The much-anticipated Jackson review, due at the end of the year, is to address the spiralling costs of litigation. Herbert Smith's Sonya Leydecker and Maura McIntosh highlight the issues at hand

This April marked 10 years since the introduction of the Civil Procedure Rules which followed Lord Woolf's review of English civil procedure.

The Woolf reforms have achieved many things, including greater co-operation (or at least a reduction in overt hostilities) between the parties to litigation, more mediated settlements and an overall increase in the speed at which cases get to trial. It is generally agreed, however, that the reforms were not successful in cutting costs, which was one of the major objectives of Lord Woolf's review.

It is this continuing unease at the high cost of civil litigation which led to Lord Justice Jackson's appointment to conduct a further review of the system, focusing on the issue of costs. The review is timely as, in the current difficult economic climate, concerns about costs are at the forefront of clients' minds. Legal advisers are coming under increasing pressure to find ways to address both the level and the predictability of litigation costs.

As is regularly reported in the legal press, clients are searching for a workable alternative to hourly billing and a greater sense of partnership from their external lawyers. Some of the reforms being considered by Lord Justice Jackson, including the possible introduction of contingency fees, could give scope for legal advisers to come up with more creative billing solutions in response to such client demands.

To some extent, however, the review may be rendered academic before any reforms are implemented, at least for commercial litigation. Client pressures are already forcing the market to address cost concerns in other ways, for example through a move to fixed or capped fees, rather than waiting for rule changes to take effect.

The aim of Lord Justice Jackson's review is to make recommendations in order to "promote access to justice at proportionate cost". It is an unenviable task. The problems are all too easy to identify, the solutions less so. In his preliminary report published on 8 May, Lord Justice Jackson comments that "in comparison with the present Costs Review, the design and construction of the Tower of Babel seems to have been quite a harmonious and straightforward project".

The final report is due to be published at the end of the year and, as the preliminary report predicts, "will generate protest from at least some directions and quite possibly from all directions". It will then be for the Ministry of Justice to accept or reject any recommendations.

One of the difficulties is that the civil litigation system encompasses a huge variety of cases, from the £500 debt claim to the £500m international fraud and everything in between.

The aim of dealing with cases at "proportionate cost" means that one size does not fit all, which Lord Justice Jackson has helpfully acknowledged in considering possible reforms. It is clear that different rules and procedures may be appropriate for sophisticated commercial clients with high-value disputes, as compared to individual litigants in a trip-and-fall claim or boundary dispute.

Another difficulty is that, even if the enquiry is focused on a specific area such as major commercial litigation, the opposing parties have very different perspectives and interests. "Access to justice" is often thought of as applying only to claimants, and impecunious ones at that, but the review must not lose sight of the need for defendants to have access to justice as well.

At least in the commercial context there is no reason to assume that the claimant will necessarily be the weaker, less-resourced party. A balance needs to be struck between the interests of claimant and defendant to ensure that both sides are treated fairly.

Central to this balance is the costs shifting (or "loser pays") rule. In his preliminary report, Lord Justice Jackson notes that the "one matter upon which all the warring parties are agreed" is that the cost shifting rule must be retained. This is not surprising. Cost shifting acts as an important safeguard for both parties.

It allows claimants with good claims to recover their reasonable legal spend in addition to the damages awarded. It also protects defendants from unmeritorious claims. Without cost shifting there is a significant risk that defendants will feel forced to settle claims regardless of merit due to the irrecoverable costs they would otherwise incur defending the litigation.

Lord Justice Jackson expresses the "tentative conclusion" that cost shifting in some form must remain for the generality of litigation, but he suggests that its abolition in collective actions should be seriously considered. In our view, cost shifting must be retained to ensure that the pendulum does not swing unfairly against defendants.

That is equally true in the context of collective actions. The absence of cost shifting and the associated incidence of blackmail suits (speculative claims brought with a view to extracting a settlement), is generally perceived as one of the worst elements of the US class action system. We welcome the Government's position, as stated in its July 2009 response to the Civil Justice Council's recommendations for the reform of collective actions, which strongly supports cost shifting as a significant deterrent to unmeritorious claims.

As well as the basic principle of "loser pays", the extent to which a successful party's costs are recoverable also affects the balance of power between claimant and defendant. In his preliminary report, Lord Justice Jackson is clearly concerned at the perceived unfairness of the current situation whereby a party who funds its litigation by way of a conditional fee agreement (CFA) with after-the-event (ATE) insurance can, if successful, recover from its opponent the additional costs of such arrangement – ie the CFA success fee (up to 100% of the lawyer's basic fee) and a hefty ATE premium.

Although CFAs and ATE insurance are open to defendants as well as claimants, the overwhelming majority are used by claimants. This can have a dramatic effect on the defendant's costs risk, potentially resulting in the defendant paying a multiple of the claimant's reasonable costs which may be wholly disproportionate to the value of the claim.

While the CFA/ATE regime was introduced principally to help those who cannot afford litigation (in particular, to mitigate the withdrawal of legal aid from personal injury litigation by allowing claimants to litigate "cost free") it can also be used by parties who have the resources to fund litigation. There is no obvious reason why, in these circumstances, defendants should be liable for the additional costs resulting from claimants choosing to litigate on a cost-free basis.

In some cases, this approach may interfere with a defendant's access to justice. The recoverability of such costs may be used to put undue pressure on defendants to settle for more than a case is actually worth. We therefore welcome, at least for commercial cases, the current rethink as to whether such costs should continue to be recoverable.

Another challenge for Lord Justice Jackson's review is to ensure that any changes do not jeopardise London's success as a leading centre for international business by discouraging commercial parties from choosing to resolve their disputes in the English courts. International parties are drawn here by the quality of English justice, and in seeking to make the process less costly we must not undermine what makes it attractive to international parties.

In looking at disclosure, for instance, the preliminary report puts forward a broad list of options, ranging from limiting disclosure to the documents on which the parties rely (with the ability to seek specific disclosure of further documents) to reverting to the old "train of enquiry" test.

In our view, it would be a mistake to move to either of these extremes. It is one of the strengths of the English system that parties have to disclose adverse documents; the court is better able to get to the truth of the matter – and thereby do justice – if it sees a complete picture. Conversely, however, we would not favour a return to the very broad pre-CPR test, which seems unrealistic in the modern business world with its multitude of electronic documents.

An alternative that has been developed during the consultation phase of the review is a "menu" approach to disclosure for substantial litigation.

The proposal is that there would be no default position but, at an early stage, the solicitors for each party would provide statements identifying, in broad terms, what documents exist, where they are located, what costs could be involved in giving disclosure, and what they consider should be the scope of disclosure.

The judge would then decide on the appropriate order for disclosure. This has the benefit of ensuring that the court and the parties focus at an early stage on the extent of the disclosure required, which is often key to controlling the costs of the disclosure exercise, and would allow the court the flexibility to set the appropriate level of disclosure in any particular case.

The review is very wide-ranging and raises fundamental issues as to how our civil justice system operates. It is also very complex, given that everything is interconnected: change in one area is likely to affect other aspects, meaning that care must be taken to avoid unforeseen and unintended consequences. It will be interesting to see how Lord Justice Jackson manages to balance the various elements and interests in putting forward his recommendations.

Sonya Leydecker is head of dispute resolution and Maura McIntosh a support consultant at Herbert Smith.