The end of the world?

Up in smoke: what next for claimant practices?

Posted by Neil Rose, Editor, Litigation Futures

So that’s that. As one top defendant lawyer said to me in the aftermath of Friday’s judicial review hearing, it “really is the end of the road for the Jackson resistance movement”.

Claimant lawyers had their day in court, and despite the impressive efforts of Paul Nicholls QC – representing the Association of Personal Injury Lawyers and Motor Accident Solicitors Society – there is nowhere left to go. I doubt there will be an appeal (and apologies for misreporting on Friday that leave had been granted) given the emphatic nature of the ruling.

It was a last throw of the dice by the browbeaten claimant lobby, but it is important to highlight that Lord Justice Elias did not go along with the Association of British Insurers’ claim that it was a deliberate delaying tactic.

The court said the government has to be free to talk to whomever it wants and is under no statutory obligation to consult. Only once it does start that process must it ensure it acts fairly. And if you don’t like what the government is doing, if it is not listening to you (which is certainly the situation claimant lawyers find themselves in), then the answer is at the ballot box, not the courts – not the most useful remedy right now.

Notwithstanding claimant lawyers’ bitter complaints about the decision-making process and particularly David Cameron’s infamous insurance summit on 14 February 2012, the reality is that the decision to cut portal fees was effectively made the day the government announced the ban on referral fees.

As I wrote back in July 2011, the ban was obviously only a Trojan Horse for cutting fees (there was no point to it otherwise) and so those, like the Law Society, who backed the first while opposing the second were unaccountably naïve.

Thus in October 2011 – a month after the ban had been proposed – the then justice minister Jonathan Djanogly said the process to reduce portal fees had already begun. He told the transport select committee that “it is not the government’s intention to stop referral fees going to claims management companies just so the lawyers can take those referral fees effectively for themselves”.

So in four weeks’ time the ban will come into force, and 30 days later, the new fees. There is then three months until the extended portal comes into being. Let us not forget the rest of the Jackson reforms and, probably later in the year, an increase in the small claims limit for personal injury (PI). Partners must be in despair as they try and plan their businesses.

What does this mean for the future? Reactions from the two sides were predictable enough, but are claimant lawyers right to say that it’s a dark day for accident victims (and, unsaid, for them)?

The two are, of course, linked. If clients have lost 25% of their damages because their solicitor needs it to make the work pay, and have also had to cough up for after-the-event insurance, they will not exactly be better off. But the cold reality is that, surely, they will still bring their cases. Something will be better than nothing.

The government, I don’t doubt, is relying on the resourcefulness of claimant solicitors to respond, however reluctantly, to the new realities of PI work. Alternative business structures have come at a good time. And what else will lawyers who know nothing other than PI do?

Without doubt some firms are looking to get out. The number of acquisitions by consolidators such as Neil Hudgell Solicitors is evidence of that, and from what I’m told there are more sellers than buyers. There has also been the interesting emergence of a new breed of business – such as Zebra Legal Consulting – that helps firms properly understand their PI books, and the unique outsourcing law firm I have mentioned before, Questus. (Full disclosure: Zebra is a Legal Futures Associate and Questus a Litigation Futures advertiser. That doesn’t make referencing them any less valid.)

For good or ill, fast-track PI is experiencing the same trends as other areas of practice, where size, efficiency, the fabled economies of scale and so on rule. People will lose jobs one way or another. While I see pleas on Twitter for claimant lawyers to show a united front and charge clients the full 25% success fee under the new regime, it is inevitable that some will not – either for fear of losing work or because they have somehow engineered their processes so that they can do it for £500 and still make a profit.

Whisper it, but I actually have sympathy with the government’s argument last week that although the £1,200 fee did not explicitly include referral/marketing costs, they must have been in there somewhere – that couldn’t have been cost price or the market could not have functioned. That doesn’t necessarily make £700 the right figure to slice off, however.

What makes PI different from other areas of practice, of course, is having the insurance industry lying in wait, itching to cut lawyers out altogether and handles claims directly. It turns all the calculations upside down. The claimant offered £1,500 by an insurer might prefer to take the money and run, even if a solicitor reckons their injury is worth £3,000 – less £750 success fee and, say, £200 ATE premium, plus the risk of not ultimately getting that much and also having to wait for the money.

And here’s the rub for me. For all of the insurance industry’s protestations, and however many glossy reports they issue, I cannot accept that they should be the judge in their own cause and deal with third-party claimants directly. Amid all the talk of process and efficiency, we can’t lose sight of basic principles of justice. It recalls too readily the lawyer of whom it was said he wouldn’t recognise a conflict of interest if he was suing himself and acting on both sides.

If we can’t have lawyers, then we should at least have something like the Injuries Board in Ireland (indeed, one of my criticisms of Lord Justice Jackson is that while he travelled to the other side of the world to view how things operated there, he wasn’t prepared to cross the Irish Sea to view the board – he considered that it represented the unwelcome ‘tribunalisation’ of the law).

And finally there was the bargain that, the High Court said last week, was the reason the Downing Street summit was held: we cut the legal costs, you cut your premiums. Claimant lawyers are more than a little sceptical that this will come to pass. No wonder, when you read Direct Line’s preliminary results for 2012 last week, which said: “Taken together, the effect of the package of civil justice reforms should be at least ‘net neutral’ for the group in the medium term.”

Which begs the question, what is the point of all this?