From Woolf to Jackson: A new era in Civil Litigation Funding

By Richard Ellison, Partner, Lender Services Group, Shoosmiths,

The last major reform to civil litigation funding took place some 12 years ago, under the auspices of Lord Justice Woolf. This arguably introduced a claimant friendly approach to litigation: parties could instigate proceedings under the protection of conditional fee agreements or CFAs, at very little risk to themselves or their wallets. This in turn has allowed a multitude of legal practices championing “no win, no fee” to gain a strong foothold in the legal market. You may have been at the receiving end of CFA claims!

The tide is changing however with the Ministry of Justice recently announcing a new civil litigation funding regime, the primary objectives of which are “…to reduce civil litigation costs overall, and to rebalance the cost liabilities of claimants and defendants…”. Lord Justice Jackson’s review has instigated a raft of proposals for sweeping change to how civil litigation will be funded in the future.

The hallmarks of the proposed regime include a marked shift away from CFAs towards damages-based agreements regulated by a cap of 25% on the maximum contingency fee which lawyers can take from their clients’ damages. Success fees will no longer be recoverable from a defendant, meaning that claimants will be liable to pay the success fee even if they win their claim. After the event (ATE) insurance premiums will also no longer be recoverable, with the consequence that claimants will be liable for their insurance premiums regardless of the outcome of the case.

Finally, a new test of proportionality in relation to recoverable costs means that the court will firstly consider the reasonableness of the work done on an item by item basis, then moving on to consider the proportionality of the resulting total amount as against the subject matter, value, and “risk rating” of the claim.

If implemented, what will these changes mean in practice? Successful litigants may well be forced to pay a proportion of their own legal costs. As a result, Claimants may be encouraged to settle their disputes at an earlier stage so as to limit their costs liability. That in turn may encourage the greater use of alternative dispute resolution (such as mediation) instead of the litigation process. In any event, it does seem likely that claimants would no longer be able to “hide behind” CFAs and ATE insurance as can happen currently.

The Ministry of Justice is consulting over its proposals, however, it is thought that they will be implemented as a package and without significant alteration early next year. Whatever the outcome, one thing is certain: the current civil litigation funding regime is on the verge of significant change. Many lenders will say that a reduction in success fee driven, insurance funded claims which they are often forced to settle on purely commercial grounds, will “…rebalance…” the litigation regime within which they are forced to operate.