How Jackson will increase costs and boost profitability

The raison d’etre of the package of reforms, known as the Jackson reforms, is to reduced perceived levels of disproportionate costs to more proportionate levels.  One of the more interesting questions which will fall to be slowly answered over the coming months, is the extent to which costs might actually increase due to the Law of Unintended consequence, or even if they do not increase in absolute terms, will lead to improvements in the profitability of some solicitors practices.

The purpose of this post, is to consider ways in which this might occur, mixing law freely with consideration of behavioural economics and behavioural psychology.

1. The move to an Alternative Business Structure

In The Times this morning the Direct Line Group announced its venture linked with Parabis, to set up an Alternative Business Structure. It also proclaimed that this had nothing to do with the £21 million it would formerly have received from referral fees. Hmmm. Be that as it may, any insurance company or claims management company or trade union which wishes to stay in the business of receiving a steady stream of income from claims, should now be seeking to package up claims capture capability with the provision of litigation services. This in turn has the potential to generate further costs savings through economies of scale and the removal of transactional costs with increased profitability. The ban on referral fees is thus a powerful motor, driving forward in the personal injury field, the move to ABS.

2. Success fees at 100% subject to the statutory cap

In the last 3 1/2 months, there has been no race to the bottom, with solicitors refusing to charge success fees, in cut throat competition. Instead, the consensus in the industry, is that success fees should be charged, and the client will have to take the hit. Given that the average success fee is now routinely pitched at 100%, subject to the statutory cap of 25% of general damages and past special damages, the quantum of success fees, which in the majority of cases, ranged in the past from 12.5% to 62.5%, has actually increased albeit that it is the client who is now liable to pay them.

3. Punishing the insurance industry for non-compliance

Some insurance companies deal with claims efficiently, and always answer their correspondence timeously. Others do not. The overriding objective has now had a new limb (f), added to it, to emphasise, the importance of compliance with rules, practice directions and court orders.

With the move to an expressly Singaporean model, of rigidity and inflexiblity in court procedure, there are nowextreme sanctions for non compliance. Insurance companies who fail to comply with Protocol requirements, or who do not act promptly to set aside default judgments, can expect little leeway. Non-compliance generates more  costs, through dropping out of Portal schemes, the reasonable issue of proceedings, and applications for sanctions for non-compliance. Conversely, the claimants’ solicitors can and should have their claim ready, with documents, and statements in place to force the pace once issued.

4. Costs budgeting

The costs budgeting rules represent a clear opportunity for the likely receiving party’s costs to be ratcheted up, at the start of the case. First as they have no application at all to pre-issue costs, a solicitor is free to spend what he wants prior to the issue of proceedings and will do so, to avoid any potential strictures of budgeting. Something like 2/3 to 3/4 of all costs, are incurred pre-issue.

Secondly it gives an excellent opportunity, to establish hourly rates, document time and overall levels of costs anchoring expectations for a detailed assessment, promoting unease in the mind of the likely paying party.

5. More issued claims

The carefully constructed Fixed Fee matrix for Fast Track cases, positively encourages claimants to issue proceedings, and to run them to as late in the day as possible as the longer the case goes on, the higher the costs recovered, per case.

6. The chilling effect of QUOCS

The realisation that in the vast majority of cases that even a successful defendant, will have to stand its own costs, due to the regime of Qualified One Way Costs Shifting, means that each and every case, now has a settlement value.

In circumstances, where a lost case means that the costs Order, does not even count as an unsatisfied judgment, means that, again, built into the system is an incentive to run every case, that a claimants solicitors practice has.

Moreover, even if a defendant successfully couches a part 36 offer which it succeeds on at trial, as its own costs can only be set off against the claimant’s damages, not damages and the claimant’s costs, the situation will arise where a claimant’s damages are wiped out to zero, but his solicitors will still recover substantial costs, up to the point in time that the part 36 bites.

7. Part 36 offers in detailed assessment proceedings

These are utterly unnecessary, where a regime of provisional assessment is in place to control costs. But if a receiving party can couch a part 36 offer accurately for the purposes of an assessment  then they will receive not only 10% of the costs of the bill, but part 36 interest on the costs on the bill, indemnity costs of the detailed assessment and part 36 interest on the detailed assessment costs. Thus, with one stroke, the £1500 cap on assessment costs prescribed by provisional assessment, can be made otiose.

8. Damages based agreements (DBAs), BTE and the Small Claims Track

If the Small Claims Track limit is raised to £5000 for personal injury claims, then those claims will not disappear. Instead, the 70% of motorists who have BTE, will have a positive incentive to use it and those who don’t have BTE, or if BTE is withdrawn in its current form, will have an incentive to use Damages Based Agreements (DBAs) or appropriately drafted CFA Lites with waivers, to continue to litigate the case: which would mean lower damages for claimants, but potentially higher fees for solicitors than those prescribed, by for example, the Portal scheme.

 

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