Six months to go before the biggest shake-up of the civil litigation costs and funding regime since 2000. That was when success fees and premiums became recoverable from the losing party. You’ve realised that there’s been a U-turn on that front but what else do you really need to know before the changes take effect in April 2013?
The Legal Aid, Sentencing and Punishment of Offenders (LASPO) Act 2012 abolishes recoverability, introduces a new form of contingency fee agreement (damages based agreements) and imposes an additional penalty on unsuccessful defendants under Part 36. The Act also removes legal aid for many types of claim and prohibits payment and receipt of referral fees in personal injury cases.
After the event insurance premiums and success fees will cease to be recoverable from the losing party.
- This will not apply to claims by liquidators, administrators and trustees in bankruptcy until 2015 and there is a moratorium concerning mesothelioma claims.
- Premiums to cover the cost of expert reports in clinical negligence cases will still be recoverable.
- Premiums and success fees will continue to be recoverable where the policy or conditional fee agreement is entered into before 1 April 2013.
Damages based agreements
DBAs will be extended beyond the scope of employment claims to all civil disputes. The lawyer is paid only if his client succeeds and the payment is calculated as a percentage of the damages awarded to the client. There will be a cap on the contingency fee in personal injury cases of 25 per cent of damages (excluding damages for future care and loss) and a cap of 50 per cent in all other cases (the 35 per cent cap in employment cases will remain unchanged). Costs will be recoverable against opposing parties on the conventional basis (hourly rate and disbursements) and not by reference to the contingency fee. Where the fee agreed under the DBA exceeds what would be chargeable on the conventional basis, the claimant will pay that difference from their damages (see the Civil Justice Council’s report, the government’s announcement on 4 October 2012 and the new webpage devoted to the reforms).
Additional Part 36 sanction for defendants
Defendants who do not accept a claimant's reasonable offer which they fail to beat at trial will be subject to an additional sanction equivalent to 10 per cent of the value of the claim or, for non-damages claims, 10 per cent of costs. It will be tapered down for claims over £500,000 and the maximum sanction is likely to be £75,000.
Qualified one-way costs shifting - QOCS
In personal injury cases, including clinical negligence, a claimant will in general no longer have to pay the defendant's costs if the claim fails, but the defendant will continue to have to pay the claimant's costs if the claim succeeds.
Announcements to date indicate that there will be no means test or minimum payment for claimants to qualify for QOCS but that it will not apply where the claim is found to be fraudulent or is struck out. If the claimant fails to beat the defendant’s Part 36 offer, Part 36 principles will defeat QOCS, but the claimant’s liability for costs will be capped at the level of damages recovered.
General damages increase
To make up for the fact that an injury claimant will no longer be able to recover a success fee or premium where they enter into the CFA or take out ATE insurance on or after 1 April 2013, there will be a 10 per cent increase in general damages. The Court of Appeal announced in Simmons v Castle that the increase would apply to judgments given from 1 April 2013. Following a successful intervention by the Association of British Insurers, which argued that the 10 per cent increase should not apply where the claimant has entered into a CFA before 1 April 2013, the court handed down a further judgment revising their earlier guidance as follows:
“With effect from 1 April 2013, the proper level of general damages in all civil claims for (i) pain and suffering, (ii) loss of amenity, (iii) physical inconvenience and discomfort, (iv) social discredit, (v) mental distress, or (vi) loss of society of relatives, will be 10 per cent higher than previously, unless the claimant falls within section 44(6) of LASPO."
CPR changes with effect from April 2013
- The costs management pilots will be extended to all multi-track cases in the county court, Chancery and QB Divisions begun on or after 1 April 2013.
- Relief from sanctions will become harder to obtain.
- The new tougher proportionality test recommended by Jackson LJ will apply to the assessment of costs.
What do we not yet know?
- Precisely how caps on contingency fees under DBAs will work.
- Details concerning the additional sanction for defendants under Part 36.
- Whether the government’s plans to extend the RTA fixed fee portal to road traffic cases worth £25,000 and to employers’ and public liability (EL/PL) claims will be achieved by April 2013.
- How the proposed ban on referral fees in personal injury cases will be implemented.