Solicitors at risk

Following the swathe of negligence claims after the property price crash of the early 1990s, open market insurers have enjoyed a period free from recession and property crash.

However, claims against the legal profession are increasing. Why is this?'

The first reason is simple arithmetic. The number of solicitors continues to rise and there is only so much that even the best risk management can achieve.

The other reasons arise mainly from changes in the Civil Procedure Rules (CPR) and the evolving law. They contribute to the fact that, while the number of claims against lawyers is rising, the number going to litigation is falling. One leading insurer estimates that the fall in the past year has been as much as 30%.

One reasons for the settlement culture is that the CPR revolution, which introduced the professional negligence claims protocol, has packed the pre-action stage with information that previously would not have arrived until well into the litigation process. Thus, the information necessary for a negotiation is available earlier.

The only downside of this is that the protocol process gives the claimant a risk-free pre-action testing ground for his complaint. If, having seen the defendant's carefully produced response, he decides not to proceed, he won't have to pay the defendant's costs, since costs incurred in the protocol process will only be recoverable if proceedings have been commenced.

For the future, the most we can hope for is that the courts will award costs against a claimant who implements the protocol and then decides to abandon his claim.

So far, attempts to ask for this have failed, as the courts regard the defendant's inability to recover protocol costs as a fair price to pay for avoiding litigation.

Conditional fee agreements (CFAs) often threaten disproportionate costs which make early settlement attractive, sometimes regardless of the claim's merit. CFAs also set up a potential conflict of interest between the claimant and his lawyer, whose interests will normally be best served by settlement.

Costs have long since been used as a weapon and, with CFAs, they are now a much more potent weapon. Defendants are paying a high price for the savings the government has achieved by removing legal aid, particularly if the claimant has no after-the-event (ATE) insurance.

Courts have recently shown a willingness to control costs excesses in litigation - by determining the degree of evidence, by tightening timetables and by attaching greater importance to solicitors' early costs estimates. In some cases, they have also been prepared to cap costs. Greater, though not stifling, control must and, it seems likely, will be imposed by the courts.

CFA funding
Another concern is that the availability of CFA funding and ATE will probably give rise to negligence claims against solicitors. A claim could be made by someone whose solicitor did not advise him that CFA funding and ATE insurance were available, and who did not bring a claim as a result. A claim could also be made by a defendant whose solicitor did not warn him of the consequences of facing a claimant who has a CFA and/or has no ATE.

Also, look out for claims alleging under-settlement created by the in-built conflict of interest in CFA agreements.

As courts continue to clamp down on unreasonable and disproportionate costs, solicitors will have to manage their clients' expectations and aggression. Increasingly, the courts will reduce costs to reflect how far the claimant has actually succeeded, so scatter-gun and exaggerated pleading will be penalised.

Courts will also reduce costs to reflect the claimant's behaviour - particularly over-aggression - in the course of litigation, if that has plainly added to the cost and time involved. If the client is not warned of the need for sober pleading and temperate behaviour, he may sue his solicitors when, having won his action, he is awarded only a fraction of his costs.

Mediation has had great success, leading the courts to put pressure on parties to mediate, and to impose swingeing costs penalties on those who refuse to do so. However, we seem to be moving into a period of greater sanity. In Halsey v Milton Keynes General NHS Trust in May 2004, it was recognised that to oblige a party to refer to mediation is unacceptable and probably a breach of the Human Rights Act.

Further, in Hickman v Blake Lapthorne and Another, Mr Justice Jack declared: "It cannot be right that to avoid being vulnerable on costs, a defendant should always be prepared to pay more than a claim is worth if the costs saving justifies it: that would enable claimants to put undue pressure on a defendant to settle at a higher figure than the claim merits." That, in a nutshell, is also the argument against the effect of CFAs.

Lost chance claims (made by clients who say that a solicitor's negligence has lost them the chance to make a claim) are now being calculated in percentage terms, giving judges a wide discretion. This makes quantum much harder to predict, so settlement becomes more attractive. Lost litigation cases are worse. Where delay has caused a claim to be statute-barred, the resulting claim can have bizarre results.

Unmeritorious claim
In many cases where the original claim has seemed unmeritorious, even hopeless, damages have been awarded against the negligent solicitor. That means that pretty well every lost litigation case has a value, however bad originally.

The lost chance principle adds to the settlement culture and increases the number of claims against the profession. But is that so bad? Would we want to go back to the true balance of probabilities test? If we did, the negligent solicitor would have to pay the full amount of his client's lost benefit, even if it were thought that the client had only had a 51% chance of original success.

Moreover, on the present basis, even if the client had a really good original prospect, there would still have to be some discount applied to his damages against his negligent solicitors.

A sense of balance and a tightening of the costs regime will help; but it is hard to see the current culture being eroded to any significant extent. If that is right, then the number of claims on the profession will continue to rise, even with no downturn in the economic climate, and the amount of claims litigated will continue to fall. IT

‘ Barney Micklem is a partner in the lawyers' liability group of Reynolds Porter Chamberlain