Jackson slams piecemeal civil litigation funding proposals

Out-Law News | 02 Feb 2011 | 10:35 am | 4 min. read

Government proposals to modify Lord Jackson's comprehensive package of civil litigation reforms would be a "disaster", according to Lord Jackson.

In January 2010, after carrying out an extensive review of civil litigation funding in England and Wales, Lord Jackson made 109 recommendations for change which, he concluded, would result in a more proportionate costs system without restricting access to justice.

In particular, he proposed that successful claimants should no longer be able to recover from defendants their solicitor's success fees or the premium for their after-the-event (ATE) insurance.

Under the present system, claimants can bring claims on a "no win no fee" basis at no cost and no personal risk to themselves. If the claimant wins, the defendant (or its insurers) pays the claimant's solicitor's basic costs plus a success fee and an enhanced ATE premium.

If the claimant loses, no ATE premium or success fee is payable and the ATE insurance will cover the claimant's liability to pay the defendant's legal costs and any court or other fees the claimant has incurred such as expert's and barrister's fees. These other fees are called disbursements.

Lord Jackson proposed that claimants should have to pay ATE premiums and their lawyers' success fees out of their own pockets. This, he argued, would give them a financial interest in the level of costs incurred on their behalf. 

In order to mitigate the impact on claimants, Lord Jackson suggested that damages for personal injury, nuisance and other civil wrongs should be increased by 10% and that lawyers' success fees should be capped at 25% of the damages awarded. 

In November 2010, the Ministry of Justice (MoJ) published a consultation on implementing some of Lord Jackson's key recommendations. But it also suggested some refinements to his original proposals.

For instance, it proposed that success fees might still be recoverable in certain types of case (judicial review, housing disrepair and complex personal injury or clinical negligence actions) and that ATE premiums should continue to be recoverable to the extent they relate to the claimant's own disbursements.

Another possible refinement is that the 10% rise in damages should only apply to cases brought under 'no win no fee' conditional fee agreements (CFAs) and that it should be used to pay the solicitor's success fee.

The consultation closes on 14th February. On 14th January 2011, exactly a year after his original report, Lord Jackson submitted his formal response, which has now been posted on the Judiciary website.

In his covering letter to the Lord Chancellor Kenneth Clark, Lord Jackson said that, if the Government accepted his recommendation to abolish recoverability of ATE premiums and success fees and to raise general damages by 10%, "the package should be implemented in full".

"It would be the worst of all worlds to retain elements of recoverability (subject to qualifications and exceptions) thus adding to the present morass of rules and case law," the letter states.

"Likewise, it would be a disaster to raise general damages in CFA cases but not in other cases.  Any such approach would create perverse incentives and undermine the structure of the reforms".

Lord Jackson said any new rules must be simple and clear. "Any attempt to legislate for every situation is a chimaera, resulting in complexity and escalating costs."

Success fees

In his more detailed response, Lord Jackson describes success fees as "the worst possible way to tackle the problem of funding litigation".

"Firstly, the present regime is being used (perfectly lawfully) to generate disproportionate profits for a significant number of CFA lawyers.  Secondly, and in consequence, this imposes an excessive cost burden on the general public.

"At the time when public funds are scarce, it may be thought inappropriate to impose upon the National Health Service, local authorities, Government departments, police authorities, other public authorities, small companies, motorists and many others the huge burden of paying "success fees" on top of the proper costs of litigation.

"The mass of rules and case law which surround recoverable success fees form a jungle, which should be cut down and cleared.  The alternative course which is advocated by some, namely to keep recoverable success fees with sundry restrictions and qualifications, will simply make matters worse.  There is now a pressing need to simplify civil procedure, rather than weave in yet more complexity".

ATE premiums

Lord Jackson welcomes the MoJ's proposal to abolish the recoverability of ATE premiums and replace it by limiting a losing claimant's liability to pay the defendant's costs in certain types of case ("one-way costs shifting").

But he rejects the suggestion that ATE premiums should be recoverable insofar as they relate to the claimant's own disbursements. He argues that there a "strong case" for claimants or their solicitors meeting their own disbursements "as happens in Scotland and indeed in every other jurisdiction outside England and Wales".

He advocates the more targeted system, providing legal aid for such disbursements, which would focus resources on those claimants who merit such support.

General damages

On the issue of general damages, Lord Jackson argues against restricting the 10% rise to CFA cases. Firstly, he says there is a strong argument that general damages are too low in any event.

"Secondly, an across the board increase of 10% in general damages will (despite the abolition of recoverability) leave the great majority of personal injury claimants better off.

"On the other hand, if the Government's proposed refinement is adopted (a) no claimant will be better off, (b) some claimants will be worse off, and (c) all the extra money will go straight to lawyers".

Referral fees

The response also touches on the issue of referral fees - payments made by solicitors (often to claims management companies) for the referral or introduction of potential clients. 

In his original report, Lord Jackson recommended referral fees should be abolished. The MoJ says it will not make a final decision until the outcome of a recent consultation by the Legal Services Board is known. But in the meantime, Lord Jackson notes his proposal is supported by the Law Society and the Bar Council.

"The fact that such huge referral fees are paid, even in low value personal injury claims is indicative of the surplus funds which have been sucked into such litigation, without being used actually to prosecute the cases," he concludes.

"An important part of any reform package must be to cut out middlemen who add no value to the process."