Cash flow: boost from earlier settlements and staged payments

Law firms face a reduction in work as a result of the latest reforms to civil litigation, government documents have predicted.

Impact assessments accompanying yesterday’s consultation on reform of the county courts say “reduced levels of legal services business” will result from extension of the road traffic accident claims process, and introduction of pre-action dispute management to resolve cases as early as possible to tight deadlines. Both involve fixed fees.

The impact assessments for both largely repeat each other and say that “process efficiency reforms should result in less overall resource being needed to resolve a case”. They add: “Lower costs per case are not expected to increase demand for cases and hence case numbers, as case numbers are considered to stem from the number of underlying accidents which happen, and this is assumed not to change.”

The assessments say that any costs to lawyers would “mirror the gains to claimants and defendants who use, and pay for, these legal services”. They add: “We assume that if there was a reduction in business in this area, then legal services providers would engage in other activity relating to other types of case, or may engage in other types of work, of a broadly equivalent value.”

There may be some “operational cost increases” for lawyers caused by the need for new systems, which will “ultimately be passed on to defendants”.

At the same time, lawyers should benefit from “better cash flow through the earlier resolution of cases, and through the system of staged payment of legal costs”. But overall “any benefits for legal services providers will ultimately be passed on to defendants”.

A slew of organisations and law firms have issued responses to the government announcement, with predictable reactions of opposition and support from claimant and defendant representatives respectively. Claimant lawyers insist that ending recoverability will reduce access to justice.

One of the more interesting was a commercial litigator’s perspective from Rani Mina, a partner at City firm Mayer Brown, who expressed concern at the impact of ending recoverability of after-the-event (ATE) insurance premiums on the ATE market. “ATE insurers are unlikely to be able to continue to offer deferred premiums and will have to insist on upfront payments from litigating parties. This will result in a lower overall take-up rate and reduce access to justice for many who could not afford to take on the risk of litigation without such protection.”

She added that argued that the proposal to increase damages by 10% if a defendant fails to beat a claimant’s part 36 offer “risks upsetting the risk-benefit balance of the part 36 rule for litigating parties and introduces an element of punitive damages into the English law system through the back door”.

She also argued that contingency fees, while providing another funding option, do not address “the key concern for clients of cost certainty and many stakeholders are alarmed that DBAs will increase the risk of abusive litigation by eroding the ‘loser pays’ principle”. She said: “The extent to which we have ‘crossed the Rubicon’ with CFAs is overstated.”

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