Since Lord Justice Jackson published his report into civil litigation funding in January 2010, fundamental changes to litigation funding have been inevitable. On 1 May 2012 Parliament passed the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (“LASPO”, also known as the Justice Act), which will come into force after April 2013 (date yet to be determined).

“Risk free” litigation.........

LASPO is likely to fundamentally alter the landscape of litigation funding by bringing an end to the current “risk free” litigation available to claimants under the current regime.

For example, many people will have heard of the popular “no win no fee” agreement (formally known as a conditional fee agreement (CFA)), particularly common in personal injury cases. These agreements enable a claimant to obtain legal representation and only make payment if their case is successful. A successful claimant is entitled to recover their legal fees from their opponent, together with a “success fee”, being up to 100% uplift on those fees. The success fee compensates the law firm for the risk it assumes when it agrees to act under a CFA. As both the claimant’s legal fees together with the success fee are currently recoverable from the opponent, the claimant may have no legal fees to pay upon the successful conclusion of litigation.

CFAs are also commonly associated with “After the Event Insurance” (ATE). ATE is available to potential claimants (and defendants, in some circumstances) to insure them against the risk that they will be ordered to pay their opponent’s costs if they are unsuccessful in litigation. In the current system, the insurance premium is only payable if the claimant succeeds in the litigation, in which case it is payable by the opponent. If the claimant is unsuccessful, the insurer waives the premium.

Effectively, the combination of CFAs and ATE enables a claimant to commence risk-free litigation. However, an unsuccessful defendant can currently face the prospect of paying not only the judgment award to the claimant, plus the claimant’s costs, but also a success fee and ATE premium. The possible risk of losing in such litigation places an enormous pressure on a defendant to seek early settlement of proceedings, regardless of the merits of their defence.

......And its abolition?

Lord Justice Jackson’s report recommended the abolition of both success fees and ATE premiums. This has now been approved by Parliament and is included in part 2 of LASPO, which will see a successful claimant being required to pay their own success fee and ATE premium. The only exception to this will be ATE premiums in respect of the cost of obtaining expert reports in clinical negligence cases.

LASPO also proposes a maximum limit on the level of success fee a law firm can charge in certain types of claims. Whilst this is yet to be formally determined, it is likely to be based on a percentage of the damages awarded. The response paper published by the Ministry of Justice in March 2011 suggested the cap would be 25 per cent and would apply to personal injury cases.

Fairness for all?

Clearly, the reforms introduced by LASPO are geared toward shifting the litigation risk onto a middle ground between the claimant and defendant, whilst maintaining some level of access to justice for impecunious claimants. These reforms, together with a host of reforms that are outside the scope of this article, will undoubtedly bring about a new era in the funding, and tactics, of future litigation. The reforms may also mean that universities will experience a decline in claims against them if claimants are required to pay their own success fee and ATE premium.