Are you ready for the new world of litigation funding?

12 Oct 2012

Litigation funding is a hot topic at the moment, and not simply for lawyers with an interest in costs law!

A raft of changes arising from the so-called Jackson Review of litigation costs are due to be implemented in April 2013. Perhaps the 2 major changes for commercial and personal injury matters will be that, other than in industrial disease cases, a winning party will no longer be able to recover its After The Event insurance premium from its opponent or the success fee charged by its solicitor if a Conditional Fee Agreement (CFA) is in place. ATE insurance is taken out after an event, such as an accident, to insure the policyholder for expenses as well as any costs if they lose their case.

In this brave new world alternative funding models will emerge. Damages-based Agreements (DBAs) will be permitted. Typically under a DBA you would pay a lower hourly rate and then pay your solicitor a proportion of your damages if you win. This is similar to the contingency fee arrangements which are common in the USA. However, over here there will be restrictions and in particular a cap on what cut the lawyers can take from the damages if you win. There is also likely to be an increase in the use of third party funders. These organisations pay for a legal action to proceed in return for a benefit, typically a proportion of the gain if the case is successful.

Even at this late stage all the indications are that skirmishes will continue as these changes are implemented. For example part of the pay off for the proposed changes in personal injury cases was that there would be a 10 per cent increase in general damages for personal injury claimants. This proposal was part of The Jackson Report and was confirmed in a recent judgment in the case of Simmons v Castle 2012. However, since then the ABI has launched a legal action due to concerns that this will lead to months or years of defendants facing a double whammy on costs thanks to the damages increase and the fact that successful cases launched pre April 2013 on a CFA will continue to result in recoverable success fees and insurance premiums. This action is likely to pitch the defendant insurance market squarely against the claimant legal sector. It is not likely to be the last such challenge.

The future of litigation funding is likely to involve a mix of traditional retainers, CFAs, BTE (before the event insurance) and ATE as well as DBAs and third party funders. It is a fast moving area and organisations will do well to be prepared and keep abreast of these changes in order to work out which arrangements best suit their needs.