The implementation date marks the end of a four year period which began with Lord Justice Jackson undertaking to “review the rules and principles governing the costs of civil litigation and to make recommendations in order to promote access to justice at proportionate cost”. This period has embraced Lord Justice Jackson’s substantial preliminary and final reports (in May 2009 and January 2010), feedback received from the legal profession and lessons learned from various pilot schemes.*

Damages based agreements (DBAs) link the recovery of counsel fees to a percentage of damages awarded. This is capped to recovery of 50% in civil cases, 35% employment and 25% personal injury.

Clear agreements as to the recoverability of counsel fees will be required eg an agreement of a percentage split of the damages recovered. Active involvement in settlement offers may be appropriate, especially at an early stage where recoverability will generally be higher due to lower costs.

Non recoverability of success fees and insurance premiums under conditional fee agreements (CFAs) may result in a party not getting full costs protection. Any success fees will need to be paid by the client and there is a risk that this may be substantially more than any damages awarded. This may be too high a costs risk for a party. Note: there are some exceptions for PI and insolvency matters.

Summary assessment—the provision for summary assessment in appeal hearings has been deleted. However, it is important to be aware that Part 52 enables the Court of Appeal to make cost orders with the same powers as the lower courts. On this basis the Court of Appeal may take the view it has jurisdiction to continue to make summary costs orders. Preparations to deal with this eventuality should be made.

Detailed assessment—Part 36 offers can now be made. For barristers involved in this aspect of a claim, early consideration should be given as to whether to make a Part 36 offer.

Provisional assessment—a new form of detailed assessment which applies where the base costs claimed are £25,000 or less. Primarily an assessment on paper, a hearing can be requested.

Pro bono work and the Supreme Court—where the winning party has pro bono representation, the losing party may now have to pay costs. The costs order will be in favour of a specific charity funding pro bono representation. This change will necessitate strategy discussions if involved in such cases.

Costs budgeting
Barristers will be required to estimate accurately all their fees at a very early stage of the proceedings—as provided for in the court notice following the Directions Questionnaire or, if not, seven days before the case management conference (CMC). For complex cases, the court may order that a partial budget be provided; up to a specific stage of the proceedings.

When providing estimates make sure that all associated costs are included eg travel costs.

Provide any assumptions on which your estimate is based and any contingent costs that should be factored in. If there is a later departure from the costs budget, consideration will be given as to whether the additional costs could have been foreseen. In the defamation pilot scheme an approved budget provided for a junior counsel; later, senior counsel was considered necessary. An application to revise the budget was refused by the court. Make sure you consider contingencies for a change in counsel.

A failure to agree budgets prior to the CMC means the court will be able to review and revise them. There may also need to be an adjournment for a second CMC to allow discussion and the court may apply costs sanctions eg a wasted costs order. Barristers need to be prepared to discuss the following:

  • the assumptions behind the budget;
  • the extent of co-operation between the parties;
  • the reasons for any non agreement;
  • any suggestions to revise the budget;
  • the proportionality of the budget to the value of the claim. It remains to be seen whether a percentage rule of thumb will emerge as to what the courts consider to be proportionate.

The estimates in the budget must be kept to. If they need to be revised, the ability to base the revision on the assumptions initially provided and show they have changed is likely to assist.

Consider whether it is appropriate for someone within chambers to analyse budget estimates and monitor their accuracy. Areas consistently underestimated could then be reassessed.

Note: there is no ability to offset the additional costs incurred in one phase against another phase where there was an overestimate of the costs.

Case management
New Rule 3.1 will add “at a proportionate cost” to the existing overriding objective. Further, under new Rule 3.17(1), the court will have regard to budgets and the cost of each procedural step when making case management decisions. As such, you may need to become more involved in, and familiar with, costs estimates to be able to assist the court in making the most appropriate directions for the case (and your client).

New Rule 3.9(1) will limit the court’s power to grant relief from sanction. Therefore, you may need to involve yourself in case management issues to:

  • assist the court in making the most appropriate directions; and
  • be sure your instructing solicitor and client will be able to comply with court orders.

Changes are being made to parties’ obligations and/or the court’s powers to make directions in relation to, amongst other things, disclosure, expert evidence, witness evidence and standard form directions (including a new directions questionnaire to replace the existing allocation questionnaire). It may be sensible to become involved early to ensure eg:

  • you are able to assist the court in making the most appropriate orders and directions;
  • the disclosure proposal put forward and/or agreed is appropriate such that all documents needed for the
  • case are obtained (albeit in a reasonable and proportionate way);
  • you fully understand the basis and contents of the disclosure proposal and estimate of disclosure costs;
  • all potential expert issues are identified to the court;
  • additional factors are considered when selecting the expert(s) if you wish to and/or consider the court may direct expert evidence be given concurrently;
  • all potential (yet relevant) issues of fact and potential witnesses are identified to the court.

Due to the scale of the changes and the fact that the reforms are being implemented a relatively short time post-finalisation, we expect that there will be a period of uncertainty as we learn exactly how they will be interpreted and applied by the courts. The story may only just be beginning...

*Two costs pilot schemes of note are the Costs Management in Mercantile and TCC courts pilot scheme introduced in August 2009 and the Defamation costs pilot scheme introduced in October 2009. Both ran until 31 March 2013 and aimed to manage the costs of proceedings. The Costs Management Pilot used costs budgeting based on actual past costs and estimates of future costs. The Defamation Pilot used detailed estimates of future costs. Both schemes were intended to provide the court with sufficient costs information to manage the litigation, put the parties on an equal footing and ensure that the costs incurred by the parties are proportionate.

Neil Smith, Janna Purdie & Virginia Jones Lexis PSL