April 2013 sees the biggest shake-up of the civil litigation costs and funding regime since 2000. That was when success fees and premiums became recoverable from the losing party. Apart from the U-turn on that front, what else do you really need to know before the changes take effect in April?

LASPO Act

The Legal Aid, Sentencing and Punishment of Offenders (LASPO) Act 2012 abolishes recoverability, introduces a new form of contingency fee agreement (damages-based agreements or DBAs) and imposes an additional penalty on unsuccessful defendants under Part 36. The Act also removes legal aid for many types of claim and prohibits payment and receipt of referral fees in personal injury cases. Draft statutory instruments implementing the Act have now been laid before parliament – see further below.

Recoverability

After the event insurance premiums and success fees will cease to be recoverable from the losing party.

  • This will not apply to certain insolvency claims until 2015 and there is also a moratorium concerning diffuse mesothelioma claims and publication and privacy proceedings. See The Conditional Fee Agreements Order 2013 for further details.
  • Premiums to cover the cost of expert reports determining liability and causation in clinical negligence cases will still be recoverable.
  • Premiums and success fees will continue to be recoverable where the policy or conditional fee agreement is entered into before 1 April 2013.

Damages-based agreements

DBAs will be extended beyond the scope of employment claims to all civil disputes. The lawyer is paid only if his client succeeds and the payment is calculated as a percentage of the damages awarded to the client. There will be a cap on the payment under a DBA in personal injury cases of 25 per cent of damages (excluding damages for future care and loss) –- the same cap applies to the success fee in personal injury cases brought under a CFA.

A cap of 50 per cent applies to the DBA payment in all other cases (as compared to a 100 per cent cap on the success fee) except in employment cases where the 35 per cent cap remains unchanged. Counsel’s fees are included in the DBA cap. See The Damages-Based Agreements Regulations 2013 for further details.

Costs will be recoverable against opposing parties on the conventional basis (hourly rate and disbursements) and not by reference to the contingency fee. However, the indemnity principle will apply so that a party may not recover, by way of costs, more than the total amount payable by that party under the DBA. See the Civil Justice Council’s report, the government’s announcement on 4 October 2012 and the Civil Justice Reforms webpage for more on this contentious issue.

Appeals

The caps referred to above on the success fee under a CFA or the payment under a DBA only apply to first instance proceedings and not to appeals.

Additional Part 36 sanction for defendants

Defendants who do not accept a claimant's reasonable offer which they fail to beat at trial will be subject to an additional sanction equivalent to 10 per cent of the value of the claim or, for non-damages claims, 10 per cent of costs. It will be tapered down for claims over £500,000 and the maximum sanction is £75,000. See the Offers to Settle in Civil Proceedings Order 2013 for details.

Qualified one-way costs shifting - QOCS

In personal injury cases, including clinical negligence, a claimant will in general no longer have to pay the defendant's costs if the claim fails, but the defendant will continue to have to pay the claimant's costs if the claim succeeds.

Announcements to date indicate that there will be no means test or minimum payment for claimants to qualify for QOCS but that it will not apply where the claim is found to be fraudulent or is struck out. If the claimant fails to beat the defendant’s Part 36 offer, Part 36 principles will defeat QOCS, but the claimant’s liability for costs will be capped at the level of damages recovered.

General damages increase

To make up for the fact that an injury claimant will no longer be able to recover a success fee or premium where they enter into the CFA or take out ATE insurance on or after 1 April 2013, there will be a 10 per cent increase in general damages. The Court of Appeal announced in Simmons v Castle that the increase would apply to judgments given from 1 April 2013. Following a successful intervention by the Association of British Insurers, which argued that the 10 per cent increase should not apply where the claimant has entered into a CFA before 1 April 2013, the court handed down a further judgment revising their earlier guidance as follows:

“With effect from 1 April 2013, the proper level of general damages in all civil claims for (i) pain and suffering, (ii) loss of amenity, (iii) physical inconvenience and discomfort, (iv) social discredit, or (v) mental distress will be 10 per cent higher than previously, unless the claimant falls within section 44(6) of LASPO."

CPR changes with effect from April 2013

  • The costs management pilots will be extended by CPR 3 to all multi-track cases in the county court, Chancery and QB Divisions begun on or after 1 April 2013. This does not apply to the Commercial and Admiralty Courts.
  • Relief from sanctions will become harder to obtain (see new CPR 3.9 in Fred Perry Holdings Ltd v Brands Plaza Trading Ltd).
  • New disclosure rules will apply – see proposed changes to CPR 31.5.
  • The new tougher proportionality test recommended by Jackson LJ will apply to the assessment of costs.

What do we not yet know?

Much of the detail since the consequential amendments to the CPR has not yet been published and the statutory instruments, aspects of which are highly contentious, have not yet been approved by parliament.

Precisely how caps on payments to lawyers under DBAs will work. In particular, can a DBA entitle the lawyer to base costs as well as a DBA payment to avoid problems with the indemnity principle? And will a lawyer be able to enter into a partial or hybrid DBA where a reduced hourly rate is payable whatever, plus a contingency fee in the event of success?

  • The transitional provisions for QOCS - will QOCS apply to all claims issued from 1 April 2013, including claimants who have taken out ATE insurance before that date?
  • The transitional provisions for the new Part 36 sanction – will it apply to offers made before April 2013?
  • Details about implementation of the ban on referral fees in personal injury cases.
  • What will happen to the plan to extend the RTA fixed fee portal to road traffic cases worth £25,000 and to employers’ and public liability (EL/PL) claims, now that the April deadline has been abandoned?