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MAY 2011

On 29 March 2011 the government announced that Lord Justice Jackson’s civil costs reforms will be implemented in full which will give rise to a radical shake up of how civil litigation is funded. This note highlights some of the potential winners and losers following implementation.

Defendants and their insurers may be the most pleased with the proposed changes, particularly in respect of personal injury claims. One of the more radical recommendations is that the right to recovery of success fees and after the event insurance (“ATE”) premiums in litigation involving conditional fee agreements, (“CFAs”; i.e. “no win no fee agreements”) should be abolished. This will mean that in cases where the Claimant is party to a CFA (including most personal injury claims) the success fee charged by the solicitor and the ATE premium would be borne by the Claimant, not the Defendant, thereby eating into any damages recovered. Whilst the benefit is clear to the Defendant, on the face of it this may diminish the appeal of such arrangements for Claimants.

Lord Justice Jackson has sought to mitigate the effect of this by proposing an increase of 10% in general damages in personal injury cases together with a recommendation of “qualified costs shifting”. This would mean that a Claimant would not be required to pay a Defendant’s costs if the claim fails in personal injury, clinical negligence, judicial review and defamation cases. This would be subject to a qualification of reasonableness and an assessment of a Claimant’s means (the Defendant, however, would have to pay the Claimant’s costs if the claim is successful). Some critics argue that these measures will probably do little to offset the abolition of recovery of success fees and ATE premiums, whilst others argue that this is a step towards striking a fair balance between competing parties.

The qualified costs shifting rule may result in an increase of previously unmeritorious claims being brought in relation to the four categories of cases mentioned above, and may result in an increase in litigation involving non-CFA type Claimants who were previously deterred by the risk of an adverse costs order. It is also worth mentioning that those involved in supplying ATE insurance to the market will no doubt be concerned as the concept of cost-shifting means that there will cease to be a strong need for ATE. Intermediaries who currently charge referral fees in personal injury cases, (which will now be banned), will also lose out.  

Lord Justice Jackson has recommended setting costs in fast track litigation, (i.e. cases with a value of up to £25,000.00). The implementation of a regime of relatively low fixed costs is intended to lead to the introduction of certainty in terms of the amounts that can be recovered in the event of success, or paid to the other side in the event of failure. This element of certainty allows businesses, for example, to better forecast their finances when it comes to costs, (which can have a dramatic impact of cash-flow), and this knowledge will no doubt be reassuring.

Another recommendation in the review was that solicitors should be permitted to enter into Contingency Fee Agreements. Under such agreements solicitors are only paid if a claim is successful, normally receiving a percentage of actual damages won. This provides a potential opportunity as this will enable the solicitor to act on a no win no fee basis, based solely on the value of the damages recovered rather than the time incurred (as would be the case with CFAs). This should enable litigation to be conducted proportionately in cases where there is high confidence of success.

In conclusion, the Jackson Reforms are far reaching and the fact that the government has announced that it proposes to implement them in full will mean a radical shake-up of civil litigation costs. It remains to be seen precisely how the reforms will be implemented in practice but there will inevitably be winners and losers. 

Craig Walker
Partner

If you would like any further information about the issues raised in this article please contact Craig Walker (cwalker@gdlaw.co.uk), or any other member of Goodman Derrick LLP’s dispute resolution team on 0207 404 0606.

This guide is for general information and interest only and should not be relied upon as providing specific legal advice.