RESPONSE OF INNOVATE LEGAL SERVICES LIMITED TO THE CONSULTATION ON THE PROPOSALS
FOR REFORM OF CIVIL LITIGATION FUNDING AND COSTS
Sent by email only to: [email protected]
Dear Sirs
This is the Response of Innovate Legal Services Limited (“Innovate Legal”) to the consultation on the proposals
for reform of civil litigation funding and costs.
Innovate Legal is a small ‘boutique’ law firm of five experienced commercial litigation solicitors, based in London.
Our practice covers a wide range of business disputes in the UK and internationally. Relevant to this Response is
our range of experience in general commercial litigation in the High Court and County Courts. Our clients vary
from individuals, small to medium-sized companies, charities and multinational companies. The firm does not
advise in personal injury and clinical negligence matters.
We should be grateful if you would please address any correspondence about our submission to Samantha
McBain, our Head of Dispute Resolution, whose contact details are shown below:
Name:
Samantha McBain
Address:
Innovate Legal
107 Fleet Street
London
EC4A 2AB
Telephone:
020 7936 9056
Fax:
020 7936 9111
Email:
[email protected]
Introduction
The issue that is of most relevance to our firm in this consultation is the proposed abolition of the recoverability of
success fees under conditional fee agreements (CFAs) and after the event (ATE) insurance premiums from the
losing party in commercial disputes, but we will also respond on the proposals relating to Part 36 offers and
contingency fees (damages-based agreements), insofar as they relate to commercial litigation.
Executive Summary
Innovate Legal is not in favour of the abolition of either the recoverability of success fees under CFAs and/or ATE
insurance premiums from the losing party in commercial disputes. Innovate Legal is in favour of the proposed
change to the Part 36 regime (linking the value of the claim to the costs penalty on defendants for failure to accept
a claimant’s Part 36 offer) and the proposal to allow contingency fees in civil litigation.
Whilst we understand that the Government wishes to address the impact of adverse costs orders (with success
fee uplifts) either directly upon individuals or the public purse, we believe that there is no case for the wholesale
abolition of the recoverability of success fee uplifts and ATE premiums from losing parties in disputes brought
between commercial entities. We believe that such abolition would limit the options available to smaller and
medium-sized companies (SMEs) in commercial litigation and would seriously impede their access to justice and
to high quality legal advice.
Innovate Legal Services Limited 107 Fleet Street London EC4A 2AB Company No 5951888 Registered in London Director: Duncan Curley Regulated by the Solicitors Regulation Authority
Detailed Response
Members of our firm have over 50 years of collective experience in handling commercial litigation for our clients.
We have acted both for claimants and defendants who have undertaken litigation on a CFA and who have taken
out ATE insurance. We have also acted for parties to litigation where an opponent has been on a CFA and/or
who has managed to obtain ATE insurance.
In our experience, the recoverability of both success fees under CFAs and ATE insurance premiums have played
and continue to play an important role in securing access to justice for SMEs who wish to engage in commercial
disputes. The ability to recover success fees and an insurance premium from a losing opponent at the end of a
case is an important factor that has encouraged solicitors (particularly small firms of solicitors) to share litigation
risk with their clients. In our experience, the present CFA regime offers an alternative means of funding a case for
companies with good claims, but lacking in significant financial resource, who do not necessarily wish to have
their ultimate financial recovery reduced by a significant legal bill. Moreover, CFAs and ATE insurance often play
a key part in the structuring of third party funding arrangements for litigation costs.
We do not therefore believe that there is a case for the abolition of the recoverability of success fees under CFAs
and ATE insurance premiums in commercial cases. We do not agree that the recovery of such from losing
parties constitutes a ‘disproportionate’ measure. In commercial cases, a party will almost always be fully aware of
the cost implications of continuing to dispute a case, where it has an unmeritorious position and where the other
side is pursuing its case on a CFA (and/or with the benefit of an ATE insurance premium). Such a party well
understands that if it chooses to take the risk of contesting such a claim through to trial, and it loses, it will face
the consequence of having to pay a success fee uplift and (where appropriate) the ATE premium of its opponent.
These are commercial decisions. In our view, there is no case for the abolition of the recovery of success fees
under CFAs and ATE premiums in commercial cases.
Innovate Legal supports the proposed changes to the Part 36 regime. In our experience, Part 36 offers often fail
to result in a settlement of commercial disputes in circumstances where the value of the claim significantly
exceeds the level of costs likely to be incurred in pursuing or defending it. In such cases, the potential ‘indemnity
costs’ penalty for non-acceptance of a Part 36 offer may be inadequate as a motivation to settle. We believe that
linking the ‘penalty’ for non-acceptance to the value of the claim, as a percentage of damages, will encourage
earlier offers and earlier settlements.
On the specific questions posed in relation to these proposals in the Consultation Paper, Innovate Legal’s
responses are as follows.
In relation to the recoverability of CFA success fees:
Q 1 – Do you agree that CFA success fees should no longer be recoverable from the losing party in any case?
No.
Q 2 – If your answer to Q 1 is no, do you consider that success fees should remain recoverable from the losing
party in those categories of case (road traffic accident and employer’s liability) where the recoverable success fee
has been fixed?
No comment.
Q 3 – Do you consider that success fees should remain recoverable from the losing party in cases where
damages are not sought e.g. judicial review, housing disrepair (where the primary remedy is specific performance
rather than damages)?
Innovate Legal Services Limited 107 Fleet Street London EC4A 2AB Company No 5951888 Registered in London Director: Duncan Curley Regulated by the Solicitors Regulation Authority
Yes, especially in commercial disputes (see comments above).
Q 4 – Do you consider that if success fees remain recoverable from the losing party in cases where damages are
not sought, a maximum recoverable success fee of 25% (with any success fee above 25% being paid by the
client) would provide a workable model?
No.
Q 5 – Do you consider that success fees should remain recoverable from the losing party in certain categories of
case where damages are sought e.g. complex clinical negligence cases? Please explain how the categories of
case should be defined.
Yes – in commercial disputes.
Q 6 – If success fees remain recoverable from the losing party in certain categories of case where damages are
sought, (i) what should the maximum recoverable success fee be and (ii) should it be different in different
categories of case?
The maximum recoverable success fee should be 100%. It should not be different in different categories of
commercial disputes.
Q 7 – Do you agree that the maximum success fee that lawyers can charge a claimant should remain at 100%?
Yes.
Q 8 – Do you agree that there should be a cap on the amount of damages which may be charged as a success
fee in personal injury claims, excluding any damages relating to future care or future losses?
No comment.
Q 9 – If your answer to Q 8 is yes, should the cap be (i) 25% or (ii) some other figure (please state with reasons)?
Not applicable.
Q 10 – If your answer to Q 8 is yes then should such a cap be binding in all personal injury cases or should there
be exceptions, and if sowhat and how should they operate?
Not applicable.
In relation to the recoverability of ATE insurance premiums:
Q 11 – Do you agree that ATE insurance premiums should no longer be recoverable from the losing party across
all categories of civil litigation?
No.
Q 12 – If your answer to Q 11 is no, please state in which categories of case ATE insurance premiums should
remain recoverable and why.
Commercial disputes, for the reasons given above.
Q 13 – If your answer to Q 11 is no, should recoverability of ATE insurance premiums be limited to circumstances
where the successful party can show that no other form of funding is available?
Innovate Legal Services Limited 107 Fleet Street London EC4A 2AB Company No 5951888 Registered in London Director: Duncan Curley Regulated by the Solicitors Regulation Authority
No.
Q 14 – Do you consider that ATE insurance premiums relating to disbursements only should remain recoverable
in any categories of civil litigation? If so, which?
Yes – in commercial disputes.
Q 15 – If your answer to Q 14 is yes, should recoverability of ATE insurance premiums be limited to non-legal
representation costs such as expert reports?
No.
Q 16 – If your answer to Q 14 or Q 15 is yes, should recoverability of ATE insurance premiums relating to
disbursements be limited to circumstances where the successful party can show that no other form of funding is
available?
No.
Q 17 – How could disbursements be funded if the recoverability of ATE insurance premiums is abolished?
No comment.
Q 18 – Do you agree that, if recoverability of ATE insurance premiums is abolished, the recoverability of the selfinsurance element by membership organisations provided for under section 30 of the Access to Justice Act 1999
should similarly be abolished?
No comment.
In relation to Part 36 offers
Q21 – Do you agree with the proposal to introduce an additional payment, equivalent to a 10% increase in
damages, where a claimant obtains judgment at least as advantageous as his own Part 36 offer?
Yes.
Q22 – Do you agree that this proposal should apply to all claimant part 36 offers (including cases for example
where no financial remedy is claimed or where the offer relates to liability only)? Please give reasons and
indicate the types of claim to which the proposal should not apply.
No. It is difficult to see how the additional payment might be calculated for claims where no damages are sought.
Q23 – Do you agree that the proposal should apply to incentivize early offers? Please explain how this should
operate.
Yes. Costs awards under the present Part 36 regime are not often regarded as significant when the damages
claim is substantial and far outweighs the anticipated costs of the litigation. The proposal to penalise the
defendant in the order of 10% of the awarded damages will encourage early Part 36 offers, early proper
consideration of those offers and early proper analysis of the quantum of a damages award.
Q24 – Do you consider that the increase should be less than 10% where the amount of the award exceeds a
certain level? If so, please explain how you think this should operate
Innovate Legal Services Limited 107 Fleet Street London EC4A 2AB Company No 5951888 Registered in London Director: Duncan Curley Regulated by the Solicitors Regulation Authority
No.
Q25 - Do you consider that there should be a staged reduction in the percentage uplift as damages increase?
No.
Q26 – Do you agree that the effect of Carver should be reversed?
Yes.
Q27 – Do you agree that there is merit in the alternative scheme based on a margin for negotiation as proposed
by FOIL? How do you think such a scheme should operate?
No.
In relation to damage-based agreements
Q45 – Do you agree that lawyers should be permitted to enter into damages-based agreements (DBAs) with their
clients in civil litigation?
Yes.
Q46 – Do you consider that DBAs should not be valid unless the claimant has received independent advice?
No.
Q47 – Do you consider that DBAs need specific regulation? If so, what should such regulation cover?
Yes. The regulation should cover the risk of unfair early settlement and penalty clauses on termination.
Q48 – Do you agree that, if DBAs are allowed in litigation, costs recovery for DBA cases should be on the
conventional basis (that is the opponent’s costs liability should not be by reference to the DBA)?
Yes.
Q49 – Do you consider that where QOCS is introduced for claims under CFAs, it should apply to claims funded
under DBAs?
No comment.
Q50 – Do you consider that the maximum fee lawyers can recover from damages awarded under a DBA in
personal injury cases should be limited to (i) 25% of damages excluding any damages referable to future care or
losses as proposed, or (ii) some other figure? Please give reasons for your answer.
No comment.
Q51 – Do you consider that in personal injury claims where the solicitor accepts liability for paying the claimant’s
disbursements if the claim fails, the maximum fee should remain at 25%? If not, what should the maximum fee
be? Should the limit be different in different categories of case?
No comment.
Innovate Legal Services Limited 107 Fleet Street London EC4A 2AB Company No 5951888 Registered in London Director: Duncan Curley Regulated by the Solicitors Regulation Authority
Q52 - Do you consider that there should be a maximum fee that lawyers can recover from damages in nonpersonal injury claims? If so, what should that maximum fee be, and should the maximum fee be different in
different categories of case?
No.
Q53 – How should disbursements be financed by claimants operating under DBAs?
This should be a matter for each solicitor and client. Some solicitors may prefer that clients pay disbursements as
they are incurred, others may agree to fund them subject to charging a higher contingency fee percentage.
Conclusions
Innovate Legal is in favour of allowing businesses and in particular SMEs the maximum freedom to tailor the most
appropriate litigation funding structure for their particular circumstances. We therefore support the retention of the
existing CFA regime for commercial disputes, including the recoverability of success fees and ATE insurance
premiums from the losing party. We believe that such retention is important to ensure continuing access to justice
and high quality legal advice, particularly for SMEs.
We support permitting contingency fees (DBAs) in commercial litigation.
We support the proposed changes to the Part 36 regime.
Yours faithfully
INNOVATE LEGAL
Innovate Legal Services Limited 107 Fleet Street London EC4A 2AB Company No 5951888 Registered in London Director: Duncan Curley Regulated by the Solicitors Regulation Authority