Lord Justice Jackson's Review of Civil Litigation Costs was published in January 2010. Weighing in at over 550 pages, it has inevitably been praised for its thoroughness, but also, remarkably, for its clarity. It promises nothing short of a revolution in costs, with proportionality the guiding principle.

Although its depth makes a summary difficult, below we attempt to explain some of the key points and their likely effects on large litigation cases. Some of the recommendations, for example where legislation must be drafted or amended, may take a long time to implement (or may never be implemented) while others, such as encouraging judges to make greater use of their case management powers, may come into effect immediately.

Proportionate Costs

Rule 1 of the CPR states the principle of proportionality, which should be considered by judges making costs awards. The amounts involved in the claim, the complexity of the issues and the financial strength of the parties are all relevant. Jackson LJ suggests that the CPR should go further and set out a clear definition of "proportionate costs", which should "bear a reasonable relationship" to factors such as the sums in issue, the value of any non-monetary relief, the complexity of the litigation, any additional work generated by the conduct of the paying party and any wider factors such as reputation or public importance. The court should prioritise proportionality over any requirement to ensure reasonable or necessary costs.

A key feature of Jackson LJ's report is that after-the-event insurance (ATE insurance) is partly to blame for excessive costs in litigation, whilst before-the-event insurance (BTE insurance) is underused and should be encouraged in order to spread litigation costs more evenly1. The problem with ATE insurance at present is that premiums can be recovered from an opponent if the case is won, and Jackson LJ sees this as a very expensive form of one-way costs shifting. He therefore proposes that the premiums should not be recoverable, which in turn would help encourage the take up of BTE insurance. Special protection for particular groups of claimants, such as in personal injury cases, should remain so as not to deter them from bringing claims. BTE insurance, meanwhile, should not be compulsory but should be encouraged, particularly for small and medium-sized enterprises and householders.

Jackson LJ also views the promulgation of conditional fee agreements (CFAs), which are often tied in with ATE insurance, as responsible for an escalation in litigation costs. The current regime may also unreasonably push defendants to settle early in order to avoid having to pay high success fees. Again, he recommends that CFA success fees should not be recoverable from unsuccessful litigants.

Contingency Fees and Third Party Funding

Contingency fees are paid to lawyers only in the event of a successful claim and are calculated as a percentage of the client's damages award or settlement. According to Jackson LJ, contingency fees have a useful role to play in funding litigation but should be properly regulated and clients should always receive independent advice before entering into a contingency fee agreement. He suggests that the 'Ontario' model be used, where the losing party pays the winner's costs (including contingency fee), but if the contingency fee exceeds the amount payable under a standard costs arrangement, then the successful claimant himself should pay it.

Third Party Funding is another funding method, which may become more important to potential claimants with limited resources if success fees and ATE insurance premiums are no longer recoverable. Although a successful claimant would have to share any damages with the third party, this would not impose an additional financial burden on the losing party. Jackson LJ suggests that a voluntary code for third party funders would be suitable, at least until the practice becomes more widespread.

Large Commercial Claims

In the review, Jackson LJ makes very few suggestions that would directly impact cases in the Commercial Court. He notes a strong level of satisfaction from court users regarding the resolution of disputes in a timely and cost efficient manner. Further, the Commercial Court Long Trials Working Party has already helped improve proceedings.

Costs Management

Jackson LJ emphasises the importance of costs management. Suggestions include the preparation of cost estimates, which would require court approval. The aim is to ensure that costs do not become disproportionate. In order to achieve this aim, judges would be able to place limitations on certain aspects of proceedings, including on disclosure and witness statements.

Disclosure

To help ease the financial burden of profound disclosure exercises, Jackson LJ suggests that a range (or 'Menu') of disclosure options should be available to the parties in large commercial claims instead of always requiring standard disclosure. This would allow for in-depth disclosure, for example in fraud cases, or a scaled-back disclosure that would minimise costs. Such additional flexibility would bring the courts more into line with arbitration in this respect. The report also draws particular attention to e-disclosure, which should be the subject of extensive training for solicitors, barristers and judges.

Case Management

Jackson LJ also calls for increased use of the court's case management powers. Where practicable, judges with relevant experience should be allocated to particular cases and, where possible, cases should remain with the same judge throughout. Case management directions should be standardised and case management conferences (CMCs) or interim hearings should be streamlined to avoid further escalation of costs. To cut costs involved in preparing witness statements, a CMC could identify the issues to be addressed and set a limit for the length of statements.

Part 36 Offers

While Jackson LJ applauds the use of Part 36 offers to settle cases before trial, he feels there should be more incentive for defendants to accept offers made by claimants. He suggests this could be achieved by amending CPR 36.14 so that a claimant's recovery is enhanced by 10% if a defendant has rejected the claimant's offer and fails to beat it at trial. For claims over £500,000, however, this uplift may be reduced. He also recommends that the effects of Carver v BAA [2008] EWCA Civ 412, which was seen as introducing uncertainty by allowing a broad view of the case to be taken when deciding whether a judgment has been worth the fight, should be reversed.

Qualified One-way Costs Shifting

At present, the losing party to litigation usually pays most of the successful party's costs. This is known as two-way costs shifting and is part of the reason why ATE insurance is often taken out. Jackson LJ recommends a modification so that an unsuccessful defendant will still be required to pay for a successful claimant's costs, but if the claim is not successful, the claimant will not have to pay the defendant's costs. This one-way costs shifting is aimed primarily at personal injury or libel claims or other claims involving ATE insurance. It is unlikely to apply to large scale commercial litigation where financial resources of the two parties are often more evenly matched.

Comment

Jackson LJ's report has been received very positively from almost all commentators. The proposals have been praised for being sensible and necessary. Although full implementation is unlikely, steps are afoot to bring about swift change on a procedural level, with Birmingham's courts acting as a test case for the initial rule changes. Legislative changes may have to wait for the next Government.

However, much change can come from within. One area for improvement raised by Jackson LJ, was zero tolerance for delays and non-compliance with orders. He proposes that rather than punishment, judges should request progress updates from the parties. Such a pro-active attitude does not require changes to either legislation or the Civil Procedure Rules. However, it does require a change in the mindset of judges. If this report can bring about that change, the revolution will have begun.