Celtic Manor resort, South Wales
Speech by Lord Chancellor and Secretary of State for Constitutional Affairs
Lord Falconer of Thoroton
Good morning. It is a real pleasure to be here with you today.
There can be no doubt that the legal sector is experiencing a huge raft of reform. Reforms designed to increase consumer confidence and to modernise our institutions. The understandable discomfort change causes should not obscure the fact that reforms will engrain and enhance the reputation of the legal profession nationally and internationally. They are reforms which aim to embed a legal services sector fit for now and the future. Our legal profession is strong. It is a vital component in our future prosperity. It must continue to lead the world in quality, professional service and value for money.
Continuing to ensure there is confidence in justice will remain every bit a priority for me and for my new department, come the 9th May. There will be no let up in the push for necessary reform.
Underpinning all of our reforms is a desire to ensure there is confidence in justice, and in its continued delivery. Take for example legal aid.
Legal aid is vital in ensuring that there is legal assistance available to those who cannot afford it. Without it there could be no confidence that the justice system treated all equally, or fairly. And without the reforms we are delivering, legal aid would cease to be sustainable.
The massive increase in cost over the last 10 years could not continue; nor should it.
Changes have to be made to ensure the system becomes more efficient, is sustainable, and can continue to provide help for the most needy and vulnerable. Without reform there can be no long term improvement in the delivery of justice. Without reform, legal aid’s future will necessary involve a contraction in the number of people helped. The precise opposite of our commitment to social justice.
Another significant area of reform concerns how our legal services are structured. The Legal Services Bill, currently making its way through Parliament, is a Bill which seeks to improve public confidence in our legal services sector, as well as removing some of the barriers to innovation that currently exist.
It ensures transparency in regulation and in dealing with complaints. And through the provision for Alternative Business Structures it allows firms to structure themselves as they see fit, subject to proper safeguards.
Through modernising the way the profession is regulated and by making sure that complaints are handled independently we will, I believe, ensure consumer confidence and enhance the professions’ reputation.
Today I want to take this opportunity to talk about the two areas which have a direct impact on most of you in this room. Two areas in which we want to see change. And which are an intrinsic part of our programme of reform.
The first, is claims management regulation – where we have agreed what needs to be done and are about to see it implemented and;
The second, is the claims process for personal injury cases - where we all agree something needs to be done. And today I want to suggest what I believe that something to be.
Dealing first with claims management regulation. I am sure, you like me, have had enough of personal injury lawyers reputations being dragged through the mud because of the unscrupulous behaviour of some claims management companies. The behaviour of some lawyers has of course been equally worrying. I am pleased to see that the Solicitors Regulation Authority is now taking a very firm line, particularly in relation to those that abuse the referral fee rules.
In the claims management sector we have seen too many companies, for too long, giving people the wrong impression about what compensation they were entitled to. Consumers were often led to believe that they would receive large sums of money when they would not.
Consumers were simply not given the best advice on how to proceed with their claim and not told the range of options for doing so - including options which will not involve having to pay unnecessary charges.
It was often unregulated claims companies that did this - companies that knocked on doors, cold-called, twisted arms, persuaded people to fill out forms, pay unnecessary fees, even to take out loans to fund their case with excessive rates of interest.
Many of these unregulated companies - claims farmers, claims management firms, ambulance-chasers - whatever you want to call them, did far more harm than good.
Something had to be done. Something had to change.
Only through stamping out such behaviour; and stamping out malpractice can we hope to improve consumer confidence. That is why we passed the Compensation Act, and that is why we are keen to see it working as soon as possible.
Claims management regulation protects consumers by regulating the conduct of those who provide these services for commercial gain. Those authorised will be required to comply with strict rules of conduct; including the requirement to give consumers clear advice about the validity of their claim, options for funding the costs and providing a complaints mechanism if things go wrong.
The Compensation Act delivers real reform which makes a real difference. And from Monday - thanks to the hard work of many since the Act received Royal Assent nine months ago - providing a claims management service without authorisation or exemption will be prohibited. It is a significant step in the right direction.
I am delighted that the claims management industry has responded so well to regulation. The number of applications received by the Monitoring and Compliance Unit is higher than was anticipated with over 1000 organisations coming forward to obtain authorisation.
There is an evident appetite for reform and a desire to improve consumer protection. Regulating claims management is necessary reform. And it has a key role to play in improving confidence in justice, and in its delivery.
The second area I want to talk about today is reform to the way in which we deal with personal injury claims. It is an area I know which is of interest to a great number of you.
This morning I placed in Parliament a Written Ministerial Statement announcing the publication of a consultation paper entitled case track limits and the claims process for personal injury claims. So today provides me with the perfect opportunity to explain what the paper says.
The consultation paper sets out my views on what I believe should be done to address the problems which currently afflict lower value personal injury claims. And more specifically the high costs that are sometimes associated with them.
Let me very briefly highlight some of the proposals. Firstly, the fast track limit. At present if a claim is over £15,000, the judge cannot allocate it to the fast track unless both parties agree. Even if the case is entirely suitable for the fast track. That does not seem right to me. By increasing the fast track limit to £25,000, as I propose, we can provide greater flexibility; resulting in a greater number of cases being heard in the most appropriate track. And ensuring the process is working at it most effective and efficient.
Secondly small claims limits. The £5000 general limit for small claims is working effectively and I do not propose any change. Neither do I propose to change the limit for housing disrepair cases. These are both working well, and change could lead to a diminution in the public’s confidence. The exact opposite of what we want our reforms to achieve.
But it is in the area of small claims limit for personal injury claims that I know you are most interested in. And is that which I want to concentrate on for the reminder of my time this morning.
That something needs to be done in this area is not in doubt. Every one of you is aware of problems of high legal costs for lower value personal injury claims. These have been well documented over the past few years. The costs awarded frequently exceed compensation and often by a considerable amount.
Even where fixed costs have been put in place, cases still continue to be litigated at enormous expense. It is a situation which we cannot allow to continue. To do so would be to the disadvantage of society.
Taxpayer’s money is being used by local authorities to pay costs for cases; diverting it from community causes. Insurance premiums continue to rise as insurance companies pay disproportionately large costs.
The spiralling costs of small value personal injury cases needs to be addressed. Much of the debate has focused on raising the limit. This would have the effect of moving a number of injuries into a bracket where costs for legal representation could not be recovered.
Raising the limit to £5000 or £2500 would take the majority of claims out of the fast track and into the small claims track. It would solve the problem of high costs at a stroke. But it would solve it at the cost of denying a great number of people access to legal representation. Ultimately denying them access to justice.
Proponents of raising the limit seek to get around this problem by suggesting that the judges will help people. However the vast majority of cases do not reach the court – they settle. So understandably there may be no help there.
It is also debatable whether the current number of advice centres could cope with this sudden influx of work –potentially numbering thousands of cases a year. And while there might be a lack of legal advice available for the claimant it is likely that defendants or insurers in these cases would continue to use experienced claims handlers and lawyers.
It seems that raising the limit will be to the advantage of the defendant, not the claimant. And more often than not, it is the most vulnerable that would suffer. Raising the bar will penalise those who cannot afford representation. There can be no confidence in such a situation.
Others in favour of change have suggested raising the limit in line with inflation. But it is likely that all raising the limit by inflation will do is inflate claims. It will provide a short term fix not a long term solution.
Raising the limit would be reform which does not have the public at its heart. It would be reform which does not put increasing confidence in justice at its core. And therefore I propose to leave the limit as it is.
But doing nothing is not an option. If we are to achieve confidence in the delivery of justice, for the individual and for society, we need real reform. Reform which initiates a culture change. This will not come from changing the limit, but from changing behaviour.
We must change the way cases are handled to make it more efficient. The consultation paper sets out proposals for such a system
The proposed new process is built around the principles of providing early notification of a claim; promoting early admissions of liability and early settlements; and removing duplication of work from the process. It provides for actions to be taken within set time periods and with fixed recoverable costs.
I do not want to go in to the details of the new proposals, you can read those for yourself. But they are I believe a sensible, indeed a pragmatic solution to this problem of high costs. What is proposed could make a real difference to the ways claims are processed. A difference which will be for the benefit of all.
For the individual, cases will be settled much quicker. People will see justice being delivered in a timely, proportionate and cost effective way. For the lawyers, there will be faster settlement. Meaning more cases can be undertaken, and crucially payment will be received sooner. For insurance companies, the burden of high cost cases will be minimised, meaning it won’t have to be reflected in our insurance premiums. And similarly local authorities will not have to devote as much resource to paying legal costs. Allowing them to spend it on improving the communities in which we all live.
Raising the limit would not achieve lasting reform. It is not, in my view, the answer. Changing the process is.
But as with any consultation paper, no final decisions have been made. I have had my opportunity to put forward my views, and I welcome yours.
Reform in the legal sector is vital if we are to ensure the profession maintains, and enhances its reputation. Reform must give confidence in justice and in its delivery. That is its ultimate aim. We are, I believe, moving in the right direction.
Introducing claims management regulation and looking to improve the claims process are a key part of the reform to our legal system. They will, I am convinced, play a crucial role in improving consumer confidence.
Much has been achieved already across the legal sector. And we must keep up the momentum. I remain focused on driving forward reform. I am committed to putting the public at the heart of the justice system. It is a commitment I know you share. And a goal which I hope you will work with me to achieve.
Thank you.