In this series of blog posts we are looking at the main provisions of the Jackson Reforms and their likely impact on the litigation landscape.
Possibly the most controversial change which has divided the legal profession is the abolition of recoverability of legal insurance premiums and success fees from a losing defendant.
The current regime allows a prospective claimant to bring what is effectively a ‘risk free claim’. The claimant enters into a ‘no win no fee’ agreement under which it pays nothing to its lawyers if it loses the claim. Conversely, if it wins, both the costs and a success fee (sometimes as high as 100%, reflecting the risk to the law firm that the case might be lost and they don’t get paid) are paid by the losing defendant. The agreement is usually partnered with a legal expenses policy which covers the claimant against the risk of losing the claim and having to pay the successful defendant’s legal costs.
Supporters of the current regime point out that only the most wealthy of prospective claimants can afford to fund their own legal expenses and that this system allows a claimant with a strong claim access to justice. However critics of the current regime say that the effect of this regime is that the price payable by a losing
defendant has become so high that, even where there are good prospects of successfully defending the claim, defendants are effectively forced to settle the claim rather than face the risk, however small, of paying a winning claimant’s legal costs, success fee and insurance policy premium.
What’s the likely effect?
- The abolition of one method of funding claims has been replaced by a new proposal. From now on, Damages Based Agreements (DBAs) will allow claimants to fund their legal expenses out of their winnings, and we will look at DBAs in more detail in the next post.
- The main effect is that we are likely to see a drop in the volume of issued claims. With the removal of the metaphorical gun to their heads, it is also likely that defendants will start to be more aggressive in their response to prospective litigation, a little safer in the knowledge that claimants will be a little less gung ho about issuing proceedings now that they have to dig into their own pockets to fund them.