27 March 2013 #Dispute Resolution
There is no getting round the fact that litigation can be expensive and sometimes disproportionately so. This is a problem with which the Courts have been grappling for many years, particularly since the introduction of the Civil Procedure Rules in 1999.
Those reforms introduced a series of measures to help Claimants have access to justice, including no win no fee agreements (CFAs) and after the event (ATE) insurance against the possibility of an adverse costs order should a claim fail.
These initiatives certainly made litigation more attractive for some Claimants, who were able to bring claims at no upfront cost and with no personal risk if the claim failed. The downside for Defendants was that the CFA success fee and ATE insurance premium were added to the Defendant’s overall bill if the claim succeeded. This had the potential to hugely increase a Defendant’s overall potential liability, which would often be left with no choice but to settle a borderline case rather than face a huge bill if it lost.
This was one of the issues addressed by the report of Lord Justice Jackson last year, many of whose recommendations apply from 1 April 2013. They include two changes that will allow Defendants to approach litigation with more certainty and confidence.
Parties in litigation now have to either agree costs budgets with their opponent or have a budget approved by the Court. These budgets will limit the level of costs that can be recovered from the other party to litigation. A budget can be increased by the Court but this will generally depend on showing that there have been unforeseen developments in the case.
The other change to the rules is that CFA success fees and ATE insurance premiums will no longer be recoverable from a losing party for agreements entered into after 1 April 2013 (apart from some limited exceptions).
The combined effect of these reforms will allow Defendants to forecast potential cost liability with far greater certainty. Not only with this allow Defendants, where appropriate, to defend cases without the risk of incurring an unexpected and disproportionate costs liability, the greater level of knowledge about costs may also promote settlement.