If you are depressed because your organisation's strategic and operational objectives are being hampered by the impact of claims for personal injury, then breathe a sigh of relief - the Compensation Act 2006 received its Royal Assent on 26 July.
This Act mostly contains provisions to better regulate claims management services, but it also attempts to specify certain factors that may be taken into account by a court in determining claims for negligence. In passing the Act the Government would like to reassure you that:
1. There is no liability in the law of negligence for untoward incidents that could not be avoided by taking reasonable care.
2. British society is not pervaded by a 'claims culture' and any other view is a 'damaging myth'
3. If you are engaged in a 'desirable activity' you have nothing to fear from the law of negligence.
If at this point you are about to pop the cork on the champagne bottle, stop! There are very sound reasons not to be convinced about any of these Government assurances. But there may still be some opportunity for advantage in better controlling litigation risk as a result of the passing of the Act, and organisations with embedded risk management will be best placed to exploit this.
The precise wording of the relevant section is : 'Deterrent effect of potential liability: A court considering a claim in negligence or breach of statutory duty may, in determining whether the defendant should have taken particular steps to meet a 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."
When Baroness Ashton of Upholland, parliamentary under secretary of state for constitutional affairs, originally introduced the Bill into Parliament on 2 November 2005, she stated: "The Bill's provision on negligence reflects recent judgments of the higher courts. It makes clear that when considering a claim in negligence, in deciding what is required to meet the standard of care in particular circumstances, a court is able to consider the wider social value of the activity in the context of which the injury or damage occurred. It provides that the court can have regard to whether requiring particular steps to be taken to meet the standard of care might prevent a desirable activity from being undertaken or might discourage people involved in providing the activity from doing so."
Section 1 of the Act can be viewed as the Government's attempt to ask judges to consider public policy issues when ruling on negligence cases and entreats you to have faith that proper consideration will be given by the courts to the social utility of your activity if you are sued in negligence. Baroness Ashton also said, "It is not the Government's intention to change the law - it is our intention to change behaviour". In so doing the Act seeks to play a part in the Government's wider programme to tackle what it believes is a 'disproportionate fear of litigation and risk averse behaviour'.
While few could criticise any step to reduce the fear of litigation and inappropriate risk averse behaviour, one has to ask whether it passes the Ronseal test: does it 'do exactly what it says on the tin?' In my view the answer is - no. Indeed, the constitutional affairs select committee, which heard evidence from an array of professional bodies, rejected the clause of the Bill that ultimately became Section 1 of the Act.
One of the failings identified by the committee was the failure to define the term "desirable activity." The attitude of the Government is that as courts have not consistently defined the concept, nor should the Act. Courts in the UK approach each activity on its individual facts and look at previously decided cases to set a standard of care to test the conduct of a defendant. It is assumed by the Government that this is a sensible methodology and that the level of standard of care arrived at by the courts is the correct one for desirable activities. I suspect few risk managers would agree.
According to a working party on compensation culture, 95% of negligence actions succeed in recovery of damages. This strongly suggests that the standard of care set by the courts is at too high a level for most organisations to attain. The risk averse behaviour which concerns the Government, may be a manifestation of stakeholders trying to meet an excessive standard or giving up trying to meet it by abandoning an activity, rather than any irrational response to the wider issue of claims culture. It is also arguable that analysis would reveal that a percentage of those defendants currently being found liable in negligence actually have set the right optimal balance of precautions for their desirable objectives and are taking the decision that it is better to fulfil and attain their objectives, rather than squander limited resources trying to meet a standard of care set at an impossibly high level.
Certainly the Government has not attempted to gather sufficient information to calculate the optimal level of precautions to determine the correct standard of care for various desirable activities. It will therefore be left to the courts to set a level of precautions for each desirable activity.
Courts traditionally do not approach this utilitarian exercise of balancing risk and benefit with any quantitative tools. Consequences are not assigned financial values to measure impact. So, for instance, the guidance on damages for personal injury loss and damage are not traditionally used by the courts to counterweight the costs of precautions and the benefit to society and individuals from certain activities. Even if courts were to embark upon such an exercise how would they value the desirability of an activity? Clearly opinion will vary and there will be inconsistencies. Judges are not risk managers but are left to try and set risk tolerances for society.
It will initially be up to judges in the lower courts to try and decide where to strike the balance. The lower courts have a track record of sometimes getting this exercise alarmingly wrong. This is exposed in the House of Lords judgment of Tomlinson v Congleton Borough Council - one of the 'recent judgments of the higher courts' Baroness Ashton alluded to. Two courts below the House of Lords decided that it was not enough for the council to erect signs stating 'Dangerous Water. No Swimming' to attempt to dissuade Mr Tomlinson from diving into a lake and breaking his neck. The lower courts held that the council should have destroyed the picturesque beaches around the lake to try and stop Tomlinson. This was eventually overturned by the House of Lords, with one of the Lords describing the approach of the lower courts as 'somewhat unreal'. If the council had not taken the courageous and expensive decision to appeal to the House of Lords, the decision of the lower courts would have stood and the message would have been to become extremely risk averse, or ignore the standard set by the court and be found negligent. As no attempt is made to check decisions of lower courts for consistency the scale of this problem is unknown, but the anecdotal evidence of risk averse behaviour suggests that it could be high.
Most lawyers agree that the Act is likely to generate an increase in litigated cases as cases are brought to court to test the boundaries of desirable activity. This may result in a number of inconsistent decisions coming out of the lower courts as judges try to define the concept of desirable activity. At some point in the future when a party, aggrieved at a decision, embarks upon an appeal that leads to a publicised judgment of a higher court, we may see guidelines to assist judges on the issue.
So at present you cannot be assured that organisations are not at risk from a finding of negligence for untoward incidents that could not be avoided by taking reasonable care. There is plenty of scope for lower courts to strike the wrong balance in setting the standard of care for various desirable activities. Where courts get it wrong it has the potential to create a micro-claims culture amongst some of an organisation's stakeholders who are encouraged to sue as a result. If this does happen, compensation culture has a very real impact on the achievements of goals and objectives and is no 'myth'.
If there is no agreed means of determining what is or is not a desirable activity, and no agreed means of measuring the weight to be afforded to the desirable activity, is there anything in this Act useful to risk managers? The lack of methodology by the courts in setting the optimal level of precautions, coupled with the raising of the profile of the issue of desirable activity by the passing of the legislation provides an opportunity for organisations that do control risk to argue that the standard of care they exercise is the optimal level of precaution.
Those organisations that are able to show a clear risk management policy, setting out their approach to an appetite for risk that is aligned to the goals of the organisation, will be well placed to argue that a court should accept their assessment of why particular risk control measures were not adopted. If this evidence can be presented in a coherent fashion by adopting recognised standards (for example the AIRMIC/ALARM/IRM standard or the COSO framework), evidence will be more persuasive still, as it will show the use of a recognised methodology. Of even more benefit is to build into the risk management process an awareness that it may be scrutinised in the courts. The more palatable a judge finds the approach the more likely it is that the level of precaution set by an organisation will be accepted.
Litigation is like any other adverse event - those organisations that plan for the event in advance will be best placed to deal successfully with it. Adopting a strategic approach to litigation adds value.
- Sean McGahan is a partner with McKinty & Wright solicitors, Belfast, E-mail: sean.mcgahan@mckinty-wright.co.uk
