Jackson update

The Jackson reforms came into force on 1 April 2013. Here we review the significant cases and developments which reveal how the reforms are being implemented.

Jackson Five appointed for appeals on the Jackson reforms

To ensure consistency in approach towards the reforms, any appeal concerning them will come before at least one of the following: Lord Dyson and Lord Justices Richards, Jackson, Davis and Lewison.

Case management

Lord Justice Jackson had hoped that the reforms would result in more robust case management. In that respect, they seem to have worked. In Fons HF -v- Corporal Ltd and Another¹ the defendant came very close to having a second extension of time for service of witness statements refused: "all parties and the wider litigation world should be aware that all courts at all levels are now required to take a very much stricter view of the failure ... to comply with directions"². The claimant, who was ready to exchange, was also criticised. The second order had provided for service of witness statements on the other parties and so technically they were also in breach. The claimant should have taken steps to comply. A similarly strict approach was adopted by the TCC in Venulum Property Investments Ltd -v- Space Architecture Ltd and others ³. There the claimant's solicitors failed to serve the particulars of claim in time. The judge refused to extend the period, having taken into account: the stricter approach the courts must now adopt towards failures to comply with court rules, the claimant's delay of over five years before instructing solicitors, the absence of a good reason for non-compliance, and the weak merits of the claim against the affected defendants. As HHJ Jeremy Richardson said in Baker -v- Hallam Estates Ltd and Another: "Those who wait to the 59th minute of the eleventh hour to take steps only have themselves to blame if something goes wrong."⁴ This was certainly the case of the claimants who found that their claim was time barred because the claim form, which had been sent to the court at the end of the limitation period, was accompanied by the incorrect court fee.⁵

That said, this stricter approach should not encourage unreasonable opposition to requests for extensions. In Re Atrium Training Services Ltd and Connor Williams Ltd,⁶ the applicants, who had just instructed new solicitors, applied for a fifth extension of time for disclosure. The respondents relied on the decisions above to argue that the courts should now take a stricter approach to non-compliance with directions. However, in light of the procedural history, Henderson J granted a fifth extension but did so on strict "unless" terms that the claim be struck out if the applicant failed to comply. The respondents had been unable to demonstrate any significant additional prejudice and to refuse the extension would be disproportionate and unfair in the circumstances.

The most significant illustration of this shift in emphasis towards more robust case management is the decision of Master McCloud in Mitchell -v- News Group Newspapers Ltd.⁷ The claimant (Andrew Mitchell MP) failed to both file the budget on time (filing it one day before the CMC) and discuss budgets with the defendant (who had filed on time). Consequently, his budget was limited to the court fees incurred. The claimant's application for relief on the grounds of short timescale (they only had 11 days notice of the CMC) and lack of resource failed; the Master considered that they should have been aware that this was a case where budgeting requirements applied and planned accordingly. However, she was prepared to grant leave to appeal her decision given the severe nature of the sanction imposed and the lack of authority on point. As Master McCloud herself said: "It will be for the appeal court to determine whether such a strict approach is appropriate.". The case has been leap-frogged to the Court of Appeal, so we should have an answer in early November.

Costs management: application of the new rules

A similarly robust approach is being applied to the new costs management rules. Although most of the decisions so far have concerned the pre-Jackson pilot schemes, the lessons learned apply equally to the new rules and include:

• File your budget on time. As discussed above, Andrew Mitchell MP learnt to his cost that failure to forward plan and consequently file your budget on time runs the risk of having your budget restricted to your court fees. The rules (CPR 3.14) only appear to apply this sanction when a party fails to file a budget - rather than fails to file it on time. It will therefore be interesting to see how the Court of Appeal deals with the issue.
• Get the budget right first time. As confirmed by Coulson J in Murray and another -v- Neil Dowlman Architecture Ltd,⁸ it will be extremely difficult to persuade a court that inadequacies or mistakes in the preparation of a budget, which is then approved by the court, should be subsequently rectified. Any other approach "could make a nonsense of the whole costs management regime."
• Apply to revise your budget as soon as you know you are going to exceed it. Despite costs being almost double the court-approved budget (with £170,000 of the increase relating to experts), the defendants in Elvanite Full Circle Ltd -v- AMEC Earth & Environmental (UK) Ltd⁹ only filed and served a revised estimate a month before trial. Coulson J considered this insufficient: the rules require an application to revise the budget to be made, ideally as soon as the budget is exceeded by more than a minimal amount. Post-judgment applications are not allowed, otherwise it would encourage a "wait and see" approach. Even if they were, there would have to be "good reason" to justify a late application. Looking at the over-spend, Coulson J considered that scope for departure from the budget was limited. In relation to the main over-spend, the expert fees, the only "good reason" was in relation to the fees that had been incurred to deal with one aspect of the case that had reasonably not been expected to be the subject of expert evidence.
• Clearly set out any assumptions. In Elvanite it was argued that the expert evidence had been more extensive because the defendants had expected the claimant to abandon or modify some of its claims. Coulson J dismissed that point; if the estimate had been prepared on that assumption then it should have said so.
• Make all your costs points at the CMC. The new rules were intended to limit the need for detailed assessment; budgets operate as a limit on recoverable costs unless "good reason" for departure can be shown. However, does that mean that if a party stays within budget, they will automatically be entitled to 100 per cent of their costs? Not according to Moore-Bick LJ¹⁰. He considered that judges should not treat the court's approval of a budget as demonstrating, without further consideration, that the costs incurred by the receiving party are reasonable or proportionate simply because they fall within budget. Contrast that with decisions of the Mercantile Court which suggest that, where a successful party stays sensibly within budget, the judge will be more inclined to deal with costs there and then and the successful party will recover all the costs claimed.¹¹ The reality is that it will be difficult to argue that costs are disproportionate where a party has remained sensibly within an agreed or court approved budget. In that case, the CMC may be the only opportunity to raise any costs points. In addition, reports of recent unreported decisions would indicate that the courts are prepared to reduce budgets when approving them (in one case from £1 million to just over £430,000). Incentive indeed to make sure you raise all costs points at the CMC.
• What about calculating costs on the indemnity basis; what impact does any costs management order have then? CPR 3.18 provides that the court will have regard to budgets when assessing costs on the standard basis. This would therefore suggest that if indemnity costs are ordered, the budget is not relevant. Not so according to Coulson J in Elvanite. The budget is an assessment of all likely costs and is not, in his view, based on any particular assessment. As such, it should still be the starting point for any assessment. However, that does not prevent a party from arguing that an award of indemnity costs is in itself a good reason to depart from the budget, particularly where the unreasonable conduct justifying the order caused the over-spend.

Costs management exemption to go?

The new rules on costs management and budgeting were originally intended to apply to all courts except the Commercial Court. However, fears of forum shopping prompted last minute amendments which extended the exemption to claims of over £2 million brought in the Chancery Division, TCC and Mercantile Court.

The exemption is now being reviewed by the Civil Procedure Rules Committee, which is also looking at whether costs management is suitable for Part 8 claims. The consultation closed on 20 July 2013. As regards responses, the Chancery Bar is generally in favour of removing the exemption, while the City of London Law Society is unsurprisingly in favour of retaining the Commercial Court exemption.

Litigation funding: damages-based agreements under review

The uncertainty around DBAs, and in particular the issue of hybrid DBAs, has prompted many to voice concerns. The Law Society advises caution regarding their use and has suspended work on its model DBA. Consequently, the Ministry of Justice has confirmed that DBAs are under active consideration, although latest expectations are that the revised Regulations will be finalised by April 2014.

Jackson ADR handbook published

The Jackson ADR handbook has been published by Oxford University Press. The handbook follows a recommendation by Jackson LJ that an authoritative alternative dispute resolution handbook be prepared. It provides practical guidance on all aspects of ADR, including detailed coverage of mediation, and is aimed at judges, litigators and others involved with ADR.

Please click on the links below for the other articles in the commercial litigation newsletter

• Hot-tub: lessons from Australia
• The importance of clarity when it comes to the terms of, and costs associated with, settlement
• Third party funder entitled to terminate funding agreement
• Asymmetric jurisdiction clauses valid as a matter of English law
• Service: retrospective validation of the claim form permitted and receipt by fax sufficient for French courts to be seised
• Disclosure and privilege update: increasing transparency and guidance on the dominant purpose test
• Can the corporate veil ever be pierced?
• Part 36: valid acceptance and "near-miss" offers
• CPR 66th update
• Chancery Modernisation Review
• Collective actions update: "opt-out" coming to a competition claim near you
• Judicial Review: reforms made and more to come
• Courts to become self-financing?

_Notes:

^1. _{[2013] EWHC 1278 (Ch).}
^2. _{HHJ Pelling QC, para. 10.}
^3. _{[2013] EWHC 1242 (TCC).}
^4. _{[2013] EWHC 2668 (QB).}
^5. _{Page and another -v- Hewetts Solicitors and another [2013]EWHC 2845 (Ch).}
^6. _{[2013] EWHC 1562 (Ch).}
^7. _{[2013] EWHC 2179 and 2355 (QB).}
^8. _{[2013] EWHC 872 (TCC).}
^9. _{[2013] EWHC 1643 (TCC).}
^10. _{Troy Foods Ltd -v- Manton [2013] EWCA Civ 615.}
^11. _{Safetynet Security Ltd -v- Coppage and another [2012] EWHC B11 and Slick Seating Systems & Ors -v- Adams & Ors [2013] EWHC B8 (Mercantile).}