This article was written by Jack Dillon, a pupil at Hardwicke.
A broad package of civil litigation rule changes – known as the Jackson reforms after the author of the recommendations in the Review of Civil Litigation Cost Final Report – came into effect in April 2013. Now that the dust has settled, this article attempts to track the main changes and look at the areas that have seen developments.
Although the overlapping nature of some of the changes makes any categorisation a fairly difficult task, the article is roughly split into changes to: (1) the conduct of litigation, (2) funding litigation, (3) costs and (4) miscellaneous small changes of less importance.
The amended overriding objective is to enable the court to deal with cases justly and “at proportionate cost” (CPR 1.1(1)), which includes “enforcing compliance with rules, practice directions and orders“ (CPR 1.1(2)(f)). A proportionality test is set out at CPR 44.3(5), which is to be applied at all stages:
“Costs incurred are proportionate if they bear a reasonable relationship to–
(a) the sums in issue in the proceedings;
(b) the value of any non-monetary relief in issue in the proceedings;
(c) the complexity of the litigation;
(d) any additional work generated by the conduct of the paying party; and
(e) any wider factors involved in the proceedings, such as reputation or public importance.”
In the fifteenth implementation lecture, Lord Neuberger MR emphasised the importance of this change: “to put the point quite simply: necessity does not render costs proportionate”. This effectively reverses the position in Lownds v Home Office  1 WLR 2450. Lord Neuberger explained how costs on the standard basis will be assessed first by looking at whether the costs were necessarily and reasonably incurred and secondly at whether the reasonable costs were proportionate. He also rejected the opportunity to issue guidance on proportionality, saying that the law would “have to be developed on a case by case basis” despite the risk of inconsistency.
The effect of this change has already been seen in a few areas. The affect of the amendment to the overriding objective to admissions was discussed in Henning Berg v Blackburn Rovers FC  EWHC 1070 (Ch). The application to withdraw from an admission was dismissed as the asserted defences were not realistically arguable. But Pelling QC stated that in exercising its CPR 14.1(5) discretion (permission required to amend or withdraw an admission) a court must seek to give effect to the overriding objective. Obiter, his view was that the amendment was “… likely to have a significant impact on the approach to be adopted to applications [to withdraw admissions] which will now be approached by courts much more rigorously … particularly where formal admissions are made on behalf of parties represented by experienced and specialist professional advisors“. There has also been some discussion of the new rules in the context of the slightly confused principles controlling permission to amend applications: see for instance, Versloot Dredging BV v HDI Gerling Industrie Versicherung AG  EWHC 1667 (Comm) and JW Spear & Sons Ltd v Zynga Inc  EWHC 1640 (Ch).
Relief from sanctions – Changes to CPR 3.9
In general terms, applications for relief from sanctions under CPR 3.9 will be scrutinised far more rigorously than previously. Now, sanctions will, rather than may, take effect unless the party obtains relief (CPR 3.8(2)). The old list of nine circumstances in CPR 3.9 which the court will consider has been removed and replaced by two factors (CPR 3.9(1)):
“… the need:
(a) for litigation to be conducted efficiently and proportionate cost; and
(b) to enforce compliance with rules, practice directions and orders”.
In essence this change simply reflects the changes made to the overriding objective. Further, the court is now permitted to contact parties to monitor their compliance with any relevant directions as one of its general powers of management (CPR 3.1(8)).
Relief from sanctions cases
Given that these changes bite at an interlocutory stage, it comes as no surprise that this is one of the two main areas for new Jackson case law. A number of old cases gave a taste of what was to come. Jackson himself, in Fred Perry (Holdings) Ltd v The Brands Trading Plaza Ltd  EWCA Civ 224, noted a “… a concern that relief against sanctions is being granted too readily at the present time. Such a culture of delay and non-compliance is injurious to the civil justice system and to litigants generally”. Ramsey J allowed an application to set aside a strike-out order in Hills Contractors and Construction Ltd v Struth  EWHC 1693 (TCC) but warned “… given the change to the overriding objective and to CPR3.9, if this application had been made after 1 April 2013, it would not have been granted”. Dass v Dass  EWHC 2520 (QB) spoke in strong terms of the effect of the changes for “… parties who deliberately refuse to comply with court orders for tactical reasons do so at their peril [and] rely upon or hide behind the fact that the other side have not taken pressed heretofore, for any particular sanction”.
Mitchell v The Sun (“Plebgate”) – The strict approach
The biggest case to date in this area is Andrew Mitchell QC v The Sun Ltd  EWHC 2355 (QB). A costs budget filed one day before a costs managements hearing and therefore late was sanctioned as if the claimant failed to file a budget at all, under CPR 3.14 (deemed to have filed costs budget for court fees only). The application for relief was refused by Master McCloud, stating that the “… stricter approach under the Jackson reforms has been central to this Judgment”. The usual explanations of work pressure, small firms and unexpected delays were said to “… carry even less weight in the post Jackson environment”.
My understanding is that the appeal hearing was heard on 7 November with Lord Dyson MR sitting. It is clear that the appeal will be the leading case on both relief from sanction and costs budgeting – Professor Dominic Regan has predicted that the decision will easily be upheld, saying “… never forget the Jackson was the work of the judiciary … I really do not see that the Court of Appeal is going to want to be seen to be undermining, betraying or, indeed, killing off this newborn child”.
Pelling QC walked the strict line in Fons HF v Corporal Ltd  EWHC 1278 (Ch). Both parties failed to serve witness statements; the claimant was ready and willing but the defendant was not. Both parties were held to be in breach since the claimant could “… at the very least lodge them at court … or provide them to the defendants in escrow in a sealed envelope“. Pelling QC warned that “… all parties … should be aware that all courts at all levels are now required to take a very much stricter view of the failure by parties to comply with directions, particularly where the failure to comply is likely to lead into a waste of the limited resources made available to those with cases to litigate“.
The Mitchell / Fons approach has been followed by a number of subsequent cases. In Biffa Waste Services Ltd v Dinler (2013, unrep.), flagrant breaches of the court’s orders and very significant delays led to an entirely foreseeable adjournment of the trial date. The judge’s costs order was swiftly overturned on appeal and the claim was struck out. In Baker v Hallam  EWHC 2668 (QB) it was noted that in cases of non-compliance “… particularly when it involves a late application on an ex parte basis relating to a time limit, an application for an extension of time or relief from sanction demands scrupulous examination”. The claimant failed to disclose material facts about his own dilatoriness during his ex parte application. In Venulum Property Investments Ltd v Space Architecture Ltd  EWHC 1242 (TCC) Edwards-Stuart J dismissed an application (under CPR 7.6(3)) for permission to extend time for service of the particulars of claim where the claimant’s solicitors wrongly thought there were 14 days for service. This was however a fairly fact sensitive case and may therefore not be too significant: no explanation for a 5 years’ delay before instructing solicitors, an equally strong or better case against a different defendant and a claim for bad faith pleaded in particularly vague terms.
But the cases are not completely one way. There seems to have been something of a backlash, particularly where it might seem like a litigant is trying to take advantage of a strict approach where circumstances do not merit. This more lenient line was taken in Wyche v Careforce  EWHC 3282 (Comm), where the defendant was granted relief following their inadvertent non-compliance with e-disclosure obligations in an unless order. The effects of the non-compliance were not trivial but the trial date was not vacated. Walker J said that the “… mere fact that a mistake was inadvertent [is not] a trump card. Nonetheless, it will … be a relevant consideration“, adding that the “… court is not a martinet … the court’s role is not automatic. It does not apply the rules unthinkingly, nor does it expect that human beings … will act as automatons”.
In Raayan al Iraq Co Ltd v Transvictory Marine Inc  EWHC 2696 (Comm), the claimant served the particulars of claim two days’ late – a “regrettable but egregious” failure. The application for relief was granted. Smith J did not accept that the new regime meant that “… there should be ‘a disproportionate response’ or that defendants should be given an ‘unjustified windfall’ where the dictates of justice and the overriding objective indicate the contrary”. Also significant was his statement that the old list of circumstances under CPR 3.9 could still be relevant. Of particular interest to those seeking relief in the future are his comments that it “… is ironic that, but for changes to the Rules and the Sir Rupert Jackson report designed to save costs, this matter … would have been dealt with without a hearing and with minimum expense … [the] defendants’ attempts to exploit the error in the way that they have are, to my mind, regrettable”.
Thavatheva v Riordan  EWHC 3179 (Ch) summarised the principles from Wyche and Raayan and the defendant was given relief despite being in breach of an unless order. There were still overtones of strictness – the claimant’s own non-compliance and failure to apply for relief himself was criticised even in circumstances where the defendant had been debarred from defending the claim.
The salutary lesson for litigants is to be found in Re Atrium Training Services  1562 (Ch). An application made ahead of time to extend time for the liquidators to comply with their disclosure obligations was granted. It was appropriate to view the case not as one of relief from sanction but under CPR 3.1(2)(a) (extend or shorten the time for compliance). The judgment discourages an “… easy assumption that an extension of time will be granted if it would not involve any obvious prejudice” but recognises that courts should not “… go to the other extreme, and [should not] encourage unreasonable opposition to extensions which are applied for in time and which involve no fresh prejudice to the other parties“. Clearly it is better to apply for an extension ahead of time rather than relief after a deadline has been reached.
The other conclusion to draw is that judges are very much on their guard against litigants unreasonably seeking to bend the new rules to their own advantage and push the court towards draconian steps.
A new procedure is set out in CPR 31.5 that applies to all multi-track claims unless they include a claim for personal injury (CPR 31.5(2)). Where the rule applies, parties must prepare a report on documents that may exist and be relevant and state which directions the party seeks. This report must be filed and served not less than 14 days before the first case management conference. Not less than seven days before the first case management conference, the parties must discuss and seek to agree a proposal in relation to disclosure that meets the overriding objective. If the court considers an agreed proposal appropriate then it can approve it without a hearing. Otherwise the court will select from the following list of options at CPR 31.5(7):
(a) an order dispensing with disclosure;
(b) an order that a party disclose the documents on which it relies, and at the same time request any specific disclosure it requires from any other party;
(c) an order that directs, where practicable, the disclosure to be given by each party on an issue by issue basis;
(d) an order that each party disclose documents which it is reasonable to suppose may contain information which enables that party to advance its own case or to damage that of any other party, or which leads to an enquiry which has either of those consequences;
(e) an order that a party give standard disclosure;
(f) any other order in relation to disclosure that the court considers appropriate;
Needless to say, the new proportionality rule applies to these decisions.
The new rules also give the court the power to make a costs capping order under CPR 3.19 that limits recoverable costs to the order, although these will only be made in exceptional circumstances (3FPD 1.2). Although only available rarely, this form of order may come to be seen as a useful tool, possibly in David and Goliath litigation. The court will have regard to all the circumstances of the cases including whether there is a substantial imbalance between the financial position of the parties, whether the costs of determining the amount of the cap are likely to be proportionate to the overall costs of the litigation, the stage which the proceedings have reached and the costs which have been incurred to date and the future costs (CPR 3.19(6)). A party seeking for the court to make this type of order should make an on notice application under Part 23. These orders can be varied where there has been a “material and substantial change of circumstances” or there is “some other compelling reason”. Costs capping is covered by Practice Direction 3FPD.
In appeals, where the recoverable costs at first instance are limited or excluded there is a limited power for the appellate court to limit or preclude recovery at the outset (CPR 52.9A). In JJ Food Service Ltd v Zeki Mehmet Zulhayir  EWCA Civ 1304, the Court of Appeal refused such an application as it was not made as soon as practicable, Rimer LJ stating his preference for the “… old fashioned approach … that rules should be interpreted as meaning what they unambiguously say”.
A number of small changes are implemented by CPR 32.2(3) which allows a court to identify or limit the issues to which factual evidence may be directed, identify the witnesses who may be called or whose evidence may be read or limit the length of format of witness statements. Additionally a party seeking to rely on expert evidence will now have to provide an estimate of the costs and to identify the issues to be addressed (rule 34.4). CPR 35.4.6 and Practice Direction 35PD11.1-11.4 allow “hot tubbing”, a practice in which a court hears evidence from experts concurrently.
The costs management powers are implemented in by CPR 3.12 and Practice Direction 3E, which apply to all multi-track cases except either those worth over £2,000,000 in the Technology and Construction and Mercantile Courts or cases in the Admiralty and Commercial Courts. Each party will prepare their own costs budgets in a standard form (Form H). These should be filed and exchanged as directed or within seven days of the first case management conference (CPR 3.13). The court has a new power to make a costs management order recording the extent to which the parties are agreed and the approval of the court where (parts of) budgets are not agreed (CPR 3.15(2)). While it is early for cases to have been heard on the April reforms, a number of useful decisions have been made on similar changes in pilot schemes, for instance, Coulson J’s comments in Murray v Neil Dowlman Architecture Ltd  EWHC 872 (TCC).
The true significance of a costs management order is that the court will have regard to the approved or agreed budget when assessing costs on the standard basis and will not depart from them “unless satisfied that there is good reason to do so” (CPR 3.18). In Elvanite Full Circle Ltd v AMEC Earth & Environmental (UK) Ltd  EWHC 1643 (TCC), Coulson J held, obiter, that a costs management order should also be the starting point for assessment on the indemnity basis “… even if the ‘good reasons’ to depart from it are likely to be more numerous and extensive if the indemnity basis is applied“.
Budgeting case law
Reflecting the concern with ensuring compliance, CPR 3.14 states that any party failing to file a budget when they are required to do so will be deemed to have filed a budget comprising only the applicable court fees unless the court orders otherwise (and see my comments elsewhere on the difficulty in seeking relief from sanctions under the new rules). As Mitchell v The Sun showed, filing a budget late has the same consequence as not filing one at all.
3EPD 2.6 allows parties to revise their budgets up or down if “significant developments in the litigation warrant”. In Elvanite the defendant applied post trial for the court’s approval of budget revised before the trial began (the case was decided under pilot scheme (PD 51G) but CPR 3.15(3) had the same effect). Coulson J held that parties cannot make an application for approval of a revised budget after trial and if the Defendant wanted the court to approve the significant changes to its costs budget then it had formally to seek approval from the court. An application to revise a costs management order ought to be made immediately it becomes apparent that the original costs budget has been exceeded by more than a minimal amount.
These comments were discussed by Akenhead J in his second judgment in National Museums and Galleries v AEW Architects and Designers Ltd  EWHC 3025 (TCC). He did not disagree with Coulson J except to observe that in his view 51GPD6 suggested that parties were only required to file and serve budget revisions when previous budget were no longer accurate at the next procedural hearing and that no formal application needed to be issued as the court could approve or disapprove the budget of its own motion.
Troy Foods Ltd v Manton  EWCA Civ 615 was a renewed application for permission to appeal a costs management order on the basis that it approved an overly generous budget, reflecting a concern about overly generous recovery of costs. Moore-Bick LJ did not accept that costs judges would take the view “… without further consideration, that the costs incurred by the receiving party are reasonable or proportionate simply because they fall within the scope of the approved budget“. This supported his position in Henry v News Group Newspaper Ltd  2 All ER 840 in which he held that Practice Direction 3E gave emphasis to the importance of using an approved or agreed budget as “a prima facie limit” on the amount of recoverable costs. But in Troy Foods it appeared that the judge had decided to approve any figure which was not “… so unreasonable as to render it obviously excessive or … ‘grossly disproportionate’” which was arguably incorrect and so permission was granted. The case has now settled and so there will not be a Court of Appeal judgment on this point. The unsatisfactory problem this leaves is the uncertainty in predicting recoverable costs where there is an approved budget; obviously this could subvert the intention of the reform. One way out is that the courts might only apply Moore-Bick LJ’s comments where parties have not complied with 3EPD2.6 (significant developments warranting revision of budgets), though on its face the judgment does apply more broadly.
The nuclear option
Another case discussing costs budgets was Stella Willis v MRJ Rundell & Associates  EWHC 2923 (TCC) before Coulson J, also under the pilot scheme. The claim at best was worth £1.1 million and the total the costs budgets were around £1.6 million (excluding the claimant’s VAT). This was a situation in which the parties were likely to use the trial “… to put themselves in the strongest position to argue that, subsequently, the other side should pay all or most of their costs“ rather than as an “end in itself“. Coulson J suggested that this might be one way of testing for proportionality. Coulson J held that the budgets were disproportionate and unreasonable and refused to approve either party’s costs budget or to adjourn the hearing. There was nothing on which to rely to come up with alternative figures for a revised, approved costs budget and so it was inappropriate for the court to impose its own figures. He admitted that his adverse comments would have an effect on the recoverable costs but held that it would be draconian for the absence of an approved budget to prevent any recovery at all.
Finally, CPR 3.18(a) makes it clear that the budget will be looked at in phases rather than in total, so an under spend in some areas does not allow a party to go over budget elsewhere.
The process of assessing costs
A new procedure known as provisional assessment has been introduced for the detailed assessment of costs worth less than £75,000 (CPR 47.15, modified by 47PD14). The court will make a provisional assessment of the receiving party’s costs on the basis of their bill and supporting papers and any contentions. The parties will be notified and can only challenge the assessment by requesting an oral hearing within 21 days of the notice. The costs of this type of assessment are capped at £1,500.
Qualified one-way costs shifting (“QOCS”)
QOCS is implemented through CPR 44.13 – 17. The rule is that a claimant will not be liable for the defendant’s costs for more than the amount of any order made in favour of the claimant. So unsuccessful claimants will not be liable costs but unsuccessful defendants will. The changes are currently limited – although the government has stated an intention to roll the changes out for all civil litigation: only claims for personal injuries, under the Fatal Accidents Act 1976 or for the benefit of an estate are currently covered. Pre-action disclosure applications in these areas are unaffected. Claimants will not be protected by QOCS where the claim has been struck out for disclosing no reasonable grounds, abuse of process or the conduct of the claimant being likely to obstruct the just disposal of the proceedings. In addition, with the permission of the court, a successful defendant can recover costs where “the claim is found on the balance of probabilities to be fundamentally dishonest”. This leads to the slightly strange truth that an unsuccessful claimant is in a better position regarding than costs than a success claimant who has not beaten a Part 36 offer.
Boost to general damages
The Court of Appeal, perhaps a little unusually, applied a 10 percent uplift for general damages by the Court of Appeal in Simmons v Castle  1 WLR 1239. This uplift applies to damages for PSLA, physical inconvenience and discomfort, social discredit and mental distress.
Part 36 changes
Changes to Part 36 penalise defendants who fail to obtain a better judgment than a rejected Part 36 offer. In these circumstances, a court will order the defendant to pay the claimant an additional sum of up to £75,000 unless it considers it unjust (CPR 36.14(3)(d)). The figure is calculated by taking 10 percent of any sums recovered (or costs in non-monetary only cases) up to £500,000 and 5 percent of any further sums from £500,000 to £1,000,000.
The changes under this heading are much less far reaching than was originally envisaged (and indeed has been envisaged since Lord Woolf’s Final Report on Access to Justice thirteen years’ ago). In short, lower fixed costs will also apply to road traffic accident claims up to £25,000 where the accident occurs on or after 31 July 2013 and the Portal is extended to employer’s liability and public liability cases where the date of the cause of action (or for industrial diseases, the letter of claim) falls after 31 July 2013. The level of costs can be found in CPR 44.18. The cases that fall outside the scheme (for instance, those where liability has not been admitted) raise the question how judges are to apply the proportionality rule in fast track cases.
CPR 45.41(2) provides new limits on recoverable costs in Aarhus Convention claims.
After the event (“ATE”) premiums and conditional fee arrangements (“CFA”) success fees.
Neither success fees under CFAs nor ATE insurance premiums are recoverable under the reforms. These were a primary target of Jackson’s attempts to reduce litigation costs. These changes have been implemented by sections 44 and 46 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (“LASPO”) although exceptions do survive: insolvency proceedings, mesothelioma claims, defamation, breach of privacy and clinical negligence claims to a more limited extent. Only CFAs made or ATE insurance taken out on or after 1 April 2013 are affected by these changes and we are therefore still waiting for major decisions in this area.
Damages-based Agreements (“DBAs”)
A number of further changes have been made to even up the playing field for claimants. Damages-based agreements (“DBAs”) have now been permitted by section 45 LASPO (CPR 44.18). In personal injury cases at first instance, the payment cannot be more (including VAT) than 25 percent of the combined total of any damages pain, suffering and loss of amenity, and pecuniary loss other than future loss. In an employment matter, a DBA cannot provide for a payment of more than 35 percent of the sums ultimately recovered. In other first instance cases, the relevant figure is 50 percent. There has been criticism of the application of the indemnity principle to DBAs – a solicitor will not be able to recover any more than the amount chargeable to his own client (itself capped). In the context of low-value cases, one commentator has described this reform as a “lawbreaker’s charter”.
There is also confusion over the question whether the DBA Regulations allow partial or hybrid DBAs (a popular form of funding in the US). The Regulations appear to prevent these – if true, this contradicts to the recommendations of the DBA Working Party. This issue seems likely to play out in the courts at some stage.
This is a catch-all heading for reforms that do not fit neatly elsewhere. The main reforms are the banning of referral fees in personal injury cases, the increasing of the financial limit for claims on the small claims track to £10,000 (CPR 27.1) and the renaming of allocations questionnaires to directions questionnaires (CPR 26.3).
Just before finishing, it is worth pointing out that there will be more reforms coming. See for instance the recent Chancery Modernisation Review: Provisional Report by Briggs LJ published 30 July 2013 with a final report to follow by the end of December 2013.
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