Best-laid plans…

It was to be the house that Lord Justice Jackson built. On paper, his review of civil litigation costs was several storeys high, with a full suite of reforms to ensure a fairer, more cost-effective claims process.

But following the government’s announcement that it will consult on implementing only certain reforms within the review, many are questioning whether this carefully constructed structure could be left with gaping holes.

On the surface, the new government’s decision to consult on the Jackson Review looked promising for insurers, allaying fears that his year-long review would gather dust following the departure of the last government. But the omission of key elements, most notably the thorny issue of referral fees and proposals for fixed costs for personal injury claims worth up to £25,000, has fuelled concern.

Pick and mix

The consultation, due to be held in autumn, is set to focus solely on conditional fee agreements (CFAs) and the role of contingency fees in litigation. This has sparked fears that the government may take a piecemeal approach, disregarding some of the key aspects welcomed by insurers. Many point out that such an approach would conflict with Lord Jackson’s own view that his set of proposals should be viewed as a cohesive whole.

Allianz motor and casualty claims manager Martin Saunders believes that only by implementing the entire package can a fairer –and less costly – system for both claimants and defendants be achieved. “Jackson has suggested there should be a basket of reforms. I think any mechanism introduced that only looks at part of the basket is a danger,” he says. “It may then get out of balance. Some parts may be implemented and some parts may be overlooked. I actually think that dealing with it piecemeal is dangerous for both claimants and defendants.”

Forum of Insurance Lawyers president Dan Cutts points to the mistakes of the past. “In my opinion, we need to keep the package together as Jackson set out,” he says. “There is a lesson in history here. Lord Woolf’s report of 1996 was meant to be a comprehensive code to speed up litigation and make it more cost effective. However, it was implemented only in part and then had CFAs overlaid on top. This has led to the unsustainable situation that Jackson has set out to redress.”

The government argues that the consultation does not need to include referral fees because the Legal Services Board (LSB) is set to analyse their impact on the claims process. But there are concerns that the board will take a soft approach to the matter, following the submission of reports by both the Legal Services Consumer Panel and consultants Charles River Associates for the LSB showing that referral fees do not harm clients.

This, however, conflicts with many insurers’ belief that inflated referral fees push up costs, inevitably forcing a hike in premiums – and consequently hitting policyholders directly.

AXA managing director of claims David Williams believes it is vital to keep the pressure on the government to take a stand against referral fees. “The last thing we would want would be for a really good piece of work to be hampered by the fact that the Legal Services Board didn’t take the problems caused by referral fees seriously enough,” he says.

However, the government insists that proposals not included in the pending consultation will not fall by the wayside.

“Work is progressing on a number of other areas covered by Lord Jackson’s review, including fixed recoverable costs and referral fees,” a Ministry of Justice official says. “The government will consider recommendations on these issues, in conjunction with other work that is currently ongoing, including Lord Young of Graffham’s ‘Review of Health and Safety Law and the Compensation Culture’, which will inform our position. However, we are now taking forward as a priority those proposals that we believe could generate the most significant cost savings for users of the civil justice system.”

Cost constraints

There is also dismay that little attention seems to have been paid to Jackson’s recommendation that the legal costs of personal injury cases worth up to £25,000 should be fixed. According to QBE’s head of strategic claims management, Mike Noonan, this would apply to 95% of personal injury cases – and offer a major boon for insurers.

Optimists suggest that the government is not necessarily closing the door on Jackson’s other proposals; merely that it is adopting a belt-and-braces approach by consulting on the reforms in the Jackson Review that would require primary legislation.

Keoghs director of market affairs Steve Thomas explains: “It may be that the government feels that if it is going to have to bring forward primary legislation to introduce these reforms, they need to be seen as having gone through a formal consultation process.”

But others are less convinced, arguing that this budget-constrained government will only embrace the aspects that could fuel its current cost-cutting spree. Law firm Stephensons’ personal injury and clinical negligence managing partner, Andrew Welch, believes that the government’s priority is reforms that can lead to fast savings for its departments, rather than ensuring a streamlined claims process for the long term.

“It wouldn’t surprise me if each government department had a team of civil servants who

were tasked with looking through all the suggestions that had been made over the last five years about reforms and deciding which of those suggestions can cut costs,” he says. “If someone was looking at the report through those eyes, they are going to conclude that getting rid of referral fees is not going to save any money for the government.”

Referral fee fight

So what recourse is available to the insurance sector facing a potentially fractured version of Jackson’s proposals? Some are in favour of fighting: lobbying the government for the inclusion of referral fees in the upcoming consultation.

“We need to go back and review the situation, repeating the concerns we have already voiced,” Saunders insists. “It is a question of going back to our peers and discussing with the ABI to see if we can engineer meetings that might assist in making referral fees part and parcel [of the implementation process].”

Meanwhile, others are cautiously optimistic that the government’s determination to drive down funding costs generated by success fees and ATE premiums may indirectly result in deflating exorbitant referral fees. “It might squeeze out referral fees: if they have a tight budget, then solicitors will have a problem affording referral fees,” Noonan reasons.

It seems that, as the work of laying the foundations for these reforms gets under way, many in the industry continue to question whether the finished result can hold true to their architect’s original design. IT

Jackson’s key reforms

Conditional fee agreements (CFAs)

• CFAs have given rise to success fees, where a fee is only payable in the event of a favourable outcome; and ‘after the event’ (ATE) insurance, which covers potential liability for an opponent’s costs. Under current legislation, the successful party can recover the success fee and the premium from the opponent. Jackson proposes abolishing ATE premiums and success fees.

What’s happening? The government will consult on this proposal in the autumn. This will require primary legislation if implemented.

Contingency fees

• Jackson favours the introduction of this key feature of the US legal system, where the lawyer’s fee is extracted from the client’s damages.

What’s happening? This proposed reform will also form part of the government’s consultation.

Fixed costs in the fast track

• Jackson recommends the costs of personal injury cases worth up to £25,000 should be fixed. According to QBE’s Mike Noonan, this would apply to 95% of personal injury cases.

What’s happening? Nothing.

A ban on referral fees

• In his report, Jackson called for referral fees to be scrapped because “they add to the cost of litigation without adding any real value to it”. He suggests that if this recommendation was rejected, referral fees should be capped at £200.

What’s happening? The Legal Services Board is examining the impact of referral fees and is set to offer its views in the next couple of months. But the likelihood of the board backing a ban seems unlikely, following the submission of reports giving a green light to the practice.

Third-party funding

• Jackson proposes an arrangement where a party not directly relevant to the proceedings agrees to fund the case in return for a share of the damages awarded.

What’s happening? The Civil Justice Council is set to consult over the summer over a voluntary code of conduct for third-party funders.