50 law All change…!


April has been a busy month for the Government with the introduction of new rules on benefits and changes to the tax system dominating the headlines, writes Andrew Crocombe of Henmans Freeth LLP


It also marks a sea change in the way that litigation is managed and funded with the introduction of a new funding option, changes in how costs are recovered by a successful party and, perhaps most importantly, the court’s obligation to manage costs throughout the litigation process.


Overall, the effect of the new rules will mean that there are some winners and losers


Until now, solicitors in the UK have been unable, in most court cases, to agree with clients that they will be paid based on a percentage of money recovered (a system which is widely operated in the USA). The new rules allow parties to enter into Damages-Based Agreements (DBAs) – this is similar to the US system and allows solicitors and clients to agree to split the winnings (up to a maximum of 50:50). However, unlike the US system, the client can still recover some of their costs back from the other side if successful and the amount recovered is then offset against the amount the solicitor is entitled to be paid.


... there should be much more predictability in the costs that will be incurred at each stage of the litigation process


It is still possible to use Conditional Fee Agreeements (CFAs - which have traditionally been used in personal injury claims but which are now much more prevalent in commercial disputes), third party funding (where someone funds the case for you for a fee if you are successful), legal expenses insurance, and the traditional pay as you go basis. The availability of Legal Aid to individuals on low income has been restricted even further.


Under the old rules, a client using CFA funding would only pay his solicitor if the case was successful. If the case was lost, the solicitor was not paid (or paid a reduced fee). However, if successful, the solicitor was entitled to charge a success fee (potentially doubling the amount charged). The additional success fee was recoverable against the other side. The new rules have changed this. Where a client enters in to a CFA after April 1, any success fee would not be recoverable from the other side but would have to be paid by the client from the monies recovered.


One of the concerns that clients often have when considering whether to take on litigation is the risk of losing and having to pay the other side’s legal costs. This risk can be avoided by taking out an insurance policy (generally referred to as an ATE policy) which pays your opponent’s legal costs in the event of an adverse costs order. Under the old rules, the costs of the ATE insurance premium would also be recoverable by the client in the event that they were successful. However, this has also been changed – any insurance premium would be paid by the client who took it out and is not recoverable from the other side.


Finally, the court now requires all parties in larger claims (generally claims with a value of over £25,000) to provide the court with cost budgets. These will be reviewed and approved or rejected by the court at an early stage in the court process. The court will have power to cap costs for the entire case or different stages of the process. There are also new rules on how the court will assess the level of costs that can be recovered from the losing party at the end of a case which are


www.businessmag.co.uk THE BUSINESS MAGAZINE – THAMES VALLEY – MAY 2013


Andrew Crocombe, partner, dispute resolution


aimed at ensuring that the level of costs recoverable from the other side are kept in proportion to the sums/ issues that were in dispute.


Overall, the effect of the new rules will mean that there are some winners and losers. Successful parties who do not have legal expenses insurance or cannot afford to pay for litigation (or persuade a third party to fund it) will continue to have to rely on funding cases with the benefit of a CFA/DBA. The problem is that they will now have to pay any success fee or ATE premium from the monies they recover leaving them potentially worse off. Losing parties will, however, be potentially better off as they avoid these additional payments.


What will be welcomed by all is there should be much more predictability in the costs that will be incurred at each stage of the litigation process.


If you would like to know more about the changes to litigation funding, please contact me.


Details: Andrew Crocombe 01865-781059 andrew.crocombe@henmansfreeth.co.uk


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