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How new legal reforms could affect you
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Dated:
06/12/2012
Key Contact:
Nagam Din
It all started in January 2010, when Lord Justice Jackson published his 'Review of Civil Litigation Costs: Final Report'. A set of recommendations on updating the recovery and payment of costs, the Jackson findings are currently being implemented by the government.
Then came the "The Legal Aid, Sentencing and Punishment of Offenders Bill (LASPO)". Due in April 2013, LASPO will change how solicitors can charge clients and recover costs from defendants.
Since these changes are likely to affect people's ability to pursue claims on the same footing as opposing parties, such as large corporations or insurance companies, access to justice will be inevitably and severely impaired.
The current system: Conditional Fee Agreements (No Win No Fee)
At the moment you can set up a 'no win no fee' arrangement with your solicitors for a personal injury claim. If your claim is successful, your solicitors would usually want a 'success fee' or percentage uplift on costs. They might also require an ‘After the Event’ (ATE) insurance premium from the losing party, to cover the increased risks in taking up a claim they might not win.
However, after April 2013, success fees and ATE premiums will no longer be claimable from losing parties. Solicitors will also be able to enter into agreements with their clients to pay success fees or 'uplifts'.
After LASPO: Damages Based Agreements and Qualified one-way costs shifting
A Damages Based Agreement (DBA) means that if you win your case, you'll need to pay your solicitor up to a maximum of 25% of your damages. This rises to 35% in employment cases and up to 50% elsewhere.
This means if you win your case, you'll have to top up your own solicitors' costs on the basis of the DBA, even though costs are recovered from the losing party.
The Jackson reforms have also introduced a new rule for costs known as 'One way Qualified costs shifting'. This states that an unsuccessful claimant will not have to pay the defendant's legal expenses, and will apply unless the claim is fraudulent, the claimant was unreasonable or if the case was struck out as an abuse of the court.
What do the reforms really mean for you?
- The changes to success fees recovery seem to be against the general principle of compensation claims, which is that the claimant should receive sufficient damages to return them to the position they'd have occupied had there been no damage. Paying legal costs would obviously make this difficult.
- It could mean that many lawyers won't take the risk of offering conditional fee arrangements, particularly in complex, high-value claims.
- It might be very hard for lawyers to realistically advise their clients (claimants and defendants) on their potential liability for costs if they lose. For example, what is a "reasonable amount" for a party to pay? And how are the parties' financial resources taken into account?
- If costs are only very rarely awarded against a claimant, this could encourage improper and bullying claims and deny access to justice for defendants who feel blackmailed into settling. Qualified one-way costs shifting could actually prove more expensive for defendants than the current system. One way the Jackson reforms suggest compensating clients is to increase compensation by 10%. However, if a claimant has failed to accept a defendant's "adequate offer", the claimant may forfeit the benefits of one-way costs shifting as outlined above. In other words, a claimant would be liable to face a costs order.
- The Dowler family said that without ATE Insurance and the Conditional Fee Agreement as it is now, they would have been unable to start a case, or even threaten it.
- Specialist costs lawyers have predicted that the Jackson reforms will lead to a rise in costs disputes between solicitors and their clients, as well as demands for help with costs management.
- Most small business litigation against big customers or suppliers is funded on a 'no win no fee' basis, as is most developing world litigation. Human rights and environmental cases for the poorest people in the world against some of the richest multinationals are also done this way: benefits threatened by the Jackson reforms.
To sum up, access to justice will be severely curtailed after April 2013, and the number of unrepresented parties bringing claims is likely to greatly increase.
There's also likely to be a significant impact on the ability of individuals or companies without legal representation to pursue claims against large insurance companies or corporations on an 'equal footing'.
Once LASPO starts, online sites will flourish, inviting people to pursue certain types of cases up to a value of £25,000. Clients, especially the poor and elderly, are unlikely to benefit from their opponents' resources, such as databases and internet access, in order to comply with legal protocols and gain knowledge of issues that would normally be handled by their solicitor.
As a result, many people will be unable to fund their cases, while the potential for gross under-settlement (as exists under 3rd-party capture, where insurance companies make pre-solicitor involvement offers) will probably increase.
We could also see a rise in professional negligence claims against solicitors if people feel they've been the victim of under-settlement of their claims to reduce the solicitors' legal costs. This will be something to watch for.
The Law Society’s Chief Executive, Des Hudson, said, "It is ordinary families with terrible life challenges that will be impacted the most. They will be the losers. As a society we need to protect them and their access to justice."
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