Legislative changes to the way the costs of litigation can be recovered from unsuccessful opponents are expected to come into effect in April 2013.  Any claims which your business currently has in prospect should be reviewed without delay, to ensure that there is the opportunity to resolve those claims before the benefits of the existing arrangements are lost.

What is changing?

The Legal Aid, Sentencing and Punishment of Offenders Act 2012 introduces a wide range of reforms to the justice system. One of those reforms will be to bring an end to the recovery of certain types of litigation costs, presently referred to as ‘additional liabilities’, from the unsuccessful party to a claim.

When advising clients on their options for funding a prospective claim, we will explore with them whether the matter is suitable for a Conditional Fee Agreement (CFA), sometimes referred to as a ‘no win no fee’ agreement. An integral part of a CFA is known as the ‘success fee’, triggered if our client succeeds in the claim. Subject to some Court assessment, this success fee is (presently) recoverable from the opponent along with the client’s other costs.

In cases where we act under a CFA, and in some other cases, it is also appropriate to consider whether an After The Event insurance policy should be taken out, to cover the risk of having to pay the opponent’s costs (and sometimes own disbursements) in the event that the litigation is not successful.  A premium is payable for that ATE insurance – usually deferred until the end of the case and only payable on success – when again, at present, it can be recovered from the unsuccessful opponent.

CFA success fee and ATE insurance premiums will not be recoverable from the unsuccessful party for any arrangements entered into after 01 April 2013.

Why do these changes affect you and your business?

The reforms are a significant departure from the present rule – which is that the loser can expect to pay some or all of the winner’s costs, including additional liabilities –  and will mean that even successful litigants will need to dip in to their own pockets to meet these additional liabilities in future.

The changes will mean that many claims become significantly less commercially attractive to pursue, are only pursuable at significant additional adverse cost risk, or even become altogether uneconomic.

Consider these issues now

By taking advice in good time before the reforms come in to effect, you can ensure that all possible funding options are open to you, including those that will be lost altogether or become significantly less attractive on 01 April 2013.

Whilst not all cases are suitable for a CFA or for ATE insurance, it is certainly worthwhile investigating all of the funding options that might be available before some of them are lost. The reforms also introduce a new kind of funding arrangement called a Damages Based Agreement (DBA), which will become available from 01 April 2013. We can discuss with you how DBAs will work and whether your case might be suitable for a DBA once they become available.

It is anticipated that as the deadline approaches there will be a significant surge in applications for ATE insurance that risks overwhelming brokers and underwriters. It is therefore important not to wait until the last minute and to take advice on any current issues sooner rather than later.

Courtesy of Thames Valley Business Magazine March 2013