At present most civil personal injury claims are pursued by Claimants with the benefit of a conditional fee agreement (CFA) (effectively a "no win no fee" agreement).

Typically, the CFA provides for a "success fee" to become payable if the claim succeeds.

So far, that success fee (which can double the Claimant's costs) has generally been added to the Claimant's costs and is recovered from paying Defendant. The same is true of the premium for any after the event (ATE) insurance policy which a Claimant would normally be advised to take out to protect him/herself against the risk of an order that s/he pays the Defendant's costs if the claim is lost.

So, the overall cost of a personal injury claim to a losing Defendant at present will usually comprise damages, the Claimant's legal costs, a success fee on those legal costs, an ATE insurance premium, and (very reasonably!) defence costs. The cost of an injury claim to a winning Defendant would normally be his own costs (if a Claimant does not have ATE and cannot pay) or a limited part of his own costs which he can't recover from a claimant.

That position is going to change in April 2013 when the reforms advocated by Lord Justice Jackson and incorporated into the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPOA) come into force. From April 2013:

  • A success fee on Claimant's costs will no longer be recoverable against a Defendant under CFAs entered into after 1 April 2013. CFAs will still be possible but the Claimant will have to pay the success fee himself, which will in turn be limited to 25% of the damages (excluding damages for future care and loss)
  • The premium on the Claimant's ATE insurance policy entered into after 1 April 2013 will no longer be recoverable against the Defendant
  • General damages in civil claims for pain, , suffering and loss of amenity will increase by 10% (unless a success fee is recoverable because the CFA pre dates 1 April 2013)

Pausing there, in practical terms this is good news for Defendants. The absence of recoverable success fees from April 2013 should significantly reduce the amount of Claimant's costs that losing Defendants will have to pay. Conversely, for the vast majority of injury claims, we feel the 10% uplift will have a limited effect on the overall cost of the claim for Defendants because:

  • The 10% increase does not apply to future losses, or specific quantified losses (such as lost earnings and care costs) which are often the most significant element of an injury claim
  • The damages to which the uplift does apply are rarely calculated by reference to a fixed tariff. They tend to fall in a band of possible awards. Even with an upward shift of 10% in the band there will be a significant element of overlap with current bands within which negotiations will still be pursued
  • Qualified one-way costs shifting will be introduced. This means that a losing Claimant will no longer have to contribute to Defendant's costs (even if he discontinues a claim) unless:
    • The claim is found to be fraudulent
    • The Claimant fails to beat a Defendant's part 36 offer of settlement
    • The case is struck out as disclosing no reasonable cause of action or as an abuse of the court's process

This is not such good news for those who do defend injury claims. If a Defendant successfully defends, from April he can expect to pay his own costs in any event, absent fraud by the Claimant unless a Claimant fails to beat a part 36 offer. In other words, win or lose, in many cases the case will have a material cost to a Defendant in the form of his own costs.

  • If a Claimant makes a part 36 offer of settlement which a Defendant doesn't accept but the Claimant is awarded damages following trial which are at least as much as his offer, the paying Defendant will additionally need to pay a sanction of 10% of damages (where damages are in issue) or 10% of costs for non-damages claims (e.g. where liability only is in issue), subject to a tapering system for claims over £500,000 so that the maximum sanction is likely to be capped at £75,000

This should encourage early settlement but whether or not it does have a dramatic impact remains to be seen - we still see relatively few Claimant part 36 offers. Cynically, you might be forgiven for thinking that this is due to the fact the Claimant's solicitor reaps no benefit from an early settlement and that until Claimant's lawyers (rather than the Claimant) receives a benefit for settling sooner rather than later, there is unlikely to be a substantial change to their methodologies for handling claims