The Jackson Reforms
Reforms to the civil litigation costs and funding regime, based on Lord Justice Jackson’s recommendations (the “Jackson Reforms”), were implemented on 1 April 2013.
The reforms include the introduction of damages-based agreements, significant changes to the rules governing conditional fee agreements, offers to settle and the introduction of costs management procedures for multi-track cases in most courts.
Costs management procedures are introduced for all multi-track cases commenced on or after 1 April 2013 in all courts (except the Commercial Court and the High Court where the sum in dispute exceeds £2,000,000).
These procedures require all parties (except those representing themselves) to file and exchange budgets detailing estimated costs for each stage in the proceedings. Each party must do so by the deadline set by the Court.
When making decisions about how to manage cases, the Court will take into account these budgets and how they may be affected by the Court’s decisions. The Court may make a “costs management order” in which it will record the extent to which the budgets are agreed between the parties or record the Court’s approval of a budget.
Parties will also have to submit revised costs budgets in the event that developments in the litigation render previous budgets inaccurate. The Court may approve, vary or disapprove revised budgets.
Any party which fails to file a costs budget will be treated by the Court as having filed a budget comprising only the applicable Court fees. This would limit the party’s ability to recover its costs to this amount. It will therefore be vital for parties to prepare accurate budgets and keep them up to date.
Offers to Settle
Where a claimant or defendant makes an offer to settle a claim, and that offer is refused and the opponent goes to trial but fails to do better than the offer made, then the party that refused the offer is likely to suffer costs sanctions imposed by the Court. The nature of the sanction depends on whether the offer was made by the defendant or the claimant. The purpose of this system is to encourage parties to settle claims where reasonable offers are made.
In his review, Lord Justice Jackson said that changes were required in order to balance the position between claimants and defendants as it was felt that the consequences for a defendant not accepting a claimant’s offer were less significant than where a claimant failed to accept a defendant’s offer.
As such, an additional sanction is introduced in respect of offers made by claimants on or after 1 April 2013 which are not accepted and where the defendant fails to do better than the offer made. This will be calculated as 10% of damages in money claims or 10% of costs for non-money claims (although the percentage will be tapered where damages exceed certain thresholds).
Damages Based Agreements
Damages-based agreements (“DBAs”), will, for the first time, be allowed for litigation or arbitration proceedings in England and Wales. This means that lawyers will be able to be remunerated through a share of any damages achieved by their client. Such arrangements have not previously been permitted.
The Damages-Based Agreements Regulations 2013 are still in draft form and subject to change but, as they currently define the payment under DBAs as part of the sum recovered in respect of the claim or damages awarded, it appears that DBAs will only be available to a claimant (or counterclaimant) and not to a defendant to a claim.
This does not, however, appear to mean that if a claim is successful, a defendant will be required to pay the full amount of any contingency fee. A claimant’s recoverable costs will continue to be assessed in the usual way and, if a contingency fee is higher than the figure assessed to be payable, the claimant will have to pay the deficit from its damages. As such, a defendant’s costs liability should not be increased by these arrangements.
Conditional fee agreements and after the event insurance
A key element of the Jackson Reforms was to recommend that the ability of successful party to recover costs uplifts and insurance premiums from its opponent should be abolished. This recommendation has been implemented as part of the new regime from 1 April 2013.