EUROPE — In February last year, we noted that the preliminary Jackson report on costs questioned some of the features of English litigation that have shielded UK-based businesses from US-style class actions. The final report recommends removing several of those protective features. Key recommendations include:
- Introducing true contingency fees in contentious business for the first time.
- Preventing claimants from recovering after-the-event insurance premiums and “uplifts” under a CFA from defendants.
- Increasing damages for torts that cause suffering to individuals, including defamation, nuisance and personal injury.
- Modifying the “loser pays” principle would be modified so that in many claims, unsuccessful defendants would be at risk for a claimant’s costs, but not vice versa.
- Extending the costs effects under Part 36 so that a defendant who fails to beat a claimant’s offer would pay not just indemnity costs, but an uplift of 10% on the damages.
- Introducing a wider range of disclosure options in large commercial cases.
Lord Justice Jackson’s task was to review the costs of the English civil justice system and recommend reforms with a view to improving access to justice and bringing about more proportionate costs. His final report calls for the partial abandonment of key aspects of English litigation, such as the “loser pays” principle and the ban on contingency fees, which have long been seen as strengths of the system which prevent the development of a US-style class action culture.
The problem confronting Lord Jackson was that despite a series of judicial attempts to control litigation costs, these have in fact risen since the introduction of the Civil Procedure Rules (“CPR”) in 1999 and are often disproportionate to the value of the claim. Lord Jackson’s interim report attributed this to a combination of factors, including the use of no-win, no-fee agreements (which currently permit an uplift on lawyers’ fees of up to 100% where a claim is successful); the greater front-loading of legal costs under the CPR and the pre-action protocol regime; and the additional disclosure burden caused by the astronomical increase in electronic documents.
Contingency fees and changes to Part 36 offers
However, despite his scepticism towards no-win, no-fee agreements, Lord Jackson’s final report recommends extending the use of contingency fees in England, on the grounds that these are by definition proportionate to the value of the claim. These arrangements allow a lawyer to take a percentage of a client’s damages – which under these proposals would be capped at 25% of damages, excluding those damages which the claimant requires in order to pay for future losses such as medical costs – and are currently not permitted in adversarial proceedings in England. They are, however, already allowed in proceedings before employment tribunals and certain tax tribunals, which are rather counter-intuitively classified as non-contentious. Lord Jackson’s interim report concluded that contingency fees do not cause lawyers to delay settlement (as is often suggested in relation to the US) and that they increase access to justice in medium- to high-value cases, although not in low-value cases where the fee may be less attractive. At that time, he suggested that the lack of jury awards in England, together with the absence of a system of elected judges, offers sufficient protection against the US-style litigation culture with which contingency fees are often associated. Nonetheless, the final report recommends introducing an additional “carrot” to encourage claimants to offer to settle – and a stick to discourage defendants from refusing. The current system of Part 36 offers, under which a defendant who refuses a claimant’s offer must pay a higher proportion of the claimant’s costs if he fails to “beat” the offer at trial, would be expanded so that the unfortunate defendant would also pay an extra 10% on top of the damages awarded to the claimant. This can be expected to lead to a greater use of Part 36 offers by claimants and higher overall damages payments for defendants.
Lord Jackson also proposes a further change which would increase overall damages levels: in order to offset the perceived unfairness of claimants losing a proportion of their damages, libel damages and general damages in claims for personal injury, nuisance and other torts causing suffering to individuals would be increased by around 10%. This is a surprising recommendation at a time when there are widespread calls for a reform of the libel system to reduce the perceived chilling effect of large libel claims on investigative journalism and legitimate scrutiny of quasi-scientific claims. Since libel trials are the only branch of civil justice in which jury trials are still regularly used in England, this recommendation also sits rather ill with Lord Jackson’s previously expressed view that the general absence of jury trials is one of the significant barriers to the introduction of an excessive litigation culture.
Another option which was foreshadowed in the interim report and has survived into the final version is a call to abolish the time-honoured “loser pays” principle under which the losing party pays the bulk of the winner’s legal costs. Lord Jackson wants to see this replaced with “one way cost shifting” in claims for personal injury, clinical negligence, judicial review, defamation, and possibly some other categories yet to be determined. Under this system, defendants would still pay the claimant’s costs if the claim succeeds, but would not be able to recover their own costs if it fails, unless they could show that the claimant acted unreasonably. This could be expected to lead to a greater number of cases being issued (because the claimant would no longer risk being ordered to pay an indeterminate amount to the defendant). Even with the incentive of a 10% uplift in damages to encourage claimants to make reasonable settlement offers, this could create an uneven playing-field, with pressure on defendants to settle weak claims in order to avoid an unpredictable costs order in favour of a claimant who has little to lose.
Restricted costs recovery and costs awards against litigation funders
Businesses which are particularly exposed to claims, such as manufacturers and their insurers, will give a warmer welcome to the recommendation that after-the-event insurance premiums and the “uplift” element of no-win, no-fee agreements should no longer be recoverable from defendants. Claimants litigating on such agreements would have to pay these themselves, presumably usually out of their damages, and the 25% cap would apply whether the agreement was formally labelled as a new-style contingency fee or as an old-style conditional fee with the success fee based on an uplift to the hourly rate. Unsuccessful defendants would always only pay the opposing lawyer’s standard charges (with the exception that the indemnity principle, which currently prevents parties from recovering sums which they are not themselves liable to pay, would be relaxed or abolished to make it easier for claimants to recover costs where they have used in-house lawyers or where the proceedings have been funded by a third party such as a trade union). Businesses which regularly defend claims may also welcome the proposal that third-party funders should be liable to pay the costs of a successful opposing party, at the discretion of the trial judge. A code of conduct would be introduced to ensure that this change did not result in funders inappropriately controlling the litigation. It remains to be seen whether the prospect of adverse costs orders will have a dampening effect on the litigation funding industry or whether funders are sufficiently confident in their existing case screening procedures that any deterrent effect will be small.
New disclosure rules for large commercial cases
Some procedural changes are also recommended, of which the proposals relating to disclosure are perhaps most likely to save substantial costs. Lord Jackson suggests that in large commercial cases, standard disclosure (in which a party must disclose all documents on which it relies or which could either support or weaken the case of any of the parties) should no longer be the default position. Rather, the parties should prepare disclosure reports for the court setting out in very broad terms what types of documents are available and what it would cost to disclose them. The court would then select from a menu of disclosure options, which in addition to standard disclosure would include dispensing with disclosure altogether or only allowing it on certain issues, only requiring a party to disclose documents on which it relies or which are specifically requested by the other party, or (probably rarely) a very broad exercise comprising all documents which might lead the other party to a relevant train of enquiry. The option to require disclosure only of documents on which a party relies or which another party requests is frequently used in international arbitration and is therefore one which larger businesses may see as a sensible step forward.
Overall, however, there is little in these proposals which businesses will welcome – particularly manufacturers and insurers – and a great deal which will make them uneasy. It remains unclear to what extent the recommendations will be implemented, particularly as several of them would require primary legislation and the report has been published in a General Election year. However, if they are adopted and if the Civil Justice Council also continues to pursue its stated desire to introduce wider collective redress mechanisms into English law, then all the elements of a US-style class action culture may soon be in place.