PI Focus | Sink or swim

Faced with the choice between changing one's mind and proving that there is no need to do so, almost everyone gets busy on the proof." So said the economist J.K. Galbraith. To the extent that there was ever a time to try to demonstrate that there was no need for change, that time has surely gone. The changes that came through on Easter Monday (or perhaps more appropriately April Fool's Day) will be seismic. The combined impact of the Legal Services Act and LASPO will transform beyond recognition the way personal injury claims are dealt with.

While the ban on referral fees was always a sideshow, the reduction of costs for claims up to 25,000 is not. The resulting reduction in the value of a claim as a tradable commodity will significantly alter the whole system. The effects for both claimant and defendant law firms will be significant. The more so for claimant firms.

The vast majority of small claimant personal injury practices in existence when I was senior partner of a small 3m turnover practice in the 1990s still exist. All of the defendant firms disappeared, along with mine, long ago. The claimant personal injury market will consolidate significantly. Large efficient firms will flourish; small inefficient firms will cease to exist.

I have heard anecdotal evidence of small practices offering themselves for sale to larger practices. The problem is that they have nothing to sell but their work in progress. Both claimant and defendant firms will be more efficient and will deal with claims more cost effectively. Customer satisfaction will be paramount, coupled with a need to demonstrate adding value to the process.

Many law firms have had to deal with shrinking volumes and pressure on price since 2008. Claimant law firms have not been affected by this in the same way to date. That is about to change. The principal difference between the claimant and defendant firms is that defendant firms have had to be more efficient in recent years due to the demands of their clients in terms of price and added value. The costs we receive have been far less than those paid to the claimants. Perhaps the biggest difference between us is that we have had to march down a steep hill whereas the claimant firms are having to leap over a cliff.

I, along with many in the industry, do not expect the number of claims made to fall. The way in which they are dealt with will rely far more upon efficient use of technology and delegating down to the lowest competent level. Once the system has settled down, I see no reason why the consumer should suffer; indeed the reverse may be true. Both the insurer and the injured party have a common interest in settling a claim as early as possible. Increases in efficiency will aid this.

Inevitably, there will be a series of test cases to set the new ground rules. Tactics will be developed by both sides to deal with costs budgeting, Part 36 and QOCS. Key to these changes will be the attitude of the judiciary. They had plenty of weapons in their armoury to control costs under the old regime. They chose not to use costs capping and case management never really dealt with cases in the way we were trained to expect it would prior to implantation of the Woolf reforms. Time will tell whether there is an appetite to change things significantly now. I look forward to seeing how dealing with matters at proportionate cost and enforcing timetables will be dealt with in practice.

For those with an adventurous spirit who relish a challenge these are exciting times. There will be very successful firms and businesses that prosper in the new landscape."

Rod Evans is the president of the Forum of Insurance Lawyers (FOIL)

There are two battles occupying the PI landscape, and it is important to distinguish between them.

The first is the battle against excessive costs. No sensible commentator could deny a significant historical problem here, particularly as to disproportionate costs in low value claims. The reason for this was not CFA success fees themselves - as many should recall, CFAs were introduced to replace legal aid for impecunious claimants. The problems were rather: success fees set too high given limited risks; ridiculous ATE premiums; and excessive base fees. However that water is now under the bridge.

The government, armed with Jackson and prompted by the Association of British Insurers (ABI), has effectively got rid of success fees. They are still available, but the 25 per cent (past loss/PSLA) cap means they will be minimal; and in any case their irrecoverability requires them to be paid from damages. Many claimants' lawyers will simply not charge them. This means - something pointedly ignored by both government and ABI - that many deserving claimants will go unrepresented; lawyers will not be prepared to take the risk of running cases that they may not win.

Other government measures, including reduced fees for fixed costs on the (expanded) portal and fast track schemes, will make it almost impossible for lawyers to work in low value cases involving any real disputes - whether liability or quantum. Such cases will be dealt with by claims handlers with no legal experience, and without recourse to lawyers - whether solicitors or counsel.

The second battle is the ever-increasing, and very damaging, problem of fraudulent claims. Whether wholly invented or simply fraudulently exaggerated, these frauds create obvious injustice for insurers, for the public, who have to pay greater premiums, and for deserving claimants, who face both delays and scepticism in relation to their own claims.

While, at PIBA, we fundamentally disagree for the reasons set out above with the government/ABI line on measures to reduce excessive costs, we agree entirely about the need to root out fraud in our system. It was frustrating to see the Supreme Court in Summers v Fairclough [2012] UKSC 26 give with one hand (by affirming a discretion to strike out the whole of a claim tainted by fraud) and to take away with the other (by stating that this could only be done in the most exceptional circumstances).

We support the views expressed by Mackay J in his keynote address to our conference last month to the effect that the common law principle of utmost good faith could be deployed to bar any recovery where the claim is tainted by fraud.

As for the future of the PI Bar: like solicitors, we will need to find new models for ensuring that young practitioners learn, and for making our skills attractive to our clients. Work on low value claims will reduce, but there will be some; ABS structures mean that chambers can block contract on low value cases.
In any case such work is no prerequisite for doing higher value work; juniors can be brought into cases by more senior barristers in a manner which makes their involvement attractive to clients. If we adapt to the challenges, the future of the PI Bar is bright.

Charlie Cory-Wright is chair of the Personal Injuries Bar Association (PIBA)

The gamut of reforms facing claimant lawyers from April is breathtaking – this is undoubtedly the biggest shake up of personal injury claims for decades. 

The reality is that much of the decision making, and the detail, has emerged at the last minute, which is not entirely helpful for solicitors who need to gear up for the changes. A business-minded government could have set the price for the low value work sufficiently in advance to allow firms to set budgets and negotiate cash flows with the bank, rather than making an announcement with just three weeks to go.

The changes could have been planned over a longer time period, to allow the effects of each reform to be seen. Undoubtedly, the significantly reduced fees for portal cases will drive some firms to run off their existing casework and will pull out of low value PI work. So, unfortunately, we face the unpleasantness of instability and upheaval in the sector before it finds a new norm. Instability costs the Solicitors Regulation Authority, and then the solicitor, dearly. Interventions are bad for the profession, but are far worse for the client.

The injured person faces losing part of their damages to fund both their ATE premium and their success fee. It is unclear what impact competition will have on the success fee, particularly when fees are pegged so low that the success fee element may be an important part of covering base costs. It is important that in an effort to compete and win work, firms do not cut their own throats. It will be hard for an injured person to choose, assuming they shop around. It may be that the firm that is willing to work for no success fee will secure fewer damages than a firm that makes a charge. However, at the time of purchase, the injured person can only judge on price.

And what will become of ATE? Certainly, qualified one-way cost shifting did not achieve its objective of removing the need for ATE because of the complex interaction with Part 36 offers. Certainly, no-one will want to proceed to court without ATE in place to cover the Part 36 risk. The impact of not beating a Part 36 offer is extreme – the genuinely injured person faces having their damages completely wiped out if they, or their solicitor, make the wrong call. Insurance is affordable when there is good uptake, and as yet it is too early to tell what the uptake will be. Some firms will insure all their cases – particularly those using it for disbursement cover. Other firms will carry the disbursements and insure nothing. Some firms will pick and choose which cases to insure. The upheaval and instability in the legal market will be mirrored in the ATE sector. Will these different approaches sustain a viable market over time? Or will ATE be cheap and widely available in low risk cases, but prohibitively expensive and hard to find in the riskier cases where it is most needed? This may constrain a firm’s attitude to risk, which is not helpful to the injured person. 

The impact of the reforms will not be truly apparent for a number of years, as higher value cases take time to work through the system. Certainly, we expect satellite litigation. Reforms drive behaviours, but embedded cultures can take a long time to shift, and responsiveness to change may be slow. It will be interesting to see how flexible both claimant and defendant firms are at adapting to the changes. There will be winners and losers on both sides.

Deborah Evans is chief executive of the Association of Personal Injury Lawyers (APIL)