In 2010 Lord Justice Jackson published his report dealing with the issue of disproportionate costs in civil litigation. He said: “In some areas of civil litigation costs are disproportionate and impede access to justice. I therefore propose a coherent package of interlocking reforms, designed to control costs and promote access to justice.”
Lord Justice Jackson’s recommendations were taken on board and evidenced in Part 2 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO). The Act received royal assent in May 2012 and is to be implemented in April 2013.
There are certain changes within the recommendations that affect many matters that we deal with on a daily basis in the dispute resolution team at Steeles Law. Such changes include:
- Non Recoverability of Success Fees
- Introduction of Damage Based Agreements
- Non Recoverability of After the Event Insurance premiums
- General Damages Increased by 10%
Non Recoverability of Success Fees
Under s44 of LASPO, other than for mesothelioma claims, success fees under a Conditional Fee Agreement (CFA) will no longer be recovered from the losing party. Currently, the winning party’s legal representatives are able to enjoy an uplift of up to 100% on their costs as a success fee. However, post 1 April 2013, the winning party will pay the success fee from the damages awarded to him/her. To replace the current CFA arrangements, Damage Based Agreements are proposed instead.
Damage Based Agreements (DBAs)
Also known as “Contingency Fees”, DBAs are very similar to CFAs in that the legal representative is only paid if the client wins his/her case. If the client loses, the legal representative receives nothing. Under a DBA, the client is obliged to pay to the legal representative a pre-agreed percentage of the damages he/she is awarded. Upon success, the client’s representatives are still able to recover their costs from the opposing party in the first instance. In cases where the amount recovered from the opponents is not the total amount to which the legal representatives are entitled under the DBA, they may then recover from the client the difference between the agreed percentage under the DBA and the amount recovered from the opposing party.
For example, if the client and representative enter into a DBA with an agreed fee of 25%, and the client receives £10,000 in damages, the representatives will then be entitled to £2,500. However, if the losing party has paid £2,000 to the representatives in respect of costs, the client will then “top up” that amount by £500, meaning the total amount paid to the representatives is £2,500.
There are limits as to the amount a legal representative can recover under a DBA:
- There will be a 25% cap on the amount of damages that can be taken as the legal representative’s fee in personal injury cases (excluding damages for future care and loss)
- There is an existing cap of 35% for damages in employment tribunal cases
- There will be a cap of 50% for all other cases under a DBA in civil litigation
Non Recoverability of After the Event Insurance (ATE) premiums
The purpose of ATE is to cover the opponent’s legal costs in the event that the client loses the case. In the event of success for the client, the losing opponent currently has to pay the insurance premium. As with success fees, with effect from 1 April 2013, the client will be liable to pay the ATE premium from the damages he/she receives upon success.
It is important to note that CFAs and ATE policies entered into before the implementation date of 1 April 2013 remain unchanged.
General Damages Increased by 10%
The above reforms appear to be one-sided and of greater disadvantage to the claimant than the defendant. To balance this, the government has introduced an increase of 10% on general damages in respect of the following:
- Pain, suffering and loss of amenity in respect of personal injury
- All other torts which cause suffering, inconvenience or distress to individuals
The extra 10% is designed to allow for premiums and fees payable by the claimant, so that the damages the claimant actually receives upon success are not reduced too considerably. An example of this can be found in the first case to embrace the reform, Simmons v Castle  EWCA Civ 1039.
As is shown, compared with the current framework, it seems the reforms are of a greater disadvantage to the claimant than the defendant. The claimant is responsible for paying the success fee and ATE premium, both of which can be significant amounts. Depending on the case, an increase of 10% to general damages may not be sufficient to cover these costs.
It is also important to consider the wider implications. If a claimant’s claim has a strong prospect of success, the claimant may choose not to purchase ATE in order to avoid having to pay the premium, thus having an adverse effect on insurers. It may mean insurers having to lower their premiums to continue to operate within the civil litigation arena.
For legal representatives, the absence of the 100% uplift on success fees may not be a favoured part of the reform. However, despite not being as lucrative, the availability of DBAs at least provides a replacement mechanism to reward representatives for the success of claims.
Currently, claimants are able to pursue the “give it a go” attitude with “no win no fee” – they have nothing to lose. This can lead to costly litigation. The reform is likely to provide a mechanism for preventing the spiralling of costs in some cases when a CFA is involved. For those that have strong and genuine grounds for a claim, the avenue is there for them to pursue it but for those that wish to try their luck, as of 1 April 2013, it will be worthy of careful consideration.