Greg
Standing
Much of the
consumer credit and other litigation brought against finance
companies is funded by conditional fee agreements (CFAs) and after
the event insurance policies (ATE insurance).
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This has led to consumers
bringing ‘no-win, no fee’ claims. If they lose, they don’t pay
their solicitors’ costs, and the costs of the winning defendant
finance companies are covered by the insurance policy.
If they win, the finance
companies pay the consumers’ legal costs, plus the success fee
attached to the CFA (up to an additional 100 per cent of the basic
legal costs), plus the ATE insurance premium. Such funding has
caused a dramatic increase in the cost of litigation and the number
of speculative claims.
In January 2010, Lord Justice
Jackson’s recommended the abolition of the recovery of CFA success
fees and ATE insurance premiums from losing parties to
litigation.
On 29 March, the Justice
Secretary Ken Clarke confirmed the government would implement
Jackson’s recommendations and associated measures. In so far as
they affect the finance industry, the recommendations
are:
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By GlobalData- The abolition of the
recoverability of success fees in CFAs and ATE insurance premiums.
Litigants can still agree a success fee with their lawyers (still
up to 100 per cent of base costs) but the party entering into the
CFA or ATE insurance policy will pay the success fee or premium. It
will not be recoverable from an opponent. - Damages-based agreements,
otherwise known as contingency fees, will be allowed for the first
time in civil litigation. These are another type of ‘no win, no
fee’ agreement, but the fees are related to damages awarded, rather
than the amount of work done. Again, only base costs, and no
additional fees linked to the damages, can be recovered from a
losing opponent. - Part 36 of the Civil
Procedure Rules, which aims to provide costs incentives to
encourage parties to settle proceedings by making or accepting
reasonable offers, will be amended to equalise the incentives
between claimants and defendants. Currently the main Part 36
incentives, being enhanced costs (indemnity) and interest
provisions on those costs and damages (10% above base rate), are
only available to a claimant. An additional sanction of 10% of the
value of the claim will be introduced where a defendant fails to
accept a claimant’s Part 36 offer and the claimant goes on to beat
the offer at trial.
Comment
The government’s aim is to
reduce the cost of claims and ensure meritorious claims are
resolved at a more proportionate cost while deterring unnecessary
or avoidable claims from progressing to court. Finance companies
and lenders will clearly benefit from these recommendations as and
when they are implemented.
The author is a partner in Wragge & Co’s finance,
insolvency, recoveries and sales team
