Civil Litigation – The Jackson Reforms

It has been a while since our last blog post, in no small part this has been down to the flurry of activity relating to vacation scheme recruitment, which took place at many firms across February.  I hope that all of our readers managed to secure a placement with at least one of their target firms, and that we will be seeing a number of you in a Pinsent Masons’ office later this year.  For PM it was certainly a bumper year for applications, with a record number (well over 1000) across our 8 UK offices); in total we have managed to find enough room to squeeze in around 100 placement students although some offices will be physically bursting at the seams!  If you did miss out this time around I wish you the best of luck with any future applications you may be making.

However, on to other matters and the subject of this post.  This blog is going to focus on the Jackson Reforms with Nicola King, a Trainee Solicitor in our London office taking you through the basics of what this is all about.  Over you to Nicola…

 

On 1 April 2013, significant elements of the Jackson Reforms come into force.  The reforms include substantive changes to the Civil Procedure Rules (CPR) and supporting Practice Directions (PDs). Many rules and PDs are to be amended, some are to be revoked and there are also a significant number of new rules and paragraphs of the PDs to be inserted.

 

Aims of the Reforms

The Reforms are aimed both at methods of funding litigation which were seen to have driven up costs and at controlling the costs of the civil litigation process.

 

The Funding of Civil Litigation

Jackson LJ saw the current conditional fee arrangement (CFA) model of funding litigation, often backed by the after the event legal expenses insurance (ATE), as the root of the problem.  He noted that the client had no financial interest in keeping costs under control where the CFA was on a “no win, no fee” basis, ATE insurance covered the other side’s costs if the case was lost and, if won, the success fee and ATE premium could be recovered from the unsuccessful party.

His solution therefore was to dismantle the CFA model and to allow damages-based, also known as contingency fee agreements as an alternative method of funding. The Reforms will make the following changes:

1                 Success fees will no longer be recoverable from the losing party under any CFA entered into from 1 April 2013.  The client will have to pay the lawyers success fee.

2                 ATE Insurance premiums under any costs insurance from 1 April 2013, whether under a CFA or free-standing, will not be recoverable from the losing party.

3                 Damages-based agreements (DBAs) by reference to the amount recovered, rather than the hours worked by the lawyer.  This payment will include counsels’ fees. Therefore if there is no recovery there will be no payment.

4                 10% increase in general damages for claims in contract or tort for non-pecuniary loss.

The draft Damages-Based Agreements Regulations 2013, also cap the amount of the payment under a DBA for first instance proceedings to 50% of the damages ultimately recovered in commercial cases.

 

Relevant Changes

1                 Costs management – after 1 April 2013 parties will have to file and exchange detailed costs budgets before the first case management conference for multi track cases.  Courts may make a costs management order recording the extent to which parties’ budgets are agreed or approved.  This will not apply in the Commercial Court or to claims over £2 million in Chancery, Technology and Construction or Mercantile Courts, unless the court so orders.

2                 Proportionality – new test of proportionality, requiring costs to bear a reasonable relationship to the value and complexity of the claim.

3                 Part 36 offers – additional sanction for claimants’ offers equivalent to 10% of damages.

4                 Disclosure – presumption in favour of standard disclosure to be replaced by “menu” of disclosure options in multi-track cases.

 

Impact of the Reforms on Pinsent Masons

The funding changes are very radical and their impact is hard to gauge.  It will take time for the market to adjust; especially as litigation funding by professional funders, such as private equity investors, in return for a share of any recovery may become more available.

PM will need to be aware of all the alternative funding options that are available and select the best for the matter in hand.  The firm will need to consider their likely exposure to claims and costs and it will be essential to prepare accurate budgets and keep them up to date.  It will also be necessary to keep clients aware that recoverable costs may be restricted to the last approved or agreed budget.

 

The Trainee Perspective

The Reforms equate to further challenges in the litigation world and everyone must be mindful of their potential implications.  I doubt this will deter trainees from becoming litigators as we are quite used to making new laws in our practice and adapting to fast-paced changes.  Relevant training is being provided to the team and clients are also being made aware of the changes.