Changes to civil litigation funding and costs are beginning to bite in the clinical negligence sector.

Lord Justice Jackson’s reforms may not have dealt as devastating a blow to the medical negligence sector as they have to personal injury – but practitioners in this field and their clients have not escaped unscathed. Eight months on, changes to civil litigation funding and costs in England and Wales are beginning to have an adverse impact on claimants, particularly those with less valuable claims.

 Firms’ cashflows are also coming under pressure, following the removal of legal aid for clinical negligence claims. Competition is hotting up in the sector, with personal injury firms branching out into clinical negligence to make up for lost revenue post-Jackson.

The Legal Aid, Sentencing and Punishment of Offenders Act 2012, flanked by new Civil Procedure Rules, gave effect to most of Lord Jackson’s recommendations on 1 April. Not only has legal aid been removed for clinical negligence (bar a few exceptions), but in no win, no fee agreements the losing side no longer pays the success fee. Claimants will now pay it out of their damages. And whereas before 1 April the winning claimant could recover after-the-event litigation insurance premiums in their entirety, now only the insurance premium for expert fees can be recouped from the losing defendant. Finally, under new costs and case management rules, English courts will be exerting a much tighter control on what can be spent by claimants on bringing medical negligence claims. Costs are likely to be considered disproportionate – and therefore disallowed or reduced – if they exceed the value of the claim. Budgets must be set before the start of the court process.

The strongest signal yet of the courts’ very tough line on compliance with these new costs budgeting rules is the Mitchell case, which was heard before the Court of Appeal on 7 November. Clinical negligence lawyers to whom the Gazette spoke were anxiously awaiting the outcome, but did not hold out much hope. The claimant lawyers in Mitchell were heavily penalised for failing to file their costs budget on time, with their costs reduced to court fees alone and relief from sanctions denied. That pessimism has proven justified; the appeal was dismissed as the Gazette went to press.

Stephen Webber, head of medical negligence at national firm Hugh James and president of the Society of Clinical Injury Lawyers (SCIL), sums up the mood among the medical negligence profession: ‘There are so many changes, all at the same time. Firms are hit with the changes in legal aid, the funding recoverability, costs budgeting, proportionality and the harsher implementation of court rules.’ Webber also points to ‘the devastating effect on the personal injury market’, which means that PI firms are looking at clinical negligence work. ‘We are in a huge area of uncertainty at the moment,’ he concludes.

Backlog of cases

It is still early days to gauge the full impact of the Jackson reforms because most clinical negligence firms were still working – until very recently – through the backlog of cases issued before the new rules came into force. Matthew Harman, a costs lawyer and draftsman at Harmans, says: ‘Because of the rush of work that was carried out in March, when everybody possible was signed up to CFAs [conditional fee agreements] and every possible case issued, there has been a period of calm before the storm.’

The number of clinical negligence claims rose by nearly 11% to 10,129 in the year to 31 March 2013 (compared with a 5.6% rise the year before), according to the NHS Litigation Authority’s annual report, released in August. Spending on clinical claims rose from £1.095bn in 2011/12 to £1.12bn in 2012/13.

The firms that have started to see new clients and issue new cases are already seeing the effect of the changes. Dr Jock Mackenzie, a partner in the medical negligence team at Anthony Gold, says: ‘What I have found is the process of taking on new clients, and getting to the point where they are comfortable with signing up to some form of funding arrangement, is a much longer and burdensome process. They are going to have to pay something out of their damages and they want to know exactly what that is, and at an early stage they want as accurate an assessment as one can make of general damages in the case and of past losses, because there is a statutory cap on the success fee.’

Whereas before 1 April CFAs allowed claimant lawyers to charge up to 100% uplift on their costs, in personal injury and clinical negligence cases there is now a statutory cap of 25% of damages, excluding damages for future care and loss. This is intended to protect the amount of damages that claimants receive.  

Mackenzie adds: ‘Clients’ antennae are raised very early on because they have a bigger financial stake in the process. They want to have a greater degree of chapter and verse as much as possible.’ Anthony Gold is advising clients that any success fee will have to come out of their damages, but it is flexible. ‘We always say that we are open to discussions and negotiations and that we don’t have a fixed success fee,’ he says.

This flexible approach – driven largely by the fact that practitioners are still finding their feet – makes business sense. As Ross Clark, chief investment officer at litigation funder Burford Capital, puts it: ‘People are used to injury claims being free. What we are seeing in the market is lawyers who are scared that, if they say I need 10% of the success fee coming out of the damages, is it going to mean that clients will go to another lawyer who will do it for 5% or 4%, or for nothing? Lawyers have been waiting for somebody to take the lead, but we haven’t really seen any uniform practice.’

Less valuable claims

The biggest problem created by the changes relates to less valuable claims. Action against Medical Accidents (AvMA) , which campaigns for patient safety and justice, believes that firms are now turning away lower-value claims. Lisa O’Dwyer, director of medico-legal services at AvMA, which refers people calling its helpline to a panel of firms, says: ‘There does seem to be a trend where people are coming back saying that the solicitor is not going to take on [their case] because it is too risky, or it is too uncertain, or it is not high-value enough.’

O’Dwyer says that, pre-Jackson, low-value claims were defined as less than £25,000. But that has changed. ‘Some lawyers are now taking the view that anything less than £100,000 is potentially a low-value claim. If your success fee is going to come from your client’s damages, albeit there is a cap on it, the higher the value of the claim, the greater your success fee is going to be.’

Anthony Cole, a personal injury and medical negligence consultant at Scott-Moncrieff & Associates, explains the issue as claimants may view it: ‘If you represent a claimant in a high-value claim where you are looking at damages of £200,000 upwards, in my own experience clients aren’t too concerned if, from their ultimate damages, they will now have to pay a solicitors’ success fee. The lower-value cases are more tricky. Clients will object because they are getting less money.’ Cole explains his finely balanced approach: ‘Either I insist upon the success fee and I run the risk of losing the instruction or I say, actually, I want this case, and I am not going to take a success fee.’ Cole predicts that this will increasingly be the approach to claims of modest value, with lawyers only recovering their base costs on success.  

The biggest challenge, particularly for the lower-value cases, is the new degree of uncertainty around costs. Under the new CPR, courts must not only deal with cases justly but also at proportionate cost. However, as Webber points out: ‘We haven’t got a definition of proportionality, therefore no firm in the country knows how a court will interpret it. All judges are different and there will be different interpretations until it gets to the Court of Appeal, which could be between six and 18 months.’

Factors influencing court decisions on what constitutes ‘proportionate’ are the complexity of the issues, the importance of the case, the financial position of each party and the value of the claim.

But Harman fears just one of these factors will trump the rest: ‘It’s going to take the Court of Appeal to decide, but I just have this horrible suspicion that they are going to add more weight to the quantum of the damages than any of the other aspects.’

Zoe Holland, managing director of Zebra Legal Consulting, says: ‘Clinical negligence cases can be exceptionally complex but not necessarily massively valuable. That is where proportionality creates a real problem.’ Holland cites the examples of still-birth claims and orthopaedic claims. ‘They have actually become very difficult financially to litigate because with proportionality thrown in the mix, those are cases which are very expensive to run but may only be worth £25,000 or £30,000.’

As Mackenzie explains: ‘If the courts actually do treat costs budgeting and proportionality as we think they are going to in the next few months, in those modest-value claims one is going to hit the damages level with costs quite quickly. The defendant will be very aware of that and there will be very little incentive for them to settle, knowing that the claimant will end up being in difficulty because they will get hit on their costs budget.’

Gold is not ruling out any clients, but as Mackenzie says: ‘The more modest claims are being risk-assessed very closely to see whether the amount of work that is going to be done before you can get to a point where a settlement is even contemplated is going to exceed the damages.’

Webber says: ‘Our biggest quandary at the moment is deciding what cases we can take on because we are worried about proportionality, costs budgeting and the funding situation. Many firms are making a decision as to what their minimum level is, whether that’s £30,000, £40,000 or £50,000.’

For Cardiff-based Hugh James, the biggest dilemma is with claims worth £25,000-£50,000 (claims worth less than £25,000 are dealt with under the NHS redress scheme for Welsh clinical negligence claims). The firm has not pursued potential cases in this value bracket because of the expenses involved, including legal and court fees, VAT of 20% and the costs of experts.

Legal aid and disbursements

Legal aid has now been withdrawn for clinical negligence, except for cases involving children suffering neurological injuries during pregnancy, birth, and in the eight-week post-natal period. This leaves practitioners faced with finding alternative ways of funding disbursements.

Speaking on behalf of SCIL, Webber says: ‘Disbursement funding and cashflows are really a big concern for medical negligence practitioners.’

Webber explains that the clinical negligence business model is very different to the PI model, which in the pre-Jackson era was based on high-volume, fast-turnaround work generated by heavy advertising or referral fees (now banned). ‘By contrast, in clinical negligence you get a much lower level of instructions; many cases come in on the basis of reputation, and you probably won’t resolve the case for a number of years,’ he says. It can take between three to five years to resolve a case, and this requires expensive expert reports that must be paid for up-front. ‘This is where legal aid was really helpful because the Legal Aid Agency would provide disbursement funding as you went along. It was very good for firms’ cashflow,’ Webber says.

Trevor Ward, a partner in the medical negligence department at Manchester-based Linder Myers, concurs: ‘ It is a bit of a perfect storm. You have legal aid gone, you have no real support from primary lenders [the banks], and secondary lenders cost a fortune. And you still have arrangements with your experts who clearly want to get paid for the job that they do properly.’

The upshot has been ‘a surge of interest in litigation funding’, according to Clark. Firms are beginning to turn to lenders that fund disbursements for ongoing medical negligence cases, including for experts’ reports that claimants cannot afford. Scott-Moncrieff, for example, has entered into an agreement with financial services firm VFS Legal. The funding involves a lump sum, which is repaid at the conclusion of the case, and monthly interest ‘at a reasonable rate’, Cole says. Depending on the case, the firm (and not the client) may decide to absorb the interest costs.

Linder Myers has entered into an arrangement with an unnamed private entrepreneur to lend money to clients of the firm’s clinical negligence practice on an interest-only basis. Ward says that the agreement is mutually beneficial: ‘Individual entrepreneurs are not getting a good interest rate for their money from primary banks and are keen to enter into these sorts of arrangements.’ Linder Myers plans to extend the scheme to the firm’s other departments, including personal injury and occupational disease.

Moreover, organisations involved in these cases that would bill for their services, for example medical agencies, are offering better terms. This includes deferring payment.

Such interim disbursement funding will also help firms with the additional expenditure associated with complying with costs budgeting rules. To avoid severe sanctions for non-compliance, Cole predicts that most firms – Scott-Moncrieff among them – will turn to law costs draftsmen to do the job. Although this expenditure can be recouped from the opponent on success, Cole says that most draftsmen will not wait until the end of the case to get paid for their services.  

Clinical negligence claimants can still recover from the losing defendant the ATE premiums to cover the cost of expert reports that are commissioned to investigate liability and causation. In response to these changes, ATE providers such as Burford Capital have segmented their products to allow for the element of recoverability that has survived. Clark says: ‘We have split [our offer] in response to the Jackson reforms and after a workshop with lawyers a year ago. We built our products based on what they said.’

Practitioners note that ATE premiums are lower than they used to be because, under newly implemented qualified one-way costs shifting, claimants’ insurers no longer risk paying for the defendant’s costs.

But Cole notes that, although QOCS aims to remove the need for a claimant to take out and fund an ATE insurance policy, clients still prefer to have a policy to cover for adverse costs where QOCS is disapplied – for example, because the claimant has failed to beat a defendant’s part 36 offer to settle or where a case is struck out – or for unrecovered disbursements. Ward adds: ‘There are ATE products out there which for a relatively modest premium, depending on the value of the claim, will cover all those disbursements in the event of a loss, but will also cover what is potentially a material risk in relation to a part 36 offer.’ He cites ATE products offered by Temple Legal Protection and ARAG. Before the event insurance is another new potential disbursement funding stream, practitioners note.

Despite the availability of damages-based agreements in clinical negligence since 1 April, claimant lawyers consider this alternative means of funding a case unattractive, and are sticking (for now at least) to CFAs.

Benchmark for assessing quality

Crucially, the end of legal aid is not just about funding, but also losing a benchmark for assessing quality, training and supervision of clinical negligence work. ‘The SQM [specialist quality standard] offered a level of quality assurance to the public that their firm had skill and expertise in this complex area of law,’ Holland notes. ‘Firms without the SQM are not subject to the same level of audit, supervision and, while not necessarily providing any less of a service, are not subject to the same (or any) independent audit criteria.’ In future, Holland says clinical negligence lawyers will need to share knowledge and experience through organisations such as SCIL and AvMA.

This is particularly important since personal injury firms, which have been hardest hit by the ban on referral fees, and by cuts to fixed fees for road traffic accident claims, are eyeing clinical negligence in search of new revenues. Practitioners in specialist clinical negligence firms argue this trend poses dangers with regard to quality and costs.

Holland, who has seen a significant increase in enquiries from PI firms about setting up or expanding clinical negligence departments, says: ‘In clinical negligence, you still have the ability to charge a good hourly rate because there are still areas that are very complex and so they will carry the weight of a good grade A or good grade B fee-earner. So PI firms are looking at clinical negligence as a replacement for the profitable work that they have lost under Jackson.’

But Ward warns: ‘A lot of people who haven’t really got that much experience, if any, of doing clinical negligence work have seen the reduction of PI work and the introduction of QOCS as a mechanism by which they can try to have a go at it.’ In recent months, some barristers and experts known to Ward have received ‘quite poor instructions’ from PI firms new to clinical negligence work. There are concerns from others that the worst aspects of PI could leak into clinical negligence and, for example, lead to a potential increase in unmeritorious claims against the NHS.

Webber and other practitioners within SCIL also worry that all this may lead to an increase in insurance premiums. ‘Specialist medical negligence firms have good success rates and this means that insurers will keep on insuring medical negligence claims. The big concern about PI firms coming into the market is whether they will come in and their success rates will be lower and this may affect premiums.’

Access to justice

No lawyer active in the sector doubts that the Jackson reforms mean access to justice has been curtailed. It is not just less money for claimants – who will see a percentage of their compensation going to their lawyers, and will be under greater pressure to settle for a lower value – but also more work for them. ‘It’s a dire situation for claimants,’ admits O’Dwyer.

Those who have suffered injuries through negligent treatment by doctors, nurses and other health practitioners will need to be ‘robust’ in their approach, especially where lower-value cases are concerned. ‘It’s about clients being more prepared to do things for themselves, coming to solicitors having used the [NHS] complaints procedure already, for example. They are going to have a better chance of a better assessment of their case and, with better prospects of success being identified, they are more likely to be taken on,’ says O’Dwyer.

Holland adds: ‘I still think that there will be lawyers who will do the more complex but less valuable cases for all the right reasons, but I think, potentially, claimants in these instances might have to knock on quite a number of doors before they get to a lawyer who is prepared to take on their case. Claimant lawyers are all in law firms that have financial targets and cashflow issues.’

In short, in the post-Jackson era, pursuing clinical negligence claims has become a whole lot harder for both clients and their lawyers.

Main changes at a glance

  •  Ban on referral fees;
  •  Legal aid abolished, except for neurological injuries caused during pregnancy, birth or in the first eight weeks after birth;
  • Success fees are no longer recoverable from the losing side;
  • Recoverability of ATE insurance premiums abolished, except for premiums to cover the costs of expert reports that are still recoverable from the losing defendant;
  • Implementation of qualified one-way costs shifting;
  • Success fee is capped at 25% of damages, excluding damages for future care and loss, which are protected in their entirety; and
  • Availability of damages-based agreements as a means of funding cases.

Marialuisa Taddia is a freelance journalist