8 May 2013Print This Post

A race to the bottom?

Jones: judiciary, practitioners and public may not like the new system

Posted by Steve Jones, partner and costs lawyer at Litigation Futures sponsor Harmans

The Jackson reforms have brought about widespread unease amongst claimant solicitors, concerned understandably as to the continued viability of their existing business models.

These reforms have been imposed upon the legal industry as a consequence of perceived market failure, deemed to be manifested in an absence of price competition as a consequence of the ready availability of conditional fee agreements to act as vehicles for risk-free claims.

The status quo (pre April 2013) was considered undesirable as it was believed to lead to unnecessarily high insurance premiums for motorists, householders, local authorities and others by virtue of the recoverability of success fees. This regime was easy meat for the red tops who delighted in informing their readership that ‘spiv lawyers’ were pursuing dodgy claims and raking in doubled fees (whilst happily accepting advertising revenue from claims farmers).

It is no longer realistic to call for the reinstatement of public funding for personal injury matters but it is worth remembering that this situation has come about as a direct consequence of the abolition of the one strand of legal aid that would have required very little manipulation to pay for itself.

Whilst it is easy to poke fun at sensationalist journalism, the new regime is the work of an extremely intelligent man who consulted many other luminaries whilst conducting his review. The loss of the ability to pass the success fee on to an insurer will no doubt lead to price competition where there previously was none, but the consequences of the altered market for legal services may not endear the new system to the judiciary, to practitioners or ultimately to the public.

It is going to be very hard for ordinary players in the legal industry to persuade a public that has grown used to being bombarded with invitations to pursue claims for free that they should surrender part of their compensation to their solicitor. The advent of the alternative business structure coincides neatly with the new rules on success fees and it seems inevitable that the claims farmers will be either be replaced by or will resurface as claims factories with one qualified solicitor overseeing teams of unqualified staff. It will not be hard to fill such factories as there is no shortage of jobless graduates.

The consequences of such business models are largely undesirable. Once price competition has driven success fees to zero, it is easy to envisage a race to the bottom in terms of cutting overheads. Claimants are likely to be represented by unqualified staff in distant locations. A viable branch of a longstanding profession is likely to be decimated, leading to further boarded-up windows on high streets. Courts are likely to be infuriated by poorly prepared cases.

The plight of claimant lawyers is probably not a cause held dear by many members of the wider public, particularly in times of recession. The success or otherwise of these reforms will ultimately have to be judged in the context of the stated aim of driving down the cost of insurance for the public. I will not be holding his breath for reduced renewal premiums in 2014.


One Response to “A race to the bottom?”

  1. An interesting article but I have a different take on the financials.

    I don’t think price competition will drive success fees to zero, other than for those firms who provide the lowest standard of service or lack the backbone to charge a modest premium. Even in a market where there is over-supply many consumers will pay a premium for perceived added value.

    Furthermore, cutting overheads is never an answer to anything. Its value for money that is important. If there are overheads that aren’t needed, then why have them, regardless of the business climate? Many law firms waste vast sums of money on overheads through poor management and inefficient working practices.

    The way to get value for money from your overhead spend is to find quality suppliers and work with them, not against them. You’ll find your objectives will be closely aligned. Don’t take satisfaction from aggressively squeezing the last drop of blood, and then some, from your suppliers. Longer term that is always a false economy.

    There will be clear winners in the new age. They will be those firms that are strategically run by talented management, backed by quality support professionals (eg.dedicated marketing and procurement directors), where operational efficiency is a fundamental component of the culture.

  2. Ian Hazeldine on May 14th, 2013 at 4:28 pm