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15th March 2013

Important changes to litigation from 1st April 2013

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In recent years, Conditional Fee Agreements have become a significant part of the landscape of proceedings in the English Civil Courts.

Under these arrangements, cases that might not proceed because of the high cost of funding the litigation, go forward on terms with the solicitor (and counsel) agreeing to share some of the risk. In return for a success fee, the lawyers agree not to look to the client for all or a proportion of their usual costs and charges if success is not achieved. CFAs have been heavily criticised however and in his review of the Civil Justice Costs regime, Lord Justice Jackson recommended reform.

In response to his recommendations, the Government has now introduced changes that will be effective from the end of March 2013 and will mean that for CFAs made from 1st April 2013 onwards, the success fee agreed by the claimant’s solicitor and his client in a CFA will no longer be recoverable from the losing party in the proceedings. This will make a CFA an unattractive arrangement for the vast majority of cases that might have previously attracted one.

This significant change has been accompanied by further reform, this time affecting the industry that has grown up around ‘after the event’ insurance protection against the risk of litigation costs. CFAs have frequently been supported by an ATE policy. However, the premiums payable under ATE insurance policies written after the 1st April 2013 will not now be recoverable from the losing party in the proceedings.

In place of CFAs, will be new arrangements – Damages Based Agreements – under which a claimant’s solicitor can agree to take on a case for a client on terms that will entitle him to a share in the proceeds of any sums recovered by the client. There are rules governing what interest the solicitor can take on under these agreements, and how popular these new arrangements will be, only time will tell. Nevertheless, with the solicitor taking a direct interest in the outcome of the litigation, the move to DBAs will mark a significant cultural shift that it will take a while for the market to get used to. In character at least, DBAs will be akin to types of arrangement that are more familiar in the US litigation environment.

In other reforms, the ceiling for small-claims will be increased from its current level of £5,000 to £10,000, meaning that a larger proportion of claims will find themselves subject to the simplified procedural steps of the small-claims track, but also with no possibility of the successful party recovering costs from his opponent (to any significant extent). The upshot of this is that pursuing a claim worth less than £10,000 all the way to trial with legal representation will, in most cases, be even less cost effective than before. However, small claims should now be automatically referred to a small-claims mediator and, in lower value cases, the parties will be able to choose to have their claim dealt with on paper rather than at a hearing. The government has suggested that the small-claims ceiling will be increased to £15,000 but this will not occur in the present round of changes.

Claimants will be granted a further incentive to make ’offers to settle’ under Part 36 of the Civil Procedure Rules (offers with sanctions). The claimant’s recovery will be enhanced by 10% of the total damages awarded where a defendant rejects a claimant's offer of settlement, but fails to achieve a better result at trial. This is intended to redress the perceived imbalance between incentives given to claimants and defendants to make Part 36 offers, which, in Lord Justice Jackson’s assessment, hitherto have weighed more heavily in favour of the defendant.

Finally, a number of changes will be made to the Civil Procedure Rules aimed at simplifying the disclosure process and promoting more active involvement by judges in the management of costs and cases generally. Notably, the costs management pilot which is already running in some courts is anticipated to be extended. Under this scheme, parties are required to prepare and file litigation budgets and update these regularly as the matter progresses. Approved budgets are subsequently used in the assessment of costs at the end of a trial.

For more information, please contact Dominic Hopkins (dominichopkins@hewitsons.com) or Kostyantyn Lobov (kostyantynlobov@hewitsons.com).

This article is intended to provide a general commentary on some of the more important changes to litigation anticipated in April 2013. It is by no means exhaustive and should not be treated as a substitute for full independent legal advice.