1 April 2013 is also the commencement date for Part 1 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 and various statutory instruments completely replacing the civil legal aid system previously found in the Access to Justice Act 1999. Technically, it is just a coincidence that the legal aid reforms have been brought into force at the same time as the Jackson Reforms: Sir Rupert Jackson has gone on record to point out that the cut-backs in legal aid run counter to the recommendations on public funding contained in the Final Report.
On the face of it the Jackson Reforms have liberalised the range of funding options available to clients. From 1 April 2013 funding options will include:
- Private funding
- Conditional fee agreement (“CFA”)
- Damages-based agreement (“DBA”)
- After the event litigation expenses insurance (“ATE”)
- Before the event litigation expenses insurance (“BTE”)
- Third party funding
- Legal aid
CFAs, and in particular the recoverability of success fees in CFAs, were identified by Sir Rupert Jackson as the single greatest contributor to escalating civil costs. Recoverability has been abolished for CFAs entered into from 1 April 2013 by replacing the Courts and Legal Services Act 1990 (“CLSA 1990”), s 58A(6), with a provision that now says that a costs order in civil proceedings may not require the paying party to pay the success fee of the receiving party. CFAs remain as “no win, no fee” arrangements. Recovery of ATE premiums and other additional liabilities has also been abolished by revoking the Access to Justice Act 1999, ss 29 and 30.
This means that CFAs remain available as a method of funding litigation, but the bonanza enjoyed by some claimant solicitors in recovering both base costs and success fees at the expense of defendants and their insurers has ended. A legal representative can still charge a success fee under a CFA, but the success fee has to be paid by the client. A success fee can be pitched at up to 100% of the base costs, as before, but the success fee will have to be met by the client out of any damages recovered (or other assets).
This was not seen as being fair in personal injuries claims, and as potentially eroding the principle that the claimant should actually receive in full their award for pain, suffering and loss of amenity (“PSLA”). That principle has been abandoned, but a cap on the success fee that has to be paid by a client in a personal injuries claim to their legal representatives has been imposed by the Conditional Fee Agreements Order 2013. In such a case, while the success fee can be up to 100% of base costs, it cannot exceed 25% of the combined total of the award for PSLA and damages for past pecuniary loss, net of Compensation Recovery Unit (“CRU”) benefits. In fast track and modest multi-track personal injuries claims this leaves a limited fund for CFA success fees. Given that solicitors will have first call on funding arrangements with clients, effectively CFA success fees in personal injuries claims will be rare commodities for the Bar, other than in substantial claims.
Legalization of contingency fee agreements has been achieved by extending the legislation governing DBAs in employment matters (CLSA 1990, s 58AA) to cover all civil litigation as well as employment cases. Formalities for DBAs are set out in the Damages-Based Agreements Regulations 2013, which include the DBA being in writing, and stating the circumstances in which the success fee is payable. Like CFAs, these are “no win, no fee” agreements. Remuneration for the legal representatives is based on the “payment” agreed with the client in the DBA, which is “that part of the sum recovered in respect of the claim or damages awarded that the client agrees to pay the representative” and “includes any disbursements incurred by the representative in respect of counsel’s fees” (reg 1(2)).
Where a DBA funded claim is unsuccessful, the only sums the client can be required to pay their own solicitor are disbursements other than counsel’s fees (reg 4(1)). Unless counsel has also entered into a DBA, this means the solicitor is liable for counsel’s fees in unsuccessful DBA cases. This implies that in most DBA cases solicitors will only instruct counsel who are also prepared to act under a DBA. Where a claim is unsuccessful the client is potentially liable for the other side’s costs on the usual ‘costs follow the event’ principle.
Where a DBA funded claim is successful, costs will normally be awarded to the successful client in the usual way. The client has to make the agreed “payment” to its legal representative (which, as stated above, includes counsel’s fees), but this is subject to:
a. deducting from the amount to be paid to the legal representative the costs recovered from the other side (reg 4(1)); and
b. a cap, as set out in reg 4(2) to (4).
In personal injuries claims the cap is 25% of the combined total of the award for PSLA and damages for past pecuniary loss, net of CRU benefits (reg 4(2)). In non-personal injuries claims the cap is 50% of the sums ultimately recovered by the client (reg 4(3)).
The 25% cap on CFA success fees, and the two caps in DBAs, only apply to claims at first instance. Appeals are dealt with in the Conditional Fee Agreements Order 2013, art 5(1)(b) and Damages-Based Agreements Regulations 2013, reg 4(4).
Rebalancing the system
Removing the recoverability of success fees and other additional liabilities was proposed by Sir Rupert Jackson as part of a balanced package of proposals. A major concern was, as indicated earlier, to preserve the value of the award for PSLA in the hands of a successful claimant. With success fees or DBA payments potentially coming out of the recovered damages, the following further measures have been introduced with effect from 1 April 2013 primarily to protect claimants:
a. Qualified one-way costs shifting (“QOCS”). This applies to claimants in personal injuries claims, and works in a broadly similar way to costs protection in legal aid claims. A successful claimant in a personal injuries claim will usually continue to be awarded costs against the unsuccessful defendant. Under QOCS a successful defendant can obtain a costs order against the claimant, but QOCS protection means that the costs order cannot be enforced against the claimant beyond the sum awarded to the claimant in damages and interest. QOCS is “qualified” in the sense that costs protection can be lost in certain cases, such as where the claim is struck out.
b. Claimants who make successful Part 36 offers may be awarded an “additional amount” of 10% on top of their damages award (subject to a taper for judgments over £500,000 which tends to limit the additional amount to about £75,000).
c. All damages awards for personal injuries and suffering are increased by 10% with effect from 1 April 2013 (Simmons v Castle  1 All ER 334). This is not restricted to PSLA, but extends to all civil claims involving personal suffering, and whether the claim is in tort, contract or any other cause of action.
The focus of the Jackson Review, stemming from its terms of reference, was to promote access to justice at proportionate cost. Achieving the resolution of disputes at an affordable price has been elevated to a central position within the CPR by changing the definition of the overriding objective in r. 1.1(1) to read: “These Rules are a new procedural code with the overriding objective of enabling the court to deal with cases justly and at proportionate cost.” This is not intended to be mere window dressing, but to signal a real change in the ethos informing civil justice.
Coupled with the change to r. 1.1 are changes to what is now r. 44.3 on the costs that can be recovered on a standard basis assessment. Before the Jackson Reforms, on a standard basis assessment costs were only recoverable if they were reasonable in amount, reasonably incurred, and proportionate to the matters in issue, with any doubts to be resolved in favour of the paying party. All this remains. However, before Jackson, costs would not be disallowed as disproportionate if it was shown they were necessarily incurred. From 1 April 2013 costs which are disproportionate in amount may be disallowed or reduced even if they were reasonably or necessarily incurred. There is also a definition of proportionality in the new r. 44.3(5), to the effect that costs must bear a reasonable relationship to the value and complexity of the case. What this means is that where the judge takes the view that costs are disproportionate, proportionality trumps reasonableness, and the costs must be reduced or disallowed.
Change in culture
Conducting litigation in an effective and economically viable fashion demands a change in the culture underpinning the civil justice system. Measures to encourage this approach include:
a. replacement of allocation questionnaires with directions questionnaires;
b. a requirement to provide costs budgets in multi-track claims within 28 days of service of the defence;
c. in non-personal injuries multi-track claims, the parties must serve and file disclosure reports before the first case management conference which are intended to help the judge to formulate proportionate, tailored, directions on disclosure;
d. the introduction of standard form directions, which should be used by the parties in attempting to agree directions;
e. case management hearings will only be held when they serve a real purpose; and
f. giving the court costs management powers, including the power to control the parties’ costs budgets.
Excessive levels of correspondence, expensive investigations, delays and lax compliance with court orders will all be met with judicial disapproval. There is determination from the Bench to ensure that litigation is conducted at a faster pace than even in the post-Woolf era. The intention is that parties and their legal representatives will concentrate on what is essential, and by disregarding the inessential, costs will be saved.
Coercing the parties into proportionate preparations for trial will no doubt lead to interesting developments in the field of professional negligence. Legal representatives still have professional obligations to their clients, and cutting corners will not necessarily be regarded as acceptable if challenged by a disappointed client. Another facet of the reforms, a stronger approach to procedural default, with a tough line being taken on applications for relief from sanctions, will, unless the profession gets into tune with the new culture, also result in more business coming in the direction of colleagues dusting off their copies of the other book by Sir Rupert Jackson.
Professor Stuart Sime, Barrister, City University London
Author: Blackstone’s Guide to the Civil Justice Reforms 2013