Contingency Fees in England After April 2013

by Quinn Emanuel Urquhart & Sullivan, LLP
Contact

Beginning in April 2013, lawyers in England will be permitted to recover fees from the damages awarded to their clients. This type of contingency fee agreement was formerly prohibited in the UK, but a comprehensive review of civil litigation costs in 2009 prompted the recent passage of the Legal Aid, Sentencing and Punishment of Offenders Act 2012, which will permit damages-based fee agreements when the first part of the Act comes into force, which is expected in April 2013. Many details concerning these agreements will be contained in regulations that are still being developed. Nonetheless, it is clear that the introduction of damage-based fee agreements will shake up the way litigation is conducted in the UK.

Although contingency fees were long barred in the UK, one sort of contingency fee arrangement, success fees, has been a feature of the UK litigation environment for the past two decades. Success fees entitle lawyers to an increase in fees, capped at 100%, in the event of a successful outcome. Success fees are said to encourage the prosecution of meritorious claims which lack funding and provide lawyers with incentives to win cases without emphasising the size of the resulting award.

In 2000, successful claimants were allowed for the first time to recover from defendants, not just their usual fees, but also success fees as well as any premiums for after-the-event insurance, which protects litigants against costs that may be imposed upon them in unsuccessful litigation. Although in England successful parties traditionally have been able to recover legal fees from the losing party in most cases, the recovery of success fees and insurance premiums significantly increased the costs burden for unsuccessful parties. Moreover, this burden was asymmetric because unsuccessful claimants could often insulate themselves from large costs bills by taking out after-the-event insurance and entering into success fee arrangements based on an initial reduced fee.

Commentators criticized the disparate cost burdens created by shifting the costs of contingency fees and after-the-event insurance. These concerns, along with the growing interest in enabling greater access to justice, led to a significant review of civil litigation costs in England. As a result, the Master of the Rolls, the second most senior judge on the Court of Appeal of England and Wales, mandated his colleague, Lord Justice Jackson, with reviewing civil litigation costs. Lord Justice Jackson issued a report in December 2009. In the forward to that report, Lord Justice Jackson commented, “In some areas of civil litigation costs are disproportionate and impede access to justice. I therefore propose a coherent package of interlocking reforms, designed to control costs and promote access to justice.” Accordingly, Lord Justice Jackson recommended permitting barristers and solicitors in England to enter into damages-based contingency fee agreements, but prohibiting shifting the costs of after-the-event insurance premiums and success fees. These reforms were adopted in the Legal Aid, Sentencing and Punishment of Offenders Act 2012 and will progressively come into effect, with contingency fees expected to be effective in April 2013.

If the United States’ experience with contingency fees is any guide, these reforms will bring significant benefits. It is more likely that impecunious claimants with meritorious, high-value claims will be able to find representation. It is also expected that barristers and solicitors will become more creative with their costs structures and will depart more and more from simple time-sheet billing. In addition, clients may begin to expect creativity from their legal counsel in structuring fee deals to deliver commensurate value.

On the other hand, the retention of the English practice of awarding legal fees to the prevailing party is likely to prevent many of the speculative claims experienced in the U.S. The “no win, no fee” concept utilized in the United States won’t apply in England because, regardless of whether a matter is conducted under a contingency fee arrangement, in England the unsuccessful party normally bears the reasonable costs of the successful party’s legal fees and disbursements. Moreover, because of the reforms contained in the recent legislation, defendants will not be induced to settle by the threat of contingency fees because insofar as the contingency fee payable to a solicitor exceeds what would be chargeable under a normal fee arrangement, the successful party must bear that cost.

Numerous questions concerning the new damages-based contingency fee arrangements remain open. Many are being addressed by the regulations on which the Civil Justice Council (“CJC”) is advising. For example, the CJC has recommended that there should be no maximum cap set for contingency fee agreements in general commercial litigation. (There would be caps, however, in litigation concerning certain areas such as employment law and personal injury.)

The CJC is also considering whether lawyers should themselves be made subject to adverse costs awards as third party funders may be in some circumstances. In third party funding arrangements, an investor finances all or part of a client’s legal costs and expenses in exchange for an agreed share of any recovery. Under current law, third party funders may be held directly liable for adverse cost awards, but lawyers are immune from such awards. The CJC has recommended retaining both practices. However, some commentators have suggested that, if lawyers are not liable for adverse cost awards in circumstances when third party funders are, litigation funders may buy into or set up law firms in order to avoid adverse costs liability.

Even after the regulations are issued, questions will remain concerning contingency fee arrangements. One issue will be the impact of the common law doctrines of maintenance and champerty. Maintenance is the act of supporting litigation in which a party has no legitimate interest, while champerty is maintaining a party on the basis that the funder will be rewarded upon a successful outcome. The Criminal Law Act 1967 abolished both the crimes and torts of maintenance and champerty. Nevertheless, the common law rules against maintenance and champerty remain, and therefore a contingency fee agreement that violates those rules may be held contrary to public policy and unenforceable. Case law suggests that a funding arrangement amounts to maintenance or champerty if it permits an unjustifiable intrusion into the running of the case or disproportionate control or profit, or creates a clear tendency to corrupt justice.

While the coming regulations and existing common law doctrines such as champerty and maintenance will place some restrictions on the new damages-based contingency fees, there undoubtedly will be much room for creative new fee arrangements, which lawyers and clients alike should explore.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Quinn Emanuel Urquhart & Sullivan, LLP | Attorney Advertising

Written by:

Quinn Emanuel Urquhart & Sullivan, LLP
Contact
more
less

Quinn Emanuel Urquhart & Sullivan, LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.
Feedback? Tell us what you think of the new jdsupra.com!