Time is running out for pursuing commercial disputes

The much publicised Jackson Review into civil litigation costs is due to be implemented in April 2013, bringing with it significant changes to the current costs regime.

While focused primarily on personal injury and medical negligence claims, the reforms will also have a far reaching impact on commercial disputes.

In particular, it signals the end of the recoverability of ‘success fees’ where parties are operating under a Conditional Fee Agreement.

Conditional Fee Agreements (CFAs) are routinely used in personal injury and medical negligence claims, and have given rise to the ‘no win no fee’ litigation culture.

It is rare that commercial litigation cases are suitable for standard CFAs, but discounted CFAs, where the cost risk is shared between a party and its legal advisers, are not uncommon. It will depend on the specific circumstances of the case and the particular financial situation of the party involved.

Under the Jackson reforms the success fee (which is usually a percentage uplift on the standard costs and is payable under a CFA if the case is successful) will no longer be recoverable from the other party.

From April 2013, both the success fee and the insurance premium for After The Event (ATE) Insurance, which parties often obtain in conjunction with a CFA to cover the risk of an adverse costs order being made against them, will have to be paid by the client out of any damages awarded at the end of the claim.

At the same time, it is anticipated that the small claims limit for commercial disputes will also increase in April 2013.  The initial increase is expected to be from the current £5,000 to £10,000, but there is an indication that it could even reach £15,000 in due course.

If the small claims limit is increased, it will effectively mean that from April 2013 a party will be required to fund any claims it wishes to pursue, possibly up to £15,000, from its own pocket.

The cumulative effect of the removal of the recoverability of success fees and ATE insurance premiums, and the proposed increase in the small claims limit, mean that from April 2013, it is likely to become uneconomic for businesses to pursue commercial disputes through the courts.

Our advice to businesses that are currently considering bringing commercial claims, but may have not done so, either because of concerns about the merits of the claim, or the potential financial and commercial cost involved, would be to seek legal advice on those cases as a matter of urgency.

There may be substantial cost savings to your business by commencing the claim before April 2013, especially if your case is suited to a conditional fee agreement. You could lose the opportunity to take advantage of the current funding arrangements if you do not act quickly.

If you would like to discuss this, or any other dispute resolution matter, please contact Colin Fenny on 01772 258321, or at Colin.Fenny@harrison-drury.com