Date 15 September 2011
It’s not a riveting subject, but litigation funding has been in the news recently because the Government wants to limit the costs successful litigants can recover from their opponents. The proposed changes have vocal supporters and opponents - as can be seen from the letters page of the 15 September 2011 edition of The Times, which has four letters to the Editor on this topic alone.
As the debate on the rights and wrongs of the proposals is conducted using terms of art, it is worth explaining the key terms, which are:
Conditional Fee Agreement (or CFA)
An agreement with a solicitor which provides that the solicitor’s fees and/or disbursements (e.g. barrister’s, expert’s and court fees) will only be paid in certain circumstances – usually if the client wins the case.
Success Fee
A pre-agreed uplift charged by a solicitor who wins a case under a CFA, currently capped at 100% of the solicitor’s costs for the case.
After the Event Insurance (ATE)
An insurance policy taken out after the event which gives rise to the claim that has taken place that pays the policyholder’s opponent’s legal costs and the insured’s own disbursements if a case is lost.
As the court rules currently stand, a winner can recover both the success fee he has to pay his solicitor and the ATE premium due to his insurer from his opponent. His damages remain untouched by these “additional liabilities” (as they are known). The Government wants to stop this and restrict recovery to the solicitor’s standard time charges and disbursements, as would be the case if the winner did not have the benefit of a CFA or ATE.
A winner’s additional liabilities can be significant and add substantial amounts to a loser’s overall bill. The risk of having to pay them can also influence a party’s approach to a case and can be a powerful driver for early settlement.
Opponents say the changes will reduce access to justice. There is much to be said for this, and whilst the changes will not actually outlaw CFAs or ATE (they will merely make winners pay success fees and premiums out of their damages) the view that individuals and SMEs are likely to be reluctant to take on larger, better funded defendants if they have to pay success fees and ATE premiums themselves, especially in lower value cases where the damages may not cover these additional costs, is almost certainly right.
On the other side of the fence, the Government’s supporters say that its proposals will mean that parties backed by CFAs and/or ATE will pay more attention to their costs because they will have more “skin in the game” and a vested interest in controlling costs they would otherwise not be concerned about. This is true, but much less so for commercial litigation where one’s opponent is less likely to be backed by an insurer as in personal injury work and clients are rightly concerned about the risk of having to pay additional liabilities themselves if their opponent becomes insolvent during a case or cannot satisfy a costs order.
Whatever the rights and wrongs of the Government’s plans, they are currently before Parliament and, if enacted, will change the way litigation is funded in England and Wales. If the Government gets its way the changes are expected to be implemented within the next 12 months. The new rules are not expected to be retrospective and there is therefore a window of opportunity to take advantage of the current position and maximise the tactical and strategic benefits available under the current arrangements.
In simple terms, under the current regime, a business can transfer the entire risk of having to pay its own solicitor’s fees as well as its opponent’s off its balance sheet and potentially cap its liability for these at zero – win or lose. This will not be possible if the rules change and accordingly it is well worth investigating claims now to see if they can be funded using a CFA and/or ATE based on the current rules.
SA Law offers a fixed fee case review scheme and is authorised by a leading legal expenses insurer to offer ATE cover for qualifying cases. For further details contact Simon Walsh or your usual SA Law contact.
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For further information or to discuss a particular matter or situation in more detail, contact Simon Walsh at our St Albans office by email at simon.walsh@salaw.com or on 01727 798085.
© SA LAW 2011
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