Turn to the lawyers for justice

Stephen Grey argues that when governments are so feeble, unions so weak and corporations so powerful

Everyone has their favourite story of the American culture of compensation. Mine came towards the end of last year from the Iowa court of appeals, which upheld a jury's award of $41,267 to a shopper, Judy Krenk, who slipped on a grape at a supermarket checkout. The parties agreed that "a customer, other than Krenk, dropped the grape while bagging groceries", reported the Des Moines Register. The judge, while noting that "the evidence in support of Krenk's claim is less than overwhelming", said that supermarket employees "should have known" there was a smashed grape on the floor.

Are we, too, developing a compensation culture? Newspapers highlight such cases as that of a policewoman recently paid £125,000 for the stress of working undercover. Concern about the creation of "an atmosphere of distrust and suspicion" was expressed by the Prince of Wales last year in private letters to the Lord Chancellor. Solicitors are frequently accused of "leading on" the victims of accidents for which nobody is really to blame.

Yet there is scant evidence that Britain has anything like a US-style compensation culture. But, first, another question that is rarely posed: Is a compensation culture really such a bad thing? Governments are increasingly reluctant to restrain private companies directly - for example, by imposing environmental controls that would stop a power plant being built where it might pollute drinking water, or by introducing laws that would restrain banks from recommending worthless "investment opportunities". In such circumstances, the ordinary person's only redress against the big and powerful, and the only hope of persuading companies to act responsibly, is through the courts. Likewise, when unions have had their powers drastically curtailed and ministers are reluctant to limit working hours, the threat that employees will sue companies for ill-health caused by stress is the only way left of improving workplace conditions. Whatever the law's shortcomings, it can be more effective at holding corporations to account than governments, which are all too often under the influence of private lobbyists.

The US compensation culture may have led to customers of McDonald's winning fortunes for the pain of having hot coffee spilt on them - the worst consequence of which is that American filter coffee is now undrinkably lukewarm. But the same culture has created incentives for US companies - in a country that supposedly abhors regulation - to deal with asbestos injuries, diet drugs, faulty cars and vans, life insurance sales products and tobacco additives. Thirty years of compensation litigation have forced manufacturers to re-engineer their products and make them the most consumer-friendly in the world - from child- proof cigarette lighters to ergonomically designed keyboards. In the UK, even as our courts reject similar consumer legal actions, we free-ride off the innovation that attention to safety in the US has encouraged.

In the US, investors will get roughly $3bn in compensation from Wall Street banks that encouraged investments in dotcom companies from which they were earning banking fees. At least one US financial magazine considers this a derisory sum. Here, the compensation for victims of the Potters Bar rail crash in May 2002 is likely to be in the low thousands. The victims included Agnes Quinlivan, whose daughters were paid an initial £10,000 and had a subsequent claim for damages rejected by Railtrack. Legal aid to challenge this and other awards has been denied. Insurance cover for solicitors to fight the claims on a "no win, no fee" basis has also been refused. Yet Railtrack was widely praised for saying that, without accepting legal liability, it would pay compensation to the victims as though it were fully liable. Colin Smith, Agnes Quinlivan's son-in-law, argues that "Railtrack lied to us when they promised to deal with the families' cases with sympathy and care".

Britain, then, has not so much a compensation culture as a compensation deficit. Louise Christian, solicitor for the Potters Bar families, says that in America, they might get a million dollars or more. She compares the Potters Bar victims with those of the Lockerbie bombing. Negotiations led by US lawyers secured a $10m pay-out from Libya for each victim's family, regardless of their economic circumstances or whether they had dependants. Walter Olson, a fellow of the conservative think-tank the Manhattan Institute (and an opponent of the compensation culture who argues that litigation has produced more safety in the US than you could ever want), agrees that £10,000 would be a piffling sum for a fatality in the US. "It would be more or less just the rounding error in the calculations," he says. "Although it varies from state to state, you could expect maybe a hundred times more to be paid out."

Olson points to the example of nine-year-old Perrize Washington, who drowned on 13 June 2001 while on a field trip to a YMCA pool in Jackson, Mississippi. After a trial televised on Court TV, the case was settled last November for close to the family lawyer's demand of $10m.

By international standards, the British compensation bill is still low. A study last year found that as a percentage of GDP, the UK has the lowest tort cost in the industrialised world - 0.6 per cent against, for example, 1.9 per cent in the US, 1.7 per cent in Italy, 1.3 per cent in Germany and 1.1 per cent in Australia. The belief that compensation is bleeding the nation dry and that lawyers are constantly on the prowl is largely a myth spread by the insurance industry to persuade more people to take out policies. Over the past three years, accident claims filed to the British government's Compensation Recovery Unit have actually fallen from 743,593 to 706,715.

It is probably true that the number of employment compensation claims has risen. But companies complain that insurance companies often find it easier to accept dodgy claims and subsequently raise premiums than to contest bad cases.

As for medicine, the problem is not so much an excess of compensation demands as an excess of deference in the face of medical incompetence, as shown by the cases of Harold Shipman and the Bristol Royal Infirmary, which was able to continue for years with an alarmingly high death rate following heart surgery on children.

Disputing Doctors, a little-noticed but powerful book by Linda Mulcahy published last year, showed, for example, that most medical mistakes rarely lead to complaints, let alone lawsuits - even in the US. The most comprehensive study of medical mistakes, she wrote, found that in American hospitals, nearly 4 per cent of patients suffered an injury which prolonged their stay or resulted in a measurable disability; nearly 14 per cent of these injuries were fatal. This is equivalent to 18,000 Americans dying each year due to preventable mistakes in hospital. (A smaller-scale study in the UK found that 7 per cent of patients suffer mistakes.) Yet, according to a study in 1985, only one in 25 negligent injuries results in compensation. A more recent study found seven times as many medical mistakes as compensation claims.

Allegations that the new no win, no fee system in Britain encourages compensation claims are false. The introduction of no win, no fee was followed by the withdrawal of legal aid for most personal injury cases. If anything, the new system makes things worse for the accident victim, because it gives lawyers little incentive to pursue cases that aren't "dead certs". In the US, lawyers can claim up to 30 per cent of the damages they recover; in the UK, they receive only a small "uplifted fee", which provides little incentive to take on an expensive and risky case.

There is also a difficulty in taking on big corporations under English law. Under the US system, each side pays its own costs. In England, if the alleged victim loses the case, he or she pays the company's costs, including its expensive lawyers. The English system also prevents a lawsuit being brought on behalf of an entire class of victims. The consequence, says Stephen Alexander, a partner of Class Law solicitors, is that if a company makes an illegal profit - for example, by fixing prices or giving negligently bad investment advice - there is "no plan for the disgorgement of that ill-gotten gain back to the victims".

The UK should probably not follow America all the way. It would be a good thing to bring many disputes out of the poisonous and expensive atmosphere of the courtroom - a third of all compensation payments is absorbed by administrative and legal costs - and into mediation. But we should try to increase public access to the law and strengthen, rather than diminish, the culture of compensation. Whether the bad guys are Microsoft or BP, we can't leave it to US courts to police our corporate world.

Stephen.Grey@zen.co.uk