LIES, DAMNED LIES AND THE SMALL CLAIMS LIMIT
In October 2013 the Government announced that there would be no increase in the personal injury Small Claims limit “at this stage”.
However this should be regarded as a stay of execution rather than a change of mind. The issue is dealt with in paragraphs 38-45 of the Ministry of Justice publication:
“Reducing the number and costs of whiplash claims: A Government response to consultation on arrangements concerning whiplash injuries in England and Wales.
Cost of motor insurance: Whiplash : A Government response to the House of Commons Transport Committee”,
which won’t win any prizes in the Snappy Title competition.
As the issue of the personal injury Small Claims limit is crucial to the survival of many personal injury firms I set out the full text of the MoJ’s response at the end of this piece.
At paragraph 40 the Ministry of Justice says that:
“The Government is also keen to ensure that raising the Small Claims limit does not lead to any unscrupulous CMCs taking advantage of any resulting increase in self representing litigants and entering the market to offer services which might not be in claimants’ best interests”.
The Ministry of Justice seems unaware that earlier in 2013 it sponsored legislation and a Statutory Instrument – the Damages-Based Agreement Regulations 2013 – which gave CMCs precisely that opportunity by empowering them to enter in to Damages-Based Agreements direct with clients in personal injury matters and charging them up to 25% of damages.
Regulation 1(2) of The Damages-Based Agreements Regulations 2013 provides…..
“client” means the person who has instructed the representative to provide advocacy services, litigation services (within section 119 of the Act) or claims management services (within the meaning of section 4(2)(b) of the Compensation Act 2006) and is liable to make a payment for those services;
“representative” means the person providing the advocacy services, litigation services or claims management services to which the damages-based agreement relates.
Thus it is clearly envisaged that Claims Management Companies represent claimants and the only person who can pay for those services is the client as such charges are not recoverable from the other side, as compared with a lawyer’s charge in a cost-bearing case, that is a case that does not fall within the Small Claims Track.
Most of us assumed that the whole point of allowing CMCs to enter into DBAs direct with clients was to let them take up any slack caused by lawyers being unwilling to act in small claims matters.
Were we all wrong? Or is the Ministry of Justice a basket case that should be put out of its misery? Obviously it would not just be lying would it?
Remember that prior to these Regulations being approved it was only in employment cases that DBAs could be used and anyone, qualified or not, has always been able to represent, and charge, clients in employment tribunal matters.
Indeed the Explanatory Note says:
“DBAs are a type of “no win, no fee” agreement under which a representative (defined in these Regulations as a person providing the advocacy services, litigation services or claims management services to which the DBA relates) can recover an agreed percentage of a client’s damages if the case is won (“the payment”), but will receive nothing if the case is lost”.
So on 1 April 2013 the Government empowered CMCs to act for clients in civil and personal injury matters for a fee, yet now months later that same Government fears that they will “offer services which might not be in clients’ best interests”.
Well why did you pass the Regulations then?
Thus the policy in April 2013 was to encourage CMCs to act direct for clients; seven months later that is apparently a danger to be avoided although there is no proposal to amend the DBA Regulations.
The Ministry of Justice should also note that the correct term for those without lawyers is Litigants in Person; its Orwellian attempt to re-name those self-representing litigants, as in self-operating patients, was rejected by the judiciary.
The Ministry of Justice continues to plumb new depths of incompetence.
“Part Three – The Small Claims Track Threshold
38. Having taken account of views expressed during consultation, the Government remains of the view that extending the Small Claims track would be beneficial in providing a low cost route to bringing a claim through the courts, with each side bearing its own costs.
39. It could result in significant savings to defendants as the claims go through the Small Claims track rather than the more expensive Fast Track process. This may make it easier for defendants who admit liability for an accident, but who are unable to agree quantum, to challenge exaggerated claims.
40. In saving the defendants’ costs and enabling them to challenge exaggerated and fraudulent claims, extending the Small Claims threshold would enable the Government to keep up the momentum on insurers to reduce the cost of motor insurance premiums to the benefit of motorists and their families. The Government believes that there are good arguments for extending the Small Claims limit generally for personal injury claims.
41. However, the Government has also carefully considered both the full range of consultation responses and the Transport Committee’s report. Given those views, we are persuaded that, on balance, it would not be appropriate to increase the Small Claims limit for RTA-related personal injury at this stage.
42. The Government accepts that currently extending the Small Claims limit may have an adverse effect on genuine victims of RTA injuries. In particular, the Government will seek to ensure that adequate safeguards are developed to protect genuine claimants from any detrimental effects relating to access to justice or to the under-settling of claims from any future rise in the limit.
43. The Government is also keen to ensure that raising the Small Claims limit does not lead to any unscrupulous CMCs taking advantage of any resulting increase in self representing litigants and entering the market to offer advice services which might not be in claimants’ best interests. With the help of Government reforms through the ban on payment of referral fees in personal injury cases and a separate ban on CMCs offering financial or similar rewards as a potential inducement to make a claim, the number of CMCs operating in the personal injury sector has fallen significantly – from 2300 at the start of 2013 to just over 1400 at the end of September this year. Annual CMC turnover for this sector for the year 2012–13 was down by 22%.6
44. We also consider that much remains to be done, not only by insurers but across the industry as a whole, to address existing behaviours and disincentives which do not do enough to discourage fraudulent and exaggerated claims. More information is given in Part Two about how we propose to work with both the insurance and claimant sectors on this.
45. Therefore, while the Government believes that an increase in the Small Claims limit in this sector would provide additional benefits, it regards it as sensible and pragmatic to consider the combined impact of earlier reforms before embarking on any further change now. As detailed elsewhere in this response, the Government has already taken a number of significant steps to tackle the over-inflated personal injury claims market. We also wish to take further time to consider how best to mitigate any negative impacts which might arise as a result of increasing the Small Claims track limit. The Government will though keep this issue under consideration for implementation when appropriate”.
SMALL CLAIMS AND THE ROAD T RAFFIC ACCIDENT PORTAL
A claim which, had it been issued, would normally have been assigned to the small claims track is not covered by the fixed costs scheme (CPR 45.9(2)(d)) and thus costs are not recoverable in small claims.
Note that the small claims limit is £1,000 in relation to personal injury but £10,000 otherwise. Thus either the
damages for personal injury must exceed £1,000 or the total settlement must exceed £1,000.
|Damages for personal injury||900.00|
|Other damages (eg car)||9,000.00|
Neither threshold is crossed, thus this claim would have been assigned to the small claims track and fixed costs are not recoverable.
|Damages for personal injury||1,005.00|
Personal injury threshold is crossed and thus this claim would not have been assigned to the small claims track and fixed costs are recoverable.
|Damages for personal injury||900.00|
Overall threshold of £10,000 is crossed and thus this claim would not have been assigned to the small claims track and fixed costs are recoverable.
Now that the small claims track has been increased to £10,000 it is less likely that the threshold will be crossed if the personal injury element is under £1,000; if it is above £1,000 the issue does not arise.
CPR 45.9(2) is not happily drafted as there is no definition of ‘agreed damages’ here or anywhere else in the rules.
A particular problem arises where agreement is reached as to a quantum figure that exceeds the small claims limit but agreed contributory negligence takes the cash sum below the limit, for example agreed damages of £1,500 subject to agreed 50% contributory negligence reducing the sum paid to £750.
CPR 26.8(2)(d) states that in assessing the financial value of a claim for the purposes of track allocation, the court will ignore any contributory negligence.
A literal interpretation of CPR 45.9(2)(d) suggests that if a claim had been issued for the agreed amount of £750 then the claim would have been allocated to the small claims track and thus should not fall within the fixed costs regime, and thus contributory negligence is taken into account.
On the other hand, it is not clear that ‘agreed damages’ should mean ‘damages payable’ rather than ‘agreed damages suffered’, particularly where the draftsman chose to define the lower limit of the regime by reference to allocation rules for the small claims track.
What is the point of the reference to CPR 26.8(2) in the Practice Direction if the usual rules on track allocation (ie that contributory negligence should not be considered) are to be ignored for these purposes?
The point was considered by HHJ Stewart QC in Parveen v Farooq 30 June 2009 where the judge decided that the literal interpretation was the correct one, the rule itself being the starting point, rather than the Practice Direction.
It was held that this outcome promoted certainty because an examination of the cut and thrust of negotiation might not reveal any consensus on the pre-contributory negligence level of damages. So, for example, a settlement figure could be arrived at despite the parties valuing contributory negligence and quantum differently between them. Thus the dispute in Parveen did not fall within the regime.
The result reached in Parveen is not straightforward, and its practical impact depends on what happens to those cases which do not make it in to the fixed costs regime. The judge appears to have proceeded on the basis that small claims costs should apply. If so, a great many cases which claimant personal injury solicitors take on (usually on CFAs) may have become highly unattractive; why take the risk on a £10,000 to £12,000 case where there is a risk of a 90% finding of contributory negligence? Relatively substantial cases might result in no substantial costs recovery at all.
The surprising effect of the decision in Parveen v Farooq arises from the fact that cases which do not fall within the fixed costs regime because the ‘agreed damages’ are reduced by contributory negligence to an amount below the small claims threshold, would never have been allocated to the small claims track.
On allocation contributory negligence would have been ignored, and the claims would have ended up in the fast track – leading to fixed trial costs but otherwise, costs at large. Thus it is open to claimant solicitors, where such a claim is settled with an agreement as to costs, to seek recovery of their costs at large (ie subject only to standard assessment under CPR 44.3), on the basis that the claim would not have been allocated to the small claims track and is not a fixed costs case.
Claims for an amount of costs exceeding fixed recoverable costs
Claims for an amount of costs exceeding fixed recoverable costs is dealt with by CPR 45.29J which states as follows:-
(1) If it considers that there are exceptional circumstances making it appropriate to do so, the court will consider a claim for an amount of costs (excluding disbursements) which is greater than the fixed recoverable costs referred to in rules 45.29B to 45.29H.
(2) If the court considers such a claim to be appropriate, it may—
(a) summarily assess the costs; or
(b) make an order for the costs to be subject to detailed assessment.
(3) If the court does not consider the claim to be appropriate, it will make an order—
(a) if the claim is made by the claimant, for the fixed recoverable costs; or
(b) if the claim is made by the defendant, for a sum which has regard to, but which does not exceed the fixed recoverable costs,
and any permitted disbursements only.
If that applicant fails to achieve costs that are greater than fixed recoverable costs then CPR 45.29K applies, that is where the costs are assessed in accordance with the fixed recoverable costs or where the court assesses that the costs are not more than 20% greater than the amount of fixed recoverable costs.
The court will make an order for the party who made the claim to be paid either the fixed recoverable costs or the assessed costs, whatever is less, where they have failed to achieve costs that are greater than fixed recoverable costs.
Costs of the costs-only proceedings or the detailed assessment
Where the court makes an order for costs in a claim for costs exceeding fixed recoverable costs, whether the claim is successful or not, the court may decide not to award the party making the claim the costs of the costs only proceedings or detailed assessment and may make orders in relation to costs that may include an order that the party making the claim pay the costs of the party defending those proceedings or that assessment in accordance with CPR 45.29L.
Please see my related blog:-