MARKET VIEW – LITIGATION
Enyo Law’s Peter Fitzpatrick, Annabel Thomas and Lauren Gash analyse how the Jackson reforms are bedding down a year after they came into force
Over a year has passed since the Jackson reforms came into force in April 2013 under the Legal Aid, Sentencing and Punishment of Offenders Act. Like the Woolf reforms before them, the aim of the reforms was to cut the cost of civil litigation and streamline cases, reducing the use of court time and encouraging early settlement.
Unsurprisingly, particularly in the light of the reforms’ radical nature, problems with the underlying legislation and inconsistencies in judicial application of the new rules, the success of the reforms (and, more importantly, their impact on how companies could and should litigate) has to date been mixed. Some costs of litigation have actually increased as a result of the reforms, as has the burden on in-house counsel. Fifteen months on, the current key points for in-house counsel either considering litigating or defending a claim are as follows:
Procedural Reforms
- Relief from sanctions – a key plank of the reforms was a much stricter approach to compliance with court orders, directions and civil procedure rules. The decision in Mitchell v News Group Newspapers [2013], in which the claimant’s recoverable costs were held to be limited to his court fees after his costs budget was filed late, sent a shockwave through the legal profession and a rash of opportunistic applications and arguably contradictory judgments followed. Recently, the Court of Appeal in Denton v TH White Ltd, Decadent Vapours Ltd v Bevan, Utilise TDS Ltd v Davies [2014] (while reiterating that its guidance in Mitchell ‘remains substantially sound’) recognised that there had been much criticism of Mitchell and sought to amplify its guidance in applying a three-stage test:
(1) The court must assess the seriousness and significance of the breach – if a breach is neither serious nor significant, relief is more likely to be granted
(2) The court must consider the reason for the breach – the court declined to give a list of acceptable/non-acceptable reasons, but circumstances beyond parties’ control are likely to fall within the former.(3) The court must have regard to all of the circumstances of the case, including the need for litigation to be conducted at proportionate cost and the need to enforce compliance with rules, practice directions and orders. There was disagreement between the Court of Appeal judges who determined the appeal as to whether the latter two factors are to be considered the most important, or whether they are to be given the same weight as other factors to be taken into account. The timing of an application for relief and the applicant’s history of compliance with previous orders and directions are factors which will be taken into account in the court’s determination whether relief from sanctions should be granted.
It remains to be seen whether this new test will allow parties to assess accurately whether a relief from sanctions application is likely to succeed, or equally whether opposing such an application stands a realistic chance of success. The safest approach remains to adhere to all deadlines in so far as is possible, apply for extensions of time as soon as it becomes clear a deadline may not be met and monitor opponents’ compliance (and the effects of non-compliance) carefully. While compliance is key, unreasonable refusals of extension requests or unreasonable opposition to relief applications are likely to end badly – parties are expected to agree extensions of up to 28 days between them, and the Court of Appeal specifically warned that punishment of unreasonable behaviour could go further than an order to pay the costs of a relief application.
‘It is clear that the Jackson Reforms still have some distance to go before they bed down.’
Peter Fitzpatrick, Enyo
- Costs budgeting – parties in all claims worth under £10m are now required to produce detailed costs budgets, with the courts having discretion to order costs budgeting in cases worth more than £10m. While solicitors are used to producing detailed budgets for cases, to date the introduction of court-monitored costs budgeting appears to have increased costs and led to an increase in court hearings, with anecdotal evidence of budgets being slashed by up to 80% in some commercial claims. When preparing a costs budget, or reviewing a budget prepared by external solicitors, it is critical to consider in particular the contingencies built into budgets and ensure that a balance is struck between providing sufficient information to satisfy the court and inadvertently giving opponents information as to the underlying case strategy by providing too much information, eg in relation to witness and expert evidence. Ongoing regular budget reviews (including liaising with counsel’s clerks) are essential if parties are to limit the risk of costs being deemed non-recoverable – if it appears possible at any stage that a budget, or part of it, will be exceeded, an application should be made to the court as soon as possible, before the budget is exceeded.
- Disclosure – a menu of disclosure options has replaced the presumption in favour of standard disclosure. These options include no disclosure; disclosure limited by date or issue; train of enquiry disclosure (ie the Peruvian Guano test); standard disclosure or any other order the court considers appropriate (which Jackson LJ said could include parties providing complete access to their documents to one another once privileged material has been removed – it is not clear, however, how this approach would square with the need to conduct litigation at proportionate cost or tally with businesses’ desire to keep sensitive commercial information private). As soon as litigation is potentially on the horizon, companies should give thought to what disclosure would be appropriate (taking into account the likely cost and amount of management time that will be required) and how best to achieve it – the cost will need to be proportionate to the overall value of the claim, and it is therefore important that quantum is assessed early and monitored as a case progresses.
- Witness and expert evidence – anyone with recent experience of commercial litigation will be aware of the trend for parties to serve lengthy statements containing material largely irrelevant to the pleaded issues, and of ensuing judicial exasperation. The courts now have discretion to limit the number, length and format of witness statements, and the scope of expert reports (not to mention discretion to order that experts give evidence concurrently – a practice known as ‘hot tubbing’). Parties should consider how best to encourage the court to use this discretion to their advantage.
Funding
- Litigation funding – in addition to the traditional hourly rate arrangement for commercial litigation (currently under sustained attack from senior members of the judiciary), clients now have the option (in theory at least) of entering into contingency fee arrangements in the form of damages-based agreements (DBAs) and conditional fee arrangements (CFAs), or third-party litigation funding. For the reasons set out below, DBAs are currently not widely available and it is likely this will remain the position until the regulations governing their use are amended. CFAs are less attractive when entered into under the new rules (ie post 1 April 2013) as success fees and after-the-event insurance premiums (which remain high) are no longer recoverable (except in insolvency cases until April 2015) from losing opponents, and the number of CFAs entered into has fallen as a result.
In short, litigants in theory have a wider range of funding options available, but in practice may find those options are currently more limited than in the pre-Jackson era.
- Third-party litigation funding – the third-party litigation funding market is expanding, but most funders will typically only fund cases where quantum is substantial (£3m or more), prospects of success high and prospects of recovery even higher. If these criteria are met, litigants can effectively take the cost of litigation off balance-sheet, in return for an agreed share of any damages. Litigation funding, however, is currently an unregulated market (although several funders have joined the Association of Litigation Funders and agreed to abide by its code of conduct). Companies considering using litigation funding should therefore research funders carefully before entering into a funding arrangement with them, carrying out due diligence in particular on their financial health, track record for litigation in the relevant jurisdiction(s), the grounds on which they would be entitled to withdraw funding from ongoing cases, and their capital adequacy provisions.
- DBAs – these are often referred to colloquially as ‘Don’t Bother Agreements’. The take-up of these no win/no fee contingency arrangements (in which solicitors and/or barristers take an agreed percentage of damages paid or payable by way of fees, up to a limit of 50% in commercial claims, 35% in employment claims and 25% in personal injury claims for the whole or part of a case) to date has been extremely limited. The Ministry of Justice has effectively acknowledged that there are flaws in the regulations (described by the Bar Council as ‘not fit for purpose’) including but not limited to the following: (1) hybrid arrangements, ie no win/low fee, appear to be unlawful, despite Jackson LJ having had no issue with them; (2) the lack of clarity as to who can use them (are they limited to claimants or also defendants with counterclaims for damages?); (3) the basis on which they can be terminated; and (4) uncertainty as to lawyers’ exposure to adverse costs. The regulations are currently under review by the Ministry. It is not clear, however, when revised regulations will be produced – this is particularly frustrating given that the problems with the regulations were pointed out by practitioners and industry bodies when they were still in draft in early 2013. In the meantime, these arrangements should be approached with extreme caution – pending reform, the scope for a DBA to descend into chaos and thence expensive and protracted satellite litigation is currently significant, and both the Bar Council and Law Society have declined to produce precedent agreements under the current regulations. It is worth noting that Jackson LJ recommended that DBAs should be unenforceable unless clients took independent legal advice before entering into them. There is no requirement in the current regulations that clients do so, but we recommend, given the potential ramifications, that serious consideration is given to doing so. In any event, a DBA must meet the technical requirements of the regulations.
Conclusion
It is clear that the Jackson Reforms still have some distance to go before they bed down. The fact that the Civil Justice Council has put together a working group to consider and advise on issues arising out of the reforms is reassuring and concerning in equal measure. Underlying the courts’ approach is the need as set out in the Civil Procedure Rules for litigation to be conducted at proportionate cost. What constitutes proportionality remains debatable and is being developed on a case-by-case basis. In the meantime, in-house counsel should minimise the risk of satellite litigation so far as is possible by ongoing and close monitoring of court deadlines and costs budgets, and keeping the overall quantum of claims under constant review.
‘Some costs of litigation have actually increased as a result of the reforms, as has the burden on in-house counsel.’
About the authors
Peter Fitzpatrick has 27 years experience of handling and resolving complex commercial disputes through litigation, arbitration and ADR. His areas of expertise include aviation litigation; banking litigation; professional negligence; and insurance coverage disputes resolved through arbitration.
Annabel Thomas has a broad commercial disputes practice, with a strong emphasis on civil fraud. She has substantial experience of high-value cross-border litigation, including arbitration and mediation. Annabel is also a regular speaker and commentator on litigation funding issues and the Jackson reforms.
Lauren Gash has experience of handling and resolving complex commercial disputes through litigation, arbitration and ADR. Lauren is also a regular speaker and commentator on litigation funding issues and the Jackson reforms.
About Enyo Law
Enyo Law is a dynamic specialist litigation law firm based in the heart of London. We are conflict free and one of the largest litigation-only firms in the City. We are the natural choice for clients involved in disputes that would present conflicts for the major City law firms that have substantial transactional practices representing financial institutions.