One could be forgiven for thinking the campaign to halt or defer the main planks of the civil justice reforms devised by Sir Ruper Jackson is still in full swing. To be fair to the refusniks, the impression that all was not settled has been given in part by the last-minute approach the Ministry of Justice has taken to issuing details on implementation. If the government and the senior judiciary had yet to say what was to come on, respectively, damages-based agreements and big-ticket costs budgeting, perhaps they were still open to persuasion?
The uncertainty has piled pressure on lawyers and clients who will need to work with the new rules. As Rachel Rothwell, editor of Gazette sister magazine Litigation Funding, puts it: ‘I can see no reason why everything had to be so last minute, and frankly it has been grossly unfair on the profession.’ Of course we have known broadly what is coming since the government’s response to the Jackson report in March 2011. But with many of the changes, the actual regulations, the CPR amendments and practice directions giving all-important detail have only been published in the last few months – even weeks.
Francesca Kaye, president of the London Solicitors Litigation Association, says: ‘The implementation process is beset by difficulties and delays. Implementation itself is a shambles.’ Rothwell concurs: ‘In some cases, the regulations that have been published are simply not fit for purpose.’ She cites the damages-based agreement regulations – described by experts as ‘riddled with errors’ – as a key example. ‘Even the finest legal minds cannot fathom for certain whether or not the regulations will actually permit lawyers to act under a partial DBA – and that is of fundamental importance,’ says Rothwell. What is worse, notes the Law Society’s head of law reform, Robert Khan, is that ‘this problem is widely known, but there is no sign of government addressing it before DBAs come in. It just isn’t high enough on the Ministry of Justice’s priority list’.
Predicting and controlling costs is at the heart of the reforms. Michael Kain, chariman and founder of costs lawyers Kain Knight, says: ‘The proportionality test pretty much gives a judge carte blanche to do what he likes, with little chance of appeal.’ Kain has concerns about the supporting infastructure: ‘Provisional assessment risks bogging down the courts for years, unless the government is prepared to invest substantially in more court staff.’
He adds: ‘Of course, we note that the only claimant that is going to be exempt in the non-PI world is the Inland Revenue, which is the main creditor in every insolvency. It smacks of one rule for govenmernt and another for everyone else.’ Rothwell also highlights the confusion caused by last-minute attempts to sort out the looming dissonance between different courts – a task that has had to work around the conflict between the urge to control costs, and the need for the commercial court to be a ‘destination’ forum for large international disputes.
‘One of the most important aspects of the reforms is costs budgeting,’ she says. ‘This was due to apply widely across the civil justice system, although the Commercial Court – which deals with big-ticket litigation – negotiated an exemption from the rules, acknowledged in Lord Justice Jackson’s final report back in 2010.’
Then, as Rothwell recalls, the senior judiciary announced that costs budget would no longer automatically apply to cases worth more than £2m in the Chancery Division, Technology and Construction, and Mercantile Courts: ‘They introduced this exemption because litigants have a choice of bringing their action in these courts, or opting for the Commercial Court. If the Commercial Court does not require costs budgeting but the others do, this could cause a ‘forum shopping’ problem.’ She adds: ‘I can understand the logic of this exemption – but the question is, why leave it so late? It is hardly fair on the law firms that have been developing IT and actively preparing for the new rules, only to find that the goalposts have suddenly moved.’
Those goalposts may continue to move, Dundas & Wilson disputes partner Gemma Lampert cautions: ‘Greater costs certainty and greater proportionality of costs seem to be the aims, but it is likely that the extent to which the changes are implemented in court will depend to a degree on the enthusiasm of each particular judge to adopt and promote the new reforms.’ She points to the Henry case as an example of how costs ‘certainty’ may not work out as advertised.
Will this increase the pressure on litigating parties to behave in a more collaborative way? Rob Williams, head of costs at Weightmans, believes so: ‘Collaboration will become the new watchword, and that can and should start with litigators spending more time with their in-house costs specialists scoping out a reasonable costs budget before disputes reach court.’
The new system could give rise to an increased uptake of alternatives to litigation: ‘Even when cases do go to litigation, there is a strong inference from the courts that a collaborative approach with the other parties would be helpful. This could include agreeing a budget with other parties at the pre-lit stage. Agreement may stand both parties in good stead before a judge, particularly as there is uncertainty about what process the courts will operate for any challenges a party wishes to make to its opposing party’s costs budget once litigation starts. ‘There will be a time-lag before budgeting becomes ‘seconed nature’, Williams adds, but ‘those ligtigators and clients who embrace the positives of greater clarity and certainty that the new system provides will benefit from it first.’
Rod Evans, president of the Forum of Insurance Lawyers (FOIL) agrees: ‘All parties – claimant, defendant and the judiciary – will need to work and learn together to make these changes the success they need to be. Notwithstanding all the hyperbole, I believe that this will happen, just as it did with the Woolf reforms.’ Kaye has high expectations of the new rules on disclosure: ‘These changes in the rules relating to disclosure offer the greatest opportunity to change the way we manage litigation stragetically. With the possibility of persuading the court that the appropriate disclosure order can range from no disclosure at all, through to issue-based disclosure, from past-standard disclosure to Peruvian Guano disclosure, there are real opportunities to use disclosure to change the shape of a dispute.’
She hopes that ‘in the right case, used properly, the disclosure rules could result in early, better and more cost-effective outcomes for our clients’. If the parties and the courts look at disclosure ‘in a new way’, Kaye adds, ‘we may find in 12-18 months, once the rules have settled down, that the most significant impact of the Jackson reforms will be how we approach disclosure’.
Central to the way that lawyers and clients respond to the reforms will be the funding and insurance products that support litigation. The market is changing James Delaney, director of independent litigation funding brokers TheJudge, explains: ‘The market has been absolutely flooded with last-minute ATE applications over the past few weeks, the quality of which has been higher than expected.’ But, he attributes this to lawyers who ‘haven’t had the luxury of trying to settle the case ahead of applying for cover or indeed using ATE quotes as leverage to try and initiate a settlement.’ Ultimately this has meant less adverse selection against the market.
He adds: ‘This is an important issue. Had this been the norm over previous years, ATE premiums would probably have been lower across the market as insurers can spread their risk over a large pool of good-quality cases.’ However, he believes it also sends a warning to the market post-April. ‘The temptation will be only to apply for ATE insurance after all efforts to settle the case have filed.’ This is likely to increase premium rates, which of course are ultimately no longer recoverable, he predicts.
Rothwell praises insurers’ attempts to develop products in an information vacuum: ‘They have come out fighting, with a host of new products for the post-Jackson world. It will be difficult for lawyers to navigate their way through the new product range and make sure that they are choosing the right insurance to protect their clients.’
Funder Andrew Langhoff, chief executive of Burford Capital UK, is certainly betting on increased finance needs from the market, believing reforms ‘will serve to accelerate the use of litigation finance in the UK’. ‘Despite the fact that adverse costs insurance premiums will no longer be recoverable,’ he adds, ‘we believe that new pricing models will allow this important component of litigation finance to continue and thrive.’ Burford’s design of new ‘products’, centred on the financing of lawyer’s fees, disbursement and adverse costs insurance, underlines his confidence.
Delaney says Burford is not alone: ‘The biggest challenge lawyers face is understanding the diverse range of products coming to the market from April. If there are, say, 10 main funders and eight insurers who enjoy the largest market share, and each company has its own ideas, pricing methods and product structures to work in a post-Jackson environment, it creates a real headache for lawyers trying to explain the options.’ Notwithstanding that headache, he predicts, the post-Jackson world will be a ‘buyer’s market’.
Whatever the long-term prospects for the success of the Jackson reforms, few predict a smooth transition. Lampert says: ‘Litigators had expected that the details of the reforms would be known in 2012, but the relevant legislation was only put to parliament in January 2013 and so there is a steep learning curve for all involved in litigation to be ready.’ She adds: ‘Until some of the changes have been tried and tested and the new rules bed down, it is going to be very difficult to predict the cost consequences of any steps in proceedings, which will actually result in less certainty and potentially additional cost in preparing for the unexpected.’
Michael Frisby, partner at Stevens & Bolton, says: ‘Of most serious concern is the impact on the relationship between clients and solicitors: costs battles are now more likely to be waged by clients on their solicitors than [between] parties.’ Personal injury lawyers had a long wait for the final detail on how their new costs regime will operate. Many of them supported the principle behind qualified one-way costs shifting, but they are worried the detail of the rules creates too much uncertainty for claimants, and could put their damages at risk.
Colm Nugent, barrister at Hardwicke Chambers, makes two long-term predictions: ‘First, the “dubious claim” industry run for the benefit of claims management companies with tiny general damages claims and large storage or hire charge claims will wither and fade.’ Second, he says: ‘In the next few years, professional negligence claims will blossom when the claimant who accepted modest settlement figures a few years earlier – on the urging of a harrassed and overworked legal executive under time and cost pressure – turns out not to have recovered as anticipated at all.’
Will the upheaval have been worth it? Kaye, on balance, thinks not. While liking the changes to come on disclosure, she concludes: ‘For me the rest is just more cost and process for the clients will little benefit. The reforms as a whole will increase litigation costs and, potentially, reduce recoverable costs, thus only increasing the pain successful parties feel at what, in many cases, will continue to be Pyrric victories’.
Eduardo Reyes is Gazette features editor.