Legal Aid, Sentencing and Punishment of Offenders Bill

Memorandum submitted by WEIGHTMANS (LA 78)

1. Weightmans is a Top 50 law firm. It is one of the largest national defendant litigation solicitor practices. It handles motor, liability and other classes of claim for clients from the general insurance industry and other compensators, including the NHSLA and self-insured commercial and public sector organisations such as Local Authorities and Primary Care Trusts. Alongside this is a large Commercial practice.

2. We welcome the opportunity to submit written evidence to the Public Bill Committee. Our interest is in

Part 1, Legal Aid and Part 2, Litigation Funding and Costs, Clauses 41, 42, 43, 44 and 51.

3. The disproportionality of claimant costs is extreme in the case of claims against the NHS. The NHSLA reports that claimant costs in cases against the NHS accounted for 76% of their £257million annual expenditure on legal costs for claims closed last year and that the NHS negligence bill topped £1bn for the first time.  Steve Walker, Chief Executive of the NHSLA has made it clear that the withdrawal of legal aid from clinical negligence cases would be counterproductive (Part 1) and would "undoubtedly cause NHS legal costs to escalate massively".  He has explained that: "Bills from claimant lawyers in brain-damaged baby cases are already among the highest we see: those lawyers will seek 100 per cent uplifts in such cases, were recovery from defendants still possible, and ATE premiums would be huge, were cover to be available at all. Consequently, implementation of this proposal... would result in an overall increase in public expenditure, rather than the decrease which is sought."  As things stand, the withdrawal of legal aid from clinical negligence cases will cost the taxpayer far more than its saves and is morally questionable. Indeed Lord Justice Jackson in his Final Report (Chapter 7, 4.2) stressed the continuing role of Legal Aid as an integral part of his package of reforms.

4. Weightmans supports Part 2 of the Legal Aid, Sentencing and Punishment of Offenders Bill to the extent that it gives effect to some of the recommendations adopted by the Government in its response to the ‘Jackson’ Consultation – i.e. it does not deal with Qualified One Way Costs Shifting and the 10% uplift to General Damages compensation (Pain Suffering and Loss of Amenity). This is an omission when considering the interlinking nature of all of these intended reforms. This highlights a major concern which is the absence of an over arching implementation plan. Together the package of reforms offers the opportunity to introduce better balance into the litigation process as between the parties, including giving the claimant a financial interest in the legal costs of the claim, and ensuring that claimant legal costs become more proportionate, i.e. lower. Disproportionate claimant legal costs impact claims of all values from modest sprains to catastrophic head injuries. Reduced expenditure on claimant legal costs will benefit consumers, businesses and public bodies through the costs they pay for goods and services. To retain the integrity of the package, the timetable for change needs to be aligned and properly sequenced.

5. A report by Datamonitor forecasts that personal injury claims' costs for insurers will rise from £8.4bn in 2010 to £9.7bn in 2014. The potentially beneficial changes flowing from the Government's response to the Jackson Report have been factored in, slowing the rate of increase, but there is clearly still much to be done to tackle the levels of claimants' legal costs which are a significant inflationary driver of claims costs overall. Deloittes have also just reported that underwriting losses in the motor insurance industry exceeded more than £2bn last year. They found that insurers lost 20p for every pound of premium earned and posted a net combined ratio of 120% compared to 119% in 2009. Data from the Association of British suggests that for every £1 of compensation paid to injured claimants, 87p is paid to the claimant lawyer, this disproportion feeding through to premiums and operating costs for consumers, businesses and public sector bodies.

6. Whilst the intended Jackson reforms are an important step forwards, they are a staging post on a potentially wider reform journey, and again in considering this Bill, the overall direction of travel and goal of the reforms should be sustained: tackling disproportionate claimant legal costs and modernising and simplifying the civil litigation process. It is important that the master plan for change is articulated and understood so that all can understand the timetable for change and the pace of that change. This will enable everyone to plan and adapt their business models.

7. A further, key omission from the current Bill is action to ban the payment and receipt of referral fees – with steps concurrently taken to remove the excess fat within claimant legal costs that fund the payment of such fees. Referral fees are deeply embedded within both injury and non injury claims, with many parties seeking a slice of the referral fee cake including insurers, brokers, unions, car hire companies, repairers and public services such as police forces. Weightmans responded to the Consultation in 2010 to suggest that these arrangements should be banned. For many, referral income is part of their operating model. Claimant lawyers usually have to pay such fees for personal injury claim referrals up front, encouraging some of these lawyers to adopt assertive ways of converting and retaining clients. The drive for income will equally encourage some work referrers to have loose practices around how the claimants are identified and captured, as evidenced by the rise in text messaging ‘cold calling’. Both contribute to the ever increasing level of personal injury claim frequency that has itself come under scrutiny in the past few years, including in the Lord Young report ‘Common Sense Common Safety.’.

8. As previously mentioned, the reforms within Part 2 of the Bill will require all parties to change their business and operating models and the way that they approach the handling of claims.

9. To drive this, we believe it is entirely appropriate that a claimant has a financial stake in the amount of costs payable to his lawyer (Clause 41). Whilst a claimant’s lawyer can charge his client up to 25% of defined damages under a CFA, there is no obligation to do so. We anticipate that such charges will be competed away, with claimants retaining most/all of their damages and claimant lawyers adapting their businesses to run off base costs. (It should be remembered that the Guideline Hourly Rates, (GHR), already provide for profits and overheads and are typically 20 – 35% higher than Defendant solicitor’s rates on the same case.) Despite the attempts to take cost out of the system, GHRs are still increasing under the stewardship of the Advisory Committee on Civil Costs; a body who Jackson suggests should be replaced by a Costs Council). Particularly when coupled with the banning of referral fees and removal of associated underlying costs, this should assist in ensuring that claims are appropriately triaged, with frivolous claims rejected, whilst ensuring that genuine claimants can rightly progress their claims.

10. The introduction of Damages Based assessments (Clause 42) offers the claimant an alternative funding method to ensure that compensation claims can be pursued, with the claimant again potentially having a financial interest in the amount of his lawyer’s costs. As with CFAs, it should be anticipated that some if not all of this financial interest will be competed away by claimant lawyers.

11. The Civil Justice Council has just set up a Working Party to look inter alia at proportionality of costs and the current Solving Disputes consultation also offers the opportunity to tackle disproportionate claimant legal costs further by extending the scope of the current RTA PI Scheme and by increasing the reach of fixed costs. If implemented, these changes will benefit the claimant as they will serve to reduce (and potentially make more certain) any exposure to their lawyer costs. Early signs are that this will also speed up delivery of compensation. Proportionality is key and should have retrospective effect. This is important because it will be one of the few ways to control costs on ‘old regime’ cases post October 2012, the date we anticipate that the LASPO Bill will be enacted.

12. The provisions of Clause 43,’ Recovery of insurance premiums by way of costs’ should be considered alongside the Qualified One Way Costs Shifting (QOCS) reform recommendation – the detail on the latter is being addressed by the CJC Working Party above. A genuine claimant, properly advised by his lawyer and acting reasonably should not be exposed to defendant costs should his claim fail ( save for any minimum contribution threshold created) . It should also be noted that the vast majority of personal injury claims settle outside the litigation process ( with no claimant liability for defendant costs) , with claimants winning the majority of cases that litigate. It is important though that that claimants who bring fraudulent claims, and lose their cases, should be fully exposed to defendant legal costs. A possible framework for QOCS is undernoted which would help ensure that QOCS does not become a charter for fraudsters and also ensure that claims frequency does not accelerate.

Claim Outcome

Qualified One Way Costs Shifting Operates?

Claimant receives a payment of damages

Yes

Claimant discontinues action either before or within 14 days of witness evidence exchange

Yes This would avoid the ramp up of costs for defendants ahead of trial. Some claimants may be encouraged to ‘have a go’, including starting litigation, but counter balanced by claimant/claimant lawyer exposure to own costs

Claimant discontinues action after the 14 day period following witness evidence exchange but before any trial judgement delivered.

No. The claimant has to apply for QOCS to operate

Claimant loses case at trial

Yes. The presumption is that QOCS will not operate for any finding of fraud/claimant credibility issues. Judge to deal with this as part of the Trial case management or at the request of the defendant at the conclusion of the trial

An action is struck out through claimant non compliance with directions

No. The claimant can make application to restore the action and to have QOCS re instated subject to costs penalties.

13. Defendants recognise that Qualilfed One Way Costs Shifting sits as part of a package that overall has the potential to reduce claimant legal costs. Both claimants and defendants need to have certainty around how QOCS will operate, to help guide decision making around the optimum way and time to get genuine cases settled. Defendant costs are generally far lower than those charged by the claimant lawyer – around 20 – 35% - helping manage the degree of claimant exposure. If the claimant has acted reasonably but lost the case, the defendant is better placed by virtue of the cost levels prevailing to absorb such costs (not having paid damages and the much higher claimant legal costs).

14. The After the Event legal expenses insurance market is adaptable, a recent example being the way it has adapted to create cost effective products following the introduction of the new RTA PI Scheme. Underwriters e.g. Allianz are already looking at how to design products for a post Jackson world. It remains to be seen how disbursements would be funded in a post Jackson world – it may be that lawyers will carry the funding cost of same, particularly if supported by the introduction of new capital in an Alternative Business Structures world. Again this may become a feature that will enable competition between claimant firms to the benefit of the claimant

15. For the avoidance of doubt, Clause 41 and 44 should embrace Conditional Fee Agreements, Collective Conditional Fee Agreements and ‘self funding premium’ arrangements. If recovery of ATE for self insured (Union) premiums is still recoverable after this Bill is passed for agreements predating the ‘start date’, this would undermine the intentions of Jackson. This would effectively create swathes of Super Claimants - funded by ATE and yet protected by QOCS.

16. The objective of Clause 51 should be embraced , equalising incentives between the parties to make and accept reasonable offers – as ever the devil lies in the detail which has been remitted to the Civil Justice Council Working Party to address. Care is needed to ensure that the claimant ‘reward’ is not set at a level that drives adverse behaviours between the parties and that cases are settled without the need for trials. Where the claimant is successful, the ‘reward’ can be used to help fund any success fees that may be payable to the lawyer, but otherwise is for the claimant to retain, alongside the proposed 10% uplift to PSLA. Our view is that a tiered approach with a cap has merit.

17. In summary, the Jackson reforms, including those covered by the Legal Aid, Sentencing and Punishment of Offenders Bill offer an important step on the way to reforming the civil litigation system, creating better balance between the parties and tackling the problem of claimant legal costs that are disproportionately high. The changes will impact all parties with approaches to claims handling and business models changing – but at the heart is the goal of getting fair and timely compensation to genuine claimants with proportionate legal costs, with the reduced expenditure flowing into wider society. The handling of high volume, lower value motor injury claims was recently significantly modernised with a more proportionate fixed costs scheme for claimant lawyers ( though still funding referral fees). Anecdotally all parties have adapted their processes and behaviours to this new reality, with genuine claimants getting damages more quickly - the compensation market place will continue to adapt to future changes.

September 2011

Prepared 7th September 2011