Road from recovery

With personal injury work increasingly becoming untenable for lawyers, Kerry Underwood puts forward the case for scrapping recoverability and returning to legal aid

Is lower value personal injury (PI) and clinical negligence work in terminal decline as far as solicitors are concerned? By lower value, I mean under £10,000, which is a significant sum for most claimants, but also for lawyers. Remove PI claims of under £10,000 from PI practices and you remove perhaps 90 per cent of their work.

Why am I so pessimistic? What can be done about about the situation? Should anything be done about it?

You would need to live on Mars not to have noticed that the PI market is in chaos. Recoverability of success fees and insurance premiums from the losing party (that is, the liability insurers) has been an unmitigated disaster, and a predictable one. It was obvious that such an unfair measure would be the signal for trench warfare as far as the liability insurers were concerned. It is PI's poll tax.

I am not being wise after the event. When recoverability was introduced in April 2000, I wrote: “Satellite litigation won't be a cottage industry, it will be a palace industry.”

Another fact that claimant lawyers have to face is that they are entirely dependent upon liability insurers. It used to be a symbiotic relationship, but if the cow decides that it does not want the egret anymore, then the egret has a problem. If a major insurer goes under, claimant solicitors, entirely dependent upon their money, would be in difficulty.

Hand on heart, how many claimants would pay our fees, win or lose? The reality is, the deal with clients has always been: “If we win, we get nearly all our costs back from the other side; if we lose, I'll forget to deliver the bill.” It was called speccing.

The main effect of the liability insurers' tactics has been to put a huge strain on the cashflow of claimant solicitors' firms, big and small. Recovery or not of the success fee is in some ways a distraction – it is the vastly increased delay in receiving ordinary, or base, fees that has done the damage.

Legal aid, for all its faults (and in PI there were not many), provided solicitors with cash for disbursements and payments on account at yearly intervals.

The problem is enhanced by the long gestation period of a PI claim. Two years of work without a penny is commonplace. The double whammy of the petering out of the last of the old legal aid cases and their payments on account, and the much longer delay in receiving costs, is making many firms query whether this is a game worth playing.

If there is a single expanding PI department without a cashflow problem, I salute you.

Recoverability, especially of insurance premiums, has led to all sorts of unsavoury intermediaries and claims management companies, and the ensuing publicity has done great harm to the image of claimant lawyers and the PI market generally.

The switch from nice guys and gals to ambulance-chasing fat cats has been dramatic, and it is down to recoverability. I remember well the Law Society's understandable concern about negative publicity when conditional fees arrived in 1995. But it never happened. Between 1995 and recoverability in April 2000, conditional fees were widely regarded as beneficial. The judiciary was pleasantly surprised. Lawyers, very honourably, applied a voluntary cap of 25 per cent of damages by way of a success fee.

The answer is, of course, a short act of Parliament: “Those provisions of the Access to Justice Act 1999 and all Regulations and Orders thereunder relating to conditional fees within the meaning of Section 58 of the Courts and Legal Services Act 1990 are being hereby repealed.”

It will not happen, but everyone knows the current system cannot survive, and it is the proposed 'cures' that are worse than the disease.

Conduct by courts

Most judges detest recoverability as inherently unfair, hence the number of highly technical challenges that are succeeding, at least at first instance. Halloran v Delaney and the 5 per cent success fee marked the end of conditional fees for ordinary cases – it is really now just old-fashioned speccing, as 5 per cent as a success fee is obviously not worth having.

Fixed costs

I have no problem with fixed costs provided they cover the case from beginning to end and include severe penalties for a financially powerful party who strings the case out to make a claimant solicitor do, say, £5,000 worth of work for a £1,500 fee.

The bitterness over recoverability has led to deep distrust. Claimant solicitors simply do not trust insurers to play fair with fixed costs.

As fixed costs will apply to only unissued sub-£10,000 road traffic claims, its scope for argument is endless.

Is it legitimate to issue for quantum alone? Is an £18,000 claim settled on a 50 per cent liability basis, an £18,000 claim or a £9,000 claim? I am injured (value £3,000), and my car (value £12,000) is written off.

I appreciate that drawing lines always causes problems, but there is no need to draw them here. A seamless scheme whereby, for example, issuing proceedings was simply another step in the road, rather than 'double your money' time, would avoid this.

Example

The original Woolf Report proposed that upon issue (actually upon lodging a defence), claimants' costs jumped from 40 per cent to 70 per cent of a notional total sum. Let us say that sum would have been £2,000. The fees would have jumped from £800 to £1,400, enough to deter 'holding' defences and enough to deter defendants from stringing it out.

But look now.

Case settled pre-issue: fixed costs, say £1,200, plus 5 per cent success fee of £60, equals £1,260.

Same case not settled until proceedings issued (fixed costs not applied): value of work done is £2,500, plus 100 per cent success fee of £2,500 equals £5,000.

Thus, issuing proceedings automatically quadruples costs.

Is anyone seriously suggesting that two years down the line there will not be endless satellite litigation about whether it was justified to issue?

This is recoverability mark two.

Other clouds on the horizon

No-fault liability for pedestrians, cyclists and children will be in soon. It is entirely logical to extend that to passengers.

The pedestrian, passenger, cyclist and child market, then, is likely to go.

Does it matter?

Yes. Legal skills are lost in a generation. Firms that depart one area of work rarely go back. Without a reasonable volume of ordinary work, young lawyers will not receive the training and experience to become the heavyweight PI lawyers of the future.

Serious cases need seriously good lawyers. Civilised societies need seriously good lawyers. The end game is not that Wayne or Tracey, who slipped on some caviar on the way to collect their Giro, cannot get representation – it is that the baby seriously injured in hospital, the pensioner mown down by a drunk driver, the person terribly injured at work, cannot get adequate representation.

Solution

• Scrap recoverability now and revert to the pre-April 2000 conditional fee regime, with a statutory 25 per cent cap on success fees, recoverable from one's own client.

• Reintroduce legal aid, but for all PI cases and with no means test, but subject to merits and with a £250 administration charge to the client at the end of a successful case. This would give the whole population, including medium and high earners who fund the system through income tax, a stake in the legal aid system. This would actually produce a profit for the state.

In the last year that legal aid was available for PI cases, it generated a profit for the state of £51.94m when the sums recovered by the DSS Compensation Recovery Unit were taken into account.

By extending legal aid in PI cases to everyone, the profit is likely to increase to, say, £100m per annum.

On the basis of 250,000 cases per year with around 90 per cent of these being successful, 225,000 fees of £250 would be generated, creating a total of £56.25m of overall annual surplus, in turn generating £156.25m.

• Allow regulated contingency fees as a funding option. Arguably, the pre-April 2000 capped success fee range is, for all intents of purposes, a contingency fee scheme.

• Raise the small claims limit to £3,000 in PI claims and allow solicitors to work on a contingency fee basis for small claims.

• Get me to draft a full contingency fee scheme for all civil work of all kinds at all stages.

Kerry Underwood is senior partner of Underwoods Solicitors