UK: Civil Litigation Costs – Lord Justice Jackson’s Preliminary Report

A decade on from Lord Woolf's ground-breaking reforms implemented by the Civil Procedure Rules 1998, there is no escaping the harsh fact that civil litigation is more expensive than ever.

Claimants are deterred from pursuing disputes by the high costs involved. Both they and defendants face a potentially huge financial exposure under our "loser pays" system.

This problem has been compounded, following the retraction of Legal Aid in recent years, by the introduction of alternative means of funding litigation. In particular, Conditional Fee Agreements ("CFAs") and After the Event ("ATE") insurance have spawned a "costs war" of their own over the recoverability of CFA success fees and ATE premiums from the losing party.

This was the context in which the Master of the Rolls asked Lord Justice Jackson to commence a fundamental review into civil costs in January this year and to make recommendations in order to promote access to justice at proportionate cost.

The Judge's recommendations will not be presented until December 2009 but, on 8 May, Lord Justice Jackson produced a preliminary report of his findings which runs to 653 pages plus appendices.

The report is clearly written and impressively comprehensive, encompassing all civil courts, including the Commercial Court, while recognising that there can be no 'one size fits all': different solutions will be necessary for different situations.

The report identifies and addresses the key questions and issues impacting upon the current costs of civil litigation:

• In what circumstances should the losing party be required to pay costs to the winning party? This raises the key issue of so-called cost shifting.
• How and in what circumstances should the amount of any costs payable by the losing party be reduced or limited? This raises issues of fixed costs, costs capping and costs management.
• How can the procedural rules be improved so as to reduce the time lawyers need to spend in the conduct of litigation and its associated cost?

This note briefly summarises the main points emerging from Lord Justice Jackson's report under each of these headings.

Although the Judge expresses a number of tentative opinions in his report, he has been at pains to stress that his mind remains entirely open pending extensive further consultation in which he will now be engaged until the end of July.

Lord Justice Jackson will be talking about his proposals at a special seminar at BLG's offices on 11 June.

When Should Costs Be Recoverable?

Lord Justice Jackson's tentative view, based on feedback to date, is that cost shifting (that is the rule that loser pays) must remain in some form for litigation generally.

However the Judge observes that a number of areas of litigation, for example many tribunals, function perfectly smoothly without cost shifting and concludes that a 'no costs' regime may well be beneficial to both claimants and defendants in collective actions provided that appropriate incentives can be built into the rules to defer unmeritorious claims.

If there is not to be costs shifting in collective litigation then claimants' lawyers would have to take their fee out of the damages recovered, i.e. on what is called a contingency fee basis, which has not been allowed until now in England. Lord Justice Jackson summarises arguments for and against contingency fees in his report and seeks views upon how a contingency fee system might be regulated.

In some limited areas, specifically judicial review, environmental claims and, most importantly, personal injury litigation, the Judge raises the possibility of a system of 'one way cost shifting', that is the claimant receives its costs from the defendant if it wins but there is no order for costs if it loses. Although this system seems at first blush unfair to individual defendants, when seen in the round he thinks it is not necessarily so in practice because there would be no need for expensive ATE insurance to cover the defendants' costs, the premium of which is currently recovered by successful claimants from defendants.

While there is a risk that 'one way costs shifting' will encourage frivolous claims and the rejection of reasonable offers, Lord Justice Jackson's tentative view is that such risk is balanced by the risk which a claimant's lawyer faces under a typical 'no win no fee' CFA of recovering no costs if the action fails and by virtue of the disbursements payable by a losing claimant.

The Judge also invites feedback upon other potential forms of costs shifting, for example costs awards based solely on the reasonableness or otherwise of the parties' behaviour or triggered by a so-called 'Part 36' offer.

The recoverability since April 2000 of both a successful claimant's ATE insurance premium and its lawyer's CFA success fee from a losing defendant is controversial. As the Judge recognises, while promoting access to justice for claimants it has massively increased the cost burden upon defendants and their insurers. Lord Justice Jackson seeks comments upon various suggestions in the report as to how, if they were to cease to be recoverable, the access to justice of claimants could be preserved.

Limiting The Amount Of Recoverable Costs

Many, although not all, of the ideas explored in the report for limiting the amount of costs recoverable from the losing party concern personal injury litigation to which Part 6 of the Report is dedicated. Issues explored in this part of his report include the upper limit of the small claims track, the transaction costs of personal injuries compensation and the assessment of damages for personal injuries.

In some limited types of litigation - uncontested, Road Traffic and Employers' Liability cases and the trials of fast track (less than £25,000) cases - the costs, or certain elements of them, are currently fixed and predictable. The idea of fixed costs is that the successful claimant recovers a fixed fee from the defendant and does not claim any "top up" from its own client. Lord Justice Jackson expresses the view that a comprehensive fixed costs system should be introduced for all fast track cases and invites comments upon a draft matrix of such costs which is included in the report.

The Judge goes on to consider whether a fixed costs regime might be introduced for cases above the fast track, allowing the lawyer of the recovering party to look to its own client for any shortfall of fees. He concludes that the answer depends upon the type of litigation concerned. In major high value litigation and personal injury litigation (where there are particular concerns over the fees of a claimant's lawyer being deducted from damages) he comes down against the introduction of fixed costs. But his tentative view is that a fixed costs regime may suit small business disputes and disputes between small and medium-sized enterprises.

Aside from any amendments to the present fixed costs regime, another approach to limiting the amount of recoverable costs lies in the cost management powers of the court contained in the Costs Practice Direction to the Civil Procedure Rules. Lord Justice Jackson argues for a more effective and direct application of the court's costs management powers, in conjunction with its ability to impose cost capping in exceptional cases, as a means of controlling costs. This could involve, for example, exchanging budgets at every case management hearing. The Judge seeks input as to how draconian any form of cost management by the courts should be. For example, should the costs of each stage in the litigation process be capped in business disputes?

Procedural Changes

In a section of his report entitled "Controlling the Cost of Litigation", Lord Justice Jackson considers how various aspects of the Civil Litigation process might be made more efficient and thus reduce costs.

A major one of these is the vexed subject of disclosure of documents in respect of which the Judge advances 10 different proposals for consideration. These include the use of experienced lawyers as paid "disclosure assessors" to review the documents of all parties in heavy cases and to advise the judge as to which documents he should see; and the limiting of disclosure to documents which are relied upon by either party (with the ability to seek a specific Disclosure Order), akin to the IBA rules. He also considers ways and means of improving the process of e disclosure and thereby reducing its cost.

As to witness statements, Lord Justice Jackson outlines a number of possible reforms to reduce costs, including:

• Cost sanctions against parties who adduce irrelevant evidence.
• Witness summaries rather than detailed statements to be provided in advance of trial, supplemented by oral evidence in chief.
• Confining witness statements to matters not within the documents which have been disclosed.
• Making witness statements subject to a maximum length.

Specifically in relation to expert evidence, Lord Justice Jackson reviews various problems with the current process, including a failure by experts to identify the correct issues and timetabling difficulties. The Judge specifically invites comments upon four proposals:

• Sequential exchange of expert evidence on liability to become standard. _ A presumption that all quantum experts will be instructed on a single joint basis.
• A rule that parties will be unable to recover the cost of expert reports which are not relied upon.
• The giving of evidence by opposing experts concurrently, known colloquially in Australia as "hot tub".

The Judge concludes that there is a need for a radical re-think regarding "Pre-Action Protocols", a major current concern being that these protocols tend to generate more costs than they save. He intends to look critically at all 11 pre-action protocols during the consultation stage of the project, describing this issue as raising some of the most "intractable questions" of his review.

One aspect of case management which attracts strong endorsement from Lord Justice Jackson is the "docket system" whereby a Judge is assigned to a case from its commencement right up to trial. While commenting that it is difficult to operate such a system in England and Wales because of the way the judiciary is organised, he concludes that any structural reforms which facilitate this arrangement are likely to reduce the costs of civil litigation.

In terms of the trial itself, Lord Justice Jackson comes out strongly in favour of so-called "chess clock" agreements under which each side has a specified time in which to present its case.

Conclusion

Lord Justice Jackson's preliminary report is to be admired for its thoroughness and its clarity of expression. It is to be hoped, contrary to some recent indications in the press, that the proposals for change which emerge from this project will receive the backing they need to become law.

The Judge is now proceeding with vigour to the consultation phase of the project and seeks further feedback on the matters raised in his report by the end of July.

It is in the interests of everyone involved in civil litigation and affected by its cost, particularly those who use the courts on a regular basis, to participate in Lord Justice Jackson's project and to contribute to what may prove to be a major overhaul of the civil litigation process in England and Wales.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.