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Green Light for Contingency Fees?
London & Bermuda Newsletter
After a year reviewing the cost aspects of civil litigation in England and Wales, Lord Justice Jackson recently produced his recommendations in a 557-page booklet. (See http://www.judiciary.gov.uk/about_judiciary/cost-review/reports.htm.)
While most of Lord Justice Jackson’s recommendations would initially impact primarily small- or medium-valued claims, commercial parties should be aware that they may be applied more widely in the longer term.
The most significant recommendation is to end the recoverability of success fees and after-the-event (“ATE”) insurance premiums, which have disproportionately increased the cost of litigation. Instead, a “qualified” one-way costs shifting would be implemented, whereby the unsuccessful claimant would not be required to pay a defendant’s costs, but the defendant would be required to pay the costs of a successful claimant. This recommendation would apply in the first instance only to personal injury, clinical negligence, judicial review and defamation/breach of privacy claims. The shift would be qualified, in that the parties’ financial resources and any unreasonable behaviour could be taken into account by the court in awarding costs.
If success fees and ATE premiums are no longer to be recoverable, Lord Justice Jackson recommends that solicitors and barristers be permitted to act on a contingency fee basis (based on the Ontario model), with certain safeguards. For instance, the unsuccessful party would not be required to pay more than the conventional amount (i.e. taxed costs) and regulation would cap the percentage of damages which could be recovered from the award (a cap of 25% is recommended, excluding damages in respect of future care or future losses; Minister of Justice Jack Straw has suggested that the cap in defamation cases be reduced to 10%). Should the recoverability of success fees and ATE premiums not be abolished, other recommendations are made to limit the extent of recoverability.
Of particular interest to large commercial claimants are Lord Justice Jackson’s recommendations for immediate effect. These include the assignment of one judge to a case from start to finish (“docketing”) and equal alternatives open to the court on making disclosure orders (the “menu option”, as opposed to starting from the default position of standard disclosure). Recommendations have also been made to strengthen the court’s case management powers, including (i) the requirement for parties to identify the factual witnesses to be called and the pleaded facts which they are to prove; (ii) costs sanctions in respect of excessively long or partially irrelevant witness statements; and (iii) a requirement to provide an estimate of the costs of expert evidence to be adduced. It is also recommended that a procedure of “concurrent evidence” by expert witnesses (a.k.a. “hot tubbing”) be piloted where the parties agree to do so.
Other recommendations include fixing costs – or a cap – on fast track cases (with flexibility in respect of unreasonable behaviour); discretionary power for the appellate courts; clarification of the concept of proportionality (“the fact that costs were necessarily incurred does not make them proportionate”); and strengthening the effects of Part 36 of the Civil Procedure Rules (which imposes costs consequences on a party who rejects a “without prejudice” settlement offer by the other side, and fails to “beat” the offer at trial).
As to contingency fees in commercial litigation, the future remains uncertain. For the moment, commercial practitioners appear to be roughly divided on the issue. However, Lord Justice Jackson noted that the argument in favour of freedom of contract “is self-evident in the case of commercial litigants.” The issue is not ripe for the moment, but what will tomorrow bring?
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