Recent mediation that ends the costs impasse relating to The Accident Group has implications for both panel solicitors and claimants, reports Rachel Bolt

Early in February, a steering group of leading insurers mediated an end to The Accident Group (TAG) panel solicitors' conditional fee agreement (CFA) costs impasse, with far-reaching effect.

The Access to Justice Act 1999 opened up CFA funding to personal-injury claimants.

The business opportunity provided by this spawned a clutch of claims-management companies.

One of the most high-profile was TAG.

Typically, it provided a one-stop 'armchair' package for clients, which included the services of a panel solicitor.

A winning combination of seemingly minimal financial risk to the client and intensive and extensive advertising resulted in TAG rapidly acquiring a portfolio of clients on an impressive scale.

It is reported that some 700 solicitors' firms had joined its panel.

Streamlined efficiency was key to the commercial success of the scheme, which therefore relied heavily on standardised documentation and processes.

It is here that the threads started to unravel, with tensions developing between the processes adopted in the TAG scheme when signing a client up to a CFA and the legislative framework designed to protect the client.

The CFA regulatory framework, specifically regulation 4 of the Conditional Fee Agreement Regulations 2000, imposes a number of key responsibilities on solicitors and 'legal represen-tatives' when they sign a client to a CFA.

Broadly, these require the solicitor/legal representative to inform the client about liability for costs and disbursements, about insurance cover arrangements, and about methods of financing.

Defendant insurers required to reimburse costs to winning claimants questioned whether the TAG scheme adequately complied with the letter and spirit of regulation 4.

They were, for example, troubled that typically the TAG representative both gave the advice and sold the new client an insurance policy that was tied to the scheme.

By late 2002, test litigation had ensued in the Supreme Court Costs Office (SCCO).

The scheme functioned under a number of 'operating manuals' and the test litigation dealt with versions 1 to 4, which were effective between November 1999 and November 2001.

The litigation targeted those matters where the regulation 4 advice was delivered by a TAG representative (as opposed to by a panel solicitor), and challenged the adequacy of some of the standardised advice given.

Reportedly, costs on some 250,000 TAG cases have been frozen in the pipeline, awaiting the outcome of this test litigation.

The associated financial implications, both for TAG panel solicitors and for defendant insurers, speak for themselves.

The agreement was concluded on 6 February 2004, at the end of a two-day mediation.

It has been endorsed by the SCCO in the test litigation, and a sealed consent order reflecting its terms has been posted on the SCCO Web site to provide information and promote awareness among affected practitioners.

The key points are these:

- The rule: A discount of 25% is to be applied to agreed/ assessed base costs.

The discount will not apply to, or in any way affect, disbursements and counsel's fees, which will continue to be recoverable in the ordinary way.

- The exception: The discount does not operate where the panel solicitor alone gave the regulation 4 advice, or gave it as a follow-up to the advice given by the TAG representative and did so within 14 days of the date shown on the insurance certificate.

(The panel solicitor has to prove that a case should be non-discounted by supplying a copy of the insurance certificate, plus a dated copy of their attendance note recording the giving of the regulation 4 advice.) As stated, these cases are the exception, and it remains to be seen how often TAG-panel solicitors will be able to claim that their cases fall into this category.

- Variation: The discount applies to the associated detailed assessment costs where such costs have been incurred by 6 February 2004.

Detailed assessment proceedings should be stayed and no new proceedings issued until 26 April 2004, to allow a breathing space to settle costs out.

Once that period has expired, detailed assessment proceedings can be reactivated/issued.

The 25% discount will not apply to the detailed assessment costs incurred after that date.

(No point will be taken on late commencement where due before 26 April, providing detailed assessment is commenced by 23 July 2004.)

The outcome is good news for panel solicitors, who can now apply it to collect 75% of their outstanding costs.

For those instructed on any volume of TAG cases, it should be a relief to get the locked-up cash flowing, and to know that a good chunk is no longer threatened.

It is also good news for claimants, as the parties agreed that the TAG panel solicitors will not approach them for reimbursement of the shortfall in the costs that they will incur when the discount is applied.

As for defendants, the mediated outcome recognises their concerns about the TAG package and means that defendant insurers can now free their log-jam of outstanding cases.

It also recognises that this was more than a mere technical challenge.

In terms of avoiding future pitfalls, claimant solicitors who enter into CFAs - and in particular those applying standardised documentation and processes in a claims- management company scheme - would be wise to re-familiarise themselves with regulation 4.

This will be particularly important where the claimant is sold a tied insurance product under the scheme, on which regulation 4 requires the panel solicitor to provide independent advice, or where advice is given in standard format by a scheme representative rather than directly by the panel solicitor.

Two issues remain outstanding in the TAG test litigation: recoverability of one of the scheme fees (the Accident Investigations Ltd fee, disallowed by the senior costs judge as a referral fee) and the level of the recoverable premium.

These are currently being appealed by the claimants.

The appeal is listed for hearing at the end of April.

Already there are rumours that some panel solicitors are claiming the mediation agreement does not apply to them.

These solicitors need to understand the players involved in the mediation: a firm of solicitors appointed by underwriters to conduct the test cases; the underwriters themselves, who will have to cover any costs expense; 12 leading insurers, who will apply the agreement across the board; and the senior costs judge.

Panel solicitors who maintain they can opt out of the agreement should consider the alternative.

It is likely that insurers would transfer any such cases to the senior costs judge and reconstitute the test cases in an expensive process that the scheme underwriters might not be prepared to back.

And would such an attitude from panel solicitors really be in the best interest of their clients?

Rachel Bolt is a litigation partner in the strategic litigation unit of national law firm Beachcroft Wansbroughs