Examination of Witnesses (Questions 231-239)
TERESA PERCHARD,
JAMES SANDBACH
AND ADAM
GRIFFITH
17 JANUARY 2006
Chairman: Mr Griffith, Mr Sandbach, Ms
Perchard, welcome. We are very glad to have you with us representing
the customers, the people who actually experience the system.
Q231 Jessica Morden: What types of
problems have you come across with conditional fee arrangements
and what kind of advice do CABs and law centres provide to people
seeking compensation claims?
James Sandbach: Predominantly
the issues that bureaus have dealt with, conditional fee agreements,
have been people coming in after they have been through the whole
process—so it is actually the issues that have arisen upon
their conditional fees: because quite often consumers have signed
up to conditional fee agreements not really understanding what
exactly they are getting themselves into in the whole process,
the costs that are going to be incurred, the liabilities that
they are taking on, and because of the British legal establishment's
normative way of funding PI cases and because we have had a new
market involved in conditional fee agreements and industries have
sort of grown up around it, there is a whole sort of class of
consumers that have processed PI claims through conditional fees
but have not necessarily got particularly good levels of redress.
They have had a lot of problems on the way understanding conditional
fee agreements, taking out loans for conditional fee agreements,
to fund conditional fee agreements, and all in all over the past
years we have seen about 130,000 of those cases.
Teresa Perchard: To add to what
James has said, in the report that we published last Christmas
on no win no fee agreements, we highlighted CAB evidence from
around the country where we see people at every single stage of
the process from the man who has been stopped in a windy shopping
centre, he happens to have a bandage on his hand and some character
in a mackintosh comes up to him and says, "Have you had an
accident?" and, before he knows it, he has signed something
just to get rid of this geezer and has entered into a really
quite complicated contract for a loan, an insurance product and
a claim coming into us trying to unravel the deal, to the people
who come to us at the end of the process who find that they actually
owe money because they have got locked into, as you have been
discussing, quite an expensive process and the compensation they
have received has not been sufficient to actually cover all of
the costs and they are left with a debt and are quite surprised
because that is not what they thought they were getting into.
In the middle of that people are not getting good advice, a whole
chain of people making money out of the signature on the form
that started it off and a system that is really not doing what
it should do for the individual who, after all, has suffered an
injury which may have lost them their job, or diminished their
earnings, truncated their social life, made it difficult for them
to act as normal, made them call on the public purse more through
claims on benefits for example, so there may be public costs from
not dealing with personal injury claims properly or quickly, and
a system that does not really look at rehabilitation, helping
someone to recover—it is only focused on money in a money
chain—and does not get the lessons from accidents and events
ploughed back into prevention. The system at the moment really
is not working is what we see from all sorts of cases that come
to CAB, which are illustrated graphically in the report we published
last year.
Q232 Chairman: I was very interested
in what you said about this. How could you build rehabilitation
better into the system?
Teresa Perchard: We have very
much supported the introduction of regulation of claims handlers,
but that is really just scratching the surface, which is really
just one of the problems caused by enabling this kind of business
to grow up, and I am sure we will come back to that. In our report
we said we need a thorough review of the whole system of compensation
to look at all the different options for helping people get access
to justice, perhaps take out more insurance before the event.
Q233 Chairman: That is not quite
what I was asking. It is how you build into the system getting
someone more readily back to work, rather than leaving them waiting
for a bigger sum of money at the end of the day which turns out
not to be very much. How do you build that in?
Teresa Perchard: There are many
insurance companies who are not so much in the "no win no
fee" area but who are looking at how they can offer rehabilitation
services to people who are making claims on their insurance policies,
which may make business sense for the insurer. If you are paying
out mortgage payments to cover the cost of a mortgage because
the person you have insured cannot work, it may be in your best
interests as a firm, to help them get back to work, to cut your
insurance payments more quickly; and there is a lot of interest
in the insurance industry which collides with an individual interest
in not being laid-up and excluded and unwell for long, protracted
periods of time and also public sector interests in helping people
rehabilitate which could come together in a better system for
dealing with the effects of accidents and injuries of all kinds
whether in public paces or at work. We had hoped to see a much
broader debate about how dealing with injuries could be put on
a broader footing and was not just about claiming money one from
the other, albeit we do need to protect people better in that
system, we think.
James Sandbach: I would add that,
because we have a tort system where the trigger is, I think, some
legal proof of negligence, of fault, and a process that builds
up towards that, there is a sort of stand-off culture until at
least the two sides are sitting down talking, and there is a process
of letters, and so forth, going back and forth, and so the claimant
kind of gets left on the sidelines until that ball is rolling
and has been rolling for some time, and so it is a matter of building
in. The system started to do this with the pre-action protocols
that, before you start talking money, you actually start talking
welfare and solutions.
Q234 Jessica Morden: What are the
main kinds of complaints that you get? Are they about the claim
farmers or are they about the solicitors? What types of complaint
do you deal with?
James Sandbach: It is a mix, but
it is particularly that the professionals involved are not really
seeing the problem from the point of view of the consumer. There
is a misunderstanding about where the consumer is in this process.
Q235 David Howarth: You mentioned
the difficulty of winning a tort claim. I was wondering what level
of understanding you find among your customers about the tort
system, about the compensation system. Do people understand how
it works?
James Sandbach: I do not think
they do. I am not going to get into individual judgments, but
there is a lot of evidence to suggest that the sort of concept
that we are used to dealing in as legal professionals about tort
law are simply alien concepts to the way the average person who
sustains an injury thinks about these issues. When you are presented
with something that says "no win no fee" you are going
to take that literally—it is no win no fee—and, if
you are approaching it at that angle, why should it be anything
else?
Teresa Perchard: The language
that is used in correspondence from insurance companies can be
extremely confusing for people when the insurer starts talking
about settling on a 50:50 basis. What on earth does that mean?
This is the language that has built up between professionals and
firms. Yes, there will be cases highlighted where people make
it a practice to claim compensation, but that is very unusual.
This is something that happens to somebody once in their lives,
and very few of the people who have had an injury actually get
involved in making a claim, so it is not something you learn about.
You do not have classes in compensation law at school, and we
do not cover pensions let alone claiming compensation, so consumers
coming into this system for the first time in their lives do not
know what to expect. Their expectations may be conditioned by
the media, and we have certainly come across people whose expectations
have been too high. And they have not had competent advice from
the first person they have met in the system, who is not required
to be competent and give people good advice on their likely chances
of success, or even how the process works. If you want to create
a system where people know what they are getting into, then they
need to be competently advised right at the beginning and know
whether their case is worth pursuing, what will happen and what
will come out at the other end so that they do not pursue unmeritorious
cases. But, if they do have a good case, they should get the right
sort of support and the right strategy for resolving their injuries
as well.
Q236 David Howarth: I think I know
the answer to this already from what you have said, but what level
of understanding is there of the basic concepts of the law that
there has to be fault, you cannot get compensation just because
you are injured, that only certain forms of injury entitle you
to compensation, there has to be causation and it is difficult
to cause causation. Are those types of things at all known in
the public?
James Sandbach: No.
Adam Griffith: I think probably
the exception to this is road traffic accidents. I think that
most people do have a basic understanding that if you have an
accident it is probably someone's fault. Okay, usually they think
it is the other person's fault, but I think many people realise
that some accidents are actually your fault and you have to put
your hands up or figure out what you are going to say to your
insurance companies, but I suspect that is the only sense in which
there is a general understanding of that.
Q237 Mr Tyrie: One would worry if
there was too much understanding, there would be nothing for lawyers
to advise on. A moment ago you gave a pretty good description
of what you felt was the downside of the new system. In fact,
I think one of you said, that the system was not working, I think
was the phrase. Is there any upside? Are there any cases which
CFAs are picking up which were ineligible for legal aid? Is there
any silver lining to the cloud you have described?
Adam Griffith: There must be for
people who are not financially eligible for Legal Aid. The best
estimate is that eligibility for Legal Aid covers approximately
40% of the population, so the majority of the population is not
eligible and therefore has the potential to bring claims and no
doubt has done so.
Q238 Mr Tyrie: It is not only that,
is it, it is also people who may have been denied Legal Aid who
were eligible for it, but a decision was taken that their case
was not worth pursuing, which was subsequently pursued and a claim
made under a CFA?
Teresa Perchard: Yes. We all accept
that the introduction of a system of conditional fee agreements
has enabled many people to have a system for funding their cases,
starting the case, without having to put money upfront which they
would not necessarily have been able to do so before, either from
their own cash or with help from Legal Aid. In a sense, with the
legislation that is coming in to regulate the claims handling
system, that is almost after the event. It could have been predicted
really that you were unleashing the possibility for a whole new
tribe of intermediary introducers to make some business here,
coupled with advertising, which we have talked about, but also
the introduction of referral fees as well. There were no measures
taken to ensure consumer education, consumer protection from new
market-based risks. You have opened up access to justice through
a market solution, but you have not introduced the protections
that might be needed to make sure that the market worked effectively
for consumers, and the legal services market for that matter as
well. That has led to a reputational effect for the whole legal
services market which we are now trying to fix up by introducing
some regulation of claims handlers. It is a pity we are having
to do that after the event with the introduction of regulation.
The whole package of introducing CFAs was not accompanied by proper
consumer protection measures in anticipation of some of the problems
that we have seen.
James Sandbach: I would also add
the CFAs are a product of the UK's particular system of costs.
The inquiry's terms of reference referred to contingency fee agreements,
they are not contingency fee agreements, we do not really have
contingency fee agreements here because of the costs of rules
in English courts, the cost of events and the indemnity principle
and so forth. What you have in the CFA is this rather complex
system of people indemnifying each other for different types of
costs, but it is not very transparent from a consumer perspective.
It is not really a straightforward contingency fee agreement,
where you can see very clearly that the professional is taking
X% of damages, it is rather a more complex and Byzantine type
of system. I think it adds additional complexities for consumers.
Q239 Mr Tyrie: Nothing can be done
about it?
James Sandbach: One could move
to a system of contingency fees on the American model. We would
not necessarily be big advocates for that. I think what you do
have to look at though is really the whole system of costs in
the English courts and the legal system and at how could costs
be reformed so that they are first proportionate and, secondly,
transparent from the point of view of the user of the system.
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