England and Wales move one step closer to introducing contingency fees

On 29 March 2011, following a period of consultation, the government announced that the civil cost reforms proposed by Lord Justice Jackson in his January 2010 report will be implemented in full.

In his report, which followed a year-long review of rising civil litigation costs in England and Wales, Jackson proposed, amongst other things, that the recoverability of success fees and associated costs through ‘no win, no fee’ conditional fee arrangements be scrapped and replaced by (currently unlawful) contingency fees.

Justice Secretary Ken Clarke has now confirmed that Jackson’s reforms will be fully implemented, marking the first major overhaul to litigation funding arrangements in the UK in 15 years.  For the first time, lawyers will be permitted to take their fees from their clients’ damages.

The use of such contingency fee arrangements, whereby the lawyer takes a percentage of the monies recovered for its client as fees, has to date remained unlawful in England & Wales. Based on the ancient rule of champerty, the thinking has always been that lawyers with a significant financial stake in the outcome of a case might lose their ability to give impartial advice.

With conditional fee arrangements and the after the event insurance regime set to go, contingency fees are now considered by the Ministry of Justice to be the acceptable means by which to “promote access to justice at proportionate cost”. However, Jackson has suggested that contingency fee arrangements require proper regulation and should not be valid unless the client has received independent legal advice. He has further recommended that there be a set maximum percentage of damages that can be recovered in fees from the amount awarded, however he gave no indication of what that percentage should be in commercial cases.

The introduction of contingency fees will constitute a substantial change to the litigation landscape and has sparked controversy in some areas of litigation in England & Wales. However, the ability to offer them will increase the options available for commercial clients seeking more creative fee arrangements and will also allow the risk of litigation to be shared by clients with their lawyers.

When the contingency fee arrangements are implemented in England, Cozen O’Connor’s London subrogation team will be able to combine its expertise with that of litigators in other jurisdictions which allow for contingency fees and where Cozen clients have pending claims (including Italy, Spain and Germany) under a single contingent fee structure.

We await the draft primary legislation and guidance needed to bring the government’s proposals into being, which are expected next year.
 

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