Litigation costs: the final report

Is the report of any relevance to me?
Yes, if you are currently a party to proceedings or are likely to be so in the future.

Tell me more…
The report is wide-ranging, covering areas such as personal injury, defamation and professional negligence. If its recommendations are implemented it could fundamentally change the way litigation is funded in the future.

It’s a 584 page report. Just give me the headlines.
For construction disputes there are three main areas of interest:

1. After-the Event (“ATE”) Insurance and Conditional Fee Arrangements (“CFA’s”)
2. Contingency Fees 
3. New Fast Track for TCC

In Plain English this means…?

1. After-the Event (“ATE”) Insurance and Conditional Fee Arrangements (“CFAs”)
   ATE insurance can be taken out by claimants to protect against paying their opponent’s costs in the event that they lose the case. CFAs, commonly known as ‘no win no fee’ or ‘success fee’ arrangements, mean that either no fee or a reduced fee is payable if a party loses its case but, if the case succeeds, then an uplift of up to 100% is applied to the fees. At the moment, the cost of these arrangements is normally recoverable by the winning party from the losing party in litigation. Lord Justice Jackson, having found that these arrangements add significantly to the cost of litigation, has recommended that CFAs and ATE insurance premiums should cease to be recoverable from the opposing party in litigation. A party can still enter into such arrangements to fund its litigation but it would have to bear the additional costs of doing so itself (and that could come out of any damages awarded to it). As an alternative, small and medium size businesses should be encouraged to take up before-the-event insurance (legal expenses insurance).
   
2. Contingency fees
   Contingency Fees are arrangements where the lawyer’s fees are paid out of the client’s damages. This type of fee arrangement is not currently allowed for litigation. After extensive consultation, Lord Justice Jackson decided that, providing adequate safeguards were in place, Contingency Fees should be permitted for litigation in future. Further, the arrangement should be restricted so that the losing party would only have to pay a standard amount of costs. If the contingency fee exceeded what would be payable under a ‘normal’ fee arrangement, the client would have to pay the difference. If ATE premiums and CFAs do become irrecoverable, a type of Contingency Fee might become the preferred funding model.
   
3. Low Value Technology and Construction Court cases to be allocated to Fast Track
   At present all TCC cases are allocated to the Multi Track but this can result in disproportionate costs in small construction disputes. To improve the situation, Lord Justice Jackson recommends that disputes of less than £25,000 should be allocated to the court Fast Track. Under this process there are set, limited costs for the litigation. This acts as a cap on what can be recovered from the losing party.

Anything else I should know?
There are several administrative proposals aimed at reducing users’ costs, particularly prior to, or at the start of, proceedings. Emphasis is also placed on greater use of mediation. No party will be forced to undergo mediation, but judges are strongly encouraged to promote it for small, low value disputes, where negotiation has proved unsuccessful.

These are just recommendations – will they be implemented?
That depends. TCC Judges can already begin promoting mediation, and many already do. However, other recommendations require primary legislation or changes to the court’s Civil Procedures Rules. Post general election, it is possible that some recommendations, such as abolishing the recoverability of ATE insurance and CFAs, will not be implemented by the new Government. However Lord Justice Jackson appears determined to reform the area of ATE insurance and CFAs. As a fallback position, in case his recommendations are not implemented, he proposes a series of measures to ensure that the level of CFAs is "rigorously controlled" and, to address "anomalies" in the current system. Primary legislation would not be necessary to achieve these measures.