The debate over the UK’s culture of compensation claims entered interesting semantic territory this month with the publication of the Government’s flagship Compensation Bill. The UK was in the grip of a “culture of fear”, trumpeted the Lord Chancellor, Lord Falconer, carefully sidestepping the usual epithet of ‘compensation culture’.

It was last May when the Government’s Better Regulation Task Force claimed that the ‘compo culture’ was “a myth”, because the number of claims and litigation was not in fact rising. This month’s proposals were the long-awaited legislative response to clamping down on the perception of a problem. Consequently, it was the damaging fear of a claim that was in Lord Falconer’s sights rather than the reality of a claim.

He drew on a childhood image to explain the problem. “There’s somebody saying you have to wear goggles to play conkers and that doesn’t encourage conkers,” Lord Falconer said. “Local authorities don’t open public spaces because they fear they might be sued; people don’t do school trips because they fear they might be sued, or sign up for voluntary organisations like the Boy Scouts or Girl Guides.”

There has been rejoicing, tinged with a fair amount of scepticism, from the respectable end of the claimant personal injury (PI) market that the Government is finally clamping down on the unregulated claims management industry that has proved to be so disastrous since legal aid was withdrawn from accident claims five years ago.

A recent report from the Citizens Advice Bureau (CAB) revealed that the CAB has handled 130,000 problems relating to such claims since 2000, mainly from consumers who have been failed by claims companies offering advice on ‘no win, no fee’ deals. It is now proposed that any unauthorised person offering such services after regulation comes into force will be committing an offence and will be liable for up to two years’ imprisonment.

“I’m looking forward to the day when the first person is dragged off to prison under the new law,” comments Andrew Twambley, a partner at Manchester claimant firm InjuryLawyers4U.

However, Twambley is sceptical about the law’s success. “I’m not holding my breath,” he says. “I liken it to when ministers tried to clean up the financial services industry. It didn’t stop the backstreet guys flogging overpriced insurance policies to the vulnerable.”

The bill will require claims companies to be authorised by a regulator and to comply with rules and a code of practice. It expressly prohibits the kind of excesses that have dogged the industry – in other words, the ‘hard-sell’ tactics deployed by the armies of claims company reps set up in shopping centres, aggressive advertising and bogus advice as to the merits of their claim.

However, it remains unclear as to who is going to be the watchdog. The industry’s homegrown solution, the Claims Standards Council (CSC), has been jostling for position over the last couple of months. So far, the CSC has more than 150 members and has applied to the Office of Fair Trading (OFT) for approval of its consumer code. The word is that it is “the only organisation in town”, comments Neil McLaughlin, vice-president of the Forum of Insurance Lawyers. “No one else has even put themselves forward as a potential regulator,” he adds.

Kerry Underwood, senior partner at St Albans firm Underwoods, argues that it would be absurd to accept an industry regulator. “If the bar, the Law Society and licensed conveyancers are all going to be externally regulated under the Clementi reforms, and there’s no suggestion that there’s a huge problem, how come it’s okay to allow self-regulation for the claims industry, where there’s such a problem that an Act of Parliament has to be introduced and a breach of regulation is punishable by two years in prison – that’s how serious things are. It would be a complete and utter failure.”

McLaughlin makes the point that, for regulation to be effective across such a disparate industry, it has to cover everyone, from the solicitor on the high street to the legal expenses insurer to the trade union and beyond. “There are an awful lot of portals through which any of us might go to get on the claims conveyor belt,” he says. “Is each of those portals going to be governed by the same form of regulation so that there’s a level playing field for all?”
The aspect of the bill that has received less press attention is that the Government is also seeking to clarify the law of negligence to protect, among others, conker fans everywhere. The bill sets out that the courts should be able to take into account the “wider social value of the activity” when considering what standard of care is reasonable.

It is part of the legislation that deeply troubles John Pickering, president of the Pan European Organisation of Personal Injury Lawyers and head of the PI department at Irwin Mitchell. “It represents a modification of the standard of care that currently exists,” he says. “I don’t see this as an area in need of reform and it doesn’t adequately meet the concerns expressed by Lord Falconer about public perception. All it is doing is applying a harder test, which suggests the courts in turn will apply a harder test. Where does that leave the genuine accident victim?”

with two-year prison sentences for those who infringe the code. But will putting a regulator in charge really make any difference? By Jon Robins