Monday, 25 February 2013

The New CFA Regime and Conflicts of Interest

The new CFA regime is nearly upon us. It will present many challenges to lawyers practising in the field of clinical negligence and personal injury. I want to illustrate some particular difficulties which may cause tensions between lawyers and their clients. In the examples that follow, assume that lawyers have a CFA with the claimant under which the uplift payable by the claimant to his lawyers is for 25% of general damages for PSLA and past losses and expenses.

Problem 1: Global Settlements

The claim is for general damages for PSLA at £75,000, past losses and expenses of £125,000, future loss of earnings at £400,000 and future care and assistance at £400,000. Liability is in dispute. The defendant also alleges that the claim for future earnings is wholly speculative and disputes that claim in full. The defendant offers £200,000 which the claimant accepts. What is the CFA uplift? How does the claimant know what he is liable to pay his lawyers?

- Surely the lawyers could not seek 25% of the £200,000 claimed for PSLA and past losses (£50,000)? The global settlement means that those claims have not been met in full.

- On the other hand  it would be naive to say that since the settlement is for 20% of the total damages claimed, the uplift should attach to 20% of the sums claimed for general damages and past losses (uplift = £10,000). The weakest claim was for future earnings. Who knows how the defendant calculated the settlement value of the claim? It may have been on the basis of a 50% chance of the Claimant recovering £200,000 for PSLA and past losses and £200,000 for future losses.

It seems to me that the claimant and his lawyers will have to agree the uplift prior to settlement of the claim, otherwise the claimant will not know what he is settling for. But their interests conflict. Does the claimant need separate representation in relation to the issue of the uplift. Does he need two sets of lawyers? How does he pay for the second set of lawyers?

Global settlements of this kind are in my experience the most common type of settlement in clinical negligence claims where liability has not been admitted.

Problem 2: Interim Payments

The claimant is a 70 year old who has paraplegia due to the admitted negligence of the defendant. He requires new accommodation, equipment and 24 hour care. An interim payment is obtained to allow him to purchase, adapt and equip a house (his current accommodation being wholly unsuitable for a wheelchair user requiring full time care) and to pay for professional care prior to trial. At trial he is awarded:
£175,000 for PSLA
£200,000 for past care and case management (£50,000 for gratuitous care and £150,000 for professional care and case management)
£50,000 for equipment already purchased
£150,000 for adaptations carried out to the house
£50,000 for future equipment
£125,000 for Roberts-v-Johnstone calculation and future increased costs of housing
Future care and case management are to be paid for through a PPO.

So the total lump sum is £750,000

Of that £575,000 is for PSLA and past losses and expenses. The CFA uplift is £143,750, leaving the claimant with £606,250 out of his £750,000.

The interim payment was for £600,000 which was used to purchase a house costing £250,000, adapt it (£150,000), buy equipment (£50,000) and pay for care and case management for prior to trial (£150,000).

Thus the net lump sum payment is £150,000 of which the claimant has to give all but £6,250 to his lawyers. He will have PPOs for his future care and case management but virtually nothing else left to live on, pay for future equipment, pay for the increased costs of his adapted home etc. He also "owes" his family £50,000 for past gratuitous care.

The CFA uplift leaves the claimant unable to afford to live in the house which his interim payment was used to purchase.

Very careful consideration will have to be given to using interim payments in large claims in the future where there are substantial uplift liabilities for the claimant. Again, there will be significant potential conflicts of interest between lawyer and client.

Problem 3: Delay in resolving the claim

The longer it takes to resolve a claim the greater the amount of past losses and the smaller the amount of future losses. Hence, delay increases the uplift and rewards the lawyers at the expense of their client. In the previous example, had the claim resolved in full at the time of the interim payment then £150,000 on adaptations, £50,000 for equipment and £150,000 for professional care and case management would all have been future claims and thus not subject to the 25% lawyers' uplift. The lawyers gained £87,500 by so managing the case that resolution occurred after these costs had been incurred. It would usually be regarded as good practice to secure a large interim payment in such a case but will claimants begin to suspect that their lawyers are dragging out cases for their own benefit?

One solution would be not to seek any uplift from damages. But can lawyers afford to take on a basket of cases which will include winners and losers, without any uplift from the winning cases?

Where an uplift is agreed, it might be preferable to agree a fixed amount of money as the uplift (subject to the amount not exceeding the legal cap on uplifts). This could prevent some but not all of the conflicts of interests and difficulties highlighted above.

Perhaps a graded uplift could be agreed - the uplift increasing as total damages increase, but subject to the legal cap?

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