The Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO) received Royal Assent on 1 May 2012. It has adopted the recommendations made by Lord Justice Jackson inhis "Review of Civil Litigation Costs: Final Report" published in December 2009.

LASPO will affect the types of litigation which construction firms are involved with. In this fourth and final part of our alert series on key litigation risks for construction businesses, we consider the effect of the "Jackson reforms" on the funding of personal injury claims which will come into effect on 1 April 2013. Our experts also analyse two important changes affecting health and safety, environmental and other criminal prosecutions.

Costs in personal injury claims

In a well known report published in December 2009 at the Government's request, Lord Justice Jackson proposed a number of reforms to the funding of litigation. Our health and safety update issued last November considered some of the changes affecting defendants in personal injury claims.

Under the reforms, conditional fee agreements (CFAs) and after the event (ATE) insurance remain available as methods of funding litigation. However, from 1 April 2013 the success fee payable under a CFA and premium payable for ATE insurance will no longer be recoverable from the unsuccessful party. Further, in personal injury cases, the CFA success fee will be capped at 25% of general damages awarded to a claimant.

To compensate for these changes, the damages awarded to claimants for pain, suffering and loss of amenity will increase by 10% from 1 April 2013. Also, qualified one-way "costs shifting" will be introduced; the effect being that an unsuccessful personal injury claimant can no longer be required, as a rule, to pay the defendant's costs.

One result of these changes is that CFAs and ATE insurance are likely to become less popular. So, following Lord Justice Jackson's recommendation, LASPO introduces damages based agreements (DBAs). DBAs in personal injury cases allow a successful claimant's lawyer to take up to 25% of the claimant's damages (excluding those for future losses and care) to cover its fees.

The claimant's lawyer's standard fees (and other costs) as assessed by the Court or as agreed, are still paid by the defendant. However, the claimant must pay any fees in addition to this up to the limit of the DBA fee agreed.

Placing the onus on the claimant to pay the success fee and insurance premium will reduce the defendant's exposure to the claimant's costs. Those costs are expected to significantly reduce even further from July 2013 for claims under £25,000 in value. At that point in time, a new pre-action protocol takes effect, introducing limited fixed fees for claimants where a defendant admits liability and deals with a claim within the protocol's strict terms.

You need to be ready if you are to take full advantage of the introduction of the new protocol in July. It will be important to prepare new strategies to minimise the impact of the one way cost shifting under which defendants will generally not receive costs in injury cases, win or lose.

Early low offers to settle claims, even when you anticipate you will win, are worth considering. This is because if rejected and a claimant fails to beat the offer, then provided the offer has been made under the provisions of Part 36 of the Civil Procedure Rules, costs will 'shift back' so that a claimant does have liability to pay your costs.

The effectiveness of this method is of course dependant on a claimant's ability to meet any award of costs, especially as they are less likely to have ATE insurance in place.

Costs in criminal cases

An important change to the criminal costs regime was introduced by LASPO with effect from 1 October 2012. Construction companies or senior managers may be forced to defend criminal prosecutions for a range of offences, for example under health and safety or environmental laws.

For many years, a successful defendant could claim its legal costs back from the state. In the past we have recovered substantial sums after successfully defending prosecutions or winning appeals against sentences. Schedule 7 of LASPO means, however, that this is now largely a thing of the past.

For prosecutions brought since 1 October 2012, acquitted companies cannot claim their defence costs, apparently no matter how unmeritorious the prosecution. This applies to all courts except the Supreme Court. For individuals, costs in the Magistrates Court can only be recovered at legal aid rates - likely to be significantly lower than the costs of private representation. In the Crown Court and Court of Appeal, individuals cannot recover costs at all.

Removal of cap on liability in the Magistrates Court

The standard scale of maximum fines in the Magistrates Court has remained unchanged since its introduction in 1980, despite the Secretary of State having power to increase it. However, from a date yet to be decided all fixed maximum fines of £5,000 or greater will become unlimited. Offences with maximum fines of less than £5,000 are unaffected at this stage, although the Secretary of State will have powers to increase these.

There is no sign that the changes will come into force imminently and secondary legislation will be required to deal with some of the detail. The aim seems to be to keep more cases in the Magistrates Court. We wonder if in fact this will be the outcome.

Defence strategy in criminal cases has often been to try and keep a matter in the Magistrates Court (rather than the Crown Court) only because of its limited sentencing powers. With the removal of the cap, defendants may elect for a hearing before an experienced qualified Crown Court judge who better understands the issues, rather than a lay Magistrate. It remains to be seen whether some disincentive to such a strategy will be suggested to counter this.

Conclusion

The changes will have a significant impact on injury compensation claims, defended health, safety and environmental prosecutions and to a lesser extent on undefended prosecutions. If ready for the changes, you are likely to be able to make a considerable saving on your claims expenditure. For those with high deductibles or captive insurance arrangements, this saving will go straight to the bottom line. For those whose insurers carry the risk, it is important to start negotiating now for a substantial discount on future premiums.

Our safety, health and environmental litigation experts can consider alternative strategies with you in light of these changes. They will ensure any chosen approach is appropriate to your business and its risks and delivers maximum benefit from the outset.

This alert was written by members of our safety, health and environmental litigation practice, who work closely with Wragge & Co's specialist Engineering and Construction team. This 30-lawyer team of engineering and construction specialists advises developers, employers, funds, end users and contractors on a wide range of matters. With dedicated contentious and non-contentious experts and a highly commercial, sector-focused approach, it is well-equipped to handle any potential issue affecting the industry.