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The New Costs Regime - A Trip to the Dentist?

We all dread it, sometimes for weeks in advance. A trip to the dentist. The visit itself may not be that bad, but the dread of what might happen……..

Could it be that in a few month’s time we will see the government’s latest announcement as just an anticlimactic session with the oral hygienist?

As you may know, the Justice Ministry has outlined its proposed new fixed costs levels for cases settling within the Portal, and of course from April onwards the Portal procedure will be extended to include EL and PL cases. The Ministry’s proposed flat rate fixed recoverable costs are:

  • £500 for RTA claims worth up to £10,000 (Stage 1: £200; Stage 2: £300)

  • £800 costs for RTA claims worth between £10,000 to £25,000

  • £900 for EL and PL claims worth up to £10,000

  • £1,600 for EL and Pl claims worth between £10,000 to £25,000

The Justice Minister has explained that the costs have been reduced to ‘reflect the forthcoming ban on referral fees’ which presumably means that costs have been reduced by the £700 which is often paid to referrers. It appears to be a disaster for personal injury firms, but how bad is it, and will it be impossible to adjust to this new landscape?

It’s worth looking at each component of the personal injury market in turn – referrers, solicitors, clients, BTE insurers and of course ATE insurers.

... seem likely to suffer. Claims that generate less costs are less valuable, so referral fees will naturally drop and we already know that Section 56 of LASPO 2012 bans referral fees beyond a payment which a solicitor can show is a fair price only for work actually carried out.

...will still need to acquire work by marketing their services. They will either form new business structures with referrers, or increase their advertising spend. Baseline costs of £500 will be insufficient to pay for this, so they will probably need to charge their clients a small additional sum, to be paid out of damages on successful cases. There is obviously a risk that the rush to compete on headline price will cause an increasingly reduced level of service, but if this is avoided, and clients must now pay £200-£300 to supplement the new low level of recoverable costs, will this really be the end of all things?

Just one other thought – with Portal costs now so low, solicitors are going to do everything they can to cause claims to exit the Portal, so procedural failings within the Portal by Defendants may be more readily seized upon by Claimants from now on – Defendants beware! (…and will dealing with these issues increase satellite litigation?)

Clients -
...may well continue to behave as before. Clients should in theory receive 10% extra damages to offset any costs they will now have to pay, but in any case historical evidence (Claims Direct?) suggests that losing a proportion of their
damages (if necessary) does not deter them from making a claim. If referrers are providing a service which clients cannot do without, and referrer activity diminishes, then there may perhaps be a few less clients making claims, but by and large the number of clients pursuing a claim is unlikely to diminish significantly.

BTE insurers -
...may have to review whether they have a viable product. BTE insurance's only value to insurers is as a tool to capture claims and charge solicitors a referral fee. If they can no longer charge that referral fee their first reaction will be to form Alternative Business Structures and take the legal work in-house, but with recoverable costs reduced, will the profits be attractive enough to large commercial organisations who will still need to employ solicitors and senior staff at the right level?

ATE insurers -
After the Event Insurance will still be required by clients to protect them against abortive disbursements and adverse costs awarded when a Part 36 offer is not beaten. ATE premiums will fall to reflect a lower but still significant costs risk, and price competition is likely to increase since the client will be paying the premium out of their own damages - albeit now increased by 10%!

Hand me that drill and don’t bother with the pain relief – I can do the fillings myself.

Simon Pinner
Director Box Legal

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