Mediator Bill Wood QC examines how the civil justice reforms will affect the balance of power between claimants and defendants
Almost all mediations are strongly affected by cost considerations. Many are completely dominated by them.
Costs are a crucial element in the weighing of risk and reward that parties are being asked to engage in at a mediation, and mediation’s big attraction is often that it gives the parties the chance to settle and to “stop the clock”.
So it is unsurprising that the changing machinery for the incurring and recovering of legal costs in our civil procedure system is a matter of enormous interest , and often concern, to the mediation community.
Mediators got used to working with the CFA/ATE universe. It had its problems but we got used to it. It was always difficult to negotiate with the “super-claimant” who had passed all the risks of defeat to a combination of his lawyers and his insurers. “Bill, what incentive do I have to settle for that?” such a Claimant would ask. “It is cheaper for me to fight on.” The obligation to pay the lawyers and the ATE insurers (and often the funders too) might well mean that until a very substantial sum of money indeed had been tabled, the super-claimant itself was getting nothing.
Mediating would often involve discussing not just the issues between the parties but the financial issues between the party, his lawyer, his funder and his ATE insurer. My experience is normally that I am kept out of delicate discussions of that kind. But it is hard not to pick up the vibe coming from a room in which these kind of matters were being thrashed out: lawyers are being asked to take a “hair-cut” on their success fees and insurers are being asked to discount their accrued premium.
There are a lot more cases to be disposed of under the old rules. Only today I was told that ATE insurers spent the early part of this year “dining on fillet steak”. In other words as the deadline loomed and applications poured in for funding under the old rules, they could afford to be extremely choosy about the strength of the cases they insured. The solicitor added “When they had finished the fillet steak they were too full to look at my clients slightly riskier claim”.
How Costs Changes Will Affect Mediation
Now mediators await cases under the new rules. What will the effect on the dynamics of the mediation be? Will their simply be less litigation in absolute terms?
Cost-capping is already a huge influence. The threat of the big, well-resourced party to spend heavily and win the case by attrition is now much less terrifying.
And what of damages-based agreements? We know from the US experience that lawyers will to some extent be happier to embrace an earlier settlement, “the quick kill”, offering as it will do a bigger profit. Arguably a Defendant facing a Claimant with a DBA will be less worried for that reason. They will expect a DBA lawyer to be much more disposed to settlement than a CFA lawyer ever was. And of course such a Defendant will no longer be facing a liability for the claim “plus costs” if he loses at the end of the day. He will merely have to pay the substantive claim.
The Response of Funders and Insurers
Well, we shall see. Until we have mediated a few of these we will have no better idea of the likely impact of these changes than the litigators, insurers and funders who are currently grappling with the new rules. While we can read the rules, we know from experience that the critical question is the response of the insuring/funding community to the new rules. How will they adapt their products to fit the new regime?
Mediation is always about the balance of power and advantage in disputes. Few of us can yet be sure where the new rules have set that balance. That they have affected it dramatically is beyond doubt.
Bill Wood QC
Mediator, Brick Court Chambers
JAMS International Panel Member
A version of this article was first published in Litigation Funding in August 2013, and is republished here with kind permission.