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Jackson LJ backs contingency fees and costs shifting in favour of claimants

19 January 2010

Lord Justice Jackson has backed the introduction of contingency fees in England and Wales, while severely limiting the usefulness of conditional fees.

In his eagerly-awaited final report on civil litigation costs, he recommended that conditional fee insurance premiums and success fees should not be recoverable – as suggested in his interim report (see Solicitors Journal 153/18, 12 May 2009).

He softened the blow for claimants by recommending a ten per cent increase in the level of damages for all civil cases and a 25 per cent limit on the amount lawyers can deduct in success fees.

In a further move, he recommended the introduction of “qualified one-way costs shifting”, particularly in personal injury, medical negligence, judicial review and defamation cases.

He explained that this would mean that claimants would not have to pay defendants’ costs if they lost as long as their behaviour was reasonable and depending on their means.

In his most radical move, Jackson LJ recommended the introduction of contingency fees for contentious litigation, subject to two main safeguards. The first would be the same 25 per cent cap in the amount of damages lawyers can deduct in fees he proposed for conditional fee cases. The second would be that no contingency fee agreement would be valid unless countersigned by an independent solicitor.

He also recommended the extension of fixed costs across the fast track for all cases worth under £25,000 and the creation of a Costs Council, chaired by a judge, to review fast-track costs.

Lord Justice Jackson expressed support for alternative means of funding legal aid cases, such as a Contingency Legal Aid Fund, and called on the government not to make any further cuts in legal aid.

Speaking to journalists at the launch of his report, he said that his recommendations could save “very many millions of pounds” in costs, promote access to justice and enable lawyers to earn “reasonable remuneration”.

He said he had “faith in the wisdom of Parliament” to pass the primary legislation necessary for his reforms to become reality.

The one area where he did not believe there should be a cap on success fees as a proportion of damages was libel.

Jackson LJ said it was “much less of a problem” in defamation cases for a client to pay a large percentage of their damages in success fees if they achieved their object in vindicating their reputation.

He said he hoped his reforms would lead to an increased take-up in before the event insurance, especially through household insurance.

Lord Justice Jackson accused solicitors of competing not on quality, but over who could pay the largest success fee. He said that referral fees of £750 to £800 were often paid, even for low-value personal injury claims.

He predicted that if his reforms were implemented, the “vast majority” of personal injury claimants would be better off.

“If solicitors compete by those who can charge the most moderate success fee, then this will put even more into the hands of claimants,” he said.

One of his recommendations is a ban on referral fees. Such a ban has already been backed by the Law Society’s council and is under consideration by the SRA.

He said that contingency fees had been successfully introduced into many overseas jurisdictions.

Although he was “extremely concerned” that at first there should be proper protection for clients, he said that in the future it might be possible to dispense with the requirement for independent advice.

Jackson LJ said he believed his recommendations would promote access to justice at proportionate cost.

“Access to justice is important not only for claimants who have valid claims, but for defendants who have valid defences,” he said. “Very often there are reasonable arguments on both sides. The parties should be able to have their arguments ventilated in the courts at proportionate cost.”

The report received a mixed reaction, from both claimant and defendant personal injury lawyers.

A spokeswoman for APIL said there was very little in the report which helped victims.

“The claim that ending recoverability of success fees and after the event insurance premiums will lead to cost savings is highly misleading,” she said. “The costs will still be there. They will just shift to the claimant who will have to pay success fees and insurance premiums out of his damages.”

She said the proposal to increase general damages by ten per cent would be insufficient to cover the cost of success fees and the extension of fixed costs would “shift the playing field only further in the wrongdoer’s favour”.

Alexandra Anderson, partner at Reynolds Porter Chamberlain, warned that defendants (and their insurers) might be forced to settle unmeritorious claims. “Insurers and other businesses will be very concerned about defending a claim when there’s a risk that they won’t be able to recover costs when they win.”

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