A Bill making CFA success fees and ATE premiums irrecoverable from an opponent, permitting contingency fees and increasing sanctions in Part 36 offers was presented to Parliament on 21 June.  The second reading took place on 29 June, an unusually short period between first and second readings, causing yet more controversy in relation to Jackson LJ’s recommendations for the reform of civil litigation costs.  The Bill is now with the Public Bill Committee, which will scrutinise the Bill line by line and report back to Parliament in October.

Background

The Final Report of Lord Justice Jackson’s Review of Civil Litigation Costs was published in January 2010.  His key reforms included a radical overhaul of the current “no win / no fee” regime and the introduction of “Damages-Based Agreements” (DBAs), better know as contingency fees, as a method of funding litigation.  For further details on Jackson LJ’s recommendations, please click here to view our previous Law-Now.

In November 2010, the Government issued a Consultation on Jackson LJ’s proposals, which closed on 14 February 2011.  Six weeks later, the Government issued its response to the Consultation and confirmed that it would largely adopt Jackson LJ’s recommendations. For further details on the Government’s response to the Consultation, please click here to view our previous Law-Now.

The Bill

On 21 June, the Government presented the Legal Aid, Sentencing and Punishment of Offenders Bill. Although not obvious from the Bill’s title, the Bill will, if passed, implement Jackson LJ’s main reforms.  The reforms introduced by the Bill are:

  • CFA success fees and ATE insurance premiums

CFA success fees will cease to be recoverable from an opponent and, in certain cases like personal injury, will be subject to a maximum percentage of damages, which will probably be set at 25 per cent.  Similarly, ATE insurance premiums will not be recoverable from an opponent, apart from in certain clinical negligence actions, where premiums relating to insurance taken out to cover the costs of instructing an expert will remain recoverable.  The irrecoverability provisions will not apply to CFAs entered into or ATE policies taken out before the legislation comes into force.

  • Damages-Based Agreements

DBAs will be permissible in all types of proceedings in which CFAs are currently permitted.  Under a DBA, the client agrees to pay the solicitor an amount determined by reference to the amount of the financial benefit the client obtains.  For example, if the client recovers £100,000 in damages, it pays the solicitor 10 per cent of those damages.  DBAs are usually referred to as contingency fees and are common in other jurisdictions and are also used in this jurisdiction in employment tribunal proceedings.

Pursuant to the legislation, there are only two requirements for a DBA to be enforceable: it must be in writing and must relate to proceedings that can be the subject of a CFA.  However, the Lord Chancellor is given power to enact Regulations to limit the amount of payment that may be made under a DBA (currently 35 per cent in employment cases), prescribe certain information that has to be given before a DBA can be entered into and to impose other terms and conditions. 

  • Part 36 Offers to settle

The Bill also provides for rules of court to be adopted allowing for the payment of an additional amount to a successful claimant in a money claim who obtains judgment equal to or better than its own Part 36 offer.  The additional amount will be a percentage of the amount awarded to claimant, and is likely to be set at 10 per cent.  Accordingly, in addition to paying the usual Part 36 penalties - interest at 10 per cent above base rate on the damages awarded, indemnity costs and interest on those costs at 10 per cent above base rate – the defendant will also have to pay an additional 10 per cent of the damages awarded.

Comment

Unlike the CFA and ATE reforms, which are likely to be most strongly felt in personal injury litigation, DBAs offer a new avenue for funding large commercial claims and have the potential to change the landscape of commercial litigation funding.  As ever, the devil will be in the detail of the Lord Chancellor’s Regulations to see whether DBAs will remain a flexible and commercial method of funding.

Similarly, the changes to the Part 36 regime will have a substantial effect on large commercial claims, increasing the number of offers made by claimants with an accompanying increase in defendants’ potential liabilities under those offers, thereby necessitating even closer scrutiny of well-judged Part 36 offers.

The Government appears determined to push the Bill through.  Protests have been made at the “fast-tracking” of the Bill – it is usual to have two weekends between the first and second reading of the Bill to allow time for full study before the second reading debate.  We understand from the Law Society that this convention has only been departed from five times in recent history in relation to terrorist, economic and Northern Irish legislation.  However, the measures proposed in the Bill are not new, having been detailed by Jackson LJ back in January 2010.  It may be that the Government considers that there has been more than enough discussion in the intervening period and that it is now time to act to implement the reforms.  Whether Parliament agrees remains to be seen.