The legal press has been consumed in recent months with commentary on the imminent doom that will befall the ATE insurance market together with the eradication of recoverability of success fees, should Lord Justice Jackson’s proposals be implemented.
The irony is of course is that so much of Lord Justice Jackson’s criticism in respect of ATE and CFAs derives from a focus on personal injury, clinical negligence and to a lesser extent libel.
The arguable absurdity is that rather than concentrating specifically on these sectors, each of which have their own unique characteristics, Jackson has proposed sweeping changes across the board without any publicised risk analysis as to how these proposals will affect those individuals in non-injury and non-libel litigation.
Jackson has fudged the issue of commercial litigation by simply advising that all businesses are effectively on a level playing field which is, of course, nonsense, as any SME business who is involved in a David v Goliath battle will tell you.
In such cases, defendants quite blatantly use costs as a weapon against their less financially able opponent. This will worsen dramatically should Jackson’s recommendations be implemented.
An example scenario would be a manufacturing SME having a dispute with an insurer who is refusing to pay out following a fire at his warehouse, with key machinery being destroyed.
The insurers fight hard with representation from city lawyers and Silks. The SME either settles at an under-value or succeeds at trial only to be liable to pay the success fee and any ATE premium from their damages.
The headlines read “SME wins fight against insurer” however the reality is the total recovery after costs is 50% of the value of the destroyed machinery, meaning the SME is out of business. Brilliant.
Unfortunately, despite Jackson LJ’s desire to highlight alternative substitute products, BTE and Third Party Funding are unlikely to be the solutions. To even think that the latter is an answer for small to medium size litigation demonstrates a lack of understanding of the market.
Over the past decade, the ATE market has evolved into a stable marketplace with very clear guidance on premium ratings and transparency for opponents. Third party funding is at the beginning of its lifecycle so has not yet evolved in the same way.
Clearly access to justice will be negatively affected by implementation of the recommendations. Only those with cases with good damages:cost ratios will be able to secure ATE insurance and/or funding.
Settlements at undervalue will become rife as defendants play tactical gamesmanship knowing that the longer the case runs, the greater the level of damages the client is forgoing to insurers and lawyers.
Currently, a defendant who aggressively drives up costs will ultimately be the makers of their own misfortune as claimants will buy insurance to cover their adverse exposure in line with the opponent’s estimate.
If the defendant loses, they have a hard time justifying why it was unreasonable for the client to take out that level of cover.
Strip recoverability and a client faced with a similarly aggressive defendant will potentially end up having to buy too much insurance cover and it may become uneconomic to pursue.
The claimant’s ability to secure equally matched legal representation will surely be detrimentally affected also. Such clients will no longer be able to secure the services of leading Counsel or firms with higher charge out rates given the direct impact on their bottom line.
With regard to the insurance market, adverse selection will become a major problem as clients will seek to avoid having to take out a policy too soon, whilst they try to settle the case.
This will inevitably result in high rejection rates from underwriters and higher premiums, as insurers won’t have balanced their portfolio by sharing in the rewards for the uninsured cases which settled early.
No one can say for certain how the market will evolve in a post Jackson world. If there are margins to be made there will inevitably be players competing for business.
However, the driver for that market place will be the economics in order to achieve a profit, which means a greater proportion of cases will not be run because the client cannot recover their uplifts.
Despite widespread commentary that his proposals will fundamentally restrict access to justice, Jackson LJ is reiterating to Ken Clarke that his proposals should be implemented in full. This is clearly a terrible risk to take with people’s lives and businesses.
The fatal flaw here is the sheer scale of the task it set out to address. Many substantially generalised assumptions have been made in a bid to address the whole legal landscape of costs.
In truth, any personal injury lawyer will advise you that the issues they and their clients face are significantly different to those faced by the lawyer for SMEs litigating against a large corporate.
Unquestionably tweaks can be made to the PI marketplace and likewise other sectors.
But a plea to please Ken Clarke: do not accept that ‘all or nothing’ is the prudent approach where so many obvious uncertainties and self-serving interests exist.
Helen Smith is a senior broker at TheJudge, a litigation risk transfer broker