Legal aid reforms – an accident waiting to happen?

The Law Society looked at how real firms would cope with the legal aid shake-up – and the results are not promising.

THE furore last week over whether or not lawyers are “fat cats” overshadowed the gloomy results of independent research undertaken by Sheffield University into the potential impact on firms of the government's planned legal aid reforms.

The research contradicts the findings of the government-commissioned KPMG report which concluded that firms doing personal injury work would be profitable by the third year after the abolition of legal aid.

And while the KPMG report looked at how hypothetical firms would cope, starting from scratch and borrowing money to cover their costs while the income from cases built up, the Sheffield study looked at how real firms, many of which are already labouring under overdrafts, would fare.

A team of business analysts and legal researchers commissioned by the Law Society and led by Professor Joanna Shapland of Sheffield University Law Faculty talked to 24 firms about the potential impact of the reforms.

Detailed case studies were conducted of 10 of these firms – including a sole practitioner, six firms of between five and 11 partners, and three firms of between two and four partners.

Explaining her report to delegates at the Law Society's Legal Aid conference last week, Shapland said firms would be forced to turn away a large number of people who would have qualified for legal aid. “The government proposals just aren't going to work for currently legally aided clients,” she said.

Her research team talked the 10 firms through four different types of cases: a road traffic accident; an accident at work where an employee was trapped in a machine; an industrial disease case involving noise-induced deafness; and a medical negligence case where a gynaecological operation went wrong.

The team asked the firms if they thought conditional fee arrangements (CFAs) could feasibly be used to fund the examples and whether they themselves would be willing to take any of them on.

All the firms were willing and able to take on the road accident case because such cases, by their nature, are predictable and usually successful.

The accident at work case, however, was likely to be more difficult to fund because “such cases often proceed to issue and exchange of evidence before settling”.

The report predicted that cases which went to trial would be so expensive they would breach the voluntary “cap” restricting the amount of costs that can be paid out of the clients' damages to 25 per cent.

The firms were even more ill-equipped to handle the medical negligence and industrial disease cases, as well as more complex accident at work cases involving questions of liability and serious injury.

All but one firm, for example, said the success fee for the medical negligence case would exceed the 100 per cent currently allowed, and all such cases going to trial would breach the cap.

Shapland was also pessimistic about the ability of firms to do the government's bidding and help the poor to pay the up-front costs of launching a case on a “no win, no fee” basis.

While her team found the main problem for firms conducting CFA cases was cash flow rather than long-term profitability, the research concluded: “It is less clear whether solicitors will be able to afford to carry the level of funding required in order to meet all the costs, disbursements and insurance premiums of the poor client – or whether we should be expecting them to do so.”

Worryingly, the report found that the specialist firms which did the most personal injury work would be the worst hit, because of their reliance on such work and the need to borrow large sums of money in the first few years to help fund the first tranche of cases.

It cites the example of four five-to-11 partner firms which did significant amounts of personal injury work and would all be severely hit.

One firm with a “relatively high overdraft and low profits per equity partner” would need an extra cash injection of £471,000.

The safe strategy for firms such as these, says the report ominously, is to “cherry pick” the short, high success road traffic cases. As a vision for the future it could hardly be more different than the brave new world of access to justice for all envisaged by Lord Irvine.