Litigation update: major changes to the litigation landscape

Dispute resolution specialist Simon Jackson outlines the wide-ranging reforms to the litigation process which were implemented on 1 April 2013.

Resolving commercial disputes through the courts is usually the option of last resort as litigation can be a painful, uncertain and expensive process.

In recent years, the courts have been concerned to try to make the process more efficient and cost-effective. This concern has led to wide-ranging reforms to the litigation process being implemented on 1 April 2013. Simon Jackson summarises some of the key features of the new regime.

Funding of litigation

For some time, the courts, lawyers and litigants have been getting to grips with a growing range of options for funding litigation. The new rules restrict some of the existing options and introduce new opportunities. In particular:

• Damages-based agreementsare now permitted in all types of civil litigation. Under a damages-based agreement, the client agrees to pay his lawyer a proportion (of up to 50%) of the proceeds of the litigation, rather than paying the lawyer a traditional hourly-rate or fixed fee.
• Conditional fee agreementsmay become less attractive as a means of funding litigation. This model involves the lawyer charging his client a reduced fee or no fee at all pending the outcome of the litigation. In the event of success, the lawyer’s fees become due, together with a success fee designed to reward the lawyer for having participated in the risk of the litigation. The winning client would then look to recover these fees, or at least a substantial percentage of them, from the losing party. Under the new rules, the success fee element will no longer be recoverable from the losing party.
• After the event insurance premiums- in most cases, a successful party will no longer be able to recover from the losing party the cost of taking out insurance against the risk of losing a case.

Controlling the costs of litigation

Judges are being encouraged to manage the costs of litigation more proactively than they have done in the past. In more complex “multi-track” cases, the parties will be required to exchange formal costs budgets at an early stage and then keep them under review. The court will scrutinise this process. Parties are likely to be tied to their formal budgets and will have to find good reasons to recover unbudgeted costs.

Whilst this new approach was adopted with good intentions, already the courts are recognising that it may give rise to real difficulties in practice. The power of the new reforms has been watered down by early case law and by various divisions of the High Court opting out of the rules. The new system will be stress-tested in earnest over the coming months and years.

In addition, the underlying principles around recoverability of costs have been revisited. When the courts consider the question of “proportionality” of cost, they will look more closely at whether budgeted amounts are within a reasonable and proportionate range in regard to the amount at stake.

Settlement offers

The courts are encouraging formal settlement offers, by increasing the severity of the consequences for a party who rejects a settlement offer and then fails to do better than the offer at trial. A party who finds itself in this unhappy situation will now face not only adverse costs consequences and a penal award of interest, but also an additional sum calculated as a proportion of the damages awarded at trial, up to a maximum of £75,000. All litigants should be encouraged to make sensible settlement offers and to consider carefully their potential exposure if they reject their opponent’s offer.

Managing the litigation process

The new rules include changes to the process designed to control the parties and to ensure that cases are managed justly and proportionately to the sums in dispute. In particular:

• Disclosure of documentsis often one of the most costly parts of the litigation process. Our increasing reliance on email and other electronic forms of communication commonly generates vast quantities of potentially discloseable material. Disclosure of these documents can swamp litigants and their lawyers and the traditional rules around disclosure have proved an inadequate match for the march of modern communication technology. The new rules have introduced flexibility into the disclosure process, with a view to finding a sensible approach to disclosure which will strike a balance between the parties’ need for information and the cost of trawling through everything that might conceivably be relevant.
• Expert evidence- similarly, the new rules aim to encourage litigants to recognise that obtaining expert evidence is a costly process. Parties wanting to rely on expert evidence will now have to identify clearly at an early stage the issues that the expert will address and the likely costs of that exercise.

Early views on the reforms

It is too early to assess how much of an impact the new rules will have in practice. The details were revealed in full only at a late stage prior to their introduction and it will take time for court users and the courts themselves to adjust.

The overriding aim of the reforms is to control more effectively the litigation process and the costs associated with it. It is clear that the courts want lawyers and their clients to focus on these issues more closely and at an earlier stage. If all concerned embrace the new regime fully, the financial risks inherent in litigation should become more transparent and allow litigants to assess the relative merits of fighting or settling more readily.