On 1 April 2013 the "big bang" of civil litigation reforms came into effect following Lord Justice Jackson's recommendations. The reforms were principally designed to deal with the costs involved in civil litigation which Lord Justice Jackson felt had become disproportionate.
This article will focus on some of the central elements of the reforms and look at what their initial impact has been.
Funding and Costs
The success fees under conditional fee agreements ("CFAs") and after the event ("ATE") insurance premiums are no longer recoverable from the losing party. Claimants can still enter into CFAs or take out ATE insurance but must be aware of the fact that they will have to foot the cost of doing so i.e. they will be paying the ATE premium and the CFA success fee out of any damages they receive.
Damages based agreements ("DBAs") have been introduced as an alternative funding mechanism for claimants. DBAs are a kind of contingency fee arrangement where the fee that the solicitor receives will be contingent on the success of the case and be an agreed percentage of any damages that are recovered. The DBA fee will be expressed as a percentage and will be the amount of the damages that the solicitor will be entitled to as his fee. The maximum DBA fee is 50%.
Any costs which are recovered from the losing party are to be deducted from the contingency fee as opposed to added on top of it. Thus, the maximum that the solicitor can recover is the level of the contingency fee.
Example: Solicitor and client enter into a 50% DBA. Damages of £100,000 and costs of £15,000 are recovered. The solicitor can recover 50% of the damages i.e. £50,000. The client will have a net recovery of £65,000.
The overriding objective has also been amended so that cases not only have to be dealt with justly, but also "at proportionate cost". Costs management will now apply to all multi-track cases in the County Court or High Court. All parties must file and exchange costs budgets which the court will use to manage the costs in the case. When assessing costs the court will have regard to a party's last approved / agreed budget.
Part 36 Offers
There is now an additional costs sanction which is payable by defendants who do not accept a claimant's Part 36 offer which is less than the amount eventually recovered. The sanction is equivalent to 10% of the value of the claim or, for non-damages claims, 10% of costs. The sanction is tapered for large claims so that the maximum amount awarded is £75,000 for claims over £1m.
A new disclosure procedure has been introduced for all multi-track cases. A "menu" of options for disclosure has replaced the presumption of standard disclosure being used. Two weeks prior to the first Case Management Conference ("CMC") the parties must serve and file reports stating what documents exist, where / how they are stored and the costs that would be involved in giving standard disclosure. The court will then decide on which of the various "menu" options is to be adopted.
The greatest effect of the reforms has undoubtedly been to the way that claims are funded. Now more than ever, parties must give serious thought to the options that are available to them. Whilst CFAs remain available, the success fee and any ATE insurance premium will come out of the damages that are recovered. As a result, claimants will have to keep a closer eye on the costs that are being incurred. The fact that success fees and ATE insurance premiums are no longer recoverable from the losing party is certainly good news for defendants.
It is too early to tell whether DBA's will become a popular funding option for claimants. One important change though is that in appropriate cases, DWF are now able to offer a DBA package for claims which are referred to Adjudication.
A key aspect of the reforms is promoting early settlement between the parties. The amendment to the Civil Procedure Rules' overriding objective means that cases must now be dealt with in a proportionate way. For cases commenced on or after 1 April 2013 there is a new test of proportionality, which provides that costs incurred by a party are proportionate if they bear a reasonable relationship to:
- the sums in issue in the proceedings;
- the value of any non-monetary relief in issue in the proceedings;
- the complexity of the litigation;
- any additional work generated by the conduct of the paying party; and
- any wider factors involved in the proceedings, such as reputation or public importance.
As a result, the costs incurred by parties are now more significant than ever. Parties are likely to be penalised if they insist on steps being taken which are deemed to be disproportionate to the sums in dispute. The additional 10% sanction for failing to accept a good Part 36 offer puts even more pressure on defendants to settle when faced with a settlement offer. Accordingly, Part 36 offers are a tactical weapon that has become even more important than before.
Construction disputes are often complex matters that are very document heavy. As a result of the revised disclosure provisions, construction clients will need to get to grips with the documents relating to their dispute at an early stage in the proceedings. The court has flexibility when it comes to choosing which of the disclosure options is most appropriate. The option that is selected will depend heavily on the individual facts of the case.
This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.