The Government's proposals to reform civil litigation funding and costs in England and Wales

The Government will abolish the recoverability of CFA success fees and after the event insurance premiums in all civil claims

Intended to restore a "fair balance to the system", the key reforms for all civil claims that the Government intends to implement are:

• abolish the general recoverability of the CFA success fee from the losing side. Any success fee will have to be met by the CFA funded party, typically out of any damages recovered by a claimant; and
• abolish the general recoverability of ATE insurance premiums. Again, these would have to be met by the insured party.

The Government also intends to increase non-pecuniary general damages in tort cases by 10% (such as pain, suffering and loss of amenity) to assist claimants in meeting any success fee payable. It is not, however, specifically mentioned in the proposals whether this increase would apply to defamation, privacy and intellectual property cases. The preceding consultation paper discussed only increasing damages for pain, suffering and loss of amenity in personal injury cases and did not respond to or comment on Lord Justice Jackson's specific recommendation to increase damages in defamation and privacy cases by 10%. On the other hand, the current paper says that the Government supports the increase in damages for non-pecuniary loss such as pain, suffering and loss of amenity in all tort cases.

Contrary to what the Jackson report recommended in January 2010, there is now no intention to introduce a qualified one way costs shifting regime for defamation claims (although it will be introduced for personal injury cases). Introducing this regime would have meant that an individual claimant would not be at risk of paying the defendant’s costs should the claim fail (except in limited circumstances relating to the claimant's behaviour and financial means), but that the defendant would have to pay the individual claimant’s costs should the claim succeed.

The maximum permissible success fee under a CFA will remain at 100% of base costs, contrary to the previous Government's suggestion of reducing the maximum to 10%.

Changes will also be introduced to the Part 36 (offers to settle) regime (for all civil cases) to equalise the incentives between claimants and defendants to make and accept reasonable offers. The details of this reform will be subject to further consultation. For now, it will be made clear that where a money offer is beaten at trial, by however small a margin, the costs sanctions applicable under Part 36 will apply. An additional sanction (10% of the value of the claim) will be introduced to be paid by defendants who do not accept a claimant's reasonable offer that is not beaten at trial.

Further, damages-based agreements will be allowed in all civil litigation. These agreements (or contingency fee arrangements, as they are also known) will allow lawyers' fees to be related to the damages obtained, rather than the work done. These will provide an additional form of funding for claimants, particularly in commercial claims.

Read the Government's proposal in full, and its earlier consultation document.

Comment

These reforms are intended to remove the disproportionate cost burden often faced by defendants. The prospects of the "super claimant", armed with a CFA with a substantial success fee, ATE insurance and third-party funding, being able to hold a defendant to ransom will be reduced.

Claimants can still instruct their lawyers on the basis of CFAs but now only the base costs are recoverable from an unsuccessful defendant. The reforms should re-introduce some incentive for claimants to control the level of costs incurred on their behalf: the level of the success fee they would now be liable to pay will be proportionate to the recoverable (and controllable) base costs i.e. the higher the base costs, the higher the success fee which they would have to pay.

The Government acknowledges that there is much more to be done in addressing high costs in civil cases, particularly in relation to case management, but for, now, these changes will follow as soon as Parliamentary time allows.

For intellectual property cases, some of these costs concerns have already been addressed with the introduction of the revised Patents County Court procedures. These offer a potential solution to the issue of high litigation costs for the right type of cases. The first decision under this revised regime, involving Dame Vivienne Westwood OBE represented by Taylor Wessing, is available here.

Lawyers Niri Shanmuganathan, Adam Rendle