Keoghs Insight

Author

Barry Phythian

Market Affairs Analysis: Civil Liability Act 2018 - Small Claims Limit Increase

AWARE12/06/2019
Let's Talk Shop Spring 2019

With a lot of reforms on the horizon, we will be looking to provide analysis as to what these may mean to retailers financially.  In this edition, our Programme Evaluation Manager, Barry Phythian, takes a look at the anticipated reforms to the small claims track, the impact they may have and key considerations for retailers. 

Small Claims Limit Increase

Although not part of the Act, it is the Government’s intention as part of the reforms to increase the small claims limit from £1,000 to £2,000 in EL/PL claims and £5,000 in RTA claims (with a tariff for ‘whiplash’ claims). Whilst in theory claimant solicitors’ costs in EL/PL cases would not be recoverable from defendants where damages fall below the new limit, there is likely to be some activity to circumvent the restriction.

In part this will be driven by the implementation of new rules and in particular changes to the MoJ Portal. Currently the Portal’s lower limit for claims is £1,000, matching the small claims limit. It would therefore be reasonable to assume that the Portal threshold will rise to £2,000 in parallel with the new small claims limit. However, until the new rules are published we cannot be certain this will happen. Consideration is also being given to providing LIPs with a portal to self-register claims.

Keoghs Analysis

In our view, retailers are likely to benefit to a greater degree than other industries due to the higher proportion of simple, low value cases. The question is ‘what impact will the change have?’ To undertake some analysis around the potential impact of the changes to retailers’ financial exposure to EL/PL claims, we have reviewed a significant sample of retail claims settled in the last 12 months to get an indication as to the likely impact of the change.

Our initial analysis indicates that the reduction in claims spend for retailers is likely to be in the region of 5%. However this will be variable depending on both political and practical interventions. There is no doubt retailers who display agility in amending processes to successfully manage the changes are likely to derive the greatest benefit.

In addition to political and practical interventions there are a number of other factors which could positively or negatively impact this projection.

Factors with Positive Impact on Retailers

  • Due to concerns over costs liability, some claimants may not intimate claims which could result in a reduction in claims volumes/cost (although there are plans to make it simpler for unrepresented claimants to run their own cases)
  • This may also impact mid-range value claims which often inflate ‘in-flight’

Factors with Negative Impact on Retailers

  • Claimant solicitors are likely, as a minimum, to seek Stage 1 portal costs (currently £300 + VAT)
  • The claimant market and fraudsters may switch focus from RTA to EL/PL activity as there are seen to be greater gains
  • Claimant solicitors will aim to fill profit gap by ‘maximising’ higher value claims/costs

Other factors to consider

  • Increase in proportion of unrepresented claimants – can be challenging to manage
  • The impact of McKenzie Friends is as yet unclear
  • There is likely to be a lot of ‘satellite litigation’ to test or thwart the system post-implementation
  • Should a greater proportion of lower value claims ‘drop-out’ than arise as unrepresented claims, the overall claims exposure will reduce but average claim cost will increase
  • Assuming an enactment date of April 2020, care will need to be taken in 2020/21 projections

Whilst the analysis suggests that the increase to the small claim track will positively impact retailers’ financial exposure, it may not all be positive and there are clearly a lot of things to take into account. We will continue to monitor the proposed reforms and will keep you up to date as to how we think they may impact, helping you navigate through the change. In the meantime and given the uncertainty, it would be prudent for retailers not to provision for substantial savings arising from the Act.Likewise, with the ongoing consultation in relation to the potential extension of Fixed Recoverable Costs, we will be looking closely at the financial impact that may bring.

Keoghs is committed to monitoring all aspects of the legal process, Civil Procedure Rules and related updates, amending our analysis with more contemporaneous data as the enactment date approaches.

For more information, please contact Barry Phythian