• Come next April firms like Brachers will still be promising personal injury victims a genuine “no win, no fee” service, but the promise that normally follows that strap line-“and you will keep 100% of your compensation” will no longer hold good for all clients.

    There is likely to be a two tier system, where some clients, particularly those with legal expenses insurance or perhaps the very strongest cases will continue to enjoy the twin benefits of “no win, no fee” and “keep 100% of your compensation”. But for other clients, whilst they will still receive a “no win no fee” service, they are likely to lose a sizeable chunk of their compensation to pay for their legal costs should they win.

    If you think that is unfair we would agree with you!

    This is not be as a result of the “greed” of personal injury lawyers, but the result of deliberate government policy in implementing “the Jackson reforms”. The government thinks it is a good idea that litigants should have a stake in the outcome of their case and have to put their money where their mouth is by making their own contribution to the costs of litigation. Unfortunately the net result of this will be a real terms reduction in the quality of justice for many personal injury victims.

    So how and why will these unfortunate changes to “no win, no fee” litigation come about?

    Currently firms like Brachers can guarantee personal injury clients “keep 100%” of their compensation if they win, because if the claim succeeds all of the client’s reasonable costs are recoverable from the losing defendant/insurer. This includes the “additional liabilities” that a “no win, no fee” client is liable to pay for; the solicitors’/barrister’s success fee and any legal expenses insurance premium.

    Lawyers need to charge a success fee in “no win no fee” cases, because the success fee charged in successful cases pays for the losses the lawyer makes in losing cases (and if you find a personal injury lawyer who says s/he never loses a case either s/he is lying or else they are very carefully cherry picking only the very strongest cases!). Legal expenses insurance needs to be purchased unless a client already has it (and quite a few do-attached to home or motor insurance policies typically).

    This is required to cover a personal injury claimant’s own potential costs liabilities; the costs of disbursements like medical reports and potential “adverse” costs (ie their liability for the defendant’s costs) if they lose the case or fail to beat the defendant’s “part 36 offer”. These liabilities are not covered by the solicitors’ “no win, no fee” guarantee, so an uninsured client will need their solicitor to arrange cover for them. The need for such insurance in the future will reduce because of the advent of “Qualified One Way Costs Shifting” (see our previous article). However, some insurance cover will still be required to cover the client’s liability for disbursements and “part 36 offer” risks.

    Come next April these “additional liabilities” in “no win no fee” cases-the lawyers’ success fee and any legal expenses insurance premium will no longer be recoverable from the losing defendant/insurer.

    To compensate personal injury claimants, there will be a ten per cent increase in the compensation paid for general damages for their injuries.

    Unfortunately it has been shown that in many cases the ten per cent increase in general damages will not make up for the loss that personal injury claimants will suffer from the deduction of success fees and insurance premiums from their compensation.

    Most road traffic personal injury claimants will be no worse off (many may even benefit), but many employer and public liability claimants will lose out. This is more than slightly ironic given the government’s stated concerns about the recent increase in road traffic whiplash claims (whereas employer and public liability claims have not increased).

    The reason why employer and public liability personal injury claims will be disproportionately affected is because of the higher risk of failure with these claims. This is why the standard fixed success fee for road traffic claims is only 12.5% but is 25% for employer liability claims and the average variable success fee in public liability claims more like 50%. In certain higher risk employer liability claims –industrial disease cases-the general fixed success fee is as high as 62.5% and even 100% in work stress and RSI claims-reflecting the high risk/failure rate of such claims.

    To illustrate how the changes would effect a personal injury claimant with a higher risk case we take one example from a recent RSI client of ours, Mr G.

    Mr G received £117,500 in compensation. The claim was settled only a week before trial. The settlement comprised about £10,000 for his injuries, about £60,000 for his past losses (mainly loss of earnings) and about £47,500 for future losses. Our base solicitor’s costs were about £35,000 plus VAT. Because of the case risks our success fee was also about £35,000 plus VAT.

    Under the new regime he would have received an extra £1,000 in general damages. However, even ignoring the insurance premium he would need to pay for, the amount deducted from his compensation to pay for his success fees would come to £17,750; the amount that can be taken from a client’s compensation to pay for success fees is capped at 25% of general damages and past losses; £11,000 + £60,000 = £71,000 x 25 % = £17,750. Therefore instead of taking home his rightful fair compensation of £117,500 he would only receive £100,750.

    The reduction in his compensation would be the equivalent of him losing nearly one year’s loss of earnings. In fact Mr G in our example would probably be even worse off because of the need to purchase his own legal expense insurance.

    Like most victims of industrial disease whilst he did have some legal expenses insurance attached to a home insurance policy this excluded industrial disease. We had to buy a policy to protect him. The actual premium was about £20,000.

    It’s difficult to know what the premium might be under the new regime because there would be no need to cover the full defendant’s costs, £1,000 perhaps? Whatever the premium would have been this would be a further lump bitten out of his compensation, because although there is a cap on what success fees can be taken out of compensation there is no proposed cap on what insurance premium can be taken from compensation. You have to ask yourself whether that is right and fair.

    Personal injury compensation in this country is designed to be exactly that – compensation and nothing more – to put the personal injury victim back into the position they would have been in but for the defendant’s wrong, as nearly as money will allow.

    Unlike for example the American system there is no additional concept of “punitive damages” in English personal injury claims. Contrast the position if Mr G had instead suffered the same injuries in a road traffic accident. The claim probably would have been covered by legal expenses insurance. Even if his legal expenses insurers did not initially cover our firm acting because we were not on their panel, as ethical solicitors, Brachers would then have guaranteed to put Mr G in the same position as if he had gone with the insurer’s panel firm ie not just no win no fee, but also letting him keep 100 % of his compensation. (We could afford to take the risk without a success fee because the risks are much less in a RTA claim. There would be no need to purchase insurance). Mr G would actually end up £1,000 better off than now because even though there would be no deductions from his compensation he would still enjoy the 10% uplift in his general damages.

    This content is correct at time of publication

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