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Stephen Baker
Stephen Baker,
DIRECTOR
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Access to Justice going, going...
12 December 2011

Uncertainty over the future of Conditional Fee Agreements (CFAs) and After the Event (ATE) insurance to fund litigation continues with the present government’s consultation on the civil litigation costs review undertaken by Lord Justice Jackson. This has been brought into sharper focus by the Legal Aid Sentencing and Punishment of Offenders Bill, in which, hidden away between extensive provisions relating to the further withdrawal of civil Legal Aid and major changes to the criminal law enforcement regime is a proposal that successful parties in litigation should no longer be able to recover the CFA success fee and ATE premium from the unsuccessful party.

The Lord Chancellor, in his address to parliament during the second reading of the Bill said that “the way in which the no-win, no-fee system operates many people, and in particular many small businesses live in fear of legal action”. Compare that quote with the view expressed by Lord Davidson of Glen Clover as the House of Lords discussed the Bill - “people who have lost out to incompetent or fraudulent financial advisors, lawyers or accountants, will find that they will end up recovering less than they lost, despite having done nothing wrong. Under this Bill, the damaged, the blame free, will lose out; and for what overriding public good? It would no doubt be crude sloganeering to suggest that this is for the protection of insurance company profits, but one is left puzzled seeking to identify the clear policy objective justifying such consequences”.

Undoubtedly, individuals or businesses contemplating litigation should be very concerned about the costs implications. However, many lawyers would contend that the government’s proposals are driven by, and, if implemented, will benefit only the defendant insurance lobby adversely prejudicing the interests of ordinary people and their ability to seek access to justice.

The CFA/ATE marketplace has developed considerably since its origins in the narrow field of personal injury litigation. Nowadays, many businesses engage lawyers to seek legal redress on their behalf with the benefit of a CFA, without which they would not be able to pay for the services of lawyers or fund the risk of losing litigation. We have had direct involvement in seeking redress for both individuals and businesses, in claims e.g. for damages against perpetrators of fraud, compensation for professional negligence (where the defendant professional nearly always has its legal costs and liability protected by insurance) and claims for damages arising from breach of contract in circumstances where often, through no fault of its own, the claimant company is close to, or has actually become insolvent. CFAs and ATE insurance have helped to level the playing field at a time when legal aid has become less and less available for individuals.

It is ironic that this proposal appears in the same legislation that seeks to withdraw Legal Aid from individuals so extensively. The standard rationale that has been put forward by insurers of losing litigants for bringing about change is that the CFA success fee and ATE premium give rise to disproportionately high claims for costs at the conclusion of a case. In some cases they argue this reflects nothing less than greed on the part of the lawyers acting for the winning party. To address the validity of those claims it first pays to remember:

1.    Why the CFA regime was introduced

Conditional fee agreements were introduced by Section 58 of the Courts and Legal Services Act 1990. Their primary purpose was to ensure that the withdrawal of Legal Aid from victims of personal injury accidents was replaced by a regime where the legal profession rather than the taxpayer bore the financial risks involved in securing access to justice for such victims and were suitably incentivised to do so. The incentive to pursue a case that might be lost was a limited success fee that was recoverable in a successful claim from the defendant. Without the introduction of the CFA regime there would have been widespread uproar at the withdrawal of state funding for accident victims with limited means.

2.    Whether the system is subject to widespread abuse or if there are already good control mechanisms in place for costs

Claimant lawyers are not allowed to charge whatever they like by way of a success fee nor are their clients able to recover a success fee from losing defendants beyond that permitted under the rules. Certain types of claim such as road traffic accidents have a relatively low success fee cap of 12.5% if the case is settled before trial. The court has the ability to determine what a reasonable success fee is, and this exercise is undertaken by reference to the risk assessment the claimant’s solicitor is obliged to undertake at the time of entering into a CFA with his client. In broad terms the regime is meant to put the claimant’s solicitor in no better position than he would have been if his clients were paying him under his usual payment terms. Thus when a solicitor is acting for two clients whom they considers each have 50% prospects of success, they will be entitled to charge a 100% success fee on the basis he is likely to win one case and lose the other (and therefore recover no costs). it follows that if the claimant’s solicitor has viewed the prospects of success at greater than 50% he will be restricted to a lower success fee. The court will often apply a strict formula to calculate the appropriate percentage.

An inevitable consequence of the success fee incentive is that the costs of the winner in a CFA case will be higher, and accordingly could be more disproportionate to the value of claim, than those of a non-CFA client. This should be no surprise to anyone appreciating that businessmen will need a financial incentive to take on what would otherwise be someone else’s risk. The real issue is whether the defendant, knowing about the likelihood of having to pay a larger sum of costs if they defend a good claim without justification, should be made to do so.

Quite apart from the fact that there are already restrictions and safeguards built into the regime to prevent defendants having to pay excessive success fees and ATE premiums, there is plenty the defendants and, in particular, their own insurers can do to protect their position. They should investigate claims proactively at an early stage with a view to settling meritorious claims at the first opportunity, thereby minimising their costs exposure, instead of the all too frequent practice of drawing litigation out until close to trial and then settling when facing the reality of a likely lost case. By then, in many cases the costs involved in the case will far outweigh the amount of the claim itself. Secondly, there is no reason why defendants and their insurers cannot engage lawyers to conduct their defence on a CFA basis, and some do. If the defendant cannot engage a lawyer on a CFA basis because of a poor risk assessment, then the defendant should negotiate a settlement quickly rather than ask the government to remove the incentive for the claimant’s lawyer to represent him, thereby depriving him of access to justice.

Whereas there may be high profile examples of abuse of the system deployed by the defendant insurer lobby and unusual cases involving celebrities and the media these are not typical or representative of ordinary people and businesses seeking to get the access to justice that should be their right.

3.    The likely impact of the government proposal on individuals and businesses with deserving claims

If the government’s proposal to withdraw recoverability of success fees and ATE premiums becomes law the inevitable result will be many deserving claimants being unable to afford to secure legal redress against those who have wronged them. In personal injury cases the government is looking at introducing a one way costs shifting regime, whereby claimants would not have to pay the costs of their opponent if they lose the case. This may remove the necessity for any ATE premiums in such cases, but does not address the question of how such claimants will be able to persuade lawyers to handle their case if the prospects of success are around 60% or less. Furthermore no similar proposal is being made for other litigants such as people who may have lost their home or life savings due to a professional’s negligence.

We have been able to help many deserving clients through the use of a CFA backed up with ATE. Recent examples including taking action on behalf of a pensioner to compel a local authority to remove trees which were undermining the foundations of his property. Years of attempts to resolve the matter through correspondence and meetings got him nowhere, leaving litigation as his final option. We are also representing another pensioner in an action against her former solicitors who caused her losses in excess of £200,000 in litigation dealt with negligently on her behalf. If the government’s proposals are brought into law we would not be able to help such clients. By having to incur the costs of the CFA success fee and ATE premium or take on the risk of paying the defendant’s costs if unsuccessful, the price and risk for the client of securing justice would have been unacceptably high.

It would be a pity if the no-win no-fee era is to be replaced by one of “no-pay, no-way”.

For more information about the issues in this article to find out more about how the Dispute Resolution team can help you please contact Stephen Baker 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.

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