Lord Keen's Speech on Civil Justice Reform

May I start by thanking Brett Dixon for providing mewith the opportunity to make this speech at the annual Association of Personal Injury Lawyers conference. It is encouraging to see so many of you heretoday.

I will be focussing today on a number of the important government reform programmes relevant to youas personal injury lawyers.

The first is the Civil Liability Bill, which we introduced into the House of Lords on the 20 March. ThisBill makes important changes to both the whiplashclaims process, and to the way in which the personalinjury discount rate is to be calculated. It will begin itsParliamentary passage in earnest on 24 April, when ithas its second reading.

I will also be using this opportunity to talk about someof the other reforms we are taking forward, such asmeasures to tackle the recent surge in holiday sickness claims, legislation to strengthen the regulatoryregime for claims management companies as well aslooking at the options for taking forward Lord JusticeJackson’s recent recommendations in relation to fixedrecoverable costs.

But more about these issues later, as I would like tostart by saying a few words about the government’swhiplash reform programme.

The government accepts that there are genuine personal injury claims, but there are also too many unmeritorious whiplash claims made each year whichproceed without challenge or investigation.

The number of road traffic accident related personalinjury claims remains around 70% higher than in2005/06 and around 85% of these claims are forwhiplash related injuries. This is despite extensive improvements in both vehicle safety and a decline in thenumber of reported accidents in recent years.

The level of compensation paid out for such claimsis, in the government’s view, also out of all proportion to any genuine injury suffered, especially whenbalanced against the effect they have on the price ofpremiums paid by ordinary motorists.

This concern about whiplash claims is not just confined to the UK, and similar measures to those we areintroducing have already been adopted in other jurisdictions, such as Italy and Spain.

This government remains committed to tackling thecontinuing high number and cost of whiplash claims,as well as ensuring that meritorious claims are backedby good quality medical evidence, provided by properly accredited medical experts. This is the basis forour action in the Civil Liability Bill.

The Bill will introduce a tariff for compensation forpain, suffering and loss of amenity for whiplashclaims. The tariff will provide for genuinely injuredclaimants to receive a proportionate amount of compensation for their pain and suffering. All claimantswill also continue to receive ‘special damages’ to coverany particular financial losses such as the costs of rehabilitation or loss of earnings, as they do now.

In addition, the Bill will also introduce a ban on settling whiplash claims without medical evidence. Iknow that many of you here today support this important measure, and that you will agree with me thatthe introduction of a prohibition on pre-medical offers is necessary. It will of course, deter both unmeritorious claims, by ensuring they are investigated andsupported by medical evidence, as well as helping toprotect claimants from accepting offers to settle without first identifying the full extent of their injuries.

These measures will apply to ‘whiplash’ injuries as defined in the Bill. The definition on the face of the Billwill broadly cover soft tissue injuries to the neck, backor shoulder, and there will be a supplementary Regulation which will further ensure that the group ofclaims causing most concern is captured. This Regulation will be subject to debate by Parliament underthe affirmative resolution procedure, following theBill achieving Royal assent.

The second element of the whiplash reform programme will be to make changes to the Civil Procedure Rules (CPR) to increase the small claims limitfor road traffic accident (RTA) related personal injuryclaims to £5,000, and for all other personal injuryclaims to £2,000.

This is against a background of the small claims limitfor personal injury claims remaining unchanged at£1,000 since 1991, with just a minor technical amendment to the limit in 1999. In the same period the limitfor nearly all other types of claim has risen to £10,000.

The government believes that many RTA related personal injury claims are suitable to be heard in thesmall claims track, which is designed to be uncomplicated and accessible to litigants in person. They arenot so complicated as to always require legal representation – particularly in the case of whiplash claimswhere the introduction of the tariff will now providecertainty as to the value of the claim. I should alsostress though, that claimants are not, and will not be,precluded from engaging legal representation in thesmall claims court should they wish to.

Now, some might say that raising the small claimslimit is a simple task, requiring only a small amendment to the CPR. The government however, recognises that just changing the rules withoutunderpinning those changes would be unwise. Thatis why we are working with wide range of stakeholders on a new supporting structure, including the development of a new accessible IT system. This workwill provide helpful guidance and enable all claimantsto process their claims and access MedCo and otherservices as required.

MOJ officials have established a number of expertworking groups to consider the specific challengesand to develop effective solutions. We have alsobegun the process of engaging with specific third sector advice providers to ensure that appropriate helpand support is available, if it is required by users ofthe new system. I would like to take the opportunityto thank a number of APIL representatives who havegiven much time and effort to participate on our expert working groups in a pragmatic and helpful way.

These measures will support the MedCo reforms introduced in April 2015. I would also like to assure youthat both MedCo and the Claims Portal remain central to the reform programme, and both will continueto provide an important part of the claims infrastructure as we move forward.

Whilst much work is still to be completed, I am confident these reforms will reduce the costs of civil litigation and tackle the continuing high number ofwhiplash claims, benefitting consumers through reduced motor insurance premiums.

There is of course a second part to the Civil LiabilityBill which many here will also be interested in hearing a bit more about. This is the reform of the legalframework for setting the personal injury discountrate.

As you know, the discount rate is applied to lump sumawards for future financial loss to reflect the fact thatthe claimant is able to invest and earn interest on theaward. The aim of the discount rate adjustment is toensure that the future loss award is calculated as accurately as possible to put claimants in the same financial position they would have been in had they notbeen injured.

I can assure you that the Government is fully committed to the 100% compensation principle, whereclaimants should receive neither more nor less thanfull compensation, and that individuals who havebeen unlawfully injured are put at the centre of thepersonal injury system. It is important that they areprovided with the compensation they need to meetall their expected future financial losses, includingmedical and care costs.

That said, the evidence that we have gathereddemonstrates that the current approach to setting therate does not reflect the actual investment behaviourof claimants, and this is resulting in systemic over-compensation.

Research by the Government Actuary indicates thaton average (after deductions for investment management and taxation) awards will currently produceabout 120 to 125% of the required compensation.Such over-compensation means that the NHS in particular is overpaying on claims for clinical negligence,putting increasing pressure on the public purse.Every pound that is being spent on over-compensation could be spent on frontline NHS services.

The government believes that it is necessary to adjustthe basis for setting the rate so that it reflects moreclosely the reality of how claimants actually investtheir money. The Bill therefore specifies that the rateis to be set by reference to expected rates of returnon a low risk portfolio of investments, rather thanvery low risk investments as at present.

The discount rate only applies to compensation forfuture financial loss taken in a lump sum, and doesnot apply where the compensation is taken in theform of a periodical payment order (PPO). SuchPPOs have many benefits, as they provide a regularincome over a claimant’s lifetime, they are not subjectto the discount rate and do not expose the claimantto investment risk. PPOs are available for all or part ofthe future loss award in all long-term serious injurynegligence cases against the NHS and in almost allsuch cases where the defendant is insured by a UKregulated insurer.

The government considers that PPOs are in principlea better form of taking compensation for future lossthan a lump sum payment, and supports their use.That said, it is also right that claimants should be ableto choose a lump sum if they wish. To assist claimantsin reaching decisions on how to receive their compensation we intend to provide or endorse guidanceon standard practice to ensure that claimants areproperly informed as to the implications of choosingbetween a lump sum and a PPO. We will also investigate whether there are any ways in which the presentlaw and practice regarding PPOs could be improvedto ensure that any avoidable obstacles to their use areremoved.

The reforms contained in Part Two of the Bill alsocreate a new procedure for the setting of the rate, including the introduction of an independent expertpanel, chaired by the Government Actuary, to advisethe Lord Chancellor in its setting. This will ensurethat the Lord Chancellor takes expert advice beforesetting a new rate. There is also a requirement on theLord Chancellor to provide reasons for his or her decision on the rate and to publish information aboutthe panel’s advice, ensuring that the decision-makingprocess is transparent, objective and impartial.

The final requirement is for the rate to be both reviewed promptly after the legislation comes intoforce, and at regular intervals thereafter. We proposethat a review will be held at least every three years, toensure that intervals of many years between reviews,which causes unnecessary uncertainty for bothclaimants and defendants, will no longer be possible.

Taken together, we believe that these measures willensure that the discount rate is set regularly, fairly andmore transparently, providing certainty and fairnessfor both claimants and defendants.

The government fully expects insurers to pass on thesavings from reforms to the whiplash programmeand the Discount Rate to consumers through lowerpremiums, and leading insurers covering aroundthree quarters of the motor sector have already publicly committed to do so. The Government does however, fully intend to hold the sector to its word, and wewill be monitoring the effect of these reforms on theprice of motor insurance and will consider further action if necessary

Let me touch now upon the government’s wider reform programme.

There is no doubt that many whiplash claims aredriven by a substantial industry that encourages unnecessary, inappropriate or even fraudulent claimsthrough cold calling and other social nuisances. Thisis why, in addition to the whiplash measures, the Government has recently introduced an amendment tothe Financial Guidance and Claims Bill which will implement a wide-ranging ban on cold calling, including by CMCs, which will be enforced by theInformation Commissioner’s Office.

The Financial Guidance and Claims Bill will also further strengthen the CMC regulatory regime, bytransferring responsibility for CMC regulation to theFinancial Conduct Authority (FCA). It will also givethe FCA the power to impose a cap on the fees CMCscharge consumers, and will restrict the ability of CMCdirectors to simply phoenix into new regulated entities, after they have already fallen foul of the regulatory regime.

The new reforms I have spoken about today build onprevious measures, such as those taken forward inpart two of the Legal Aid, Sentencing and Punishment of Offenders (LASPO) Act 2012, which implemented a number of Lord Justice Jackson’s recommendations from his review of civil litigation costs.

The government is carrying out a post-implementation review of LASPO Part 2 this year. This will assessthe impact the reforms have had on civil litigationfunding and costs and to what extent they haveachieved the government’s aims; which was to reducecivil litigation costs overall, and to rebalance the costsliabilities between claimants and defendants while ensuring that parties with a valid case are able to bringor defend a claim.

The Civil Justice Council has agreed to host a stakeholder conference to consider the impacts of Part two.We will also be seeking structured feedback and datafrom all interested stakeholders, and I would encourage you all to contribute to this process. We willbe announcing more details about how the review willwork in due course.

I’d like to now turn to the issue of fixed recoverablecosts (FRC). The benefits of FRC in civil cases are thatthey provide transparency and certainty for all parties, and incentivise the amount of work done to beproportionate to the value of the claim (rather thanencouraging higher costs irrespective of the value ofthe claim).

Legal costs remain disproportionate in many areas ofcivil litigation and it is now time to consider the extension of FRC. The Government supports the principle of extending FRC and Sir Rupert Jackson wasasked to conduct a review of this important issue. Inhis report, published 31 July 2017, an extension ofFRC in the fast track (up to £25k damages) was proposed, as well as the creation of a new intermediatetrack, with a fixed costs regime, for cases up to £100kdamages. In light of Sir Rupert’s report, the government is now considering the way forward, includinghow best to deal with differences between types of civillitigation. The Government will consult before implementing any changes so stakeholders will have afurther opportunity to express their views.

Let me finish with a recent example of governmentaction on a particular area of concern – the increasein holiday sickness claims which damage the packageholiday business. We have seen an escalation in thenumber of these claims which, as with whiplashclaims, appears to be something unique to the UK.

Yesterday, we laid before Parliament new robustmeasures to fix the costs of holiday sickness claims,which we intend to come into force on 7 May 2018.These changes, introduced by new Civil ProcedureRules and a new Package Travel Pre-Action Protocol(PAP), are significant and necessary step which will bein place in advance of the upcoming holiday season.

The government will shortly publish its response tothe earlier Call for Evidence, which sets out the wayforward on gastric illness claims in a fair and equitableway.

My officials have worked closely with both a Civil Justice Council working group and the Civil ProcedureRule Committee to finalise the new PAP and rules. Iwould like to acknowledge the significant input intotheir development from Brett Dixon, in his role as amember of both groups.

APIL also played an important role in defining thescope of our reforms. The initial proposal, as set outin the Call for Evidence, was to apply FRC to all lowvalue package holiday personal injury claims under£25,000. APIL argued that that proposal representeda ‘cure that goes much further than the identifiedmalaise’. That was a fair point, and we listened and accepted it.

The outcome is that we decided to limit the scope togastric illness claims and not wider package holiday PIclaims. I should add, however, that if the ‘malaise’should spread beyond gastric illness claims, we willnot hesitate to also extend the scope of the ‘cure’.

To conclude, I would once again like to thank you forthe opportunity to address you today. I hope myspeech has given you a small insight into the considerable amount of work going on to reform our civiljustice system in general, and in the area of personalinjury in particular.

The government remains fully committed to engaging with key stakeholders, including APIL, both nowand in the future. This is particularly important as together we embark on an ambitious reform programme to make a civil justice system work for the21st century