Unintended consequences of the Jackson Reforms (Part 1)

As the costs regime ushered in by the Jackson reforms enters its second year, tensions between existing and new provisions have begun to show. In the first of a four-part series we ask Joanna Page, partner at Allen & Overy, to provide her views and predictions for the future.

What impact did the Jackson reforms have on Part 36 offers by a defendant?

The Jackson Reforms included two reforms in relation to Part 36—the first reform relates to both defendant and claimant Part 36 offers and the second relates only to claimant Part 36 offers.

The first reform was the reversal of Carver v BAA Plc [2008] EWCA Civ 412, [2008] 3 All ER 911. This reform was in fact implemented with the introduction of a new CPR 36.14(1A) in October 2011 and has therefore been around for almost three years. The new rule put an end to a controversy which had spawned a string of cases about the meaning of a party failing to obtain a judgment ‘more advantageous’ than a Part 36 offer—it provides that this issue is to be determined solely in money terms even if the level of monetary advantage is small.

This reversal of Carver is the only reform which directly relates to defendant Part 36 offers. However, the relative impact of defendant Part 36 offers have increased as an indirect consequence of other Jackson reforms. The introduction of qualified one-way costs shifting (QOCS) in CPR 44.13–44.17 for personal injury or Fatal Accidents Act 1976 claims means that for those claims (and subject to transitional provisions) a defendant will only be able to recover its costs from an unsuccessful claimant in certain very limited circumstances, such as where the claim is found to be fundamentally dishonest. The defendant may temper the effect of QOCS by making a Part 36 offer—where that offer is successful, the defendant is able to seek his costs under Part 36. The enforcement of any resulting costs orders without the permission of the court is nonetheless limited to the amount of any orders for damages and interest made in favour of the claimant. Different versions of QOCS are also proposed in the context of defamation and privacy claims.

The second reform directly related to Part 36, which has had the greater recent impact, is the additional reward for successful claimant Part 36 offers made on or after 1 April 2013. This reform was introduced to correct what Jackson LJ considered to be the less favourable cost consequences for successful claimant Part 36 offers. This reform was hotly debated before its introduction and represents a significant change of approach.

The court is now able (at its discretion) to award a claimant with a successful Part 36 offer an additional amount calculated as 10% of the sum or costs (depending on whether it is monetary/part monetary claim or a pure non-monetary claim) awarded up to £500,000 and then 5% up to £1m (thereby effectively capping the additional award at £75,000).

Given these thresholds the additional award has its most force in low to medium value claims.

It is by no means certain that the court will exercise its discretion to order this additional sanction on the defendant. Interestingly, in the case of Feltham v Bouskell [2013] EWHC 3086 (Ch), despite the claimant making a successful Part 36 offer, the court considered that it would be unjust to order this sanction. The factors that lead to this conclusion were:

  1. the lateness of the offer

  2. the claimant’s failure to plead a key allegation before trial, and

  3. the claimant’s failure to disclose key documents before trial

The claimant still took some indirect benefit of this additional sanction as the court found that, despite the failures listed, the claimant’s costs should not be further reduced as that would have double penalised the claimant.

If an offer is accepted by the claimant within the relevant period, the claimant may be entitled to his costs. Is there anything in Part 36 to deal with the impact on this provision of a court order implementing the sanction in CPR 3.14 that a party who has failed to put in a costs budget is not entitled to their costs other than court fees?

Part 36 contains no express provision on this point and it is not yet clear how the new costs management scheme including CPR 3.14 will impact costs recovered under CPR 36. However, given the court’s robust attitude towards delay and non-compliance in the post-Jackson era, there is a risk that a successful Part 36 offeror who fails properly to file a required costs budget may find his costs recovery significantly limited. Indeed, this may even occur in relation to costs assessed on an indemnity basis (see Elvanite Full Circle Ltd v AMEC Earth & Environmental (UK) Ltd [2013] EWHC 1643 (TCC), [2013] 4 All ER 765).

Overall, the well-publicised case of Mitchell v News Group Newspapers Limited [2013] EWCA Civ 1537, [2014] 2 All ER 430 (in which a failure to file a budget on time was considered to fall within CPR 3.14) clearly demonstrates the court’s lack of sympathy in this area.

It should also be noted that, unless the court orders otherwise, the new costs management rules do not currently apply to claims commenced on or after 22 April 2014 with a stated value of at least £10m, as well as other exceptions.

Have you come across any other areas where you consider there might be a clash between old provisions and the new CPR Jackson provisions?

The Part 36 regime is a very technical and precise area of law and procedure and has been the source of considerable litigation over the years. Given the complexity, it is an area ripe for reform.

In relation to the Jackson reforms, there is currently some concern about the costs recoverable under pre-action Part 36 offers. After some controversy this question appeared to have been resolved by the Court of Appeal inSolomon v Cromwell Group plc and Oliver v Doughty [2011] EWCA Civ 1584, [2012] 2 All ER 825. In that case the court held that the claimant was entitled to recover costs incurred in contemplation of proceedings up to acceptance of the offer to the extent that they would have formed part of his recoverable costs if proceedings had already been issued.

The introduction on 1 April 2013 of the new CPR 44.9(2) has revived the question. The effect of CPR 44.9(2) is that no costs order will be deemed to be made on the standard basis where a Part 36 offer is accepted before the proceedings are commenced. This caused some concern that CPR 44.9(2) was meant to prevent recovery of costs where an offer is accepted before proceedings are issued. However, the general consensus appears to be that the provision is consistent with Solomon v Cromwell Group and merely reflects that a deemed costs order cannot exist apart from proceedings. Instead, costs-only proceedings should be brought to proceed to detailed assessment.

Have you come across any other areas where you consider there might be a clash between old provisions and the new CPR Jackson provisions?

The whole buzz currently about Jackson is around the imposition of costs sanctions. Separately, we practitioners are finding the costs budgeting to be quite cumbersome—the jury is still out on whether this will promote greater efficiency and costs savings. The reforms are so new that there is no body of cases running soup to nuts, as the Americans say, from which one can make a reliable assessment of what the reforms will achieve.

Personally I find it disappointing that no one is really using the ‘menu of options’ in disclosure but are typically just opting for standard CPR disclosure. A more open attitude to different standards of disclosure would have the potential to make a real difference to the disclosure process and make some disclosure exercises much more efficient and cost effective (as can be achieved sometimes in arbitration).

What are your predictions for the future?

We can expect to see the Part 36 regime further reformed since it is still overly complex and this will reduce the use of Part 36 as a mechanism to promote early resolution.

A CPR sub-committee is currently reviewing Part 36 with a view to possible amendment in 2015. Issues being considered include the impact of restrictions on disclosure of Part 36 offers in split trials, time limited offers, where there are sizeable counterclaims, cynical or tactical Part 36 offers (for example, offers by a claimant to settle at 95% of the value of the claim) and the excessive technicality in the rules. It is certainly a question of ‘watch this space’.

Interviewed by Dave Thorley. The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

First published on Lexis®PSL Dispute ResolutionClick here for a free one week trial of Lexis®PSL. 

Filed Under: Jackson Reforms

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