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This article was first published on LexisPSL Dispute Resolution on 1 April 2014. Click here for a free 24h trial of LexisPSL.

Jackson reforms one year on--how has it affected solicitors?

01/04/2014 Dispute Resolution analysis: Following Lord Jackson's review of civil legal costs, new measures were brought into force on 1 April 2013. On the first anniversary of the reforms, Simon James, a partner at Clifford Chance LLP, explains how litigation has changed under the Jackson regime.

What were the Jackson reforms designed to achieve?

The reforms were designed to make litigation costs more proportionate and predictable--laudable aims. In 2008, the then Master of the Rolls was concerned about the increasing cost of litigation, particularly in light of the enhanced case management introduced by the Civil Procedure Rules 1998, SI 1998/3132 a decade earlier (the work of one of his Master of the Rolls' predecessors). There were also subsequent legislative changes, such as those allowing success fees under conditional fee agreements (CFAs) to be recoverable as part of the winner's costs. The Master of the Rolls instructed Lord Justice Jackson 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'. Lord Justice Jackson produced a preliminary report in May 2009, followed by a final report at the beginning of the following year. Most of the reforms recommended by the reports were introduced on 1 April 2013.

What are the main reforms?

The Jackson reforms, so far as they affect commercial litigation, include: o o o a stricter approach to enforcing rules and orders, particularly time limits the winning party is unable to recover costs that are 'disproportionate' even if the costs are necessary for the conduct of the action the court can set the parties' budgets in many cases--budgets don't affect what parties can or must spend on litigation--they only act as a cap on the costs the successful party can recover from the loser standard disclosure is no longer to be standard--instead parties must prepare 'disclosure statements', following which the court will pick the appropriate form of disclosure from the menu in the rules success fees under CFAs are no longer recoverable in costs from the losing party--the winner must pay any success fee out of its winnings damages-based agreements (DBAs) are permitted meaning lawyers can enter into agreements with their clients under which lawyers are paid a share of the sum recovered by their clients in litigation

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What has been your experience of the first year after the Jackson reforms?
Confusion There is no guidance as to what proportionate costs means because many judges are unclear on what basis they are supposed to review the parties' budgets. Many judges don't want to conduct budgeting at all. There is no consistency in judicial approach. Consternation The decision in Mitchell v News Group Newspapers Ltd [2013] EWCA Civ 1537, [2013] All ER (D) 314 (Nov) is widely seen as imposing a disproportionate and penal sanction (depriving a party of the ability to recover its costs if it wins) because it was a little late in submitting its budget to the court. This has inevitably led to a cohort of other applications, as parties seek similar windfall benefits following some minor transgression by the other party, with huge uncertainty as to how the court will respond. Lawyers are even concerned as to whether they can reach the kind of sensible agreement regarding the conduct of the litigation they would have done in the past. Again, there is no consistency in judicial approach. Cost Preparing budgets for the court, discussing budgets with the other side, holding hearings relating to budgets and preparing disclosure statements all add to the cost of litigation.

How has Jackson affected your practice and the running of cases?
Addressing the underlying claim remains the main aspect of litigation, but court procedures have become more prominent and concerning. Preparing budgets and disclosure statements has increased the cost of the litigation. There is also a greater consciousness of the need to comply rigidly with deadlines or to apply for an extension before the deadline expires, again adding to the cost of litigation. Cooperation in litigation risks being replaced by confrontation. The regulations governing DBAs are such that they are in practice unusable even if lawyers were otherwise minded to enter into DBAs. The rules in their current form permit only no win, no fee DBAs, with lawyers taking the entire credit risk on the defendant. In commercial cases, that is too high a risk for most lawyers.

What aspects of Jackson would you like to see reviewed?

The aim of making the cost of litigation more proportionate and predictable is laudable, but court control of recoverable costs through the court budgeting process is not the way to do it. Adding extra steps to litigation increases costs, unless those extra steps result in lower costs later on in the process. Court budgeting shows no sign of producing any longer-term savings. The effect of court budgeting is the reverse of what the Jackson reforms were intended to achieve. The requirement for court budgeting should therefore be removed. This is a forlorn hope alas. Instead, the rules committee intends to expand the requirement for budgeting from 22 April 2014 (even into the Commercial Court, which is currently exempt), unless the claim is for over 10m and to make it more difficult for an individual judge to duck the issue. Similarly, disclosure statements cost money to produce but have little (if any) effect on the order actually made for disclosure. The need to produce them should be removed.

How do you see Jackson developing over the next year?

There is a danger the confusion, consternation and cost will get worse before it gets better. Mitchell has caused an immediate furor--the judiciary cannot have failed to be chastened by the hostile reception to the decision--but it will take many more decisions by the Court of Appeal before it is clear what is the appropriate response to any particular inability to meet a requirement in the rules or an order. Perhaps the courts should move from focusing censoriously on the breach to looking at the consequences of the breach for the overall conduct of the action.

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If court budgeting remains, changes are needed in order to make it work sensibly on its own terms. At the moment, an underestimate of the cost of, say, preparing witness statements cannot be set off against an overestimate of the cost of disclosure. A change in approach to focus on the total costs may occur, rather than nit-picking over its constituent parts. A storm to come is what constitutes (dis)proportionate costs: o o o costs the same as the sums in dispute? costs half the sums in dispute? a graduated scale?

The courts will have to grapple with the principles of proportionality. They can't hide behind generalities. Proportionality cannot depend entirely upon the circumstances of an individual case or on the whims of the judge conducting costs management. Everyone seems to accept that the regulations governing DBAs are not fit for purpose. Changes must surely come. Interviewed by Rachel Moloney. The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.