Legal Aid, Sentencing and Punishment of Offenders Bill

Memorandum submitted by Keoghs LLP (LA 92)

1. Introduction

1.2 Keoghs is the only "top 100 law firm" to focus exclusively on the insurance sector and offers an "end to end" claims service for the handling and defence of both mainstream and specialist insurance claims. This includes pre-litigation, litigation and costs negotiation activities. We represent insurers who between them provide around 70% of the motor insurance purchased in the UK.

1.3 With more than 850 dedicated staff, Keoghs are recognised leaders in the field. In the last 12 months we have been instructed to handle in excess of 31,000 claims. We also host the "Jackson Working Group" – a broad coalition of compensators who meet to discuss personal injury compensation reform and lobby Government on driving change.

1.4 Given the firm’s clear focus, our written response is in relation to the so-called "Jackson Clauses" in Part 2 of the Bill, "Litigation Funding and Costs" - namely Sections 41, 42, 43, 44 and 51. Our views are limited to those sections only.

2. Summary

2.1 We welcome these Sections of the Legal Aid, Sentencing and Punishment of Offenders Bill (LASPO). We have been highly engaged in the overall "Jackson" debate since its genesis and support the impetus that the Government has now placed on this issue.

2.2 Whilst recognising that primary legislation is not required for certain elements of Jackson’s proposals, we were surprised that LASPO makes no reference to the proposed 10% uplift in PSLA nor brings forwards any proposals on qualified one way costs shifting (QOCS). Our view is that Jackson’s recommendations were, and remain, an interlocking package. We would urge that, by whatever mechanism necessary, these important aspects are delivered as part of the overall package of reform.

2.3 We were also disappointed not to see any provision within the Bill to ban the payment / receipt of referral fees. We do appreciate however, that the debate around these has moved on since the publication of the Bill and we understand that the Transport Select Committee is to be re-convened to re-visit this issue following the intervention of Jack Straw MP. We support a ban but strongly suggest that this has to be linked to an appropriate reduction in the fixed fee and guideline hourly rates in order to realise the full impact and benefits sought from it.

2.4 We set out below our specific responses to each relevant Section, namely 41, 42, 43, 44 and 51. We would be delighted to provide further detail to the Committee as appropriate on request and to help further in your deliberations.

3. Section 41

3.1 We would refer the Committee specifically to 41(4):

A costs order ….. may not include provision requiring payment by one party of all or part of a success fee payable by another party.

It has been suggested by some claimant lawyers (or charities on their behalf) that this reform ought not to apply to clinical negligence or catastrophic injury claims. We wish to emphasise that this provision should not be watered down despite such special pleading on behalf of seriously injured claimants who (we agree) must have proper, unfettered access to justice. The reasons for this are as follows.

3.2 Firstly, high value personal injury claims are a very valuable commodity for claimant lawyers. Success fees merely augment what are already inherently lucrative and highly profitable claims

In London a partner can seek an hourly rate of £409 per hour for all recoverable time and a paralegal in the same firm will recover £138 per hour. The rates are not much lower in the provinces. Compare these rates to a recent announcement by the NHS that they will be tendering for non PI related work and do not expect to pay Partner rates in excess of £130 per hour.

These cases are increasingly "record heavy" but comprise the same essential components as lower value claims, albeit with a higher "price tag" in damages. As a defendant firm, it is not uncommon to see a bill of costs from claimant solicitors in a quantum only action claiming over 400 hours (or 10 man weeks of effort) relating to the review of records and documents. These records and documents are commonly limited to medical evidence, which is reviewed by the relevant experts in any event.

At £200 per hour – a typically low rate for London based firms – this equates to an £80,000 cost for this element of handling alone. An example bill can be produced if required in evidence.

The current rules allow a discretionary success fee, which at 25% would produce an uplift of £20,000 on this work, much of which is actually done by ‘lower grade’ – and hence low cost – personnel and which therefore already generates a significant margin.

3.3 Secondly, the only "brake" available at the moment on potential cost excesses are the Courts via detailed assessment. This takes time, court resource and increases the overall costs of the process through the need for "industrial" cost reviews on assessments long after the actual time claimed was ever incurred. The claimant currently has no financial interest in the time spent, and therefore the costs incurred, by their representatives No other civil justice system we can identify leaves the Claimant ring fenced from any liability for some of their costs

In the proposed reforms the claimant will have to pay any success fee agreed from the damages awarded. However this means that the claimant for whom the work is done will be interested in:

- The time claimed by their lawyer. In any other commercial or consumer transaction would it not be usual to want to want to make sure that there is no overcharging?

- Negotiating a success fee at the outset before agreeing to use lawyer A in preference to lawyer B.

As a result we should see a more competitive market emerge offering claimant’s choice on the basis of a combination of price and service. Is this a novel concept or do claimant lawyers have a right to charge what they like or what they can get away with?

3.4 Most importantly, and considering the reforms in the round, a claimant will not necessarily pay a significant proportion of their damages through the payment of success fees nor will they necessarily have to pay the maximum 25% uplift proposed ( see below ). They will pay the level agreed to when selecting from competing claimant lawyers offering services. In any other market this premise would not be met with special pleading.

This is already a specialised sector of the law. Whilst there are some high street lawyers doing this type of work, but there are only small number of firms who do the majority of the very high value cases. We have reviewed a small sample of bills from 3 firms who do catastrophic work on a very regular basis. These were cases that settled recently for in excess of £500,000 damages. They reveal total base costs of £462,955 and success fees paid on top of £72,113. In this small sample, claimant lawyers are already operating on an average success fee of 15.58% so why do they lobby on the basis that they will need to take 25% post reforms ? Please also bear in mind that the claimant will receive in the future a 10% uplift on PSLA and so this further dilutes the cost to the claimant of the success fee if indeed, they end up paying anything at all.

There is no doubt that many of those firms which specialise in this area of personal injury work will adapt their business models to respond commercially to the needs of claimants and a more competitive environment.

3.5 In conclusion the Committee should therefore be very wary of any move to suggest certain types or value of claims ought to be ring fenced without far greater scrutiny. Lord Jackson in his comprehensive review was concerned at the excessive hourly rates for personal injury work. Defendant firms doing the same work already do so for rates far below the guideline hourly rates. Why? Because they work in the real "competitive world" where they are held to account for the time spent, delegate effectively and work to a generally more business like model. Defendant firms have also had to address their cost base (not least accommodation costs) to reflect commercial realities.

It is also a concern that despite all the rhetoric over access to justice a simple data set to support the claimant lobby’s position is not available. The claimed logic behind maintaining success fees within the CFA system is that that they help subsidise the pursuit of more marginal cases and hence provide greater access to justice. Claimant practitioners have, however, been "coy" over the production of data to establish the "net" success fees recovered after deducing unrecovered cost on cases lost. In higher value claims the success fees recovered are very substantial indeed and we venture to suggest will probably dwarf unrecovered costs. If that is not the case why was the data not provided to Lord Justice Jackson when he requested it?

4. Section 42.

4.1 Clause 42 will enable the use of DBAs in most civil litigation by persons providing advocacy services, litigation services, or claims management services.

4.2 Possible consequences:-

· Claimant’s representatives will have to properly advise claimants on the appropriate means of funding.

· Claimant may not receive damages in entirety.

· Claimant will have a vested interest in its costs incurred on their behalf in the bringing of an action.

· Claimant’s fees will become open and transparent to the party on whose behalf the representative is acting.

4.3 Responses. Representatives are currently under an obligation to properly advise their client. However it is agreed that through giving a party an interest in litigation costs (which currently in most cases does not exist) this obligation will become a significant factor when a representative is chosen.

4.4 It is noted that Lord Justice Jackson in his report confirmed regulations relating to the advice on funding should:

· Introduce the requirement of a clear and transparent advice and information be provided to consumers on costs, other expenses and other funding available.

· Provide a maximum percentage of the damages that can be recovered in fees from the award; and

· Control the use of unfair terms and conditions.

4.5 A consequence of the proposed changes means that the claimant’s damages will not remain ‘sacrosanct’. However this will be considered when advice is offered in relation to funding and the evidence of Professor Fenn is that most claimants will be better off under the new regime.

4.6 Effective regulation must provide sufficient safeguards for a Claimant. The personal injury Trade Union firm Thompsons state that stringent regulation in this area is imperative to ensure the protection of consumers and that there should be prescribed requirements for all DBAs consistent with the protection of users of Conditional Fee Agreement.

4.7 In the event that those stringent requirements are not complied with, we believe that the DBA should be "unenforceable". Such a sanction would ensure that the Claimant’s representatives which do not pay careful attention to the use of DBAs will be penalised by their actions.

4.8 It will of course be noted that Employment Lawyers have worked to good effect in the use of DBAs for a number of years. An open and transparent method of funding litigation should be embraced by the legal profession. Giving Claimants a vested interest in their costs preserves access to justice for both Claimant and Defendants and enables a ‘level playing field’ for the parties rather than the current situation where a claimant (in many cases) can proceed with impunity.

4.9 Through ensuring an open and transparent approach to the fees associated with a claimants funding of a claim it will avoid the issues highlighted by the former Justice Secretary Jack Straw who stated "Unregulated contingency fee arrangements have been exploited to breaking point by some no win no fee lawyers who have exploited vulnerable clients by taking a few slices out of their damages, failed to provide them with proper information, and imposed unfair terms and conditions which have locked them into unreasonable deals. The time has come for these arrangements to be subject to proper regulation to protect the interest of consumers, and that is what the Government will legislate to do".

5. Sections 43 & Section 44

5.1 We welcome and fully support clauses 43 and 44 of LAPSO, which abolish the recoverability of the costs of ATE and notional premiums from a losing party except for clinical negligence cases.

5.2 These clauses mark a return to the position that existed in the 1990s when claimants met their own financial risk for funding methods such as BTE, ATE or membership funding.

This will alleviate the injustice caused by the current " recoverability regime" that means defendants have to pay ATE premiums if unsuccessful, but have no guaranteed of being able to recover costs from an ATE insurer if successful..

5.3 The current regime has allowed ATE insurers to take full advantage of the recoverability provisions to charge significant levels of the premium. This is especially prevalent in higher value claims where staged premium policies allow for fixed premiums pre and post issue but a bespoke premium for the final stage.

Hence, at the time that the policy is taken out the amount of the premium to be charged is not known. In one catastrophic injury claim, where liability was admitted before the conditional fee agreement and the ATE policy had been taken out, the final stage premium claimed was in excess of £300,000.

Claimants using these policies in high value cases use the threat of incurring the final stage premium as a weapon to force settlement even in cases where a defendant has a strong arguable case. The "blackmail" of this threatened costs burden amounts to a denial of access to justice for the defendant which the recoverability regime clearly did not intend.

We would refer the Committee to the recent Court of Appeal case of Pankhurst v White & MIB where the Lord Chancellor said .. " I regard the situation, as described by Jackson LJ, as a criticism of the system for which Part 36, CFA’s and ATE provides. That such a system increases the costs involved is obvious. That it does so to such an extent may not be so well known ….. The facts of this case appear to show that access to justice for one party may well lead to a substantial denial of justice to the other."

5.4 The introduction of the recoverability regime has effectively transferred much of the burden of financing claims from both parties to the defendant alone – which in many cases is a public body such as a Government department, local authority, ‘blue light;’ service or the NHS. Hence, in many cases it is the taxpayer who has to carry the burden.

Membership organisations such as trade unions traditionally funded members’ personal injury claims through the membership fees that they received. As a result of the "recoverability regime" trade unions are reimbursed the costs of unsuccessful actions by defendants in successful claims. Indeed, they are now a significant source of profit. Thus at a stroke, the substantial costs burden was transferred from trade union to the public purse.

6. Section 51

6.1 We would draw the Committee’s attention to clauses 51(1) to 51(3) inclusive (Part 36 provisions in civil claims).

The intention behind the legislation is to provide a mechanism whereby Claimants may recover an uplift on all damages where they "beat" their offer to settle at trial. The aim of this reform was to encourage earlier settlement.

6.2 As the legislation is drafted the provision will extend to all personal injury claims of any value. Whilst 90% or more of all such claims have a value of less than £10,000, the residual 10% of claims carry a very high aggregate value by comparison.

6.3 We believe that Part 36 has less of a part to play in higher value claims where the focus ought to be on rehabilitation and maximising functional recovery. Excessive reward for a successful part 36 might cause adverse behaviour such as:-

6.3.a More trials due to a wish to secure the "bonus" on damages.

6.3.b Delayed access to records and medical facilities to facilitate legitimate enquiry by the compensator.

6.3.c Late offers a short time before trial with a view to securing a boost on damages after all the costs have been incurred.

6.4 We endorse the thrust of the proposal by Lord Justice Jackson that the penalty provisions should be subject to a scale and a cap. In his last paper responding to consultation he sets out a proposal at paragraph 5.3:-

Total damages + value of non-monetary award Percentage increase

1. Up to £500,000 10%

2. £500,001 to £1 million £50,000 + 5% of excess over £500,000

3. Above £1 million £75,000 (with no further increase)

6.5 Whilst we agree this approach of a cap and a scale, the defined thresholds will be for debate in another forum. We would urge the Committee to adopt the scale approach however. A simple % approach to all claims regardless of value could produce a disproportionate outcome for claimants – perhaps in excess of £1,000,000 for simply beating their own offer by a few pounds. We submit that this is too onerous a burden for the defendant whether they be an insurer, a public authority or the NHS.

6.6 Drafting concern. Section 51(3) states " In subsection (1) "additional amount" means an amount not exceeding a prescribed percentage of the amount awarded to the claimant by the court (excluding any amount awarded in respect of the claimant’s costs)." This draft does not permit the Rules Committee to set a cap to limit the penalty award.

6.7 Proposal. Section 51(3) In subsection (1) "additional amount" means an amount not exceeding either a prescribed percentage of the amount awarded to the claimant by the court (excluding any amount awarded in respect of the claimant’s costs) or such other prescribed maximum sum that may be awarded by way of an additional sum.

September 2011