Legal work is set to be outsourced offshore for the first time after personal injury (PI) specialist firm Underwoods this week controversially launched a new South African-based law firm to deal in bulk low-cost cases.

The Hemel Hempstead-based firm is spearheading outsourcing overseas, through a company called Law Abroad, set up by the firm's managing partner Kerry Underwood, fellow partner Robert Males, and Mark Hodgson, a solicitor and director of brewers Jennings Brothers.

Underwoods South Africa - which will be based in Wellington, outside Cape Town - will handle other law firms' fixed-cost road traffic cases valued below 10,000 offshore.

It will charge the firms 500 plus VAT per case, with discounts for bulk orders.

Firms will profit from the difference between this price and fixed-cost recovery in England and Wales.

Underwoods is set to sign a deal on its premises this week, and after Easter Mr Underwood will travel to South Africa to spend six weeks recruiting and training staff for the venture.

Last week the firm signed a deal with IT provider EMIS in relation to a tailored case-management system that EMIS has worked on at no charge to Underwoods.

EMIS will have a profit stake in the South African firm's work.

Mr Underwood said that in due course it was intended that it would also offer outsourcing services for transactional work.

He said the South African government was delighted by the move and that the South African legal system is exemplary.

He added: 'There are obvious benefits in being in a jurisdiction unaffected by EU directives.

This is not primarily connected to saving money; a much more senior level of fee-earner can act on cases and provide a more competent service.'

Outsourcing in the legal market has hitherto been limited to support services such as due diligence and research roles, Mr Underwood said.

Martin Cockx, a partner with Manchester personal injury firm Amelans, said: 'If liability insurers realise that they are making a fixed-cost payment for work which actually costs a fraction of that, there will be blood on the carpet.'

But Mr Underwood said: 'I see the opposite happening.

Insurers will be pleased because the quality of the work will be much better and the overall cost lower [than cases worked on in England and Wales].'

By Jeremy Fleming