Concerns mount over fast-tracking of legal aid reform bill as Government sticks to programme of deep cuts

City law firms are assessing the prospects for using damage-based billing arrangements (DBAs) for complex litigation following the Government's near-wholesale adoption of the Jackson reforms included in the Legal Aid, Sentencing and Punishment of Offenders Bill last week.

The bill, which fell in line with previous consultations, is expected to see City law firms experiment with DBAs for high value disputes as demand for alternative billing methods increases.

The bill has also seen the Government vote in favour of Lord Justice Jackson's recommendations to overhaul 'no win, no fee' conditional fee agreements (CFAs), by abolishing the recoverability of success fees and after-the-event (ATE) insurance.

However, the expected cap on damage-based success fees of 25% of awards and a 10% increase in general damage pay-outs to compensate has not as yet been confirmed, with the 
Ministry of Justice (MoJ) still set to consult on the figures before they are finalised. A second reading of the bill was held yesterday (29 June).

Freshfields Bruckhaus Deringer litigation partner Paul Lomas (pictured above) said: "There is no doubt that the Jackson reforms will lead to DBAs being used as an alternative method of billing by law firms with claimant practices, which is really, 
really significant.

"Obviously, the bill implements what has been indicated all along, as a wholesale adoption of the Jackson reforms; however I'm surprised that they have held a second reading so early on as the real dangers with this are in the detail and that needs thorough consultation."

Mayer Brown commercial dispute resolution partner Rani Mina said: "CFAs have not had much of an uptake to date by City law firms, but recently we have seen more requests from clients for alternative ways of billing for large pieces of litigation including CFAs.

"Clients will definitely be asking more and more about DBAs as an option in light of Jackson's reforms, but of course the devil will be in the detail and we are yet to see what caps there may be on fees paid from damages."

The shake-up of the regime for civil litigation funding has provoked strong responses in the industry with bodies representing defendants – both corporate law firms and insurers – welcoming the implementation of Jackson's reform blueprint.

In contrast, claimant lawyers and charities have come out against the reforms, arguing that they will curtail access 
to justice.

The nature of the split was underlined by the decision of two specialist legal expense insurers – Elite Insurance Company and DAS – to leave the Association of British Insurers thanks to its support for the Jackson reforms.

Director of litigation fund TheJudge, James Delaney, said: "Jackson is making the assumption there will still be an insurance market ready to insure these cases, and it will definitely result in a smaller insurance pool. In general the market will adapt, but it will be slanted, and the innovation of new insurance products is going to be key."

Elsewhere, attention over the bill was dominated by the Government's decision to press ahead with drastic cuts to legal aid in a bid to reduce its £2.1bn annual legal aid bill and a U-turn on sentencing policy that saw the MoJ abandon plans for further sentence discounts in return for early guilty pleas.

The cuts largely withdraw legal aid from cases involving welfare benefits, clinical negligence, personal injury, debt, private family law cases, employment, immigration, and housing, including squatters resisting eviction. The move is expected to cut £350m in direct legal aid spending annually.

Legal aid will remain for judicial review cases applications but will be restricted to directly affected parties – making it harder for campaign groups to pursue such cases.

The Government has only offered minor concessions on legal aid despite much opposition in the 5,000 responses it received on the bill's consultation. Concessions include retaining legal aid for cases involving special educational needs and in some private family cases where there is a risk that the child concerned could be taken abroad. It also extended the proposed definition of domestic violence to include mental and sexual abuse and neglect, which will allow more people access to legal aid.

Aside from the much-debated withdrawal of civil legal aid, the bill also includes a controversial provision which could allow means-testing of legal representation for individuals following an arrest.

The MoJ has said that it has no plans to use the provision currently but it would allow the measure to be enacted at a later date if needed.

The Government's tactics on pushing through the cuts to legal aid have been bitterly opposed by many legal and campaign groups.

Critics argue that cuts will lead to costs in other areas for the taxpayer and that the Government's claim that legal aid is far more expensive in England and Wales fails to take account of the high levels of imprisonment in the UK and the cost burden of 'adversarial' justice. Inquisitorial systems used in many continental European jurisdictions focus public spending on the 
courts themselves, rather than legal advisers.

MoJ minister Jonathan Djanogly (pictured right) said: "These reforms will ensure that we have a legal aid system which is targeted at those who need it most, in the most serious cases, as well as providing value for money to the taxpayer.

"Together with our proposed reforms to no win, no fee deals and the ways civil disputes are settled, these proposals mark a retreat from a dangerous slide towards a litigious compensation culture."

Law Society president Linda Lee commented: "The Government is hell-bent on introducing a piece of legislation that will increase crime, weaken social cohesion and cost taxpayers more than it cuts.

"It has failed to consider alternative savings identified by the Law Society which would make a bigger contribution to cutting the deficit without the need to remove civil legal aid from hundreds of thousands of the most vulnerable people in society.

"This is a Government 
that is running scared of 
proper scrutiny and debate. They are fasting the bill through Parliament to silence the public."

Further reaction from the market

"The proof of the pudding will be in the eating. There will be those that see this as damaging access to justice, with clients not being able to pass on the uplifts, and there will be others that see access to justice better served, with clients not being bullied into settlements.

"The reforms seek to balance competing interests. It remains to be seen whether work flows in areas such as personal injury will be affected severely."
Simon Davis, head of commercial litigation, Clifford Chance

"Jackson made it very clear in his proposals that they were interlocking reforms and needed in his view to be adopted as such. He has tried to balance the competing interests very clearly with a view to finding something fair that would increase access to justice, not just for claimants but also for defendants.

"Like most major litigation firms we don't often do 'no win, no fee', but do offer our clients including defendants discounted CFAs in the right kind of case, to share risk and get an uplift for a good result. Even if in future clients can't recover success fees from the other side I think firms will continue to use them, as well as looking at contingency fees as an alternative way of billing."
Andrew Horrocks, professional and commercial disputes partner, Barlow Lyde & Gilbert

"The introduction of DBAs became inevitable when CFAs were first introduced. From then on the age old concern about the conflict between the lawyer's and the client's interest where the lawyer's fee is dependent on the outcome ceased to be a barrier.

"However, CFAs are not attractive to law firms for complex commercial cases whereas DBAs are more flexible and allow a more realistic risk/reward ratio. That said, I don't see DBAs being taken up by City law firms in the near term, save in exceptional cases. They will require a cultural change but their use will grow and some firms will embrace the market sooner. In any event, they will not be a licence to litigate as they are in the US because there will be a costs sanction for losing."
Ted Greeno, dispute resolution partner, Herbert Smith

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