Industry Expert View: Tom Mason

Industry expert view: Tom Mason

Tom Mason, a dual qualified solicitor and costs lawyer, is a director at Civil and Commercial Costs Lawyers. Here, he shares his thoughts on how law firms can protect themselves against the unintended consequences of the whiplash reforms.

It has been almost 18 months since the implementation of the whiplash reform programme, which was introduced to target fraudulent claims and reduce motor insurance premiums. Looking at the initial data, it appears that the first goal has been achieved, with the Association of British Insurers recently reporting a 7% fall in the number of fraud cases. However, the unintended consequence of this has been the emergence of ‘cannibalism’ within the sector, with claimant lawyers now facing legal action from former clients alleging that they have been overcharged and requesting repayment of the costs deducted from damages.

A pro-active approach, a robust funding model and an effective settlement process are necessary if lawyers are to preserve access to justice for clients and protect themselves.

The government’s impact assessment predicted a loss of £80m in revenue for personal injury solicitors as a result of the whiplash reform programme but failed to take the loss into account in its overall calculations to assess the impact on the industry. The justification for the omission was that solicitors would replace it with other legal work of equivalent economic value. However, the government failed to provide any evidence to support the assertion which was widely criticised by the justice committee.

The subsequent search for work of equivalent economic value has led to the cannibalism mentioned above, with a satellite network of firms now developing to help former clients seek repayment of costs deducted from damages. The concern is that this work will not only be a catastrophe for access to justice, but simply transfer the problems associated with fraudulent whiplash claims from one area to another.

A pro-active approach to defend against repayment challenges will help practitioners ensure historic cases are not resurrected to threaten their current business model.

There are three options for a robust funding model:

  1. A conditional fee agreement (“CFA”) involves the client making a contribution to basic charges and a success fee if the claim is successful. A CFA provides a flexible funding model that allows practitioners to develop a sensitive approach to minor injuries. This innovation is facilitated by the CFA and determines whether or not the injuries will fall within the whiplash definition. The advantage is that a CFA can accommodate test litigation in these areas and align with a streamlined process for one agreement in all cases. The CFA must be explicitly clear in relation to the success fee, basic charges, hourly rates and estimates in order for the client to provide informed consent.
  2. A damages-based agreement (“DBA”) involves the client making a contribution from damages. The fixed tariff system for whiplash damages means practitioners have invested in technology and spend less time on individual cases. This may mean a CFA is unattractive for high volumes of cases in this low margin area. A DBA provides an alternative funding mechanism which achieves a fixed contribution from damages. There is also scope for further legislative reform involving the abandonment of the ‘Ontario’ model in favour of a ‘success fee’ model.
  3. A contingency fee agreement involves the client paying a contingency fee from damages if the case settles prior to litigation. This funding model is certain, clear and difficult for former clients to challenge the deduction from damages.

An effective settlement process ensures a compliant statute bill is delivered to the client and paid in accordance with The Solicitors Act 1974 (“The Act”). This process is crucial to limitation. The contrast is stark. If a statute bill is not delivered and paid in accordance with the Act, limitation does not run meaning historic cases remain at risk. Whereas, if a statute bill is paid and delivered in accordance with the Act, former clients cannot challenge the statute bill more than 12 months from payment. Practitioners can therefore accurately model their 12-month risk portfolio at any given time if an effective process is in place for delivery and payment.

By following this three-pronged approach, lawyers will enable their businesses to thrive and at the same time ensure that vulnerable clients are properly compensated for their injuries. Without it, we risk a growth of cannibalism, creating further problems for firms, many of whom are already fighting for survival in the sector, and yet another barrier for vulnerable claimants seeking access to justice.

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