Lord Justice Jackson delivered his Final Report on Civil Litigation Costs in early 2010. The Final Report was the culmination of a year-long review of the civil litigation system.  Lord Justice Jackson’s remit was very broad, in that he was required to look at how cost savings could be made in all aspects of civil litigation.

The Final Report made 109 recommendations for law reform.  Some of those recommended reforms could have been (and now have been, or will be) implemented by changes to the rules of court.  Others require primary legislation. 

The most significant recommendations coming out of the Jackson costs review related to legal funding, and in particular Conditional Fee Agreements (“CFAs”), usually referred to as “no win / no fee” agreements.  Lord Justice Jackson recommended that the law be changed so that success fees and After-the-Event (“ATE”) insurance premiums (which are usually a necessary part of a CFA) cease to be recoverable by successful claimants. 

Implementation of the Jackson Reforms

The Jackson report was released in the period leading up to the 2010 general election, during which the issue of civil litigation costs was very much on the back burner (for political purposes).  After a period of consideration, the Conservative / Liberal Democrat government made noises to the effect that they would accept the primary recommendations and implement them.  In 2011 the wheels have now been put in motion to do so. 

The Legal Aid, Sentencing and Punishment of Offenders Bill was introduced into the Parliament in June 2011.  If enacted, the Bill will (among other things) render success fees and ATE premiums irrecoverable from unsuccessful litigants in most cases (including construction cases).  CFAs will not be banned, but their economic justification (for some lawyers, at least) will be severely emasculated. 

On the other hand, the Bill also contemplates (as recommended by Lord Justice Jackson) legal practitioners being able to enter into “damages-based agreements”, otherwise known as “contingency fee” agreements.  Contingency fee agreements are those under which a lawyer is paid his fee out of the damages awarded to his client – often as a percentage of the damages.  Lord Justice Jackson concluded that contingency fee agreements, which are used widely in the United States and Canada, should be available in England and Wales as a form of litigation funding to improve access to justice.  His recommendation (which is to be implemented) is that although claimant lawyers may act on a contingency fee basis, unsuccessful defendants should only be required to pay the claimant’s reasonable legal costs, which may be less than the amount of the contingency fee taken by the successful claimant’s lawyer.  The difference – if there is one – between the two amounts will usually be paid to the claimant’s lawyer out of the damages awarded, which could in some cases mean that a claimant is undercompensated for its loss (but there are other measures in the Jackson recommendations to address this possibility).

It seems likely that the litigation funding reforms described above will take effect at some point later in 2012.  They will also be relevant to arbitrations with English seats.

Implications for the resolution of construction disputes

The CFA reforms that are to be implemented will have an enormous impact on many legal practices, particularly those of claimant lawyers acting in personal injury and similar cases.  For construction lawyers and clients the impact may not be as great.  Although CFAs are increasingly used in construction cases, they are by no means a staple.  It remains to be seen how much of a take-up of contingency fee agreements there will be in construction cases.  However, some parties may welcome the incentive that contingency fee agreements give their lawyers to resolve cases quickly, while making all or part of their fees conditional on (and deferred until) a successful outcome.  Clients and their lawyers may also welcome the opportunity for a “partnering” or “risk sharing” approach where the lawyer’s uplift more closely reflects the degree of success than tends to happen with CFAs (with their binary win/lose trigger).

Although these major recommendations of Lord Justice Jackson are being implemented, the status of others is yet to be determined.  In particular:

  • Pre-Action Protocols: Lord Justice Jackson recommended that the status of the Construction & Engineering Protocol be reviewed once the London TCC moves into the new Rolls Building, where it will join the Commercial Court and the Chancery Division.  Neither of those courts has any specific Pre-Action Protocol.  The move to the Rolls Building has been delayed and will probably not happen until 2012.  So although the Construction & Engineering Protocol continues to be applied, its future is by no means assured.  
  • Claimants’ settlement offers.  The Final Report recommended that the cost rules concerning claimants’ settlement offers be “beefed up”, so that an unbeaten claimant offer will attract not only a more favourable costs award, but a further entitlement to 10% of the damages awarded to the claimant (with the amount being capped or tapering off for damages over a certain figure).  The Legal Aid, Sentencing and Punishment of Offenders Bill expressly permits rules of court to be made that require an unsuccessful defendant to pay an “additional amount” where it fails to beat a claimant’s settlement offer.  Details of what that “additional amount” will be, and how it is calculated, are not presently known, but it is reasonable to anticipate that the new rules on settlement offers will broadly follow Lord Justice Jackson’s recommendations.
  • Expert evidence.  Lord Justice Jackson recommended that concurrent expert evidence or “hot tubbing” be piloted, to see whether it would shorten the amount of time taken for experts to give evidence (and thereby reduce cost).  A pilot has been conducted in Manchester, but no results of the pilot have been disseminated.  The CPR and indeed the TCC guide permit “hot tubbing” to be conducted already, and there are reported TCC cases (outside Manchester) in which it has been used.  “Hot tubbing” is often used successfully in international arbitrations.  If anything, what we could expect to see is not a change to the law but a change to the case management of construction cases, with concurrent evidence possibly becoming the preferred way of experts giving evidence, rather than for there being the sequential, individual examination of experts.
  • A TCC Fast Track and Fixed Costs.  “Fast track” cases are primarily those with a value of up to £25,000.  Lord Justice Jackson recommended that recoverable costs be fixed in the fast track, so as to be kept proportionate to the sums in dispute.  He also recommended that a fast track be created for TCC claims - currently there is none.  It is understood that the recommendation for fast track fixed costs is likely to be implemented. What is less clear is whether the TCC will obtain a fast track. If it does, this should help to ensure that costs in smaller TCC cases do not dwarf the sums in issue.

The most radical aspects of the Jackson report are now being implemented.  The impact of these changes, particularly on cases where CFAs are routinely used, cannot be underestimated.  TCC cases (and construction arbitrations with English seats) will also be affected, but the reform measures recommended by Lord Justice Jackson for such cases are perhaps more in the nature of “fine tuning” than a radical overhaul.  This is because, in the main, TCC litigation is usually conducted in an efficient manner.  And this, in no small measure, can be attributed to the cultural change that Mr Justice Jackson (as he then was) brought to the TCC when he was the judge in charge, from 2004 to 2007.

Julian Bailey assisted Lord Justice Jackson in preparing both his Preliminary Report and his Final Report: see Chapter 1, paragraph 5.6 of the Final Report (downloadable at www.judiciary.gov.uk)