8 POST-JACKSON WORLD: ALTERNATIVE BUSINESS STRUCTURES
On the horizon
With alternative business structures looming large and increasingly close, Neil Rose
looks at how Lord Justice Jackson’s recommendations could be overtaken in the new
legal services environment
he Jackson report will have to be implemented quite try to change its culture.
“T quickly. The market is going to be opening up and
funders coming into the market with some snazzy
ideas we haven’t even thought of,” says Alan Bannister, a partner
The economics work for a CMC like Accident Advice Helpline,
Werth explains. Given the detailed work it does on the case before
presenting it to a panel solicitor, the extra layer of cost of doing the
at Vizards Wyeth. “The courts won’t be able to control it the legal side is “not prohibitive”. However, he cautions that, for those
further we get away from Jackson and into alternative business small CMCs which do little more than sell on names and phone
structures [ABSs].” numbers of potential claimants, “the transition will be difficult”.
The interaction between the recommendations of Lord Justice On the other side of the coin, Werth adds that “irrespective of
Jackson’s review of civil litigation costs and the Legal Services Act ABSs, there will be law firms looking to secure their flow of work”
2007 (LSA) did not feature prominently in the judge’s thinking, but by buying CMCs and bringing the marketing expertise in-house.
Bannister is by no means alone in believing that there is good
reason to expect some of his recommendations to be overtaken
when ABSs come into being in the autumn of 2011.
The LSA is mentioned in the report just twice: Jackson
“By liberalising the rules governing the
recommends that a suitable body of tax experts becomes an financing of legal services and, indirectly,
‘approved regulator’ under the act – so that, in the wake of the
Agassi tax ruling in 2005, their costs can be recovered; and he claims, the Legal Services Act will improve
sees no reason why the advent of ABSs weakens his argument
that referral fees should be banned. “Both before and after 2011,
access to justice and significantly increase
the effect of referral fees can only be to drive up legal costs (since demand for litigation financing services”
the referee must recoup its outlay) and / or to depress quality of
service. In my view, essentially the same arguments will make it
appropriate to ban, alternatively cap, referral fees after 2011 as Civil Justice Section chair, Fraser Whitehead, broadly agrees
apply now.” with this analysis, recounting Professor Stephen Mayson’s
description of the personal injury (PI) market as a “profitable
ARMS RACE cottage industry hopelessly inefficient and ripe for exploitation”,
Unsurprisingly, the claims management industry is none too although he reckons that the uncertainty caused by the Jackson
thrilled at the prospect of a referral fee ban. But Jackson seems report could cool some of the interest in ABSs. He notes that the
not to have considered the possibility that claims management Institute of Legal Executives has applied for its Fellows to have the
companies (CMCs) might themselves become ABSs, meaning right to conduct litigation, and says: “If I were a CMC and wanted
that, in the long run, any ban would make little difference if the to bring claims handling in-house, would I buy a law firm or set up
CMCs are essentially doing the cases themselves. my own firm staffed by legal executives?”
At February’s Claims Standards Council Conference, Iain Miller, head of the London commercial litigation team at
delegates were asked whether, irrespective of any referral fee ban, Bevan Brittan, sees “inefficiency” in the current system of referral
CMCs would either buy, merge with, or be bought by a law firm. To fees. “Doesn’t it make sense to have a single organisation that
a man and woman, the 200-strong audience of mainly claims does its own marketing and its own litigation?”, he asks. “It
managers and some claimant solicitors predicted that they would. seems almost inevitable.” This description may well sound
Darren Werth, council chairman and a director of one of the suspiciously like a law firm, but the reality is that the legal
largest CMCs, Accident Advice Helpline, says that, given that profession has largely ceded marketing to the claims industry. An
much fast-track work is process-driven, there is no reason why he alternative, Miller adds, is the model some large PI firms already
could not create a legal arm that handled this process “at least as adopt of offering ‘white-labelled’ legal services to large insurers.
efficiently or more efficiently than a law firm”. Leading PI lawyer Kerry Underwood, senior partner of
Asked if he would be interested in doing so, Werth’s reply is Hertfordshire firm Underwoods, says the ABS movement is likely
“absolutely”, but he stresses that he has not lined up a particular to be CMC-led, preferring the model of employing a handful of
law firm to buy. In any case, he suggests that it might be easier for lawyers supported by paralegals. “Most road traffic work will be
CMCs to recruit lawyers to work in-house than buy a law firm and done by CMCs”, he predicts, suggesting that while this has been
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‘plan A’ for some CMCs, few law firms are even thinking about it.
It is likely to gather pace with the new claims process for low-
value road traffic cases, Underwood says, because, by taking
down the details it needs to process a case, the CMC will then
have the information required for the new claim notification form.
As well as CMCs, there is the distinct possibility that before-
the-event legal expenses insurers – which, again, largely rely on
referral fees to make the model work – will do the legal work. Top
legal expenses insurer DAS has already made plain its intention to
buy a law firm once allowed, although it says this would not mean
the end of its panel.
NEW AREAS OF CONFLICT
From one end of the litigation world to the other, the blessing that
Jackson gives to the third-party funding of cases could encourage
funders to look at investing in or even buying law firms once they
are allowed to.
John Rossos, principal at Toronto-based litigation financier
BridgePoint Capital, is watching developments in England and
Wales very closely. He says: “Removing financing restrictions will
improve a law firm’s capacity to invest in claims, hire the best
people, and invest in leading-edge systems. Law firms will also
have the opportunity to expand the risk profile of their practices
and take on new types of claims that they otherwise would be
unable or unwilling to manage. By liberalising the rules governing
the financing of legal services and, indirectly, claims, the Legal the global air freight cartel. But such a case illustrates the problem
Services Act will improve access to justice and significantly of buying up a law firm based in England, says Greene. “You’ll be
increase demand for litigation financing services.” looking for the best jurisdiction to start proceedings, and it’s not
Rossos says it is also likely that the lines between practising necessarily here.”
law and financing legal actions will blur, as law firms become
litigation managers offering both capital and expertise to other BRIDGE THE FUNDING GAP
firms: “This is already happening. In North America, law firms have But if the Jackson recommendations, combined with the Civil
been actively syndicating financial risk and sharing expertise Justice Council’s work, combine to make group and class actions
through co-counsel arrangements for class and mass tort actions.” more realistic than they are presently, could external investment
David Greene, a partner at London firm Edwin Coe, and bridge the funding gap that currently proves fatal to many potential
president of the London Solicitors Litigation Association, says the claims? When Australian PI firm, Slater & Gordon, floated on the
prospect of funders taking over law firms seems distant on the stock exchange in 2007, one of the reasons it gave was to build up
current model, where most rely on solicitors introducing cases to a war chest in order to investigate and prosecute class actions.
them, rather than going out and sourcing work directly. “There is Greene, an experienced commercial group action campaigner,
certainly the beginnings of that, particularly in class actions,” he is sceptical. Such cases are risky and “very time- and cost-
says, “but it’s too early for any third-party funder to have that consuming” – having run the Railtrack shareholders action, which
model. There’s not enough business – in this jurisdiction at least – involved 50,000 claimants, he has first-hand experience of just
for a funder to survive on the work it generates alone.” how resource-intensive these cases can be. The firm had to invest a
Jackson’s recommendation that contingency fees be allowed lot of work-in-progress and hard cash to fund disbursements to
shortens the odds of funders buying law firms. Currently, a funder make it work. “I don’t think [external funders] would take the risk,”
can work on a contingency fee basis and instruct a law firm to he says.
handle the work, but a law firm cannot offer a contingency fee – a ABSs are the big picture that loom behind the Jackson report.
distinction Whitehead calls “a nonsense”. Looking beyond those areas where there is a direct link between
Bannister reckons some litigators would find being owned by a the two, the post-ABS landscape could well be of more efficient
funder quite liberating. “There are certainly enough people in the and cheaper legal providers anyway, thereby doing the judge’s
market who would like the financial burden removed from them work for him to some extent. The difference between the two is
and to be left to do the day job,” he says. However, for Miller, that ABSs have a definite implementation date.
something “just doesn’t feel right” about such an arrangement. It
is the solicitor’s lack of independence that concerns him, but “it Neil Rose is a freelance journalist and editor of the Law
may be that you don’t need it ... One of the challenges of ABSs is Society’s Litigation Funding magazine. Civil Justice Section
that they bring in whole new areas of conflict”. members are entitled to a 33% discount on subscriptions to the
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April 2010 Solutions