UK: Review Of Civil Litigation Costs – Lord Justice Jackson’s Final Report

Last Updated: 20 January 2010
Article by Barlow Lyde & Gilbert LLP

The highly anticipated final report of Lord Justice Jackson was published on 14 January 2010, proposing substantial reforms to costs in civil litigation matters. The thoroughness of this fundamental review is very much to be welcomed in view of the highly publicised problem of escalating litigation costs in this jurisdiction. The length of the final report (some 584 pages), however, indicates the complexity of the issues faced in tackling this area.

Jackson LJ's proposals potentially affect almost every area of civil litigation ranging from small personal injury matters to high value complex commercial litigation. We highlight some of the key proposals contained in his review.

Success fees and ATE insurance

One of the most dramatic reforms proposed by Jackson LJ in his final report is that success fees payable by clients to lawyers under Conditional Fee Agreements (CFAs) and After The Event (ATE) insurance premiums paid to insurers to cover the adverse costs of civil litigation should no longer be recoverable from the other side if the client wins the case. He highlights various flaws with the current recoverability regime, including the potential for so-called 'super claimants' in commercial claims to transfer most of the costs burden of litigation to the other party using a combination of CFAs, ATE premiums and perhaps even third party funding.

He argues that ending recovery from the other side will lead to significant costs savings, whilst still enabling those who need access to justice to obtain it: CFAs and ATE insurance would still be available but claimants would have to meet their cost out of their damages if successful. In recognition of the importance of ensuring that successful litigants are properly compensated, and recognising that the success fee and premium will have to be paid out of the damages awarded to the claimants, Jackson LJ proposes an increase to individual claimants' damages and a success fee cap of 25 per cent of damages on success fees in personal injury cases.

Although Jackson LJ considers that these reforms are important, he does propose alternative reforms: these are to more closely control the recoverability of success fees and ATE insurance premiums, in the event that it is concluded that it is not possible to "turn back the clock" and repeal the statutory provisions which currently permit recoverability.

Costs shifting

In tandem with his recommendations on the recoverability of ATE premiums, Jackson LJ makes significant recommendations on litigants' liability for adverse costs, with the aim of reducing the need for ATE insurance policies in the first place. Whilst the Judge says in his report that the 200-year old "loser pays" principle should not be abolished altogether, he suggests that it could be abandoned in some areas and replaced by qualified 'one-way' cost shifting - whereby successful claimants would recover their reasonable costs but successful defendants would not recover theirs.

The categories of litigation which should benefit from qualified one-way costs shifting will be a question for further consultation. However, Jackson LJ considers that claimants in personal injuries and clinical negligence litigation require protection against adverse costs orders, while in commercial, construction and similar litigation there should be no such special rules. He does not favour any change to costs shifting for collective actions save in personal injury cases; costs shifting can, he says, reduce access to justice, but it may also have the effect of weeding out unmeritorious claims.

Fixed costs for fast track cases

Lord Justice Jackson proposes a fixed-costs regime for all cases allocated to the fast track (in general the track for claims valued between £5,000 - £25,000) including personal injury claims for which he has drawn up matrices of fixed costs. This could lead to a potentially significant reduction in the cost of lower value personal injury claims. It is also suggested that future consideration is given to the possibility of introducing fixed or scale costs across the lower reaches of the multi track (generally claims valued over £25,000).

Referral fees

Jackson LJ recommends that solicitors be banned from paying referral fees for cases. If implemented, this has the potential to reduce significantly the number of personal injury claims. This recommendation, however, might be very controversial and difficult to implement.

Contingency fees

The report recommends that both solicitors and barristers should be able to enter into contingency fee agreements with their clients. Contingency fee agreements, which are fees payable if the client wins and which are calculated as a percentage of the sum recovered, are currently banned for contentious business. However, Jackson LJ considers that it is desirable that as many funding methods as possible are made available to litigants, including contingency fees. However, he recommends that costs should only be recoverable against opposing parties on the conventional basis, and not by reference to the contingency fee. He also supports the view that contingency fee agreements should be properly regulated, and only valid where the client has received independent legal advice and that the percentage of damages the lawyers can take should be capped.

Third party funding

Jackson LJ comes out firmly in favour of third party funding of litigation in principle, saying that is beneficial to access to justice. He recognises that the funding market is at an early stage of its development. He accepts that external regulation of funders may well become necessary as the market develops, but considers that for now a voluntary funders' code is sufficient protection for clients (though he proposes some specific changes to the draft Civil Justice Council code to ensure the capital adequacy of funders and to protect clients from funders withdrawing from agreements).

He sees no need for any fundamental change to the law of maintenance and champerty as such. He does, however, recommend a change to the rule (derived from the Arkin case) that a funder's exposure to the costs of its opponent, if the claim it has funded fails, is limited to the amount of its own costs investment. The report recommends that the law should be changed so that the funder is potentially exposed to the full extent of the successful opponent's costs subject to the court's discretion.

Procedural changes

Lord Justice Jackson has made the following key recommendations to control the costs of litigation:

  • retention of pre-action protocols but the abolition of the general Practice Direction - Pre-Action Conduct which adopts an unsuitable "one size fits all" approach
  • further encouragement of alternative dispute resolution (ADR)
  • strengthening the sanctions for failure by a defendant to beat a claimant's offer by enhancing the claimant's recovery by 10 per cent
  • introducing a wide "menu" of options for disclosure orders in large commercial cases and cases where standard disclosure might be disproportionate, ranging from dispensing with disclosure to ordering disclosure of documents which may lead to a train of enquiry
  • standard disclosure to be retained for personal injury and medical negligence cases
  • approval of a new Practice Direction on E-Disclosure and increased training for lawyers and judges in this area
  • greater control of the content and length of witness and expert statements by use of cost sanctions
  • wider use of e-working by issuing proceedings and filing documents at court on-line

Implications for Commercial Court

Lord Justice Jackson has recognised that, due to the importance of international work to the Commercial Court, it is important not to make procedural changes which will render London unattractive to commercial parties from overseas. He also notes that there is a high general level of satisfaction amongst Commercial Court users with the service of the Court and that costs are proportionate.

Comment

Jackson's thorough review of the area is commendable, and some of his proposals have the ability to make a very practical and positive change to litigation in England and Wales. But what is the chance that these proposals will become actual law? Where only changes to the Civil Procedure Rules are required, the proposals may be able to be implemented relatively quickly. However, some of the more radical proposals will require changes to legislation, and with a general election later this year, it is questionable whether changes to civil litigation will be a priority at the present time. Nonetheless, Jackson's report makes important reading for anyone involved in civil litigation.

*Highlights of what would be in and out if Jackson LJ's recommendations are implemented

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.

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