The success of Lord Jackson's reforms will largely depend on how the judiciary interprets them, says Tim Hardy

With only weeks to go before the implementation of Lord Jackson's proposals for reforming the costs in civil litigation to make litigation cheaper and more accessible, it is regrettable that there is still a great deal of uncertainty as to how the reforms will work in practice. 

The reforms are principally focused on dismantling the conditional fee agreement (CFA) regime to address the perceived unfairness of exorbitant success fees and after the event (ATE) premiums in personal injury and small claims.

However, the reforms will affect all multi-track cases in the Queen's Bench and Chancery Divisions (except for the Admiralty and Commercial courts). 

Key regulations necessary to implement the reforms were only published at the end of January.

These were the Damages-Based Agreements Regulations 2013, which introduce contingency fees through new damages-based agreements (DBAs); the Conditional Fee Agreements Order 2013, which ends the recoverability from the opposing party of any uplift in a CFA; and the Offers to Settle in Civil Proceedings Order 2013, which introduces new sanctions for failing to beat a Part 36 Offer. 

We are still waiting to see the draft regulations to end recoverability of ATE premiums and, most critically, we are still waiting for the publication of the final version of the Civil Procedure Amendment Rules, which will introduce rigid costs budgeting to be policed by the judiciary with new powers to control costs. 

Drafting all of these changes is a huge undertaking and it is clear that insufficient time was provided for to allow publication well in advance of implementation. This may lead to a spike in satellite litigation while the litigators work out how the new regime is to work in practice.

Commercial litigation practices have been particularly anxious to see the regulations on DBAs to work out if, and how, they can be used to replace hybrid CFAs, which have become increasingly popular in the last few years.

Contrary to earlier statements as to the intent of the regulations by members of the consultative committee who assisted with drafting them, a strict interpretation of the wording suggests that a hybrid DBA would be unenforceable.

The argument is whether the regulations provide that DBAs will work only if they truly comply with the principle of 'no win, no fee'.

This will be hotly debated over coming weeks and it is unfortunate that this was not spotted before the draft regulations were laid before Parliament, as it is probably too late to amend the regulations without causing a significant delay to the planned implementation by 1 April.

It seems the correct interpretation will have to be decided through the courts and, in the meantime, commercial law firms are going to be very wary about using these new devices.

Although the reforms have been heralded as affecting all litigation – even the largest commercial disputes – the latest draft court rules provide that the new rules on 'costs management' will not apply to cases in the Admiralty and Commercial courts.

Presumably, this is because the Commercial Court has developed its own practices for controlling costs and parties before it do not need the protection that other less experienced and/or wealthy litigants deserve.

It seems inevitable that this will make the Commercial Court more attractive to claimants trying to avoid the onerous nature of the new costs rules.

If a commercial claim has to be brought in the Queen's Bench or Chancery Division, or ends up there having been thrown out of the Commercial Court, the new rules for costs management will impose onerous obligations on all parties to give very detailed estimates in a prescribed form containing a breakdown of all the costs for each stage of the case from issue to judgment. 

Large commercial litigation practices have been providing detailed estimates and budgets for clients for many years so they already have plenty of experience and systems, which can be adapted to comply with the rules.

But disclosing the information in the level of detail now required is entirely new and will inevitably result in new and varied strategies to challenge and/or disadvantage an opponent through the new rules.

This is capable of diverting a large amount of judicial time away from trying cases and busy judges may not have the time, or inclination, to give careful consideration to the huge amount of detail in the prescribed form of costs estimates. 

Some judges will doubtless take these new rules extremely seriously and use sanctions to enforce strict compliance.

The judges will have significant powers to control the amount of costs that can be recovered and the Master of the Rolls is imploring them to apply costs sanctions rigorously to enforce compliance.

However, the Court of Appeal's recent decision on a costs estimating scheme in libel actions could have a major impact on the extent to which these types of sanctions can be used.

The Defamation Proceedings Costs Management Scheme requires the litigants in libel actions to exchange detailed costs budgets and to liaise monthly to keep them updated.

In Sylvia Henry v News Group Newspapers Ltd [2012], the case settled on terms that the defendant would pay the claimant's costs to be assessed if not agreed.

The parties did not agree and, on a detailed assessment, Senior Costs Judge Hurst applied the rules strictly, holding that the claimant's recovery would be limited to the amount of the initial estimate (which had not been updated), despite the fact that the costs overrun was largely due to the claimant having to respond to the defendant's litigation strategy.

However, the Court of Appeal overruled this, deciding that a more pragmatic approach should be taken to costs estimates, further ruling that a party could recover more if there were "good reasons" for exceeding the initial estimate.

The Court of Appeal did seek to distinguish the defamation costs scheme from the anticipated new costs budgeting rules, which it acknowledged may require more draconian enforcement. But it is bound to be a powerful persuasive authority for a pragmatic approach over draconian enforcement.

The impact of the reforms will be felt immediately after 1 April, but their success will not be measurable for several years.

Inevitably, there will be considerable satellite litigation around interpretation of the numerous rules and regulations as litigators test their limits.

The reforms have the potential to increase costs rather than reduce them, so their success will largely depend on the manner in which the judiciary implement them.

Tim Hardy is head of litigation at CMS Cameron McKenna.