HFW Insurance & Reinsurance Bulletin - February 2010

Costs – A Revolution Underway? By Graham Denny

The Jackson Report

Jackson LJ's final report on costs in civil litigation was published on 15 January 2010. The Report is extensive and HFW's specialist costs department will be circulating a more detailed client briefing shortly. The recommendations include:

Conditional Fee Agreements (CFA) / After the Event insurance (ATE)

CFAs are seen as a major contributor to disproportionate costs in civil litigation. It is recommended that success fees and ATE insurance premiums should cease to be recoverable from the opposing party. This will be welcomed by UK property/casualty insurers but not ATE insurers.

Costs shifting

Currently most civil litigation follows the "loser pays" principle. It is recommended that this should remain in commercial litigation, though not in personal injury ("PI") or defamation cases where it is recommended that the claimant should not be required to pay the defendant's costs if the claim is unsuccessful. The Report also proposes a 10% uplift in relation to PI damages, presumably to give the claimants the means of funding success fees. There are concerns that these measures as a whole may lead to an increase in unmeritorious PI claims and unwarranted defamation cases having a restrictive effect on the media.

Contingency fees

The Report recommends that these be permitted with appropriate regulation and a requirement for a client to take independent advice on the terms of such contracts. This is a significant change from the current regime and will fuel the ongoing debate on collective/class actions, particularly in view of the proposals in the Financial Services Bill ( www.hfw.com/insurancereinsurance-bulletin-issue-17/) (www.hfw.com/insurancereinsurance-bulletin-issue-17/).

Collective actions

There should be no change to the full costs shifting position (save for personal injury collective actions), although the court should have a discretion to order costs on a different basis where appropriate.

Third party funding

Third party litigation funding is supported, particularly Before the Event cover which is considered to be underused in England and Wales. There may be opportunities for insurers in this area.

Case Management

The report considers a number of areas. There is support for the assignment of a judge for the life of the case. In addition:

Pre-Action Protocols: it is considered that Pre-Action Protocols perform a useful function, however the "one size fits all" Pre-Action Conduct Practice Direction leads to costs being incurred unnecessarily and should be repealed. Instead, there should be costs sanctions to deter unreasonable behaviour. Disclosure: there should be appropriate training for judges, solicitors and barristers on the efficient handling of e-disclosure. Large commercial cases should have a "menu" of disclosure options available. Witness statements and expert reports: case management measures should be used to control their length and content. Costs sanctions should be imposed on parties producing unnecessarily long and irrelevant statements/reports. Costs management: judges should take a more robust approach to ensure realistic timetables are observed and that the costs are proportionate. There should be cost management procedures which can be used by the judges where appropriate. In addition there should be training for solicitors, barristers and judges in costs budgeting and costs management. Part 36: it is recommended that if a claimant obtains a more favourable result than its own Part 36 offer, the claimant's damages should be increased by 10%. This is to further incentivise defendants to accept such offers. The report recommends a reversal in the Court of Appeal decision in Carver v BAA [2008] EWCA Civ 12 which held that money is not the sole governing factor in determining whether a claimant has beaten a defendant's Part 36 offer. ADR: whilst this is not made compulsory, Jackson LJ recognises that this is underused. He recommends a campaign to promote knowledge of these procedures and for an authoritative book to be written explaining how the procedures work and listing reputable providers of such services. The report is extensive and makes recommendations on many other areas not set out above such as intellectual property litigation; small business disputes; judicial review and appeals. If the proposals are accepted, current rules and procedures could be used to implement some of the recommendations, however primary and secondary legislation will be required to implement many of the proposals.

The "Burden" Of Solvency II By Kapil Dhir and Andrew Carpenter

Solvency II heralds a number of administrative burdens, not only in preparation for its solvency requirements, but in its reporting requirements. The Solvency and Financial Condition Report ("SFCR") is seen as one such burden. The SFCR, it is proposed, will draw from a number of sources within an insurer to illustrate, in detail, how the entity manages and operates risk.

Many in the market are seeing this proposal, at best, as burdensome, time-consuming, and expensive. Some see it as entirely unnecessary. Whilst improving the availability of public information is a reasonable aim, specific problems are:

Work duplication - much of the information in the SFCR is already available in the annual report and accounts...

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