FREE BOOK CHAPTER: Introduction to the Jackson Report 2017 and CMC Regulation: A Summary of the Changes

2018/2019 is going to be a huge year for the Personal Injury world (yet again)! Changes are aloft in all different areas of Regulation. A ban on cold calling for claims companies, the movement of claims management companies towards FCA Regulation and more fixed costs for personal injury claims. This book is designed to be a comprehensive guide to take practitioners through all the changes in a clear and easily digestible way. The book will look at ways forward for Lawyers/CMCs and examine the possible outcome of the changes. This year has already seen a number of claimant law firms and CMCs go into administration, and this book seeks to offer some clear guidance as to how to look at the changes and how they may impact day-to-day practice.

Financial Guidance and Claims Bill

This piece of legislation is making its way through Parliament at the time of writing. The principle piece of legislation in terms of CMCs is a ban on cold calling and move to FCA Regulation of CMCs. It sets out as follows:-

To make provision establishing a new financial guidance body (including provision about cold-calling and a debt respite scheme); to make provision about the funding of debt advice in Scotland, Wales and Northern Ireland; and to make provision about regulation of claims management services

– https://services.parliament.uk/bills/2017-19/financialguidanceandclaims.html: -

Cold Calling:-

35 Cold-calling

In exercising its functions the single financial guidance body must have regard to the effect of cold-calling on consumer protection and must make and publish an annual assessment of any consumer detriment.

If the single financial guidance body considers that there are products or services where a ban on cold-calling would be conducive to its functions it 40 must advise the Secretary of State to institute bans on such cold-calling and the commercial use of any data obtained by such cold-calling.

On receipt of advice from the single financial guidance body under subsection

(2), the Secretary of State may by regulations made by statutory instrument introduce a ban on cold-calling and the commercial use of any data obtained 45 by such cold-calling as recommended by the single financial guidance body.

A statutory instrument containing regulations under this section may not be made unless a draft of the instrument has been laid before, and approved by a resolution of, each House of Parliament.

For the purposes of this section “cold-calling” refers to unsolicited real-time direct approaches to members of the public carried out by whatever means, 5 digital or otherwise.

It is arguable that a ban on cold calling will better protect the interests of consumers. Solicitors are of course banned from cold calling, but the practice continues amongst some claims companies. Unsolicited claims do not benefit anyone in the industry and the proposed ban is to be welcomed by Solicitors. However there is some controversy around the issue. Lord Keen, discussing the changes recently said that “Good CMCs look after their customers and if the claims management companies move into this market, that can be extremely beneficial.”

CMCs to Move to FCA Regulation

The section of the bill that deals with this is as follows:-

PART 2 - CLAIMS MANAGEMENT SERVICES

Transfer to FCA of regulation of claims management services

The Financial Services and Markets Act 2000 is amended as follows.

23 (1) Financial Guidance and Claims Bill [HL]

Part 1 — Financial Guidance

Interpretation of Part 1

In this Part— the “debt advice function” has the meaning given in section 3(5); the “devolved authorities” means—

In section 22 (regulated activities)— in subsection (1)—

(i) the words from “to engage” to the end become paragraph (a), and

(ii) at the end of that paragraph insert “, or

(b) to engage in claims management activity.”, after subsection (10) insert—

“(10A) “Engaging in claims management activity” means entering into or offering to enter into an agreement the making or performance of which by either party constitutes a controlled claims management activity.

(10B) An activity is a “controlled claims management activity” if—

(a) it is an activity of a specified kind,

(b) it is, or relates to, claims management services, and

(c) it is carried on in Great Britain.”, and

after subsection (12) insert—

“(12A) Paragraph 25 of Schedule 2 applies for the purposes of subsection (10B) with the references to section 22 in sub- paragraph (3) of that paragraph being read as references to subsection (10B).”

Financial Guidance and Claims Bill [HL] Part 2 — Claims Management Services (a) after subsection (1A) insert—

“(1B) An activity is also a regulated activity for the purposes of this Act if it is an activity of a specified kind which—

(a) is carried on by way of business in Great Britain, and

(b) is, or relates to, claims management services.”, and 5

(b) in subsection (3) for “subsection (1) or (1A)” substitute “subsections (1) to (1B)”.

(4) In section 234C (complaints to the FCA by consumer bodies)—

(a) in subsection (1), after “financial services” insert “or of a market in Great Britain for claims management services”, and

(b) in subsection (5)—

(i) in paragraph (a), at the end insert “(and “market in Great Britain” is to be construed accordingly)”, and

(ii) in paragraph (b), after “financial services” insert “, or of a market in Great Britain for claims management services,”.

(5) In section 234I (FCA’s functions under Part 4 of the Enterprise Act 2002)—

(a) in subsection (2)(b), after “services” insert “or to the provision of claims management services in Great Britain”, and

(b) in subsection (6)(a), after “financial services” insert “or in Great Britain of claims management services”.

(6) In section 234J(2) (FCA’s functions under the Competition Act 1998), after “financial services” insert “or relate to the provision of claims management services in Great Britain”.

(7) In section 234M(1) (function of keeping market under review), after “services” insert “and the market in Great Britain for claims management services”.

(8) In section 417(1) (definitions), at the appropriate place insert—

““regulated claims management activity” means activity of a kind specified in an order under section 22(1B) (regulated activities: claims management services);”.

(9) After section 419 insert— “419A Claims management services

(1) In this Act “claims management services” means advice or other services in relation to the making of a claim.

(2) In subsection (1) “other services” includes—

(a) financial services or assistance,

(b) legal representation,

(c) referring or introducing one person to another, and

(d) making inquiries,

but giving, or preparing to give, evidence (whether or not expert

evidence) is not, by itself, a claims management service.

(3) In this section “claim” means a claim for compensation, restitution, repayment or any other remedy or relief in respect of loss or damage or in respect of an obligation, whether the claim is made or could be made—

(a) by way of legal proceedings”.

CMCS FCA Regulation – what will this mean in practice?

1. The FCA is a much tougher regulator than the MOJ. Baroness Buscombe, sponsor of the Bill, said that "it enables the transfer of CMC regulation by switching on FCA’s regulatory, supervisory and enforcement powers in respect of claims management services, so that the FCA can design and implement a robust regulatory regime.".

2. It is likely that many CMCs will not meet the criteria for FCA Regulation, and some will drop out of the marketplace as a result. This will likely mean in turn that many more clients will approach Solicitors directly. Barrister-Direct as a BSB entity is FCA regulated for consumer credit activities and ATE insurance and the application process is tough and robust.

3. Schedule 4 of the Bill provides details for the transfer of the complaints handling function for CMCs from the Legal Ombudsman to the Financial Ombudsman (FOS). The FOS is a strict regulator with severe, tough penalties for non-compliance.

4. Clause 17 then ensures that the FCA has the necessary powers to restrict fees which CMCs charge in order to protect consumers from disproportionate fees.

5. The bill includes legal representation and a claim is any assistance via ‘legal proceedings’, which may mean that many CMCs in the road traffic arena will cease to provide assistance to consumers if they cannot obtain appropriate FCA Regulation.

6. It can be argued that for these reasons, the CMC market may not continue to expand as quickly post-RTA reforms as some commentators expect. There is likely still to be a Solicitor market in RTA claims, albeit it will require economies of scale.

The PI Claims Market – An Overview of the Changes

With the changes to the CMC market well under way, there will also be changes implemented to the Solicitor PI market. Jackson LJ said in July 2017:-

“In my January 2010 report, I recommended Fixed Recoverable Costs (FRC) for ‘fast track’ cases (claims up to £25,000 which can be tried in one day) and costs budgeting for ‘multi-track’ cases (bigger claims). I also said that we would need to look again at fixing costs for cases in the lower regions of the multi-track, once the reforms which I was then recommending had bedded in.

Those reforms have now bedded in, although some fast track cases still do not have FRC. Therefore, it is now opportune to consider extending FRC. To that end, on 11th November 2016 the Lord Chief Justice and the Master of the Rolls commissioned me to carry out a further review, to develop proposals for extending FRC”

https://www.judiciary.gov.uk/publications/review-of-civil-litigation-costs-supplemental-report-fixed-recoverable-costs/

This book is going to focus on the proposed changes to the Personal Injury Solicitor Marketplace between now and 2019, including:-

1. Fixed costs in almost all fast track cases and the ‘intermediate’ track. The report said:-

   “I recommend a grid of FRC for all fast track cases, as set out in chapter 5. Above the fast track, I recommend a new ‘intermediate’ track for certain claims up to £100,000 which can be tried in three days or less, with no more than two expert witnesses giving oral evidence on each side. The intermediate track will have streamlined procedures and a grid of FRC”.

   The fixed costs tables and bands are set out as below:-

   Band 1: RTA non-personal injury, defended debt cases.
   Band 2: RTA personal injury (within Protocol), holiday sickness claims.
   Band 3: RTA personal injury (outside Protocol), ELA, PL, tracked possession claims, housing disrepair, other money claims.
   Band 4: ELD claims (other than NIHL), any particularly complex tracked possession claims or housing disrepair claims, property disputes, professional negligence claims and other claims at the top end of the fast track.

   Matrix of FRC for fast track claims (applies to both claimant and defendant recoverable costs)

2. Clinical Negligence Fixed costs. The report said:-

   “Clinical negligence claims are often of low financial value, but of huge concern to the individuals on both sides. The complexity of such cases means that they are usually unsuited to either the fast track or my proposed intermediate track. In chapter 8, I recommend that the Department of Health and the Civil Justice Council should set up a working party with both claimant and defendant representatives to develop a bespoke process for handling clinical negligence claims up to £25,000. That bespoke process should have a grid of FRC attached. This scheme will capture most clinical negligence claims. Previous experience (for example, with noise induced hearing loss claims) shows that it is possible for the ‘industry’ to come together and develop such schemes. There is sufficient good will on both sides to achieve that in the field of clinical negligence. I remain willing to arbitrate informally on any points of disagreement.

3. Increases to the Small Claims Track and a Ban on Pre-Medical Offers. The report sets out:-

   “3.10 Whiplash reforms. On 23rd February 2017, the Government published part one of its responses to the consultation, “Reforming the soft tissue injury (‘whiplash’) claims process”, which closed on 6th January 2017.15 This included a number of reforms, including the introduction of a tariff of fixed compensation for pain, suffering and loss of amenity for injuries with a duration of less than two years. Further reforms include a ban on settlement of claims without medical evidence, increasing the small claims limit for RTA related personal injury claims to £5,000, and increasing the small claims limit for all other types of personal injury claims to £2,000. The current limit for these types of claim is £1,000. The aim of these reforms is to disincentivise minor, exaggerated and fraudulent road traffic accident related soft-tissue claims, leading to projected overall savings to insurers of £1bn. The Government included clauses on these reforms in the Prison and Court Reform Bill, before the June General Election necessitated the dissolution of Parliament. In the Queen’s Speech on 21st June, the new Government stated its intention to proceed with whiplash reform by a new Civil Liability Bill?”

4. A Tariff System for RTA Claims. The MOJ report on the PI Whiplash consultation proposes the following for RTA claims at:- https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/593431/part-1-response-to-reforming-soft-tissue-injury-claims.pdf:- -

   The Government has decided that the levels of compensation available under the new tariff will be as follows:

5. Online Courts – the Jackson Supplemental report said:-

Online Solutions Court. The Online Solutions Court will be a new court, separate from the County Court, intended for litigants to use without recourse to legal representation. It will have a simplified procedure and a strictly limited FRC regime. It will deal with matters up to a value of £25,000 (including cases that currently fall within both the small claims track and the fast track). However, fast track personal injury, clinical negligence, possession, intellectual property and housing disrepair claims will be excluded from its remit, as will any other case which is too complex for proper resolution within the Online Solutions Court. Such cases (with the exception of intellectual property cases) will remain in the Fast Track in the County Court. Those remaining cases will be subject to the rules proposed in Chapter 5 above. In this way, the Online Solutions Court and the fast track will sit side by side, subjecting all claims below £25,000 to some form of fixed costs recovery.

The Jackson report sets out:-

1.2 The holy grail. The holy grail pursued by every civil justice reformer is a system in which the actual costs of each party are a modest fraction of the sum in issue, and the winner recovers those modest costs from the loser. Germany comes closer to the ideal than we do, because it has a civil justice system fundamentally different from our own, with little disclosure and little oral evidence.1 In the context of a common law jurisdiction, however, there are limits on what can be achieved. Adversarial litigation is an inherently expensive process.

1.3 What is achievable in the real world? The best that can be achieved is:

(i) to modify the procedural rules with the aim of reducing the actual costs so far as possible;

(ii) to restrict recoverable costs to that which is ‘proportionate’ as defined in the new proportionality rule;2 and

(iii) to control the recoverable costs in advance.

What does this all mean the in real world for PI Lawyers?

1. Costs will be fixed in most cases and more cases will be pushed into the small claims track.

2. Fixed costs will be extended into the multi track / new intermediate track.

3. RTA claims are now sought to be restricted without the help from a Lawyer.

4. We will likely see an expansion of the online Courts.

5. The Jackson report will seek to simplify some of the rules (as set out in later Chapters).

These are uncertain times for personal injury lawyers. It is clear that for the moment EL/PL/ housing and more complex PI claims will still be costs bearing. PI Lawyers must diversify in this new marketplace beyond RTA claims. An RTA claims market will only work for large volumes of claims, but EL / PL / housing disrepair and more complex PI claims will remain profitable for the foreseeable future. How long it will be before further changes will be placed upon the PI market beyond these changes remains to be seen. For the time being, PI and Clinical Negligence lawyers have plenty to be getting on with.

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