New Court rules are here to stay
1st April 2013 saw the introduction of a number of new rules, as the result of the Jackson Reforms, governing the conduct of litigation including the Court's managing costs throughout the Court process and changes to how cases are funded. Some of the key changes are set out below.
Recovering Success Fees and Insurance premiums
Many people who go to Court have funded their cases under a Conditional Fee Agreement (CFA) or have obtained After the Event Insurance (ATE). Prior to 1st April, the success fee under CFA's and the premiums for the ATE Insurance were recoverable from the paying party as part of the successful party's costs of the action. This was often seen as vital bearing in mind that the amounts of the success fees or the premiums were in many cases, significant. However this has now changed. Anyone entering into a CFA or ATE policy after 1st April will no longer be able to recover the success fee or the premium from the paying party and will have to meet these costs themselves.
The additional liability is something which people should consider carefully before entering into any CFA's or Insurance policies.
Introduction of the Damages Based Agreement
A further change is the introduction of the Damage Based Agreements (DBA). Under a DBA, if the claim is successful, solicitors will be able to take a share of the client's damages to cover their costs. This is already the case in some areas of the law including employment claims.
We have yet to see the extent of their use and whether solicitors will be prepared to enter into such agreements. This is inevitably going to be dependent upon the type of case and the prospects of success.
It is often believed that if a party is successful in bringing or defending a claim, their legal fees should be paid by the losing party. As a general rule this is correct, unless the case falls within the small claims track. Small claims were previously those claims which had a value of £5000 or less. From 1st April the small claims limit has increased to £10,000. Under the small claims procedure, subject to exceptional circumstances which are relatively rare, both sides bear their own costs of the case, regardless of the outcome.
The result is that a number of cases, which would previously have benefited from the general principle that the losing party pays the successful party's costs, will no longer benefit from this rule. Anyone with a claim up to a value of £10,000 must bear this in mind prior to issuing proceedings.
One of the concerns for Judges over the years has been the amount of costs which parties have incurred in bringing or defending multi track claims, which are those with a value over £25,000. The new rules have introduced a number of provisions to give the Judges more control over how the proceedings will be dealt with and the costs which will be incurred. One of those changes is costs budgeting. From 1st April, for the majority of multi-track cases, the parties will be required at the outset, to submit to the Court for approval, a costs budget setting out what costs will be incurred at each stage of the proceedings. A party will not subsequently be able to recover more than the sum which has previously been approved by the Court. If a party believes that additional work is required, which was not envisaged at the outset, they must seek prior approval from the Court. A failure to do so is likely to result in the additional costs being disallowed. It will not be sufficient to argue at the end of the case that this work was unforeseen. Such arguments at this stage will be too late and are likely to fall on deaf ears.
The new rules also introduce a new test of proportionality, so that costs must bear a reasonable relationship to the complexity and value of the claim. This will now be the key test for Judges to apply, so that even costs incurred as a matter of necessity may not be allowed if they are seen to be disproportionate.
Whilst at first glance people may consider that this will only impact upon them in relation to costs, this is not the case. What it means is that prior to issuing proceedings, or before a defence is filed, extensive work will be required to identify all issues in the case, to determine the extent of documents which will need to be disclosed, to determine who will give witness evidence and what the evidence will cover, whether experts will be required and if so, what the reports will deal with. Only once this information has been gathered will it be possible to draft the costs budgets. Inevitably, this is going to require significant cooperation between solicitor and client from the outset and will inevitably lead to more costs being incurred up-front. However, a failure to do so could be disastrous with significant costs being disallowed, even if successful at a final hearing.
The new rules are still in their infancy and it may be some months before we see the true effect which they will have upon the Court process. However what is clear is that the Judges are expected to take a more active role in the entire Court process ensuring dates for complying with Court directions are met and parties adhere to their costs budgets. A failure to do so could have severe consequences for a party in default.
This article is for general guidance only. It provides useful information in a concise form. Action should not be taken without obtaining specific legal advice.