Government To Extend Fixed Legal Costs
The government has announced its intention to go ahead with reforms to what the losers of civil legal cases, including personal injury claims, have to pay towards the winner's legal costs. In general, this is likely to see defendants' contributions to legal fees reduced.
The changes, which are likely to apply to cases from October 2022, would see the amount of legal costs payable by the losing party fixed according to the value of the claim and the stage at which it has settled, rather than the actual amount of legal fees incurred.
Up to now, in most civil legal claims the winner, in addition to getting their compensation or injunction of whatever legal remedy they were seeking, has generally been allowed then to send the loser their bill and ask for them to pay. This is the "polluter pays" principle: that not only has the loser broken the law in some way, they have also forced the innocent party to hire a solicitor to put things right, so it is only fair that they pay for it.
The paying party could (and in practice almost always would) argue that the bill should be less. Usually there was an agreement reached as to what should be paid, but if not, the court could be asked to rule on what a fair figure should be.
In many ways, that was arguably as fair as the system could be. In the case of personal injury claims, solicitors worked at hourly rates. If the defendant's insurance company denied liability for the accident and made the claimant's solicitor do more work to prove who was to blame, or made bad or unnecessary arguments in respect of the appropriate amount of damages, the solicitor had to do more work, would charge for that work, and the insurer would have to pay for it. On the other hand, if the insurer accepted from the start that the defendant caused the accident, and agreed the damages without unnecessary fuss, they paid less in legal costs. By definition, being able to go to court to rule on what was the fair amount of costs meant costs should be fair to everybody.
But fixed costs have been part of the personal injury landscape since as far back as 2003. Personal injury claims are made against all sorts of people and companies, but in reality they are defended by a small number of insurance companies. The insurers decided they didn't like paying legal costs and wanted to pay less. They have lobbied the government and their PR departments have fed stories to the media to give the impression of a compensation culture in which personal injury solicitors are getting rich off inflated insurance claims. (Top tip - if you're thinking of a career in law, the real money is in working for companies, including insurance companies, not against them.)
From 2003 the amount insurers had to pay in legal costs for road accident claims where the damages were under £10,000 became a fixed amount, not the actual fees charged by the solicitor. Then in 2009, senior judge Sir Rupert Jackson wrote a major report recommending reforms to civil litigation. The idea in itself wasn't a bad one: make legal procedure a bit simpler, and at the same time fix the costs payable by the loser to the winner at a fairly low level. That way the insurers and other losing parties wouldn't have so much to pay, but the solicitors on the winning side wouldn't have so much to do, so it all balances out. The new fixed costs for personal injury were brought in in 2010, and extended (and significantly reduced) in 2013, covering most injury cases where the damages were valued up to £25,000.
Sir Rupert was asked to write a further report, which was published in 2017. This recommended further reforms to civil litigation (not just personal injury), and fixed costs for most civil claims worth up to £25,000, and for most personal injury claims worth up to £100,000. These are the reforms now planned for next year.
So are they a good idea?
There are arguments either way. As mentioned above, the old system had fairness built into it. If the "guilty" party made the "innocent" party's solicitor do more work, it is fair that they then have to pay for it, and the court could be asked to rule on what the fair amount to pay ought to be. On the other hand, there was an extent to which it could encourage a "plodders' charter", whereby the efficient, expert solicitor who gets the job done in half the time gets paid less than the plodder, who does hours and hours of work on the case which ends up not achieving very much. It was also very hard to keep the legal costs in proportion to the size of the claim in lower value cases, where there is always at least a minimum amount of work that is needed in all cases, even though often insurers' conduct didn't help matters.
Then there is the "estate agent paradox". Often, especially in a strong housing market, estate agents have buyers queueing up for property. For example, several years ago I was moving, and my flat sold within less than 24 hours of going on the market. The estate agent still pocketed his percentage of the sale, even though he had had to do very little. Was it fair that he should earn so much for so little work?
Is it fair a defendant in a personal injury claim should pay a fixed amount of legal costs when the actual work done and costs incurred are less than that amount?
But on the other hand, what is the best result for me, the estate agent's customer? That he spends months and months phoning up potential buyers, showing them around the flat and really putting in the effort to earn his fee? Or that as a good and reputable estate agent, with lots of potential buyers on his books and new buyers coming to him regularly because of his excellent publicity, he finds me a buyer without breaking a sweat? Would I rather sell my flat in 24 hours, or in six months? Which version of the estate agent has done the best job for me? Who deserves the higher fee?
There are reasons to be cautious about fixed recoverable costs in personal injury claims. They always seem to be set at a low level, much lower than the average when fees are paid on an hourly rate. In the past they have never been increased for inflation, although this may prove not to be the case this time. If set too low, they could put solicitors off doing these kinds of cases at all, leaving people without a lawyer and therefore without access to justice. They could encourage solicitors, faced with an easy case and a difficult case, where they will be paid the same on both, to concentrate on their easy cases. They could discourage injured people from pursuing claims at all, where they know there is a good chance some of their damages will have to go on legal fees because their opponent's contribution towards the costs will normally be less than the full bill.
However, I think there are reasons to be hopeful, and even if the announcement isn't exactly good news, it isn't all bad either. Fixed costs tend to reward lawyers who get on with things, who go to court if defendants don't play ball, and in general do things with a minimum of fuss. Sometimes the fixed costs can even cover all of the legal fees incurred, meaning the injured person gets their damages in full, something that has generally not been the case since the reforms of 2013.
For more information about how Moons Solicitors' legal fees work, see our fees page.