The changes to implement the report of Lord Justice Jackson, Review of Civil Litigation Costs, come into effect on 1 April 2013, subject to a number of transitional provisions. They are changes designed to curb what Lord Justice Jackson saw as the excessive costs of civil litigation. They involve far more than changes to the costs regime itself. Indeed, the Ministry of Justice sees the amendments to the Civil Procedure Rules which are involved as the most significant since the Civil Procedure Rules were implemented in 1999. All the more surprising, then, that the Civil Procedure (Amendment) Rules 2013 were not made available in final draft form until 13 February 2013, and the parallel amendments to Practice Directions some days after that. It is not possible here to discuss all the changes or their likely impact, but this article attempts to cover some of the most significant and controversial. In some cases what is being done is far removed from the original proposals of Lord Justice Jackson himself, in particular the new regime of Qualified One-Way Costs Shifting (“QOCS”).

Practitioners will want to read very carefully the Civil Procedure (Amendment) Rules 2013 and the amendments to the relevant Practice Directions. Costs-budgeting and costs-management are introduced in the new CPR 3 Section II. A new proportionality test is coming into force1, which will give the Courts far greater powers than the original test as applied in Lownds v Home Office2, and it has already been made clear that the inevitable satellite litigation as the courts are asked to flex their proportionality muscles will be dealt with by a number of designated judges in the Court of Appeal in an effort to introduce some consistency as soon as possible.

Winning claimants will no longer be able to recover success fees and ATE insurance premiums from the defendant, save where the funding arrangements were entered into before 1 April 2013.3 There are limited exceptions to this for clinical negligence cases (where the cost of insurance against an opponent’s expert reports remains recoverable)4 and diffuse mesothelioma claims. Winning claimants subject to the new regime will, though, recover a 10% increase in their general damages, see Simmons v Castle.5

The double impact of Simmons v Castle and irrecoverable success fees from 1 April 2013 will have left some practitioners in a quandary as to the best (or even reasonable) advice to give to their clients: wait until after 1 April 2013 to enter into a CFA and thereby give the client an entitlement to a 10% increase on their general damages, or enter into a CFA and/or take out ATE insurance before 1 April 2013, and make both success fee and ATE premium at least potentially recoverable?

CFAs remain permissible, but any success fee will be recoverable only from the claimant. Where a success fee is charged, the overall amount is capped under the Conditional Fees Order 2013. The cap at first instance is 25% of general damages for pain, suffering and loss of amenity, and past pecuniary losses net of recoverable CRU benefits. It will be important to spell out to the client at settlement stage how a lump sum settlement is broken down.

Contingency fee agreements become lawful for the first time in contentious business – Damages- Based Agreements (“DBAs”), under which lawyers may act for their client in return for a percentage of the damages.6 Again, the percentage which may be charged is capped.

Whilst section 58AA Courts and Legal Services Act 1990 makes DBAs lawful, at least potentially, its wording will strike fear into some claimant practitioners’ hearts: “A DBA which … satisfies the conditions in sub-section 4 is not unenforceable by reason only of its being a DBA. (2) But … a DBA which… does not satisfy those conditions is unenforceable.” It was the all-or-nothing formula in section 58(1) Courts and Legal Services Act, linked with the CFA Regulations 2000, which made the costs war over CFAs possible: if a losing defendant, or in reality his insurer, could show that a CFA was unenforceable and so the client was not liable to pay profit costs under it to his solicitor, then under the application of the indemnity principle the insurer was not liable to pay costs either. The DBA Regulations 2013 impose a set of requirements which the practitioner will need to comply with, and it remains to be seen whether the Courts will adopt a test similar to that in Hollins v Russell,7 whereby it was only a material breach which rendered an agreement unenforceable.

The DBA Regulations are not a masterpiece of the draftsman’s art. Here is not the place to set out all the possible problems. There is an Explanatory Memorandum8 which helps somewhat, though its role in statutory construction remains unclear. Essentially the Regulations provide that in a personal injury claim the payment for profit costs to be made by the client must not be more than 25% of the general damages for pain, suffering and loss of amenity and past pecuniary loss; and the solicitor can only recover from the client that payment net of profit costs recovered from the losing defendant. Given that the indemnity principle also remains, the risks are clear.

Lord Justice Jackson proposed that if ATE premiums ceased to be recoverable inter partes, then claimants should be relieved of the risk of paying the defendant’s costs if they lost. The new CPR 44 Section II introduces QOCS in personal injury claims, including claims under the Fatal Accidents Act 1976 and under the Law Reform (Miscellaneous Provisions) Act 1934.9 The costs protection it confers on claimants is far less than that which was proposed by Lord Justice Jackson, however. The general rule is that claimants remain liable to pay costs without the defendant needing the permission of the court, but that liability is limited to the extent of their damages and interest.10 Interim costs orders against a claimant can now only be enforced at the end of the case.11The limited costs protection conferred by CPR 44.14 is lost: without the permission of the court where a claim is struck out by the court as an abuse of process;12 with the permission of the court where a claim is fundamentally dishonest or where the claim is brought for the benefit of someone other than the claimant (claims for past care, medical expenses and earnings paid by an employer are specifically exempted from this; and it is clear that the rules are aimed at , for example, credit hire companies who might otherwise seek to shelter behind a low value personal injury claim in order to obtain QOCS protection).13 Where CPR 44.16 is applied, for example where a claim is found to be fundamentally dishonest, then a costs order against a claimant may be enforced to its full extent, i.e. without reference to any damages and interest recovered.

Finally, the test for relief from sanctions is being changed, and the new CPR 3.9 requires the court to take into account, amongst the other circumstances of the case, the need for litigation to be conducted efficiently and at proportionate cost and the need to enforce compliance with rules, practice directions and court orders. It has already been made clear that what might have justified relief from sanctions before 1 April 2013 may well not be sufficient after April Fool’s Day.