The Bill making CFA success fees and ATE premiums irrecoverable from an opponent, permitting contingency fees and increasing sanctions in Part 36 offers finally received Royal Assent on 1 May 2012, despite a tumultuous trip through the Parliamentary process.  The Act will now come into force in stages over the next year, with full implementation expected by April 2013.

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 Act

On 21 June, the Government presented the Legal Aid, Sentencing and Punishment of Offenders Bill (now Act). Although not obvious from its title, the Act implements 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 individual CFAs entered into or ATE policies taken out before the Act 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.  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 Act 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 the claimant, and is likely to be set at 10 per cent, possibly on a sliding scale.  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 up to 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.  Similarly, the changes to the Part 36 regime may 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.

Although the main hurdle of adopting the primary legislation has now been cleared, there remains a lot of work to be done to finalise provisions for how DBAs and the Part 36 extra sanction will work in practice.  Working parties have been set up by the Civil Justice Council to determine these and other issues and it is this work that will determine whether DBAs will be a flexible and commercial method of funding and exactly how onerous Part 36 will become.

Finally, uncertainty over the date of implementation remains following the Ministry of Justice’s statement in its press release that the Act would be implemented in stages over the coming year.  The Ministry had initially said it wanted all sections of the Act to be implemented at the same time and, as there was significant work to be done on numerous issues in the Act (including those highlighted above), it pushed back the planned implementation date from October 2012 to April 2013.  But it now appears that the Act might be subject to a phased implementation after all.