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Jackson Reforms Implemented – But Much Ambiguity Remains, Says Hogan Lovells

28 March 2013

LONDON, 28 MARCH 2013 - The 'Jackson reforms' on civil costs and funding will become law on 1 April 2013 but much ambiguity remains around a number of key issues, says Hogan Lovells.

The new Jackson regime marks the most important overhaul of civil litigation procedure since the Civil Procedure Rules were introduced in 1999.  The main changes to the Rules are to case management, cost management and Part 36 offers and will have a significant impact on litigators, the judiciary and court users.

Nick Atkins, partner at Hogan Lovells, commented:

"The reforms have been widely and hotly debated and changes were still being made only this week.  They could have a significant and positive impact if applied correctly – cost estimates can be difficult to provide at the early stages of litigation and the reforms should go some way to helping with this process.

"Unfortunately the way in which the reforms arrived on the statute books has been highly unsatisfactory. Not only were the new rules and practice directions introduced at the very last minute, in piecemeal fashion, with virtually no warning or consultation, but more alarmingly, it was obvious immediately that many contained mistakes, lacunae and ambiguities. The Ministry of Justice was alerted to these but its response has essentially been silence. Similarly the Government ignored widespread pleas from the legal profession to delay implementation until the problems were fixed. The result is that, on 1 April, an imperfect set of reforms comes into being. Satellite litigation will almost certainly ensue while the judges try to make sense of them."
 
Charlie Clarke-Jervoise, professional support lawyer at Hogan Lovells, added:

"A number of ambiguities remain. In particular the rules do not make clear whether or not it will be permissible to enter into partial damages-based agreements."

The main changes, which will only apply to cases commenced on or after 1 April 2013, are:

1.  COSTS

(a) Proportionality
The overriding objective of the CPR now explicitly requires courts to manage cases not only justly but also at proportionate cost.  A new test sets out when costs are likely to be deemed proportionate to the remedy at stake.  Costs incurred pre-1 April 2013 will be assessed under the old test.

(b) Case management
(i) The judiciary are being urged to be more proactive about preventing infringements of the rules and directions before they happen. Judges should rarely grant relief from sanctions after a rule or direction has been breached.
(ii) Parties must make every attempt to agree case management directions, using standard directions produced by the Ministry of Justice.  The court can approve these or issue its own directions.
(iii) Parties seeking permission to adduce expert evidence will have to give an estimate of the costs of any such proposed evidence.
(iv) Courts will be able to hear evidence from experts concurrently under a new "hot-tubbing" regime. Essentially the judge will conduct a discussion between experts on areas of disagreement rather than hear their evidence sequentially.
(v) Standard disclosure will no longer be the norm. Rather the parties' lawyers must each produce a disclosure report, estimating the costs of standard disclosure, and choosing the most proportionate type of disclosure from a new menu of six options (which range from no disclosure to detailed, "train of enquiry" disclosure).  They should try and agree a disclosure plan with the other side and the court then approve that or impose its own, more proportionate directions.
Note that the new disclosure rules will apply to any cases where the first case management conference ("CMC") takes place on or after 16 April 2013.  Since the disclosure report must be served and filed at least 14 days before the first CMC, where the first CMC is set for 16 April or soon thereafter, this could be a very challenging timetable.

(c) Costs management
Rather than assessing costs after litigation is over to determine whether they were reasonable and proportionate, judges will manage the incidence of costs throughout the litigation, so that they never become disproportionate. Parties' lawyers will produce, file and exchange costs budgets, setting out the costs that their client is likely to incur for each stage of the action. If they can agree these budgets the judge cannot intervene. Only if they cannot agree will the court decide whether the costs are proportionate and amend the budgets if not.
The parties must keep their budgets up to date throughout the case, and unless there is a good reason, at the end of the dispute, the court will not depart from the parties' last agreed or approved budgets. In most cases therefore the losing party will pay the costs set out in the winning party's finally agreed or approved budget.
Costs budgeting will be optional in all Commercial Court cases and in Technology and Construction Court, Chancery and Mercantile cases with a value of £2 million (exclusive of costs and interests). It will generally apply in other civil cases, although all judges have the discretion whether to apply costs budgeting or not.
Only a small percentage of the costs incurred in costs budgeting will be recoverable.

2. Funding

(a) Conditional fee agreements
Successful claimants under conditional fee agreements (no-win-no-fee agreements) will no longer be able to recover the success fee payable to their lawyer from the losing side (other than in some insolvency and media proceedings). They will have to pay this (and any "after the event" insurance premium) out of their damages. To compensate for this, general damages for individuals for personal injuries and other civil wrongs will increase by 10%.

(b) QOCS
In personal injury claims, losing claimants will not pay the defendant's costs but a losing defendant will pay the claimant's costs, unless the claimant has behaved dishonestly or obstructively, or failed to beat a defendant's Part 36 offer to settle.

(c) Damages-based agreements
Contingency fee agreements (now known as damages-based agreements) will be permissible in all civil litigation. Under a "DBA", a lawyer receives nothing if his client loses but a percentage of the damages if he wins.  Costs will be recoverable against opposing parties on the conventional (hourly) basis and not by reference to the contingency fee.  Any shortfall will be paid out of the winner's own pocket.
The contingency fee (including counsel's fees and VAT) cannot exceed 50% of the "sums ultimately recovered" by the client. In employment cases the cap is 35% and in personal injury actions, 25%.

(d) Third party funding
Third party funding, where an independent third party agrees to finance all or part of the legal costs of the litigation in return for a share of any money recovered by the funded litigant, will be encouraged as an alternative way of funding litigation. Initially it is being regulated by means of a voluntary code rather than legislation.

3. Part 36 offers

In order to give claimants' Part 36 offers more force, a defendant who does not accept a Part 36 offer but then fails to beat it at trial or settlement will, unless the court considers it unjust, pay the claimant an additional amount (in addition to indemnity costs and interest on damages and costs at up to 10% above base rate). The additional amount will be 10% of the damages, which will be tapered to give a maximum of £75,000 extra for claims of £1 million or more.  This will apply to Part 36 offers made on or after 1 April 2013.

ENDS

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