LASPO - Part 2 - Litigation funding and Costs

Part 2 of the Bill also affects Family law ? it amends the Matrimonial Causes Act 1973 and Civil Partnership Act 2004 to give the courts power to make orders for costs between parties to pay for legal services.


Part 2 comprises section 44 to 62. 

Section 44 - Conditional Fee Agreements - considerable changes are made in relation to Conditional fee agreements (CFAs) and success fees.  This change is achieved by amendment of section 58 of the Courts and Legal Services Act 1990 (conditional fee agreements).  A Conditional Fee Agreement is an agreement with a person providing advocacy or litigation services which provides for his fees and expenses, or any part of them, to be payable only in specified circumstances (e.g. upon winning the case); and a conditional fee agreement provides for a success fee if it provides for the amount of any fees to which it applies to be increased, in specified circumstances, above the amount which would otherwise be payable.  A problem has been that, when a claimant is successful, the success fee can take much of what has been awarded to the claimant by way of damages.

Section 44 will introduce additional conditions applicable to CFAs where there is a provision for a success fee and where the proceedings are specified in an Order to be made by the Lord Chancellor.  In such proceedings, the success fee will become subject to a maximum limit which will be expressed as a percentage of the damages and there will be a maximum possible percentage.  A further reform will be that a costs order made in proceedings may not include provision requiring the payment by one party of all or part of a success fee payable by another party under a conditional fee agreement.  However, it appears that this legislation will not have retrospective effect.

All of this is far from being a simple area.  There has been a previous "costs war" involving satellite litigation over costs.  This matter was addressed in Lord Justice Jackson's preliminary report where he examined the litigation over costs.  The LASPO reforms do not appear to go far enough in seeking to prevent a new "costs war" - see Law Society Gazette 15th March 2012 article by Jeremy Morgan QC - "Avoiding another costs war."

Section 45 - Damages Based Agreements (DBA).  Section 58AA of the Courts and Legal Services Act 1990 (damages-based agreements) is amended. A Working Party has been set up to advise on how the changes will be implemented.  To date, such agreements have been used mainly in Employment cases but their wider use is permitted (subject to various conditions) by the amendments in LASPO.

Section 46 - Recovery of insurance premiums by way of costs - a new section 58C will be inserted into the Courts and Legal Services Act 1990.  Essentially, section 58C specifies that a costs order made in favour of a party to proceedings who has taken out a costs insurance policy may not include provision requiring the payment of an amount in respect of all or part of the premium of the policy, unless such provision is permitted by regulations made by the Lord Chancellor  Again, section 58C will not be retrospective.


Section 47 - Recovery where body undertakes to meet costs liabilities.  The Access to Justice Act 1999 section 30 will be omitted.  Section 30 currently applies where a body of a prescribed description undertakes to meet (in accordance with arrangements satisfying prescribed conditions) liabilities which members of the body or other persons who are parties to proceedings may incur to pay the costs of other parties to the proceedings.  If in any of the proceedings a costs order is made in favour of any of the members or other persons, the costs payable to him may, subject to certain requirements, include an additional amount in respect of any provision made by or on behalf of the body in connection with the proceedings against the risk of having to meet such liabilities.  The additional amount shall not exceed a sum determined in a prescribed manner.

Diffuse Mesothelioma

Section 48 - provides that sections 44 and 46 may not be brought into force in relation to proceedings relating to a claim for damages in respect of diffuse mesothelioma until the Lord Chancellor has - (a) carried out a review of the likely effect of those sections in relation to such proceedings, and (b) published a report of the conclusions of the review.  ?Diffuse mesothelioma? has the same meaning as in the Pneumoconiosis etc (Workers? Compensation) Act 1979.  See also Department for Work and Pensions.  Section 48 is a late concession made by the government - see Bakers Solicitors - LASPO: Government climbdown on mesothelioma cases.


Section 49 - Divorce etc proceedings: orders for payment in respect of legal services.  Section 22 of the Matrimonial Causes Act 1973 (maintenance pending suit) is amended.  A new section 22ZA is added.  This is not considered further here.

Section 50 - A new section 22ZB is inserted into the Matrimonial Causes Act 1973 dealing with matters to be considered by court making legal services order in divorce cases.

Sections 56 and 57 are concerned with "Referral fees." The Government formed the view that such fees should be banned in personal injury cases.  According to government, t"he current arrangements have led to high costs, encouraged a compensation culture and led to the growth of an industry which pursues claimants for profit. Insurance companies inevitably pass the costs they incur through increased compensation claims directly onto motorists and those with other insurance policies, unnecessarily forcing up the cost of living"

An example of a referral fee might be:

• You have an accident and you are induced through a TV advert or SMS text message to make a ?no-win, no-fee? claim.
• Your claim is passed between claims management companies (who advertise compensation claims for accidents), insurance companies, lawyers and others who charge each other a referral fee for ?referring? the claim up the line.
• The lawyer sues for compensation. If he wins, he can recover his costs and his ?no-win, no-fee? mark-up on his costs from the losing defendant (or often the defendant?s insurance company) which will cover the amount he paid out as a referral fee. So the lawyer may pay hundreds of pounds as a referral fee because he knows he can get the money back.
• To cover the loss, losing insurance companies are forced to raise premiums, private companies are forced to put up prices, and public authorities pass the burden on to the taxpayer. 

Section 56 is headed - Rules against referral fees and, under section 57, "regulators" will gain the responsibility of policing regulated persons.  Contract to make or pay for a referral or arrangement in breach of section 56 will be unenforceable.

Section 58 enables the Treasury to make regulations to enable the Financial Services Authority, where it is the relevant regulator, to take action for monitoring and enforcing compliance with the restrictions imposed on regulated persons by section 56.

Section 59 defines who regulators and regulated persons are.  Section 60 deals with the process of making regulations under sections 56 to 59.

Section 61 is concerned with "Pro Bono Representation."  There is power in the Legal Services Act 2007 section 194 for certain courst to order a losing party to make a payment to charity where the other party is represented pro bono.  Section 61 inserts into the 2007 Act a new definition of "civil court."

Section 62 - Costs in Criminal Cases - brings into force Schedule 7 (costs in criminal cases) and Schedule 8 (costs in criminal cases: service courts).