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The dubious effect of LASPO

Posted on 22 November 2014 by Carter-Ruck


The Legal Aid, Sentencing and Punishment of Offenders Act (LASPO) 2012 came into force on 1 April last year. Unfortunately, it was not an April Fool’s joke.

LASPO’s main aim was to bring down spiralling costs in personal injury (PI) claims. To that end referral fees were banned and success fees were done away with. Recoverability of After-the-Event (ATE) premiums from the losing side was also curtailed. These and other changes in the PI sector, such as extending the value and type of claims that can go through Road Traffic Act claims portals, have been described as amounting to a “seismic” shift in the UK litigation landscape by John Spencer, a member of the Civil Justice Council and one of the UK’s leading PI lawyers.

Mr Spencer is right, but the ramifications of LASPO extend beyond PI. Defamation law presently has an uneasy stay of execution, with claimants currently still able to bring claims on a no win, no fee basis, but insolvency law practitioners are working under a Sword of Damocles.

Picture of hanging sword

As this piece in City A.M. points out, from 1 April next year insolvency litigation will no longer be exempt from the provisions of LASPO. Once again, this is not an April Fool’s jape. The government’s plan to end the insolvency exemption is all too serious, and will have dire consequences.

Insolvency cases are for the public good. They ensure that creditors, who might otherwise be left high and dry, get at least something back. HMRC also has a stake in the recovery. Often enough conducting a claim on a no win, no fee basis is the only viable way of funding litigation against an insolvent company. How else, unless law firms are prepared to take the commercial risk of a case, can those short-changed by an insolvent company afford to go to law?

The Ministry of Justice believes that LASPO must be applied consistently. It does not agree that there should be exemptions, and so is pressing ahead with the 1 April cut-off point for insolvency. Defamation claims will doubtless fall under its microscope soon, too. But just as LASPO was ill-conceived in the first place, so too is this insistence on not thinking outside the box.

Or does the government want small businesses to be wholly without a remedy when they’re on the receiving end of an insolvent business?


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