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Price of success

19 April 10

The proposals in Lord Justice Jackson's Review of Civil Litigation Costs, though confined to England & Wales, could influence policy in Scotland

by David Sandison

Your priorities in these difficult times may not have included the purchase or perusal of Lord Jackson’s 557 page volume reviewing English litigation costs. However, litigation lawyers should be aware of Lord Jackson’s conclusions, which could have a significant impact in Scotland.

1. He recommends the introduction of “qualified one-way costs shifting”, in personal injury cases. This means the claimant not being required to pay the defendant’s costs if the claim fails, but the defendant paying the claimant’s costs if the claim succeeds. The qualification is that unreasonable or otherwise unjustified party behaviour may lead to a costs order.

The quid pro quo for this one-way shift is that success fees and after-the-event (“ATE”) insurance premiums would cease to be recoverable. Lord Jackson says clients can still enter into “no win no fee” agreements with their lawyers, but any success fee will be borne by the client, not the opponent.

Readers will recollect that ATE insurance covers a party against the risk of having to pay the opponent’s legal costs, where the policy is taken out after the accident or other event giving rise to the litigation. A success fee is an additional fee payable to the claimant’s lawyer for pursuing a speculative case and is generally based on the difficulty of the claim. The success fee can be significant. The current guideline hourly rate for City of London solicitors with eight years’ experience is £402. A 100% uplift in the success fee for a partner would produce an hourly rate of around £900. This is payable by the defendant/insurer.

2. In exchange for the removal of success fees and ATE insurance premiums, Lord Jackson proposes an increase in general damages (solatium) of 10%. It has been practice in England for the client to recover full damages in personal injury cases due to these costs being recoverable. Lord Jackson accepts that clients would now have to pay part of their compensation to the lawyer, and proposes capping the success fee at 25% of the damages payable. The 10% increase in general damages would help the client recover these costs.

Benefits at a cost

In his general observations on conditional fee agreements (CFAs), Lord Jackson sets out the heart of the problem: “It must be frankly admitted that the conclusions reached in this chapter will cause dismay to many lawyers. It is, of course, congenial for claimant lawyers to see their clients provided with comprehensive funding and insulated from all risk of adverse cost. It is congenial for both claimant and defendant lawyers to have a constant stream of work passing across their desks. Indeed, it is congenial for judges to know that the claimants who appear before them are not putting their personal assets at risk, whatever the outcome of the individual case. But these undoubted benefits have been achieved at massive cost, especially in cases which are fully contested. That cost is borne by taxpayers, council tax payers, insurance premium payers and by those defendants who have the misfortune to be neither insured nor a large and well resourced organisation” (p 96).

Lord Jackson’s proposals have met with a general welcome in the English legal press, but personal injury lawyers have expressed serious concern about the effect on access to justice. Injured clients would risk losing part of their damages which under the present regime would be protected. Lord Jackson pointed out the flaws in the current regime: it is not just targeted on those who merit the protection against losing, but any person (rich or poor, human or corporate, deserving or undeserving) who finds a willing insurer can take out ATE insurance.

What the report makes apparent is that the current use of success fees and ATE insurance in commercial cases means that a commercial action in England can proceed on a speculative basis with an insurance against the other side’s costs if unsuccessful. Clearly, this does not happen in Scotland, adding to the disincentive for commercial claimants to litigate here. Lord Jackson suggests abolition of the practice, which might help encourage Scottish commercial undertakings to litigate in their domestic jurisdiction.

Impact in Scotland

In chapter 14 of the Civil Justice Review Lord Gill confirms the significance of any proposals by Lord Jackson. He comments that care should be exercised in drawing conclusions from the situation in England. However he recommends that issues dealt with by Lord Jackson be addressed as a matter of urgency by the proposed working group on judicial expenses.

Lord Jackson did consider the Scottish costs regime, commenting: “It is significant that in Scotland personal injury cases are conducted satisfactorily on CFAs, despite the fact the success fees are not recoverable”. If the next Government decides to proceed with his recommendations, clearly the question will arise in Scotland as to why litigants here should be denied additional damages and the absence of risk in litigation, when it is felt appropriate that accident victims in England should have this substantive benefit.

  • David Sandison, senior partner, Lawford Kidd; personal injury specialist and member of the Law Society of Scotland’s Civil Justice Committee

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