18 November 2010
Paul Edwards, head of costs, provides a summary of the Government's proposals.
On Monday 15 November, the Government put forward their proposals to reform civil litigation funding and to implement Lord Justice Jackson's recommendations. At the same time, the Government also put forward proposals for the wholesale reform of legal aid. The proposals follow hard on the heels of Lord Young's report dealing with the perceived 'compensation culture' which recommended cracking down on claims management companies and trying to restrict their advertising.
The proposals have attracted a lot of adverse publicity because the extent of the legal aid cut-backs is likely to result in a funding vacuum for many claimants. For example, it is suggested that legal aid funding is not justified in clinical negligence cases because CFAs are likely to be more readily available in these cases. Yet at the same time it is proposed to make CFA success fees and ATE insurance premiums irrecoverable, reducing the chances of claimants being able to rely upon CFA funding to proceed with their claims. As is pointed out, legal aid has contributed towards NHS costs and the reforms will be welcomed by defendants because fewer claims are likely to get off the ground and in successful cases lower fees will be recoverable. Perhaps the only fly in the ointment for defendants would be the possibility of Qualified One Way Costs Shifting being introduced, which could encourage unmeritorious claims.
There is no doubt that should the primary proposals be implemented then this will amount to a revolution and major shift in the balance of power from claimants to defendants. However, the consultation does include the alternative options suggested by Jackson and certain 'refinements' which may yet still throw a spanner in the works. We therefore focus on the main alternative proposals, which are as follows:
1. CFA success fee recoverability - the Government states that it is aware of concerns regarding this proposal. It is suggested that in non-damages cases, the defendant could still be liable for a maximum 25% success fee, and that the success fee could remain fixed in certain cases such as road traffic and employers' liability.
2. ATE insurance premium recoverability - the Government states that a possible refinement might be claimants being able to continue to insure themselves or that solicitors might fund the disbursements in return for an increased success fee (but not above 25% in personal injury cases). Alternatively, it is suggested that the costs of ATE insurance premiums in respect of disbursements could continue to be recoverable (but only non-legal representation costs). Under these proposals, unions would not be able to claim the self insurance element currently recoverable by prescribed membership organisations.
3. 10% increase in general damages - the Government suggests a refinement whereby a success fee would continue to be recoverable calculated as a sum equal to 10% of the general damages award, so as to remove an anomalous change to the basis upon which damages are calculated. Another issue raised is whether a 10% increase would be sufficient in certain circumstances. The suggestion that claimants should receive their damages free from deductions is dismissed as impacting disproportionately on defendants' access to justice.
4. Part 36 offers - a refinement is proposed whereby certainty is introduced as to when the Part 36 sanctions will apply, by linking the trigger point for Part 36 sanctions to a value range rather than an exact figure, such as a 10% range.
5. Qualified one way costs shifting (QOCS) - in order to introduce certainty, it is proposed to introduce a presumption in personal injury claims that the claimant would not be liable to pay the defendant's costs unless the court orders otherwise. If QOCS was to be introduced in more types of claims, it is proposed to introduce a fixed amount of costs which the claimant might have to pay, unless the claimant persuaded the court that it is reasonable not to have to pay. The Government considers that QOCS should apply in personal injury claims and defamation/publication proceedings, but not extended further.
6. Damages Based Agreements (DBAs) - in terms of DBAs the paper retains Lord Justice Jackson's proposal that litigants should be entitled to advice from an independent solicitor before they can enter into a valid DBA. It appears to be assumed that the litigant or their solicitor will pay for this, but in our view this could be unworkable because the independent solicitor would have to review the documentation in full in order to give impartial advice as to the DBA.
7. Solicitors' client account interest - buried in the legal aid funding paper is the suggestion that solicitors should not be allowed to profit from money held in client accounts. Instead this would be remitted to the Government to contribute towards the legal aid fund, which appears particularly unfair to firms who do not deal with legal aid/litigation matters and when the legal market is being liberated by the introduction of ABSs. The Government is also considering introducing a Supplementary Legal Aid Scheme whereby successful legally aided claimants would have to contribute some of their damages to the legal aid fund.
The paper does detail Lord Justice Jackson's two alternative packages in respect of recoverability, to include the success fee remaining recoverable, but states that the Government believes that the more fundamental changes set out in the primary proposals are needed.
The consultation runs until 14 February 2011 so there is plenty of time for the debate to continue to rage between claimant lawyers, defendant lawyers and insurers. We will shortly circulate a more detailed analysis of the proposals. There are 60 consultation questions in the Civil Funding paper to respond to and in formulating our response, we would welcome any observations or comments on the proposals which you may have.
If you have a particular query or issue, please contact:
Head of Costs
+44 (0)151 600 8839