The biggest recent overhaul of civil litigation procedure will take effect on 1 April 2013, as a result of Lord Justice Jackson's report on civil litigation costs.
The reforms suggested by Lord Justice Jackson are intended to
promote access to justice at proportionate cost. The idea is that
Judges will actively case manage claims through the Court system
with a view to controlling costs. There are five key areas of
reform, which we will explain below.
1. Funding
Until recently, a Conditional Fee Agreement (CFA) or "no win
no fee" agreement was the usual form of contingent funding
arrangement between solicitors and their clients. A CFA is an
agreement that legal charges will only be payable in specified
circumstances – usually when the client wins their case. In
most cases, the CFA will contain a "success fee" so that,
in specified circumstances (again usually that the client wins
their case) the charges would include an uplift, making them higher
than they would have been without the CFA. The success fee could be
up to 100% of the base costs. The success fee would then be
recovered from the client's unsuccessful opponent along with
other costs, which could mean that the recoverable costs could be
much higher than in conventional non-CFA cases. In addition CFAs
would usually be backed by After the Event (ATE) insurance which
would cover the client against adverse costs, to reduce their
litigation risk still further. Again, if you won your case, the ATE
premium would be recoverable (subject to assessment) from your
opponent.
However, following Lord Justice Jackson's reforms to civil
procedure, CFA success fees and ATE insurance premiums cease to be
recoverable from unsuccessful opponents in most civil litigation
(the main exception being insolvency cases, this being deferred
until 2015). This means that even if you win your case, whilst your
opponent would have to pay your base legal costs, you would be
responsible for paying the CFA success fee and ATE premium. CFAs
may now therefore be seen as a less attractive option post 1 April,
for those seeking low risk litigation.
As a result of the Jackson reforms and as an alternative to CFAs,
solicitors will now able to enter into Damages Based Agreements
(DBA) with their clients for all types of work. Under a DBA, the
solicitor would take as their fee a percentage of the damages
awarded to the client if successful at trial. In the majority of
civil litigation cases, there will be a cap of 50% of damages that
can be taken as the solicitor's fee. The cap is 25% for
personal injury cases. (There remains the scope to recover some of
these costs from the losing party, making it different from the
classic US-style contingency arrangement). If the client lost the
case, in most cases the client would pay nothing or very little,
provided that the DBA was complemented by ATE insurance, which
would cover the client for adverse costs and (potentially)
disbursements.
It remains to be seen how DBAs will work in practice, as the Law
Society has not yet released their precedent DBA wording. However
DBAs will hopefully provide a possible alternative funding option
in addition to CFAs in circumstances where lawyers are prepared to
share the risk of litigation with their client.
2. Costs
In multi-track cases (which are usually cases where over
£25,000 is in dispute), parties are now required to prepare a
costs budget which must be agreed between the parties and approved
by the Court in the early stages of a case. The costs budget must
be filed at Court within 28 days of the Defence being filed and
give details of the estimated costs to be incurred. The parties
must disclose their budgets to each other and attempt to agree
those costs detailed. The extent of the agreement must be recorded
and made available to the Court. The Court will then consider the
budgets submitted. It has the power to approve, vary or amend the
budgets. The Court will then make a "costs management
order" which records any agreement between the parties and its
approval of the budget. The costs awarded at the end of the case to
the winning party should therefore be in line with those costs
which were set out in the approved costs budget and previously
approved by the Court. The Court will not approve any further costs
beyond the approved budget unless there is a good reason to depart
from that figure. It is therefore important for the costs to be
accurately estimated at the outset and they should be reviewed
throughout the course of the case and, if necessary, amended with
the consent of the other party and the approval of the Court in a
subsequent application.
The general rule for costs in civil litigation is that the loser
pays the winner's costs. However the principle of "one way
costs shifting" will now apply for all personal injury cases
and claims under the Fatal Accidents Act 1976 or Section 1(1) of
the Law Reform (Miscellaneous Provisions) Act 1934. This means that
in such cases a claimant should not be required to pay a
defendant's costs even if their claim is unsuccessful; but the
defendant would be required to pay the claimant's costs of the
action if the claim is successful. A losing claimant may, however,
be required to make some contribution to a defendant's costs if
it has the resources to do so and/or has acted unreasonably in its
conduct of the litigation. It remains to be seen whether this is
extended to other civil cases.
Furthermore, the Courts will be enforcing a new proportionality
rule throughout in relation to costs. This means that costs must be
not disproportionate, even if they are necessarily incurred; that
is they must bear a reasonable relationship to the sums in issue,
the complexity of the case and a number of other factors. This test
will be applied on costs assessments, so that even costs coming
within a costs management order will still be subject to further
scrutiny and review.
The upshot of these new provisions will be that there is a greater
prospect of the percentage of costs being recovered from the losing
party being lower than under the previous rules. They will also
cause a greater front loading where the parties are incurring
"costs about costs".
3. Disclosure
In the course of litigation, parties will be required to complete
a disclosure exercise which involves carrying out a reasonable
search for documents relevant to the case, helpful or otherwise
(whether you are claimant or defendant). A list of those documents
is then provided to your opponent, who can then request to inspect
those documents (provided the document is not privileged or there
are other valid reasons why inspection is inappropriate).
As a result of the Jackson reforms, in "multi-track"
cases the parties are now required to provide the Court with a
disclosure report setting out details of available documents, which
should be discussed with the opponent before the Court makes an
order for disclosure at the first Case Management Conference. The
Court has a "menu" of options in respect of the
disclosure order, from dispensing with disclosure altogether to
ordering a full scale investigation for documents. The disclosure
requirements under the old system were mainly a matter for
discussion between the parties and these additional requirements
mean that costs in the litigation will be even more
front-loaded.
4. Part 36 offers
A "Part 36 offer" is a specific form of offer to settle
a claim made In accordance Part 36 of the Civil Procedure Rules. It
can be made by a claimant or defendant. The operation of Part 36
means that there are prescribed consequences of acceptance, or
failure to accept, a Part 36 offer. Until now, those consequences
were in relation to the level of costs which must be paid and the
rate of interest applied.
For claimant's Part 36 offers made on or after 1st
April 2013, however, a new sanction will be imposed upon a
defendant who does not accept the offer and then does not beat that
offer at trial. Unless the Court considers it to be unjust, it will
require the defendant to pay to the claimant an additional sum of
up to 10% of any damages awarded up to £500,000 and up to 5%
of any damages awarded between £500,000 and £1,000,000.
The maximum sanction would therefore be £75,000.
If the damages are substantial then this could lead to a heavy
additional "penalty" payment to the claimant. This will
mean that, after 1st April 2013, defendants will have to
give additional careful consideration to the risks of not accepting
a claimant's Part 36 offer after that date.
5. Case management
The Jackson reforms encourage judges to take a more active role in
managing cases through the court, including costs budgeting
provisions and disclosure orders (as outlined above). Going
forwards, the Courts will be less tolerant of unjustified delays
and breaches of Court orders.
In a slight change to the previous rules, once the parties have
filed and served their pleadings, a Court officer will now make a
provisional allocation to the track which seems to be most
appropriate and will serve a notice of allocation on the parties,
which will require them to complete a Directions Questionnaire
(which replaces the Allocation Questionnaire required
pre-1st April 2013) and file proposed directions by a
certain date.
The small claims track is designed for low value cases and it is
intended that parties will be able to bring and defend claims
without legal assistance. Even if a party seeks legal
representation, they will not be able to recover any legal costs
from their opponent even if they win their case. The financial
threshold for the small claims track was £5,000, but from
1st April 2013 the threshold will be increased to
£10,000. This means that many more claims will fall within
the small claims track and litigants may have little choice but to
represent themselves (unless they are prepared to bear the totality
of their legal costs themselves or seek occasional assistance from
lawyers during the case).
Summary
There can be no doubt that the Jackson reforms comprise
significant changes to civil procedure and will have a wide-ranging
impact. However, it remains to be seen how the changes will really
work in practice, and the front loading of costs in some areas is a
real concern for parties.Future court reports on their application
will help to shape our thinking and approach.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
