The Jackson reforms, aimed at changing the English litigation costs regime, were implemented a year ago, on 1 April 2013. Mr Justice Ramsey, who was responsible for implementing the reforms, has said that five years will be needed to assess whether they have worked. However, an impact has already been felt in recent judicial decisions.

Costs budgeting/management

Costs budgeting reforms have meant that in most multi-track cases, at an early stage in litigation, the court must approve costs budgets prepared by each party. The idea is that if a successful party exceeds its budget, it will struggle to recover any costs in excess of its budget originally approved by the court (unless it can show a good reason). 

The budgeting regime has not applied to certain specialist courts, including the Commercial Court. However in a recent development, this costs budgeting process will now apply to all claims commenced on or after 22 April 2014 with a value of less than £10 million. It will therefore include the Admiralty and Commercial Court. Preparing budgets will be another litigant process, but the effect of dealing with such a process has already been seen in some cases, as discussed further below. In reality, having to address another process will increase the costs of the litigation. 

Relief from sanctions

The overriding objective for the conduct of civil litigation was revised. It used to be that courts must deal with cases “justly”, whereas from April 2013 the court must deal with matters justly and at a proportionate cost. This change in the rules has had a significant effect on the courts’ approval to applications for relief from sanctions. For example, a party which misses a deadline must apply to the court for relief from the sanction which otherwise could be imposed for the breach of the rule. Civil Procedure Rule 3.9, which previously specified a list of factors which a court could consider when deciding whether to allow relief from sanctions, now provides that the court will consider all the circumstances of the case including the need for litigation to be conducted efficiently and at proportionate cost, and the need to enforce compliance with the rules, practice directions and orders.

The outcome of the above appears to be that whereas parties had expected some flexibility in applications for relief from sanctions and in their conduct of litigation (for example they could agree time extensions between themselves with approval from the court) they should now expect courts to view any application for relief or non-compliance with rules critically. This has been compounded by the infamous Court of Appeal decision in Mitchell v News Group Newspapers [2013] EWCA Civ 1537.

Mitchell involved a claim by Mr Mitchell against News Group Newspapers for defamation due to the Sun’s coverage of an incident which has become known as “plebgate”. That was a high profile case. Mitchell’s solicitors filed his costs budget the day before the case management and costs budget hearing about four days late, which was in breach of a practice direction. In light of the new, stricter approach to rule compliance, the Judge at first instance ordered that Mitchell should be treated as having filed a budget comprising only court fees, such that no solicitor costs could ever be recoverable. Upon Mitchell's appeal and application for relief from this sanction, the Court of Appeal upheld the decision. The Court of Appeal concluded that the solicitors' defaults were not minor or trivial and there was no good reason for them. While most would argue that there was no good reason for the delay, not everybody would agree that this was not a minor infraction of the rules - a budget had after all been provided.

This decision and others since have caused a great deal of concern. For example in a more recent case, Associated Electrical Industries v Alstom [2014] EWHC 430 (Comm), the Judge allowed the Defendant's application to strike out the Claimant's claim, due to its failure to serve Particulars of Claim in time, but the judge said that he would not have struck out the claim if it depended only on what was just and fair between the parties. In other words the procedure has become more important than the individual 'justice'. This creates a position whereby parties can obtain significant advantages as a result of infringements of procedural orders or rules. Some of the judiciary are alive to this risk; Mr Justice Leggatt stated in Summit Navigation Ltd v Generali Romania Asigurare [2014] EWHC 398 (Comm) that parties should not be allowed to exploit trivial or insignificant breaches (although in that case the breach was very minor indeed; the claimant was one day late in providing security by way of a bond). This is not the prevailing attitude. These concerns appear to have been addressed to some extent since a further amendment to the Civil Procedure Rules - the "buffer provision" - is likely to be approved, to allow parties to agree time extensions of up to 28 days for serving certain documents without needing to make an application to the court.

An additional consequence is that significant costs will be incurred as a result of arguments over relief from sanctions and defensive behaviour such as increased applications and applications which pre-emptively seek relief from sanctions. Ironically, the reforms which were designed to reduce the significance of costs to the litigation process are already spawning a first wave of satellite litigation about costs and increasing everybody's costs in the process.

Conclusion The Bar Council asserts that the speed at which the Jackson reforms were implemented had resulted in "a civil litigation funding environment that is devoid of certainty in many areas, commercially unattractive and has real potential for mass satellite litigation." This assessment seems accurate. The key point to note is that insurers will need to be aware of the potential for the satellite litigation and resulting increased costs.