Any decision as to whether it is financially justifiable to pursue or defend Court proceedings requires careful analysis of several factors. Two of the more important ones are the chances of winning, and the costs involved in getting to trial.
Estimates of long term litigation costs are rarely an easy matter for a solicitor to advise on, but it is not sufficient for a party to consider its liability for its own legal costs without also addressing the costs of its opponent that it will be likely to pay in the event of losing.
Conditional Fee Agreements (CFA's)
A losing party will frequently find their opponent’s costs are much larger than their own. The last decade has seen the increasing withdrawal of public funding through legal aid in civil litigation replaced by lawyers being allowed and encouraged to take on board the risk of litigation by entering conditional fee agreements (CFA’s) under which they are able to charge anything up to twice their normal charges in the event of winning the case, but nothing if they lose. Often CFA’s are accompanied by an insurance product, After the Event (ATE) insurance, which protects the litigant against having to pay the opponent’s costs if he loses.
Originally the CFA and ATE were commonly seen in the field of personal injury litigation where the CFA success fee and the ATE premium were relatively modest. However the market place has moved on such that many commercial litigation lawyers will now offer these products to their corporate clients in a range of disputes.
For successful claimants the CFA and ATE have been great news, because Court rules have allowed them to recover the CFA success fees and the ATE premium from the loser. In complex cases the premium can be over 90% of the costs covered by the policy, such that a losing party can now find itself paying up to three times the opponent’s costs it would have faced paying 10 years ago, a major disincentive to fight a risky case for defendants.
However, the days of claimant solicitors working on a CFA claiming that the action will cost their clients nothing win or lose now appear to be numbered.
The Jackson Review
In December 2009 Lord Justice Jackson delivered a comprehensive review of the costs involved in civil litigation, and among his more controversial recommendations were that CFA success fees and ATE premiums should no longer be recoverable from losing parties, but instead paid out of the successful claimant’s damages. Such a proposal will deter many claimants seeking access to justice, particularly those with modest claims, and others may be better off paying their lawyers on a normal fee paying basis. To compensate in part for this change Jackson proposed limiting the success fee to a percentage of damages, increasing the amount of damages by 10% if defendants reject a substantial settlement offer, and introducing a principle whereby claimants who lose their action will only have to pay a fraction of the opposing party’s costs that they pay under current rules.
These proposals are currently the subject of consultation and it is unclear how far any changes will affect litigants generally rather than those in specialist fields such as personal injury or defamation, but a recent case in the European Court of Human Rights (EHCR) has surely tolled the death knell for the benefits enjoyed by CFA claimants and their solicitors in current form, and given the green light to those seeking to implement the Jackson reforms.
In 2004 supermodel Naomi Campbell sued Mirror Group Newspapers (MGN) for damages for invasion of privacy, and eventually succeeded after appeals in recovering damages of £3,500. Ms Campbell’s legal costs awarded against MGN in the House of Lords amounted to £850,000 of which £365,000 was her solicitors’ CFA success fee.
New rules on litigation costs?
MGN took the case to the ECHR arguing that such a disproportionate success fee was an unlawful infringement of the right to freedom of expression. Many will not be surprised that the ECHR agreed with MGN and found the current costs rules relating to CFAs to be deficient. As a result it is inevitable that the Ministry of Justice will sooner rather than later introduce new rules on litigation costs that will almost certainly have a more revolutionary impact on the commercial implications of civil litigation than the reforms of Lord Woolf introduced 11 years ago. Some may feel it is ironic it took a case involving a world famous supermodel recovering the sum of £3,500 to bring about changes that will almost certainly render the risks and costs of litigation too expensive for many claimants for whom their only means of access to justice is the services of lawyers willing to work under a CFA.
For more information about the issues raised in this article or to find out more about how the Dispute Resolution team can help you please contact Mike Robinson on 0118 952 7206 or email[email protected].
Consistent with our policy when giving comment and advice on a non-specific basis, we cannot assume legal responsibility for the accuracy of any particular statement. In the case of specific problems we recommend that professional advice be sought.