The government's plan for reducing legal aid was recently confirmed with the publication of the Legal Aid, Sentencing and Punishment of Offenders Bill. The bill has now passed its second reading and will progress through the committee stage during Summer 2011. The government has also made clear that it will implement Lord Justice Jackson's recommendations to cut civil litigation costs, with legislation due to come into force in Autumn 2012.
As drafted, the bill contains few surprises. It includes most of the proposals in the Jackson Report (other than those relating to one-way costs shifting in personal injury matters, which will be considered separately at a later date).
The key sections of the bill provide for:
- the abolition of the recoverability of success fees and associated costs in 'no win, no fee' conditional fee arrangements.(1) This will be achieved by shifting the costs burden away from defendants by no longer allowing claimants to recover success fees from a losing party. Instead, claimants will be required to pay their own lawyers' success fees, a requirement that is likely to be met from damages;
- the abolition of the recoverability of 'after-the-event' insurance premiums.(2) Such premiums receive the same treatment as success fees - claimants will no longer be able to recover premiums from a losing party, except in limited amounts for personal injury matters;
- the ability of claimants to enter into damages-based agreements with their lawyers.(3) This is the first time that entirely contingent fees have been permitted in relation to civil litigation work; previously, they were allowed only in relation to non-contentious and employment tribunal matters. Although the percentage of damages that lawyers may receive in personal injury and employment matters is capped (at 25% and 35%, respectively), the bill does not indicate that a limit will apply to damages-based agreements for other types of civil litigation; and
- the right of claimants to receive an extra percentage-based sum from the defendant if, at trial, they beat an offer under Part 36 of the Civil Procedures Rules.(4) However, the bill does not specify the level of payment - this will be determined by the lord chancellor at a later date and, for money claims, will be capped at a percentage of the claimant's award. The bill thus addresses criticisms of the Part 36 regime as highlighted in the report. The government's intention - as set out in the response document published earlier in 2011 - was "to equalise the incentives between claimants and defendants to make and accept reasonable offers".
Further measures affecting the Part 36 regime are expected to be introduced soon. These are likely to provide that when a claimant beats a Part 36 offer, by however small a margin, the full Part 36 costs consequences should be applied.
Most parties to the government's 2010 consultation agreed that the litigation funding regime could be improved. Despite attempts in recent years to reduce the costs of litigation, bringing a claim is still a considerable (and often protracted) financial risk for litigants. Accordingly, conditional fee arrangements, particularly when combined with after-the-event insurance cover, have been an attractive funding solution and have done much to assist those who have viable cases, but no means to pursue them. Nonetheless, the recoverability of success fees and claimants' after-the-event premiums has brought about a situation where claims can quickly become practically impossible to settle. Defendants often complain of being 'held to ransom' by the level of costs being incurred to bring a claim.
The bill does much in principle to address the situation and seeks to incentivise claimants to control their costs by adopting most of the Jackson Report's proposals. However, much will depend on the detail. Although the bill is a significant statement of intent, litigators will be watching carefully to see how the bill evolves as it passes through the legislative process. In particular, more clarity would be welcome on the consequences of Part 36 offers, as the existing provisions leave much to the discretion of the lord chancellor, with little indication of how this discretion may be exercised.
For further information on this topic please contact Laura Martin at Reynolds Porter Chamberlain LLP by telephone (+44 20 3060 6000), fax (+44 20 3060 7000) or email ([email protected]).