Friday, 3 May 2013

The new lower RTA portal costs

This article is a discussion of developments in the law as it relates to personal injury claims and in particular how lawyers are paid for dealing with them. Nothing on this blog should be taken as legal advice for anyone pursuing a claim and if you need legal advice you should contact a solicitor. This article concerns costs for typical RTA cases that make up a significant proportion of all the personal injury claims that are pursued.

On 30th April 2013, the new lower costs came into existence for road traffic accidents with a value under £10,000 that are pursued through the RTA portal.  At Stage 1 the fees are now £200 plus VAT and at Stage 2 they are £300 plus VAT for a total of £500 plus VAT. That's right, £500 plus VAT for dealing with a case that could be anywhere up to £10,000 in value.

This change applies to all cases entered onto the RTA portal on or after 30th April 2013 regardless of the date of the actual accident. The potentially retrospective nature of this alteration is of course unfair and has been dubbed the "portal portcullis" by well known personal injury lawyer David Bott as a result.

Prior to this change, the fixed fee for this category was in total £1,200. The lower fee is a reduction of approximately 58% of the amount lawyers charge the defendant (or rather their insurance company) for dealing with a case of this type.  A huge drop.  How would doctors, teachers or accountants respond if the government decreed that the income from a sizeable proportion of their work was going to be cut down in this way?

A lot of these claims are pursued under a Conditional Fee Agreement and so a success fee may also apply. If the CFA was entered into prior to 1st April 2013 a success fee could be claimed from the Defendant.  In an RTA claim that was settled prior to trial, the normal percentage applied was 12.5%. So, on a fee of £1,200 plus VAT the additional amount was £150 plus VAT for a grand total of £1,350 plus VAT.

From 1st April 2013 success fees are no longer claimable from the Defendant.  Instead many lawyers are getting used to the previous practise of charging clients a success fee in accordance with the earlier, original incarnation of the Conditional Fee Agreement.

If the previous model of a 12.5% success fee is used and this is simply based on recoverable costs, under the new lower costs this amounts to £62.50 plus VAT. In total then the new costs here would be £500 plus £62.50 or £562.50 plus of course VAT on top.  This would still be a reduction of 58%.

Some lawyers are taking the approach of charging a 100% success fee (the maximum the rules allow) and basing this not on the fixed recoverable costs in the portal but on the solicitor-client costs calculated in accordance with an hourly chargeable rate.

Personal injury lawyers may need reminding of course that recoverable costs (or as I still like to say inter-partes costs) are not the same as solicitor-client costs, something that to most other civil litigators will be entirely obvious.  The days of guaranteeing the client 100% recoverability have perhaps obscured this for accident lawyers.  Indeed one of the rites of passage when initially advising clients on a piece of civil litigation is to point out that it is likely the total bill for the work done is unlikely to be recoverable and that there will be a shortfall.

The maximum deduction that can be made from compensation under the rules for the success fee is 25% of damages (not including future losses and any deductions for CRU purposes).  A typical RTA case through the portal might be worth £2,000 in damages but let's be optimistic and consider a case worth £3,000. After all, cases where a success fee or ATEI is not recoverable from the Defendant are entitled to a 10% uplift on general damages.

Where damages are £3,000 and assuming there is no element that is future losses or CRU, the maximum success fee chargeable to the client is £750.  This will include VAT and so the profit costs element is £625 plus VAT. Using this example the costs recovered by the lawyer is £500 plus £625 being in total £1,125 plus of course VAT on top.  This assumes of course that the solicitor-client costs incurred in pursuing the claim is at least £625.

This amount of £1,125 is still a 17% reduction of the previous fees on a CFA and requires the client to accept a 25% deduction to their compensation.

Of course, claims will still exit the portal and some will go onto be issued and potentially even go to trial.  Until 31st July 2013 when the new fixed recoverable costs system comes into effect, such cases will be dealt with under the predictive costs regime and, if issued, normally a chargeable hourly basis.  But these figures give an idea of the implications of the new lower portal costs.

In light of the recent government consultation on increasing the small claims personal injury limit to £5,000 its interesting to speculate that the change to the fees and the possible charging of the success fee to clients is part of a broader strategy to move the whole system away from recoverable costs completely.  The ultimate destination would be a contingency fee system where the only fees lawyers recover would be by way of deductions from client's compensation.  Please see my previous article entitled The new portal fees - the warm up to increasing the small claims limit?

Yet the government's announcement about the reduction in fees does not help support this theory.  It says quite specifically that the lower lawyer fees will make no difference to the amount of compensation for genuine claimants.  The whole tenor of this press release bespeaks the government's attitude to personal injury lawyers as a profession.  Helen Grant MP's view is that any decision about an increase in the small claims personal injury limit will not be made until the autumn - a long time to wait for a decision that may have huge implications for lawyers and their clients.


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