The use of contingency fees in UK litigation has emerged as one of the key areas for reform in Lord Justice Jackson's review of civil litigation costs, published today (14 January).

Jackson has proposed that lawyers will be allowed, for the first time, to take a slice of their client's damages, acknowledging that the "arguments in favour of contingency fees… outweigh the arguments against."

However, Jackson states that safeguards should be introduced to protect clients from any negative impact of contingency fees, recommending that regulatory measures be introduced, including a maximum percentage of the damages that can be recovered in fees from the award.

Jackson also recommends that any contingency fee agreement must be countersigned by an independent solicitor.

CMS Cameron McKenna head of dispute resolution, Liam O'Connell, commented: "Jackson has given his blessing to contingency fee agreements. My feeling is that many clients will find contingency fee agreements attractive because they allow clients to share the risk of litigation with their lawyers."

Osborne Clarke head of litigation, Peter Clough, said: "It will surprise many observers that Jackson has recommended allowing contingency fees, where lawyers are paid an agreed percentage of damages if a party wins, and nothing – or at least substantially less – if the client loses. This is probably the most controversial of all his recommendations."

He added: "The UK has always shied away from [contingency fees] on the basis that lawyers with a significant final stake in the outcome might lose their ability to give impartial advice. Many businesses will however very much welcome this proposal, as it will allow them to litigate their claims without paying expensive legal fees, and instead to pay their lawyers a slice of the proceeds of the claim."

Other key measures in Jackson's report, which was commissioned by the Master of Rolls last January in a bid to reduce the rising costs of civil litigation, include abolishing the recovery of after-the-event (ATE) insurance premiums and uplifts on conditional fee agreement from the losing party.

The consequence of this recommendation will mean that success fees will be borne by the client rather than the opponent.

Jackson also recommends that the general level of damages for defamation cases, and other cases which cause suffering to individuals, is increased by 10%, in order to meet the success fee.

Clough commented: "This is pretty radical, as it will fundamentally affect the ATE insurance market. However, many clients – particularly corporations defending claims – will welcome this, as the amount of ATE premiums and conditional fee uplifts can add a lot to the overall costs bill and make cases disproportionately expensive to settle."

Among a raft of other proposals, Jackson has also called for judges to take a more robust approach towards case management, keeping a tighter rein on cases in a bid to stop them spiralling out of control and racking up costs.

In order to do this, Jackson recommends allocating cases to judges who have the relevant expertise as well as ensuring, as far as possible, a case remains with the same judge.

O'Connell commented: "The complaint is sometimes made that judges let cases drift and do not grab them by the scruff of the neck. Lord Justice Jackson is proposing that judges take more responsibility for controlling costs – some might resist this, but court users will certainly welcome it."

Michael Todd QC, the chairman of the Chancery Bar Association, who is chairing the Bar Council committee looking at the Jackson report, commented: "The Chancery Bar are very pleased with Jackson's recommendations for more case management, which in turn will translate to less costs."

For more analysis, see Editor's Blog: Action Jackson?

Reaction to Jackson's report

"Most commercial parties are pretty pleased with Jackson's report. The one possible fly in the ointment is the recommendation of contingency fees, but even there Jackson's recommendations are designed to avoid the problems experienced by the US."
Simon Davis, Clifford Chance

"We are dissatisfied with some of the major recommendations made and believe they will impact negatively on access to justice, particularly for claimants with smaller claims. Specifically: restriction of funders control, potentially inflexible capital restrictions, and the retention of champerty and maintenance. Lord Jackson's report makes recommendations from a legal and claimant perspective, not from the perspective of potential investors in litigation funding. We believe the risk element of investing in litigation funding could now be too high for investors in the UK market because a funder is not able to have a sensible influence over the key direction of the funded claim (the investment)."
Derek Patterson, managing director, IM Litigation Funding

"Jackson has fulfilled his stated purpose of seeking to redress the balance between claimants and defendants. His view is that the pendulum has swung too far in favour of the claimants. That redress needs however primary legislation and it remains to be seen whether he secures parliamentary time. Many changes, however, do not need that legislation. The court already has powers to put much of this into effect and otherwise many changes can be effected by rule changes through the Civil Justice Council and the Rules Committee. Jackson has, in any event, caught the mood of the market for transparent and predictable costs."
David Greene, London Solicitors Litigation Association president

"The 'loser pays' principle is one of the fundamental tenets of English civil litigation. Jackson has recommended major changes to its application. He recommends that the 'loser pays' principle should operate in favour of only the claimant in categories of cases in which the claimant is likely to be at an economic disadvantage, but he recommends that there should be no change in the 'loser pays' principle in cases where there is likely to be economic parity between the litigants. While there is logic in this distinction, it is not clear where to draw the line. It would be a shame if the certainty afforded by the 'loser pays' principle is lost."
Steven Friel, partner, Davies Arnold Cooper

"You can only applaud the thoroughness with which Rupert Jackson has approached this mammoth task. His remit was very wide-ranging and it is a major achievement to have covered so many topics all at one time and to have tried so even-handedly to balance all the many conflicting interests. Some of the proposals have the ability to make a very practical and positive change to the litigation landscape in England and Wales, and the report makes important reading for anyone involved in litigation."
Simon Konsta, senior partner, Barlow Lyde & Gilbert

"We are very pleased that Lord Jackson has accepted the Law Society's recommendation that the small claims personal injury limit remains as it is. We regard that as a litmus test of Lord Jackson's commitment to enhancing access to justice through his review. We are hopeful that the recommendations will provide for fairness between the wronged and the wrong-doer and that the proposition to abolish the recovery of success fees from the wrong-doer does not result in less, rather than more, access to justice. The Society hopes that the impact of the changes proposed under the review would remove personal injury work from the claims farm industry which we agree adds no value to the process, only middle man's costs.
Robert Heslett, Law Society president

"What is sauce for the goose is now sauce for the gander. The truth is that claimant lawyers have been maximising the efficiencies of an inefficient costs system. The current system largely does not incentivise the claimant lawyer to be efficient. At last, we have formal recognition that fixed fees have worked for the majority of defendant personal injury lawyers, so why shouldn't they work for claimant lawyers? Insurers got ahead of the game years ago and in effect imposed fixed fees on their then procrastinating lawyers. Most of us as defendant lawyers thought fixed fees would not work and quality would suffer. We were wrong on both counts. Defendant insurance solicitors have shown that fixed fees in personal injury claims do work. Their introduction forced defendant lawyers to become quicker and slicker and there is absolutely no reason why the same should not apply to claimant lawyers, despite their continuing protestations."
Brendan Padfield, head of personal injury, Eversheds

"Lord Justice Jackson's report is a landmark document, and should be accorded the status of Lord Woolf's report of the mid-1990s. The Woolf reforms did not achieve everything that was hoped for them. Costs in civil cases have risen inexorably, and disproportionately, over the past 15 years and therefore need to be contained. An accessible civil justice system is essential to underpin economic activity, and to promote social justice and equity. Lord Justice Jackson's proposals will help in securing those goals. Concerns have been expressed about CFAs but we must not throw the baby out with the bathwater. CFAs can promote, and in the past, in the absence of viable alternatives, have promoted, access to justice, but they must not be allowed to bring the system into disrepute."
Michael Todd QC, chairman, Chancery Bar Association