This is how CFAs really work

The excellent Jack of Kent has blogged today on the proposed and recently blocked changes to CFA uplifts in defamation proceedings.

I'm not sure his article really gets to the core of the issue.

The purpose of a Conditional Fee Agreement (CFA) uplift is to compensate the lawyer for not being paid in lost cases by allowing her/him to take higher fees in cases that do win. Back in 1998, Kerry Underwood's book 'No Win, No Fee, No Worries" went through the maths. The idea however is that if a case has say a 75% chance of winning , the lawyer will win 3 out of 4. Thus he needs to take the same in fees across the three cases as he would across four normally funded ones. Mathematically this translates to needing a 33.33% uplift in fees on all cases - three winners then produce 3 x 133.33% of normal fees - which equals 400% of fees across the four cases (including the lost ones). Hey presto - lawyer is no better and no worse off.

Following this maths through, you can see that the curve is an exponential one. To justify a 100% success fee, the case has to be 50/50. (Out of two cases, you win one and lose one, so need 200% of fees on the winner to balance the loser).

What success likelihood does a 10% uplift translate to? The answer is that the lawyer needs to win about 91% of cases to balance the books.

So, to say that "I doubt that even City libel lawyers will be callous enough to turn actually winnable cases down because they will get only 10% windfall instead of a 100% one" as Jack does doesn't really hit the mark. I don't think that lawyers are, or should be seen as, charities, but there is a long and honourable track record of English lawyers taking on work 'pro bono publico' - in other words for free because they think the case deserves it.

The facts are surely that lawyers who would like to represent relatively non-wealthy individuals will struggle to make money on a 10% success fee, and charity is not without bounds. I'd ask Jack a question - if you had to back 100 Simon Singh-type cases, from his point of view, do you think you would be successful in more than 9 of them? Not sure I would. This would leave our Singh-century either paying their lawyer as private clients, or trying to find 100 lawyers competent and persuadable to work for free.

So, the first issue is, how are lawyers able to claim and get 100% success fees in what are felt to be strong cases? You don't just recover the success fee you ask for - it has to be justified as reasonable. Why aren't lawyers - in all fields, instructed to submit their records to independent inspections? If we find that, say, a clinical negligence lawyer runs 100 CFAs past issue (there will be a lot of drop-outs before) at 60% merits, and wins more than 60 (which I'll bet they do) then the merits percentage is wrong, not the system. If this could be regulated and moderated, then we could get to proper risk assessments, rather than the system where 100% success fees are routinely claimed on everything.

The second issue, is that, whilst CFA uplifts are a huge issue, they are just that - uplifts. If the lawyer is charging £500 per hour or more as his basic fees, this contributes just as much to the overspend.

Lord Jacksons recent review of civil costs has a great deal to say on success fees, legal insurance etc, but is strangely silent on lawyers' basic costs. His preliminary report concludes that the average salary of a legal fee earner is around £40,000. This may be right if you include all the paralegals slaving away in personal injury battery operations in the Midlands, but I'd bet that most city partners in 'reputation management' are closer to that sum every month.

Bottom line - whilst lawyers take several hundred pounds an hour, litigation is going to be really expensive for most of us, and if we want to reform things, that should be the place to start.

Jackson's Elephant

The situation in which the law found itself (see last two blogposts) post recoverability caused considerable concern amongst those paying a large number of the bills – and in particular the motor and liability insurers.

Lord Justice Jackson was asked in late 2008 to undertake a review of the Civil Justice system with a view to considering the cost of justice and access to it. His recommendations, published in January are radical. In particular they recommend a removal of the recoverability of success fees and ATE premiums, and (for certain types of action) something called one-way costs shifting (OWCS). The idea of OWCS is that a claimant can bring an action knowing that should she lose the other side will not look to her for costs. This means that no ATE insurance is required for those costs.

Jackson’s recommendations are only that – they will require primary legislation in some areas to enact. There is also an ongoing process (next stage 30th April 2010) to reform costs in low value cases, and how the two sit together has yet to be answered.
Should this all come in to force the effects will be significant. I believe they will be significantly detrimental to far more people than they will help.

If you are a claimant – you face having to contribute something towards your case, although damages will be ‘uplifted’ to help with this. This should force economic accountability – you will go to the lawyer with a cheaper price if you are paying for it. This is good, provided that low price does not mean low standards (think conveyancing here, where a monkey with a typewriter seemed to do my last transaction). What happens however if you now cannot find a lawyer to take on your case. This is most likely to be where cases are relatively low value, or high value and not clear-cut. In both these cases, the solicitor may not get enough reward for the risk of running a CFA. This doesn’t feel like Access to Justice to me.

As a defendant insurer, all seems much clearer – lower costs pretty much guaranteed. But – lower costs will mean lower premiums (good for us) not higher profits; this is a very competitive market and if you don’t pass on the savings, someone else will, and the dreaded meerkat will ensure they get the business.

Big winners will be the areas of the state that have to pay for lots of litigation – in particular the NHS. This means more money (eventually) to spend on proper treatments, and hopefully to spend on getting things right in the first place. BUT – if it spends less because good cases can’t be brought for economic reasons, that’s not so good.

The more I have thought about Jackson, the more my eye has been drawn to a large grey shape sitting in the corner of his lodgings, which seems to escape comment altogether. This is the subject of lawyers’ fees themselves.

Jackson has focussed on ancillary costs but makes little comment on the fact that lawyers hourly rates have outstripped inflation for years in a manner best described as grotesque. The real problem at the heart of costs is the amount lawyers get away with charging. This is Jackson’s ‘elephant in the room’.

I struggle to see how it is right that a partner in a clinical negligence case can charge £400 per hour for his services. Defamation lawyers (should I say allegedly here) charge more, and some City litigators more still.

Now, success fees are obviously a function of basic fees (because its 50% of the base number). It is logical that ATE premiums are also related to them – because the insurer is paying out an amount in lost cases – and if that amount was lower, claims and premiums would be too. (A friend peer-reviewing this comment has pointed out there is probably a fixed amount of administration to do, so the relationship is not linear here – I accept this but there is still a strong correlation.) Yet Jackson has left these fees untouched.

I was given a fine example of another charging issue which I found staggering last week, when I met with a regional commercial lawyer. His charge-out rate was I think £350 per hour in a case where he was suing a large company represented by a ‘Magic Circle’ law firm. A mediation meeting was scheduled, where he turned up with his client, to be met with the opponent and SIX lawyers, from partner down. The partner’s fee was around £650 per hour, and the six together were taking nearly £2,500 per hour! Not only was the rate high (not that I see £350 as cheap) but the legal resources deployed, and the cost of them, were staggering.

So, dear reader, what do you think? Do lawyers deserve those sort of fees, compared perhaps to an NHS consultant? We hear a lot about ‘fat cat’ bankers, but not so much on ‘fat cat’ lawyers. Time for a change?

Next time - so if it is broke - how else could we fix it?

History II - recoverability to Jackson

Last week, I looked briefly at the Legal Aid system, and the efforts to replace it that led to the Conditional Fee Agreement.

The 1999 Access to Justice Act led to the next big change. Until this point any claimant in certain types of action could take out a CFA and ATE insurance (see last posting for definitions) but would have to bear the costs of these themselves. From April 2000, these additional charges fell to be paid by the other party if the claimant won her case.

So, think through the logic of this for the moment. As a defendant, who happens to be faced by a claimant using CFA / ATE insurance, you know that if you lose the case you will have to pay damages, ‘normal’ lawyer’s fees, a success fee which could be the same as the fees again, and an ATE premium. As a claimant however, you can bring your case at no cost – win or lose.

This is a pretty significant change in the legal model. Before CFAs it was pretty common ground that you never recovered al your costs in a won action – so as claimant, you always had some (as Americans and business school graduates seem to charmingly refer to it) ‘skin in the game’. Now defendants see immediate increased costs, and claimants get a free shot. Or, from a claimant perspective, a wronged individual gets her entitlement and the wrongdoer absorbs all the costs.

To say that this found favour with claimants and their lawyers would be an understatement. If a personal injury lawyer wishes to compete in the normal market space then ‘no cost’ law has to be a guarantee. Any lawyer who can set success fees successfully should at least balance the books from them. Defendants have the view that claimant lawyers do rather better than this – if one were to select only the strongest cases and use all sorts of reasons to justify why they might lose – it is possible to run a book of cases which you assess as being marginally better than 50/50, but where you actually win 80%.

Where it gets really bizarre though is if you think like an economist about it. What controls prices in a market? Well, we all usually look for value for money. This doesn’t mean we all buy the cheapest – the free market has allowed Waitrose to flourish at the same time as Lidl does. It does however mean that we try and shop around, and feel that what we are paying for makes sense to us. This means that for commodity products – where the features are pretty much standard – priced tends to be the deciding factor. If you want further evidence of this theory, think about the insurance on your car. I accept that if you drive a Bentley or an import you might need to go to a specialist, but for most of us, we are encouraged to use the services pimped by a stereotypical Italian tenor, or a Russian meerkat. These scour the market for quotes and did, I must admit, save me a packet (though I’ve never felt the same about Meerkat Manor since).

So back to law – here we have products (CFA and ATE) which the buyer will NEVER pay for! Lose and they are free – win and the other side pays. How much competitive pressure is there on the pricing of these products? About the same as the concentration of active ingredients in a 30C homeopathic arnica. The only check on these sums is what the courts and the CPR will allow you to recover.

This is an unusual market model. There is clearly competition, so it’s not a monopoly which sets its own price. Equally, it is not a cartel – no-one suggests the purveyors of these products are getting together and fixing prices – apart from anything else they don’t need to because the buyer is told – ‘you won’t ever have to pay it’. It feels to me closer to the economics of a basic utility post-privatisation. The reasons for the market structure are different, but there is no supply and demand check on prices in either – if Thames Water is expensive – I can’t go elsewhere.

Utilities get round this by having a regulator who caps prices – Ofwat etc. Whilst this was aired for ATE particularly, it never happened.

And now along comes Jackson. My next blog will look at what he’s trying to do, where it will work, and where it won’t, and the rather large elephant in the corner of his study.

JLS (Jackson's Legal System)

To people working in the Law, the Jackson review is big news. We’re not talking about Michael’s post mortem here, our Jackson is Rupert, and he is very much alive.
Lord Justice Jackson was commissioned in late 2008 to look into the way civil (i.e. not criminal) cases were funded. His remit took in two areas – the cost of litigation and access to justice.

In January 2010, Jackson LJ’s final report was published. Prelims and final together get towards the ‘small deciduous forest’ category of publications.

So we have a set of recommendations which the (or given current timings a future) government will look at and decide what to do with.

Over the next few weeks I’m going to look at some of the bits of Jackson, where the cure will be good, and where it may just kill the patient.

But first – week one – history.

Remember Legal Aid? In the 1940’s, while William Beveridge was tackling his 'giant evils', in a report that would lead to the NHS and the Welfare State, the lawyers were also busy. The Rushcliffe Report in May 1945 led to the enactment of the Legal Aid and Advice Act (1949).

The aim of the Act, which came into force on 30th July 1949, was that no-one should be ‘financially unable to prosecute a just and reasonable claim or defend a legal right’.

Now, it won’t surprise you to know that, despite this rapid legal action, it took a little longer for things to get going. Nevertheless, the ambit and effectiveness of Legal Aid grew over the next forty years. So, unsurprisingly, did the cost.

In an effort to rein in what was seen as vast expenditure (well if you think that was vast, wait to see what came next) the government, by means of the Courts and Legal Services Act 1990 allowed for Conditional Fee Agreements.
You’ve seen these on TV, in the middle of some crappy morning chav-fest, advertised as ‘no win-no fee’. You know you sneak a peak when you’re working from home. ADMIT IT!

The idea is economically simple. Let a lawyer charge a bit (technical legal term) more in case that she wins and she can afford to not charge people at all in cases where she loses. Allows access to law for good claims and cuts out Legal Aid at a stroke.

Of course, if you know your English legal system, you know that costs usually follow the event. This means that the loser usually pays most of the winner’s costs. So, it’s all very well not having to pay your own solicitor – you’ll just be bankrupted to pay the other side’s solicitor, barrister, expert etc.

Here it starts getting really odd, because someone came up with insurance for this, called After-the-Event or ATE. Now, if you know insurance you’re thinking ‘car, house – buy it in case the worst happens’. I know you’re not thinking ‘a good way of getting the better part of my holiday paid for when my dad’s Rolex is stolen, honest’ because you’re reading this blog, and not watching daytime TV. This insurance is that you know you’re injured, but Mr Insurer will pay the costs if you lose (and take a premium for his trouble). To me, whilst this may be called insurance, the word I’d use is gambling, but what do I know!

So, you get your solicitor on a CFA, you buy some ATE and sit back and let the case happen:

you lose – you pay nothing, walk away not exactly happy, but no poorer than you were.
you win – you get your damages, but you have to surrender part of it to pay the solicitor’s mark-up (the ‘levy’ to deal with the losers, and the ATE premium.

Now, some people don’t like this ‘deductions’ business – especially when Watchdog or its 1990’s equivalent gets wind of some poor sod being left with Bus Fare Home after everyone else has taken their share.

So, the system was changed to deal with this, and that’s where the whirlwind began. In the interests of suspense etc, I will be leaving that for the next instalment.

Papa Don't Preach

Pope Benedict XVI has opined on the undesirability of the Equality Bill currently before Parliament.

His Holiness is quoted as saying "…..the effect of some of the legislation designed to achieve this goal has been to impose unjust limitations on the freedom of religious communities to act in accordance with their beliefs.”

The Equality Bill is not perfect, and the Lords Spiritual (one of the annoying anachronisms left after the botched House of Lords reform) are doing their best to put a spanner in its works. However there is a question of principle here.

We can have an equal society, and then seek to only derogate from this in extreme circumstances. Or, we can have an unequal society which enshrines the rights of certain special interests to have their views treated as superior to others. This would mean that Catholics would be allowed to restrict access to either adoption or the priesthood on grounds of sexual preference, as they have sought to do previously.

It is also however the start of a slope that leads to the assassination of doctors performing legal abortions, and the right to freedom of speech that is fundamentally racist in nature. I don’t think that the evidence of recent years suggests that the Catholic Church is a perfect moral compass by which we should all sail.

If some discrimination is allowed, as opposed to none, then we move to the thorny issue of who decides on what can or can’t be done. This will mean that permitted discrimination is based on human subjectivities and, worse, the efficiency of lobbying for various interest groups

In a better society, which discriminated on nothing beyond ability for the task, the Equality Bill would be unnecessary. I feel a little saddened that it is necessary to prevent by law behaviour which should be anathema to right-thinking individuals, but the case for a tightening of the law can be made out by countless examples of discriminatory behaviour.

I know that whilst this law will make discrimination harder from a legal position, it will still remain rooted in the minds of many people. In this the law is merely curing the symptom, not the disease, but then we have to start somewhere.

More next time on the Pontiff, his visit to Britain, and why it seems likely to cost the taxpayer £20 million. £20 million! You could fund NHS homeopathy for five years on that!

The Milk of Canine Kindness

The list of things contained (or more accurately not contained) in homeopathic remedies is long and varied. Many people would have heard of arnica, snake venom, and belladonna (deadly nightshade). Of course, caffeine provides a homeopathic sleeping pill which works (take it and you will fall asleep eventually).

I had however missed the use of dog milk - which appears to deal with dreams of snakes among other things.

I am lucky enough never to have been plagued with dreams of snakes, although judging from the 325,000 entries when I Googled this, plenty of people have. (Note to self: dream interpretation must be a future blog topic.) Perhaps this is because I stick to cow juice on the morning Coco Pops.

1023 and all that

Tomorrow is the day when hundreds of brave men and women risk life and limb in a mass homeopathic overdose taking place across UK cities.

Except that they don't. Barring those who are diabetic and take too many sugar pills, they are risking nothing of the sort, for there is no active ingredient in homeopathic remedies.

There's been a lot written on why homeopathy does not work, and why so called proofs are very far from what a scientist would take the word to mean.

Apart from checking out the 1023 campaign itself at www.1023.org.uk I'd suggest you take a look at this article from the Times of 20th January - and in particular at Matt Parker's splendid mathematical demolition of homepathy.

But, this shouldn't just be about efficacy. This is about Boots. In evidence before the Commons Science and Technology Committee, Boots admitted that they had no evidence homeopathy works. They sell the pills because people want to buy them.

Of course, the company is now known as Alliance Boots, but for years was Boots the Chemist - and I guess that's how most of us still think of them. So, at least in part, we trust them. We go to them with our ailments and the Boots brand, to me at least, should imply that what we leave is something that does what it says on the package.

So what should you do?

1. Inform yourself. Find out what homeopathic tinctures are - this isn't about herbs and flowers
2. Remember, just because it's dressed up in a trusted High Street label doesn't mean it is of value..
3. Support the 1023 guys. They are doing a great job. Though given the derivation of 1023 (see their website as above), wouldn't it have been been better to do the whole thing a week later? 6/02 at 1023 am would make any chemistry teacher proud!

This is what I am talking about

First post - and perhaps a lazy one, so I hope not indicative of future efforts. However, it's worthy of a mention.

Two things that annoy me are: The Daily Mail, and scare stories which are either groundless or blow something out of all proportion. It is remarkable how strong the positive correlation is between these two betes noires.

Early 80's new wave pop star Joe Jackson sang 'Everything Gives You Cancer". This was one of several songs he wrote lampooning the ability of popular culture to sensationalise pretty much anything. So, one generation (25 years) on, what have we learned?

Here is a nice little list of claims that the Mail has advanced over the years, which would make poor Joe pull his hair out. (Thinking about this, he wasn't exactly hirsute in the late 80's so this may be an inappropriate comment), but ....

Causes of Cancer - no honestly

Admittedly, I have yet to research the extent to which the Mail blames this on asylum seekers, or suggests the effect it is bound to have on house prices, but I am confident it is only a matter of time!