David Marshall, Managing Partner
PI Focus - July 2011
email David
The Government has confirmed its intention to implement the primary recommendations of Sir Rupert Jackson as a package. They positioned this as a conservative measure, returning to the position to that which existed when conditional fee agreements were first allowed in civil litigation in England and Wales, under a Conservative Government in 1995, and reversing the Labour amendments made in the Access to Justice Act 1999.
The Government openly admits that one of its objectives is to reduce the number of claims being brought. However, they describe these as “unnecessary or avoidable claims”, and that “it will help businesses and other defendants who have to spend too much time and money dealing with avoidable litigation, actual or threatened.” This rather ignores the obvious point that the evidence is that the number of successful personal injury claims appears to have remained the same as a proportion of the total number of claims. Thus as the number of claims have increased overall, more people have been successful in obtaining redress. The Government proposals, if they successfully reduce the total number of claims, must therefore by definition reduce the number of people obtaining compensation for personal injury.
The Government’s second avowed objective is to reduce costs. They state that “substantial unnecessary costs will be removed from the system, leading to significant savings to defendants”. The Government's own impact assessment published alongside the response to the consultation says that “in line with the policy objectives of the proposals, claimants should be worse overall as a result of being more exposed to the legal costs which they generate” and “in distributional terms, defendants are likely to be better off overall and CFA claimants are likely to be worse off overall”. This is justified on the basis that “ultimately any gains to defendants might filter back to their customers and to those who otherwise finance them such as taxpayers who might gain in future.” At least we all know where we and our clients stand.
Lord Justice Jackson had said his package which included a 10% increase in general damages would leave most personal injury claimants better off. His final report did not detail any evidence supporting this assertion. However, in January 2011 in his own response to the consultation, he exhibited some graphs produced for him by his assessor, Professor Paul Fenn. These suggested that 61% of all claimants would be “better off”, but also that substantially the majority of road traffic accident victims would be better off, whereas most employer’s liability victims would be worse off and the great majority of public liability claimants would be very much worse off. These calculations assumed that the same success fees (subject to the proposed 25% cap on general damages and past loss) would be paid by the claimant as at present.
The Government analysed a further dataset they received from Jaggards. They noted a number of limitations in respect of this dataset. Perhaps most importantly, they noted that “the data reported as general damages may include, in some cases, past and future loss of earnings, care and other special damages”. It seems very likely that this is so as the average general damages for road traffic cases is stated to be £4,348, for employers liability cases £10,436 and for public liability £7,312, much higher than previously reported average levels of general damages in such cases. If the true figure for general damages were much lower then this would make a significant difference to the calculation as to who was “better off”.
But even assuming the Jaggards figures for general damages are correct, the Government analysis suggests that whilst 71% of road traffic victims will be “better off”, 66% of employer’s liability claimants and 85% of public liability claimants will be “worse off”. The Government’s conclusion is road traffic accident claimants will on average receive 1% more general damages than at present, whereas on average employers liability claimants will receive 5% less and public liability claimants 10% less. So under both the Fenn and Jaggards data most of the “winners” are road traffic accident victims, most of whom will be involved in low value claims.
The mischief of the current regime according to Lord Justice Jackson is that it “incentivises the bringing of strong claims, but at disproportionate cost and in an environment where the claimant has no interest in controlling costs.” He says that “the present CFA regime presents lawyers with an irresistible temptation to cherry pick. Of course, there are some lawyers who honourably ensure they take on other losing cases in order to spend the success fees gained from successful cases. But there are many lawyers who do not.” Lord Justice Jackson produces no evidence (other than anecdotes) for the proposition that claimant lawyers do not take on risky cases. This is because there is no such evidence. Indeed, if it were so, one would expect a reduction in the number of claims brought from the days of legal aid. And clamant lawyers are usually criticised for the exact opposite; that is, using no-win no fee to pursue many more unmeritorious claims. The truth is that the numbers of claims, other than for motor accidents, are relatively static, which suggest the system has in fact succeeded in funding meritorious cases.
There is also a fundamental misunderstanding here of how success fees operate. Lord Justice Jackson fails to appreciate the significance of earlier research undertaken by his assessor Paul Fenn. In 2003 and 2004 Professor Fenn’s calculations (in conjunction with his colleague, Professor Neil Rickman) underpinned the fixed success fee regime. The statistics which led to this showed that in fact most of the lost costs were incurred in cases which were abandoned prior to issue of legal proceedings. Far fewer cases failed after issue of proceedings. However, a relatively small amount of time on a relatively large number of abandoned cases meant that arithmetically the success fees had to be fixed at 25% for employers liability accident and 12.5% for road traffic accidents so as to ensure revenue neutrality for the lawyer. Whilst personal injury lawyers do lose some cases after issue, and indeed some at trial, one would not expect this to be common. And this was always anticipated by the fixed success fee regime.
The analysis of the proposals in the Government's impact assessment assumes that clients will continue to pay the same success fees out of their damages as are currently ordered to be paid by defendants. However, Lord Justice Jackson makes it perfectly clear that he expects individual claimants to “shop around” and to negotiate lower success fees. It is unclear how far this will happen in practice. However, it seems likely that road accident claimants in a rear end shunt will are more likely to take the view that the risk is relatively low in their particular cases and thus be unwilling to fund the lawyer’s basket of more risky cases (for example, pedestrians, bus passengers, cyclists and motorcyclists). If this happens to any great extent, the present “insurance” basis for success fees will be undermined. If many such claimants with strong cases negotiate a zero success fee (or even one lower than 12.5%), this will mean that those with riskier cases will all have to pay even higher success fees or may find it difficult to persuade a lawyer to accept the risk in their case at all. The ability to spread risks amongst all cases under the present regime must incline lawyers to take more risks, contrary to what Lord Justice Jackson asserts. Under his reforms, as the risks will not be spread amongst a wide class of claims, it seems inevitable that fewer risky cases will be brought as the risks of those cases must be justified on their own merits alone.
Ironically, a straight line increase of 10% of general damages will therefore overcompensate claimants with simple, low value claims because they may well negotiate a much lower success fee. This will be at the expense of those claimants with bigger and more complicated claims. These claimants, who are already seen to be likely to be worse off under the Government’s own analysis, will in practice be even worse off. They will also have to pay even higher success fees out of damages, or will find it impossible to find lawyers to bring their claims at all as the 25% cap on general damages and past loss will limit the amount of the success fee available.
The Government have entirely missed the target they were aiming at with these reforms. They have said that they were concerned about the compensation culture. But the numbers of employers liability and public liability cases have not been increasing. It is low value motor cases which have increased dramatically in recent years. These proposals will incentivise more claims by the victims of such accidents as they will gain an additional amount of general damages and are likely to escape having to pay lower success fees or none at all. However, other victims of accidents will find it harder and harder to find lawyers and those that do will end up paying more out of their compensation.
David Marshall is a personal injury specialist and managing partner of Anthony Gold Solicitors. For further information email David Marshall or call 020 7940 4000.
