Will the final report by Jackson LJ on civil litigation and costs have any impact on me?

9 July 2010

The short answer is yes, but not immediately for the following reasons:

What is the content of the report?

The remit given to Jackson LJ by Sir Anthony Clark, Master of the Rolls, was to compile a report of recommendations to ensure costs are more proportionate and to improve access to justice.

Why is reform needed?

Despite the successes of the introduction of the Woolf reforms 10 years ago (which included the introduction of the current Civil Procedure Rules), there are still major issues with costs and the litigation process. How often is it we experience, especially in the lower value end of litigation, that the claimant's costs are disproportionate to the damages in issue and also the defendant’s costs? Often. How often is it that directions are not followed with little or no consequences? Often. The reforms have been proposed to address these issues.

In the data collated by LJ Jackson he highlighted the cost issues with the current funding arrangements for litigation. Typically in some CFA cases (Conditional Fee Agreements which include success fees and ATE insurance premium) costs were 158-203% of the damages awarded and in the non CFA cases between 47%-55%.

Below are the cost details of a typical personal injury case. It exemplifies the huge disparity between damages and costs and how this may change if the proposed reforms are implemented.

• Initial pleaded claim valued at: £25,000 (for both general and special damages)
• Negotiated settlement: £4000 (£3000 general damages and £1000 special damages)
• Our costs totalled: £4000
• Claimant’s costs: £25,000
• Total bill paid by defendant: £33,000

The costs included added extras on top of the base costs (the time spent by the claimant’s solicitors) allowed under the current rules:

1. 100% success fee:  A success fee is an uplift on the Claimant’s solicitors base costs.  The percentage uplift represents the risk the solicitor calculates of losing the claim and not receiving payment.  Under the current rules they are allowed to claim the risk of losing from the Defendant if they are successful.  In this case the costs would have been doubled;

2. ATE (After-the-Event insurance premium) generally covers the Defendant’s costs if the claim fails and the Claimant’s disbursements.  If the claim is successful the premium is claimed back from the Defendant.

If all the reforms recommended are implemented, how would they affect this particular case?

1. ATE insurance premium and success fees are to be abolished, so the defendant would not incur this cost.

2. Contingency fees are now legalised. This is a fee deducted from the claimant’s damages with a cap at 25% but with the inter parties recovery of costs limited to what would normally be recovered.

3. General damages are to be increased by 10% to compensate the claimant for the reduction in their damages due to contingency fees: this will be an amount paid by the defendant.

4. If this matter had been allocated to the fast track category and the claim was pursued in a London court the claimant’s costs would have been capped at £13,200.

Amount paid under the proposed regulations:

• Claimant’s damages (10% uplift on general damages): £4300
• Claimant’s costs (with reduction of ATE premium £819 and success fee): £12,090.50
• Defendant’s costs: £4000
• Total bill to Defendant: £20,390.50
• Saving under proposed new regime: £12,609.50

(Note: Up to £1075 of claimant’s damages under the contingency agreement representing 25% could be given to the claimant’s solicitors by the claimant.)

How will the reforms affect the litigation process?

It will change the approach to some extent to litigation as the judges will be given clearer guidance on managing cases, witnesses, experts and also controlling the costs of the claim.

When will they come into force?

The changes will take place gradually. Amendments to the current CPR or by the judiciary taking a more robust approach to case management may happen in the short to medium term. Other recommendations may take years to implement or may not be implemented at all as primary legislation will need to be passed. The rate of the legislative changes will of course depend upon the new government and their attitude towards the proposed changes. However, it is clear that significant reforms are inevitable as one of the winners of the changes will be the taxpayer.

Until the proposals come into force we actively encourage clients to provide us with evidence at an early stage so a quick decision can be made to settle the claim or to defend it. This is to avoid the heavy costs incurred at the moment with staged premiums and success fees. We also attempt to deal with costs inclusive of damages to avoid being surprised by a claimant’s Bill of Costs upon settlement.

Interesting to note: The report has been accepted by the Master of the Rolls and the Lord Chief Justice. Furthermore, LJ Jackson has been given 1 day off a fortnight from sitting as a Judge to progress the changes so some reforms should be passed hopefully quickly. The Government did try to pass some reforms to the defamation process just before the close of Parliament but some Labour MP’s rebelled and they were delayed.

Click here to read the full report of 584 pages >>