The torrent of legal reform in personal injury rages on, seemingly never able to rest even for a moment. Now, the way for the reform that many lawyers feared most has been prepared. Chancellor George Osborne announced late last year that the small claims limit for personal injury would increase from £1,000 to £5,000. Although no date has been set, it cannot be long until this comes to pass. Yet the Chancellor did not stop there as he went onto announce another, unheralded and more novel alteration to personal injury law. He proposes that claims for general damages (that is pain, suffering and loss of amenity) are to be abolished for people with minor soft tissue injuries.
Both these changes are very significant for injured people. By and large, if a personal injury claim is in the small claims track of the County Court, the rules are that the Claimant will not be awarded their Solicitors’ fees even if they are successful against the Defendant (and vice versa). Normally if you win a case at Court, your opponent must pay your lawyer’s fees but these cases are deemed to be too small to warrant the use of a Solicitor. As using a Solicitor would be considered disproportionate to the size of the case, you cannot normally claim your Solicitor’s fees.
For example, in a debt case of say £2,000, if you win your case a Judge will not normally award you your lawyer’s fees in addition to the claim for £2,000. This acts as a practical restraint on people obtaining legal advice from Solicitors. If you cannot claim your Solicitor’s fees even if you win, it does n’t make sense to spend lots on legal advice and assistance as you won’t be able to recover it. Clients often seek a limited amount of advice in such cases if they are unsure of the merits of their case or the procedure involved and may be happy to risk say £100 or so for some limited advice.
In cases without a personal injury element, the limit for small claims at the County Court was changed in April 2013 from £5,000 to £10,000. This means that in debt cases, contract claims and so forth, if the amount you seek to recover is less than £10,000 it is very likely your case will be assigned to the small claims track. As a result claims of less than £10,000 are now less likely to involve legal advice and assistance from a Solicitor. Many people and businesses may consider that claims between £5,000 to £10,000 are sufficiently serious and complex enough to warrant obtaining legal advice but the law now does not allow them to claim the fees if they are successful from the opposing party.
In the run up to these changes in April 2013 it was widely speculated that the government would change the small claims limits as they applied to personal injury claims as well. After backing away from this change in April 2013, the government has signalled that this change is now definitely going to take place. It is just a question of when.
The limit for these cases has for a long time been £1,000 for the injury claim. In a personal injury claim, a value known as general damages is given to the injury element; the more serious the injury, the higher the amount. These rules mean that if the injury element of a personal injury claim is valued at £1,000 or less than your claim is in the small claims track and, as above, you will not recover any money spent on Solicitors from your opponent if your case is successful. Again the idea is that these cases are too small to warrant the involvement of a Solicitor.
A claim of £1,000 for personal injury normally involves, for example, a claim for a whiplash injury that lasts around a week or so. It could also be a very minor case of scarring that clears up completely in a short time, damage to a single tooth or injuries or wounds of a similar nature. No one who suffers an injury, particularly due to the negligence of someone else, ought to be belittled. Anyone who suffers in this way goes through a terrible time with all sorts of pain, frustration, distress and inconvenience. Yet setting the small claims limit for personal injury claims at this level seems to be intuitively right.
The reforms proposed by Osborne increase this limit fivefold and this changes the range of injuries that will fall into the small claims track dramatically. An injury valued at £5,000 can be very serious and many people suffering in this way would find it a traumatic experience. The severity of such injuries means that they are likely to be cases involving substantial claims for loss of earnings, medical expenses or care (that is assistance from someone during recovery).
Injuries at £5,000 or so can involve fractures of an arm or leg, or a fractured jaw or clavicle (that is a bone in the shoulder). It might also be the loss of your two front teeth. It might involve a significant scar to the hand or back. In cases involve a whiplash injury suffered in a road traffic accident, it can include cases of suffering that last for a prolonged period of up to two years. The point is that increasing the small claims limit to £5,000 suddenly includes injuries that are clearly not trivial, transient or minor.
Injured people making claims for compensation of this sort may be reluctant to obtain legal advice as they are unlikely to recover these fees from the opponent and so any fees they pay will effectively be a deduction from their compensation. As a result, they are likely to deal with the case themselves and will to some extent be reliant upon the opponent, who is almost always represented by an insurance company, being fair with them.
Is that likely, given that the motivation for all these reforms comes from the insurance companies and their long term quest to cut down the legal fees and compensation they have to pay for claims?
The majority of personal injury claims involve injuries of less than £5,000 and so these reforms will be of great significance to many people and how they claim compensation in the future.
The insurance companies are often quoted as saying how outrageous it is that on average, the premium for every motor insurance policy includes £90 to go towards the expense of paying whiplash claims. This begs the question of what, exactly, is the point of motor insurance if it is not to pay people when they have suffered loss or damage.
The other even more dramatic reform is to abolish claims for general damages involving minor soft tissue injuries. If you suffer one of these through someone else’s negligence you will simply not be able to claim compensation for your injury. No further refinement of what is meant by a minor soft tissue injury has been provided. Guidance can however be obtained from a publication called, “Guidelines for the Assessment of General Damages” from the Judicial Studies Board. This is an important reference for personal injury lawyers in valuing claims.
Interestingly, the Guidelines refer to cases of whiplash involving neck and back injuries as being “minor soft tissue” or “soft tissue injuries” and this includes cases where the injured person has suffered up to two years after the accident. At a stroke, the Chancellor wishes to prevent people suffering these potentially very serious injuries from claiming compensation for the injury, a potent weapon in his armoury of legal reforms to assist the insurance industry.
It is all too easy to be sceptical about lawyers and their interests when legal reforms are mooted. Are we only thinking of ourselves and our ability to earn an income? I wonder how teachers, the clergy, Doctors or indeed anyone else would respond to such large scale changes in how their professions or businesses operate. Given a government presumably philosophically attached to free market principles, it is odd that there have been such regulatory intermeddling.
Many people maybe tired of endless adverts on day time television for no win no fee injury lawyers. Maybe there are fraudulent claims; but then it is the job of the insurance industry and its highly talented legal advisers to spot them. Yet these changes surely go beyond mere lawyers’ self interest. They go too far. Abolishing a large category of claimants as these reforms propose is a huge change and is not proportionate to the problems presented.
Whittle the spearhead of justice too far and you blunt the rule of law.
Showing posts with label compensation. Show all posts
Showing posts with label compensation. Show all posts
Friday, 19 February 2016
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.
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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