Saturday 24 August 2019

Dan O'Brien: 'Why compo culture has to change'

We are world leaders in litigation and compensation. The legal world wants that to stay

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Dan O'Brien

Dan O'Brien

'Anybody who thinks this is not a scam must be blind. We are a laughing stock among defence forces around the world." So said the late chairman of the Public Accounts Committee, Jim Mitchell. He was speaking about the more than 16,000 serving and retired members of Oglaigh na hEireann who received compensation, paid for by their fellow citizens, because their hearing had been negligently impaired when going about their soldiering duties.

The scale of the army deafness claims saga in the 1990s and 2000s was staggering in many ways. One such was the share of serving and retired personnel who won payouts - the numbers serving in the Defence Forces at any given time has stood at 9,000-13,000 in recent decades.

The wider global context is as staggering. Nowhere else in the world did military personnel receive large-scale payouts because of the noisy business of battle, and training for battle, had impaired their hearing. Even in the country best-known for its rapacious lawyers, the United States, no such payouts were ever made.

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That is because in the US, soldiers cannot sue the taxpayers they have signed up to defend. The Feres Doctrine established by the US Supreme Court in 1950 bars lawsuits against the military by members of the armed forces arising from military service. Irish judges often follow the lead of their American counterparts. They have never done so on this matter.

The army deafness awards highlighted a bigger issue: all available comparative evidence points to Ireland being an outlier in the world when it comes to litigation and the scale of compensation awarded to those who make claims.

This country's extreme culture of litigation has serious negative consequences for many people, businesses, organisations, the State and, ultimately, for society.

The normalisation of the belief that any accident or misfortune turns a person into a victim deserving of significant sums of money from their fellow citizens has magnified these negative consequences. That is reflected, inter alia, in the growing number of businesses and non-profit organisations whose very existence is threatened by high insurance costs.

Unless the wider framework around litigation and compensation is thoroughly reformed and made more proportionate, something that will necessitate the Government tackling the legal- judicial complex, the costs will continue to rise. That is reflected, among other things, in the concerns of the medical profession in recent weeks over a High Court ruling which could open the door still wider to multi-million euro medical litigation claims.

Before setting out more of the evidence, which shows Ireland's compensation payouts and related costs are disproportionate relative to peer countries, the debate needs framing.

Societies need to balance competing rights. The balance of rights between tenants and landlords, to take a topical example, illustrates the point. If the balance tips excessively towards the latter, many of the former will spend much of their lives in fear of being evicted at a moment's notice and some will suffer that fate. In a society with a welfare state such as Ireland's, the cost of increased homelessness will be taken on by the welfare state.

If the balance of rights is skewed too far towards tenants, owners of properties won't receive rent they are rightfully due and some will be left in financial distress - think of a retiree who depends on a single rental property for her pension. Again, there are wider costs. If landlords have too few rights, fewer people will invest in rental properties and housing supply will tighten.

The rights of defendant and litigant when injury is suffered need careful balancing. All available international evidence points to rights in Ireland being heavily skewed towards litigants. I can find no reliable evidence pointing in the other direction.

Last year the final report of the Personal Injuries Commission (PIC) did a detailed comparison of compensation awards between Ireland and the UK. It found that payouts in Ireland were not 20pc higher than the UK, or 50pc higher, or even double UK awards. The study found they were multiple times the sums awarded in the neighbouring jurisdiction.

Nicholas Kearns, who led the commission and is a former judge, wrote: "The multiple which has emerged from the benchmarking exercise is of such a magnitude that the PIC is satisfied that it calls for a response that is effective and achievable in the shortest possible time."

Just last week, a study by academics at NUI Galway found that over a 15-year period, 97pc of those making claims for whiplash injuries stopped visiting medical specialists once their legal cases had been concluded. The implications of these findings are obvious.

The costs to society of the current litigation system are as obvious. People work hard to start businesses and to grow them. They create jobs for others. They create the wealth that forms the basis of a society's prosperity. If those who run businesses are negligent, then they should pay proportionate damages when injuries occur as a result.

But the Irish system as it stands is skewed against them because it creates such huge incentives to litigate and has essentially no sanctions for those found to be taking fraudulent or exaggerated claims. It is not an exaggeration to describe such a system as a morally corrupting mechanism because it erodes trust between citizens by tempting ordinarily decent people to succumb to the lure of easy money at the expense of fellow citizens.

Ireland's compensation culture does not just affect businesses (and non-profit organisations). A huge range of State functions is also affected. Hundreds of millions of euro that could go into services, such as healthcare and education, instead go to paying large compensation claims and inflated legal fees.

One of many examples is the redress scheme for those who suffered abuse as children while in care. A study by Comptroller and Auditor General compared Ireland's scheme to others elsewhere. As the 2016 report noted, many countries around the world - from New Zealand to Iceland - have initiated similar redress schemes. The C&AG study focused on three such schemes: one in Canada and two in Australian states.

Average awards in Ireland were €64,000. That was twice the average in Canada. It was four times higher than in the Queensland case. It was nine times the average award in Western Australia. It is for readers to judge whether Ireland was right to award higher sums than elsewhere to those who were abused at the most vulnerable stage in their lives, but it should not be forgotten that the €1bn paid out meant €1bn that was not spent in other ways that could have improved lives.

It is also noteworthy, if not at all surprising, that legal expenses in Ireland accounted for a greater share of total redress costs than in any of the other cases analysed by the C&AG. Lawyers received 15pc of the Irish package (€146m). In Canada they took 13pc and in both Australian cases, a mere 4pc. It is equally unsurprising that the lawyers' lobby has not been silent in the current debate on compensation culture. One of its tactics has been to attribute the blame to the insurance industry for high and rising premiums.

Last week, Justice Minister Charlie Flanagan - a lawyer by profession - ill-advisedly weighed into the debate. Not known for exercising his ministerial powers in a way that his own profession dislikes, Flanagan accused the insurance industry of "profiteering". This is an extraordinary charge for a Cabinet member to make of an entire sector without incontrovertible evidence.

Players in the insurance industry were subject to dawn raids last year by the cartel busters from the European Commission. This was a welcome development. If anti-consumer collusion is found to have taken place, those involved will get their just deserts. That is as it should be.

It is not as it should be for the Justice Minister to be taking his own profession's side in this debate. Flanagan's intervention illustrates just how powerful the lawyerly lobby is, all the way up to the Cabinet table. Fairly balancing the rights of defendants and litigants in awards cases faces opposition of the most formidable kind.

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