UK: Jackson Reforms On Civil Litigation Costs – 1st April 2013 – The Key Areas

Last Updated: 2 April 2013
Article by Stuart Evans and Liane Bylett


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. Stuart Evans and Liane Bylett from our Commercial Disputes Team explain the five key areas of reform in commercial disputes and what these changes will mean for you.

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.

This document is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from taking any action as a result of the contents of this document.

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