Client Alert: Royal Assent for Criminal Justice & Courts Act

The final provisions include:

1. Increased powers for the courts to dismiss personal injury claims that are found on balance of probabilities to be ‘fundamentally dishonest’ (Section 57).

Under the final provisions of Section 57, where a claimant would otherwise be entitled to damages the court must, on application of the defendant, dismiss the entire claim if it is satisfied on the balance of probabilities that the claimant has been ‘fundamentally dishonest’ either in relation to the bringing of their own claim (the primary claim) or in supporting the presentation of a claim by another arising from the same incident or series of incidents (a related claim).

The power requires the court to dismiss the whole of the primary claim, including any elements upon which the claimant has been honest. The power must be exercised unless the court is satisfied that the claimant would suffer ‘substantial injustice’ if the claim were dismissed.

When exercising its power under Section 57, the court must also make a notional assessment of the damages that would otherwise have been awarded had it not been for the fundamental dishonesty of the claimant. This notional sum is then utilised when assessing any costs to be paid by the claimant, and will be deducted from any sum awarded against the claimant by way of costs.

This means that the claimant does not suffer a double whammy of having otherwise legitimate damages dismissed, and having to pay the full extent of the defendants costs. Arguably this lets a fundamentally dishonest claimant off lightly, and penalises a defendant who had established the claimant’s dishonesty yet is prevented from recovering its full costs.

Section 57 (6) and (7) also expressly provide that in the event of any subsequent criminal proceedings against the claimant – whether in relation to the fundamental dishonesty itself or for contempt – the criminal courts must take into account at sentencing the fact that the primary claim was dismissed.

Keoghs view

Section 57 codifies the position originally set out by the Supreme Court in Summers v Fairclough Homes but, crucially, extends that position to cover the tainting scenarios that have been problematic for insurers since the decision in Shah v Ul Haq. As such, Section 57 will become a further key tool available to insurers and their representatives when fighting claims fraud.

However, there are no statutory definitions of either ‘fundamental dishonesty’ or ‘substantial injustice’. Although there is a growing bank of decisions – mainly at County Court level – upon the issue of fundamental dishonesty, these all currently relate to the context of applications to set aside QOCS protection.

Whilst it is inconceivable that the courts would determine fundamental dishonesty to different levels depending on whether it was removing QOCS protection, as compared to an application under Section 57, this remains an emerging area. Similarly the threshold as to what clarifies as ‘substantial injustice’ will only become clear once the provisions are tested by the courts.

It is therefore inevitable that further test litigation will be required before a clear landscape as to the applicability and effectiveness of Section 57 emerges.

2. A ban on lawyers making inducements to make personal injury claims (Sections 58-61).

Following on from the referral fee ban under the LASPO reforms, Sections 58 – 61 of the Criminal Justice & Courts Act introduces a ban on the provision of inducements, by any regulated party, to make claims for damages for personal injuries or death, or for damages arising out of circumstances involving personal injury or death.

Under s58 an offer of a benefit will be considered an inducement if it is intended to encourage the recipient of the benefit to either present a claim, or seek advice from a regulated person with a view to making a claim.

Section 60 (2) defines benefit as including not only cash but any property, and whether the benefit is temporary or permanent. It also extends to any opportunity to obtain a benefit. Section 58 itself is equally wide ranging. An offer of a benefit may be deemed an inducement regardless of:

• When or by what means the offer is made;
• Whether receipt of the benefit is subject to conditions;
• When the benefit is received;
• Whether it is received by the person to whom the offer is made or a third party

To further prevent parties attempting to circumnavigate the ban, s58(2) also captures the offers of benefits made on behalf of regulated parties, which are simply treated as having been made by the regulated party itself. This would capture the activities of claims management companies.

The only potential exception to the ban comes under s59 (6). This provides that the offer of a benefit may not be deemed an inducement where the regulated party can demonstrate to the regulator either that the offer of a benefit (a) was not to encourage the receiving party to make a claim or take advice with a view to making a claim or (b) that the benefit is itself related to the provision of legal services in connection with the claim.

As with the referral fee ban itself, breach of the regulations are not in themselves a criminal offence, and do not give rise to any action for breach of statutory duty.

Instead s59 (1) places the onus for monitoring and enforcing the ban, and for implementing rules to ensure compliance, on the relevant regulators. As the ban is focused upon the legal community, this means regulation primarily via the Bar Council, the Law Society / Solicitors Regulation Authority and the Chartered Institute of Legal Executives – and any rules to be deployed by the regulators must be made by Statutory Instrument.

Keoghs view

Whilst the referral fee ban has now been in place for almost 24 months, the latest MoJ portal data reveals that claims frequency is now back to, and indeed exceeding, pre-LASPO levels. Sections 58 – 61 therefore contain the next key steps to control the commoditisation and trade in personal injury claims.

However, the fact that these provisions will require further secondary legislation to enact them, and co-ordination between three independent regulators, it once again means that it will be some time before insurers see whether these new provisions have any real teeth or impact.

Deferred commencement

It must also be noted that whilst the Criminal Justice & Courts Act has now received Royal Assent and therefore appears on the Statute books, only limited sections are brought immediately into effect. The majority of the Act, including the personal injury provisions in Sections 57 – 61, are not yet active and will require further secondary legislation by way of Statutory Instrument to make them live and effective. With the pre-election Parliamentary recess looming, and a change of Government or indeed a rainbow coalition a distinct possibility, there is no clear timescale as to when these key new provisions will become effective.

It will also be interesting in the meantime to see if there is a spike in litigation prior to the Act's implementation date as claimant solicitors try to keep claims out of the firing line of the as yet untested sanctions imposed by the Act.

We will of course continue to monitor developments and keep all clients updated.