Controversy still rages over whether the Jackson reforms are a coherent set of proposals that will rebalance a system where claims and costs are out of control, or if they represent an assault on access to justice for people whom ‘no win, no fee’ represents the only hope of redress for a wrong inflicted on them.
The Legal Aid, Sentencing and Punishment of Offenders Act (LASPO) and its attendant new Civil Procedure Rules bring most of Lord Justice Jackson’s recommendations into full effect from April. And with less than four months to go until the legislation bites, it is already apparent that the litigation world post-LASPO will be a radically different place to the one lawyers have been accustomed to for the last decade and a half.
New cost and case management rules, and a bundle of measures – qualified one-way costs shifting, damages-based agreements (DBAs), bans on referral fees and an end to the recovery of after-the-event insurance premiums – will all indelibly reshape the legal landscape for years to come. What cannot be in doubt is the huge impact of the reforms on the business model on which many law firms are run. The model for funding advice to claimants has matured since a 2000 change in the costs rules created the necessary incentives for the legal market to dramatically increase what it could provide through conditional fee agreements. The ability to recover the success fee from a losing defendant changed everything in this field.
The recoverability of the insurance premium for policies taken out by clients, in case they lost and were liable for costs, contributed to the growth of that model. This will also be gone in April. And there will be a draconian new fixed-costs regime. Personal injury (PI) practitioners are facing extremely difficult times. Sue Nash, a longstanding costs lawyer and founder of Omnia, predicts that ‘personal injury fee income will reduce by 25-50% over the next two to three years’. Simon Allen, head of PI at Russell Jones & Walker, shares Nash’s bleak view about the prospects facing many PI lawyers. His estimate is that fixed costs will lower profit margins by ‘15-20%’.
The greatest challenge to PI lawyers is the one posed by costs being fixed at unrealistically low levels. In addition to the headline cost-capping measures that the profession has known about for some time, it is now clear that the LASPO overhaul of the cost-management process for contentious cases will be substantial. For this reason, Nash believes that these reforms are ‘more fundamental than Woolf’.
The CPR changes contain a slew of new, mandatory, cost and case management requirements affecting all contentious cases except those heard in the Commercial and Admiralty courts. Perhaps the most revolutionary change is the requirement for parties to set, share and agree budgets at the very start of the court process. Where parties fail to do this, the presiding judge will do it for them – an ominous prospect. Even where parties do reach an agreement, the judiciary is working to a presumption that most cases will, in any event, have cost management orders imposed on them by the judge. In determining the order the judge will, above all, have regard for the ‘reasonableness and proportionality’ of the overall costs within the context of the whole case.
There is little doubt that judges are expected to interpret these rules in a way that will apply a downward pressure on costs. The pilot schemes have shown this. Mr Justice Ramsay, in his May lecture to the Law Society on the implementation of the reforms, was clear: ‘If the parties choose to press on and incur costs in excess of the budget, they will be litigating in part at their own expense.’ Practitioners will know that this hits them in two key areas.
First, there is the very real chance that the costs are simply fixed too low to sustain a practice. (Here provincial lawyers, with lower overheads, may be at an advantage.) Second, there is an in-built incentive to reduce the effort to match the fee. To put it another way, what incentive will lawyers have to take on labour-intensive but low-value cases? Allen says: ‘The liability evidence is similar if one trips and breaks a finger or trips and breaks one’s neck. The consequence of fixed costs, particularly at the miserable level being proposed, may well prevent the claimant with the injured finger preparing his case as well as he ought to to ensure success.’
The likely response to such changes is that firms will be driven to consolidate to take advantages of any applicable economies of scale. This is Allen’s belief: ‘Lower margins will demand a level of business efficiency that many firms will struggle to attain. I see a dozen or so national firms receiving the work that is currently distributed among the many. In the urban environment, many PI practitioners will cease practising or lose their employment.’
It is not just economies of scale that create the pressure for consolidation. Tim Wallis, director and mediator with Expedite Resolution and Trust Mediation, notes that new demands on risk management are as important as the need for administrative savings. ‘The introduction of damages-based agreements will mean exposure to risk for all concerned – the claimant, his lawyers and the litigation funder,’ he argues.
Managing such risks will require the development and maintenance of considerable skills when it comes to cost and case management. For practitioners working in big firms, with dedicated business managers and media departments, this could be less problematic. But for smaller firms, where solicitors may be juggling multiple roles, these additional requirements will likely be hugely onerous. And for firms of all sizes, there will need to be much greater concentration on costs throughout the life of cases.
Don Clarke, partner at Keoghs and president of the Forum of Insurance Lawyers, says: ‘Costs management is likely to result in costs specialists increasingly playing a role throughout the lifetime of a litigated case and not merely following damages settlement.’ If the PI market is coming under assault, diversification may be one means open to firms to continue to flourish, or at the very least continuing to trade. For Allen that diversification is another defensive business move that can be achieved only by firms of a certain size. ‘We have been developing multi-track work and diversifying into specialised units in clinical negligence, occupational illness, serious injuries – head, spinal and amputation – travel and abuse claims,’ he says.
On the road
Not content with requiring solicitors to meet the monumental challenges of LASPO, last week the Ministry of Justice lobbed a further grenade in the direction of the profession. Under Jackson, the use of the RTA Portal is being extended both vertically and horizontally. The MoJ is proposing that at the exact same moment that lawyers are being required to increase their use of the portal, the rewards for doing so will be slashed – £700 of fixed, recoverable costs is to be stripped out of every single RTA Portal claim below a value of £10,000.
According to critics, the department’s circular rationale for this is simplistic to the point of idiocy – that the savings solicitors will make by being barred from paying referral fees will fill the gap. As road traffic accident work accounts for the vast majority of PI claims – the Motor Accident Solicitors Society estimates that 2,000 solicitors work in the sector (dealing with 500,000 cases each year) – this latest government reform is going to affect a lot of lawyers.
The Law Society sees the plan as a further, very serious blow to practitioners. Its analysis is blunt – if the plan comes to fruition the result will be ‘many solicitors not being able to afford to carry on doing this type of work’. Kieran Magee, a partner at PI specialists Gorman Hamilton, is still assessing the full impact of the ministry’s latest announcement. He is concerned that ‘there’s been no impact assessment’. The blows are coming thick and fast, he adds: ‘Just as firms are getting to grips with the business changes required by LASPO, we are hit with a punitive revised costs regime which will result in sleepless nights for many in the profession.’
15%-50%: the reduction in PI fee income predicted within the next three years.
2,000: the number of solicitors currently working on 500,000 motor-accident cases each year.
32%: the rise in whiplash claims in the last three years, against a 16% fall in road accidents.
240: the number of claims management companies struck off by the MoJ last year.
Contact about an accident
Claims management companies (CMCs) have been among the most controversial features of the litigation landscape. In addition to some dramatic CMC business failures – even before the boost the PI market received with 100% costs recoverability – 240 CMCs were struck off by their regulator, the MoJ, last year alone. Their unsolicited texts and calls, and TV ads, are widely noted as proof that the UK’s litigation culture has gone awry – fuelled by the current rules. But of course CMCs will not disappear with a depressed claims market, or the promised ban on referral fees. It is likely that a number of CMCs will have been plotting their conversion into alternative business structures (ABSs) for some time.
Legal expense insurers (LEIs) are also here to stay as a major feature of litigation. Wallis says: ‘It will be interesting to see how the future role of the litigation funder develops. LEIs have for some time been considering adapting their business model to the new regime.’ He notes that third-party funders are planning, if anything, for an expanded role that includes funding lower-value cases. Having previously asserted that their offering is for claims with a value over a threshold of £3m, funders, Wallis notes, ‘are now signaling that they are looking to deal with lower-value claims. They might do this by funding a portfolio of claims or by adopting a more collaborative model, such as using an ABS’.
This changing participation in the market will bring challenges to the way litigation is run. This is supposed to stop short of direct control of the conduct of a piece of litigation. But, Wallis explains: ‘There is an economic principle, which is just as strong.’ An investor who knows that the enterprise in which he has invested carries risk ‘will want to keep a close eye on his investment’.
Wallis notes: ‘In future, all types of litigation funders will need – and this is predominantly for monitoring and managing risk – to develop a very close relationship with the solicitors with whom they work.’ This is not to say that litigation funders will become involved in the conduct of the litigation, but they will want to be kept in close touch with it as it proceeds. ‘A high degree of trust and confidence will be required,’ Wallis adds. ‘In these circumstances transparency is reassuring and the law firm will, if it wishes to maintain and strengthen the relationship, demonstrate that it has an adept and sophisticated grasp of the application of risk management principles.’
Increased exposure to risk for claimants, lawyers and litigation funders: the effect of damages-based agreements.
£700: the cost stripped out in fixed recoverable costs from every claim below £10,000 made using the RTA Portal.
Increased importance of costs specialists, who will be needed throughout the conduct of litigation, not just as costs are finalised post-result.
Consolidation as legal advisers search for economies of scale.
Shared and outsourced back-office functions to deal with lower margins, and an enhanced emphasis on project and case management.
Poorer viability for professional negligence claims.
Some claims management companies will apply for ABS status.
Third-party-funded claims will routinely fall below previous £3m ‘floor’.
Next year will radically change the litigation landscape. No one doubts this, and the threats to established routes to access civil justice are real. Stuart Henderson, managing partner of PI at Irwin Mitchell, speaks for many when he says there are serious problems with the new rules. He believes that many of LASPO’s changes to the funding of PI actions will adversely affect access to justice for accident victims. His stark assessment is that ‘the pendulum has now swung too far in favour of insurers’.
The reform package that is about to land on the profession is heavy on cost-control, light on concern over fallout for clients and acutely indifferent to the impact the reforms will have on thousands of PI practitioners. As has been widely reported, the Law Society believes that because of LASPO ‘the personal injury market currently faces serious challenges’. But perhaps while a significant proportion of claimant lawyers feel threatened by the economies of scale that newer entrants bring to the market, their very presence and interest is a sign of future life in the claims market.
Allen’s long-established PI practice at RJW has, he notes, ‘invested in relevant IT and infrastructure’. The firm has made it a priority to train staff so that – in addition to prioritising client care – its lawyers are ‘commercially astute and able to efficiently and properly progress personal injury claims to achieve the right results’.
Robert Labadie, principal solicitor at Co-operative Legal Services, insists that a post-LASPO world holds no fear: ‘The business opportunity is in our view very simple – to provide what the client will want and need at an affordable price.’ This market will resettle. But in the process, no one is pretending that there will not be casualties among the profession – many ill-deserved – or that in the process there will be clients with legitimate claims whose experience of access to justice and restitution is both arbitrary and partial.
Catherine Bowman is a freelance journalist