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Damaging the costs regime

Lawyers tend not to give much thought to damages; or rather, lawyers think about damages all the time, but rarely stop to consider just what damages are. ‘What it says in the CPR,’ most would reply, ‘in the glossary after the rules – “A sum of money awarded by the court as compensation to the Claimant”. What’s your point?’
Damaging the costs regime
My point is that compensation and damages are not identical.  Damages are not necessarily compensation for an identifiable loss, exemplary damages being, as the glossary itself concedes, an obvious example.  Equally, of course, compensation does not necessarily take the form of damages: an award made under the Criminal Injuries Compensation Scheme, for example, certainly compensates the claimant for injury, but an unsuccessful claimant does not have an action for damages.  Claims are limited to the statutory scheme and to the statutory appeal to the First-tier Tribunal.

Why does any of this matter?  In most areas of practice, for most of the time, the precise nature of damages matters not a jot.  There are a few areas, however, where the distinction matters very much indeed.

Since 20th April 2016 the Motor Insurers’ Bureau has been one of those areas.  Here, just as under the Criminal Injuries Compensation Scheme, money is being paid as compensation for personal injury by a body that has committed no civil wrong.  There is, however. an important difference: in certain circumstances a claimant can find himself suing the Bureau directly.  Does that procedural difference turn into damages any money the claimant may recover?

Until recently the answer to that question was of purely academic interest, since it would have affected neither the compensation nor the order for costs.  Now, however, the distinction is of vital importance if the claimant fails.

Reg.13(1) of the Motor Vehicles (Compulsory Insurance)(Information Centre and Compensation Board) Regulations (SI 2003/37) is an EU provision that in certain complicated circumstances makes the Bureau directly liable to someone injured by an untraced driver.  Reg.16 expressly provides that any sum due shall be recoverable from the Bureau ‘as a civil debt’.

If what he is claiming from the Bureau ‘as a civil debt’ can be classified as ‘damages for personal injuries’ within the meaning of CPR 44.13 a claimant will be entitled to the same protection under the qualified one-way costs shifting regime as he would enjoy in an action against the negligent driver himself.  If his claim is not for damages, on the other hand, an unsuccessful claimant is likely to find himself paying all, or a good part, of the Bureau’s costs.

The point came before Stewart J in Howe v Motor Insurers’ Bureau [2016] EWHC 884, decided on 20th April.  Applying Bloomsbury International Ltd v Sea Fish Industry Authority [2011] UKSC 25, [2011] 1 WLR 1546, the judge held that in interpreting legislation he must look at its scheme and purpose. 

Seen in that light, the qualified one-way costs shifting regime was intended, as the Court of Appeal had already said in Wagenaar v Weekend Travel Ltd [2014] EWCA Civ 105; [2015] 1 WLR 1968 at [36], to offer protection from an adverse costs order made in favour of an insured or well-funded party; without such protection the risk of an adverse order would deter injured persons from making a claim for compensation.  In the present case, however, the claimant was not seeking damages for personal injury caused by a breach of duty on the part of the Bureau; he was instead claiming in debt a sum that the Bureau was liable to pay under statute.  As limitation had (after a very difficult and technical argument) defeated the claim, the normal principles applied and the claimant must pay 85% of the Bureau’s costs.

This decision creates a significant trap for practitioners in the field of motor claims.  In this country claims for personal injury have always been directed against the driver himself or his employer, rather than against the insurer who is the real defendant, unless the driver’s employer happens to be one of the very few, very big organisations relieved by the Secretary of State of the duty to insure.  This traditional practice has largely survived the introduction of The European Communities (Rights against Insurers) Regulations 2002 (SI 2002/3061), which now permit an injured party to make a claim in the common European manner directly against the motorist’s insurer.  The Court of Appeal has already decided in Nemeti v Sabre Insurance Co Ltd [2013] EWCA Civ 1555 that such a claim is for a statutory indemnity rather than for damages for personal injury.  Taken together, therefore, do Nemeti and Howe leave a claimant who chooses to sue the insurer instead of the driver more vulnerable to a costs order?  And what about the claimant who makes a claim against both the motorist and his insurer: does Howe draw a distinction between the insurer masquerading as a motorist and the insurer acting in own name?

The answer to both questions is almost certainly yes, though how a judge can give practical effect to the distinction set out in the second question is difficult to imagine.  Watch this space.  Sooner or later a very seriously injured claimant who loses on liability is going to be told to pay £100,000 in costs simply because his solicitors have named the other driver’s insurers on the claim form rather than the negligent driver himself.

This must be a rare example of circumstances in which a solicitor can be negligent for following an entirely proper, and relatively common, procedural practice, but an all too common example of an increasingly unjust and unworkable costs regime.  A personal injury solicitor who routinely sues the insurer rather than the driver could even be put out of business by a series of heavy claims: in all but the narrowest legal sense the fault is not his, but the rulemakers’.

John Hamey