The Government has given its strongest indication yet that it will endorse a US-style contingency fee system as the alternative to conditional fee agreements.
Speaking to the BBC earlier this week (26 October) the Justice Secretary Ken Clarke praised Lord Justice Jackson’s review of civil litigation costs and suggested that the Ministry of Justice would enact his recommendations.
“I’m impressed by the Jackson report,” Clarke said, adding, “although you can defend the system, is has led to a huge increase in costs and you shouldn’t be in a situation where, regardless of however frivolous the claim is, the sensible thing for the defendant to do is settle, get out, before legal costs start running up.”
The Government, he said, thought the proposals mooted by Jackson LJ’s report were “very attractive”.
The Jackson report divided the profession with the claimant fraternity largely against it and the defendant in favour.
The proposals, which were 12 months in the making, included plans US-style contingency fees where costs are paid from the damages awarded; success fees would be capped at 25 per cent and losers will no longer be liable for after-the-event insurance premiums.
Association of Law Costs Draftsmen chairman Iain Stark argues that the proposals will mean that settlement levels will need to rise.
He argues: “It’s all very well for the Lord Chancellor to invoke US-style fee payments but we don’t have US-style fee levels. ’No win – no fee’ was meant to ensure protection for the consumer so their compensation was not diminished by legal costs, but for Ken Clarke’s notion to work it will be necessary to undertake law reform in relation to the level of damages currently awarded to make provision for payment of costs. If legal costs are to be deducted from damages – presumably by reference to some form of percentage deduction – I would query how this promotes consumer protection.”
Claimant lawyers are in agreement. Contingency fees would discourage access to justice because claimants may have to contribute thousands of pounds to their own legal costs out of the settlement, they say.
Yet on the other side of the spectrum, defendant lawyers argued contingency fees would mean lower legal bills because the claimant would have a financial stake in their claim.
Meanwhile, City firms are broadly in favour of reform given that it will enable them to be more flexible when negotiating fee structures at a time when many in-house counsel are searching for an alternative to the hourly rate.
So the personal injury claimant lawyers appear to be out in the cold, under attack from a Government committed to finding a way to reform and drive down legal costs for associations such as the NHS Litigation Association.
Scrapping the system is not going to be easy. After all, it has been tried before. Earlier this month (15 October) Lord Young delivered his healthy and safety review, leaving many PI practitioners with a sense of déjà vu. It also recommended reform along similar themes as Jackson LJ.
The current fixed-fee system for road traffic accident victims should be extended to all areas of personal injury. The previous Government recommended the same, but a deal could not be reached because of the nature of personal injury claims means that fees vary hugely.
The Government is yet to give a firm indication of how it will reform the litigation system, but it is clear that reform is necessary. If Clarke is to be believed, everyone – not just personal injury lawyers – will be affected by the Jackson reforms.