Above the law

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I recently received, from a well-known firm of claimant lawyers, a set of Replies. In support of the Replies and the refusal to disclose the conditional fee agreements was a statement from the managing partner of the firm. This explanation included the following:

“Defendants’ request for early disclosure of our CFAs is made in an attempt to avoid their obligations to pay costs on a technicality. I find this approach utterly wrong and certainly not in the spirit litigation should be conducted.”

I suppose the “technicality” referred to is what some of us like to refer to as “the law”.

Only lawyers who make their living holding others to account to the full extent permitted by the law would believe that the law is something that applies to everyone but themselves.

CFA precedents

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The Law Society Gazette recently had an advice section on CFA precedents for CFAs with counsel which stated: “APIL/PIBA 6 was drafted specifically with PI and clinical negligence proceedings in mind where the solicitor is also working under terms with his client (on the Law Society model agreement). It is an industry-wide agreement and there is little prospect of a prudent PI solicitor departing from its key clauses”.

A prudent PI solicitor might wish to review the key clauses where they are entering into a CFA with counsel after liability has been admitted. “Grotesque” funding arrangement anyone?

Success fee cap plus uncapped ATE?

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We looked the other day at the problems that might arise post-Jackson trying to instruct counsel to act under a CFA if there is a 25% damages based cap on the success fee that must be split between the solicitors and counsel.

This might create a market for ATE premiums to cover own counsels’ fees for the small number of cases that go to trial, to ensure representation.

However, the ATE premium would now come out of the client’s final damages cheque, in addition to the 25% success fee cap. And, of course, there has been no suggestion that ATE premiums will be capped.

This would create the situation whereby if both solicitor and counsel act under CFAs, 75% of the client’s damages are protected (assuming the cap applies to both). However, if the solicitor acts under a CFA and the client needs to instruct counsel to act using an ATE policy to cover counsel’s fees, there is no corresponding cap on the total that may be taken from damages. It would be 25% (for the solicitor’s fees) plus an uncapped amount for the ATE policy.

We may see claimants losing much more than 25% of their damages with these funding changes.

Success fee cap – What about counsel?

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We looked the other day at whether VAT will be included or excluded from the 25% cap on damages that will apply to success fees. Looking again at the proposed changes to the Courts and Legal Services Act 1990, the Legal Aid, Sentencing and Punishment of Offenders Bill says:

“The additional conditions are that—

(a) the agreement must provide that the success fee is subject to a maximum limit,

(b) the maximum limit must be expressed as a percentage of the descriptions of damages awarded in the proceedings that are specified in the agreement,

(c) that percentage must not exceed the percentage specified by order made by the Lord Chancellor in relation to the proceedings or calculated in a manner so specified”

The percentage specified by the Lord Chancellor will presumably be 25%.

Note that the wording is that the “success fee” is subject to a maximum limit, not the total taken from the client.

The current wording of the Courts and Legal Services Act 1990 reads:

“The following further conditions are applicable to a conditional fee agreement which provides for a success fee—

(b) it must state the percentage by which the amount of the fees which would be payable if it were not a conditional fee agreement is to be increased; and

(c) that percentage must not exceed the percentage specified in relation to the description of proceedings to which the agreement relates by order made by the Lord Chancellor.”

The current maximum percentage allowed is 100%. It has never previously been disputed that VAT can be added to the 100% figure. It is not immediately obvious why the wording of the Bill would not allow for VAT to therefore be payable in addition to the 25% cap (meaning clients would have up to 30% of their damages taken in respect of the success fee).

That problem aside, what about counsels’ success fees?

The Bill, and the Court and Legal Services Act 1990, are concerned with individual CFAs, not the overall funding arrangement of the claimant.

Will counsel therefore also be able to charge a success fee that is capped at 25% of damages in addition to that of the solicitor? That would mean that the claimant would lose up to 50% of damages (or 60% if VAT can be added).  What if there is both junior and leading counsel?  Can each take 25% in addition to the solicitors, meaning the claimant would lose up to 75% of damages (or 90% if VAT can be added)?

If not, will the solicitor and counsel have to try to carve up the 25% cap between themselves? It is not obvious that counsel would want to accept instructions on a CFA basis where liability is finely balanced but they will get a success fee based on potentially much less than 25% of the damages, particularly in lower value claims.

It is not obvious that solicitors will want to instruct counsel to act on a CFA where a matter is proceeding to trial on quantum only if they will have to split the 25% cap.  Will they advise the claimant to settle?

Solicitors are unlikely to be willing to treat counsels’ fees as a disbursement if they are paying disbursements out of their own pocket.

Similar cap related problems arise where more than one firm of solicitors has had conduct of a claim. Can each take up to 25% of damages, in addition to counsel? Or must the firms somehow agree amongst themselves how to divide the cap?

The anti-Jackson lobby seems to have focused on all the wrong issues.

Success fee cap – plus VAT?

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I am grateful to Kerry Underwood for highlighting one unresolved aspect of Jackson implementation.

Lord Justice Jackson recommended that, with an end to recoverability of success fees from paying parties, in personal injury cases there should a cap on the amount of damages that may be taken as a success fee from the client. He recommended a cap set at 25% of the damages other than those for future care and loss. The government has accepted that recommendation.

However, does the 25% figure include or exclude VAT? This does not appear to have been clarified.

As Kerry explains, if VAT is on top then the true rate as far as the client is concerned is 30% (25% plus a further 20% VAT).

On the other hand, if the 25% includes VAT then to the solicitor the actual maximum percentage “take” is 20.83% (25% less 20% VAT).

Either clients or solicitors are going to be more out of pocket than the headline figures suggest.

Kerry also points out that it is crucial to remember that the 25% cap is only on the success fee and thus the claimant’s solicitor is still entitled to charge solicitor and own client costs on top, thus potentially taking far more than 25% of the damages. Whether the claimant personal injury market will bear this remains to be seen.

Kerry’s further thoughts on Jackson implementation can be read here.

I’ll look at the issue of how the cap will apply to success fees on counsels’ fees on another day.

No win, no fee, no logic

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The muddled thinking coming from the anti-Jackson movement continues, as charmingly shown by Nigel Muers-Raby, Chairman of the Consumer Justice Alliance (Law Society Gazette, letters, 26 May). His letter begins:

“Your recent article reporting on the increased number of medical negligence claims in 2010 is interesting, but the Medical Defence Union reaches a highly speculative conclusion. The MDU offers no firm evidence for its suggestion that ‘no win, no fee’ arrangements are behind the increase in medical negligence claims reported in 2010.”

Fair enough. The point being made here is that there is no evidence that ‘no win, no fee’ arrangements increase the number of medical negligence claims that are brought.

And then, with just one sentence separating this argument, we are presented with:

“There is no doubt in our minds that someone who has suffered an accident will find life much tougher if ‘no win, no fee’ agreements are lost: ultimately it will hinder their ability to seek fair and reasonable access to justice.”

We are now presented with the argument that ‘no win, no fee’ arrangements enable more medical negligence claims to be brought than would otherwise be the case.

Either ‘no win, no fee’ agreements have no effect on the number of claims brought or they increase the number. What they can’t do is both these things at the same time.

I can understand the anti-Jackson lobby trying to mobilise whichever argument suits them on any given occasion but surely they have the sense not to use contradictory arguments in the same letter. And they wonder why Jackson totally ignored them.

Qualified one-way costs shifting

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The inconsistent arguments being put forward by the anti-Jackson lobby continue unabated.

Access to Justice Group co-ordinator Andrew Dismore was recently reported as saying:

“The government must think again and not give in to the special pleading of the fat cat multinational insurance companies, who are the sole beneficiaries of their plans. They will save millions of pounds at the expense of ordinary people who have been hurt on the roads or at work. The government’s plans are Draconian and will end access to justice for the less well off.”

Colum Smith, the solicitor who acted for the claimant in the recent high-profile £6m damages claim for plastic surgery injuries, was quoted in the New Law Journal as saying his firm would not have been able to act if success fees were no longer recoverable and limited to 25% of damages:

“If we lost the case, we would have lost too much money. I make a living doing high risk cases. I don’t cherry pick.”

The line of reasoning being taken here is that without recoverable success fees solicitors will be unwilling to take on more risky claims.

A crucial part of the Jackson package is the proposal to introduce qualified one-way costs shifting (QOCS). Generally, successful defendants would no longer be able to recover their costs from the unsuccessful claimant.

So what does David Hartley, Director of ATE services at Abbey Legal Protection, predict QOCS will mean? He was quoted in Costs Lawyer magazine as saying QOCS would lead to “a massive market in speculative and fraudulent claims”.

If these twin predictions are correct, post-Jackson we can expect claimant solicitors to be less willing to run genuine cases, because of the risk of losing, but more willing to take on speculative and fraudulent claims, regardless of the risk of losing.

Or perhaps not.

Which is it to be? More or less litigation?

Hourly rate or success fee?

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When considering the issue of what hourly rates to allow, in the preliminary issues judgment in Motto & Ors v Trafigura Ltd & Anor [2011] EWHC 90201 (Costs) (15 February 2011), amongst the relevant factors identified by Master Hurst was:

“I have no doubt in this case that Mr Day has taken responsibility for this litigation at great personal financial risk to himself, and financial risk to his firm generally.”

I don’t understand this.

The ‘financial risk’ was the risk that the claims would fail and, as they were being run on a ‘no win, no fee’ basis, no costs would be recovered. However, that is what the success fee is designed to cover and was considered elsewhere in the judgment.

To factor this in when considering what hourly rates to allow appears to be a case of double-counting.

No win, no fee, no risk

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Three cheers for the Access to Justice Action Group (AJAG) and the Association of Personal Injury Lawyers (APIL). Words you probably didn’t expect to hear on the Legal Costs Blog.

They have been loudly trumpeting their “independent research” into the impact of the Government’s proposals for ‘no win, no fee’ agreements. Press releases, tweets, etc.

They have been strangely quiet about one element of the research findings. Of those members of the public interviewed who had brought a claim under a ‘no win, no fee’ agreement, only 2% lost their case after court proceedings had been issued. A further 3% had been dropped on the solicitors’ advice. Of those cases where proceedings were issued, over 90% of claims were successful.

And we are seriously expected to believe that with these kind of success rates solicitors will not be willing to run these claims regardless of any changes to the ‘no win, no fee’ system.

I’ll be waving this research around at the next detailed assessment I attend with a success fee claimed.

More research like this please.

No win, no fee; no stork, no baby

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Evidence from Berlin shows a clear correlation between the human birth rate and the stork population, thus proving that storks bring babies. Or is this faulty logic?

I wonder if we can find some other examples. Step forward the Access to Justice Action Group (AJAG) and the Association of Personal Injury Lawyers (APIL). Here are a few extracts from their recent press release following their “independent research” on Jackson implementation:

“Independent research … highlights the importance of ‘no win, no fee’ agreements to the general public, and throws a direct challenge to the Government’s proposed legislation to reduce access to justice by dramatically restricting ‘no win, no fee’ agreements.

The research … calculates that almost three million people have used this method to make a legal claim in the last five years. The vast majority of those are people suffering from personal injury.

Proposed restrictions to ‘no win no fee’ will mean the facility will cease to be an option for many claimants, and the research reveals that, due to their income, most won’t be able to fund their claims any other way”

Denise Kitchener, chief executive of APIL, was quoted:

“Under the Government proposals for ‘no win, no fee’ a huge number of people will lose their right to the compensation to which they are entitled, and which they need and deserve, as they will not be able to afford the legal help they need to bring a claim.”

It’s the staggering lack of any logical connection between the research undertaken and the conclusion reached that really takes the biscuit.

We can only assume that this press release is targeted at those who do not understand the current system and are unaware of the Government’s proposals.

The research shows that a lot of people have brought personal injury claims using ‘no win, no fee’ agreements. The research shows that many of them are on relatively low incomes. The “won’t be able to fund their claims any other way” means that they could not pay their solicitors’ ordinary fees in the event a claim was lost.

‘No win, no fee’ agreements are not about to be banned. In future, a successful claimant will pay any success fee out of their damages rather than the unsuccessful defendant. There was no research into what this would mean, if anything, for the number of claims brought. I just hope APIL members present their clients’ personal injury claims somewhat more convincingly then they are presenting the anti-Jackson case.