Reform to the funding and running of professional negligence claims

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Recently, the legal landscape has undergone some fundamental changes in the way litigation is funded and conducted. It is just as important for the potential claimants to be aware of the impact of these changes as it is for the lawyers themselves.

Following the report of Lord Justice Jackson, new laws came into force on 1 April 2013, which have made a number of amendments to the governance of civil litigation. Broadly speaking, the goal of the Jackson reforms (as they have come to be known), is to fundamentally reduce legal costs by requiring parties to keep their costs proportionate to the value of any dispute, and to emphasise the benefits of early settlement. Since the changes it is likely that parties will not be allowed to recover costs in relation to steps they have taken that are deemed unnecessary or disproportionate.

For most potential claimants the funding of the legal costs which will be incurred is a key hurdle to be overcome in bringing a claim. Professional negligence claims are no different and in recent years it has been common practice for solicitors to share some of the litigation risk with their clients.

Prior to the Jackson reforms lawyers would take on cases because they could recover a success fee under "no win, no fee" agreements and premiums on any insurance policy taken out to cover the risk of the client losing and having to pay the other side's costs, both of which were recoverable from the losing party. After 1 April 2013 this will no longer be the case. The success fees and premiums will have to be funded by claimants and will usually come out of any award of damages. Caf├ęs that were entered into prior to the 1 April 2013 remain valid and the courts have indicated that they will allow the success fees to be recovered from the other side, subject to proportionality.

These changes are not just of academic interest to those who practice in the law. They will have a real impact on claimants and every claim going forward.

Firstly, a claimant may find that they will now recover less in their professional negligence claim then they might have expected to under the old regime. It is anticipated that post-Jackson reforms many prospective claimants will face a choice as to how best to fund their claim. In this regard they should be looking to their solicitors for advice on which to base their decision.

The two main forms of funding are likely to be Damages Based Agreements (DBA) and Conditional Fee Arrangements (CFA) unless clients pay privately. Under a DBA the client agrees that their solicitor is entitled to an amount (usually a percentage) of any damages recovered, subject to an upper limit of 50% in professional negligence cases. CFAs use a success fee based on an uplift of costs, however post 1 April this success fee will no longer be recoverable from the other side. However, the success fee can still be 100% of legal costs in professional negligence claims as before 1 April.

Depending on the case and the value of the claim, one form of funding may be more suitable that the other. Solicitors should be advising claimants at the outset of any matter of the funding options available and the one most suitable for a client's case.

Secondly, as discussed above, solicitors should be advising their clients that post-Jackson any actions they take and consequently the costs incurred must now not only be reasonable but also proportionate to the size of the claim. If the court is not convinced of your justification for a certain course of action (be it delay, costly experts, unnecessary interim applications etc.) then expect to be penalised in costs, either by not being awarded your own costs or with an adverse costs order to pay the other side's costs, even if you won.

The Courts will also be taking a firmer approach towards controlling the costs incurred by both claimant and defendants. This will involve the provision of information to the court of each parties' budget estimates and updates as to costs incurred and anticipated as the claim progresses. Failure to do so will result in tough penalties being imposed, including penalties on costs recovered and even strike out of a parties' claim/defence.

These changes emphasise more than ever of the importance of solicitors and clients working together to progress professional negligence cases proportionately and effectively. They also highlight the importance of clients understanding fully at the outset of a matter what their funding options are and why a particular funding option is best for their professional negligence claim.