Costs Solutions - A Space To Watch In 2012

It is now two years since the publication of Lord Justice Jackson’s Final Report following his review of the costs and funding of civil litigation in England and Wales. We are now approaching what Jackson has himself referred to as ‘big bang’; the implementation, subject to Parliamentary approval, of a major part of his reforms as part of the Legal Aid, Sentencing and Punishment of Offenders Bill, planned for April 2013.

Conditional fee agreement (CFA) and after the event insurance (ATE) changes

CFAs, often referred to as ‘no win, no fee’ agreements, have become increasingly popular in commercial disputes, particularly when backed by ATE policies which can cover the client’s own disbursements and the opponent’s costs if the case is lost. Free standing ATE policies can also be taken out. However, these changes would mean that the success fee under a CFA and premium payable under an ATE policy would no longer be recoverable from the losing party, and would have to be paid by the client and CFAs would lose some, but not all of their attractions.

Damages based agreements (DBAs)

The proposed changes to the CFA regime would go hand in hand with another of Jackson’s recommendations; to permit US style contingency fee agreements. These are referred to as ‘damages based agreements’, only presently allowed in employment matters, and under which the lawyer can take a percentage of the damages recovered as their fee if the case is won, subject to a cap to be prescribed, currently 35% in employment cases. Jackson himself has said he does not think there should be any cap in commercial cases where both parties are well informed and aware of the risks.

These changes are in turn highlighting an enhanced place for:

Third party litigation funding

This refers to funding of costs by professional funders in return for a share of any recovery, but nothing if the action fails. Litigation funders can pay the client’s costs on an ongoing basis and can agree an indemnity or pay for insurance to cover the opponent’s costs if the case is lost. Historically litigation funding has only been available for high value cases with high prospects for success and the funder’s share of the proceeds can be 30-40%. However, the imminent funding changes have seen the entry of more players into the marketplace and the possibility that some funders may consider somewhat lower value cases.

Jackson endorsed third party funding but initially recommended a voluntary code of conduct to which all litigation funders should subscribe while the market developed. Michael Napier QC, chairman of Irwin Mitchell until the end of last year, chaired the Civil Justice Council working party which produced the Code of Conduct for Litigation Funders which was launched in November 2011.

Scotland

Meanwhile a consultation paper ‘Review of Expenses and Funding of Civil Litigation in Scotland’ has been published, awaiting responses by March 2012. IM Scotland has been closely involved in the process and will of course submit a response.