New civil litigation rules are set to create bigger compensation awards but smaller pay-outs for victims, according to a Yorkshire commercial litigation lawyer.
While general damages awards in ‘tortious cases’ - covering anything from nuisance or negligence to defamation or harassment - will increase by ten per cent in a civil litigation shake up which takes effect next April (2013), the only real winners are likely to be insurance businesses, says Michael Doherty of Lupton Fawcett LLP.
The changes are part of The Jackson Reforms in which higher pay-outs are aimed at compensating clients for no longer being able to enter no-win, no-fee agreements with lawyers or recover insurance premiums to cover adverse costs, even if they win their case.
Under the reforms, the success fees applied with no-win, no-fee agreements and the premiums for after-the-event insurance policies to cover adverse costs will no longer be recoverable from the other side.
This means that solicitors will no longer offer no-win, no-fee agreements to clients as there will be no incentive for them to do so while, in many cases, claimants unable to recover insurance premiums will feel it is uneconomic to pursue small claims where the insurance cost maybe higher than the damages award.
Under the reforms, no-win, no-fee agreements are likely to be replaced with contingency fee agreements where solicitors will gain a set percentage of compensation awarded to their client.
Michael Doherty says: “The public has not been adequately forewarned of these changes which are a major departure from the current system. They will have a great impact on peoples’ access to justice. Many potential claimants will be reluctant to bring cases if they risk paying an opponent’s costs, which might be far more than the value of their claim if they lose, and don’t have an insurance policy.
"Contingency fee agreements were tried before and created animosity between claimants and their solicitors. There were horror stories of clients being effectively left with nothing from their damages awards after legal costs were deducted. This was said to have brought the legal profession into disrepute so it seems odd that it’s making a come back. “
Michael Doherty adds that the ten per cent increase is likely to benefit claimants with high-value claims more than those with lower ones. “If a claimant has a negligence claim with ‘general damages’ - the term used for part of an award which compensates for intangible loss like pain and suffering - valued at around £2m, they can expect to gain an extra £200,000 – a substantial figure which can be used to pay their non-recoverable costs.
“However, in a low-value negligence claim with general damages valued at £3,000, the added ten per cent will be only an extra £300 – a tiny sum in the context of legal costs. This means that those with lower value claims will have a significant proportion of their damages eroded.
“The real winners will be the large insurance companies which will no longer have to pay any success fees or expensive after-the-event insurance premiums. Nationally, this could save them tens of millions of pounds a year and, in theory, should result in a drop in premiums generally although there is scepticism that such savings will be passed on to the public.”
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