In April 2013 changes to the Court rules came into effect. They are intended to reduce litigation costs.
The end to recovery of after the event insurance premiums and success fees and the introduction of damages based agreements (where a solicitor can receive a percentage of the damages recovered by a client) are significant shifts. However, these are unlikely to effect the majority of litigants compared to other changes.
Which party do the changes assist most?
The immediate reaction would be to say agents, distributors, and franchisees as invariably these are the parties with less resources. However, a more limited costs recovery cuts both ways and only time will tell if this alone encourages parties to settle their disputes at an earlier stage.
As a part of its reforms the Court had in its sights the aspects of the litigation process where the majority of costs are incurred, being disclosure and expert evidence.
Disclosure is the part of the process where each party produces the documents on which it relies as well as those which negatively impact their cases. While the search was limited to being reasonable and proportionate, particularly with the introduction of electronic disclosure, the extent of the search which had to be undertaken and the number of documents located even with keywords to narrow results had expanded considerably with all the associated costs implications.
The new rules seek to change this. Both parties have to put forward the search that they intend to undertake, by categories of documents and the locations that they intend to search. Parties are encouraged to agree the scope and any objections or expansions to proposals will have to be considered carefully as to the extent they increase costs – unless the documents located are useful then that party could end up bearing those costs.
In practice the disclosure process has generally been more onerous for the principal, supplier, and franchisor – they have more locations and more things to search. So ultimately this change is on balance likely to be of greater assistance to principal, supplier, and franchisor who will generally be bigger and confronted by a time consuming disclosure task might have looked to settle.
Again, the Court has sought to cut back the costs of expert evidence. Judges have observed in the past that parties feel that they must have an expert rather than whether they genuinely need one – and if one party has an expert then the other must also. However, this restriction is unlikely to remove experts from agency cases. They first came to the fore in Lonsdale v Howard & Hallam when the assessment of post-termination compensation was linked to the value a hypothetical third party would pay for the business of the agency. While the House of Lords thought this “value” could be agreed between the parties, this has not happened in any reported cases to date.
Ultimately, the effect of the changes could lead to the use of single joint experts rather than experts for each side. Again, while difficult to assess this change may impact agents, distributors, and franchisees more than principals, suppliers, and franchisors – although it would manage the expectations of the parties. Both parties can be guilty of using unrealistically low and high assumptions which results in compromise being harder.
The biggest impact of the new rules is likely to be in relation to costs recovery. Previously, parties could recover costs reasonably incurred and reasonable in amount. The new rules add in an extra requirement being that these costs are also proportionate.
What does this mean in practice?
Hard to say but a best guess is that where in the past parties have expected recoveries of around 66% this could be reduced to 50%. Not so bad if a party can absorb the rest of the irrecoverable costs with damages but particularly for a defendant principal, supplier, or franchisor with no Counterclaim the changes are likely to bite deep. Claimant agents, distributors, and franchisees may be able to cushion this to a certain extent by taking advantage of changes to the Part 36 rules where if the offer is beaten the Claimant will be entitled to an extra 10% payment on top of the damages awarded.
Therefore, overall while at an early stage it appears that the effect of the changes will be that no one really wins, which was probably not their aim!
Rachel Cook is an associate in the agentlaw team
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