What changed?

Since 1 April 2013, where parties fund their litigation via conditional fee agreements (CFAs) and/or after-the-event (ATE) insurance, the CFA success fee and ATE premium are no longer recoverable from the losing opponent if the case is successful. Parties can still enter into CFAs and take out ATE insurance to fund their litigation, but have to bear the additional costs of doing so.

Parties can enter into a CFA with their lawyer, where the lawyer is paid up to double the normal fee if the case is won and nothing, or sometimes a discounted fee, if the case is lost. The uplifted fee is called a success fee, and it is capped at 100%.

Parties can also take out ATE insurance to cover their risk of having to pay the opponent’s costs, as well as their own disbursements, if they lose the case. ATE policies are sometimes available with “deferred and self-insured” premiums, meaning the insured party does not have to pay the premium until the end of the case, and does not have to pay it at all if the case is lost – ie the insurance kicks in to cover the cost of the premium itself as well as the adverse costs if the case is lost.

The crucial feature of this system as it applied before 1 April 2013 was that both the CFA success fee and the ATE premium were recoverable from the opponent if the case was successful. As recommended by Lord Justice Jackson, that is no longer the case for CFAs entered into and ATE policies taken out on or after 1 April 2013.

How was the change implemented?

These changes were implemented by section 44 and section 46 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO) which amend the relevant sections of the Courts and Legal Services Act 1990.

Why was the change introduced?

As Lord Justice Jackson identified, the effect of the previous arrangements was that claimants (who are the predominant users of such arrangements, though in theory they can be used by both claimants and defendants) could litigate “risk-free” at huge cost to losing defendants.

  • If the claim was lost: they wouldn’t have to pay their lawyer anything under the CFA; they wouldn’t have to pay the opponent’s costs because those were covered by the ATE insurance, and (generally) they wouldn’t have to pay the ATE premium because that had been deferred and self-insured.
  • If they won they would recover their costs from the defendant, including the success fee under the CFA and the ATE premium.

Lord Justice Jackson expressed the view that this placed an excessive costs burden on opposing parties, whose costs liability could become grossly disproportionate if they contested the case to trial and lost. The defendant’s costs liability could be up to four times the “normal” costs of a party to the litigation, in that they would have to pay:

  1. their own legal fees and disbursements;
  2. the claimant’s normal legal fees and disbursements;
  3. the claimant’s success fee of up to 100% normal fees; and
  4. the claimant’s ATE premium which (for a deferred and self-insured policy) could be in the region of 90% of the sum insured.

Lord Justice Jackson took the view that this needed to change, and so recommended that recoverability of CFA success fees and ATE premiums be abolished. The government adopted this recommendation, citing the need to “reduce the unfair costs suffered by the many businesses, individuals and other organisations (including the NHS) that have been faced with CFA actions” and restore greater proportionality to the costs of civil cases.

The decision to abolish recoverability was however very controversial, with claimant lawyers in particular arguing that the changes would mean a decrease in access to justice.

Are any types of case excluded from the change?

There is an exception for claims for damages in respect of diffuse mesothelioma, so that CFA success fees remain recoverable in that context.

CFA success fees remain recoverable where the CFA was entered into before 1 April 2013, or 6 April 2016 for claims brought by liquidators, administrators or trustees in bankruptcy under the Insolvency Act 1986, as well as by companies that have entered into liquidation or administration under the Act, or 6 April 2019 for publication and privacy proceedings .

What special provisions were made for personal injury claims?

In personal injury cases, as a further restriction on the level of success fee that can be charged, the success fee is subject to a cap of 25% of damages (excluding damages for future pecuniary loss). The lawyer can therefore be paid a success fee of up to 100% of normal fees, capped at 25% of damages.

Two other measures were introduced which were designed to compensate personal injury claimants for the abolition of recoverability, in order to alleviate fears that this would mean a reduction in access to justice:

Note: Content up to date as at 10 June 2022

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