The Government’s plan for reducing legal aid was recently confirmed with the publishing of the Legal Aid, Sentencing and Punishment of Offenders Bill. The Bill has now passed its second reading and will progress through the committee stage over the summer. The Government has also made clear that it will implement Lord Justice Jackson’s recommendations to cut civil litigation costs. It is expected that the legislation will come into force in Autumn 2012.

The Bill

The Bill as currently drafted contained few surprises, as it includes the majority of the proposals set out in Jackson LJ’s report (other than those relating to one way costs shifting in personal injury matters, which will be considered separately at a later date).  

The key provisions include:  

  1. The abolition of the recoverability of success fees and associated costs in ‘no win, no fee’ conditional fee arrangements (Clause 41).  

This will be achieved by shifting the costs burden away from defendants by no longer permitting claimants to recover success fees from a losing party. Instead, claimants will be required to pay their own lawyers’ success fees, an obligation that will most likely be met from damages.  

  1. The abolition of the recoverability of After The Event (ATE) insurance premiums (Clause 42).  

ATE premiums receive the same treatment in the Bill as success fees, meaning that claimants will no longer be able to recover premiums from a losing party, except in limited amounts for personal injury matters.

  1. Introducing the possibility of claimants entering into Damage Based Agreements (DBA) with their lawyers (Clause 43).

This is the first time entirely contingent fees have been permitted in relation to civil litigation work, having previously only being allowed in relation to non-contentious and employment tribunal matters. Interestingly, whilst in personal injury and employment matters the percentage of damages lawyers can receive as fees are capped at 25% and 35% respectively, there is no indication in the Bill that any such cap will apply to DBAs entered into for other types of civil litigation.  

  1. Addressing criticisms of the Part 36 regime as highlighted in Jackson LJ’s report (Clause 51).

The Government’s intention (as set out in the response document published earlier this year) was “to equalise the incentives between claimants and defendants to make and accept reasonable offers”. Accordingly the Bill includes a provision for claimants to receive an extra percentage-based sum from the defendant if they are successful in beating a Part 36 offer at trial. However, the Bill does not specify the level of payment. This will be determined by the Lord Chancellor at a later date and, for money claims, will be capped at a percentage of the claimant’s award.

Further measures effecting the Part 36 regime are expected to be introduced outside of the Bill in the near future. These are likely to provide that when a claimant beats a Part 36 offer, by however small a margin, the full Part 36 costs consequences should be applied.

Conclusion

It was recognised by most parties in the Government’s 2010 consultation that the current litigation funding regime could be improved. Despite attempts in recent years to reduce costs of litigation, bringing a claim is still a considerable, and often protracted, financial risk for litigants. Accordingly conditional fee arrangements, particularly when combined with ATE insurance cover, have been an attractive funding solution and have done much to assist those with viable cases without means to pursue them.

Nonetheless the recoverability of lawyers’ success fees and claimants’ ATE premiums has bought about a situation where claims can quickly become ‘unsettleable’ and defendants often complain of being ‘held to ransom’ by the level of costs being incurred to bring a claim.  

The Bill does much in principle to address this situation and seeks to incentivise claimants to control their costs by adopting Jackson LJ’s proposals almost in their entirety. However, as is often said, the devil is in the detail and whilst the Bill is a significant statement of the Government’s intention litigators will no doubt be watching carefully to see how the details of the Bill evolve as it passes through the legislative process. This will particularly be the case in relation to areas such as consequences of Part 36 offers where more clarity would be welcome, as the current provisions leave much to the discretion of the Lord Chancellor, with little indication as to how this may be exercised.