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Developments: Other developments

Published 19 septiembre 2017

Corporate liability for economic crime consultation
In early 2017, the Ministry of Justice called for evidence on the need for reform of corporate liability, holding corporations to account if they fail to prevent economic crimes such as fraud, false accounting and money laundering carried out by their employees, agents and representatives. Under the current law, prosecutors must show that individuals who are the directing mind and will of the company had the necessary knowledge of the criminal activity. Critics argue that this identification doctrine makes it difficult to successfully prosecute large multinational corporations.

Corporations are criminally liable if they fail to prevent bribery (s7 Bribery Act 2010) and, from autumn 2017, if they fail to prevent the facilitation of tax evasion (Criminal Finances Act 2017). These are strict liability offences and do not require proof of the directing mind of the company. It is anticipated that, if introduced, a failure to prevent economic crime offence would follow this model.

Given the Government’s commitment to stamp out corporate abuse and economic crime, companies should review their internal procedures and controls now to ensure that they are ready for the expected reforms in this area.

Discount rate changes
The discount rate, the assessment of the net return on investment from which multipliers for future loss are set, was the subject of dramatic change from 20 March 2017. The reduction of the rate from 2.5% to -0.75% saw multipliers increase dramatically.

This was, however, followed by a consultation paper, which closed on 11 May 2017, reviewing the legal framework for setting the discount rate and raising such questions as the level of investment return realised by claimants in practice, how the rate should be set in the future, who should set it and the use of Periodical Payment Orders rather than lump sum settlements. The Civil Liability Bill may present a vehicle which can be used to review the basis on which the discount rate is set.

Farmer Review of the UK Construction Labour Model
The title to the report by Mark Farmer published in October 2016 makes its findings clear – ‘Modernise or Die – Time to decide the industry’s future’. The report was commissioned in 2015 by a government concerned about the construction industry’s structural vulnerability to skills shortage. Following the vote for Brexit, those concerns have grown with the Royal Institution of Chartered Surveyors predicting that the UK construction industry could lose 8% of its workforce post Brexit.

The report finds that “workforce attrition exacerbated by an ageing workforce” means that we could see as much as a 25% decline in the available labour force within a decade. Low productivity, poor predictability, low margins and fragmentation are also identified as critical features of the industry.

The report concludes that the construction industry is at a “critical crossroads”. It is a damning verdict on the state of the industry, but also recommends ten wide-ranging reforms to make it more efficient and to recruit more people.

A key recommendation is that the industry, clients (private and public) and government should work together to improve relationships and increase levels of investment in research and development and innovation in construction by changing commissioning trends from traditional to pre-manufactured approaches. The report suggests that the housing sector (spanning all tenures) should be used as a scalable pilot programme for this more integrated approach. To help promote innovation, the report recommends an increased use of project bank accounts and new methods of project level insurance to “re-aggregate the natural fragmentation that may exist around transactional and legal liability interfaces that often stand in the way of innovative procurement and product assembly models”.

None of the problems identified are new. However, if Farmer is right, action is required now.

Fixed Recoverable Costs Review
Lord Justice Jackson’s Review of Civil Litigation Costs, published in January 2010, saw him recommend a number of reforms; many of these were implemented in 2013, including the introduction of costs budgeting and fixed recoverable costs in many low value personal injury claims within the fast track.

In his latest review, Jackson LJ has considered the extension of fixed recoverable costs to the rest of the fast track and to lower-value multi-track claims. His report, delivered to the Master of the Rolls on 31 July 2017, sets out his proposals to extend fixed costs to the whole of the fast track and to create a new intermediate track for certain cases up to a value of £100,000 to which fixed recoverable costs will apply. Further details of his proposals are set out in our Procedure, costs and funding section.

The proposals on the scope of fixed costs and the basis on which they are calculated will be the subject of consultation by the Ministry of Justice. Further extension of fixed costs seems inevitable in light of the recommendations made.

Insurance-linked securities regime planned for UK
The Government is pressing ahead with plans to introduce a regime for insurance-linked securities (ILS) in the UK. ILS offer insurance and reinsurance companies a means of transferring risks to the capital markets, typically in the form of debt securities. These are usually associated with catastrophe risks, but may also include mortality and other risks. Globally, ILS and other forms of alternative reinsurance capital are valued at around $70 billion, about 12% of overall reinsurance capital, but currently there is no framework for ILS vehicles in the UK.

In essence, the model follows that adopted in other jurisdictions, and recognised under Solvency II. An insurer or reinsurer enters into a risk transfer agreement with an Insurance Special Purpose Vehicle (ISPV), which then raises capital from investors through the issue of ILS (generally in the form of debt instruments or preference shares).

The novelty from a legal perspective in the UK is the creation of a regime of protected cell companies, which allow separate ‘cells’ of ring-fenced assets and liabilities to operate under a single limited company. Regulatory oversight is provided by creating a new regulated activity of insurance risk transformation, with dual regulation of ISPVs by the Prudential Regulation Authority and the Financial Conduct Authority.

Payment Protection Insurance
Payment Protection Insurance (PPI), intended to cover loan repayments in cases of redundancy, illness, disability or death, has been one of the financial industry’s largest mis-selling scandals. Since early 2007, the Financial Conduct Authority (FCA) has fined major providers for their selling practices and more recently for failing to disclose the high commissions earned.

The FCA has now set a final deadline of 29 August 2019 for bringing PPI claims. It is running a two-year public awareness campaign from August 2017 and fresh waves of new claims are anticipated. Alongside this, there will be waves of calls by claims companies eager to handle these remaining PPI claims.

In May 2017, the Information Commissioner’s Office (ICO) issued a record fine of £400,000 to Keurboom Communications Ltd for breaching the Privacy and Electronic Communications Regulations. Keurboom had made almost 100 million nuisance calls relating to the recovery of PPI compensation (and road accident claims), concealed its identity to avoid complaints and failed to co-operate with the ICO’s investigation

Keurboom is now insolvent and the ICO is working with the insolvency practitioners to try to recover the fine. This is not the first nuisance call company to declare insolvency after being fined, and the Government is seeking to address this problem by empowering the ICO with sanctions to hold company directors personally accountable for nuisance calls and to levy fines of up to £500,000 for breach of the Regulations. At the time of writing, it is anticipated that the Unsolicited Marketing Communications Company Directors Bill, which will give the ICO these enhanced powers, will be passed shortly.

Additional PPI claims will not be welcomed by the banking industry or their insurers, but it is hoped that the FCA’s deadline will bring some finality to this scandal. Claims companies, their directors and their D&O insurers should ensure their employees abide by the relevant data protection laws. Fines issued by the ICO will not be covered by a D&O policy, but D&O insurers may have to advance defence costs to directors involved in any ICO investigation.

Sentencing guidelines - counting the cost of HSE prosecutions
The impact of the Sentencing Council’s guidelines for health and safety, corporate manslaughter, food safety and hygiene offences, effective from 1 February 2016, can be seen clearly in the level of sentences imposed.

Calculated taking into account the organisation’s turnover and culpability, together with the level of harm or potential harm, fines imposed have included:

  • £280,000 on a small company (turnover £2-£10 million) for its failure to manage the risk of exposure to vibration
  • £1,600,000 on a medium-sized company (£10-£50 million) following an accident in which Harrison Ford suffered a fractured leg whilst filming Star Wars
  • £5,400,000 on a very large company (turnover significantly in excess of £50 million) whose employee was killed when a trench in which he was laying ducting collapsed
  • £5,000,000 on Merlin Attractions (turnover £400 million) following the Alton Towers rollercoaster accident.

The sanctions imposed for failing to protect the health of employees and the public will continue to be significant, and business of all sizes will be penalised at a level at which the fine is clearly felt.

Solicitors’ professional indemnity insurance
Significant changes to the minimum terms and conditions (MTCs) of solicitors’ professional indemnity (PI) insurance have been on the cards for many years. In 2014, the Solicitors Regulation Authority (SRA) proposed major changes including a reduction in the level of mandatory PI cover and a shorter period of run-off cover. Met with strong opposition, the proposals were put on hold. There was concern about the erosion of the gold standard of protection provided to clients with no evidence of a corresponding reduction in premiums for the insured solicitor.

In preparation for the next consultation this autumn, the SRA has published its analysis of PI insurance trends based on ten years of claims data. This reveals that the cost of PI insurance particularly affects small firms, with sole practitioners facing the highest premium as a percentage of turnover (7%). The SRA’s stated aim is a proportionate approach to setting MTCs, making sure that adequate and appropriate cover is provided. 

A minimum level of cover is likely to be retained although the SRA may again try to reduce it, possibly to £500,000. Proposals to restrict compulsory cover to certain types of clients could also be resurrected. The cost of run-off cover will need to be addressed, particularly with the closure of the Solicitors Indemnity Fund in three years’ time, but there are no easy answers. Aggregation may be considered, although the recent Supreme Court’s decision in AIG v Woodman may have brought some stability.

Previous opposition suggested that the amendments were unlikely to achieve the SRA’s objectives and had not been fully thought through. Would the proposals actually reduce the cost of PI cover? Would solicitors’ clients accept a reduction in the minimum level of cover? The Council of Mortgage Lenders has already expressed concerns and will be monitoring the situation closely and the Law Society has raised concerns as to how the data was obtained, collated, evaluated and interpreted.

Some changes to the MTCs seem inevitable, but it remains to be seen whether the next consultation will result in radical change to the MTCs or simply further tinkering around the edges.

Vnuk - consultation on changes to domestic road traffic legislation
The Department for Transport’s (DfT) consultation on options to address the unintended consequences of Vnuk closed on 13 April 2017. The Government is only consulting on the two most likely options:

  • Comprehensive option – this would allow Vnuk to stand and lead to a huge extension of the number and type of vehicles that require compulsory motor insurance, as cover would be required for all motorised vehicles being used for their normal function – for example, ride-on lawnmowers and dodgems.
  • Amended Directive option – the Motor Insurance Directive (MID) would be narrowed to require insurance only for vehicles used in traffic situations. This would still be wider than the definition in the Road Traffic Act 1988.

Pending its response and proposed way forward, the DfT has recently published a summary of responses to its consultation, which overwhelmingly supports the Amended Directive option over the Comprehensive one. Meanwhile, the European Commission (EC) has extended its Inception Impact Assessment of June 2016 to include a wholesale review of the MID under its REFIT programme. If the EC follows the Comprehensive option, it is unlikely that the UK will follow suit post Brexit as it is disproportionate, will result in increased fraud and uninsured/untraced driving, and will put a strain on the Motor Insurers' Bureau's levy.

Whiplash - consultation reforming the claims process
Set against a backdrop of rising living costs, the previous Government sought to tackle the long-standing problem of whiplash claims frequency in November 2016 by announcing a long-anticipated programme of radical reforms.

While the consultation paper ‘Reforming the soft tissue injury (whiplash) claims process’ sought industry stakeholder engagement on points of detail, the Ministry of Justice made it clear that removal or reduction of the entitlement to claim general damages for pain, suffering and loss of amenity and increasing the small claims track for this type of injury claim were decided government policy and not subject to debate.

As a result of the consultation findings, the Government decided to opt for a tariff of damages for minor whiplash claims (up to 24 months in duration) rather than legislating to remove the entitlement to general damages altogether, albeit that the proposed compensation awards are significantly reduced from Judicial College Guideline figures.

The Government also took the decision to ban the making or receiving of ‘pre-med’ offers in minor whiplash injury claims.

The proposed reforms were quickly incorporated within the Prisons and Courts Bill, which subsequently fell away on the announcement of the snap general election, owing to a lack of time before the dissolution of Parliament.

The new Government has already indicated that it intends to press on with these reforms in the stand-alone Civil Liability Bill, which had not been published at the time of going to press. The proposed definition of whiplash contained within the previous draft legislation will require amendment as the reference to ‘upper torso’ arguably excludes claims involving lower back and/or shoulder injuries, which account for around half of all soft tissue injuries from road traffic accidents.

In addition, the Government still intends to increase the small claims track limit for road traffic accident related personal injury claims to £5,000. The limit for all other types of personal injury claims is also to be increased, but to £2,000 for at least the time being. The new limit will apply in theory to all types of injury claim including claims for industrial disease and clinical negligence, although in practice such cases would routinely be allocated to the fast track or even multi-track once litigated.


Charlotte Shakespeare

Charlotte Shakespeare

London - Walbrook

+44 (0)20 7894 6816

Key Contacts

Charlotte Shakespeare

Charlotte Shakespeare

London - Walbrook

+44 (0)20 7894 6816

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