UK: The Jackson Reforms (6 Months On)

Last Updated: 15 November 2013
Article by Davenport Lyons

Changes To The Litigation Landscape

On 1st April 2013 a big bang echoed through our civil justice system.

Through a combination of legislation, regulations and rule changes, a number of significant reforms were implemented to the way in which litigation is to be conducted in England and Wales. These reforms are collectively known as the "Jackson reforms". In particular, the reforms impacted upon the way in which litigation may be funded.

Client's perspective

The major changes from the client's perspective are

  • The encouragement of third party litigation funding.
  • The introduction of damages based agreements.
  • The new requirement in most types of cases for the recoverable costs of litigation to be identified in the form of a detailed costs budget, to be approved by the Court, at a very early stage of litigation.
  • The ending of "no win no fee" cases with large success fees payable by the losing party.
  • The ending of the recoverability of After the Event Insurance premiums from the losing party.

Third party litigation funding

There is no getting away from it, litigation is costly and, despite the reforms, will continue to be so. Litigation, by its very nature is also inherently risky.

The potential cost of litigation, and the risk of adverse costs orders, in the event of losing a case, are often significant factors in determining for a client whether or not a claim is worth pursuing

There is, however, an ever growing professional litigation funding market which is dedicated to providing claimants with the opportunity and means to mitigate the costs and risk of pursuing a claim. With the advent of the Jackson Reforms, Davenport Lyons has tapped into that market to increase the litigation funding options available to its clients, beyond the usual "time costs fees ".

There are a variety of models offered by such funders which are designed to provide the opportunity to claimants to pursue claims, typically ones which have a 50% or greater chance of success, without the claimant having to fully fund the costs of the claim.

A major attraction of such funding arrangements is that the lawyers; the clients; and the funders all have an interest in the outcome of the litigation. They all have "some skin in the game".

  • The client will have the opportunity to bring its claim and recover the amount of its claim and a contribution of its costs from the losing party. The client pays only a proportion of the lawyers' costs as the case proceeds and is usually substantially or totally protected by ATE insurance against the opponent's costs if the case goes wrong and adverse costs orders are made.
  • The funders pay a proportion of the lawyer's costs and some disbursements, such as court fees and counsel's fees, as the case proceeds.
  • The lawyers defer payment of the balance of their costs to the end of the case.

If the case is successful, from the resulting damages or payment (augmented by 10% in some cases) and the recovered costs:

  • The funders take a fixed percentage, plus they are refunded the amount of their outlay on costs and disbursements;
  • The lawyers take the balance of their costs; and
  • The client takes the rest.

If the case is unsuccessful

  • The funder's get nothing;
  • The lawyers forego the unpaid balance of their legal fees; and
  • The client loses the amount that they have paid to the lawyers but they are protected from paying the winning parties' costs by the ATE insurance.

Damages Based Agreements (DBA)

Lawyers are now permitted to enter into DBAs with clients in relation to almost all types of contentious claims (except family and criminal). A DBA is a contingency based fee agreement.

Although we do not anticipate that many of Davenport Lyons' clients would benefit from entering into a DBA if other funding options are available to them, nevertheless, in appropriate cases, we are willing to explore with our clients working under a DBA. DBAs are not being embraced by the profession as a whole and there are uncertainties, from a regulatory standpoint, about complying with conduct rules on treating clients fairly and acting in the best interest of clients which may be hard to judge when discussing funding options at the outset of a case. The regulations governing DBAs are already under review.

Under a DBA we are permitted to claim a percentage of a client's award of damages as our fee if the client is successful and no fees if the case is lost.

The maximum permissible percentage of an award which we are able to claim in most cases is 50% (25% in personal injury cases).

Conditional Fee Agreements

Conditional fee agreements (CFAs) are agreements under which a lawyer is able to charge a success fee in addition to its normal or base fees where a case is successful. We have worked very successfully under such agreements for our clients in the past, usually in conjunction with ATE cover. Historically under such agreements we have charged our clients a percentage of our base fees only until the case is concluded and recovered the balance and our success fee as well as the ATE premium from our client's losing opponent.

The changes made since 1st April 2013 now preclude lawyers from recovering the success fee (in most types of case) and the ATE premium from the losing opponent but we will still be able to recover a substantial proportion of base costs.

In our view this will not preclude our clients from seeking to enter into CFAs with us in appropriate cases. Clients will have to accept that they will be responsible for any success fee from their recovery in a successful claim and for the balance of the lawyers' fees (although a substantial proportion of the base fees should be recoverable from the losing party).  

ATE providers are already altering their pricing structure for their products to make ATE affordable. They are still willing to defer payment of the ATE premium to the end of the case. They are also improving access to their products by permitting lawyers, including the Dispute Resolution team at Davenport Lyons, to write ATE policies under delegated schemes.

Costs Budgeting & Management

Under the new regime, parties on both sides of litigation, in the majority of cases, will now be obliged to prepare and file with the court a detailed costs budget across the various phases of case preparation up to and including trial. Costs budgets will be subject to a new test of whether or not they are proportionate to the actual amounts at stake .This may have the effect of "levelling the playing field " where claimant and defendant have unequal resources to devote to litigation.

Costs budgets once prepared and approved by the Court will substantially fix, many months in advance of any trial, the level of recoverable costs that can be claimed from the losing party.

As a result, both parties will be able to see from an early stage both the amount of their likely costs recovery from their opponent in the case of a win and the level of their likely financial exposure if they lose. They will also be able to understand the likely costs increases over the life of a case and be able to judge their exposure at any stage in the context of settlement offers or discussions.

By this means, costs conscious and risk aware clients will have a valuable yardstick as to the overall potential costs of litigation and, in the case of claimants, a benchmark for the correct level of ATE cover where such risk protection insurance is required.

Conclusion

Many claims which may have previously been "shelved" on grounds of affordability, merit and risk should now become much more affordable and a risk worth taking,  as cases can be run at less than full cost; costs exposure can be scoped out much more accurately at an early stage and appropriate ATE cover put in place.

If you have a claim which you may have deferred bringing for reasons of affordability and risk, NOW may be the time to discuss with us the possibility of bringing the claim with the benefit of third party funding, DBAs, CFAs and with the benefit of proportionate and affordable ATE cover.

We are happy to discuss and explore your options with you.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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