What Lord Justice Jackson's final report on the litigation costs regime may mean for construction dispute resolution

Yesterday Lord Justice Jackson released his final report on reforming the cost structure of litigation, recommending changes to the civil litigation system in England and Wales to promote access to justice at proportionate cost. It follows his preliminary report last May and extensive consultation on how to make civil litigation more cost effective.

The recommendations are concerned with court rules. If enacted, they will also affect arbitrations subject to English procedural law.

They will have little impact upon adjudications (where the usual lack of party-party costs recovery makes them less relevant than in court or arbitration proceedings) but will be relevant to proceedings to enforce adjudicators' decisions. They will, however, affect alternative forms of dispute resolution.

Some of the final report's important recommendations include:

Contingency fees

As predicted (see my article in Building, 16 October 2009), allowing clients to pay solicitors a percentage of the sum awarded. If the client is successful and is, as is usual, awarded its costs, the losing party would only be required to pay costs reflecting

what w

  • ould be a conventional amount (with the successful party bearing the difference). Such contingency fees are used widely in North America, and Lord Justice Jackson sees no objection in principle to them.

Comment: This would remove an inconsistency with conditional fees, which are permitted for civil litigation and arbitration. That is, a fee is payable if the client obtains a defined “win”, which is usually calculated as a proportion of a base fee. For example, if £200 per hour is the base rate, for a win an extra 50% may be payable (that is, £300 per hour) and for a loss 50% less may be due (£100 per hour). Uplifts of up to 100% are permitted, but the “no win, no fee” agreement is far rarer in commercial cases than it is in personal injury litigation.

Contingency fees differ from conditional fees in that while they are also payable if the client obtains a defined “win”, they are calculated as a proportion of the sum recovered. This may simply be, say, 2% of any sum recovered or a mix of say £100 per hour and 1% of any recovery.

A key aspect of conditional fees that makes them attractive to claimants (and also defendants) in litigation and arbitration is that, if they win, the loser (assuming it is solvent) pays the uplift (the extra £100 per hour in the above example). If they lose, their costs spend is reduced (they pay only £100 per hour). However, they may have to pay the winner's costs, unless they are insured against that risk (for which insurance is available both before and after disputes arise). Thus their cost exposure is reduced by their opponent and their lawyers sharing their costs risk.

The ban on contingency fees has produced anomalies. First, while solicitors are often instructed to run court or arbitration proceedings, non-solicitors may act on a contingency basis. Of course, expert and factual witnesses should not be paid in this way as it would give them an interest in the outcome and damage the credibility of their evidence.

Second, solicitors are permitted contingency fees in employment tribunals for which the proceedings are just like litigation. They have worked well. It is unclear if solicitors are currently allowed contingency fees in adjudications.

Third, whatever the controversies surrounding conditional fees, they are permitted and necessary. It is hard to see why contingency fees are not allowed as well. If anything, they reflect more closely a party's success than a conditional fee for which the uplift is entirely payable or not, depending on achieving a single result.

Many clients unfortunate enough to be involved with a dispute and most lawyers will welcome the opportunity for lawyers' fees to reflect their degree of success in the way permitted by contingency fees.

An end to 'no win/no fee'

Ending the current regime of “no win / no fee” agreements, by making success fees and “after the event” insurance premiums irrecoverable from unsuccessful defendants. Conditional fee agreements will still be permitted but any success fee will be payable by the client and not recoverable from the other party. This is likely to mean that the success fee comes out of the damages awarded to the client.

Comment: This recommendation will have its greatest impact upon personal injury claims and the “after the event” insurance industry. For the construction industry conditional fee agreements are surprisingly not used nearly as often as they can be. However, for some claimants, in construction court and arbitration proceedings, this recommendation, if enacted, would reduce the viability of conditional fee agreements. On the other hand it would also mean that defendants were less exposed to a disproportionate costs burden (in the shape of the success fee and “after the event” insurance premium).

Pre-action protocols

Retaining pre-action protocols, such as that which governs Construction and Engineering claims, but repealing the general protocol. On the whole, pre-action protocols have been regarded as a useful way of assisting parties to resolve their disputes without having to start court proceedings, and thereby avoiding unnecessary costs.

Comment: The Construction and Engineering pre-action protocol process comes at a cost in itself (namely requiring the parties (particularly claimants) to incur high costs before any court proceedings), not always with the desired result of achieving a settlement and preventing litigation. In construction disputes, which are often complex and involve many documents, these costs can be high. However, the protocol seeks to strike a balance.

Keeping costs down

Encouraging judges, in appropriate cases, to take a more “hands on” approach to case management and keeping costs under control. One possible way of tackling this issue is the use of cost budgets (by which the courts examine how much the parties propose spending on each part of a case).

Comment There is a cost involved with the courts becoming involved with cost budgets and basing their directions upon them (although the budgets themselves should already be produced for clients in most cases). Like the protocols, though, a balance has to be struck between incurring costs to avoid greater costs, with a sufficient success rate to merit it.

Fast track for trials upto £25k

For the Technology and Construction Court, introducing a fast track for cases up to a value of £25,000, where the trial can be concluded within one day. A substantial amount of litigation unrelated to the industry is already conducted in the fast track. A further recommendation is that there be a dual system, whereby costs are fixed for some cases and in other cases there is a cap on costs recoverable. The ultimate goal would be fixed costs in the fast track for all claims.

Comment: Again a balance is being struck. Fixed costs and cost caps should mean that both parties on a given case do less work. This can pose difficulties for claimants who have the burden of proof. Overall though this recommendation should benefit claimants and defendants, although perhaps the latter more than the former.

Alternative dispute resolution

Alternative Dispute Resolution (“ADR”) (particularly mediation) has a vital role to play in reducing the costs of disputes by assisting the early settlement of cases. ADR is, however, under-used. While ADR should not be mandatory for all proceedings, more should be done to make its benefits known.

Comment: The advantages of ADR are already well known to most in the industry, but there is always more that can be done to spread the good word. Again, an investment that strikes a balance.

The senior judiciary have thrown their weight behind Lord Justice Jackson's report, and if his recommendations are implemented we can expect to see major changes to the disputes landscape. The judges may implement some of the recommendations but many require secondary and primary legislation. It is very much to be hoped that our next government invests the time (and relatively limited money) needed to enact the worthy recommendations in Lord Justice Jackson's Final Report.