Reforms on Litigation Funding and Costs | Mayo Wynne Baxter
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Reforms on Litigation Funding and Costs

CourthouseThe Government is reforming litigation funding and costs.  There are some key changes which may affect you depending on the stage your case has reached. These changes will take effect from 1st April 2013 through Part 2 of the Legal Aid Sentencing and Punishment of Offenders Act 2012, associated Regulations and changes to the Civil Procedure Rules.

The full package of reforms proposed are as follows:

  • A Conditional Fee Agreement “CFA” is a type of ‘no win no fee’ agreement under which lawyers do not receive a fee from their client if they lose a case, but can charge an uplift (a “success fee”) on top of their base costs if they win. When the lawyer wins a case, these costs including the success fee are ‘recoverable’ i.e. paid by the losing party.  ATE insurance can be taken out by parties in a CFA funded case to insure against the risk of having to pay their opponent’s costs and their own disbursements if they lose.
  • Under the current arrangements, success fees of up to 100% of base costs and after the event (ATE) insurance premiums are recoverable from the losing party.
  • The changes from 1st April 2013 abolish the recovery of success fees under CFA’s (conditional fee arrangements) and also abolish the recovery of ATE insurance premiums from the losing side with the exception in clinical negligence cases where some of the ATE premium is likely to be recoverable.  You will still be able to use CFA’s but you will now have to pay your lawyers’ success fee and any ATE insurance.
  • If your claim is for personal injuries suffered, the success fee for a CFA in personal injury cases is likely to be capped at 25% of the claimant’s damages, excluding damages for future care and loss.
  • Damages based agreements (a contingency fee agreement or DBA) will be allowed in all types of claims.  DBAs are another type of ‘no win no fee’ agreement, but the lawyer’s fee is related to the damages awarded, rather than the work done by the lawyer.  In personal injury claims there will be a 25% cap on the amount of damages (excluding damages for future care and loss) that can be taken as a lawyer’s contingency fee.   In other cases there will be a 50% cap on the amount of damages.    In all cases you cannot recover, by way of costs, more than the total amount payable by you under the agreement.
  • The introduction of a new concept known as “qualified one way cost shifting”, meaning an individual claimant is not at risk of paying the defendant’s costs should the claim fail (with some important exceptions).   This will apply to personal injury and clinical negligence claims only.
  • The parties to an action can make offers to settle under Part 36 of the Civil Procedure Rules.  The sanctions under Part 36 offers are being reformed in order to encourage early settlement.  In essence there is to be an additional amount to be paid by an opponent who does not accept your offer to settle and where the Court gives judgment for you that is at least as advantageous as an offer that you have made to settle the claim.  This additional sanction is to be calculated at 10% damages where damages are an issue and 10% of costs for non-damages claimed.
  • There is a new rule on proportionality and this test is intended to control the costs that are clearly disproportionate to the value complexity and importance of the claim.

The court can disallow costs where they are disproportionate even if they were reasonable and necessary costs.   Those costs may then be payable by the client.

  • In cases where court proceedings are started after 1st April 2013 all parties will be required to produce a costs budget setting out the costs they expect to incur during the litigation process.   Importantly if a party fails to produce a budget then you will be limited to recovery of only court fees.

The budgets may not be approved by the court and difficult decisions may then need to be made about how to proceed with the case and whether it is still possible to proceed.

If there is an increase to the budget which has not been authorised you will be unable to recover the excess of costs from your opponent.   The process will require extensive collaboration between your legal adviser and external costs draftsman to prepare carefully drafted budgets.   The budgets have to be signed by the client.

  • Public Funding (“legal aid”) will no longer be available except in a narrow category of cases involving brain injury in children in the ante-natal period, at the time of or shortly after birth.

At the date of this document not all of the detailed rules have been published and elements of the above may be subject to amendment.   More detailed information will be available once the rules are available.   Some of the above will be the subject of court decisions in individual cases which means the law will develop in many of the above areas in the coming years.

As from 1st April 2013 you are therefore likely to be faced with a drastically different litigation landscape.   To maximize recovery of your costs, talk to your legal adviser now on whether your claim is suitable for a CFA or ATE insurance and avoid any rush to sign a CFA/ATE policy before 1st April 2013

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