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Fixed recoverable costs are restricting smaller firms’ ability to offer services - Phil Sherwood, President of CILEx

28/06/19. The introduction of fixed recoverable costs (FRC) for low-value personal injury cases has restricted smaller law firms from offering their services to the public and this will be made worse by plans to extend FRC.

June saw the close of the Ministry of Justice (MoJ) consultation on extending FRC to non-injury cases as well as, in some instances those worth up to £100,000. In our response, CILEx made clear that the government needed to consider the wider impact of FRC on the availability of legal advice to support people needing the justice system.

Since the introduction of FRC, we have seen a distorting of the market for legal services, which needs a healthy mixture of providers to function effectively.

Small local firms and specialists have been forced to turn away personal injury clients because they cannot handle the volume of claims required to achieve a balance between profitable and unprofitable cases. This has left consumers with a limited choice of either larger national providers which handle cases in bulk or being forced to represent themselves. Ultimately the consequence is a reduction in both quality advice and access to justice.

In 2009, we saw the test set by Lord Justice Jackson in his costs report that “if litigation becomes uneconomic for lawyers, so that they cease to practise, there is a denial of justice”. It went on to add: “that FRC should be reserved for only the least complex cases, and restricted to cases below a realistic value level, to avoid exacerbating these understandable concerns.” Clearly, on Jackson’s own terms, even the use of FRCs at current levels present a considerable problem.

The MoJ consultation also fails to take account of the Competition and Markets Authority (CMA) review of the legal services market, which has led to regulatory efforts to encourage price and service transparency. Pursuing significant interventions in what is an independent market should be a last resort, and without considering frontline regulators’ active efforts to improve information for consumers, the consultation is fatally flawed.

In the wake of cuts to legal aid, court closures, and systemic underfunding of justice, the government has abdicated its responsibilities to ensure meaningful access to justice, leaving legal professionals working in personal injury to go above and beyond for clients who find it difficult to meet legal costs. Conditional fee agreements, damages-based agreements and pro bono work cannot be relied upon to secure long-term sustainability of the legal services market and especially not at a time when fixed recoverable costs are making it financially unviable to take on some cases.

We would like to see fee rates that are flexible enough to accommodate unexpected complexities that arise in individual cases and want to see judges have discretionary powers to award modest cost increases, especially in cases that are more complex than they look at the point of allocation or where circumstances add additional costs.

The introduction of fixed recoverable costs has had a detrimental impact on the effective functioning of the legal services market. A healthy market is one where the public have a choice of specialists and generalists, local and national firms, offering their services to the public.

As it stands FRC are preventing the operation of a competitive marketplace and ultimately that drives down not only quality but access to justice.

Phil Sherwood is President of the Chartered Institute of Legal Executives (CILEx)

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