The United Kingdom will change how solicitors are paid in “no-win no-fee” court cases to stop spiralling costs from harming the legal system, Justice Secretary Kenneth Clarke announced on Tuesday. In a statement to Parliament, he outlined a new civil justice system in England and Wales under which the "success fees" charged by solicitors on CFAs, as well as ATE insurance premiums, should no longer be recoverable from the losing defendant but could instead be deducted from damages awarded to the successful claimant.

In respect of personal injury cases, the total success fee would be capped at 25% of the total damages. To compensate successful claimants in such circumstances, it is proposed that the damages payable would be subject to an uplift of 10%. Besides, in civil litigation, the Government will lift the restriction on the use of damages-based agreements (DBA/contingency fees) as it considers that such agreements will provide a useful form of funding, particularly in commercial cases.

The announced measures also include other elements designed to remove pressure from the court system. These include encouraging more people to settle claims through mediation and raising the minimum value for a case to be brought in the High Court to £100,000 in order to ensure it is reserved only for “genuinely complex or high value cases”.

Mr Clarke said that the reforms, which largely replicate the recommendations of Lord Justice Jackson’s 2010 review on costs, would ensure that claimants take an interest in controlling the costs being incurred upon their behalf by their representatives.

This review of CFAs has come at a time of raised awareness of the issues regarding claimants’ access to justice in the English courts. This is particularly the case in relation to defamation actions, where success fees under CFAs have often been disproportionately high in relation to the levels of damages awarded. Indeed, on 15 March 2010, Justice Secretary Clarke unveiled the draft Defamation Bill, which refers to the issue of CFAs and the possible abolition of success fees. To read our recent Law-Now on the draft Defamation Bill, please click here. Further, only last week, the first defamation action brought in the UK against a defendant for a defamatory comment made on twitter hit the headlines because of a success fee which was at a level approximately twenty times higher than that of the damages recovered. Please click here to access our Law-Now on this case.

With these reforms, the Government will need to address the concerns that the abolition of the recoverability of CFA success fees and ATE premiums will simply lead to only well-off individuals being able to seek relief in the courts. An appropriate balance needs to be struck between the obvious need to reform the civil justice system in this area, and the need to ensure adequate protection for potential victims of defamatory statements, who may not ordinarily be able to fund a claim. The assumption is that the Government’s proposals will be implemented in autumn 2012, through primary and secondary legislation, as appropriate.