Personal Injury Law Firms: Why Bigger Isn’t Necessarily Better

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January 27, 2016

As has been widely reported in the recent press, both Slater & Gordon and Shine Lawyers are coming under increasing pressure from the stock market and their shareholders when it comes to the value of their business. These two giants of the personal injury law arena, both of whom are listed on the Australian stock exchange, measure their value largely based on their estimate of their respective firms’ work-in-progress (WIP). It’s easy enough to put a figure on the value of WIP in personal injury cases. It is, however, another matter altogether to convert this WIP into cash (costs).

Just like every other plaintiff personal injury law firm in Australia, Slater & Gordon and Shine Lawyers deal with injured individuals who, in order to recover compensation, generally have to prove that their injuries were caused by someone else’s fault in order for their claim to succeed. Cases are funded on a ‘no win no fee’ basis which provides the injured person access to justice if they can’t afford a lawyer, but means that the firm does not get paid until the end of the case.

Personal injury claims can sometimes take years to finalise. Throughout the life of claim, the law firm is not being paid and yet has to spend money on key evidence for the claim to succeed such as medical reports. Therefore the management of a personal injury law firm’s cash flow can be a tricky business. In many cases, a successful outcome for the client and therefore the law firm cannot be guaranteed, and the recovery of estimated WIP can be problematic for a number of reasons:

A case which seemed to have strong prospects on liability at the outset may turn out to be less straightforward and meritorious than anticipated, as further facts about the case emerge.
Claims may take far longer to be finalised than anticipated at the outset, for example if the injured person requires further surgery and their condition has not stablised to the point where their losses can be quantified.
An injured person may be reluctant to accept his/ her lawyer’s advice as to what would be a good outcome for the claim and instruct the lawyer to reject a reasonable offer and press on to a court hearing to have ‘their day in court’.
A favourable court decision may be appealed, and the case put on hold pending the outcome of the appeal.
An insurer may be particularly difficult and obstructive and refuse to ‘tango’. In this situation it’s not unusual for claims to be heavily compromised to achieve some positive outcome for the injured person. Unless the estimate of the WIP for such claims has also been discounted and adjusted downwards as the need for compromise became apparent, the estimate of WIP will be inflated and incapable of being realised.

When a listed law firm has to report to its investors on the value of its key asset – its WIP – the above scenarios can put pressure on the firm and its lawyers. Lawyers will have targets to resolve a certain number of cases per month or per quarter, and convert that valuable WIP into cash. Lawyers (and sometimes support staff) will have daily time recording quotas to ensure that they boost the firm’s WIP, and therefore its balance sheet, by a certain amount each day. Whilst a lawyer’s primary duty is to the Court and then to the client, it is therefore easy to understand why lawyers can feel like they are between a rock and a hard place when they are pressured to settle cases, bill a certain amount of time to files per day, and convert as much WIP to cash as possible, if their cases aren’t ready for settlement or can only be resolved on a compromised basis. Large listed law firms such as Slater & Gordon and Shine Lawyers may also feel pressured to keep its liabilities low, such as the amount it spends on disbursements. Disbursements are the expenses that lawyers have to incur to successfully run a claim, such as the cost of police reports, clinical notes, and medico-legal assessments. Disbursements usually run into the thousands of dollars per file, which is a large dent on the balance sheet shown, and ties up much needed cash. It is for these reasons that many law firms are starting to use third party ‘disbursement funding’ to pay for disbursements. This means that rather than the firm paying for the disbursements out of its own pocket, the client has to take out a loan to pay for disbursements. This loan is usually repayable at the end of the case, with interest. Whilst the disbursements themselves are usually recovered from the losing defendant, the interest charged generally comes out of the injured client’s compensation. Whilst these are pressures at larger law firms, my firm, Stacks Goudkamp, does things differently. At Stacks Goudkamp my lawyers do not time record, so they do not feel pressured to charge a certain amount to client files every day. We don’t pick and chose the work that is ‘easy’ to bill for, and put off the trickier jobs for another day. We simply concentrate on getting the job done. Plus we are a boutique personal injury law firm, so we don’t just get the job done – we do it with excellence. I also don’t ask my clients to pay for their own disbursements up front or to take out a loan. I know how financially stressful life can be after an accident, and do not want to add to my clients’ stress with loan paperwork. My firm covers the cost of disbursements, no matter how expensive they are. In my forty years of experience, I know that insurers can be difficult and sometimes it is in a client’s best interests to accept a compromise. Unfortunately the costs recovery system is not favourable to Plaintiffs, and sometimes the net result of the cost of continued litigation for a slightly higher damages figure means that a ‘bird in the hand is worth two in the bush’. I explain this to clients and don’t pressure them to continue with a case when I know that the likely beneficiary will be me from increased costs, rather than the client. Instead, I personally and my firm have an excellent reputation for charging clients reasonable fees and providing a high quality service. Finally, as Managing Director who actively works on my clients’ cases, if my clients ever wish to discuss the level of fees (which is rare but inevitably happens from time to time), they can speak to me directly and not have to go through a process to speak to someone with enough authority to make a decision. That person is me! So if you have the misfortune of being injured in an accident and have to consult a personal injury lawyer, remember that biggest is not always best. Find out the size of the firm, how it is structured, and if they have the resources and expertise to get you the best possible outcome. There are lots of great lawyers out there, in firms big and small. The most important decision for you is that you find someone that you trust. If you think I could be the lawyer for you, contact me today on 1800 251 800 or make an online enquiry for a no obligation consultation about your claim.

Written by Tom Goudkamp

Tom Goudkamp is Managing Director of Stacks Goudkamp. He has over 40 years of experience of successfully bringing compensation claims for people injured in accidents in Australia and across the world. He was awarded an Order of Australia medal (OAM) in 2005 for services to injured people and the legal profession.

I could write a book as to how the last 4 years would have been different if not for Tom and his team.
The support, assistance, advice from the first conversation till even after the settlement was second to none from the team at Stacks Goudkamp.
Four years on and after many downs, my children and I have our lives back.
We are unable to THANK YOU enough, but know that you have changed our lives for the better in so many ways since the accident.

- Andrew and Family