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Survival of the fittest

Posted on 27th January 2016

Patrick Allen counts the costs of the Jackson & legal aid reforms

It is almost two years since the Jackson and legal aid changes to civil justice rules and funding so what is happening on the ground? I detect four major changes so far, all undesirable.

Effect on claimant solicitors firms

It is evident that many firms have not found the new regime profitable enough to continue and it is harder to find the work. Smaller firms have been cut off from access to work by the ban on referral fees. Many have closed their departments, closed down altogether, gone into administration or been taken over by the big guns such as Slater and Gordon and Irwin Mitchell.

The costs regime in the portal and in the fast track is simply too low. The £700 deduction for alleged savings on marketing due to the abolition of referral fees was a fatal blow to profitability. You don’t have to be an expert to see that clients would not be rolling up to reception for nothing just because referral fees were banned. In reality it was a ploy to make the work unprofitable so as to reduce claim numbers.

The effect: much less choice for clients and many good firms forced out of business.

Client deductions

For those firms soldiering on, survival means that most firms must levy a deduction for unrecovered costs—many clients now face a deduction from damages of 25%-35%.

This is to pay for unrecovered base costs, success fees and after-the-event (ATE) insurance. The introduction of qualified one-way costs shifting does not mean that insurance is not needed. Far from it. Own disbursements and Pt 36 risk have to be covered.

Few clients will want to sign up for a case on the basis that they will have to pay for disbursements if the case is dropped. A promise of no contribution to disbursements and damages intact from part 36 risk is attractive and usually seals the deal.

The 10% addition to general damages is invisible at the lower end of the scale. Many claims are settled in the region of £3,000. Can anyone detect an extra £300 pounds on the table when negotiations are in play? It’s different for catastrophic cases, in particular those requiring court approval. There, the schedule of damages will specify the general damages with the 10% added so that the judge giving approval can clearly see the uplift.

In all cases, the 10% extra on general damages is nowhere near enough to compensate clients for the unrecovered success fees, base costs and ATE insurance.

Private arbitration rather than civil courts

The new rules on sanctions, strike outs, proportionality and budgets have introduced an unwelcome degree of uncertainty, delay or unrecovered costs into the litigation process. Put that together with cuts which have been imposed on the courts, the massive court fees now proposed, delays in getting hearings, inconsistent judgments, the centralisation of county court issuing in Salford, the closure of county court counters, and the total lack of an IT interface for users with courts and judges. This leads many users to think that the civil justice system is no longer suitable for the job.

No wonder alternatives are being developed. Andrew Ritchie QC has devised an arbitration scheme for personal injury and clinical negligence cases over £50,000 which is designed to eliminate the above disadvantages:

  • It is cheaper than the courts with a modest entry fee. It is quick with early trial dates being available on disputes over liability or damages. Early neutral evaluation is available.
  • Judges will be experienced in personal-injury work, recruited from the ranks of senior PI solicitors and QCs.
  • The rules will be pre-April 2013 so no budgets and no capricious strikeouts.
  • IT will be available to bolt onto the system so that users can dispense with paper pleadings and communicate instantly with their opponents and with the judge.
  • It will cost less because the system will be much quicker and more efficient. Claimant solicitors are invited to agree on current hourly rates less 10%.

Andrew Ritchie has been consulting all sides of the profession on the procedure and rules. The system can only work if insurers join in and there has been a lot of interest. One insurer is definitely going to put some cases through.

I predict that in 12 months time when the first cases have been shown to work well in the system there will be a flood of applications.

Another scheme is now offered for family financial disputes.

It is highly undesirable that the civil justice system should be so bad in terms of its rules and the service offered that we are forced to find an alternative.

QOCS only applies to PI—the justice gap

Success fees and ATE insurance are unrecoverable except in libel, mesothelioma and insolvency cases and legal aid has all but gone. So there is a hole in the system. Many professional negligence, judicial review and other civil disputes are currently un-fundable, therefore cannot be litigated. It is a constitutional crisis where those of modest means with a legal problem can no longer access the courts for a legal remedy. Forging ahead as a litigant in person is not the answer.

So in summary , fewer firms and less client choice, clients suffering substantial deductions from damages, the possibility that firms will abandon the civil justice system altogether and a substantial justice gap.

Are these unintended consequences or was this was the cunning plan all along and what are we going to do about it?

This article first appeared in the New Law Journal.