Whittling at the spearhead of justice.

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.

Court fees reforms - what do we pay our taxes for?

The Ministry of Justice has been inviting responses to proposed changes to the fees in civil and family litigation.  This consultation has already been ongoing for sometime and the Ministry has already released its response to Part 2 of the consultation and provided further proposals for reforms.

The new issue fee

The changes to the issue fee for claims worth over £10,000, especially if they are also over £20,000 or so, are eye watering.

This is, I understand, expected to come in for 2015/2016. The government has decided to press ahead with this and no more consultation is needed on these changes.

Claims worth less than £10,000 will remain unchanged.  At £10,000 or more a new way of calculating the fee is to be introduced. In these cases, the fee is going to be 5% of the size of the claim, up to a top limit of a fee of £10,000.

To get a feel for the new issue fees, I looked at a range of five cases from £11,000 in size to £180,000.  At around £20,000 the new issue fee really starts accelerating away from the values we have at present on the scale set down by HMCTS.

Amount of claim   Issue fee now   Issue fee now online    New issue fee

11,000                     455                    410                               550

17,500                     610                    550                               875

40,000                     610                    550                               2,000

75,000                     910                    815                               3,750

180,000                  1,315                  N/A                               9,000

For a claim of £180,000 the new fee is nearly SEVEN times the value at present!

The maximum fee at present is £1,920 for a claim of £300,000 or more.  Under the new system, the fee for a claim this size is £10,000 - that is more than five times as much.

Under the new system, the maximum fee is £10,000 and this is reached at a claim of £200,000 or more.

These new fees are massively higher than the fees at present. It is true that most claims are less than £10,000. It is also true that generally all claims, no matter what size, are important to Claimants (otherwise why bring them) and to Defendants, who find themselves having to fight them.  

Yet claims of £10,000 or more are to most people involved very significant legal challenges or even battles.  If it's a personal injury claim, a case of this size may involve a very serious injury or a substantial loss of earnings or both.  In commercial litigation, to many businesses a claim of £10,000 represents a serious threat to their livelihoods and continued existence, whichever side they are on. 

These greatly increased fees, following a whole series of previous reforms to legal costs, are another deterrent to people who might otherwise have recourse to our legal system to settle their disputes.

Points for consultation

The Ministry of Justice wishes to consult on changes to the issue fees for possession cases, the consent order fee and application fees. Unsurprisingly all of these involve increases to the existing fees.

The government proposes increases the fee for possessions claims by £75.  In the County Court the current fee is £280 so this will increase to £355.  At £355 this becomes a rather substantial amount of money to a landlord who may well already be out of pocket from a defaulting tenant who is failing to pay their rent properly. It must make it more tempting to landlords to try alternative, unlawful means to rid themselves of defaulting tenants.

Applications by consent are due to increase from £50 to £100, obviously a doubling of the existing fee.  This is not just an increase - it is akin to fining parties who have the temerity to reach a settlement.

The fee for making most applications to Court used to be £80 for a long time. It was then increased to £155 and the government is now proposing to increase it to £255.  To my mind, £255 is a very large sum for an application at Court.  £80 is a sensible value in my view; big enough to make you think seriously before applying but not so big as to put you off making an application when you need to just because of the size of a Court fee.  The figure of £255 is more than the issue fee for claims less than £5,000.

It's worth remembering that this will apply to cases of all sizes, even in the lower end of the personal injury claims, say £3,000 or so.  In those cases, a figure of £255 looks very high when compared to the fixed inter-partes costs a successful party can recover from the opponent at the end of the case.

These reforms are a further erosion of people’s ability to stand up for themselves using our legal system.  The senior judiciary have produced a response to the reforms that sets out in beautifully precise language the full ramifications of the government's approach to this issue and this is available here:  http://www.judiciary.gov.uk/wp-content/uploads/JCO/Documents/Consultations/senior-judiciary-response-court-fees-proposals-for-reform.pdf.

The rule of law on which a democratic society is founded rests on citizens having access to the courts.  A Court system has to be a service provided by the state in a democracy and this is not reliant on the costs involved.  The reforms undermine that in a practical sense and, which is more worrying,  the government's philosophy that has lead them to this position is an attack on the nature of our democracy.

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.

The Road to no more Recoverable Costs

Please note the purpose of this article is to explore and discuss the changes in personal injury law that have been suggested in recent times. This is not legal advice and must not be taken as such by anyone. If you require legal advice please contact a solicitor.  It is an exploration of a particular point that may be of the greatest importance to personal injury lawyers and the way they operate.  Personal injury lawyers are by and large passionate about working in the interests of justice  and the pursuit of their client's cases.  This article seeks to examine how some changes may directly impact on the way claimant lawyer's are paid for doing their work. I welcome wholeheartedly any comments or corrections as part of this ongoing discussion and exploration.

The speculation about a possible increase in the small claims limit for personal injury has not ceased.  The government’s consultation on the subject has closed and we await the Ministry Of Justice’s announcement which is expected in May or June.  Of course, the small claims limit for financial claims has already increased rather drastically from £5,000 to £10,000 on 1st April 2013.  To most private individuals and most businesses, a sum of between £5,000 to £10,000 is far from small and with a sizeable proportion of the population being one month’s pay away from homelessness the importance of such a claim is clear.

This applies to many personal injury claims of around this size as well.  An injury claim valued at around £5,000 will typically involve a serious and potentially long lasting injury with a prolonged period of pain and discomfort.  Claims with injuries valued at between £1,000 and £5,000 can involve serious consequences for victims of accidents including loss of earnings.

The government’s consultation on increasing the small claims personal injury limit looked at three scenarios all involving an increase from £1,000 to £5,000. The most general was an increase for all personal injury claims, the second was an increase just for road traffic accidents and the final one was restricted to just road traffic accidents involving whiplash claims.

The majority of personal injury claims are valued at below £5,000 and in addition a sizeable proportion of personal injury claims arise from road traffic accidents.  The consequences of these sorts of changes for personal injury lawyers is of course that if a claim lies in the small claims track of the County Court, normal legal costs (beyond certain types of disbursements) are not recoverable from the opponent (see Civil Procedure Rule 27).  As a result increasing the small claims personal injury limit to say £5,000 would be very serious for lawyers dealing with these sorts of cases.

The Lord Chancellor and Secretary of State for Justice, Mr Christopher Grayling, has also been reported as suggesting this limit could be increased to as much as £15,000.  Such an increase would include a very large proportion of injury claims.  For the purposes of the great majority of cases there would be no more recoverable costs.

Let us assume that the small claims personal injury limit is to be increased to say £5,000 and that this change will come into effect on 1^st October 2013.  The most likely way this will be achieved is to say that all cases issued on or after that date where general damages are less than or equal to £5,000 are to be, with all the usual exceptions, allocated to the small claims track. This will be effectively retrospective as you may have been dealing with a claim for a while before 1^st October 2013 in the belief that it was a fast track claim and therefore recoverable costs would apply but the change will  mean that, unless you settle prior to the 1^st October 2013, this will not be the case.  Rather unfair to claimants and their lawyers admittedly but this is the way similar changes have been enacted previously.

In this situation, if you deal with a claim where general damages are less than £5,000 you will not recover costs from the Defendant and must therefore look to the client to pay your fees (unless you are prepared to act for free).  In this scenario the currently much maligned Damage Based Agreements may come into play. 

As matters stand, the maximum percentage you will be able to deduct will be 25% of client’s damages, to include VAT and disbursements.  So let us say your case is worth £3,500 for general damages plus £500 for special damages. Total is £4,000 so the amount you can deduct under the DBA is 25%, that being £1,000 leaving your client with £3,000.  Fortunately you will be entitled to recover the medical report fees from the Defendant  and rather neatly the allowable recoverable fee for a medical report was recently increased under CPR 27 from £200 to £750. This is an amount that equates to a respectable total for a single medical report (perhaps even from an orthopaedic expert rather than GP).

Under the Ontario model any amounts you recover from the Defendant (including for disbursements) has to be repaid to the client. So let us say your medical report was £500 which are you are entitled to recover from the Defendant.  So in addition to £3,000 you have to give credit for the £500 to the client so in the end the client has £3,500.

You end up with the balance of £500 deducted from damages plus the £500 you recovered from the Defendant leaving you with £1,000.  You still have to pay for the medical report so after deducting the fee of £500 you are left with £500 for costs.  If VAT is 20% this means profit costs are £416.67.  For a case valued in total at £4,000. 

At this point it appears that the lawyer had been entitled to deal with the case under a proper contingency fee agreement with the client of say 25% of damages. If this had occurred, the lawyer could have recovered £1,000 for costs (inclusive of VAT) which would give the lawyer £833.33 of profit costs.  The lawyer would have recovered the £500 medical report fee from the Defendant.  As a result, a proper contingency fee agreement works better for the lawyer whilst a DBA works better for the client.

Now if liability is denied or you cannot agree quantum with the Defendant, you may seek to proceed to trial.  You issue your claim, have questionnaires and a pre-trial checklist and set down for trial. All these stages entail additional disbursements of (assuming they are not changed by the rules) of £120, £40 and £325 respectively (being £490 in total).

If you are successful you will be entitled to recover these from the Defendant. Again you have under a Damage Based Agreement to give credit to the client. If the medical report fee is still £500 this means the client walks away with £3,990 and so has almost recovered all her damages.  The lawyer ends up with the sum of £10 deducted from damages plus £990 recovered from the Defendant leaving him with the sum of £1,000. 

Remember though that the lawyer still has to account for the disbursements and so the lawyer has only £10 for costs in this scenario including VAT, leaving £8.33 for profit costs.  Effectively by taking the matter to trial all the profit costs have been swallowed up in crediting the client with disbursements recovered from the Defendant due to the Ontario model.

If legal proceedings are issued at the Court, it is not possible for a lawyer to deal with a matter under a contingency fee agreement as these are not allowed in contentious matters. Part of the definition of contentious matters is that this includes cases where proceedings have been issued at the County Court.

As a result you would have to enter into a Damage Based Agreement if you needed to issue the claim.  Doing so would be likely to seriously reduce the already low fees a lawyer ends up with for a claim of this size as we have seen.

Let’s say the small claims personal injury limit is in fact increased to £15,000.  What then? Imagine a scenario where damages are agreed at £13,000 and the DBA is 25%.  Let’s say again, perhaps less probably in this scenario, that the only disbursement is a medical report of £500 which is recoverable from the Defendant in addition to damages.  Remember that the amount you can charge the 25% does not include future special damages and is net of any deduction for CRU. We will avoid any complications for appeals.

If you settle without issuing the amount to be deducted is 25% of £13,000 or £3,250.  This leaves the client with the balance of £9,750.  You recover the sum of £500 for the medical report which has to be credited to the client.  In total the client recovers the sum of £10,250.

The lawyer’s part is £3,250 as stated.  The amount of £500 for the lawyer’s fees is therefore £2,750 after the credit to the client is accounted for and after VAT this leaves profit costs of £2,291.67. If it had been dealt with under a straight contingency fee, the client would have £500 less and the lawyer’s fees (net of VAT) would increase by £416.67.

If the claim for £13,000 had to be issued and taken to trial, the disbursements would (assuming no change in the fees) total £1,100.  Under the DBA (remembering that a straight contingency fee is not possible as it is now contentious work) these have to be credited to the client once recovered from the Defendant.  So, here the client has £9,750 plus £1,100 being in total £10,850.  The lawyer has £3,250 less £1,100 being a balance of £2,150.  After deducting VAT this leaves the lawyer with £1,791.67 for profit costs. Simply by taking a matter to trial the lawyer’s fees have been reduced despite all the increased work entailed.  In reality a claim for £13,000 might well entail more than one medical report and possibly other disbursements especially if Counsel is used for the trial and so the amount available for costs reduces further.

Increasing the small claims limit to £5,000 would in conclusion mean a lot of the work that personal injury lawyers have been doing would be simply uneconomic and this becomes only more prevalent if it is increased to say £15,000.

There is currently no definite word from the Ministry Of Justice on the date for implementation of a this increase, whether it will actually happen or if so in what way.  Quite clearly as this article shows, it would be a change of the greatest importance to the personal injury profession.