Recent developments

Lord Jackson's long awaited litigation funding reforms have finally been enacted. With the aim of bringing litigation costs under control and making them more equitable, the funding reforms will come into force in April 2013 when CFA success fees and ATE insurance premiums will no longer be recoverable from opponents (with exceptions), effectively taking us back to the position before the Access to Justice Act 1999.

Parties will however, be able to finance their actions using Damages Based Agreements (DBAs), effectively US style contingency fee arrangements. Crucially, these agreements will be based upon and paid for from the awarded damages.

These significant changes to litigation funding will have a major impact upon the personal injury and product liability litigation landscape. For the moment, the impact on clinical negligence cases, and mesothelioma claims- which the Government is still reviewing, will be more limited.

Implications for all litigants

Claimants and defendants alike will need to review their litigation funding strategies and determine whether CFAs, ATE insurance, DBAs, or indeed third party funding options best suit their needs, taking into account the circumstances of the litigation. Failure properly to consider the cost implications of the case may well lead to an expensive pyrrhic victory.

What the law says

The Legal Aid, Sentencing and Punishment of Offenders Bill containing a number of Lord Jackson's long awaited litigation funding reforms, was finally given Royal Assent on 1 May. Whilst not automatically clear from the title, the Legal Aid, Sentencing and Punishment of Offenders Act 2012 ( the Act), is intended to level the playing field faced by defendants who are currently at risk of disproportionately high costs when defending claims brought under CFAs.

The changes to CFAs and ATE insurance are not retrospective and will concern only those agreements and insurance policies taken out after the relevant sections of the Act come into force in April 2013.

Under the Act, from April 2013:

  • Those receiving CFA funding will be responsible for the CFA success fee, which in personal injury cases will be capped at 25% of the damages. The Act abolishes recoverability from opponents;
  • Those insured will be responsible for the ATE insurance premium, as the Act abolishes recoverability from opponents, save for in certain circumstances involving clinical negligence actions;
  • Non-pecuniary tort damages (pain and suffering etc) will be increased by 10%, largely to 'compensate' claimants for the loss of success fee and ATE premium recoverability;
  • DBAs will for the first time be allowed in civil litigation ( they are currently permitted in only certain employment cases). We await further guidance from the Lord Chancellor on how DBAs will work in practice, for example whether a cap will be applied such as is the case in employment actions; 
  • The rules governing enhanced recovery under CPR Part 36 settlement offers will change so that the losing defendant will be liable for a percentage 'uplift' based upon the amount recovered by the successful claimant. Again, guidance is awaited from the Lord Chancellor on how this will work in practice, however it is envisaged that the 'uplift' will be in the region of 10% of the sum awarded.    

Conclusion

  • Clients should review their funding requirements and ensure that they are adequately protected and prepared for the changes.
  • Careful drafting and application of DBAs is needed, in order to be enforceable DBAs need to be in writing and used only where a CFA may instead be used.  
  • Due to the increased penalties to be associated with Part 36 offers, claimants will need to carefully consider when and how to phrase the offer and defendants will need to carefully consider how to respond.  
  • The changing landscape remains uncertain in terms of:
    • timing- it is not yet certain that all of the above provisions will be brought in during April 2013, there may yet be a phased introduction; and
    • application-
      • will caps apply to the Part 36 'uplift' and if so at what level?
      • similarly will caps apply to DBAs and if so at what level?

The Act is available by clicking here.