The end of 'have-a-go' litigation?

The government's attack on 'no win no fee' legal battles may be a bitter pill for lawyers – and claimants.

Should a severely injured person be entitled to keep all of his damages, or should he have to pay out part of them to his lawyers and perhaps forego some of the care he needs?

This, and the broader question of "What price justice?", are at the heart of government plans announced this week to push ahead with reforms to "no win, no fee" agreements so beloved of daytime TV advertisers and detested by anyone on the other side of them, such as insurance companies and newspapers.

The justice minister, Jonathan Djanogly, said the government will consult this autumn on parts of Sir Rupert Jackson's report on driving down the cost of litigation . The appeal court judge was clear that he saw the recommendations in his 550-page report as "interlocking", but for the time being the Ministry of Justice is only looking at taking on his reforms of "no win, no fee" (officially termed conditional fee agreements, or CFAs) and seeking views on whether to introduce contingency fees.

The announcement is as much notable for what will not be in the consultation: Jackson wanted referral fees banned, but the Ministry of Justice is waiting to see what the Legal Services Board says about them first (it seems unlikely the board will call for a ban). He also wanted fixed fees for all cases worth up to £25,000 – this may well still happen sooner or later.

While acknowledging the role of CFAs in giving a range of people access to justice, Djanogly said their high costs had become a "serious concern", and singled out clinical negligence cases against the NHS Litigation Authority and in defamation proceedings. Though the consultation will provide the opportunity for critics to reopen the debates they had with Jackson and try to convince the government that this is not the right way to go, the underlying thrust is that the CFA recommendations will be made flesh.

I discussed how CFAs work in a recent blog, while contingency fees – usually described pejoratively as "US-style" contingency fees so as to associate them with the excesses of American litigation – would be a simpler arrangement under which a solicitor takes a slice of the client's damages if he wins, and nothing if he loses. They are already used in employment and other tribunals, as thousands of female council workers suing over equal pay can attest.

Put simply, defendants are understandably keen on ending recoverability because it will see them pay out substantially less when they lose, a particular appeal to a cash-strapped government facing an ever-growing costs bill for clinical negligence cases against the NHS (although it risks such claimants ending up on legal aid instead and still costing the public purse). Personal injury claims dominate this debate.

The counterargument is that this benefit comes straight out of the injured/defamed/wronged person's pocket. To ensure claimants do not lose out, Jackson said general damages should rise to 10%. This may be acceptable in the vast majority of personal injury cases, which sit at the whiplash end of the spectrum (although a couple of weeks off work can have serious consequences for many people). But by failing to show how he arrived at this figure in the report the judge has left it open for other people's statistics to indicate that 10% will be woefully inadequate in serious cases, where after-the-event insurance premiums and success fees can be high and the need for damages greater. This argument is weaker in areas where the money is, at least in theory, not so important; in defamation, for example, the primary purpose of legal action is to restore a person's reputation.

Jackson's proposal that, in some classes of litigation, the claimant should not be liable to pay the defendant's costs even if he loses could be a particular help in environmental litigation, where the fear of having to pay crippling costs has inhibited environmentalists from taking action and led to the European commission taking the government to task earlier this year.

After 15 years of CFAs and payment by results, the longstanding opposition among lawyers to contingency fees has wilted – fears that having a stake in their client's case would compromise the independence of a solicitor's advice have not been borne out by reality. But businesses instinctively recoil from contingency fees, imagining they will bring with them class actions and an American "have a go" litigation culture. But the other features of litigation in the US, such as punitive damages, are not present, and research undertaken by the Civil Justice Council a few years ago found that actually things are not as out of control there as the headlines may have us believe.

The joker in the pack is the review of health and safety laws and the compensation culture currently being carried out by Lord Young of Graffham, who was commissioned by the prime minister himself. Young has made clear his distaste for claims management companies and referral fees – and his support for the Jackson reforms – but whether his recommendations will hold sway over Jackson's is unclear. The Ministry of Justice says it awaits Young's report with interest.

For all the rhetoric about access to justice, the fact is people are put off using lawyers by their perception of how much it costs, while under CFAs the argument goes that defendants are put off defending cases for the same reason – a key theme of Jackson is the defendants have rights too. Jackson's research indicated that 90% of cases are actually resolved at proportionate cost and essentially his goal is to tinker with the system to bring the other 10% (around 200,000 a year) into line.

The warning for claimant lawyers is that if they do not swallow this pill, a more bitter one might follow – earlier this year, the Master of the Rolls Lord Neuberger said that if the Jackson reforms do not work, policymakers will start looking at no-fault schemes run by government agencies in Ireland and New Zealand, where compensation is awarded on a tariff basis and lawyers are largely redundant. Now that would be radical.

(Published by The Guardian – July 28, 2010)