3 January 2013Print This Post

AJAG kicks off portal fee responses with plea to wait until small claims decision is made

Dismore: flawed approach to fees

Any changes to fixed-costs rates should only occur when the decision on the small claims limit has been made and experience gained of what the personal injury landscape looks like afterwards, the Access to Justice Action Group (AJAG) has told the government.

It has also estimated that the Treasury will lose around £100m in VAT from the combination of lower fees and cases not being pursued.

In its response to the Ministry of Justice (MoJ) consultation on the proposed fee rates for the RTA portal and fast-track cases, which closes tomorrow, AJAG said it was concerned at the “piecemeal manner in which changes to the personal injury costs regime are being introduced” without taking into account the impact of potentially raising the small claims limit for PI cases to £5,000.

The MoJ said before Christmas that the decision to delay introduction of the revised portal does not affect this consultation.

The response, written by AJAG co-ordinator Andrew Dismore, said: “The lower-value, simpler-to-investigate on liability, cases form the bulk of the claims presently in the portal, and even after its extension to higher values would still do so, subject to the small claims limit proposals. The fee income generated from those cases in large part cross-subsidises the higher-value and more complex claims under the present portal arrangements and value limits.

“If these lower-value cases are taken out of the costs equation, at the same time (or soon after) as the overall portal value limits are dramatically increased, then even on the present fixed costs rates, there is a real risk that the portal system will be destabilised. With much lower rates such as are now proposed, it is a racing certainty… If the small claims limit is increased, then the fixed costs rates will have to be revisited.”

Mr Dismore argued that while law firms need to make a reasonable profit, access to justice is the bigger concern. “If lawyers cannot see a way to pursuing a case competently and having regard to their professional duties and obligations, they will not do so. Many claimants who presently are able to find a lawyer to represent them will in future find themselves unrepresented, as there will be a drive to the bottom. These fixed costs proposals will reduce access to justice for such injured people.”

He said the economic effects include the loss of revenue to the government from tax receipts – which AJAG put at £100m – and Department for Work and Pensions and NHS recoupment on the one hand, and the expected rise in unemployment in the legal profession on the other, with loss of personal taxation and the payment of out-of-work benefits.

The response strongly criticised the absence of any indication of how the proposed rates were calculated. “These rates were negotiated and worked out, based on the hours of work needed on average to bring the claim combined with the hourly rate for the level of fee-earner appropriate to the case. In particular, there was no provision in those calculations for any element for referral fees.

“We would suggest that the minister’s proposals would have a better chance of being seen as robust if, instead of just bald headline figures, the MoJ set out the hourly rates they consider should apply and how many hours are needed to deal with a claim competently, on average.

“The suspicion is that all the MoJ has done is take the existing, evidence based, figures, and knocked off an element that they consider represent referral fees. That is a flawed approach. Like any business, including the insurance market which spends millions each year on advertising, lawyers need to market. If it is not to be through referral fees, then they need to market in other ways (which will be more expensive), yet there is no provision in these proposals for an element to represent this.

“This approach is also flawed when comparing the different types of claim. Whilst referral fees may be common in relation to RTAs and some public liability cases, the use of referral fees in employer’s liability is more restricted, with a high proportion of claims passed to solicitors by trades unions with no referral fees paid, but with cross subsidy of other work, such as tribunal representation. To suggest that a referral fee in an RTA case is the same as the value of such arrangements is not evidence based and is wrong.”

AJAG also argued that whilst some RTA cases may be relatively straightforward, the amount of work needed to investigate EL and PL claims is significantly more, and cannot realistically be done properly for the rates suggested, especially higher-value matters. “For those cases that are accepted, the risk will be that the insurers will not be pressed as hard as they should be for a fair settlement: the temptation with low levels of costs will be to recommend earlier acceptance of lower offers than would be fair and appropriate.”

 

By Neil Rose

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One Response to “AJAG kicks off portal fee responses with plea to wait until small claims decision is made”

  1. The multi pronged attack has created the perfect storm for independent PI Lawyers. Banning referral fees, Increasing the small claims limit ? reducing fixed costs to unsustainable levels and opening the market to ABS`s to enable insurers to effectively run their own legal firms.
    Anyone who has to market their services to get work will have to take a deduction from clients damages in order to offset the significant acquisition cost whereas the inhouse ABS`s will have a choice. If they chose to offer 100% to Claimants as they have no acquisition cost then independent Lawyers cant compete – surely this must be anticompetitive ?

  2. Simon on January 4th, 2013 at 3:28 pm