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Lord Jackson

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This is an article appearing in Midlands Business News of mine.

In his recent report, Lord Justice Jackson recommended all but abolishing ‘conditional fee agreements’ (CFAs) or ‘no win, no fee’ deals for a vast number of people, ignoring how the average ‘man in the street’ will deal with litigation and legal costs, according to Andy Hodges, chief executive of Midlands law firm Challinors.

“He proposes sweeping changes that dismember the Access to Justice Act 1999,” says Hodges, commenting on the 580-page Jackson Report, which he considers is ‘over long’. “People looking at low value claims will inevitably find that solicitors will not offer to take their cases on a CFA as the recovery of costs is drastically affected by these proposals.”

Jackson has also suggested an end to the recovery of ‘after the event’ (ATE) insurance premiums, which is taken out to cover the claimant against the risk of having to pay the defendant’s costs.

“It seems that Lord Jackson has not considered neither how law firms will continue to fund potentially losing cases and the effect that this will have on access to justice, nor how the poorer person will deal with litigation risk in the absence of ATE,” says Hodges. “Firms use the uplift or ‘success fee’ structure to allow them to offer no win no fee to clients. If this uplift is taken away then firms will inevitably withdraw the offer to clients forcing people to withdraw from litigation because they simply can’t afford it. Jackson has suggested an uplift in damages of 10 percent but that success fees are deducted from the client’s damages and capped at 25 percent, an approach not attractive to neither the client nor the solicitor, I would suggest.”

In the report, Jackson makes specific reference to referral fees in the Personal Injury (PI) market, as Hodges explains: “Jackson makes recommendations for a ban on referral fees in the PI market, which in my opinion, will simply cause claims companies to look at different models and not stop an industry that is well established and continues to flourish despite the press and government attacks. And after all, the consumer seems to like it.

“So what could happen in the PI market is that firms looking to consolidate will use the new business models such as Alternative Business Structures (ABS) to circumvent the need for a referral,” says Hodges. “After all, if you all but own the firm of solicitors why do you need to pay a referral fee? So this abolition of fees will muddy the waters for the consumer as they will no longer have separate representation. It will also do nothing to change a claims culture.

“Although it is difficult to predict what will happen, we could see a collapse of the ATE insurance market which may even take the BTE market with it. This will leave clients to pay the disbursements in any failed claim and no method for those with little money in the bank to bring a claim against an insurer without taking the risk of having unrecovered costs and a reduced award. The liability insurers are no doubt smiling but it is worth noting that Jackson did not consult victims groups in compiling this report.”

Jackson has also recommended fixed costs for some litigation, as Hodges explains: “Fixed costs do nothing for quality. We have seen many different fixed costs models in the public arena and one thing is clear – standards fall. A firm is intent, correctly, on making a margin on any job it undertakes. If the costs are fixed and the margin predetermined then the only thing that there is to change is the cost allocated to do the job. This will drag down the level of service people can expect and it will be the general public who suffer as a result.”

He adds: “For me, the proposal to stop recovery of the ATE premium and the abolition of the current success fee are the most ill conceived of Jackson’s proposals. If this report is about access to justice then concentrating on proportionality and not redressing the balance is short sighted. There is always a litigation risk to the client and that risk can be in itself disproportionate to the claim. Who then in the normal populace will be able to afford to take the risk of losing? Which firm will be content to take on cases unless they are assured of a fee if the chances of loss are not balanced by the potential of an uplift? In short, there will be a whole slice of the population who will be prohibited from claims because they cannot afford the fees or take the risk.

“Lord Justice Jackson has been set a difficult task, one that I do not envy. However it seems to me that this report looks at only one side of the problem. If fixed fees are necessary to reduce costs and uplifts are seen as unpopular, then the insurance industry has to adjust the way it deals with claims. Because if these proposals go through, all an insurer has to say at present is ‘no I am not paying’ and how many members of the public will be able to afford to argue that decision in court without a ‘no win, no fee’ agreement with their solicitor and ATE in place.

“Things would be different if this service was publicly funded, but we know all too well that costs have been cut in this area also.”

A different view has just been published here.

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Written by Andrew Hodges

February 1, 2010 at 11:33 am

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