No win no fee reforms

In December 2009, Lord Justice Jackson delivered his long anticipated review of civil litigation costs. It was designed to tackle those areas where the legal costs of settling claims had become ‘disproportionate’. Just how disproportionate was illustrated by the Association of British Insurers (ABI) who surveyed over 50,000 low-value motor accident claims in 2009 and 2010, and found that for every pound paid in compensation, 87p was paid in legal costs.

From 1 April 2013 the Legal Aid, Sentencing and Punishment of Offenders Act and new Civil Procedure Rules will bring the Jackson reforms into effect. They look to restore the balance by ensuring that the costs of civil litigation are shared more proportionately between claimants and defendants.

Most significant change for a generation

The Chartered Insurance Institute calls the Jackson reforms the most significant changes to civil litigation and claims handling for ‘nearly a generation’.

The reforms include:

  • Litigants who have entered into a conditional fee agreement (CFA) – more commonly known as a ‘no win no fee’ – with their lawyer will no longer be able to recover the success fee when they win their case.
  • Litigants taking out After the Event (ATE) insurance will no longer be able to recover their premiums from the losing side.
  • A cap on the payment that the claimant lawyer can take from damages awarded in personal injury cases, of 25% of the final damages award.
  • Application of Qualified One Way Cost Shifting means that claimants conducting their case properly will not have to pay towards the defendant’s costs if the claim fails. However, protection will be lost if the claim is found to be fraudulent, if the claimant fails to beat a Part 36 offer at trial or where it is struck out by reason of being an abuse of the court’s process.
  • Introduction of Damages Based Agreements in civil litigation – another type of ‘no win no fee’ arrangement for claimants but where the lawyer’s fee is related to the level of damages awarded rather than the amount of work done by the lawyer.
  • Increased sanctions to encourage early settlement.
  • New mandatory cost and case management rules include the requirement for parties to set share and agree budgets at the beginning of the court process.

Impact on businesses

The Government will be extending the existing electronic Road Traffic Accident Claims Portal. Originally set up to cover low value motor claims up to the value of £10,000, it will now be known as the Claims Portal and will include employers’ and public liability claims. It will also deal with claims up to the value of £25,000. For businesses this represents a radical change. It will lead to shorter response times, condensed negotiation and the need for stringent controls when it comes to claims management in order to benefit from the potential cost savings. This element of the reforms has now been delayed until after 1 April 2013.

Fast accurate reporting essential

All parties involved will need to have robust processes in place to hit the strict deadlines and fast and accurate reporting will be vital. A greater front-loading of evidence will help identify valid claims and companies will need to decide on their claims strategy (whether they are going to admit liability or not) from an early stage.  If you would like to talk through how these changes could affect your business, please call us.