Why the Fixed Costs Reforms Will Spark a Legal Sector ‘AI Explosion’
A significant change will come to the UK legal sector this autumn as a new fixed costs regime is introduced, changing the way many lawyers are compensated for their work. What will this mean for the profession, and how will it provoke a new wave of legal tech adoption?
Jonathan White, Legal & Compliance Director at National Accident Helpline, offers his thoughts.
Incentives matter enormously. To Economist Steven Levitt, incentives were bullets, or keys; often tiny objects, but ones with astonishing power to change a situation.
A new fixed costs regime is set to be implemented from 1 October 2023, which will see the incentives for many lawyers change – and in many cases be completely reversed.
These changes are quite technical, but they represent the biggest change to civil justice for more than a decade. They will also provide a fascinating case study into how incentives govern how lawyers work.
What Are the Fixed Costs Reforms?
In summary, these changes will apply to the vast majority of disputes worth up to £100,000 in England and Wales. This includes personal injury, debt collection and any form of dispute involving money, whether between businesses or individuals.
The usual rule in litigation is that the loser pays the winner’s costs. Outside of personal injury (where legal costs have been fixed for claims under £25,000 for a decade), the winning side’s legal costs are usually calculated on the basis of time spent multiplied by an hourly rate.
From 1 October, these legal costs will be fixed, based on a sliding scale relating to the complexity of the case and the stage of settlement. The more complex the claim and the later it settles, the higher the fixed costs. For non-personal injury claims, the changes have retrospective effect and will apply to most money claims where proceedings are not issued before 1 October.
What this means is that legal costs paid to the winning party are no longer related to time and effort spent on the case, and in many cases the fixed costs will be significantly lower than the costs incurred ‘on the clock’.
The question is: who will pay the shortfall? Will the winning litigant be asked by their lawyers to make up the shortfall from their damages or will the lawyers swallow the difference?
These changes are quite technical, but they represent the biggest change to civil justice for more than a decade.
It seems reasonable to assume that clients will increasingly expect their lawyers to confine their costs to the recoverable fixed costs and then ‘cut their cloth’ accordingly. This means lawyers, who currently have an incentive to spend as much time on a case as possible in order to maximise their revenue, will now have the opposite incentive: to be as efficient as possible.
In a recent article, Master of the Rolls Sir Geoffrey Vos wrote of how AI can smooth the pathways for online users and, when used along with traditional early legal advice, can prevent vulnerable users falling through the cracks in what is now an exceedingly complex system. Clearly, he states, AI will not replace lawyers anytime soon, not least due to the need for individuals to receive human advice and explanations, but nonetheless, it will be vital in saving lawyers’ time and clients’ money.
With these new incentives, it seems likely that firms will have little other choice than to ultimately harness the efficiency that many of these new technologies can provide.
How Have Personal Injury Lawyers Been Adapting to Fixed Costs Regimes?
Personal Injury lawyers who have been operating in claims worth under £25,000 are used to this and have been adapting their processes for more than 10 years to operate in fixed costs regimes.
Technology has already played a key role in helping the PI sector adapt to these changes and become more efficient in meeting its clients’ needs. Law firms use technology to triage claims for liability and value and have begun to provide a digital route for clients to commence claims. Significant improvements to case management technology have been introduced, which in every instance are being used to speed up the process and to enable lawyers to become more efficient.
What Changes Can We Expect?
The personal injury market has had 10 years to adapt to these changes, and to a degree it has done so using technology. Yet it cannot be denied that in the last year alone, the pace in advancement of technology has given way to much more enthusiasm and excitement within law about what might be possible. For example, see Sir Geoffrey Vos’s other comments recently about judges being replaced by robots.
The personal injury market has had 10 years to adapt to these changes, and to a degree it has done so using technology.
Yet there is something that cannot also be denied – the legal sector is adapting technology slowly, or more slowly than others.
A study published this week by the University of Manchester found that legal professionals are still ‘sitting on the fence’ when it comes to embracing new technologies. The report suggests that a lack of understanding and encouragement from management is proving to be a barrier to the uptake of technologies, ranging from ones with the potential to improve the efficiency of service delivery, such as the use of legal databases, automation of document assembly, online portals, virtual assistants and contract review software, to advanced chatbots and the latest advances in artificial intelligence.
The survey found less than a third of solicitors use legal tech daily, which includes any technology that aims to support supplement or replace traditional methods for legal services, while more than a third said they do not use legal tech at all or do so highly infrequently. These reports demonstrate the transformation many speak of has not been as rapid as many might think.
The fixed costs reforms provide a clear business case for adopting more legal technology and embracing the new wave of artificial intelligence tools. They finally provide a clear connection between the benefits to the organisation as a whole, and the benefits to the individual.
Whereas before, senior management will not have seen investing in technology or using artificial intelligence as a strategic priority, now it is fundamental to the bottom line. In many cases, there may have been a lack of confidence in doing so. Nearly a quarter of respondents to the Manchester University study disagreed with the suggestion that learning to use legal technology would be easy. These issues will now need to be overcome, or firms could be asked to swallow the difference.
What is clear is as AI becomes more prevalent, the focus will surely turn to how humans interact with it.
Why Future Legal Minds Must Consider AI
We have recently reopened our annual essay competition, one of the leading law essay competitions in the UK. This year’s topic was inspired by the launch of ChatGPT and several other AI platforms, asking students to get to grips with the role it can play in improving outcomes in the legal system.
As AI has dominated the headlines recently, we are asking students to look past the headlines and consider those benefits, with the best answers displaying a real understanding of the issues facing the legal sector currently and how we might realistically solve them.
The following is this year’s Future Legal Mind Question: “Sir Geoffrey Vos, the Master of the Rolls, has said there is a “real possibility that AI may become more intelligent and capable than humans” and that robots could even one day help resolve court disputes. To what extent do you believe AI could ever replace the role of human judges? And what would be the benefits or potential drawbacks of integrating artificial intelligence in this way?”
These are topics all lawyers entering the industry should now be considering – not only how technology can help us adapt and improve our practices, but also the incentives behind them.
The 2023 National Accident Helpline annual essay competition has reopened looking for the next Future Legal Mind. Interested applicants can enter on the National Accident Helpline website.
Jonathan White, Legal & Compliance Director
Bevan House, Kettering Parkway, Kettering Venture Park, Kettering, Northamptonshire, NN15 6XR, UK
Tel: +44 08004 561063
Jonathan White is Legal & Compliance Director at National Accident Helpline, having joined the firm in 2010 following 12 years of practice as a solicitor specialising in complex litigation, including brain and spinal injury. He has received accreditations as an expert from both the Law Society and the Association of Personal Injury Lawyers (APIL), where he is a Senior Litigator Emeritus.
National Accident Helpline is a leading UK provider of personal injury advice, services and support, established in 1993. Its advisors are based in the Personal Injury Advice Centre in Kettering, though the firm also maintains a network of specialist personal injury solicitors across the UK, working on a ‘no win, no fee’ basis.