The Jackson reforms, the result of a one-year review of costs in civil litigation by Lord Justice Jackson, were largely implemented on 1 April 2013. The reforms present the most radical changes to the civil litigation system since the introduction of the Civil Procedure Rules in 1999 and are aimed broadly at controlling the costs of civil litigation.
In his final report, Review of Civil Litigation Costs, published in January 2010, Jackson LJ noted that the costs of civil litigation were too high and criticised the current model of conditional fee arrangements (CFAs). He noted that there was no incentive for claimants to keep costs down where a CFA was on a “no win no fee basis”, with the financial risk falling squarely onto the claimant’s lawyer and the defendant.
Jackson LJ recommended a complete revision of the current system, putting forward damages-based or contingency fee agreements as alternative methods of funding. He also made a series of other recommendations aimed at cutting the costs of civil litigation such as more robust case management procedures, cost budgeting and more streamlined procedures pertaining to disclosure and expert evidence.
Previously, a losing defendant was responsible for the claimant’s legal costs, after the event (ATE) insurance premiums and CFA success fees. Success fees are no longer recoverable from a losing party under any CFA entered into from 1 April 2013, although implementation has been delayed for insolvency, publication and privacy proceedings. Parties to litigation may still enter into CFAs with their representatives. Clients will, however, be responsible for the payment of any success fee. ATE insurance premiums taken out after 1 April 2013 will not be recoverable from a losing party.
Damages-based agreements (DBAs), which are currently only permitted in non-contentious and employment tribunal matters, are now available in relation to all types of civil litigation. Under a DBA, the client agrees to pay his lawyer an amount of costs that is determined by reference to the amount recovered, rather than by the number of hours worked. The lawyer receives no payment where there is no recovery. The amount of damages recoverable in commercial cases under a DBA for first instance proceedings is capped at 50 per cent of the damages ultimately recovered.
Another key change is an emphasis on cost budgeting. Generally, the budget must be for the entire action and cover each stage of the proceedings. Any time incurred by solicitors and barristers, plus their expenses, must be categorised and allocated to the appropriate stage of proceedings.
The court may at any time make a “costs management order”, recording the extent to which budgets are agreed between the parties. Any revisions to the budget must be agreed or approved. Where a case management order is made, the court will not depart from the budget unless it is satisfied that there is a good reason to do so. Where no case management order is made, any variations of 20 per cent of the cost budget must be justified and the court will assess whether departure from the cost budget is appropriate.
The court cannot approve costs incurred before the date of the budget. It can, however, record its comments on those costs and take them into account when considering the reasonableness and proportionality of all subsequent costs.
It was intended initially that costs budgeting would apply to all cases, other than those in the Commercial Court and Admiralty Court, which would have posed a significant burden on legal representatives in terms of preparing cost estimates and tightly controlling costs. The exemption for cases where the sums in dispute exceed £2 million suggests that the new provisions may have less bite than originally envisioned, with many intellectual property cases likely to be exempt.