The Legal Cost Reforms Are Finally Here: But Are They a Good or Bad Thing?

By now everyone involved in the UK legal system should know that the much-anticipated legal costs reforms have arrived. The Legal Aid, Sentencing and Punishment of Offenders Act (LASPO) became law on 1st April 2013 which means new regulations for litigation funders, lawyers and insurers.

Many have been speculating what effect LASPO will have on the industry, especially since Lord Justice Jackson’s review in 2009 and his published report in 2010. The changes have caused uncertainty as much of the details remain hazy. Some parties, who have been trying to understand the new rules, are still unsure what the law means on a practical level.

So, here is a breakdown to what the reforms entail. On one hand it can be argued that the reforms bring positive changes to the industry however; on the other hand it can be claimed that it will only cause obstacles.

  • Reform 1: Damage-Based Agreements (DBAs)

It has to be said that this is the biggest change to come about. DBAs replace Conditional Fee Agreements (CFAs) and involve the client paying their lawyer a percentage of the damages. This is in return for the professional taking the risk of being paid nothing if the cases loses.

The problem is that the fee is dependent on the amount of damages awarded and there is confusion on the exact figure to pay including disbursements, counsel’s fees and VAT. It has been predicted that fewer commercial law firms will take these cases on board because there is danger of no fee at all.

The Legal Services Board (LSB), which regulates both the Bar Standard Board and the Solicitors’ Regulation Authority (SRA), has warned that consumers may need protecting against the mis-selling of DBAs.

What matters is that clients are fully aware of what they are signing up for and at what cost.

  • Reform 2: Cost budgeting

As part of the new law, all costs must be budgeted at the start of the trial as well as throughout proceedings. This safeguards the client against any nasty, unexpected legal fees and they can learn what costs are proportional to the claim to understand if the case is financially viable to pursue.

New disclosure rules will also improve collaborations between parties and this should make the case more cost-effective to run. What’s essential is that it is clearly stated what costs are not recoverable from the losing party i.e. ATE (After-the-Event Insurance) and lawyers’ success fees. This will make costs more transparent.

The reforms will be accompanied by new financing packages from third party funders that will be given to clients. In anticipation of the Act, the number of litigation finding companies has increased in the last three years. From a positive point of view, this gives lawyers and businesses a better choice of funding opportunities and legal insurance products.

However, when choosing a third party funder it is imperative that they fully assess the risk involved and create a budget before agreeing to find your case.

Whether you think LASPO is a good or a bad influence on litigation is regardless because it is here to stay. You can dwell on the negative views or you can embrace the reforms and move forward with an industry that has greater transparency and better budgeting.

Surely that is best for both the business and the third party funding provider?

This article was provided by litigationfunding.com, the UK’s leading experts in litigation funding.

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