Resolution or revolution? (2)
Date: 14 October 2011
Authors: David Greene
Issue: Vol 161, Issue 7485
Categories: Opinion, Legal services
Last week saw the formal introduction of alternative business structures (ABSs) with elements of the press referring to it as law’s “Big Bang”. While some commentators have made much of the proposed changes—a headline in The Times this week suggests the changes will “spell the end for thousands of solicitors”, (10 October) the process seems set to progress more as accrual than large explosions. For many litigators the ABS revolution may be more of a sideshow as they attempt to manage the Jackson reforms and the swathe of satellite litigation that will follow. History tells us that solicitors are adept at working with change, but what are the specfic challenges they face and how might they respond?
ATE
If there is one element of the Jackson package which causes them a problem it is the non-recovery of the ATE premium. The problem is deepened by the current debate on “Qualified One Way Cost Shifting” (QOCS). Jackson’s idea was that ATE, particularly in personal injury, is a waste of funds often simply circling from one insurer to the next, or indeed the same insurer. Let’s have a system, he said, in which ATE is unnecessary because there will be no costs payable. We now know that as a product QOCS is a misnomer because the losing claimant will always have some liability for costs and dependent on certain conditions may have substantial liability. Thus the claimant will need some insurance against this risk; yes, ATE.
Who will cover that liability and who will pay for it? And while QOCS applies to personal injury what will happen in all other litigation if the ATE industry no longer has the bread and butter work of personal injury? From what I hear one can speculate that:
- Insurers will provide firms with a generic policy which solicitors will pay as an overhead.
- Solicitors will cover individual premiums and recover if the claim succeeds.
- ATE providers will become third party funders and provide cover as part of that fund.
Any of these consequences may apply pressure to smaller practices because the ATE providers may be choosy with whom they work and carrying additional overheads may be difficult. One consequence that Jackson would very much support is that there will be downward pressure on premiums.
CFAs
Non recoverability of success fees will undoubtedly affect access to justice for many. It will for instance kill off certain mass consumer or environmental claims. Post Jackson the general public will still, however, be able to pursue a claim for personal injury with no liability and little or no effect on the damages. There will be a drive to the bottom on offerings driven largely by the CMCs and insurers forming ABSs. As previously commented the change will heighten the competition to get business and the methods of achieving that. So how will the profession respond:
- increase flexibility in charging perhaps in combination with contingency fees;
- increase work with third party funders;
- consolidate firms into marketing groups;
- form ABS’s and match the CMC’s step by step; and/or
- become more aggressive in the high street offer of quality and access?
Contingency fees
Yes damages-based agreements but clients will refer to them as US style contingency fees. No doubt the introduction of contingency fees is the saving element of the Jackson reforms but perhaps the least likely to pass through the Lords without severe test. Further it ain’t no US style gravy train; the level of damages here will make contingency fees fairly marginal. Further advising clients on different funding methods, including contingency fees, presents some difficult professional questions. How might we see firms respond?
- Some firms will charge entirely on contingency fees; that will be their sole offer.
- As with CFAs firms will agree partial contingency fees; perhaps the recoverable element pay as you go and then a percentage of damages on top.
- In commercial work firms will agree contingency fees for larger claims.
- Firms will form partnerships with funders and lay off some of the risk to maintain cash flow.
One element of litigation that will be heightened for practitioners will be to ensure the solvency of the defendant.
Referral fees
Much has been written about the banning of referral fees. The iceberg below the water is the effect this may have on recoverable costs. The logic of the Jackson argument is that without referral fees there’s a bag of free money which can be cut from recoverable costs. Again much could be written
on this question but it can be seen from the above that the probability is that overheads will increase for firms post Jackson.
I can hear many saying that solicitors will compete as they did in the conveyancing market by providing a quality service which will shine through eventually all the hype and dross. I am not sure about that but we should not underestimate the power of the “solicitor” brand. What I do know is that the profession will respond creatively to change.
David Greene, senior partner, Edwin Coe LLP & consultant editor of NLJ.
E-mail: David.Greene@EdwinCoe.com
Website: www.edwincoe.com
This is David’s second article on the introduction of ABSs (See Resolution or revolution?)
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