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Aug 26

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Jackson Reforms Change the Economics of U.K. Litigation

In 2010 Lord Justice Jackson issued a report regarding recommended changes to England’s civil procedure in order “to promote access to justice as a whole by making costs of litigation more proportionate“.  On April 1, 2013 these recommendations became law, representing a substantial economic shift in the cost of litigation.  Under these newly introduced Jackson Reforms, prevailing parties will no longer be able to pass on certain legal costs to the other side.  Affected costs include success fees contained in conditional fee arrangements (CFAs) and after the event  (ATE) insurance premiums paid to insure against a potential litigation loss.

These cost shifting measures are designed to control costs by keeping the fee payment obligations with the party in a position to control them.  For instance, under the previous system, a party had little incentive to judiciously monitor the amount of a proposed success fee, as the burden of paying it could be passed onto the opponent if it were to be incurred.  Under the new system, any success fee is paid out of the prevailing party’s award.  The same is true for Damage Based Agreements (DBAs), where the entire fee is a percentage of the damage award. Such DBA contingency rates are capped at 25% for personal injury claims, 35% for employment matters and 50% for commercial and other claims.

These new rules may make some litigation entirely uneconomical since the recovery would be wiped out by the cost of litigating the claim.  However, the new rules also enable this assessment to be made up front, as detailed budgets are required and reviewed by the court early in the process.  Any adjustments to such budgets must be justified to the court.  Despite such concerns, proponents of the reforms note that this is in line with the overriding intention of proportionality, as parties would not spend more than the case was worth to litigate it.  At the same time, such rules mean a plaintiff who incurs costs on a contingency basis is at a disadvantage over one who can pay outright, as the former would not be returned to the position they would have otherwise been but for the circumstances of the lawsuit.

About the author

Maksim Dvorkin

Maksim Dvorkin is a consultant at Fulcrum Inquiry, an accounting, finance and economic consulting firm specializing in complex litigation, forensic investigations and appraisal issues across a broad spectrum of industries.

Permanent link to this article: http://betweenthenumbers.net/2013/08/jackson-reforms-change-the-economics-of-u-k-litigation/

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