In the ongoing debate around legal costs, the most crucial sticking point is access to justice. From the perspective of litigators, a larger client base is certainly preferable to a smaller one. And from the perspective of end users, a more open and approachable legal sector would be uncluttered by mystique, austerity and expense.

Several solutions for controlling the costs of litigation have emerged, but perhaps the most widely known are litigation funding, in which a specialist company backs a lawsuit in return for a proportion of the claim; conditional fee agreements (CFAs), where lawyers base their fees upon courtroom outcomes; and after-the-event (ATE) insurance, which provides coverage for legal expenses.

Litigation funding has become so significant that it recently had its own international conference, held at the University of Oxford’s Centre for Socio-Legal Studies on 19 May. The event unveiled preliminary findings from a research project on litigation funding, carried out between the Oxford study unit and the University of Lincoln’s Centre for Dispute Resolution.

In the words of Lincoln researcher Dr Angus Nurse, the project was established to assess ‘whether third-party litigation funding can provide a solution to problems with access to justice in cases where people want to take legal action, but cannot get legal aid, and do not have the money to fund the case themselves’. The preliminary findings showed that litigation funding entities tended to bankroll cases with claims of £100,000 or more.

While this demonstrates that third-party funding is not necessarily the best solution for individual litigants, Oxford researcher Dr Christopher Hodges said that it ‘currently benefits SME companies in accessing justice’. Explained Dr Hodges: ‘This new form of funding has revealed an unknown area of demand for enforcement of civil law, which is of considerable potential benefit to the economy. Ensuring that small companies are able to claim when they are commercially disadvantaged, such as where contracts or licensing agreements are breached, is important for maintaining a healthy economy.’

Critical voices

As for the economic impacts of CFAs, they were treated to high-level government scrutiny earlier this year. Former Justice Secretary Jack Straw had become concerned about the effects that CFAs were having upon the defamation field – where conditional fees are widespread – particularly in terms of the cost issues they present to defendants. Launching a consultation on the subject in January, Straw wrote: ‘CFAs have increased access to justice for claimants in making it more possible to bring cases. However, the experience over the past decade suggests that – in defamation proceedings in particular – the balance has swung too far in favour of the interests of claimants, and against the interests of defendants.’

He added: ‘The current arrangements appear to permit lawyers acting under a CFA to charge a success fee that is out of proportion to the risks involved. Aside from the cost burden this places on the opposing side, this could encourage weaker and more speculative claims to be pursued.’

Straw proposed that maximum success fees in CFA cases should be capped at 10%, and pressed on with an attempt to enshrine that in UK law – even after some of the consultation’s results pointed in the opposite direction. Lawyers for Media Standards was one of several, high-profile voices to criticise the plan. ‘If the maximum success fee is reduced to 10%,’ said the group, ‘this will mean that defamation practitioners would no longer take on CFA cases, with the result that access to justice will be seriously impeded.’

The group highlighted ‘overwhelming evidence’ from the consultation that ‘success fees of 100% were rarely recovered’, and warned of the potential effects upon ‘defendants such as scientists and writers who have been able to use CFAs to achieve a level playing field in defamation claims brought by powerful claimants’.

While the 10% defamation cap was defeated in the Commons at the end of March, a 35% cap on CFAs in damages-based employment tribunals was approved by the House of Lords just days before. Plans for CFA caps in other specialist disciplines cannot be far behind.

Following Lord Justice Rupert Jackson’s comprehensive ‘Civil Litigation Costs Review’, published early this year, changes to ATE insurance have also been mooted. In his report, Jackson recommended that claimants should be prevented from recovering their ATE insurance premiums from the opposite side, as it would encourage them to keep their overall legal expenditure down. This was criticised on grounds of access to justice by the Association of Personal Injury Lawyers (APIL), who said that Jackson’s recommendation favoured the defendant.

Perhaps the problem with litigation funding, CFAs and ATE insurance is that they are still relatively siloed. As the rollout of the 2007 Legal Services Act continues throughout the rest of this year and into 2011 – creating new business structures that will provide more commoditised legal services offerings – a more flexible and accessible legal landscape is sure to flourish.

This climate is likely to be stimulated by legal services outsourcing (LSO) providers, which have created business models focused on controlling litigation costs at preparatory stages. As their influence on litigation grows in tandem with alternative business structures in law firms, the options for legal services clients of every kind will be plentiful.

For more on changes in the litigation sector, click here