Thinking cap

As the Legal Aid, Sentencing and Punishment of Offenders Bill, implementing Lord Justice Jackson's proposals for civil costs reform, works its way through parliament the anti-Jackson lobby is moving into overdrive. Strangely, they seem to be focusing on all the wrong issues and have failed to bring the spotlight to bear on some of the areas where there are real unanswered problems.

Jackson LJ recommended that, with an end to recoverability of success fees from paying parties, there should a cap on the amount of damages that may be taken as a success fee from the client in personal injury cases. He recommended a cap set at 25 per cent of the damages other than those for future care and loss. The government has accepted that recommendation.

However, does the 25 per cent figure include or exclude VAT? This does not appear to have been addressed. If VAT is on top, then the true rate as far as the client is concerned is 30 per cent (25 per cent plus 20 per cent VAT on that figure). On the other hand, if the 25 per cent includes VAT then to the solicitor the actual maximum percentage 'take' is 20.83 per cent (25 per cent less 20 per cent VAT). Either clients or solicitors are going to be more out of pocket than the headline figures suggest.

Second, what about counsels' success fees? The bill and the corresponding amendments to the Courts and Legal Services Act 1990 are concerned with the maximum that can be charged in relation to an individual CFA, not the overall funding arrangement of the claimant.

Will counsel therefore also be able to charge a success fee that is capped at 25 per cent of damages in addition to that of the solicitor? That would mean that the claimant would lose up to 50 per cent of their damages (or 60 per cent if VAT can be added). What if there is both junior and leading counsel? Can each take 25 per cent in addition to the solicitors, meaning the claimant would lose up to 75 per cent of damages (or 90 per cent if VAT can be added)?

If not, will the solicitor and counsel have to try to carve up the 25 per cent cap between themselves? It is not obvious that counsel would want to accept instructions on a CFA basis where liability is finely balanced but they will get a success fee based on potentially much less than 25 per cent of the damages, particularly in lower-value claims.

It is not obvious that solicitors will want to instruct counsel to act on a CFA basis where a matter is proceeding to trial on quantum only if they will have to split the 25 per cent cap they could otherwise keep entirely for themselves. Will they advise the claimant to settle notwithstanding that an offer is too low?

Solicitors are unlikely to be willing to treat counsels' fees as a disbursement if they are paying disbursements out of their own pocket.

Similar cap-related problems arise where more than one firm of solicitors has had conduct of a claim and were also acting under CFAs. Can each take up to 25 per cent of damages in addition to counsel? Or must the firms somehow agree among themselves how to divide the cap?

The difficulties of securing representation from counsel with the new regime may create a market for ATE premiums to cover own counsels' fees for the small number of cases that go to trial. (The Access to Justice Group recently commented that only two per cent of personal injury claims go to full trial.) However, the ATE premium would now come out of the client's final damages' cheque, in addition to the 25 per cent success fee cap. And, of course, there has been no suggestion that ATE premiums will be capped.

This will mean that if both solicitor and counsel act under CFAs, 75 per cent of the client's damages will be protected, assuming the cap will apply to both. However, if the solicitor acts under a CFA and the client needs to instruct counsel to act using an ATE policy to cover counsel's fees, there is no corresponding cap on the total that may be taken from damages. It would be 25 per cent (for the solicitor's fees) plus an uncapped amount for the ATE policy.

We may see claimants losing much more than 25 per cent of their damages with these funding changes. Who knows, perhaps the anti-Jackson lobby have a point after all.