THOMPSONS SOLICITORS’ RESPONSE - JANUARY 2009
About Thompsons
Thompsons is the UK's most experienced trade union and personal injury law firm. It has a network of offices across the UK, including the separate legal jurisdictions of Scotland and Northern Ireland.
Thompsons only acts for trade union members and the victims of injury, never for employers or insurance companies. At any one time, the firm will be running 70,000 claims.
The firm participates regularly in government consultations on legislative issues.
Note: Confidential data is included in this paper. This is provided in confidence but we have no objection to the data being referred to as supplied by a personal injury Claimant law firm or other similar description which preserves confidentiality.
Thompsons’ position
Thompsons is committed to supporting pro-active reform of the legal process designed to improve that process for litigants including personal injury claimants. We also propose reforms where they deliver access to justice for injury victims at a reasonable and proportionate cost.
Within this paper we suggest practical reforms of the personal injury process:
- Compulsory pre-action settlement discussions;
- Claimants’ Part 36 offers with teeth to include additional damages;
- Unambiguous rules to ensure compliance with pre-action protocols and to enable consistent enforcement of those rules by the courts;
- Burden of proof reversed where protocol response on liability is delayed;
- Streamlining the litigation process by simplifying the procedures for directions and witness statements.
Our proposals are based on a conviction, shaped by our experience of real cases and the extensive statistics which we include in this paper, that the key to ensuring proportionate costs is early settlement of cases. That goal is achievable in many more cases than at present.
Any proposals that do not match the costs recoverable under the claims process to the work required will distort that process and produce a fundamental inequality of arms.
The personal injury claims process is already undergoing reform – see below – and it is important for this review to be joined up with those changes. Against that background we suggest that the real target should be commercial litigation where costs are grossly disproportionate. Attacking costs that are recoverable without equating those with the work required would amount to a one-sided attack on access to justice and the ability of injury victims to continue to take on the might of the insurance industry.
Matching costs to the work required was a central plank of the recent Ministry of Justice (MoJ) response to the consultation on the Claims Process for Personal Injury Claims and whilst there may be discussions about the detail this key point underpins the MoJ recommendations that emerged.
Work is ongoing to implement those recommendations this year. These new arrangements will apply to the vast majority of personal injury claims and we have grave concerns about duplication between those new arrangements and this review.
The new Claims Process is aimed at personal injury claims under £10,000 – the vast majority of personal injury claims – and should be allowed to ‘bed down’ and time allowed to review its effectiveness before any further reforms are introduced. A state of constant upheaval in personal injury litigation is of no benefit to either party.
The insurance industry always complains about the outcome of any consultation that has not delivered all on its wish list. It is a hugely impressive lobby force. We are concerned that this review does not pander to those complaints which amount to a demand for a second bite at the cherry after the insurers’ wish list was only accepted in part by the MoJ.
Over concentration on relatively low value personal injury cases would not only be a duplication of reforms but the statistics we produce below suggest it would also miss the target. Clear rules, proper enforcement and a structure that binds parties to settlement discussions is all that the personal injury process needs. The sledgehammer should be reserved for commercial litigation costs abuse which is manifest in the reported cases.
The questions:
1. What costs are being incurred?
The table below sets out the costs Thompsons have recovered in employers liability (EL) accident cases this financial year. These are the costs as agreed by the Defendants or as awarded by the Court.
It can be seen that only a tiny minority of cases proceed to trial. The cases seen by Trial and Costs Judges are very much the exception rather than the rule.
Our statistics bear out the comment in the review Information Note that Judges only see extreme cases. Whilst judicial experience of costs is important they show a distorted and small part of the whole picture. Our figures show the real position on the ground in the vast majority of cases.
Employers Liability accident cases
Average profit costs per case (base costs).
Damages £1,000 to £25,000
| Cases closed May – Dec 08 (8 months) | ||
| Pre-proceedings | 51% | £2,147 |
| Post-proceedings | 47% | £4,100 |
| Trial – inc settled at trial | 2% | £6,043 |
Damages £25,000 to £100,000
| Cases closed May – Dec 08 (8 months) | ||
| Pre-proceedings | 11% | £4,372 |
| Post-proceedings | 81% | £10,360 |
| Trial – inc settled at trial | 8% | £13,350 |
Damages over £100,000
| Cases closed May – Dec 08 (8 months) | ||
| Pre-proceedings | 2% | £6,038 |
| Post-proceedings | 90% | £19,341 |
| Trial – inc settled at trial | 8% | £17,020 |
See Appendix 1 for corresponding figures in EL disease and road accident claims.
These figures demonstrate clearly that early settlement is key. By definition, less work has been done such that lower costs are incurred. In cases under £25,000 settled pre-proceedings costs are 48% lower than in those cases settled after proceedings and 65% lower than those concluded at trial.
Many of the 47% of the under £25,000 cases that do not settle at the early pre-proceedings stage but later in the process could, in our experience, have settled at the pre-proceedings stage. These are not cases that went to trial – that applies to only 2% in this band - but are cases that settled after we were forced to issue proceedings to secure a settlement.
Why do insurers not settle these cases earlier?
Why in so many cases do insurers drag out claims and thereby force claimants to bring proceedings before agreeing a settlement?
The answer we believe is a lack of consistent enforcement and clear rules and a failure by insurers to engage with the issue of settlement early enough and at a senior enough level within their organisation.
2. Are those costs proportionate?
From our figures the answer is clearly yes. The EL accident figures in cases up to £25,000 demonstrate an average of £2,147 pre proceedings and £4,100 after proceedings.
In cases between £25,000 and £100,000 the figures are £4,372 and £10,360 respectively. In claims over £100,000 they are £19,341 and £17,020.
Clearly within these figures there will have been individual cases with higher costs which required judicial intervention but these figures show that they are the exception and that looking at personal injury cases as a whole, the costs are proportionate. Indeed, if they were not proportionate they would not have been agreed or recovered on assessment.
Should costs be characterised as disproportionate if they exceed the damages awarded? Or should this be regarded as a necessary expense for insurers or for society generally, in order to ensure that litigants on low income get the damages to which they are entitled (eg the personal injuries claimant for whom damages of £2,5000 may be vitally important)?
In our view costs should not be characterised as disproportionate simply because they exceed the damages awarded in an individual case. Each case turns on its own facts and not only should costs not be all about proportionality, proportionality should not be all about damages.
The Costs Practice Direction provides that in applying the proportionality test the relationship between total costs and damages may not be a reliable guide. The key word in the Direction is “necessity”, echoing the decision in the case of Home Office v Lownds [2002] EWCA Civ 365.
In fast track claims of lower value there is an inevitable tension between access, proportionality and reasonableness but we would say that if the defendant’s conduct leads to extra work then so long as that work was both reasonable and necessary (and that may have to be shown) then the defendant’s should meet that extra cost.
Although these cases are allocated to the appropriate level of fee earner and appropriate experts are used, defendant conduct often results in our having to commence court proceedings. This incurs additional, unavoidable costs. This work is however both reasonable and necessary.
We agree with the Court in Lownds when it said in paragraph 38 that the “conduct of the other party is highly relevant”.
Whilst damages will inevitably remain an important component in any test of proportionality and our figures show a clear correlation between value and costs recovered, there are a host of reasons which could drive up costs in an individual case. It is essential, we would suggest, to look at the complete picture.
Our statistics demonstrate that, taken as a whole, the determining factors in the level of costs in a personal injury case are value, case complexity (RTA, accident, disease etc) and insurer behaviour.
In a properly conducted case the costs reasonably and properly incurred will reflect case complexity and behaviour. Where the insurers behave well with appropriate early admissions and there is a pre-proceedings settlement costs will inevitably be less than in a case of the same value where the insurers delay, fail to agree issues where appropriate and settle late after proceedings.
We believe the problem is in part due to insurance industry cutbacks in the number of claims handlers and investigators it employs – a trend that shows no sign of being reversed.
Too often Thompsons is forced to issue proceedings simply to get to a position where meaningful negotiations can take place. Inevitably in those cases costs are driven up. But that does not make our costs disproportionate. They remain reasonable, necessary and proportionate to the work that we are forced to do to prove a client’s case in the face of irresponsible defendant non-cooperation.
Those insurers who behave well and settle early in cases will keep costs down.
Just one example (and we have many more if they are of assistance to the review) of insurer behaviour dragging a case out would be:
We were instructed by a university porter who suffered a hernia whilst lifting the inner part of a wall mounted bin full of heavy rubbish. Because of the way it was mounted he had to lift it over head height.
The university’s insurers denied liability.
We replied in some detail to clarify the circumstances of the accident, in case the insurers had misunderstood. The defendants maintained their denial of liability.
We disclosed a medical report but heard nothing further.
Court proceedings were commenced and served.
It was only after proceedings were commenced that the insurers showed any inclination to settle the claim. A derisory offer was put forward and we made a counter offer.
A defence was served denying liability. The claim settled soon after for more than twice the offer eventually put forward.
A case that could have been settled much earlier with lower costs ended up with costs being more than the settlement sum.
If our approach is thought to be wrong and proportionality is deemed to be all about damages and costs then there is another way to address the issue. It is one shied away from on more than one occasion but an increase in damages to the levels proposed by The Law Commission in 1999 would make far fewer cases disproportionate.
Compulsory settlement discussions
A change in attitude from insurers is required so that resources are focussed on securing early settlement. That does not mean settling for more than a case is worth. And it does not mean settling those (few) cases where there are genuine issues of dispute requiring a trial.
Neither is it a call for mass use of mediation and other forms of alternative dispute resolution which we support but in reality are rarely required in personal injury claims as both parties are represented by experienced practitioners who should be able to resolve cases by settlement discussions and, in more complex cases, settlement conferences.
What is needed we suggest is a requirement for pre-proceedings settlement discussions and real sanctions for non-compliance with protocols.
In our experience it is always good to talk. Even if it is not possible to have two relatively senior executives on either side in a case who have authority to settle the case in that discussion, issues can be agreed so that costs are incurred only on those issues in dispute. In addition sharing information makes early settlement more likely at a subsequent discussion.
Third party intervention adds to cost but it has a role where discussions have broken down and there is a real prospect that a mediator can add value. In our view mediation/ADR should be seen as part of the toolkit to deliver earlier settlement but the exception rather than the rule. As a firm we are hosting the London launch of the Centre for Alternative Dispute Resolution at our London offices in March
Where mediation/ADR is called for as a legitimate means to resolve a dispute, the costs should properly follow the event. Unless it can be shown that the injury victim’s behaviour led to the need for Third Party intervention a victim of another person’s negligence should not be required to pay part of the costs of mediation out of damages.
Sanctions
The requirement to meet will be meaningless if it is not backed by sanctions for failure to do so. Clearly these sanctions need teeth.
Insurers can no doubt produce similar figures to ours and can see for themselves that costs increase when they settle cases late but if 47% of our cases settle between issue and trial the current sanction of increased costs is clearly not enough.
We advocate the reversal of the burden of proof as the appropriate sanction to drive insurers’ behaviour. This would also force them to take a pro-active approach in the proceedings as putting the Claimant to proof will no longer be an option.
We also suggest that the real teeth that Part 36 has in respect of Defendants’ offers should be applied to Claimants’ offers.
The Part 36 costs penalties are such that no Claimant will reject such an offer unless they have clear advice that there are reasonable prospects of securing an improved settlement or award. That is not the case with claimants’ offers. The additional interest available is modest and rarely awarded in practice.
In addition there is a reluctance to award indemnity costs following a defendant’s failure to beat a claimant’s Part 36, and in those few cases where such an award is made a reluctance to assess costs properly on the indemnity basis. Not surprisingly the result is that insurers do not take a claimant’s Part 36 offer with the same level of seriousness.
We suggest that this process is strengthened so that where a claimant is awarded the amount in their Part 36 or more, substantial additional damages are payable by the defendant who should have settled the case when the offer was made and indemnity costs awarded and properly allowed on assessment.
Challenging costs
Personal injury is no different from other case types in that costs have to be reasonable, necessary and proportionate. Current procedures allow defendants to challenge any costs claim they believe to be unreasonable through the costs assessment process.
Defendants can protect themselves by making Part 47.19 offers. If claimants choose to pursue unreasonable costs, they will be penalised when it comes to the question of costs of Detailed Assessment. The Civil Procedure Rules also direct costs judges to consider parties' conduct in Detailed Assessment proceedings, the amounts by which a bill has been reduced and whether it was reasonable for parties to claim certain items or whether a defendant has made unreasonable challenges.
Defendants who make unreasonable offers too will be responsible for paying claimant's costs of assessment. With these provisions in place parties are encouraged to deal with the assessment process, in terms of costs claimed and points pursued, sensibly and without recourse to the courts wherever possible.
Any party who fails to act accordingly, drives up costs and wastes the court’s time is quite rightly penalised and the innocent party recovers the additional costs thrown away by that conduct.
The reality, in Thompsons’ experience, is that it has become more difficult in recent years to agree costs at an early stage by informal procedures. Insurers have embarked on a well documented ‘costs war’ and have not delivered on the promises to call this off when extensive industry wide agreements were reached with the considerable assistance of the CJC. Predictable costs in RTA cases settled pre-issue and fixed success fees in RTA, EL accident and EL disease cases as well as a separate informal agreement on medical report fees have not led to any amendment of insurer behaviour.
Instead of properly operating the costs assessment procedure they have sought to grind it to a halt by attritional warfare and have then called for its abolition.
Fixing costs
A debate around proportionality appears to lead inevitably to consideration of fixing lawyers’ costs. We believe this is a false link.
There has to be a match between costs reasonably and properly incurred and costs recoverable. Arbitrarily decreeing that there should be a reduction in costs recoverable without equating those costs with the work required would be the equivalent of asking a pilot to fly the same distance in less time without looking at the type or age of the aircraft, the load or the prevailing winds.
We set out below our detailed reasons for believing that fixed costs will harm injury victims and access to justice and will only benefit insurers but there is another very recent public example of how fixed costs can be distorted and fail to deliver justice from the Coal Health Compensation Scheme.
After very extensive test litigation which resolved generic issues and was paid for on an hourly rate basis the Scheme that emerged has been based on a system of fixed costs.
It is instructive to see how wide is the performance variation in damages recovery in the Scheme between law firms in a category of cases which are readily comparable.
The Coal Health Scheme cases expose as a professional fig leaf that lawyers if they are paid regardless of result will always put their client’s interests first.
The Government figures on average Scheme damages recovery (which we set out at Appendix 2 but are contained within various Parliamentary Answers) make plain that one of the main disadvantages of fixed costs is the incentive on lawyers to cut corners and undersettle claims.
These figures show Thompsons with the highest average damages in COPD cases 23% higher than the closest solicitors and 300% more than the law firm with the lowest average. In VWF Thompsons are second with an average 57% higher than the firm with the lowest figures.
It is clear that in the absence of any pressure to perform well for the client and in the knowledge that the lawyer working hard to drive up damages for injury victims is paid the same amount as the lawyer playing the system, doing the minimum work and settling low the result is sadly that too many lawyers choose to drive up profit at the expense of the client.
Ten objections to fixed costs
- They will remove the financial incentives on insurers to ‘behave’ in litigation. Instead they will create a perverse incentive (the reverse of the current incentive) to deny the undeniable and contest the unarguable. The result will be that the Claimant’s solicitor will incur wasted costs which cannot be recovered.
- No business can run at a loss. Where fixed costs fall short of actual costs incurred, cases will either be turned down (reducing access to justice) or clients will be charged the excess (removing free access to justice)
- In the Coal Health Scheme (see above), some lawyers have, it would appear, undersettled cases rather than pursue the matter in the best interest of the client. In that way they recover the same fixed cost for less work.
- Access to justice in meritorious but risky personal injury cases has been ensured by a system of reasonable costs recovery and standard success fees set at 100% for those cases proceeding to trial. Fixed costs based on an average will render those risky cases requiring more work than the average uneconomic.
- In personal injury cases the claimant is always an individual with limited means and the defendant always a large insurance company with substantial financial backing. Equality of arms is fundamental to ensure fairness and equal access to justice. This is undermined where fixed costs are less than those and reasonably incurred costs.
- Lawyers can only recover their “reasonable, necessary and proportionate” costs. If the defendants do not agree with any costs claimed they have the right to challenge them by way of the Costs Assessment Process and can recover their costs of doing so if they make an early offer which is not beaten on assessment. In our experience the defendants’ do not properly use this procedure and rather than engage with it they allege the system is flawed and call for the simplicity and certainty (for them) of fixed costs.
- There has been no independent or verifiable evidence produced by the Government or the insurance industry that costs in personal injury cases are out of control. Insurers wrongly claimed that there was a compensation culture and this was rejected by Government following an extensive investigation. Their claims on costs are no more accurate.
- It is morally right that when someone has caused injury they should meet not only the compensation for the injury but the full reasonable, necessary and proportionate costs caused by their negligence.
- Fixed costs will undermine the health and safety deterrent on employers, of having to pay not only compensation but the cost of proving negligence in EL cases. Fixed costs may also encourage cynical calculations of the financial risk of injury from an unsafe work practice
- In CFA and trade union backed cases the current costs arrangements have delivered nil cost to Claimants and access to justice. It is Defendants and their insurers who press for fixed costs as shorthand for reduced costs. Reducing costs recovered so that they fail to match costs incurred can only undermine access to justice by removing equality of arms.
Clients’ views on fixing costs
As part of our response to the MoJ claims process review, Thompsons commissioned an independent survey of over 1,000 clients. The details and results are contained in Appendix 3. The results showed that claimants considered that fixed costs would impact on their access to justice and quality of legal representation.
Survey snapshot:
Q At present – in personal injury cases, the person found responsible for the injury pays the costs of your lawyer i.e. the guilty party pays all. Do you think this is a fair approach?
| YES | 953 | 95% |
| NO | 43 | 4.3% |
| UNSURE/DON’T KNOW | 6 | 0.6% |
| DEPENDS ON CASE | 1 | 0.1% |
| 1003 | 100% |
Q One of the government’s proposals is that the amount the claimant’s lawyer can be paid will be fixed. At the moment the lawyer is paid for the actual work and time they need to spend on your case. If the lawyer is only going to be paid a fixed amount – do you think this will affect the amount of work they will do on your case?
| YES | 854 | 85.1% |
| NO | 122 | 12.2% |
| UNSURE/DON’T KNOW | 27 | 2.7% |
| 1003 | 100% |
Identifying cost centres and how to tackle them
We do not accept that the cost of compliance with pre-action protocols is generating excessive cost – the opposite is the case. The costs figures we have provided demonstrate that it is early settlement that drives lower costs.
In our experience it is the lack of compliance with pre-action protocols which leads to litigation and thereby higher costs. What other explanation can there be for delayed settlement in so many fast track cases?
Many insurers dislike pre-action protocols precisely because compliance with them requires them to have claims departments capable of dealing quickly and effectively with claims. Our experience in recent years has been that insurers have driven down their own costs by cutting their claims infrastructure thereby undermining their own ability to process and negotiate claims quickly and within protocols.
We do though accept there is a case that some reforms in recent years have driven up the cost of litigation without any demonstrable benefit.
- There is reference in the Review paper to seeking “Information that would be helpful for the costs review” about the preparation of witness statements becoming a “mini-industry”. This is not the position in our experience but the costs of witness statements are a concern.
We frequently rely upon basic handwritten witness statements but we have seen cases where Defendants have produced extensive and lengthy statements, often drafted by solicitors and/or counsel.
The current system positively encourages detailed and lengthy statements as these may have to stand as evidence in chief. That requirement, combined with the burden of proof (it never being possible to foresee all developments in a case between drafting statements and trial) inevitably encourages lawyers to err on the side of length rather than brevity.
If there is a real risk that a case could fail because some aspect of the evidence, which may appear peripheral on drafting is left out of a statement and cannot be introduced at trial, then more rather than less will be put in.
This can be resolved by returning to the purpose of exchanging witness statements which was to ensure a cards on the table approach which itself should encourage settlement. An approach which accepts skeletal statements and supplementary evidence at trial - provided the substance of the evidence has been disclosed and there is no attempt to take advantage and effectively ambush the opponent – would reduce the detail in statements at present. - The requirement for lengthy questionnaires and procedural hearings such as CMCs will inevitably increase costs. There has been no review of whether these increased costs have delivered any consequential benefits. There are many cases where questionnaires and procedural hearings could be dispensed with and replaced by automatic directions with the parties having the opportunity to seek different directions where appropriate.
This need not undermine judicial case management as automatic directions could still provide for procedural hearings to be listed where the case remains unresolved after the period covered by the directions. - Whilst recent developments have helped to control the cost of disbursements incurred in personal injury claims they remain a significant factor in total costs. The possibility in fast track cases to a greater extent than previously to instruct specialist GPs and the greater use of joint experts has helped.
Court fees on the other hand have increased substantially in recent years. Any increases may have the advantage of concentrating minds and encouraging early settlement as, clearly, court fees do not arise in cases settled without proceedings. However the MoJ is currently consulting on further court fee increases. which are wholly beyond the control of litigants and should be borne in mind in considering the level of costs and issues of proportionality.
Costs capping
We plan our personal injury cases from the beginning to ensure that they are handled proportionately based on value. We allocate the appropriate level of fee earner to a case and determine the level of experts necessary, to do otherwise might mean that our costs would not be considered to be reasonable.
We accept that costs capping is appropriate to big commercial cases involving hundreds of thousands of pounds but for the vast majority of personal injury cases it would be wholly disproportionate.
The risk of costs capping is that for the claimant a cap is exactly that – the claimant or their funders cannot or will not pay more than the capped amount. In a test case however the defendants may well consider it to be worth their spending more than the capped amount to get the result. The funding restraints of a cap can be disregarded by defendants with deep pockets, something that would be very unlikely to happen for a claimant.
Thompsons support costs capping in appropriate cases but these will be rare and exceptional in the context of personal injury litigation.
Thompsons had experience of costs capping in the Cardiff County Court in 2007. There, DJ North issued costs capping orders in about eight Vibration White Finger (VWF) and Work-related Upper Limb Disorder (WRULD) cases.
DJ North took the view that he had to do something about the levels of costs in what he considered to be relatively low value claims (under £10,000) with high costs.
VWF/WRULD cases may be lowish in value but they are complicated disease cases to run. The exposure to vibration often spans decades in heavy industries that have seen many changes over the relevant period.
Lay witnesses are important and their statements long. Non medical expert evidence is often needed. The medical issues are complicated. Because of the complexities, trials usually last more than a day.
DJ North however allocated the cases to the fast track and imposed a costs cap. In one case the cap on our profit costs between allocation and completion of trial was not to exceed £2,500. Our actual costs were between £2,500 and £4,000.
The costs caps were unworkable. They meant that we would not be paid for the work we did to represent our client properly. But they were removed in March 2008 after we successfully appealed one of the orders.
The judge agreed that the issues were complex and should be multi-track.
The future of the costs shifting rule
Costs shifting is a fundamental pillar of our system of justice. The innocent party in a legal action has had to incur legal costs in order to establish their rights. As the opposing party must provide restoration to the victim in terms of damages, the same applies to costs.
Without costs shifting, the victim who wins the case is penalised. In the case of an injury victim this would be adding to the damage caused by the initial negligence. The tortfeasor has by definition acted wrongly in injuring the victim – damages are paid for that calculated to be the appropriate measure of damages and certainly not on a generous basis, as the Law Commission confirmed.
That wrongdoing has then been confounded by putting the victim to the expense of bringing a legal claim. There can be no logical basis for requiring the victim to meet that expense rather than the party whose conduct has caused those costs to be incurred.
The parallel with damages is clear. In a sense costs shifting recognises legal costs as another expense to which the victim has been put because of the conduct of the opposing party. For example, the victim’s injuries may have required expenditure on nursing or medical expenses. That is recoverable by way of damages. Similarly the same conduct of the opposing party has caused the victim to incur legal expense which is recoverable by way of costs shifting.
Costs shifting, combined with CFA funding also ensures equality of arms. An injury victim with a meritorious case but no means financially to afford a lawyer can take on the might of an insurer, confident that their lawyer will be paid by the insurer when the case succeeds. Without costs shifting that victim would be penalised and the insurer gifted a windfall.
Either the case is not brought because the victim cannot afford a lawyer, in which case justice has failed. Or it is brought but the insurer gains by not having to pay costs whilst the innocent party has to use much of the damages to pay costs – again justice has failed as the proper damages have not been recovered due to the costs deducted from that sum.
Costs shifting also ensures that the polluter pays for the consequences of their action or inaction and provides the appropriate incentive not to unlawfully injure or damage other parties.
There is and never has been any serious suggestion that costs shifting be abolished. The debate appears to have arisen because of a misunderstanding of the research of Professor Moorhead. The essence of his findings are that US style contingency fees would not lead to the sort of difficulties and abuses feared such that, with appropriate safeguards, they could be permitted in this country – as an additional means of funding for certain cases in certain circumstances.
He does not remotely suggest that the US system be transplanted into this jurisdiction as a replacement for the current system based on costs shifting.
The misunderstanding was cleared up by Professor Moorhead in his letter to the Law Society Gazette (Contingency fee problems “modest” 11 December 2008):
“It is worth emphasising a few points regarding contingency fees (see [2008] Gazette, 4 December, 2). The evidence is not that contingency fees present no problems, but that those problems are more modest than many assume. They do not give rise to rampant, unmerited litigation, but they do give rise to consumer protection issues around clarity of charging, handcuff clauses and settlement.
Furthermore, they provide narrower levels of access to justice than, say, legal aid could but never will, or than conditional fee agreements do (in litigation). They are cheaper for opponents - their won costs are probably reduced and they pay no recoverable costs - and more proportionate, but the client pays out of their damages.
Contingency fees are neither the source of, nor the solution to, all of the justice system’s problems. Properly regulated, I believe they can help, but only a little.” Professor Richard Moorhead Deputy head of school, Cardiff Law School, Cardiff University
What is clear is that a US style system without costs shifting would have to be a system with US style damages – ie vast increases in current levels of damages so that there are funds available within damages recovered to pay costs. That is not a serious proposition and the debate is simply a distraction from the real issues to be considered.
But we do not accept that contingency fees have worked where they are (by accident rather than design) permissible, ie in Employment Tribunal cases. In our experience they have been most extensively used in equal pay cases and yet this is an area which Professor Moorhead accepts he has not researched. It is the equal pay cases which have highlighted their abuses which include:
- failure to properly advise of alternative means of funding such as the availability of union funding – this is due to the conflict of interest between the client and contingency fee lawyer
- golden handcuffs and lack of advice on those
- no effective means to challenge the level of success fee unlike the position with CFAs where there is such a mechanism
- cherry picking – taking the easy cases and leaving unions to take the more difficult cases
- piggy backing – sitting back allowing unions to lead cases and incur costs on the generic points, then picking up cases which benefit from the decisions handed down.
It is also a misunderstanding for the review paper to refer to costs shifting having been abolished in ET cases. The real position is that it never applied. The reason is because ETs were initially intended to be “industrial juries” hearing cases conducted by union officials or unrepresented employees against personnel managers. Cost shifting was not needed as lawyers would not be needed.
But that optimistic hope has long since been replaced by a reality that ETs have been taken over by lawyers, legal argument and legalistic processes. This, combined with employers’ extensive use of lawyers, has forced unions to follow suit.
The net result is that ETs cannot and do not provide access to justice for those employees not in unions. They have the choice of taking on the employers’ legal team without their own legal representation, or instructing a lawyer on a conventional basis and being left with a bill win or lose. In that context it is not surprising that some have preferred contingency fee arrangements as a lesser evil.
Similarly, costs shifting does not apply to small claims because that procedure is designed for cases which do not require lawyers, eg consumer disputes for modest amounts. The lower small claims limit for personal injury cases, which the MoJ reviewed in the Claims Process Consultation and concluded should continue, recognises the need for lawyers in personal injury cases, save only those under £1,000.
Conditional Fee Agreements
We agree with the view that CFAs have opened up access to justice for litigants who otherwise could not afford it. They have also ensured that those pursuing a claim on a CFA can retain all of their damages.
CFA’s have been strengthened by the industry wide agreement on levels of success fees in personal injury cases. Those agreements were reached after a lengthy and transparent process with numerous reports and constructive input from Fenn and Rickman based on extensive data from both insurers and claimant firms. Thompsons were the biggest claimant supplier of data to that process.
Figures were agreed based on a complex ‘decision tree’ methodology which sought to ensure that success fees broadly equated to the costs incurred but not recovered in failed cases. The cornerstone of the system incorporates a basic success fee uplifted to 100% applicable throughout the case but only in those cases proceeding to trial. This preserves access to justice for all cases including the riskier claims.
A flat rate success fee would have rendered risky cases uneconomical. The device also encourages early settlement where the basic success fee applies.
Our success rate figures below are based on cases closed from May – December 2008 (8 months). They are consistent with our historical data and demonstrate the extent of unsuccessful personal injury cases which is often wholly misunderstood. The reality in our experience and demonstrated by these statistics is that very large numbers of personal injury cases fail.
Whilst most successful personal injury cases settle it is a myth to suggest that all personal injury cases settle. There are many personal injury cases which are not successful, most of which are concluded without proceedings:
- Employers Liability accident cases - success rate = 61%
- Employers Liability asbestos cases - success rate = 51%
- Employers Liability stress/strain cases - success rate = 12%
- Employers Liability other disease cases - success rate = 31%
- Public Liability accident cases - success rate = 33%
We agree with the comment in the review paper that CFAs have not led to irreconcilable conflicts of interest. It remains the case, whatever the funding arrangement, that we advise on the basis of a reasonable prospects test both in relation to liability and in respect of quantum proposals.
Our trade union clients operate extensive quality control procedures and simply would not continue instructing us if there was any suggestion of a more cautious approach.
They regularly see our failure rate statistics and challenge any increase
Hourly rates charged by lawyers
It remains the case that the cost of running a solicitors practice is extensive.
Hourly rates reflect the true expense of running a practice by taking into account all relevant expenditure on an expense of time basis. This underlines the fundamental point that the costs recoverable under the claims process must match the work required under that process. No business can survive running at a loss.
Thompsons has embraced technology with a view to driving efficiencies but this brings its own overheads whilst other costs are market driven.
We have substantially increased our use of para legals where that is possible consistent with quality, professional duty and client care. That too has been reflected in the rates we claim.
The salaries we pay our staff and our solicitors in particular is however market driven. The fact is that we pay less than other law firms and rely on a commitment from our staff to the trade unions and the quality of the work that they will get with us. As a result we probably lose out on some lawyers who would otherwise join us. But there is a limit. We have to peg ourselves somewhere near to the ‘going rate’ for solicitors and junior partners or we would have very few takers.
We have no control over that ‘going rate’ at all.
Further information:
Doug Christie
Thompsons Solicitors
Congress House
Great Russell Street
London
WC1B 3LW