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January 18, 2010

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Rise in personal injury awards proposed to offset costs changes

Personal injury lawyers who win their cases should have so-called

success fees paid by their clients rather than recovering them from the

losing party.

This is the conclusion of a major review of civil litigation costs by Lord Justice Jackson, who suggested a complementary proposal of a rise in damages awards to ensure that successful claimants are properly compensated for their injuries and losses.

In his final report, published on 14 January, the Lord Justice set out a number of proposals aimed at improving the civil litigation regime in England and Wales and promoting access to justice at proportionate cost.

He cites conditional fee agreements (CFAs) — of which ‘no win, no fee’ agreements are the most common type — as “the major contributor” to disproportionate cost in civil litigation. Under a CFA, the lawyer will usually charge a success fee if they win the case, while the claimant will be expected to pay an after-the-event insurance premium to cover them against the risk of having to pay the defendant’s costs. Currently, both the success fee and the ATE insurance premium are recoverable from an unsuccessful defendant.

According to Lord Justice Jackson, this means the defendants have to bear a disproportionate costs burden. Instead, he wants success fees to be payable by the claimant — most likely, out of the damages awarded.

However, to ensure that legal fees don’t eat substantially into the compensation awarded, Lord Justice Jackson also proposes a 10 per-cent-rise in awards of general damages for pain, suffering and loss of amenity, and that success fees be capped at 25 per cent of damages.

Other cost-reducing measures include: the abolition of personal injury-case referral fees, which solicitors pay to claims management firms, insurance companies, etc, in order to “buy” cases; and fixed costs for fast-track personal injury cases (those up to a value of £25,000).

Fixing costs for low-value cases would give “all parties certainty as to the costs they may recover if successful, or their exposure if unsuccessful”. It also “avoids the further process of costs assessment, or disputes over recoverable costs, which can, in themselves, generate further expense”, and ensure that “recoverable costs are proportionate”.

The report also considers how litigation is funded. It says small and medium-sized organisations should be encouraged to take out before-the-event insurance (legal expenses insurance), and recommends that lawyers should be allowed to enter into contingency-fee agreements — where the client’s lawyer is only paid if the client is successful — for contentious business, provided that costs paid by unsuccessful parties are proportionate, and that the terms of such agreements are regulated.

Commenting on the review, head of personal injury at law firm Eversheds, Brendan Padfield, said: “What is sauce for the goose is now sauce for the gander. . . Most of us, as defendant lawyers, thought fixed fees would not work and quality would suffer. We were wrong on both counts. Defendant insurance solicitors have shown that fixed fees in personal injury claims do work. Their introduction forced defendant lawyers to become quicker and slicker, and there is absolutely no reason why the same should not apply to claimant lawyers, despite their continuing protestations.”

However, the Association of Personal Injury Lawyers was scathing of the report, describing it as paying “lip service to the importance of ensuring victims of personal injury are properly compensated” and out of line with the ‘polluter pays’ principle.

In a statement, the group said: “The claim that ending recoverability of success fees and after-the-event insurance premiums will lead to cost savings is highly misleading. The costs will still be there — they will just shift to the claimant, who will have to pay
success fees and insurance premiums out of his damages.”

It continued: “The proposal to increase general damages by 10 per cent to offset the cost of success fees is a white elephant for two reasons: damages are now too low in any event, as, in most categories, they have never been increased in line with the minimum 50-per-cent increase recommended by the Law Commission ten years ago; secondly, there is a real risk that the proposed increase will not cover the cost of the success fee in any event, leaving the injured person with a shortfall in his damages.”

The TUC is also worried that the changes might limit access to justice for victims of injuries. General secretary Brendan Barber said: “The TUC will be working with the Ministry of Justice to ensure that no injured employee is prevented from taking legal action against a negligent employer, nor denied access to damages. We welcome moves to speed up the process of litigation, but not at the cost of access to justice.”

The Ministry of Justice said it would set out the next steps for reform after considering the package of recommendations in depth.

The full report is available here.

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