Balancing the cost of legal aid reforms

Don Clarke is president of the Forum of Insurance Lawyers (FOIL)

Lord Justice Jackson memorably described the claimant's funding arrangement in Pankhurst v White as 'grotesque'. In research produced for the Legal Services Board a claimant declared that he 'didn't give a monkey's' about how much his claim had cost to resolve, and earlier this year the Master of the Rolls, in more restrained terms, described the current personal injury system as 'out of kilter'.

These comments all reflect different problems with the costs and funding regime: the ratcheting up of costs through success fees that do not reflect the risks being run; the distortion of the market that occurs when the provider and not the consumer is in control of the cost; and the lack of proportionality, which means that it routinely costs six times as much to pursue a claim as it is worth. The combined effect of these and other costs issues is a regime that has been introduced by the law of unintended consequences and is not serving the interests of justice for claimants or defendants. It is perfectly possible to deliver access to justice for all parties at proportionate cost for litigants, and for society as a whole, but the current system doesn't come close.

Reform of the existing regime is not going to be achieved through one measure: it will take a series of changes to introduce a system that is fit for purpose. Several different bodies need to be involved. As a first step the Legal Aid, Sentencing and Punishment of Offenders (LASPO) bill needs to complete the parliamentary process to enable the changes to the conditional fee arrangement (CFA) regime to be enacted, hopefully across all types of claim. It is important that the Jackson reforms are implemented as a package and work needs to continue to deliver on the recommendations that are outside the bill: qualified one-way costs shifting to remove the need for after-the-event (ATE) cover; an increase in general damages; and changes to Part 36.

It is important that the detail of the new rules is considered carefully to avoid satellite litigation and ensure that the new regime achieves what it is setting out to do.

The new provisions on proportionality, to be introduced through the civil procedure rules (CPR), need to work in conjunction with other changes, particularly those affecting lower-value cases. In its response to the 'Solving Disputes in the County Court' consultation, the government has set out broad-brush proposals to extend the current road traffic accident (RTA) portal. It aims to review the existing pre-action protocols to streamline the litigation process and make it more cost efficient.

As envisaged by Lord Woolf and Jackson LJ, the fixed-costs regime is to be extended across a broader range of cases. These aspects of the regime are crucial to the overall picture and the government needs to make progress quickly; to conclude its consultations, flesh out the detail and set a firm timeline to get these changes into place.

There is an opportunity at present for the work of the government and the civil justice bodies to result in a seismic shift, to create a co-ordinated, balanced system which can serve the interests of justice for years to come.

With political will, an appropriate sense of urgency and determination to see the reforms through as a package, that is within grasp and can be achieved.

James Rowley QC is former chair (2010-12) and Charlie Cory-Wright QC is current chair (2012-14) of the Personal Injuries Bar Association (PIBA)

Central to the LASPO bill's effect upon future CFA litigation is the proposal that success fees should no longer be borne entirely by the losing defendant but entirely by the winning claimant. Equally essential (but to be implemented via a different route) is the proposal for capping success fees at 25 per cent of general damages and past losses only.

It is important to see these proposals in the context of the basic rules of commerce. A satisfactory CFA system only works if success fees are proportionate to risk. This means that they are only generated when a real risk is run, but are then sufficient for it to make commercial sense for lawyers to take that risk. If the system generates low success fees or wastes them to non-risk takers, the universal laws of commerce dictate that lawyers will run less risk.

Success fees should be calibrated balancing the risk against the stake (base fees to be lost). CPR Part 45 does this with different fixed uplifts reflecting the type of case which are then adjusted for their value (fast track carries a lower stake than multi track), the time of resolution (the longer a case runs, the greater risk/stake) and the side of the profession (solicitors/barristers carry different risks.) These four parameters were agreed some years ago by all the stakeholders as the best way of regulating risk and return.

Any cap overrides the balance generated by the primary means of regulation. It is a crude and powerful tool. If applied too often (or more often in certain types of case) it seriously undermines the primary regulation. Set a cap too low, as we believe LASPO does, and basic principles of commerce will force lawyers to cherry pick the easier (and cheaper in base fees) cases. This is self-evident if one samples the costs of typical multi-track cases.

The proposed cap is based on an historical misapprehension by Jackson LJ; the cap that existed before April 2000 was in fact set at 25 per cent of all damages including future loss. So, if the proposed cap undermines access to justice, its effect must be mollified; but then individual claimants would stand to have more deducted from their damages '“ unfair to them individually and surely politically unacceptable. A solution which is neither too onerous on individual winning claimants nor denies proper access to justice is required.

PIBA therefore proposed that claimants and defendants share liability for success fees equally, with a cap set at 25 per cent of all damages. As such, the cap would no longer bite too often or disproportionately on more serious cases, and access to justice would not be so seriously impeded, defendants would carry a predictable exposure for success fees linked in a proportionate way to the real extent of the tort (a maximum of 12.5 per cent of damages, a claimant's exposure would be limited to no more than 12.5 per cent of damages, a stake which is more than sufficient to drive good behaviour and if there are merits on both sides of the argument (full compensation v claimants bearing a stake), intuition suggests that sharing the burden equally may get it right. We still believe this is the best way forward.

Deborah Evans is chief executive of the Association of Personal Injury Lawyers (APIL)

Policymakers should beware rushing through more reforms without properly considering the wider impact on injured claimants. We have consistently argued that the existing streamlined process for lower-value (RTA) cases should not be extended until it is made certain that the portal works correctly. There is still room for improvement in the way that it operates '“ our members still report technical problems with it. Importantly, we still await the report on the review of the portal from Professor Fenn.

Both the protocol and the portal are likely to require amending to accommodate more complex, higher-value cases, which takes time. Rule changes will need incorporating in the protocol, these then manifest into software changes in the portal, which should be fully tested prior to launch. Application-to-application (A2A) providers will need to adjust their systems too, prior to any 'go live' date. Whether April 2013 is feasible depends on when the change process starts, and with the government consultation in progress until 25 May, there will be a time lag before work on the new rules can even begin.

In reviewing the fixed fees in the portal, the government must ensure it does not base any decisions on rhetoric, but on the facts at hand. Referral fees, which cannot be recovered from a losing defendant, were never part of the original portal fee negotiations and ministers must consider that many claimant lawyers do not pay them. Any proposals to reduce the fixed fees because of the proposed ban on referral fees therefore, would be misguided.

The government must also consider the combined impact of changes to the lower value RTA scheme and proposed changes to CFAs in the LASPO bill.

As success fees will no longer be recoverable, injured people will face having to pay success fees out of their general damages, and, unless qualified one-way cost shifting (QOCS) is made to work properly, ATE insurance premiums as well, in the event they have to meet the defendant's costs. For low value RTA claims, it is suspected that competition will effectively kill off the success fee.

It is imperative that QOCS works properly and that it is made simple. The 'qualified' aspect needs to be dropped to enable all claimants to pursue valid claims without fear of paying a winning defendant's costs. One-way cost shifting (OCS) should apply to all cases unless a claimant is guilty of fraud. OCS should also take precedence over Part 36 offers, as it would be grossly unfair for a genuine claimant, who had failed to beat a defendant's offer, to potentially walk out of court with nothing.

If the government gets QOCS wrong, claimants will still need ATE even in low-value cases, and this will be a deduction from damages.

It was a bitter knockback for injured claimants that the government refused to include on the face of the bill the recommended increase of ten per cent to levels of general damages. Impact analysis on the LASPO bill indicated that the low value RTA claimants may be the only winners, potentially ending up slightly better off if that ten per cent increase is delivered.

Leaving this to the judiciary means injured claimants have no guarantee that it will be implemented fully.