Lord Justice Jackson’s cost reforms, which come into force on 1 April, will create a new landscape for litigation. How will this affect construction and engineering cases?

Andrew Weston

As part of the implementation of the Jackson reforms, costs management changes similar to those adopted in the Technology and Construction Court under the cost pilot 18 months ago, will come into force for all claims that begin after 1 April 2013 where sums in dispute are under £2m. These changes will occur alongside wider litigation reforms.

The new rules will allow lawyers to enter into damages based agreements whereby they will be able to take a proportion of the damages recovered as payment for their services - a significant change. However, the ability for successful litigants to recover success fees related to conditional fee arrangements (by which lawyers have been able to recover the balance of reduced fees) and after the event insurance premiums from the losing party will be gone.

What will it mean for construction and engineering litigation cases?

The costs of litigation can be a barrier to pursuing a claim because of the overall cost and uncertainties as to the potential level of cost recovery.

The key objectives of the costs management reforms are to promote access to justice as a whole by making the costs of litigation more proportionate, making the dispute resolution process quicker and easier, and discouraging unnecessary or unmeritorious cases.

A key objective of the reforms is to promote access to justice as a whole by making the cost of Litigation more proportionate

Litigants with claims of up to £2m in value will need to submit a detailed cost budget for the full litigation process no later than seven days before the first case management conference, unless another date is specified when the case is allocated. The cost estimate will need to be approved by the judge and, as is likely to happen in most instances, a costs management order will be issued. This is likely to have the effect of limiting costs recovery from the losing party, subject to there being a good reason why further costs should be allowed, and that reason having been raised at the appropriate time.

A test of proportionality will also be applied. Costs will be proportionate where they bear a reasonable relationship to the amount in dispute, the value of non monetary relief, the complexity of the issues, work that has been necessitated by the actions of the paying party and certain wider factors involved.

This cost budget restrictions on recovery, coupled with impact of proportionality in deciding the overall level of recovery, mean parties to court proceedings will have to ensure their costs are reasonable and proportionate to the subject of the claim.

This process should ensure the parties focus on the relative merits of its claim and the tasks necessary to prepare the legal proceedings, whether as claimant or defendant.

What do parties to litigation need to be aware of?

Overall, this process is designed to reduce litigation costs and ensure that costs are proportionate. There is no reason to suggest this will not happen. Whilst in terms of the practical steps of the process, little should change, other than submitting the cost budget, it is likely in many instances to change the costs profile of a dispute because more work will be done at the early stages in order to quickly understand the merits and key issues of the case and what it entails.

As a result of the changes in the way that parties should be approaching their disputes, they should have a better feel for the potential cost liabilities they face. The key must be to look carefully at the issues in dispute and pursue only the items that can ultimately be won - parties should pick their fights carefully and be selective as to the issues included in their claims.

In preparing the case and how it is to be presented, thought will be given at the outset to the identity of the witnesses, the role of experts, as well as the number of documents. This will assist in setting an accurate budget for dealing with all the issues in advance. The impact of getting the costs budget wrong is serious - where a costs management order is issued, costs outside the agreed budget may not be recoverable even if the claim is successful.

There is little in terms of case authority arising from the pilot schemes that have been run, so we must await further guidance in form of decided cases. We will all watch with interest over the coming months, as the landscape becomes clearer, to see how the changes work in practice.

Andrew Weston is a senior associate at international law firm Taylor Wessing