Risky business

Solicitors, insurers and claims managers have all been gearing up for the axing of legal aid funding from personal injury (PI) actions for some time. It finally got the chop in April, to be replaced by conditional fee arrangements (CFAs), and now they all seem set to reap profitable rewards from their careful preparations.

The past few months have already seen exponential growth for companies such as insurer and case manager Claims Direct, which is launching Accident Assist this month, a new product that pays solicitors up to £1,500 just for processing PI cases. The company also faces new competition from Abbey Legal Protection, which was recently handed over the management of insurance and claims management company Accident Line by the Law Society.

However, the bar is not in such a confident position. Since the abolition of legal aid for PI cases, the bar is reliant on the successful operation of CFAs – or no-win, no-fee agreements – but it has been criticised for being ill-prepared for the expected explosion in their use. This is borne out by the fact that, of 30 leading chambers surveyed by The Lawyer on their current exposure to CFAs, only 7 Bedford Row could provide comprehensive answers to several simple questions, such as how many cases had been funded on a CFA basis over the last year, and how many were won and lost. Such failure to put systems in place to be able to successfully manage large numbers of cases being funded under CFAs could prove disastrous for the barristers and chambers concerned.

Unlike the legal aid system, which currently pays for the vast majority of the bar's cases, CFAs are very complex. Counsel must negotiate with the client for an uplift in fees proportionate to their risk of losing the case. Interim payments no longer apply, so the barrister must put their fees into the context of how long it will take until the money will be paid by the client. Solicitors have the benefit of spreading their CFA risks throughout the firm, but counsel are sole practitioners who must bear the whole brunt of a lost case, which can be so devastating that some barristers are claiming they may "face bankruptcy", according to barrister Lance Ashworth at St Philip's Chambers in Birmingham.

The bar is further threatened by the fact that it relies heavily on the most complex and unpredictable PI cases – the most unpopular of all cases if funded under a CFA. Martyn Day, senior partner of PI specialist solicitors Leigh Day & Co, says: "[The bar] is seeing the stickier end of the market," or, as Ashworth puts it: "The difficulty at the bar with CFAs is that we only get the dodgy cases."

Many insurance companies will reject taking on a case unless the likelihood of success is very high. So taking on risky cases puts a lot of responsibility onto individual barristers. Philip Mead, secretary of the Personal Injury Bar Association (PIBA) and a junior barrister at Old Square Chambers, says: "I think people who do PI may be concerned that they are betting their livelihoods on uncertainty. Cases haven't really filtered through to the bar yet. I think it could be the lull before the storm."

It is crucial that in this environment barristers act as if they are highly skilled commercial animals who assess their chances of winning cases in a sophisticated way. But it could be argued that for the majority of them, this is not so.

Not only is it virtually unheard of for chambers to keep proper records of their exposure to CFAs, but most have at best only an ad hoc system for risk assessment. It is usually handled by the individual barristers and, according to most clerks, no coherent system exists.

One senior clerk at a London PI chambers says: "It's hard for us to realise whether we are assessing the risk properly. Some barristers don't know how to assess risk. A lot of the barristers allow the solicitors to assess it."

But unlike solicitors, a barrister may not get to see their client or witnesses. What counsel presently rely on to guide them through setting fees is a form called APIL/PIBA Version 4a, supplied by the Association of Personal Injury Lawyers (APIL) and Personal Injury Bar Association (PIBA), and the Bar Council Ready Reckoner Risk assessment form, which points barristers in the direction of what documents they should be looking at when reviewing risk.

But there is concern over the effectiveness of these forms. Andrew Ritchie, a barrister at 9 Gough Square and formerly a member of the APIL executive committee, says: "The agreement is too complex. Solicitors don't understand it and we don't read it."

APIL/PIBA Version 5 is on the way, but many in the bar think all this information needs to be pulled together onto a computerised system if barristers are going to get on top of accurately analysing how they review risk.

Unfortunately, neither of the bar's computer software providers – Meridian Law Ltd and Applied Computer Expertise (ACE) – have to date created any sort of programme that looks at CFAs, despite being asked to do so by the Bar Council nearly two years ago. Both claim to be working on it, but neither can say when it will be available.

John Taylor, senior clerk at Old Square Chambers, says: "We're going back to paper records which doesn't seem sensible."

But the Bar Council is not pushing the issue on CFA management. Simon Levack, executive secretary to Remuneration, says: "We are not in a position to instruct ACE and Meridian. It all takes time." He adds that the bar is not considering putting together a risk-assessment package on computer, nor will it be incorporating it as a condition for BarMark, the bar's new but widely criticised quality-assuran

ce standard.

One senior clerk sums up the feeling in the industry by saying: "It's essential that [Meridian and ACE] get their act together. Some kind of software for CFAs is essential. We're talking about the vast majority of cases that were legally aided are now going to be CFAs."

The lack of urgency both within chambers and at the Bar Council can in part be explained by the fact that most PI sets are still living off legal aid cases which began before the rules changed. Most quote a figure of about five per cent when asked how many CFA cases they have handled to date.

Many may also be pricing themselves out of the market. Most are so worried about the risks attached to CFAs that they are prepared to turn away cases that are anything less than a guaranteed win. Crown Office Row Chambers, for example, is fairly typical in only taking on cases with a 75 per cent chance of success.

However, most recognise that a growth in demand for cases to be funded under CFAs is imminent, and that competition for work from outside the bar, where there are potentially more attractive funding arrangements on offer, is also only going to increase. "Clients don't care about CFAs and they don't understand them. But they understand Claims Direct. We're not on a level playing field," says Ritchie.

What claims managers and insurers such as Claims Direct are able to offer is a flat fee for insuring a case after an accident that covers all costs incurred by the client. It can then instruct one of the hundreds of law firms on its panel to act on the case. If the client wins, that client can reclaim their insurance premium back from the other side. This has been possible since 1 April this year.

With Accident Line Protect, even if a claimant loses the case their premium is paid for by the insurance company. It can afford to do that because all the premiums from clients who win their cases cover this cost for the company. "The client has the ability to take a premium without it costing them a penny," says Abbey Legal Protection managing director Chris Ward.

With flat-rate premiums starting at £300, this is a tempting prospect for clients when faced with the alternative of going to a lawyer and wading through the complexities of a CFA.

Many of the clients using after-the-event insurance never need instruction from a barrister. Ward says that as insurance companies are increasingly driving the market, its aims are becoming more centred around cutting legal costs and settling claims at the solicitor level.

Many lawyers argue that barristers are in for a shock anyway, because the percentage of cases being passed up to them by solicitors on CFAs will be significantly less than under legal aid.

"I am concerned about solicitors making an early judgment without access to expert opinion," says James Badenoch QC of 1 Crown Office Row.

Day at Leigh Day & Co says that guaranteed uplifts on CFAs encourage solicitors to settle early and not instruct counsel and risk litigation if they can help it.

He also says that recent changes in crown procedure, rules encourage solicitors to hold on to more of the work. "The way things are moving forward means the timetables are sharper, and barristers are bad at getting stuff back to you," he says.

But perhaps PI barristers should not despair. Despite a greater percentage of the work being settled at the early stages by solicitors, the overall amount of cases is likely to increase because of the changes in the market. Some insurers are even predicting the number will double in the next couple of years. This could mean more work all round if enough of it filters upwards. Just look at niche Liverpool set 42 Castle Street, which recently won a contract worth an annual £6m in fees from Fastrack Indemnity.

The overall message that is ringing out, though, is that barristers need to appear more commercially minded if they are to draw clients towards CFAs when the anticipated floodgates open. It is clear that very few are currently in a position to handle a vast increase in the number of cases funded under CFAs, hence a reluctance among many chambers to advertise their availability to clients. It is also very apparent that the Bar Council and software providers to the bar, Meridian and ACE, are not helping progress.

Proper risk management of CFAs should clearly be a requirement of BarMark – there should obviously be a software package that can manage a chamber's exposure to CFAs, and there seem to be a lot of barristers who need to go on a course to learn how to go about risk assessment.