore the impact of current funding options on the likelihood of legal proceedings after controlling for case characteristics, we found that CCFA cases are nearly 10% more likely to be litigated than other types of claim funding after controlling for measures of case complexity.

5. There are some differences in the duration to settlement in relation to current funding options.

Using multivariate analysis to explore the impact of funding options on settlement delay after controlling for case characteristics, we found that (non-conditional) BTE cases have relatively high settlement hazards, and therefore shorter durations, by comparison with all other forms of case funding, including CFAs.

6. There are some differences in the legal costs agreed in relation to current funding options.

Using multivariate analysis to explore the impact of current funding options on legal costs after controlling for case characteristics, we found that CCFA cases had significantly lower base costs than (non-conditional) BTE cases. By contrast, CFA cases had significantly higher total costs than BTE cases (as a consequence, we presume, of the success fees and ATE premiums). All other cost comparisons were not statistically significant.

5.2 CLINICAL NEGLIGENCE CLAIMS

1. From our survey of claims recently opened by solicitor firms on the Law Society’s clinical negligence panel, it appears that CFAs have recently become a significant source of funding for new clinical negligence cases, although still in the minority by comparison with those funded by legal aid and private hourly fees.

The proportion of all cases that were legally aided was 33%.21 The remaining 67% were almost equally split between CFA cases and those funded in some other way (presumably by private hourly fee). An emerging feature is the increasing proportion of CFA clinical negligence cases referred by Trade Unions; 12% of all open CFA cases were referred by TUs.

2. By contrast with other personal injury claims, it appears that CFA funding is highly selective in comparison with other funding options.

The overall picture that emerges from our multivariate analyses of NHS Litigation Authority clinical negligence claim data is one in which CFA funding is associated

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with relatively high value but relatively low risk clinical negligence claims.

3. After controlling for the selectiveness highlighted in (2), we find that CFA cases tend to settle later than cases funded by other means (typically legal aid in this context). While the NHSLA dataset does not have information on costs, there may be a

presumption that longer cases of a given value will have higher costs given the effect of higher duration and, of course, the addition of a success fee.

To conclude, the pursuit of compensation for personal injury in the broad sense has always been a risky activity because of the evidential requirements imposed by the courts and the consequent possibility of the losing claimant bearing heavy legal costs. In the past, either the government has assumed this risk via legal aid for those cases it assumed meritorious, and the cost of losing cases was borne by the taxpayer, or private clients have assumed risk through the payment of hourly fees (even in the event of a loss). With the advent of CFAs in the 1990s, the risk of losing cases was passed to claimant solicitors, who required a

premium to cover the (own cost) risk of losing cases. Initially, this premium was paid by winning claimants via negotiated success fees, and our previous study (Fenn, Gray, Rickman and Carrier, 2002) explored the impact of this policy development on the process and outcomes of personal injury claims. Since then, policy towards CFAs has developed further, with the claimant solicitor’s own cost risk premium now paid by the losing defendant; naturally, it is of interest to discover what effect this policy development has had on the litigation landscape.

Our findings summarised above seem to show on the whole (and not withstanding the satellite litigation that characterised the period directly after the introduction of recoverability) that the legal services market has adapted quite smoothly to the new developments.

Personal injury claims arising from road traffic or work accidents do not appear to be very different in nature or outcome from those run under the previous rules. Nevertheless, the new, predominantly CFA-based landscape has created different divisions based on routes through the system. Cases brought via Trade Unions or BTE insurers may be run differently from those from self-referrals or accident management companies, for example. The key to understanding this new market structure is, we believe, the development of competing bulk purchasing arrangements, and this is likely to need monitoring in future.

While the clinical negligence legal services market has also developed a CFA component quite rapidly in recent years, this has noticeably been quite selective, with claimant solicitors appearing to be quite careful about the degree of risk they are choosing to assume. We

suspect this difference is due to the much more uncertain evidential basis for these claims, which in turn affects both the solicitor’s and the ATE insurer’s risk management calculations. Perhaps for similar reasons the evidence suggests that clinical negligence cases run as CFAs tend to take longer to settle, when compared on a like-for-like basis.