Developments in Civil Procedure under the Legal Aid, Sentencing and Punishment of Offenders Act 2012

In two weeks’ time civil procedure in England and Wales will undergo major reform as the first tranche of recommendations from the Jackson Report come into force. The changes will be wide-ranging and fundamental – including amendment of the Overriding Objective so that, in future, all cases are to be dealt with not simply “justly” but also “at proportionate cost”: a clear signal that costs and their proportionality has become a primary consideration in managing civil litigation.

The headline changes in the sphere of personal injury litigation are as follows:

Funding of civil litigation

ATE insurance premiums & success fees

An important objective of the Jackson reforms is to limit what Lord Justice Jackson regarded as the spiralling costs of civil litigation brought about in part by the rise of CFAs, after the event insurance premiums (ATE) and success fees. As a result of the reforms, ATE insurance premiums and success fees not be recoverable from the unsuccessful party in relation to CFAs entered on or after 1 April 2013. Parties are still entitled to enter into CFAs with their lawyers but any uplift will have to be paid by the client.

The reforms do not however, have retrospective effect, so ATE premiums and success fees will still be recoverable under CFAs entered into before 1 April 2013, even where proceedings are issued after this date. For collective CFAs, ‘litigation services’ must have been provided by 31 March 2013 for the old regime to apply. Given the number of CFAs currently being entered into in an attempt to avoid the new regime, there is bound to be a challenge in the future as to what is required for the provision of ‘litigation services’.

Damages based agreements

It is anticipated that damages based agreements (DBA) will largely fill the void left by CFAs in the litigation funding market. Under a DBA the client agrees to pay his lawyer an amount for costs which is determined by reference to the amount recovered, rather than the hours worked by the lawyer, so that there is no payment where there is no recovery.

Under the draft Damages Based Agreements Regulations 2013, currently going through Parliament, the payment also covers Counsel’s fees, although the client may be required to pay other disbursements. The draft Regulations caps the payment under the DBA for first instance proceedings at 50% of the damages “ultimately recovered” in commercial cases.

Controlling costs in civil litigation

Costs management

This has been piloted in the Mercantile and TCC and is due to be extended to most multi-track cases on 1 April 2013. Under the draft Rule, parties will be required to exchange costs budgets within 28 days of service of the defence. 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 costs 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”, an approach confirmed by the Court of Appeal in January in Henry v News Group Newspapers Ltd. It remains to be seen what sort of threshold will be imposed by the court in this regard.

Qualified one-way costs shifting

In simplified terms, qualified one-way costs shifting means that a successful claimant recovers his costs from the defendant, but a successful defendant does not recover his costs from the claimant. This is the corollary of preventing claimants from recovering ATE premiums from defendants: once claimants who lose their claims are no longer liable to pay the defendant’s costs, there is no need for claimants to insure against this eventuality. Qualified one-way costs shifting resembles the protection given to publicly funded litigants.

Come 1 April qualified one-way costs shifting will apply in all claims for damages for personal injuries (and FAA claims) save where the claimant entered into a “pre-commencement funding arrangement”: i.e. a pre-1 April 2013 CFA. It will not apply to applications for pre-action disclosure, where the old rules will still apply.

How qualified one-way costs shifting will work in practice is more subtle than the characterisation above. Costs orders will still be made against claimants, but the defendant will be able to enforce costs orders only up to the total of the damages and interest awarded to the claimant. Costs orders against claimants will only be able to be enforced at the conclusion of the proceedings. So where a costs order is made against an ultimately successful claimant – at an interim hearing for example, or because the claimant has failed to beat the defendant’s Part 36 offer – this can be enforced up to the total of damages and interest on conclusion of proceedings. Where the defendant is wholly successful there will be no damages or interest and the defendant will not be able to enforce its costs order. Furthermore, costs orders that have been enforced only to the limited extent permissible under qualified one-way costs shifting will not be treated as an unsatisfied or outstanding judgment for the purposes of any court record.

There are some very significant exceptions, though, where defendants can recover their full costs from claimants over and above any damages and interest awarded.

The first, most significant, of these is where the claim is struck out. In these circumstances the defendant will be able to automatically recover costs from the claimant in the usual way. This means it will be much better for a defendant to strike a claim out than to succeed at trial.

The second exception is where the court finds (on the balance of probabilities) that the claim is “fundamentally dishonest”. Where this happens the court has the power to make an order permitting the defendant to recover its costs in full.

Part 36 “plus”

Important changes are being made to Part 36, too, covering the situation where the claimant beats his Part 36 offer. The claimant will remain entitled to costs on the indemnity basis and interest on costs and damages, but also receive an “additional amount”, up to £75,000. This is calculated as being 10% of the amount awarded by the court up to £500,000, and 5% of any amounts awarded above that.

For claimants, this should provide a real incentive for defendants to accept well placed Part 36 offers. And defendants should be alive to the fact that it will be significantly cheaper to accept a Part 36 offer around the full value of the claim rather than have the claimant beat the offer and have to pay the “additional amount”.  

Comment

The Jackson reforms have been years in the making and their implementation will be closely scrutinised. Proponents of the reforms describe them as a ‘complete package’ but critics warn of confusion, increased costs and a growth of satellite litigation. Indeed, it is not difficult to envisage situations in which the reforms will lead to perverse and unfair outcomes. The new DBA regime for instance, fixes a cap on the percentage of damages recoverable from the client, but only in relation to first instance awards: Take a claimant who succeeds on liability at first instance, subject to a 25% reduction for contributory negligence, which he appeals. The appeal succeeds but as no cap applies the client may end up suffering a net loss by having to pay a greater share of the overall award to his lawyers. Quirks such as this have the potential to undermine the aims of the reforms and drive a wedge between the interests of the client and his lawyers.  

Satellite litigation is an inevitable consequence of major procedural change. But whether this has the effect of ‘bedding in’ the reforms or pulling them out by their roots is, as yet, unclear. Watch this space.