Consultation on Implementing Changes
A range of the key ideas put forward by the Jackson Review were put out to public consultation by the MoJ in its Proposals for Reform of Civil Litigation Funding and Costs in England and Wales - Implementation of Lord Justice Jackson’s Recommendations (15 November 2010). The Government’s Response to the consultation exercise can be found in Reforming Civil Litigation Funding and Costs in England and Wales - Implementation of Lord Justice Jackson’s Recommendations (MoJ March 2011). While there were 60 areas covered by the consultation, these have been boiled down to a smaller number of key proposals for change, which are considered below.
Conditional Fee Agreements (CFAs) and After The Event (ATE) Insurance
The Government intends to abolish the recoverability of success fees in line with Sir Rupert Jackson’s recommendations. Legislation will be required to implement this, so while it could be done through secondary legislation, it will be some time before it is implemented. Success fees will still be available as between the client and the lawyer, and will continue to be subject to a maximum 100% uplift. The proposal is simply to abolish recoverability against the losing party as a part of the usual order of costs following the event.
Likewise, the intention following the consultation is to press ahead with the abolition of the recoverability of ATE insurance premiums.
The practical effect will be a substantial reduction in the costs exposure of defendants and those funding defendants. From the claimant’s point of view, this means that any success fee and ATE insurance premium has to come out of the damages recovered in the proceedings, or out of the client’s other resources. Potential claimants will no doubt think twice about bringing claims, which is likely to result in a downturn in the volume of civil claims that are brought.
Clinical Disputes: Experts’ Reports
A refinement of the Jackson Recommendations now being advanced by the MoJ is a limited power to allow for the recoverability of ATE insurance premiums to cover the cost of expert reports in clinical dispute claims. The underlying concern is that some provision has to be made for reports in these cases, which are often very expensive, and which litigants often cannot reasonably be expected to fund themselves. The MoJ takes the view that recoverable ATE premiums will not be necessary even in these cases where joint expert reports are commissioned. With respect, halving the cost by commissioning jointly instructed experts does not provide a real answer: half of what are often totally unaffordable experts’ fees are still unaffordable for many claimants in clinical dispute claims.
Increasing Non-pecuniary General Damages by 10%
The Government’s Response adopts the Review’s recommendation that damages for non-pecuniary loss, which means primarily damages for pain, suffering and loss of amenity (“PSLA”), should be increased by 10% to provide a fund from which lawyers in these cases can take their CFA success fees. Overall, this will be beneficial for defendants’ insurers. Damages for PSLA are in many cases a small proportion of the overall damages, and are traditionally modest, conventional, sums which no one would accept as adequate compensation for the actual injury suffered in an accident. Defendant insurers’ exposure for claimants’ CFA success fees on the existing system will in almost every case be many times the cost of a 10% increase in damages for PSLA.
A connected proposal is that successful lawyers in personal injuries CFA funded cases will have their CFA success fees limited to 25% of the damages awarded (other than those for future care and loss). A claimant under the proposed system may find that even with a costs order against the defendant, a significant part of the damages awarded will have to be used to pay their lawyer’s success fee.
For the Bar, this will almost certainly mean the end of CFA success fees in personal injuries cases. With solicitors limited to 25% of the non-future loss damages as the fund to pay their success fees, and with solicitors entering into CFAs with their clients before instructing counsel, there will often be nothing left for any CFA success fee for the barrister instructed on the case. This in turn will mean that barristers’ fees will often be treated as disbursements, with clients facing problems in funding counsel’s fees.
Qualified One-Way Costs Shifting (“QOCS”)
“Costs shifting” is just a formal expression describing the usual rule that costs follow the event or that costs are otherwise paid by one side to the other. The costs incurred by the successful party are “shifted” to the losing party under the usual costs order. QOCS adjusts this traditional position by saying that the usual costs order should only be made in favour of one party, typically the claimant. This means that if the claimant wins, the defendant should be ordered to pay the claimant’s costs in the usual way. However, if the claimant loses, QOCS means that while the claimant remains liable to pay its own lawyers’ costs, the claimant will not also have to pay the successful defendant’s costs .
QOCS is “qualified” one way costs shifting, because this protection to the claimant is not absolute. Accordingly, the proposal is that there will be an exception for misbehaviour. It is also recognised that not all claimants, and in particular wealthy ones, need QOCS protection. The Government’s proposals are for QOCS only in personal injuries claims, including clinical disputes. Lord Justice Jackson had said that it should be considered for other categories as well, particularly those where there is an inequality of arms between the parties.
Part 36 Offers
The Government had two proposals on Part 36 offers, one of which has already been implemented. The first was the abolition of the decision in Carver v BAA plc  1 WLR 113. As recommended by Lord Justice Jackson, the Civil Procedure (Amendment No 2) Rules 2011 (SI 2011/1979) inserts a new CPR, r. 36.14(1A) in respect of offers to settle made on or after 1 October 2011. This provides that in relation to any money claim, “more advantageous” in r. 36.14(1) means better in money terms by any amount, however small.
The other proposal is to strengthen the effect of a successful Part 36 offer made by a claimant. Usually the only risk run by a defendant in ignoring a claimant’s Part 36 offer is paying an element of indemnity basis costs rather than standard basis costs, and some additional interest on any indemnity basis costs awarded. The proposal is to impose a 10% uplift on the monetary award, which would provide a real incentive to defendants to give careful thought to Part 36 offers from claimants. For non-money claims, the Government intends to consider imposing some form of additional costs sanction instead, the details of which are the subject of further work.
Contingency Fees/Damages-Based Agreements
Lord Justice Jackson rejected the Bar’s argument against the introduction of contingency fees and the Government has agreed with him. Their Response to the consultation includes an intention to lift the restriction on the use of contingency fee agreements (“DBAs”) in civil litigation. DBAs are seen by the MoJ as a useful additional form of funding for claimants, particularly in commercial claims. Sir Rupert Jackson recommended that a contingency fee agreement/DBA should only be valid if the client receives independent advice from a solicitor (recommendation 15). The MoJ instead takes the view that DBAs should only be subject to similar formal requirements as CFAs. These are primarily that the agreement must be in writing and must relate to a type of case where this type of funding is permitted.
It is envisaged that a successful claimant with a DBA will recover costs from the unsuccessful defendant in the traditional way under a normal costs order (based on hourly rates plus disbursements). Under the MoJ’s proposals the costs recoverable from the losing party will be set-off against the client’s liability to its lawyers under the DBA. This means that the client’s liability to its lawyers under the DBA will be any shortfall between the costs recovered from the defendant and the amount stipulated as the DBA fee. As with CFAs, lawyers acting under DBAs in personal injury claims will have their DBA fee limited to a cap of 25% of the award for non-pecuniary damages.
This will be a major culture shock for the profession given its steadfast opposition to contingency fees over the years.
New Test for Proportionality
It is felt that the test in Lownds v Home Office  1 WLR 2450 does not go far enough to reflect the intention of disallowing disproportionate costs. The MoJ therefore intends to introduce a new proportionality test, under which only reasonable and proportionate costs will be recoverable from the losing party.
The Lord Chancellor, in his Foreword to the Government’s Response, expressly says that the Government agrees that Lord Justice Jackson’s proposals in his Review should be taken forward as a package, and that the connected constituent parts should be implemented together. It is to be hoped that this will be achieved. The fear is that despite these good intentions what in fact will happen is a disjointed implementation of only parts of the recommendations, to the detriment of the administration of justice and the overall aims of tackling the problem of disproportionate cost while maintaining effective access to justice.
Professor Stuart Sime City Law School