The Ministry of Justice (MoJ) is to overhaul 'no win, no fee' conditional fee arrangements (CFAs) in a bid to reduce high payouts to lawyers and prevent unnecessary litigation making it to courts in England and Wales.

Measures announced by Justice Secretary Ken Clarke will see the abolition of the recoverability of success fees and associated costs in 'no win, no fee' CFAs, with claimants to pay their lawyers' success fees instead.

Meanwhile, as proposed by Lord Justice Jackson's review of civil litigation costs last year, lawyers will be allowed for the first time to take a slice of their client's damages.

Other measures include introducing a 10% increase in damages payouts, the introduction of a new test to ensure that overall costs are proportionate, and an increase in the costs which can be recovered by people who win their cases without legal representation.

The Government unveiled plans to implement the bulk of Jackson's planned reforms to litigation funding in November last year as part of a review of its annual legal aid bill.

Announcing the plans today (29 March) Clarke (pictured) said: "With no major reform for 15 years, the civil justice system has got out of kilter. Businesses and other people who have been sued can find that spiralling legal costs, slow court processes, unnecessary litigation and the 'no win no fee' structures, which mean greater payments to lawyers than to claimants, are setting them back millions of pounds each year."

Clarke has also launched a consultation to raise the maximum amount rewarded by small claims courts from £5,000 to £15,000 in a bid to encourage claimants to mediate rather than face the risk of higher litigation costs.

Personal injury cases have been touted as the most likely area of claims to be affected by the changes, with firms anticipating that only the larger cases will be taken on owing to the greater difficulty of recovering fees.

Market reaction

"The fundamental point on the insurers' side is that we've seen rates of £400 to £500 an hour in personal injury cases, which are now going to be a thing of the past. However, it does mean that some bodies, which regularly defend claims brought against them, are going to have issues recovering fees even if they win.

"I don't think it will have much of an impact on the number of cases brought to courts, as for bodies like councils that see a tremendous number of cases, they will just use the money that they save in success fees and premiums as a fighting fund to defend more frivolous cases."
John Goodman, casualty and healthcare partner, Barlow Lyde & Gilbert

"Obviously this is good news for defendants in terms of removing some of the inequity in the current system where defendants are often paying more on costs than damages, and it may have some effect to reduce the volume of low value claims.

"However, most of the main claimant players have honed their selection processes to ensure they are only taking on cases that are worth their while already, so I don't think we're going to see a dramatic reduction in the number of claims."
Brendan Padfield, head of personal injury, Eversheds

"Research carried out last year showed us that only 6% of the UK understands their rights in terms of personal injury claims. That is why we are concerned by any proposals which threaten to squeeze out people's right to seek redress for injuries that were inflicted on them by someone else.

"The Government has ignored the fact that legal costs are fixed in more than 75% of cases and have reduced significantly over the last year following the introduction of a streamlined claims process. It is wrong to force accident victims, who so often have complex injuries, to fight for their rights alone in the small claims court."
Sam Porteous, chief executive of the National Accident Helpline

"These reforms are good news for genuine claimants, who too often struggle to get fair compensation under the current system. The Association of British Insurers has long campaigned for reform that puts the genuine claimant at the heart of a simpler, faster, more cost-effective system.

"For too long ambulance-chasing lawyers and claims management firms have encouraged many people to believe that there is a compensation culture to exploit. The result has been a slower process for genuine claimants, and out of control legal costs that end up being paid for by all consumers through higher insurance premiums. Currently, for every £1 motor insurers pay out in compensation, an extra 87p is paid in legal costs.

"By implementing in full the recommendations of Lord Justice Jackson's review of civil litigation, the Government has addressed the injustices of our civil justice system. The final part of the reform process must be the abolition of referral fees and we urge the Government to ban them."
Nick Starling, director of general insurance and health, Association of British Insurers

"The real question is why? In terms of personal injury claims approximately 75% are low value road traffic accidents, which come under the fixed fee scheme introduced last year so the proposed reforms can only have been targeted at the minority of other claims which include difficult liability issues in matters such as employers' liability, disease and medical negligence.

One of the main premises outlined by the government and Lord Jackson for doing this is to stop the 'compensation culture'. The Government's own statistics (figures provided by the Compensation Recovery Unit) demonstrate a growing reduction rather than an increase in claims made despite the introduction and operation of 'no win, no fee' arrangements. The majority of people who have suffered injury due to the fault of others still do not seek redress.

"Having worked as a personal injury lawyer for nearly 25 years my experience is that the vast majority of my clients come to me as their careers are at threat or have been terminated due to injuries that they have sustained and even then they can often be reluctant to pursue claims. Further, it is exceedingly rare for clients to enquire about the amount of compensation that they may receive. My experience is that we still have a culture of not complaining rather than of complaining and seeking compensation."
Ian Mulkis, litigation partner, Howard Kennedy

"The changes are likely to see some saving on the part of the defendant, but overall I think it will be fairly cost-neutral, especially in motor cases. Whether or not this will now filter out un-meritorious claims remains to be seen, as the government is still considering the question of referral fees seen as a major driver to litigation. The data that Ken Clarke has referred to though concerning the NHS having paid out £312m in damages but £456m in legal costs in 2008-09 does show how legal costs currently have a major impact on expenditure that could be better used in the public sector for example to care for people."
Tracy Head, employers and public liability partner, Kennedys

"The implementation of the Jackson reforms will alter the way in which litigation is funded and remove the burden of payment of success fees and insurance premiums from defendants. The abolition of the recovery of premiums and success fees will save defendants and insurers millions of pounds a year, with the NHS litigation authority predicting savings of around £50m per year on clinical negligence cases alone."
Glenn Newberry, head of cost unit, Eversheds