In its regular monthly column, law firm Weightmans looks at the controversial practice direction on conditional fees which came into force last week
Legal aid for most negligence claims – clinical negligence excepted – was withdrawn from 1 April 2000. As a result, the majority of personal injury cases have been removed from the scope of state funding. Many are likely to be brought under a conditional fee arrangement with a success fee backed by after-the-event insurance.
The final practice direction on conditional fee arrangements, which forms the last – and for defendants the most important – piece of the jigsaw, came into force last week (3 July). It has now been published and can be accessed on the Lord Chancellor's website at www.open.gov.uk/lcd.
The practice direction clarifies the following:
It is on the basis of these rules that success fees and premiums may be challenged. Despite lobbying by the insurance industry and insurance practitioners, the new rules appear to be a diluted version of the Government's recommendations. The balance is weighted in favour of protecting those entering into conditional fee arrangements from disclosing their hand at an early stage.
Two fundamental objectives of the new civil procedure rules are transparency and proportionality. In a drive to open up alternative methods of funding to replace legal aid, there is a risk that those objectives may be sacrificed, unless defendants familiarise themselves with the increasing range of insurance products available to fund litigation.
It is vital you know the key ins and outs. The criteria by which the court will assess success fees will include:
Assessing insurance premiums
The criteria by which the court will assess the insurance premium will include:
Keep up to date with developments in the after-event insurance market in order to compare the cost of alternative products. After-event insurance against both sides' costs may sometimes lead to greater savings than a conditional fee arrangement with success fee and insurance against opponent's costs.
Be aware that the underwriter may receive only a small percentage of the premium. The premium may in reality consist largely of acquisition costs, advertising expenses or commission. It is open to debate whether those items are recoverable.
Membership organisations will only recover a sum representing the likely cost to the receiving party. This is the insurance premium for the risk of incurring a liability to pay the costs of other parties to the proceedings.
Another question that needs to be asked is whether the total figure for costs – base costs plus additional liability – have to be proportionate and reasonable.
When deciding whether the costs claimed are reasonable and proportionate, the court will consider the amount of any additional liability
separately from base costs. In reality, under their discretion, courts may be prepared to reduce the amount allowed for the additional liability if costs are wholly disproportionate.
There is no hindsight test. When assessing an additional liability, the court will have regard to the facts and circumstances as they appeared reasonable to the solicitor or counsel when the funding arrangement was entered into, and at the time of any variation of the arrangement.