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Options for Funding Litigation in Jersey

Access to Justice

There is no escaping the fact that litigation is expensive. There has been much debate in Jersey in recent years about access to justice, both in the context of legal aid and more generally. Jersey is fortunate in that it currently has a unique and excellent legal aid scheme, the cost of which is largely met by the private sector law firms which service that scheme. Unfortunately, unlike the UK, there are limited funding options available to those who do not have, or do not wish to risk, the resources to finance litigation, or do not qualify for legal aid. This acts as a barrier to access to justice.

Champerty & Maintenance

Historically, any funding arrangements which a litigant made with a person who had no legitimate interest in the litigation were deemed to be illegal, and any agreements as concerning litigation funding were thus unenforceable. The doctrines of maintenance (financing litigation in which one has no legitimate interest) and champerty (financing litigation in order to share in the proceeds of it) precluded such support for another’s claim. These doctrines arose to combat abuses in medieval England – where nobles would lend their name to unmeritorious claims in exchange for a slice of the property/damages recovered. Jersey law has similar doctrines.

The position more or less remained the same in England & Wales until the early 2000’s. The Jackson Review into civil litigation costs, in 2009, was a much anticipated comprehensive review of litigation funding in the UK. In his report Lord Justice Jackson recognised the part that third party litigation funding (which had become an increasingly common feature of the English legal landscape) had to play in promoting access to justice for those who could not otherwise afford to bring a claim. In Re Valetta Trust [2012] (1) JLR 1 the Royal Court held that public policy strongly pointed towards the litigation funding agreement in that case being regarded as valid and enforceable.

Current Funding Options in the UK

Lord Justice Jackson’s recommendations led to the introduction of two new forms of litigation funding, the conditional fee agreements (“CFA’s”) and the damages-based agreement (“DBA’s”) or contingent fee agreements.

CFA’s

A CFA is a form of “no win, no fee” arrangement which, in essence, provides that a client will only be liable to pay his lawyer’s fees in the event that certain pre-determined outcomes are achieved (usually, the successful outcome of the case). The CFA can also provide that a client will pay no fee, or a reduced fee, to their lawyer in the event that those pre-determined outcomes are not achieved. In addition to their normal fees, a CFA may also make provision for the payment of an uplifted fee, or, “success fee” to the lawyer in the event of a favourable outcome. The success fee recognises the fact that at best, the lawyer has deferred receipt of their fee, or at worst, the lawyer won’t be paid at all!

Under a CFA, the success fee is subject to a general cap of 100% of the value of the lawyer’s “normal fee” (i.e. they could potentially double their “normal” fee). In personal injury cases, the success fee is subject to a further cap such that the success fee cannot exceed 25% of the damages recovered from the defendant (excluding damages for future pecuniary losses). Until 1st April 2013, it was possible for a successful party to claim the success fee from the losing party – this has now been abolished. In order to offset the effect of the abolition of the ability to recover success fees from the defendant:

  1. A 10% uplift on general damages has been introduced in all cases decided after 1st April 2013 (except where the claimant entered into their CFA prior to that date); and
  2. A system of qualified one-way costs shifting (“QOCS”) has been introduced in respect of personal injury claims brought after 1st April 2013 – subject to certain exceptions, this means that claimants are not required to pay a defendant’s costs in the event that their claim is unsuccessful.

In addition to, or in conjunction with, a CFA parties can also take out “After the Event” Insurance to cover their risk of having to pay their opponent’s costs, as well as their own disbursements, in the event they lose their case.

DBA’s

Claimants can enter into a DBA either with a third party litigation funder or (more latterly) with their lawyer. A DBA is also a form of “no win, no fee” arrangement which permits a lawyer or third party funder to recover a percentage of the claimant’s damages if the case is won, or nothing if the case is lost.

Like CFA’s, DBA’s are also subject to caps. For most claims, the cap is set at 50%. In employment claims it is set at 35% and in personal injury claims a 25% cap applies. Exceeding the caps renders the DBA unenforceable against the client and therefore means that there would be no costs liability for the losing party to meet. It is important to note that a losing party will not necessarily have to pay the full amount of the contingency fee if they are ordered to pay costs. The level of costs to be recovered from a losing party will be assessed on the basis of normal taxation principles. As such, if the contingency fee due under the DBA is greater than the costs recovered from the losing party, the claimant will have to meet that shortfall from their damages.

Equally, a claimant cannot recover more in costs than they are liable to pay their lawyer by way of contingency fee. To do so would breach the “indemnity principle”. Therefore, if on taxation, costs are awarded in a sum greater than the value of the contingency fee which the claimant owes their lawyer, the losing party will only be required to pay costs up to the value of the contingency fee.

Termination of the Retainer

An obvious issue with CFA’s and DBA’s is whether, and if so what, fees might be payable in the event that the claimant wishes to change legal representation before the conclusion of the case. In a recent decision of the English Court of Appeal the issue to be determined was whether a DBA was rendered wholly unenforceable by the inclusion of a provision that the claimant was liable to pay their solicitors’ normal fees and disbursements, up to the date of termination, in the event that they terminated the retainer prematurely. The Court of Appeal held, unanimously, that the inclusion of such a clause did not render the DBA unenforceable, and that it was perfectly proper for a law firm to include terms as to the recoverability of fees in such circumstances.

Current Funding Arrangements In Jersey

Lawyers and Their Clients

In Re Valetta Trust, the Royal Court held – with reference to English case law – that only legislation could override the public policy prohibiting lawyers from entering into agreements which might place them into a position in which their own interests conflicted with their duties to the Court (and, presumably, those of their client). As no legislation permitting them existed in Jersey law, CFA’s and DBA’s (which would give rise to such conflicts of interest) are prohibited.

Jersey lawyers are permitted to enter into “no win, no fee” arrangements with their clients, but they are not permitted to charge a “success fee” in the event of a favourable outcome. In other words, Jersey lawyers entering into a “no win, no fee” arrangement do so entirely at their own risk – if the case is unsuccessful the lawyer recovers nothing; if it is successful, the lawyer is only entitled to recover their usual fees (i.e. no success fee or uplift can be applied). This prohibition is retained by the recent Access to Justice (Jersey) Law 2019 (yet to come into force). This restriction arguably acts as a constraint on access to justice as lawyers might well be reluctant to accept instructions save in cases in which they are very confident of success (and so being able to recover their fees).

Third Party Funding

In Re Valetta Trust the Royal Court held that third party funding arrangements were not prohibited by the terms of the Code of 1771 and that “public policy considerations point strongly in favour of upholding the validity of [third party funding arrangements]” on the basis that they had the potential to facilitate access to justice. A ‘third party funder’ is a person or entity unconnected with the dispute or the conduct of the litigation. However, the Court made clear that the validity and therefore enforceability of a particular third party funding agreement will depend upon the terms of each individual agreement.

The Court considered that the funding agreement in question did not fall foul of the doctrine of champerty as it:

  • Permitted the plaintiffs and their lawyers to retain full control of the proceedings;
  • Allowed the plaintiffs to retain a substantial proportion of any damages awarded; and
  • Did not prejudice the potential defendants because it provided that the third party funder would meet any adverse costs order that might be granted.

Scope for Reform

As can be seen, the choice of funding arrangements in Jersey is extremely limited. In circumstances where a party does not have the benefit of an insurance policy to defray their legal costs, or they are otherwise ineligible for assistance through the legal aid scheme, they are left with the option of:

  1. Funding the litigation themselves;
  2. Finding a lawyer who is willing to act on a “no win, no fee” basis; or
  3. Obtaining third party litigation funding.

Whist the DBA and CFA arrangements available in the UK are far from perfect, there is no reason why, as a matter of principle, the Government of Jersey should refrain from enacting legislation which permits lawyers to be engaged by their clients on the basis of a CFA or DBA provided their use is moderated by suitable regulations and caps (as is the case in the UK). The introduction of such arrangements in Jersey would undoubtedly increase access to justice for those with arguable cases but without the means to pursue them.

Third party funding is becoming increasingly common in Jersey. Once the preserve of very high value cases, the availability of funding has been broadened by the entry into the market of new funders. Funding is now available, in the right case, in construction matters, divorce proceedings (where, for example, there are assets but little in the way of liquidity), and personal/clinical injury cases. Care needs to be taken with the agreements governing these arrangements but the principle of availability is well-established and third party funding is only likely to increase in the future.

BCR Law LLP does, in certain circumstances, accept cases on a ‘no win, no fee’ basis. We also have a good relationship with a number of litigation funders. Please do not hesitate to contact us should you wish to discuss this further.

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