In November 2008 Lord Justice Jackson was appointed to lead a wide-ranging review into the costs of civil litigation. Nearly four years on, some of the recommendations from the Jackson Review have already been implemented. However, the majority of the changes will come into force in April 2013. It is no exaggeration to say that this will be the most significant shake-up of the civil justice system since the implementation of the Woolf reforms in 1999. With six months to go, this update outlines the key changes and what they mean for lawyers and their clients.
The changes in law required by the Jackson Review are contained in the Legal Aid, Sentencing and Punishment of Offenders Act 2012, which was given royal assent in May 2012.
The changes to the Civil Procedure Rules required by the Jackson Review are expected to be released in December 2012 before implementation in April 2013.
Costs management pilots
The Jackson Review recommended active costs management by the courts, which would involve the parties preparing costs budgets (more detailed than the current costs estimates). The judge would review these budgets and indicate the extent to which they were approved. Cost assessment at the end of the case would then be carried out by reference to the initial budget. Pilot schemes are currently underway for all cases in the Technology and Construction Court and Mercantile Court, and for defamation cases in the Royal Courts of Justice and the Manchester District Registry. These will continue until the end of March 2013.
Hot tubbing pilot
'Hot tubbing' is the practice, developed in the Australian courts and used in some international arbitration, of experts giving evidence concurrently. The experts are sworn in and the court effectively chairs a discussion between them, with questions from counsel as and when allowed by the judge. This is thought to offer potential time and cost savings over the current system of sequential evidence. The Jackson Review recommended its use in all cases where the parties agree to it. A pilot has been in place in the Manchester Technology and Construction Court and Mercantile Court since June 2010, although with relatively low take-up.
The Jackson Review recommended expanding the availability of docketing – the process by which one judge controls a case from beginning to end – as a means to encourage judges to take a more hands-on approach to case management. Docketing has been piloted at the Leeds County Court and Registry (although it is already available to a variable extent in other courts). The results, unsurprisingly, were positive, with an evaluation concluding that docketing "brought advantages using existing resources and without major reorganisation". However, widespread availability of docketing is unlikely until some time after April 2013.
Enabling provisions of the Legal Aid, Sentencing and Punishment of Offenders Act
Some sections of the act have already been brought into force, which will enable appropriate changes to be made to the Civil Procedure Rules in time for the full roll-out of the Jackson reforms in April 2013.
Success fees in conditional fee agreements no longer recoverable
A success fee is a fee, calculated by reference to the lawyer's standard fees, that the client agrees to pay to a lawyer in the event of success. For example, a lawyer may charge an uplift of 100% on his or her fees if the case is won, and charge nothing if he or she loses (ie, 'no win, no fee'). The Jackson Review identified a number of disadvantages to this type of deal, including unfairness to defendants. In accordance with the recommendations of the review, success fees will no longer be recoverable from losing defendants. This means that the claimant must pay its lawyer's success fee out of its damages, which in turn is likely to reduce the use of conditional fee agreements. As this change may reduce access to justice for impecunious claimants, particularly in personal injury cases, the Jackson Review proposed various measures to mitigate these concerns, such as a modest increase in the level of damages awarded in personal injury cases. However, the most significant measure is the introduction of alternative funding schemes, such as damages based agreements.
After the event insurance premiums no longer recoverable
After the event (ATE) insurance allows a party to insure against the risk of losing the case and having to pay the other side's costs. Premiums may be deferred and contingent (ie, the party must pay the premium only if it wins, at which point it is recoverable from the other side). ATE policies are often used hand in hand with conditional fee agreements to enable a claimant to litigate at zero or negligible cost or risk. Again, the Jackson Review concluded that this can be unfair to defendants. As such, parties that succeed at trial will no longer be able to recover their ATE premium from the losing party. This is likely to reduce the use of ATE policies.
Introduction of contingency fees
A contingency fee is an agreed fee payable to a lawyer on success, calculated as a percentage of the sum recovered. Contingency fees are currently prohibited in most forms of court proceeding in the United Kingdom, as they are thought to carry the risk that the lawyer, whose interests are tied to the outcome of the case, may fail to give impartial advice to the client. However, the Jackson Review recommends the introduction of contingency fees based on the Ontario model (sometimes referred to as damages based agreements), which is designed to mitigate this risk, alongside certain other procedural safeguards to be introduced. Essentially, this allows for contingency fees, but with the proviso that recovery from the losing party is limited to the lawyer's normal costs. This means that a claimant would have to pay any contingency fee to the lawyer out of its damages. From a claimant's perspective, similar arrangements are already on offer through third-party litigation funds that will typically require a fixed percentage of any recovery in return for funding legal costs.The new development will mean that lawyers will be able to offer these arrangements themselves, rather than referring clients to third-party funds.
Part 36 'plus'
The Jackson Review recommended the introduction of an additional penalty (10% of the value of the claim) to be paid by defendants who refuse a reasonable Part 36 offer from the claimant and then fail to beat it at trial. Section 55 of the Legal Aid, Sentencing and Punishment of Offenders Act is now in force, enabling appropriate rules to be made. An amendment will therefore be made to Civil Procedure Rule 36.14(3) to implement this recommendation. Many litigation lawyers and clients with regular litigation will have experience of cases where the parties' opposing offers stalled within 10% of each other. This change should encourage settlement of such cases.
Disclosure 'menu' for large claims
The Jackson Review concluded that the default requirement of standard disclosure should be dropped in favour of a 'menu' of disclosure options that may be more or less onerous than standard disclosure, so that a choice can be made according to the requirements of the case. As such, a new Civil Procedure Rule 31.5A is to be introduced, which will provide a number of disclosure options from which the court and the parties can choose. This is a long-overdue change that will bring court procedure more into line with the practice in arbitrations, where parties often agree speedier, cheaper mechanisms for disclosure.
Following the pilot projects outlined above, a standard costs management procedure will be introduced into the Civil Procedure Rules. This will apply to all multi-track cases commenced from April 2013 in a county court, the Chancery Division or the Queen's Bench Division (except the Admiralty and Commercial Courts). Additionally, the courts will have the power to order a case either in or out of the system. This will be a major procedural change and all litigation practitioners should be familiar with the new rules before their implementation. The extent to which the new regime will benefit litigants by reducing costs will largely depend on how it is implemented in practice by the judiciary.
If the results of the hot tubbing pilot are positive, there is expected to be an amendment to Civil Procedure Rule 35 to provide for the use of that system in appropriate cases. However, it is not certain at this stage whether this will be introduced in April 2013.
The centrepiece of the Jackson reforms lies in the abolition of recovery of conditional fee agreement success fees and ATE premiums, and the introduction of damages based agreements. Under a conditional fee agreement, a lawyer's maximum uplift is limited to 100% of fees. Under a damages based agreement, the lawyer may be paid a percentage of damages and payment is unlimited (although in personal injury cases, fees will be capped at 25% of damages). A law firm, or counsel, will need only one success in a claim worth hundreds of millions, or billions, to make profits which are out of all comparison to existing business. This may have major consequences for the legal profession.
Furthermore, the economics of funding cases will change. Cases are unlikely to be funded under damages based agreements where the potential damages – and therefore the pot available to pay the lawyer – are low. At the moment, these cases are likely to be perfectly viable under conditional fee agreements, as the legal costs and success fee can be recovered from the other side, leaving damages largely intact. Once recoverability of success fees is abolished, this will no longer work. Hence, an impecunious claimant may be unable to bring such claims in future.
The other key Jackson changes to Part 36, disclosure and costs management, among other things, will require time to bed in before their impact can be fully assessed. However, as with Woolf, it may be that the changes establish a culture which then generates a momentum of its own.
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