Bill of health

The court's U-turn in Halloran has left happy insurers and infuriated PI lawyers at loggerheads. Norwich Union puts the case for the insurers to Jon Robins

Clayden is of the view that PI lawyers make way too much money, and as the man with the responsibility for signing off (or not) many of their claims, he is in a unique position to do something about it. So, from an insurer's point of view, what is the difference between the legal profession and other sectors? “I think it's unique,” he replies carefully. “Lawyers are very much focussed on how much they earn.” Clayden has been directly involved in the landmark cases – such as Callery v Gray, Sarwar v Alam and the Claims Direct cases – that have shaped the new post-Access to Justice costs world over the last couple of years.

“We're now at the point where the issues are about what the take-home earning for lawyers is going to be, and quite frankly I haven't heard of many lawyers on income support,” he continues. “The reality is they're making huge sums of money out of this.”

Away from the courts, the Civil Justice Council (CJC) is busily trying to bash industry heads together to come up with a regime of fixed fees to resolve what has been called the “costs crisis” by the end of the year. Clayden is one of the experts in 'the big tent', the CJC's pan-industry talking shop, where he represents the views of insurers.

“I see predictable, fixed costs as a positive way forward,” he asserts. “I don't think anyone's access to justice is hindered by saying that the lawyer will do the work on conditional fees.” If you phone up a lawyer to do your conveyancing, you would not expect to pay them by the hour, he argues, and so what is different about routine PI work? Claimant lawyers (including the Association of Personal Injury Lawyers (Apil)) remain strongly opposed to fixed costs (now known by the CJC as 'predictable' costs, out of deference to such fears).

The Norwich Union line is that legal costs are way out of control. According to Clayden, they have shot up by as much 50 per cent over the last two to three years in volume PI cases. “For a lot of the bills we're facing now, the legal charges are actually greater than the damages we're paying,” he says.

It is a view shared by other commentators in the industry. For example, Roger Charter, head of technical claims at Churchill Insurance, recently claimed that it was “not unusual” to see a “relatively straightforward” case, which settles at £2,000, carrying costs of £3,000-£4,000.

According to Clayden, “one of the odd things” about the Access to Justice debate is that it has been for the liability insurers “to fight the corner for the consumer”, he says. No doubt the attempt to cast the defendant insurer as consumer champion will infuriate – or perhaps just amuse – many a claimant lawyer. But as Clayden sees it, rising after-the-event insurance (AEI) costs are driving up everyone's premiums and need to be driven back down to an affordable level.

Claimant lawyers protest bitterly that costs are out of control at all. Apil complains that if there has been such disproportionate costs inflation, then where is the evidence? “I know that claimants say they can't see that increase, but we're the people having to write the cheques,” Clayden counters.

Certainly, the judiciary seems to have accepted the defendants' take on costs. “There seems to be widespread recognition among those involved in personal injury litigation that costs, particularly in relation to small claims, are getting out of hand,” Lord Hoffman pronounced when the Law Lords considered the landmark case of Callery earlier in the year. Such sentiments represent no small measure of comfort to the insurers, which might have lost the appeal in Callery but seem to be winning the larger war.

Their most recent victory was Halloran v Delaney, when, to the horror of claimant lawyers, the Court of Appeal reappraised the idea of a 'two-stage' success fee, reflecting the changing prospects of success for simple road traffic accident (RTA) cases. “It's beginning to introduce some sanity into the situation,” reckons Clayden, who was not directly involved in the case. Apil described the ruling as “a major setback to the cause of access to justice” with a complete disregard for “the detailed work and lengthy submissions” that led to the suggestion by the Court of Appeal that 20 per cent was the right level of success fee for straightforward RTA cases.

The appeal judges have effectively retrospectively introduced the scheme whereby a 100 per cent uplift would be subjected to a reduction to 5 per cent should the claim settle before the end of the protocol period. Apil argues that the judgment has effectively rendered conditional fees “unworkable” and that it “defies all logic and common sense” because it ignores the fact that conditional fee arrangements (CFAs) are meant to work for all PI cases “across the board”.

“No business on earth can balance its books in this way and stay in business,” Apil president Patrick Akken argues. “While there will undoubtedly be those that applaud the fact that personal injury lawyers will inevitably go out of business as a result of this judgment, responsible commentators will realise the hard, cold fact that injured people will have recourse to fewer qualified solicitors to deal with their claims, and that many legitimate claims will fall by the wayside.”

It is no surprise to discover that Clayden is unmoved by pleas of penury from PI lawyers. The “vast, vast majority” of cases settle without any court proceedings and without a real risk of solicitors not being paid, and 5 per cent on such cases seems adequate compensation. “Given the overwhelming number that are won, the success fee doesn't need to be high because that ratio is so great,” he says, adding that he hasn't noticed any drop-off of cases post-Halloran.

When Clayden is not battling with solicitors over success fees, he is usually attempting to curb the perceived excesses of the claims management companies. When The Lawyer visits Clayden, he has just spent two days with lawyers over their challenge against The Accident Group (Tag) over the fact that its use of agents to explain funding arrangements contravened regulations. Tag uses its agent Accident Investigation Line to explain such agreements to prospective clients. It is now the largest claims organisation since the demise of Claims Direct and is appealing the ruling in English v
Clipson in August that the claimant's solicitor failed to provide their client with the funding information, as required under the CFA regulations. “If they fail, the line we're adopting is that is the end of the matter,” says Clayden. “They aren't legal representatives, they haven't signed a proper CFA and there's no liability for costs.”

He also points out that the very fact that a Tag agent explains the agreement does not relieve a lawyer of their professional obligations. “I always thought that it was the solicitors that are supposed to give independent advice,” he adds.

Costs experts are already speculating as to where this could leave those 700-odd firms on the Tag panel. “If you're a panel member and this case isn't overturned, you don't recover any of those costs that you've incurred,” costs expert Jim Diamond observed recently.

It might seem a rather technical breach of the regulations, but Norwich Union contends that there is a fundamental public policy argument as well. “One of the concerns that we have about after-the-event insurance premiums is where is the competition in the market?” he says. “Where are the market forces to control the level of AEI premium?”

Clayden admits that “in my more depressed moments” the test litigation does not appear to be sorting out the differences of opinion that have so far beset the AEI market. “At some point we have to have a proper dialogue between all the stakeholders and work out a solution for all of this,” he says. “And the best forum I can see out there at the moment is building on the work of the Civil Justice Council.”

Halloran – another fine mess?

The ruling of the appeal judges in Halloran v Delaney seems to have tested the fraying patience of claimant personal injury (PI) lawyers. In a barely restrained press release, the Association of Personal Injury Lawyers (Apil) described the recent judgment as “a major setback to the cause of access to justice”, whereas leading costs commentator Kerry Underwood, senior partner of St Albans firm Underwoods, was pulling no punches when he dismissed the ruling as “technically dreadful”.
In Halloran, the appeal judges revisited the idea of a 'two-stage' success fee to reflect the changing prospects of success for simple road traffic cases, only a year after they appeared to rule in Callery v Gray that such an innovation would be premature. They flagged up Lord Woolf's discussion of a scheme whereby the agreed success fee would be subject to an agreed deduction if the claim should settle before the end of the protocol period. The Lord Chief Justice cited the example of a 100 per cent uplift that would be subject to a reduction to 5 per cent should the claim settle before the end of the protocol period.
For Apil, the case marks a defining moment. According to president Patrick Allen, Apil members have “bent over backwards” to try to make the new conditional fee regime work “in a climate of judicial misunderstanding and antagonism from insurers”. “By imposing a 5 per cent success fee, the Court of Appeal has not only defied all logic and common sense, but has singlehandedly overturned the Government's principle objective of making conditional fee arrangements work for all PI cases across the world,” says Allen. The problems are compounded by the retrospective application of the Halloran ruling, meaning that the lower success fee should be backdated to all claims undertaken since August last year.
According to Underwood: “Effectively they've just repealed the Access to Justice Act on conditional fees and what shouldn't be done is a three-paragraph throwaway obiter at the end of the decision.”
In particular, he argues that its retrospective effect is “outrageous”. “What happens to all of the 20 per cent agreement signed on or after 1 August?” he argues. “Can the court increase that figure to 100 per cent for issued cases? Or is this a one-way street and the liability insurers will have the success fee reduced to 5 per cent in all unissued cases, but it will not be increased to 100 per cent in those that are issued.”
Underwood also queries the extent to which Halloran will apply – whether it is relevant to road traffic claims, as per Callery, or all “simple claims” and “claims as simple as this”, as expressed in Halloran. For Norwich Union head of claims Dominic Clayden, the meaning of the judgment is plain. “I have a very clear view what I think Halloran means,” he says. “It's 5 per cent for simple cases. Now my fear is that we then have a set of further test cases to work out what 'simple' means.”