Lord Justice Jackson completed his year long review of costs in civil litigation in January 2010, when his final report was published.
In formulating his reforms, he said: "In some areas of civil litigation costs are disproportionate and impede access to justice. I therefore propose a coherent package of interlocking reforms, designed to control costs and promote access to justice."
In May 2012, the Legal Aid, Sentencing and Punishment of Offenders Act 2012 was passed, introducing the changes.
In 2013, various statutory instruments were passed, together with two new Practice Directions. The majority of the reforms will come into force on 1 April 2013, albeit that there are transitional provisions for some.
We have set out below the main reforms which will directly affect the work you undertake, highlighting the salient points you will need to consider.
THE OVERRIDING OBJECTIVE
The issue of proportionality is now on the same footing as dealing with cases justly and CPR1.1 has been amended to reflect this. Now cases must be dealt with justly and at proportionate cost.
In addition, the overriding objective now extends to ensuring compliance by the parties, reinforcing the amendments to relief from sanctions under CPR 3.9.
RELIEF FROM SANCTIONS
Part 3.9 has been simplified and there is a new stricter approach to default. The new rule applies to all applications for relief made after 1 April 2013, so it will apply to defaults prior to that date even if they occurred a long time ago.
Moreover, judges have been told to be much tougher on default, including default by litigants in person and they will have the full backing of the Court of Appeal on their decisions. Accordingly, it will be much harder to obtain relief from the court when deadlines have been missed.
Now case management will be inextricably fused with costs management. Accordingly, judges will have to consider the costs of the steps the parties want to take and make appropriate orders to ensure that the overriding objective is met.
Allocation questionnaires have been abolished and replaced by directions questionnaires.
Now, when a defence is filed, a court officer will provisionally decide the track which appears most suitable and serve on each party, a notice of proposed allocation.
This will require the parties to file and serve a directions questionnaire and if the case is suitable for the fast track or multi track, require the parties to also file proposed directions.
For cases issued in the Bulk Centre, the rules have not changed. Accordingly, when a defence is filed on a CCBC case, the claimant will be sent a copy and if it decides it wishes to continue, will need to send an intention to proceed notification, as is currently the case.
CCBC court staff will then provisionally allocate the case to a track and the directions questionnaire will need to be filed and served. A case will only be transferred if both directions questionnaires have been returned and where mediation is not an option.
Parties will need to attempt to agree directions before any Case Management Conference (CMC) and either submit the agreed directions or proposed directions, where agreement cannot be achieved, to the court at least seven days prior to the CMC. If the court approves the directions, it can then vacate the CMC.
As from 1 April 2013, the limit is increased to £10,000 (except for personal injury and housing claims). Accordingly, all claims issued after that date will be allocated to the small claims court. The fast track limit has been amended to cover cases between £10,000 and £25,000.
Despite lobbying by the County Court Users Association for a sliding scale of costs, given the increased limit and the amount of cases it will cover, the current rules on costs remain. There has, however, been an increase in the costs in relation to experts which have been increased from £250.00 to £750.00 for each expert. The existing rules regarding orders for costs against unreasonable defendants for their unreasonable behaviour remain and we have had some success with obtaining such orders.
The increase in the number of small claims and the inability to recover costs may result in there being more litigants in person, which could in turn cause delay, given that litigants in person will not necessarily understand the legal process or be able to succinctly address the court. As a result, the process could be prolonged.
In Salford County Court, a mediation pilot has been running since 1 October 2012 and will finish on 31 March 2013. Another one is due to start on 1 April 2013. Mediations are usually carried out by telephone in one hour time limited appointments convenient to the parties.
Where a claim is settled, the proceedings are automatically stayed with liberty to apply to bring the settlement into effect, unless the parties agree the claim should be dismissed or discontinued. Where agreement cannot be reached, the claim will proceed to a small claims hearing.
Conditional Fee Agreements
The ability to recover success fees and After the Event insurance is removed as from 1 April 2013. After this success fees will still be allowed, but they will no longer be recoverable from the other party.
The provision is not retrospective if the CFA was entered into before 1 April 2013 specifically for the purpose of the provision to the client of advocacy or litigation services in connection with the matter that is the subject of the proceedings.
Damages Based Agreements
Damages Based Agreements (DBA's) are a type of 'no win, no fee' agreement between client and solicitor, whereby the solicitors' fees are only payable in the event of damages being recovered. This type of contingency fee agreement has not previously been permitted in litigation (save for employment).
In commercial litigation cases there is a cap of 50% of the damages awarded. The existence of a DBA will not affect the making of any order for costs, which would otherwise be made in favour of that party.
A new procedure for multi-track cases will apply, unless the court orders otherwise.
CPR 31.5(2) provides that not less than 14 days prior to the first CMC, each party must file and serve a report, verified by a statement of truth, describing the documents which exist, where they are, how electronic documents are stored, the costs involved in giving standard disclosure and what directions from the menu of options are being sought.
There is a new menu of options for disclosure which allow:
. dispensing with disclosure
. disclosing documents on which a party relies and requesting specific disclosure from the other side
. giving disclosure on an issue by issue basis
. disclosing documents that reasonably may contain information which allows a party to advance their case or damage that of another party
. standard disclosure
. any other order the court considers appropriate
The electronic documents questionnaire will still apply to the disclosure of electronic documents as it currently does. Whilst it is not mandatory, we would recommend its use.
In order to further the overriding objective, judges will be trying to narrow disclosure as much as possible - it is all about proportionality.
Part 32 is being amended giving the court new powers to restrict witness evidence.
The court can now give directions:
. identifying/limiting issues on which factual evidence may be directed
. identifying witnesses who may be called or whose evidence may be read
. limiting the length or format of witness statements
Judges will be looking to understand how many witnesses there are, what they will give evidence about and how controversial that evidence is likely to be. The issue of proportionality will be paramount.
CPR 35.4 has been amended and when applying for permission parties must provide an estimate of the costs of the proposed expert and identify the issues which the expert will address. Any subsequent order may specify the issues the expert evidence should address.
Whilst not a rule change, judges have also been reminded that single joint experts should be used more often and therefore there will be greater reticence from the court when seeking to use your own expert.
'Hot tubbing' - concurrent expert evidence at trial - is being piloted, and feedback has been positive. Where the court directs that some or all of the experts give their evidence concurrently the parties will be required to agree an agenda based on the areas of disagreement and they will then address the items on that agenda. The judge will hear from each in turn on each item and the judge can ask questions. After this, the party's representatives may ask questions, but only to seek clarification, as such full cross- examination or re-examination is not necessary, nor appropriate.
Jackson said this is the single most important reform. It applies to all multi track cases commenced after 1 April 2013 in a county court or in the Chancery or Queen's Bench Division of the High Court (except the Admiralty and Commercial Courts).
At the eleventh hour, the President of the Queen's Bench Division and the Chancellor of the High Court gave notice of an important amendment. The notice states that on further reflection in the Chancery Division and the QBD (specifically the TCC and Mercantile Courts within the QBD), the rules on costs budgeting will not apply to cases where at the first CMC the sums in dispute exceed £2m, excluding interest and costs, except where the court orders otherwise.
Case management is now costs management and vice versa - they are inextricably intertwined. As such, courts will manage both the steps to be taken and the costs to be incurred in order to further the overriding objective.
Judges are expected to be much more proactive in the project management of cases and in seeking to ensure efficiency and proportionality.
Parties (save for litigants in person) must file and exchange costs budgets in form H verified by a statement of truth. If a party does not file a budget, then rather draconically, it will be treated as having filed one comprising only of applicable court fees.
If the court makes a costs management order, which it will be encouraged to do, it will control the parties' budgets in respect of recoverable costs. Budgeting is prospective not retrospective, however where substantial costs have been incurred pre-budget, the court will be expecting to see a comparatively modest budget. Judges will be looking for 'spikes' in costs. However, the parties can keep the court out of the detail by agreeing budgets.
Budgeting is an ongoing process throughout the litigation (save for appeals) and therefore budgets must be monitored and revised where necessary, either by agreement or by court approval.
When assessing costs, the court will not depart from the agreed/approved budget unless there is good reason to do so.
In the Court of Appeal case, Henry v News Group Newspapers Limited (2013) EWCA Civ 19, the court held that there was good reason to depart from the budget and was no doubt swayed by the fact that the work undertaken had been reasonable and necessary and the total bill was proportionate.
However, the court recognised that the new rules 'differ in some important respects from the PD with which the appeal is concerned'. Accordingly, it is likely that a firmer line will be adopted and parties must stick within their budgets.
There will be a shift from 'necessity' to 'reasonableness' when considering proportionality of costs. Accordingly, costs that are disproportionate in amount may be disallowed or reduced, even if they were reasonably or necessarily incurred.
The court will resolve any doubt as to whether costs were reasonably and proportionately incurred or were reasonable and proportionate in amount in favour of the paying party.
If costs are assessed on the indemnity basis, there is a presumption of reasonableness and proportionality in favour of the receiving party.
The new rules provide that 'costs are proportionate if they bear a reasonable relationship to:
. the sums in issue
. the value of any non monetary relief
. the complexity of the litigation
. any additional work generated by conduct of the paying party
. any wider factors such as reputation or public importance'
The court will assess what are reasonable costs and then step back and consider whether the total figure is proportionate. If it is not, the court will make an appropriate reduction.
Unfortunately, the term 'proportionate' has not been defined, thereby leaving the way open for satellite litigation.
For cases commenced prior to 1 April 2013, the old CPR 44.4(2)(a) will continue to apply i.e. that where costs are assessed on the standard basis the court will only allow costs which are proportionate to the matters in issue, and will resolve any doubt as to whether they have been reasonably incurred or reasonable and proportionate in amount in favour of the paying party.
CPR 36.14 has been amended to introduce an extra sanction payable by defendants who do not accept a claimant's reasonable offer where that offer is not beaten at trial.
A claimant will be entitled to an additional 10% of the damages awarded or 10% of costs (non monetary claims) on awards up to £500k and 5% on awards up to £1m, with a maximum limit of £75k.
The rule only applies to offers made after 1 April 2013.
There are a number of matters which have not been dealt with in the Statutory Instrument or Practice Direction.
A new general and a debt protocol are expected, albeit that no timeframes have been given.
This is where one judge would have control over the case from start to finish however again there have been no dates for implementation as yet, given that court resources and IT systems are not in place.
A thorough review is envisaged, however this is now not likely to be dealt with before the April 2014 update.
There is a campaign to educate both clients and solicitors about ADR in order to promote its wider use. A mediation protocol is being discussed and an ADR handbook has been produced which contains guidance on ADR options and details of approved third parties.
These guidance notes have been prepared on the basis of information currently available. Further amendments are likely to be effected in the October 2013 update.
We will keep you abreast of all the changes likely to affect you as and when they become known to us. However, if you would like to discuss any aspect of the reforms or have any queries, please do not hesitate to speak to us.