GUIDE TO NEW COSTS IN CIVIL CASE RULES GOVERNMENT REFORMS

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1 GUIDE TO NEW COSTS IN CIVIL CASE RULES GOVERNMENT REFORMS MAKE SURE YOU GET INSURANCE Introduction Landlords faced with claims from tenants have also in the past had to often pay success fees where tenants have been assisted through conditional fee agreements (CFAs). The Government has announced a package of reforms which will take effect from 1 st April These rules make it even more imperative that landlords of residential accommodation take out public liability policies. In particular, it is vital to ensure that there is cover against claims for personal injuries (e.g. tenant claims they are suffering from asthma as a result of disrepair). However, not all of these claims can be insured against. For example, there is no cover available for damages because you fail to carry out the repairs themselves. Background CFA s are a type of no-win-no-fee agreement under which lawyers do not receive a fee from their client if they lose a case, but can charge an uplift (a success fee) on top of their base legal costs if they win. When the lawyer wins these costs, including the success fee, are recoverable; i.e. they are normally paid by the losing party. 1

2 Under present arrangements success fees of up to 100 per cent of the lawyer s base costs are recoverable as well as after the event (ATE) insurance premiums. ATE insurance is taken out by parties in CFA cases to insure against the risk of having to pay their opponent s costs and their own out-of-pocket expenses should they lose. This can mean that defendants can be liable for up to twice the costs they would normally have had to pay if the case was not conducted under a CFA. CFA s are currently available in all civil proceedings. The intention of the Government reforms is to restore a sense of proportion and fairness but not to deny access to justice. Landlords who are involved in litigation Private landlords can become involved in litigation if sued by their tenants; e.g. for disrepair. These claims can come in two parts; (i) for personal injury, e.g. if a tenant s health has been affected by disrepair; and, (ii) for damages for disrepair itself. Landlords can insure against claims for the first - i.e. for personal injuries - but not for damages for breach of contract for failure to keep the property in repair. Landlords can also become involved in litigation in other ways as claimants. The Government reforms mean that it is even more important that landlords take out insurance cover because essentially the cost of these changes is intended to fall on insurers. However, if landlords do not have the necessary insurance cover where it can be obtained, the cost could fall on them if they are successfully sued. Reform of Conditional Fee (CFA) Agreements The right to recover success fees ordered to be paid by unsuccessful defendants, such as the landlord, and the recovery of after the event (ATE) insurance premiums from the losing side is being abolished. Litigants will still 2

3 be able to use CFAs but they will have to pay their own lawyer s success fee and any ATE insurance premium if they have taken one out themselves. Up to now, when insurance was taken out to cover the risk of having to pay losing costs, the premium could be obtained from the other side in the event of a win. This will no longer be allowed. 25 per cent cap on success fees in personal injury cases There are changes when it comes to looking at how much the lawyer can charge his own client if the case is won. The success fee in personal injury cases will in future be subject to a cap of 25 per cent of the damages awarded. The success fee itself must not exceed a maximum of 100 per cent of the base costs. This means that lawyers can take no more than 25 per cent of the damages as a success fee in personal injury cases (including solicitor s success fee, any barrister s success fee and VAT). The cap will not apply to appeal proceedings. The amount of the success fee will be negotiated between the lawyer and client (up to a maximum of 100 per cent of the base costs). Damage based agreements (DBA) As well as CFAs, litigants will now be allowed to use damage based agreements (DBAs) in all areas of civil litigation. This will potentially be a new form of no-win-no fee litigation. There will be caps on the amounts of damages which can be taken in costs. These will be 25 per cent for personal injury cases, 35 per cent in employment cases and 50 per cent in all other cases (e.g. damages for disrepair as opposed to personal injuries). 10 per cent increase in general damages As an offset to the loss of the right to recover the success fee, or the ATE premium from the losing party, general damages are being increased by 10 3

4 per cent. This includes damages awarded in contract claims; e.g. for breach of the terms of the tenancy due to disrepair. Cost protection in personal injury claims qualified one way cost shifting This is the reform which makes it so important that you obtain insurance against claims for personal injury. This will be relevant if the landlord is sued for damages for personal injury; e.g. due to disrepair to a property. A system of qualified one-way cost shifting (QOCS) in personal injury cases will be introduced so that claimants (who conduct their case properly) will not have to pay towards defendant s costs, even if their claim fails so that the landlord is liable. QOCS will be available for all: Claimants whatever their financial means; Claims that are discontinued during the proceedings (so long as they are not fraudulent); and, Appeal proceedings. Claimants who lose will not have to contribute towards defendant s costs as long as they behave appropriately. There will be no minimum payment even for a losing claimant to make. QOCS protection for the claimant will be lost if the: Claimant is found to be fraudulent; The claimant has failed to beat any defendant s offer to settle (what is called a Part 36 Offer); or, The case has been struck out where the claimant discloses no reasonable claim or is an abuse of court process. 4

5 The Part 36 Offer procedure will override QOCS protection but only up to the full amount of the damages recovered by the claimant. Increased sanctions under the Part 36 Procedure The penalties for not accepting an offer that is made using the Part 36 Procedure are being reformed in order to encourage early settlement. Proportionality There will be a new rule on proportionality, to control the amount of costs so that even if they are payable if too much by way of legal costs is run up relevant to the value, complexity and importance of the claim some or all of the costs can be disallowed. Referral fees There will be a prohibition on payment/receipt of referral fees in personal injury claims, including for solicitors claims management companies and insurers. Lessons for landlords If you are a landlord you may think it will not happen to you but, unfortunately, it does. There is little to stop a tenant making a claim against you if he or she can get a solicitor to back it. The new rules will make it even more important they you have insurance cover for this eventuality. Briefing paper correct as of 31 st October , Residential Landlords Association. All rights reserved. 5