Lord Jackson gave a great deal of thought to the contentious issue of success fees and ATE insurance premium recovery. This briefing note considers the recommendations.
Since 5 July 1995 solicitors have been able to enter into “no win no fee” arrangements in civil litigation, known as Conditional Fee Agreements (CFAs). These allow success fees to be charged to clients in cases won and initially that success fee had to be paid by the client and not by the losing party. Damages could be substantially reduced after payment of the success fee but many solicitors volunteered to cap the amount of success fee payable at 25% of the damages.
The position has changed since 1 April 2000 by Section 27 of the Access to Justice Act 1999. A client entering a CFA is now entitled to recover the success fee from the losing party along with the premium of an insurance policy entered after the event (ATE) to cover any potential liability for the opponent’s costs and own disbursements. Many of these policies are self insuring so the insured does not pay the premium unless the case is won.
Lord Jackson’s View
Lord Jackson believes the recovery of success fees and ATE Insurance premiums has led to widespread unintended consequences and he outlined a number of flaws:
· The party with the CFA has no interest in the costs and insurance premium being incurred;
· The costs burden placed on opposing parties can amount to a denial of justice;
· If solicitors and counsel only pick winners they will substantially increase their earnings;
· The recovery of ATE insurance premiums is unfair to the losing party when the insured pays nothing if they lose;
· The recovery of ATE insurance premiums is an unsatisfactory process for protecting parties from the costs risks of litigation;
· Successful Defendants have difficulties recovering costs from ATE insurers.
Lord Jackson’s recommendation is to revert to the position that existed before April 2000.
The recovery of ATE insurance premiums should be abolished. In the alternative no ATE insurance premium should be recovered if liability is admitted within the protocol period; no ATE insurance premium should be recovered for Part 36 risks; cap premiums at 50% of damages awarded and in cases where the ATE insurer is entitled to avoid, allow recovery from the insurer with rights against the policyholder preserved.
The recovery of success fees should also be abolished. To compensate Claimants, the level of general damages awarded to individuals should be increased by 10%. The amount of success fee which lawyers may deduct should be capped at 25% of damages, excluding any damages referable to future care and future losses.
In the alternative success fees could be fixed; any element of a success fee that relates to the risk of not accepting a good Part 36 offer should not be recoverable and a success fee should not be recoverable on detailed assessment costs.
If implemented these proposals will bring an end to the “no win no fee no risk” culture. If successful parties with CFAs have to pay success fees and ATE insurance premiums, the market will inevitably place great pressure on the amounts charged. There are concerns that these changes would affect access to justice in low value claims. Other proposals such as one way fee shifting aim to alleviate this. The increase of damages by 10% will have an impact on losing parties but they will have a measure of control on that amount.
These proposals will require primary legislation and it is not so much the case of whether the recommendations will be implemented, but when.