The Jackson Report

This article was first published in The Commercial Litigation Journal, April 2010.

In November 2008 the Master of the Rolls, Sir Anthony Clarke, commissioned a report to review the costs of civil litigation. Jackson LJ was appointed to lead the review and to examine in detail the rules and principles governing costs in civil litigation. The aim was for Jackson to make a series of recommendations which would improve access to justice at proportionate cost.

Jackson published his preliminary report on 8 May 2009, and a lengthy consultation period with all key stakeholders followed. This report necessitated a review of the entire civil procedure rules, not just those relating specifically to costs. The final report was published on 14 January 2010 and the recommendations made, if implemented, could dramatically change the way civil litigation is fought.

The preliminary report ran to over 600 pages and the final report is an equally impressive 584 pages. It is a comprehensive review of all aspects of costs and funding in civil litigation. The report examines the current rules and procedures in detail, identifies areas of concern and makes wholesale proposals for reform.

Jackson concludes that in some areas of civil litigation costs are ‘excessive or disproportionate’ and that:

... the present system for achieving costs protection for claimants is, in my view, the most bizarre and expensive system that it is possible to devise.

He sets out a number of what he describes as ‘interlocking’ reforms.

Key proposals

Success fees

The report proposes the abolition of the recovery of success fees and after-the-event (ATE) insurance premiums from unsuccessful opponents, and suggests that conditional fee agreements (CFAs) should continue to be available, but success fees will be payable by the client rather than the opponent. In addition, there would be a 10% increase of the general damages available in personal injury, defamation, privacy and nuisance claims, to counteract the abolition of the recovery of success fees in these areas. Success fees would be capped at 25% in personal injury claims.

Contingency fees

Jackson recommends that we move to a system more akin to that in the US, where ‘contingency’ fees are permitted for contentious work, and lawyers are paid at the conclusion of litigation by retaining a percentage of the damages won for the client. Such arrangements could be entered into by both solicitors and counsel. There would be a maximum cap of 25% on any contingency-based fee, negotiated between the claimant and its lawyer. The contingency costs should not be recoverable from the defendant. A client wishing to enter into such an agreement would be required to seek independent legal advice.

Costs

The costs recoverable for fast-track personal injury cases should be fixed. For other types of fast-track cases Jackson recommends a dual system in which costs are fixed for certain types of cases, and others have a financial limit on the costs recoverable. For the latter he suggests a £12,000 limit for pre-trial costs.

These reforms would proceed with the introduction of a Costs Council. If the fixed-costs regime is to be adopted for more cases, Jackson recognises that the fixed costs will need to be reviewed at regular intervals to ensure that they remain realistic. He suggests that the Advisory Committee on Civil Costs be disbanded and a new Costs Council, reporting to the Master of the Rolls, be established to review these costs.

Assessment

The use of summary assessment should be increased. Jackson found that summary assessment of costs generally works well, but suggests that a more ‘informative version’ of form N260 should be drafted so that summary assessment can be achieved more frequently. He also recommends that if a judge does not have enough time at the end of a hearing to undertake summary assessment they should nonetheless order a substantial payment on account of the costs.

Greater reform is needed in relation to detailed assessment. A new format for bills of costs should be devised to provide costs judges with greater levels of information. Jackson also suggests that software should be developed which would be used both as a time-recording system for fee earners and for the automatic generation of schedules of costs and bills of costs, as and when required throughout the case.

Qualified one-way costs shifting

Claimants will not be required to pay the defendant’s costs if the claim is unsuccessful, but the defendant will be required to pay the claimant’s costs if it is successful. Jackson recommends that this should be introduced for personal injury, clinical negligence, judicial review and defamation claims. It may also be suitable for other types of civil litigation, but further consultation would be needed for this to be properly considered. The one-way costs shifting he proposes would be ‘qualified’, as a different costs order could follow if there had been unreasonable behaviour by either party. Jackson also envisages that in some circumstances the financial resources of the parties may justify there being two-way costs shifting.

Jackson suggests that greater take-up of before-the-event (BTE) costs insurance by small-to-medium enterprises and householders should be encouraged. He makes clear, however, that he does not think BTE should be made a compulsory part of any insurance product.

Jackson recommends that a voluntary code of conduct, to which all third-party litigation funders subscribe, should be drafted. He further suggests that the issue of these funders being regulated formally by the Financial Services Authority should be kept under review and revisited if the market expands.

In appeal cases Jackson recommends that any changes relating to costs should follow those made for the lower courts. He does, however, believe that there should also be a change to the rules so that where an appeal comes from a court or tribunal that does not have costs shifting, the appellate court should have the power to order that each party bear its own costs of the appeal, or that the recoverable costs be capped to a specified sum.

Case management

Greater case management powers for courts, in particular greater costs management. Some of Jackson’s specific recommendations include case-management measures to limit the content or length of witness statements and expert reports, ‘hot tubbing’ experts (hearing both experts’ evidence concurrently on an issue-by-issue basis), allocating judges who have relevant experience to a particular case for the duration of that case (‘docketing’) and standardising all case-management directions. In the management of costs he suggests that parties be required to provide budgets, at the outset of a claim and as it continues, for the court’s approval. Lawyers and judges should receive specific training in relation to costs budgeting and costs management.

Jackson sees IT as playing a vital role in ‘modern litigation’. He recommends that the e-working system, currently used in the TCC and Commercial Court, be rolled out across the entirety of the High Court in London and then into County Courts and District Registries. The procedure for detailed assessment of costs could be streamlined with better use of IT.

Procedure

There should be greater incentives to accept offers of settlement. Consequently, an increase in damages in the Part 36 regime is proposed. The report suggests an automatic 10% increase of the damages awarded where a defendant fails to beat a claimant’s Part 36 offer at trial. Jackson also recommends that the decision in Carver v BAA [2008] be reversed, as it introduces an ‘unwelcome’ degree of uncertainty to Part 36 offers. The rules should be changed to make it clear that any offer which is better in financial terms, however small, should be treated as ‘more advantageous’ for the purposes of Part 36.

Disclosure

This should be reformed in certain areas. Jackson recommends replacing standard disclosure with a ‘menu’ of disclosure options for certain types of claim where the costs of standard disclosure are likely to become disproportionate. E-disclosure should be used far more widely, and lawyers and judges should be given training on how to conduct such disclosure properly.

Pre-action protocols

These are generally working well, but the Practice Direction on Pre-Action Conduct (which was itself only introduced on 1 October 2009) should be largely repealed and instead costs sanctions should be imposed on any party which can be shown to have acted unreasonably at the pre-action stage. The rules should be amended to allow pre-action applications for breaches of pre-action protocols, rather than leaving breaches of the protocols as a pure costs consideration at the end of litigation.

Referral fees

Referral fees for personal injury cases should be banned. Jackson feels, very strongly, that ‘claims management companies charge referral fees without adding any commensurate value to the litigation process’ and that in some cases this even leads to solicitors ‘cutting corners’. He goes on to say that if referral fees for personal injury claims are prohibited then serious consideration will have to be given to whether they should be banned or capped for all types of claim.

Alternative dispute resolution

A ‘serious campaign’ should be undertaken to ensure that both lawyers and judges fully understand how all forms of alternative dispute resolution (ADR) work and the benefits it can bring. He suggests that a ‘handbook for ADR’ should be prepared for use by clients and as a training guide for lawyers and the judiciary. Jackson does not propose that ADR should be mandatory and recognises that its suitability will vary from claim to claim.

Patents

The Patents County Court (PCC), which deals with lower-value IP claims, should be reformed so that the costs recoverable from opponents are determined according to cost scales. Jackson also recommends capping the total recoverable costs in contested patent infringement actions at £50,000, and at £25,000 for all other contested IP claims.

Finally, Jackson suggests the extension or introduction of a fast track in the Chancery Division, the TCC and the PCC, so that smaller cases in these areas can be dealt with more effciently.

Reaction to the report

Many of Jackson’s recommendations are controversial. Jackson himself recognised this in his preliminary report, predicting, quite accurately, that the final report:

... will generate protest from at least some directions and quite possibly from all directions.

If the proposals are adopted then the level of costs which a claimant will be able to recover from a losing defendant will be restricted in certain cases. Although this may favour defendants generally there are also proposed changes which could benefit potential claimants and lead to a possible increase in litigation. At the press conference to publish the report, Lord Neuberger, Master of the Rolls, indicated his view that defendants, victims, the government, the NHS and taxpayers would all benefit from the reforms. He acknowledged that there would also be losers, but insisted:

... if costs are to be reduced in the interests of justice and access to justice, it is unavoidable that people who make money out of the present system will be losers.

Legislation

When, and if, these changes are implemented remains to be seen. Lord Neuberger said at the press conference ‘The time for discussion and debate is now over: it is now time for action’. However, at least nine of the recommendations require amendment to primary legislation, and with a general election this year it seems unlikely to be high on any government’s legislative agenda. In recent parliamentary debate on the subject, Justice Secretary Jack Straw said that the government is ‘actively assessing’ Jackson’s proposals, and Shadow Justice Minister Henry Bellingham called the report ‘a remarkable magnum opus’ which the Conservatives welcomed. The Liberal Democrats are less enthusiastic, with Paul Rowen MP saying that he feels the changes proposed in relation to personal injury in particular could mean that ordinary litigants ‘lose out’.

Challenges for government

One of the difficulties of implementation will be that Jackson has designed his reforms to be interlocking. During the parliamentary debate Jack Straw acknowledged that the government:

[Has] to look at all the recommendations in the round and make judgements in the round, not least after the economic assessment that we are making at the moment.

During recent House of Lords debate Lord Bach (Parliamentary Under-Secretary of State for the Ministry of Justice (MoJ)), when pressed on the issue of timing of the reforms, said:

... one problem is that [Jackson] saw his report as a package and so may want all of it implemented or none of it implemented, but some parts of it could perhaps be implemented earlier. [The MoJ] have to decide between those two difficult choices.

The MoJ is clearly keen to progress the reforms as soon as possible, and has freed Jackson from sitting duties for one day a fortnight to enable him to oversee the implementation of his report.

The future

If even some of the recommendations are adopted, the result could be a major change in how litigation is run. For smaller disputes, costs should come down. For larger disputes this will not necessarily be the case, but hopefully it will be the merits of the case which determine how it is resolved, rather than the level of legal fees which have been run up by the time settlement is discussed. For all types of litigation there will undoubtedly be far greater scrutiny of costs from the outset, and lawyers will need to devote greater attention to costs management than they may ever have previously.

Carver v BAA
[2008] EWCA Civ 412

Authors:
Andy Millmore
Melanie Hart