1 April 2013 was the ‘big bang’ date for implementation of the Jackson reforms which will see the most radical changes to civil litigation since the introduction of the Civil Procedure Rules in April 1999. The reforms are aimed both at methods of funding litigation which were seen to have driven up costs and at controlling the costs of the civil litigation process.

Funding changes

Success fees will no longer be recoverable from the losing party under any conditional fee agreement (CFA) entered into from 1 April 2013. Parties to litigation will still be able to enter into CFAs with their lawyers, but the client will have to pay any success fee.

ATE insurance premiums under any costs insurance taken out from 1 April 2013, whether backing a CFA or free-standing, will not be recoverable from the losing party.

These provisions are not to come into force ‘for the time being’ in relation to insolvency proceedings and publication (including defamation) and privacy proceedings.

Damages-based agreements (DBAs), a completely new way of funding civil litigation in England and Wales, permitted prior to 1 April only in non-contentious and employment tribunal matters, are from 1 April permitted in all types of civil litigation. Under a DBA the client agrees to pay his lawyer an amount for costs (‘the Payment’) which is determined by reference to the amount recovered, rather than the hours worked by the lawyer. The amount of the Payment under a DBA for first instance proceedings will be capped at 50% of the damages ‘ultimately recovered’ in commercial cases.

Controlling the costs of the civil litigation process

Costs management – in all multi-track cases commenced on or after 1 April (except cases in the Admiralty and Commercial Courts and cases above £2m in the Chancery, TCC and Mercantile Court) the parties will be required to exchange cost budgets. The court will then decide whether or not to make a costs management order. If it does, the court will control the parties’ budgets in respect of recoverable costs, reviewing, revising and approving their cost budgets. Where no costs management order is made the court will still take the budget and the costs involved in each procedural step into account when making case management decisions. When assessing costs where a costs management order has been made, the court will have regard to the last approved or agreed budget, and will not depart from that budget unless satisfied that there is ‘good reason to do so’.

Proportionate costs - there is a new definition. The recoverability of costs will be linked more to the value of the claim. Importantly in reviewing budgets, the court will consider whether the budgeted amounts are within a reasonable and proportionate range, bearing in mind the amount at stake. The proportionality of cost is added as a feature of the Overriding Objective, taken into account by courts when exercising their powers.

CPR Part 36 – Part 36 is amended in relation to offers made on or after 1 April so that, (as now, unless the court considers it unjust), in addition to the existing adverse costs and interest consequences for a defendant who rejects a claimant’s Part 36 offer to settle but fails to do better at trial, the defendant will have to pay an additional sum calculated as a percentage of the amount the claimant recovers on his claim in a money or part-money claim or of the sum awarded to the claimant for costs in a purely non-monetary claim. The new Rule specifies 10% for the first £500,000, and the increased payment is capped at £75,000.

Case management – there are changes in certain key areas all with the intention of bringing the costs of civil litigation under control including allocation, directions, factual evidence, enforcement of directions and

  • Disclosure - complementing recent developments relating to disclosure of electronic documents, a new rule requires the parties in multi-track cases, before the first case management conference (unless it takes place before 16 April), to prepare a report on disclosure estimating the costs of giving standard disclosure, and to try to agree what disclosure is necessary to deal with the case justly at proportionate cost. A menu of disclosure options is introduced with a view to limiting disclosure and tailoring it to the real issues at an early stage. The costs of disclosure must also be addressed in costs budgets and in costs management.

Expert evidence - similarly, amendments will require the parties when applying for permission on or after 1 April to rely on expert evidence to provide an estimate of the costs and to identify the issues which the expert will address, in order to focus expert evidence at an early stage.

The impact of the reforms

The funding changes are very radical and their impact is hard to gauge, in part because of the late emergence of relevant detail and in part because it will take time for the market to adjust, for example litigation funding by professional funders in return for a share of any recovery may become more available. For lawyers and clients it is important to be aware of all the alternative funding options available and to select the best for the matter in hand. In risk management terms different organisations will want to consider their likely exposure to claims and costs as CFAs lose some of their present attractions and other funding options take hold.

The impact of the procedural changes is more predictable. If judges and parties embrace the change of culture in case and costs management, as we are told they will, the risk of losing and having to pay the other side’s costs will be pre-quantified in the approved budget for most cases. Greater knowledge about the other party’s costs throughout a case should feed through to and encourage defendants to make offers to settle. Claimants may earn a potential bonus by making realistic offers too.