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Fight now or pay later

Litigation costs reforms tilt balance in defendant’s favour.

The government has recently approved a raft of reforms (recommended within Lord Justice Jackson’s green paper) to rules governing civil litigation costs.  Whilst the reforms are primarily designed to curb perceived excesses within areas of law such as personal injury and libel, they will also have a massive impact upon commercial litigation.

The current system is based upon the ‘loser pays’ principle, which means that a successful party is entitled to recover all of their reasonably incurred costs, including ‘success fees’ and ATE premiums, from their opponent.

Conditional Fee Agreements (“CFA”) provide for solicitors to recover a ‘success fee’ of up to 100% of their normal costs when a case is won, in exchange for accepting a reduction of up to 100% of their normal costs when a case is lost.

After the Event (“ATE”) insurance covers the insured for the legal costs of their opponent in the event of defeat.  Premiums are usually calculated as a percentage of the opponent’s legal costs.

Proposed Reforms

One of the fundamental aims of the reforms is to reduce the overall costs of civil litigation, by redressing the balance between claimants and defendants in favour of defendants.  Primary, this goal is to be achieved by the following measures:

  1.  CFA success fees and ATE insurance premiums will cease to be recoverable from defeated defendants.
  2.  Successful claimants will be liable to pay both their lawyer’s success fees and any applicable insurance premium from their own damages.  This will be subject to a maximum of 25% of any damages award.

Whether or not the proposed reforms reduce the overall costs of litigation, they will almost certainly increase those costs in respect of claimants, whose recovered damages are likely to be cut, in almost all cases, from 100% to 75%.

Perhaps the most revolutionary (and controversial) feature of the new system is that (when compared with the old system) it will financially penalise successful claimants, whose claims are upheld by the courts, and will reduce the financial burden on those parties who are found by the courts to have been at fault.

It is not intended that the reforms will have retrospective effect; therefore, all CFA’s and ATE policies signed up before they are brought into law will remain effective.

The message to claimants is very clear,

“Act now, because if you have a just claim and delay its prosecution, you run the risk of substantially reducing the overall value of your recovery.”

If you wish to speak to one of our litigation experts in regard to a potential claim, please contact Patrick Tedstone or Michael Smyth on 01785 223440 or e-mail Mike.Smyth@orj.co.uk or Patrick.Tedstone@orj.co.uk.