In defence of the 'real world'

Recent research on conditional fees makes a series of misguided recommendations on success fees and insurance, argues Kerry Underwood

A recent front-page article referred to another piece of academic research on conditional fees with conclusions based on the old system of recoverability from the client.

As its authors acknowledge, these fail to take fully into account the changes brought about by Parliament in the Access to Justice Act 1999 and the regulations and orders made thereunder (see [2001] Gazette, 17 May, 1).The report, Nothing to Lose by Stella Yarrow and Pamela Abrams of the University of Westminster, has some useful information, particularly on what makes clients decide whether to bring a claim and why they choose a particular solicitor.

It is worth reading, and is superior to the recent Institute of Advanced Legal Studies report.Its 15 recommendations include the idea that the 25% voluntary cap should be reinstated, as this would 'protect clients who may have to meet the success fee in claims where proceedings are not issued'.Really? Regulation 3(2)(c)(ii) Conditional Fee Agreements Regulations 2000 (S.I.2000 No.

692) provides that whatever success fee the claimant's solicitor agrees with the other side becomes the success fee in the agreement.

It is correct that the solicitor can charge the 'cash-flow' element to the client.

The base rate is 5.25% and solicitors borrow at about 6.5% to 7%.

Assuming that costs are on average incurred evenly throughout the year, the rate should be about 3.25% to 3.5% of actual costs per annum.

Assume actual costs are around 75% of profit costs - the rest being profit which has not been borrowed - then the rate should be around 2.5% per annum.Given an average case life of two years, this figure should not exceed 5% of costs.

Thus, for the 25% damages cap to bite, the claimants' costs would have to be more than five times the damages.The 25% cap will protect no one except the liability insurers.

I would have thought that these multi-national, billion-pound financial institutions could look after themselves.

I had not realised that they cannot match the average firm of personal injury solicitors, which is struggling with massive cash-flow problems caused by these same multi-nationals.Other recommendations in the report include restrictions on advertising, the provision of even more information to clients, and the provision of information concerning specialist firms which 'should be the responsibility of the Community Legal Service'.

The authors have clearly never sat through, or given, the lengthy and utterly pointless oral explanation of conditional fee agreements.They also fail to realise that the Community Legal Service is unable to comment on the competence of rival personal injury firms, as legal aid has been abolished and so the CLS has no contact with them unless they have, say, a family law contract.

The researchers also appear not to realise that the Law Society's personal injury panel is designed to give clients assurances about firms' competence.The authors overstate the importance of after-the-event insurance, saying that 'without the ability to obtain after-the-event insurance cover for clients, it is nearly impossible for solicitors to do conditional fee work'.Nonsense.

Many of the best-known firms do not insure, and later in the report the authors recognise that many firms used to 'spec' claims.

Now we do it openly.The reality is that the civil justice system is in crisis.

High Court claims are down 87%, County Court claims are down 27%, far fewer claims are being brought, clinical negligence has been abandoned by 97% of those firms doing it two years ago, ordinary people are being denied access to justice, public authorities are becoming unaccountable, and law firms are in deep financial trouble.Funding of law firms is the only serious issue in the face of this whirlwind.

All the liberal, politically correct non-judgmental outpourings of researchers will count for even less if there are few law firms left to represent ordinary people.

I challenge the authors to spend a week with my firm.

They may then understand the real world of conditional fees, and the real world generally.Kerry Underwood is senior partner of St Albans firm Underwoods and the author of No Win, No Fee, No Worries