The winners and losers of the fixed costs regime

The winners and losers of the fixed costs regime

Kerry Underwood, senior partner at Underwoods Solicitors, looks at how firms are faring under the new fixed costs regime.

Original news

Civil Procedure (Amendment No 6) Rules 2013, LNB News 15/07/2013 91

SI 2013/1695: The Pre-Action Protocol for Low Value Personal Injury Claims in Road Traffic Accidents (RTA Protocol) is extended to include claims up to the value £25,000 from 31 July 2013 with a revised Protocol coming into force on the same date. The scheme is further extended to include most personal injury claims with a value of £1,000 to £25,000, as set out in the Pre-Action Protocol for Low Value Personal Injury (Employers’ Liability and Public Liability) Claims (EL/PL Protocol).

How is the fixed costs regime working for personal injury lawyers in practice and what are the common challenges?

Although the fixed costs regime came in for road traffic accident work in April 2013—it only spread to employer’s liability and public liability work at the end of July 2013 and covered only cases where the cause of action occurred on or after 31 July 2013. Thus it is too early to say whether or not the scheme is successful for the new areas of work.

However in road traffic accident work the scheme appears to be working satisfactorily. The slashing of portal fees in April 2013 forced lawyers to once again make a charge to their client in such matters and that charge has settled down at 25% of damages. This is now standard in all personal injury work and indeed some lawyers are beginning to charge 30% on the basis that they cover the adverse costs risk rather than taking out after-the-event insurance which must be paid for by the client as it is no longer recoverable.

A combination of fixed recoverable costs and 25% of the damages from the client is a workable regime for personal injury lawyers.

What has been the impact on firms?

As indicated above it is a little too early to tell as there is still significant run off of pre-August 2013 employer’s liability and public liability work. Clearly the overall recoverable costs will drop but firms charging their clients 25% or 30% of damages should be able to maintain their profitability and despite the fact turnover may drop profitability should remain stable or increase.

What type of firm setup is making money on this work?

The firms that will not make money on this type of work are those who traditionally fattened the file up like a pig for market and sought to maximise the cost on each case.

For example on certain employer’s liability work, such as noise-induced hearing loss, the costs were often several times the level of damages. That will no longer be the case, partly due to fixed recoverable costs and a different attitude by the courts, including taking into account proportionality. My view is that factory firms will struggle in the new regime. Firms which are likely to succeed are mainly solicitors, legal executives and trainee legal executives working under the supervision of a qualified lawyer.

Case management systems are now virtually useless for this type of work as they tend to generate apparent activity, such as standard letters, which under the old regime resulted in additional fees. That is no longer the case.

Therefore, the types of firm likely to make money on this type of work are those where the lawyers can make quick and confident decisions and identify the issues in any given case—the key is to get from A to B as quickly as possible and consistently put in only the work required to achieving the right result. That is easier said than done but is clearly something far more suited to experienced lawyers.

Another point is that there is no longer a provision for the payment of counsel’s fees, except in exceptional circumstances, and therefore those firms which generally do not rely on counsel, and do their own advocacy, are better suited to the new regime (again that requires experienced lawyers).

Do you have any practical tips for dealing with these types of cases?

Some tips would be:

  1. see every client

  2. charge every client 25% or 30% of damages

  3. make a Part 36 offer on day one

  4. avoid using counsel

  5. issue proceedings the day the matter comes out of the portal

  6. push the case through as quickly as possible

  7. be proactive, for example value general damages and make a Part 36 offer rather than simply reacting to the defendant’s offers etc

  8. rely on experience and judgment rather than case management systems

  9. employ solicitors and legal executives and trainee legal executives under the supervision of a qualified lawyer

Do you have any predictions in relation to future developments?

There is no doubt that fixed recoverable costs will spread rapidly and extensively, both in relation to the types of work covered and the value of the claims.

It is the stated intention of the Ministry of Justice, and this is not a controversial proposal politically, that fixed recoverable costs spread to all types of civil work where costs remain recoverable.

Lord Justice Jackson recently suggested that the maximum level of damages covered by fixed recoverable costs, currently £25,000, be raised to £250,000. That is likely to happen.

On 22 April 2014 the minimum level for issuing a non-personal injury claim in the High Court jumped from £25,000 to £100,000, with the personal injury figure staying at £50,000. On the same day a National County Court was created.

These changes are a short step away from the introduction of fixed recoverable costs for all civil work up to £100,000 and personal injury work up to £50,000.

Not only does this introduce certainty it massively reduces the problems, work and costs caused by costs budgeting and will mean the end of any form of budgeting or assessment in the vast majority of civil litigation.

Interviewed by Evelyn Reid. The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

This article was first published on Lexis®PSL Personal Injury on 28 May 2014. Click here for a free trial of Lexis®PSL.

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