Changes to funding options for civil litigation

On 1st April 2013 the Civil Procedure Rules which govern civil litigation in England and Wales were amended by virtue of what are known as the ‘Jackson Reforms’ (after Lord Justice Rupert Jackson). The reforms change the way in which litigation is both funded and managed. 
 

Here we look at the way in which some of the reforms could affect you or your business, in terms of the financial implications of dealing with a claim worth up to £10,000.

Small Claims: increased financial limit, increased legal complexity?

The small claims financial limit has increased from £5,000 to £10,000 (with the exception of personal injury claims, and landlord and tenant housing disrepair claims, where the limit is £1,000). This means that if the value of your claim is £10,000 or less it will generally be allocated to the County Court small claims track.

The small claims track was set up to be quick, cheap and informal, in an effort to encourage litigants to represent themselves, rather than incurring the cost of instructing solicitors. Unfortunately however, it is often the case that the higher the value of a claim, the more complex it can be, and many people do not feel able to represent themselves in court in anything other than the most straightforward cases. With up to £10,000 at stake you may feel you need a solicitor ‘in your corner’, to help safeguard your position.

The problem with instructing a solicitor on a small claims case is that a fundamental feature of the small claims track is that the recovery of legal costs by the winning party is limited. Ordinarily, even if successful you are only entitled to recover court fees paid, and legal costs fixed by the Court (for example, if the claim is worth between £1,000 and £5,000 you can claim fixed solicitors’ costs of £80.00 in addition to court fees you have paid). If you instruct a solicitor however, the actual cost is likely to be significantly higher than the fixed fees you can recover, leaving you with a shortfall which before now you will have had to fund out of your own pocket. With higher value claims now coming within the small claims track, higher legal costs are likely, leading to a more significant shortfall.

Damages Based Agreements (DBAs)

Under the reformed Rules there is now an alternative way to fund a claim or counterclaim, known as a Damages Based Agreement (“DBA”), which will help you when faced with a shortfall.

DBAs are a type of “no win, no fee” arrangement, whereby a solicitor agrees to act in return for a fixed percentage of the damages recovered from your opponent if you are successful, and agrees not to be paid if you lose.

If you succeed, the legal costs you can recover from the losing party are still limited to fixed costs and court fees (as above), but you can use the damages you win to cover the shortfall, subject to an upper limit. In commercial disputes, the maximum amount you can be asked to use towards the shortfall is 50% of your damages. This 50% limit includes VAT and any barrister’s fees, but not any other disbursements.

The benefit to you or your business is that whereas previously you may not have felt able to take the risk of bearing the shortfall, under a DBA you know you will only have to pay it if you win (because your solicitor will not be paid if you lose), and that you will then pay it out of your damages, subject to the 50% cap.

f you wish to bring or defend a small claims case and you feel you need a solicitor’s help, then a DBA may be worth considering. We will consider DBAs on a case-by-case basis after considering the merits of your claim, your financial position and what is in your best interests overall.

For further information please contact the Litigation department at Hughes Paddison Solicitors on 01242 574244 or by email at
ach@hughes-paddison.co.uk.