Update On Proposed Reforms To Civil Litigation Funding In The UK

Since the publication of Lord Justice Jackson's report entitled "A Review of Civil Litigation Costs" in January 2010, it has been clear that change would be coming to the UK's civil litigation funding regime1. Some felt that with the election of the country's first peace-time coalition government, and that government's inevitable preoccupation with issues of national debt, such changes would be put on the back burner, but a major overhaul of the current rules is now very clearly on the cards.

On 29 March 2011, the Lord Chancellor and Secretary of State for Justice, The Right Honourable Ken Clarke MP, presented the Government's proposals for the reform of civil litigation funding. The proposals are based on Lord Justice Jackson's recommendations and take into consideration the responses to a consultation process conducted by the government between November 2010 and February 2011.

The Loser Doesn't Always Pay

A central tenet of UK litigation costs rules has been, since time immemorial, the costs-shifting mechanism or the "loser pays" principle whereby, in most circumstances, the losing party is required to pay the legal costs incurred by the victor in addition to its own legal costs and any damages awarded.

This principle has a profound impact on the litigation landscape in the UK: claimants are unlikely to take the risk of bringing weak claims in circumstances where they might ultimately be required to pay not only their own legal costs but also those of the defendant. Similarly, defendants are encouraged to settle meritorious claims at an early stage rather than risk paying damages and both parties' legal fees.

The Government's proposal will change this principle in two ways. Firstly, the Government intends to introduce a "qualified one way costs shifting" regime in personal injury claims (including clinical negligence claims). This means that individual claimants will no longer be at risk of paying a defendant's costs if they lose. There will be two principle exceptions such that (a) very wealthy individuals will not be included in the new regime and (b) a claimant that has acted "fraudulently, frivolously or unreasonably" in pursuing proceedings may still be required to pay the other side's costs. Defendants in personal injury cases, principally insurers and large, well-funded bodies such as the National Health Service, will remain liable for a claimant's costs if they lose, and the usual "loser pays" rules will continue to apply in all...