David Marshall, Partner
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The bulk of the Compensation Bill 2005 provides for the statutory regulation of claims management companies (‘CMCs’). After the conclusion of the Blackwell Committee in 2000 that they “did not consider that the time was right to recommend legislation to regulate these activities until it was clear whether they were to diminish or rise as a result of the Access to Justice reforms” and the government’s futile flirtation with self-regulation by CMCs, these provisions will be welcomed by both public and the profession. There is an element of shutting the stable door after the horse has bolted following the depredations suffered by injury victims under the complex schemes of the (old) Claims Direct and The Accident Group, and the detail in the bill of the regulation proposed is severely limited. However, it seems very likely that there will at last be proper protection for vulnerable consumers from unscrupulous, unqualified operators and that a level playing field will at last be created for CMCs and regulated solicitors.
However, clause 1 of the Compensation Bill, small and “perfectly formed” according to Department of Constitutional Affairs Minister Baroness Ashton, is a separate part of the Bill and is expressed to be intended to deal with the “deterrent effect of potential liability.” In its report “Better Routes to Redress” in May 2004 the Cabinet Office’s Better Regulation Taskforce concluded after a comprehensive independent review that the so-called ‘compensation culture’ was an ‘urban myth’. The Taskforce did say that there was a problem of ‘perception’ of a compensation culture which could be having an impact upon risk-taking, because of the fear of claims, which might be harmful to society.
A lively debate then ensued as to whether the so-called ‘compensation culture’ (despite its being an ‘urban myth’) was leading to floods of unmeritorious claims that inhibited risk-taking, individual freedom and social benefits especially in the context of volunteering or sports activity. In 2004 Julian Brazier MP introduced the Volunteering Bill as a private members bill which fell shortly before the election.
It could be argued that one way of government reducing risk-averse behaviour from fear of claims would be to act to damp down the media compensation culture stories and firmly resist any invitation to engage in action that might suggest that there was in reality a problem, notwithstanding the Taskforce’s conclusions that there was not.
But instead the government decided to legislate. The Prime Minister has said that the Compensation Bill 2005 will “clarify the existing common law on negligence to make clear that there is no liability in negligence for untoward incidents that could not be avoided by taking reasonable care or exercising reasonable skill. Simple guidelines should be issued. Compliance should avoid legal action. This will send a strong signal and it will also reduce risk-averse behaviour by providing reassurance to those who may be concerned about possible litigation, such as volunteers, teachers and local authorities”.
Section 1 of the Bill reads:
“A court considering a claim in negligence may, in determining whether the defendant should have taken particular steps to meet the standard of care (whether by taking precautions against a risk or otherwise), have regard to whether a requirement to take those steps might—
(a) prevent a desirable activity from being undertaken at all, to a particular extent or in a particular way, or
(b) discourage persons from undertaking functions in connection with a desirable activity.”
The explanatory notes to the bill state “This provision reflects the existing law and approach of the courts as expressed in recent judgments of the higher courts”.
It is odd for Parliament to legislate when there is no intention to change the law. As the solicitor Lord Hunt of Wirral said in Committee in January 2006 “She clearly said that this clause does not amend the law. I have to reveal to her that the courts will believe that we are amending the law. They do not believe that—if I may put it like this—a selection of noble Lords with some of the finest brains in the country would spend their time seeking to pass a clause that did nothing at all, and that did not amend the law one jot or iota… If it does not amend the law, what is the point of it?”
The issue of the extent to which the Courts should consider the wider social value in considering the existence or breach of a duty of care had indeed previously been considered by the House of Lords in Tomlinson v Congleton ([2003] UKHL 47). Mr Tomlinson had dived into a lake despite numerous warnings against swimming and broke his neck. There was evidence that despite their efforts, the Council had accepted that it simply could not prevent swimming on the site. The only other option was to close the site to the public altogether and this would have led to a local amenity being lost. His claim failed. However, Baroness Ashton has said that they did not intend to codify the Tomlinson decision. She also explained that the curious words ‘desirable activity’ which have attracted much criticism were chosen precisely because they have not been previously used by Parliament or the Courts. Lord Hunt of Wirral pointed out the obvious danger in choosing a new phrase that this will act as an invitation to lawyers (on both sides) to begin a raft of satellite litigation to try and to tease out a definition.
Clause 1 has not been well received. As well as the misgivings raised by lawyers’ organisations, the proposal has the unusual distinction of uniting the TUC (“the provision will lead to a two-tier civil compensation system with workers in occupations deemed a 'desirable activity' being denied access to the civil courts”) and the ABI (“lawmakers should proceed with care in order that we don’t find ourselves plunged into a further round of test cases”) in raising concerns. The All Party Parliamentary Insurance Group has said that clause 1 “should be dropped”.
Many of the amendments tabled in the Lords have been designed either to extend the clause (so that it did change the law) or to remove it as unnecessary. So far, Baroness Ashton has resisted all attempts to vary the draft clause. She has in the light of the Lords’ debate now undertaken to consult with (although not refer the issue to) the Law Commission.
Perhaps the sub-text is, however, the issue of the cost of pursuing compensation claims. There are many good reasons why costs have risen compared to damages in smaller value claims (including Woolf front-loading and government policy through recoverability). Nevertheless the profession must take the initiative and come up with workable schemes to deliver compensation more quickly, cost-effectively and fairly. If we do not, and appear to be wedded to the current processes apparently for fear of our costs going down as a result of change, others will use the interest generated by the clause 1 issues to push for more far-reaching reform. It is no coincidence that the ABI’s recent proposals “Delivering a Fair and Efficient Compensation Service” (which proposed excluding lawyers from all claims under £25,000) was published at almost the same time as the Bill.
But, in the end, the reality is that the fact that the Prime Minster has said that clause 1 will be included will mean that it will be in the Act, for better or for worse. Litigators need to keep a close eye on developments, particularly as it is likely that the words used in the Parliamentary debate will inevitably be pored over at a later date to discover the meaning of ‘desirable activity’.
For further information email David Marshall or call 020 7940 4000.
