On 1 April 2013 radical reforms recommended by Lord Justice Jackson will come into force, affecting the commercial and costs implications for any business involved in litigation.
We highlight the more significant changes for commercial organisations.
- Conditional fee agreement success fees and after the event insurance premiums (taken out after 01/04/13) will no longer be recoverable from the losing party (save in limited cases).
This will reduce the ability of claimants of limited financial means to bring proceedings and strengthen the position of many defendants and their insurers.
- The introduction of damages-based agreements (DBAs) permits solicitors, for the first time in civil proceedings, to enter into a funding agreement with clients under which they may claim a percentage of damages recovered by their client.
At the moment the proposed rules are unclear and there is considerable doubt as to their commercial viability for businesses and their legal advisers.
- Major changes to Part 36 CPR will allow claimants to recover up to an additional 10% of the damages awarded at trial (with a maximum limit of £75,000) if the award is greater than a previous settlement offer rejected by the defendant.
This change will mean Part 36 settlement offers will have greater strategic importance earlier in the proceedings.
- There will be new requirements for parties to tailor disclosure of documentation to the specific issues and needs of a case in cases with a value over £25,000.
Litigating parties will need to identify with their solicitors before issue of proceedings, or immediately following filing of the defence, precisely what the issues are, what documents may be relevant to those issues, where they are located and the potential costs of collating and producing them.
- The upper financial limit of the small claims track (under which parties are normally unable to recover their legal costs) will be increased from £5,000 to £10,000.
- The court’s case management powers will be strengthened which may result in less indulgence of delay and non-compliance with court directions/orders by the parties and their legal representatives.
- There will be an increased pressure on parties to use single joint experts.
The cost of expert evidence is likely to be reduced as a result and more cases will be determined or resolved without the need for trial.
- There will also be a requirement to give an estimate of costs of proposed expert evidence when seeking a court’s permission to use experts.
This is likely to require parties to have tendering exercises for expert services.
- As the most far-reaching change in the reforms, this change applies to claims over £25,000 (save in certain specified cases).
- There will now be an obligation to provide to the court, at a very early stage in proceedings, a detailed estimate of costs to be incurred up to trial including expert and barrister’s fees.
This will mean lawyers and their clients will have to address all issues in more detail and at a much earlier stage in proceedings in order to calculate an accurate budget.
- Costs budgets will have to be kept under review and extensions sought pro-actively.
Failure to obtain advance approval ahead of budget changes could prejudice a winning party’s ability to maximise costs recovery.
- Recoverable costs are likely to be limited to approved budget figures in most cases.
- Failure to provide a budget within the set timescale will result in recoverable costs being limited to court fees only.
These changes are not likely to impact on the costs a party pays its own lawyers but it could have substantial consequences for the extent to which a winning party can recover those costs from the losing party.
Mike Robinson, Head of the Commercial Litigation team at Boyes Turner LLP, commented on the planned reforms: "The changes mean it is more important than ever to formulate pro-active and commercial strategies early in a dispute"
Consistent with our policy when giving comment and advice on a non-specific basis, we cannot assume legal responsibility for the accuracy of any particular statement. In the case of specific problems we recommend that professional advice be sought.