Financial & Legal News

The Year Ahead in Commercial Litigation

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The 1st April 2013 will see the implementation of substantial Civil Justice reforms based onLord Justice Jackson’s recommendations following his review of Civil Litigation costs in England and Wales.

The sweeping reforms have sent shock waves through personal injury solicitors practices but will also have an impact upon commercial litigation. The reforms, which are intended to promote access to justice at proportionate cost will have a major effect on the way that litigation is funded and conducted in all Courts. The main aims of the reforms are to eliminate methods of funding which increase costs and to create a more efficient litigation procedure.

Key reforms

  • The Introduction of Contingency Fee Agreements for Commercial Litigation known as Damages Based Agreements (DBAs)
  • Under the new regime Claimants who win their Court case will have to pay their own lawyer’s success fee and any “After the Event” insurance premiums out of the damages they are awarded; they will no longer be recoverable from the losing party.
  • The Ministry of Justice has previously announced that the damages that a lawyer can claim under a DBA will be capped to 50% on the sum recovered in all non-personal injury cases (excluding Employment Tribunal cases).
  • VAT will mostly likely be included in the fee cap but disbursements will not.

At present the DBA Regulations are still being drafted by the Ministry of Justice and therefore it is not possible to advise fully on how DBAs will work until those Regulations have been clarified. However, based upon the draft recommendations, successful Claimants should be able to claim their base costs plus disbursements from the losing party on the conventional hourly rates basis. The Claimant’s solicitor would therefore be able to retain the base cost recovered and set them off against the DBA fee. The client would be liable for the difference between the costs recovered and the agreed DBA fee, ie the successful client would pay this sum to his own solicitors from any damages recovered.

Example:

Claimant’s solicitors agrees a 50% Damages Based Agreement. The Claimant recovers £100,000.00 in damages and £30,000.00 in costs from the Defendant – total £130,000.00.

The Claimant’s solicitor can recover a maximum DBA total fee of £50,000.00 (being 50% of the damages). The £30,000.00 in costs recovered from the losing party is paid to the Claimant’s solicitor as part of £130,000.00 due. The client will pay his solicitor £20,000.00 difference from the recovered damages leaving the client with a net recovery of £80,000.00. The solicitor is not entitled to recover the full £50,000.00 DBA fee in addition to the £30,000.00 in recovered costs.

Defendants and DBAs

It is not clear from Lord Justice Jackson’s report or the draft DBA Regulations whether DBAs will be available to Defendants (although it is possible that it may extend to Counterclaims).

Costs Management

It is anticipated that the new reforms will also mean that District Judges will deal with Case Management more robustly and in particular manage the proportionality of costs.  This will be welcomed by all clients but may cause difficulties for less flexible legal practices.

Summary

Overall, the introduction of these reforms are going to cause a number of issues for solicitors practices in particular practices that have for years conducted litigation on an hourly rate basis. Whilst some clients may still prefer such retainers to avoid potential conflict between solicitor and client it is likely that clients will be more demanding of their solicitor’s time under Damages Based Agreements with no element of hourly billing.

Clearly, there are also likely to be benefits for some solicitors particularly where cases settle early with minimal amount of work.  We can foresee the possibility of satellite litigation where less scrupulous solicitors seek to obtain a financial advantage at their client’s expense in advising the use of one fee structure over another.

Please note that the information and opinions contained in this article are not intended to be comprehensive, nor to provide legal advice. No responsibility for its accuracy or correctness is assumed by Pearson Solicitors and Financial Advisers Ltd or any of its members or employees. Professional legal advice should be obtained before taking, or refraining from taking, any action as a result of this article.

This blog was posted some time ago and its contents may now be out of date. For the latest legal position relating to these issues, get in touch with the author - or make an enquiry now.

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