Law: Why Not Try Free Market Economics?

15th April, 2016, in Law, Online Court, Legal Market.


What’s wrong with free market economics? When it comes to law, it appears, everything.

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If, as part of your engagement, you get your barrister to photocopy things for you and the barrister gets someone else, some form of admin support to help, the barrister personally is on the hook if they get it wrong. This is bonkers.

Why? Because if you went to your local copy shop –which you or your business is entirely entitled to do if you have a case in court - they would charge you 8 pence per page. If you ask your barrister to do it, assuming they can meet the super low 8 pence per page price for the physical activity of copying as performed by a professional copy shop (impossible), they will then have to check each and every page costing you their time.

Why is it that a barrister should be professionally burdened with a business function separate to that of their qualification – photocopying? Who wants to pay six hundred pounds for photocopying rather than sixty? There is simply no appetite for it in the market. It’s not the only example.

(It’s simply fixed BTW – just make sure barristers are only on the hook for reserved legal activities – you know, those bits they spent five plus years qualifying for. Or if you believe in free market economics, you could legislate to make sure copyshops introduce a five year training course for photocopying.)

It’s not the only example of unnecessary tinkering. ‘No-win no-fee’ – another economic skew. Thanks to day-time TV ads everybody thinks they are entitled to free legal advice. But when is the last time you instructed your builder to build your extension on the basis that they could have a percentage of the equity increase in your home when they’ve finished?

Access to justice is obviously important but isn’t this better served by a healthier litigation financing market? Or are we happy with loans that effectively have an APR of 25%? That’s a quarter of your damages, meant for you, even if you have a blindingly obvious case with a hundred vicars as witnesses.

And what about referral fees – another interference with free market economics? Banned for everyone in personal injury, banned on every subject for lawyers. Did that work? No. For Admiral Insurance, Admiral Law was quickly formed to handle all their personal injury claims resulting form the ban in referral fees - which it part owns of course (and by part, we mean 90%). It made a £3m profit in it’s first seven months (read the article here).

The solution here is not to ban them (sharp intake of breath). Seriously. Just follow the finance sector and make their reporting mandatory in advertising and upfront quotes – just make it clear and trust the consumer. Then just watch and see how quickly those quoting a thousand quid for sod all go out of business.

So what’s next? The latest interference to free market economics is the ousting of lawyers fees for the online court. We did think this was an ousting of lawyers entirely until a correction by one of the consultants who said that that is not what they suggested, merely that the on-line court should be usable by litigants in person rather than just lawyers. But that’s not really right. The online court is accompanied by the conflated suggestion that not a single penny in your legal fees, if you want to claim up to £25,000, should be recoverable. So, in effect, ousting lawyers. Why does that matter?

Well, there is a very neat TED lecture that suggests that it’s the certainty and enforceability of rights that allow societies to progress more quickly social-economically, eliminating factors such as geography, access to resources, religion and population size. And in fact we recognise it too in other areas of the legal profession.

If you do have a judgment, say for five hundred quid, you are allowed and entitled to add the costs for someone to actually recover it for you so the five hundred quid actually makes it into your pocket (the sheriffs are coming!). If you are injured, it’s not just the loss in you not being able to earn your living if you’re off, you are entitled to recover your doctor costs of your care. So why, when someone has wronged you, are you not entitled to the costs for a lawyer to right it when it wasn’t your fault? It’s bonkers, and in our experience it deters individuals and business from enforcing their rights every single day and when £10,000 (the existing smalls claims limit) has that effect, upping it to £25,000 when the entire UK average annual salary is just £26k simply does nothing to help and will ruin businesses and livelihoods for want of effective enforcement of their rights.

‘We know we keep tinkering with the market but it’s not our fault, lawyers must innovate.’ Why? Now, when you have a higher value case, your legal costs are calculated and submitted based on hourly rates of X employee at Y and so on. You must submit a form to the court which says this. There is no room for fixed fees, or heaven forfend – making a profit.

Let me give you an example from another industry, insurers, those who pay for dings in our cars. Before, they used to pay a number of hours labour for a paint repair. Then, they insisted that the repair shops use a special paint drying oven, which cost half a million quid, improves the finish and turns a four hour process into a half hour process. The rub? They then only wanted to pay for half an hour of labour. How on earth was the repair shop supposed to recover the capital outlay for the oven?

Yes, everyone wants lawyers to innovate but where is the incentive to invest the millions needed to automate if you can’t make a profit on the service? “No Mr X, I can clearly see it only cost your lawyers £1.57 to submit your claim using their AI ‘robot’ so that’s all I am awarding.”

If you want to look at the macro effect of what ‘fairness’ does you need look no further than the UK legal system itself. That the UK, seen as a fair established legal system, helps explain why for just 4.8% of global GDP the UK legal services market accounts for a whopping 7% of global share. So why not apply those same ‘fair’ princples to the micro-economic situation of a smaller case?

Not limits, hourly rates, caps and exclusions for those most affected but a return to a set of ‘fair’ principles. Access to justice supported by recovery of costs where it is fair to so do. What are they frightened of?

This year and next there is a Competition and Markets Authority Review into the legal sector, a government review into the legal industry, a planned spend of nearly three quarters of a billon on new court computer systems and a suggested online court.

In that context, with regulators and law-makers utterly obsessed with tinkering with legal costs, isn’t it about time that we tried free market economics?