The Jackson Reforms What you need to know

As from 1 April 2013, the Jackson reforms created a new funding regime for court proceedings and made several other changes to litigation procedure. This crib sheet lists the key changes.

The reforms are the result of Lord Justice Jackson’s wideranging review of the civil litigation costs system in which he was required to make recommendations in order to promote access to justice at proportionate cost. Lord Justice Jackson’s terms of reference in carrying out his review extended to establishing the effect that case management procedures have on costs and considering whether changes in process and/or procedure could bring about more proportionate costs.

Funding litigation

• Parties are still free to enter conditional fee agreements (CFAs) with their legal representatives, but where entered into on or after 1 April 2013, the success fee payable under the CFA is no longer recoverable from the other side irrespective of whether the case is won or lost, with the exception of (i) claims for damages in respect of diffuse mesothelioma; (ii) publication and privacy proceedings; and (iii) insolvency proceedings (although this exception is set to expire in April 2015)
• Parties continue to be free to take out after-the-event insurance (ATE insurance) but where the ATE policy is entered into on or after 1 April 2013, the ATE insurance premium is not recoverable from the other side irrespective of whether the case is won or lost
• On or after 1 April 2013, parties became entitled to enter a new type of fee arrangement with their legal representative. These are called Damages- Based Agreements (DBAs). However, there has been a low take up of these sorts of agreements since 1 April 2013 and the Ministry of Justice recently ruled out a proposal (which was backed by Lord Justice Jackson) for "hybrid" DBAs in which some fees are paid on a traditional basis with the rest at risk under a DBA.

Recovering the costs of litigation

• Proportionality. From 1 April 2013, parties are no longer able to recover costs simply because they are reasonably and necessarily incurred. Costs incurred on or after 1 April 2013 must be “proportionate” to the matters in issue in the claim (except for cases commenced before 1 April 2013 when the proportionality test does not apply). This means that courts are required to deal with cases justly, at proportionate cost i.e. in ways that are proportionate to the amount of money involved, the importance of the case, the complexity of the issues and the financial position of each party
• Costs budgeting. There is a new strict requirement in Part 7 multi-track proceedings for cases commenced on or after 22 April 2014, to submit a costs budget, although certain proceedings are exempt from the automatic application of the new costs management requirements (essentially those worth over GBP 10 million or which contain a statement that the claim is valued at GBP 10 million or more) or which are subject to a fixed costs order. In any cases falling outside the exceptions, the court retains a discretion to: (i) order the parties to file and exchange costs budgets; and (ii) make costs management orders. NB: For cases commenced before 22 April 2014, different exemptions for costs management apply: i.e. cases in the Admiralty and Commercial courts (all exempt) and cases over GBP 2 million in the Chancery Division, Technology & Construction Court and Mercantile Court are also exempt
• Costs management orders. Irrespective of whether the case commenced before or after 22 April 2014, where costs budgets are filed and exchanged, the court will generally make a costs management order unless satisfied that the litigation can be conducted justly and at proportionate cost. Once a costs management order has been made, the court will thereafter control the parties’ budgets in respect of recoverable costs. Costs incurred in excess of the budget may not be recoverable

Litigation procedure

• Case management. From 1 April 2013, courts became subject to a new requirement to exercise stringent case management (backed up by a new, simplified and stricter CPR 3.9), deal with cases at “proportionate” cost, monitor compliance with directions and (for multi-track cases) have regard to parties’ budgets when making case management decisions. For cases where defences are filed on or after 1 April 2013, after receiving an “allocation notice”, parties are obliged to file a “directions questionnaire” (this has replaced the old allocation questionnaire) and submit proposed directions. For multi-track cases, parties’ directions proposals must be filed 7 days before any case management conference occurring on or after 9 April 2013
• Relief from Sanctions (CPR 3.9). In 2013, the landmark decision of Mitchell v News Group Newspapers (2013) on CPR 3.9 (relief from sanctions) was handed down. In this case, Master McCloud decided not to grant relief and instead limited the breaching party’s costs recovery to court fees as a penalty for filing its costs budget 6 days late. The decision was draconian but firmly endorsed by the Court of Appeal. Although welcome in driving through a new culture of efficiency and rule compliance, the decision had some unfortunate side effects. It resulted in uncooperative behaviour between litigants who took the view that, strategically, it would be unwise to waive an opponent’s breach, if (following Mitchell) the court is likely to penalise the breach (which would invariably assist the non-breaching party). Secondly, it resulted in a raft of applications by breaching parties for relief from sanctions as well as, where necessary, extensions of time, to complete the relevant procedural step. These applications had to be listed and parties’ opposing submissions heard. A raft of satellite litigation with the associated wastage of costs and court time was the result. Many such applications were reported but no consistent approach to how Mitchell should be applied in practice was taken. Thankfully, there have been some recent key developments which have gone some way to resolving these issues:
  • These are:

1. The Court of Appeal decision in three conjoined appeals (collectively “Denton”): Denton & Ors v White & Ors; Decadent Vapours Ltd v Bevan & Ors; Utilise TDS Ltd v Cranstoun Davies & Ors (2014), which clarified and further explained the guidance given in Mitchell regarding the proper approach to be taken to relief from sanctions applications pursuant to CPR 3.9. In summary, it confirmed that, even with serious/significant breaches, which were without good reason, relief is not automatically to be denied. Rather, courts must consider “all the circumstances of the case” when deciding whether or not to grant relief, and in doing so, give factors (a) and (b) in CPR 3.9 particular weight; and
2. to reduce satellite litigation, the Civil Procedure Rules Committee drove through a new “Buffer Rule” in the form of CPR 3.8(4) (in force since 5 June 2014) allowing parties to agree 28-day time extensions without having to seek the court’s permission. This alters the previous CPR 3.8(3) rule which provided that where a rule, practice direction or court order requires a party to do something within a specified time and specifies the consequences of failure to comply, the parties must seek the court’s permission to extend the deadline. From 5 June 2014, in such circumstances, the parties may, by prior written agreement, agree to extend the deadline in question without having to seek court permission by up to a maximum of 28 days, provided no hearing date is jeopardised as a result; and
3. The Court of Appeal’s decision on 19 May 2014 in Hallam Estates Ltd v Baker (2014) clarified that the Mitchell criteria, which applied to applications for relief from sanctions, did not apply to applications for extensions of time made before the relevant deadline expired (even if the hearing of the application occurred after the deadline expired). The decision emphasised that parties have a duty, under CPR 1.3, to further the overriding objective, which included allotting an appropriate share of the court’s resources to an individual case. As such, legal representatives must make efforts to agree to reasonable extensions of time which neither imperil future hearing dates nor otherwise disrupt the conduct of the litigation. By avoiding the need for a contested application they are furthering the overriding objective and saving costs. Similarly, the Court of Appeal emphasised that the courts should not refuse to grant reasonable extensions of time.

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