- First rise this century!
- New breed of 'third-party' funding products lowering barriers to litigation
- Personal injury and clinical negligence proceedings up as insurers get tougher on payouts
The number of civil law cases launched in the High Court jumped by a quarter last year - the first increase since the implementation of the Woolf reforms in 1999 triggered a steady decline, says Reynolds Porter Chamberlain LLP (RPC), the City law firm.
At 61,691 last year compared to 49,442 in 2005, the number of High Court commercial law cases is now at its highest for six years, reveals RPC's review of the latest Judicial Statistics, obtained exclusively from the Ministry of Justice in advance of official publication.
First economic stress test for Woolf reforms since introduction
Commenting on the statistics, Jonathan Wyles, Senior Solicitor at RPC points to increasingly challenging economic conditions, which he says underlie the upturn in the amount of commercial litigation being initiated.
For example, by far the biggest increase came from the number of Companies Court proceedings initiated in the Chancery Division, which jumped 54% from 15,079 in 2005 to 23,215 in 2006. The Companies Court deals predominantly with company liquidations, including winding-up petitions and claims to prevent individuals from becoming, or continuing as, a director or manager of a company.
Although the number of corporate insolvencies has not notably increased, creditors' concerns over the future state of the economy means they are fighting more aggressively for outstanding debts. Lawsuits related to debt initiated in the Queens Bench Division in London alone increased by 14% from 863 to 988 and claims for breach of contract rose by 22% from 575 to 700.
Says Jonathan Wyles, "Having been highly successful up until now in reducing litigation by encouraging parties to settle out of court, the Woolf reforms are suffering their first real economic stress test. The comfortable plateau that had been reached has suffered a shockwave."
He explains, "Since the Civil Procedure Rules came into force in 1999, the real economy has been robust, save for the immediate consequences of 9/11. However, in the last year or so before this summer's credit crunch, signs of tightening had already started to appear in the market. Financial squeezes always tend to cause an upturn in disputes and litigation, and these statistics suggest that this time it's no different."
Jonathan Wyles says that the impact of changes to the Enterprise Act which came into force in 2003 filtering through is likely to have exacerbated the risk of legal proceedings being launched against companies in financial difficulties. This widened the role of administrators to enable them to act for unsecured, as well as secured, creditors.
Says Wyles, "Unlike other kinds of disputes, when it comes to recovering monies, often there is no choice but to issue proceedings. So while the Woolf reforms may be effective in speeding the process up in these kinds of cases, there's little they can do to prevent litigation being initiated in the first place."
"Even recent significant increases in court fees in 2005 have not acted as a dampener, so whether further fee increases introduced last month will have any impact is uncertain. But with the credit crunch still continuing, and the recent introduction of the new regime for derivative actions (claims by a minority shareholder on a company's behalf), we have yet to see whether the jump in commercial cases last year is the start of a sustained upswing."
New breed of 'third-party' funding products lowering the barriers to litigation
Jonathan Wyles adds, "One of the key drivers in reducing litigation following the Woolf reforms was that the cost of litigation became front-loaded. Since claimants had to meet much of the cost of pursuing a claim at a very early stage, those in a less financially strong position may have been deterred."
"Now however, new types of litigation funding products are increasingly being made available, so in effect the barriers of entry to litigation are being lowered again. Just as the introduction of 'no-win, no-fee' claims stoked up the numbers of personal injury claims by individuals, now similar, albeit more sophisticated, types of products are on offer in the broader commercial law sector."
Under the new litigation funding products, a third party typically covers the cost of a legal action, in return for a share in any successful claim. For example, a £90m claim was filed in the High Court late last year against accountants Moore Stephens and financed by IM Litigation Funding. Other, more mainstream institutions are now entering the market: for instance corporate advisers Smith & Williamson already provide litigation funding and insurer Allianz is also reportedly launching a third party litigation fund.
Personal injury and clinical negligence proceedings increase as insurers toughen up on payouts
Claims for clinical negligence in London alone rose to 481 in 2006 from 351 in 2005, according to RPC. Personal injury actions increased from 716 to 914.
The impact of tightening margins in the insurance market post-Katrina also appears to be having an impact on personal injury and clinical negligence claims," says Wyles. "Insurers are scrutinising claims more vigorously than ever before. This means claimants are increasingly having to put pressure on them by issuing proceedings."