CFAs conditional on the courts
Legal Developments - Bernard Clarke assesses some of the implications of the Access to Justice Bill
June 30, 1999 at 08:03 PM
5 minute read
The Access to Justice Bill has been through the committee stage in the House of Commons and will become law two months after it receives royal assent.
The Lord Chancellor's office indicates that it is unlikely to become law before October 1999 and the more likely date for its introduction is January 2000. It replaces the old legal aid system with two new schemes and makes provisions about: rights to supply legal services; appeals and court procedures; magistrates and magistrates courts; and immunity from action and costs of certain officials exercising judicial functions.
Clauses 29 and 30 in Part III of the Bill relate to privately-funded litigation. Clause 29 amends the law on conditional fee arrangements (CFAs) between lawyers and clients. Clause 30 deals with the recovery of insurance premiums as costs between the parties to litigation.
Clause 29 (6) says: "Where in any proceedings a costs order is made in favour of any party who has entered into a CFA, the costs payable to him may, subject to rules of court, include costs in respect of any fees payable under CFA which provides for the repayment of enhanced fees."
This will make success fees recoverable from the party against whom an order for costs has been made.
Sub-section 7 goes on to say: "Rules of court may make provision with respect to the taxing of any costs which include fees payable under a CFA (including one which provides for the payment of enhanced fees)." Any success fee will therefore be subject to assessment as with other costs and disbursements which are the subject of an order. It will be for the costs judge to decide whether the success fee will be recoverable in its entirety.
The rules of court have yet to be drafted and important issues such as the timing of the disclosure of the amount of the success fee have yet to be determined. It is likely that the success fee will be limited to a 100% increase on basic costs, which is currently the case under the Conditional Fees Order 1998.
The costs judge will have the task of assessing whether or not the success fee was reasonable.
Hindsight is a wonderful thing in civil litigation and if the intent of Section 29 (6) is to be achieved then the rules of court must protect a claimant against success fees being unfairly reduced on taxation.
Section 30 deals with recovery of insurance premiums by way of costs and says: "Where in any proceedings a costs order is made in favour of any party who has taken out an insurance policy against the risk of incurring a liability in those proceedings, the costs payable to him may, subject to the rules of court, include costs in respect of the premium of the policy."
This includes an insurance policy to cover liability for a party's own costs and/or disbursements as well as a policy to cover liability for the other party's costs and disbursements.
Again it will be for the costs judge to see whether the full premium should be recoverable on taxation and rules of court will deal with
circumstances under which the premium will be recoverable. As with other disbursements, there may well be a challenge from the losing party that the premium paid was too high.
Underwriters assess premiums using a variety of criteria and the premium will generally reflect the merits of the case. It may also reflect the quality of the insurers. But it is important that the rules of court protect a party against an unreasonable challenge to the level of premium paid.
The most important thing for litigators and clients alike to appreciate about Sections 29 and 30 is that they are unlikely to be retrospective. Premiums paid before the Bill becomes law will not be recoverable from the other side as part of an order for costs and the same applies to CFAs.
If the CFA or the insurance policy can await the Access to Justice Bill then, in some cases, this may well be an option that practitioners and clients may wish to consider.
The implications of the Access to Justice Bill are that anybody embarking upon commercial litigation should consider the possibility of 'after the event' litigation costs insurance.
Indeed, the new rule 15 of the Solicitors' Practice Rules 1990 advises solicitors that they should discuss with their clients whether their charges and expenses and the client's liability for another party's charges and expenses should be covered by insurance. This practice rule takes effect from 3 September.
Beware the unsuccessful claimant who, when faced with a demand for the defendant's costs, says: "You never told me that I could have insured against this!"
Bernard Clarke is founding partner of Bernard Clarke & Co and underwriting director at First Legal Indemnity.
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