Jackson reforms: taking stock

In addition to the headline reforms which are to be implemented through primary legislation currently before Parliament, progress is ongoing toward the implementation of various other recommendations put forward in Lord Justice Jackson's final report on civil litigation costs and funding (as summarised here).

Some of the developments likely to be of interest to commercial clients are outlined below.

Background – the legislation

On 21 June the government introduced legislation to implement the key proposals made by Lord Justice Jackson for the reform of civil litigation costs and funding, namely:

• abolishing the recoverability of CFA success fees and ATE insurance premiums;
• removing the restrictions on contingency fees or "damages-based agreements" (DBAs) for civil litigation; and
• introducing additional sanctions for defendants who fail to accept a claimant's reasonable Part 36 offer to settle.

The reforms form part of the government's Legal Aid, Sentencing and Punishment of Offenders Bill. It is anticipated that the above changes will be implemented from autumn 2012, subject to Parliamentary approval.

Other changes afoot

Many of the other changes recommended by Lord Justice Jackson's final report do not require primary legislation. Although these recommendations have not received the same level of attention as the headline reforms outlined above, and indeed much of the activity is taking place behind the scenes, we understand that significant progress is being made toward the implementation of various aspects of the reforms.

A "road map" of the points to be implemented has been agreed by the Judicial Steering Group appointed to consider the priorities for further implementation of the recommendations in Lord Justice Jackson's final report. The changes are planned to take effect at the same time as the legislation to reform methods of funding litigation, anticipated for autumn 2012. We understand that there is to be a rolling programme of work to be agreed and then held over until the general implementation date.

Part 36 – additional sanctions

As noted above, the legislation currently before Parliament proposes an additional sanction for defendants who fail to accept a claimant's reasonable Part 36 offer. The intention is to provide an additional payment (equivalent to 10% of damages) where a defendant rejects a claimant's offer but fails to do better at trial. This would be in addition to current sanctions, which are the award of indemnity costs and enhanced interest on both damages and costs at up to 10% above base rate. A new Civil Justice Council (CJC) working party (see below) will consider how this additional sanction should operate in higher value claims and non-monetary claims.

Part 36 – increased certainty

The Civil Procedure Rule Committee has approved an amendment to CPR Part 36 to clarify that, in relation to a money claim, where a party beats an opponent's offer at trial, by however small a margin, it will not suffer the costs sanctions applicable under Part 36. The amendment, which is expected to take effect from the beginning of October, will reverse the effect of the decision in Carver v BAA plc [2008] EWCA Civ 412, which was criticised by Lord Justice Jackson (and others) as introducing an unwelcome degree of uncertainty as to when the Part 36 costs consequences would apply.

Disclosure – menu option

Lord Justice Jackson recommended a "menu" of disclosure options for large commercial claims and other cases where the costs of standard disclosure were likely to be disproportionate. Under the proposal, the court would select the order which is most appropriate to the case and standard disclosure would no longer be the starting point. The report stated that the proposed wording for this rule could not be finalised until after the new e-disclosure practice direction had been finalised. That was introduced in October 2010, but until recently there had been no indication of activity in relation to the "menu" proposal. We now understand that a sub-committee of the Civil Procedure Rule Committee was appointed several months ago to take this forward, though we do not yet know what progress has been made.

Experts - cost estimates

Lord Justice Jackson recommended that CPR Part 35 or its accompanying practice direction should be amended to require that a party seeking permission to adduce expert evidence should furnish to the court an estimate of the costs of that evidence. In his final report, he explained that the underlying aim of this recommendation was to make it easier for the court to exercise its existing power (under CPR 35.4(4)) to make an order limiting the amount of a party's expert's fees and expenses that can be recovered from an opposing party. We understand that a proposed amendment to implement this recommendation is to be put before the Civil Procedure Rule Committee shortly.

Relief from sanctions – less tolerant approach

One of Lord Justice Jackson's recommendations was that the courts "should be less tolerant than hitherto of unjustified delays and breaches of orders" and that this change of emphasis should be signalled by amendment of CPR 3.9, which sets out the court's discretion to grant relief from sanctions and the criteria to be considered when an application for relief is made. The objective is to force a change of culture, whereby breaches of court orders are no longer tolerated as readily as they are at present. The Senior Master has asked that this reform be taken forward as a matter of priority, describing the current rule and the decisions relating to it as "a constant problem for interlocutory and other judges who wish to pursue a firm case management line". The Civil Procedure Rule Committee is currently considering the wording of an amendment to CPR 3.9, with a view to both simplifying the rule and clarifying that it will be the exception to allow relief for non-compliance.

Third party litigation funding – voluntary code

Lord Justice Jackson's final report endorsed third party funding (where a third party funds a claim in return for, usually, a share of the proceeds) and recommended that a voluntary code be introduced to regulate the sector (though he said the question of full statutory regulation should be re-visited if and when the third party funding market expands). Since then, an interim steering group was set up to form a litigation funders' association and progress a draft code of conduct. A consultation on the draft code took place in the second half of 2010. The summary of responses published in June this year noted that although there was general support for the code in principle, almost all the respondents thought that it should not be endorsed as drafted: "The main concern was that the Code did not strike the correct balance between the rights of funders and claimants so that litigants were not disadvantaged." According to press reports, a Civil Justice Council working party has been working on a revised version of the draft code, and the final version is expected to be agreed by the end of this year.

Costs management – pilots expanded

Lord Justice Jackson recommended that judges should have a discretion to adopt "costs management" procedures where these would be beneficial for a particular case. As reported here on 6 June 2011, the Birmingham pilot of these procedures is being extended to all Mercantile Courts and the Technology and Construction Court through a new Practice Direction. The pilot will apply to proceedings in which the first case management conference (CMC) is heard on or after 1 October 2011 and will continue for one year. The separate pilot of mandatory costs management procedures in defamation proceedings in London and Manchester has also now been extended.

Civil Justice Council (CJC) working party

The Ministry of Justice has asked the CJC (an independent public body which aims to promote the needs of civil justice in England and Wales) to undertake work in three areas to assist with implementation of the reforms:

• the operation of the proposed additional Part 36 sanction in higher value claims and in non-money claims (as noted above);
• the behavioural test for the operation of qualified one-way costs shifting in personal injury cases, under which a claimant may lose the benefit of one-way costs shifting for unreasonable conduct; and
• the content of a possible Practice Direction to support the new test of proportionality of costs, which could restrict the amount recoverable even where costs were reasonably and necessarily incurred, as compared to the current test where costs are deemed proportionate so long as they are reasonable and necessary.

The CJC has set up a working party to undertake this work, and a conference of experts on the detail of how the proposals will be implemented is planned for the autumn.