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Costs management by the courts is here to stay

There may have been some dissenters when cost management initially came to the fore during Jackson LJ’s far-reaching civil litigation costs review, but the majority view now seems to be that cost management through the courts is to be welcomed. After all, cost uncertainty and the fear of unmanageable costs represent some of the biggest concerns for clients who are involved in litigation.

Therefore, it came as no surprise when the Civil Procedure Rule Committee (CPRC) announced that the Birmingham cost management pilot was being extended to all TCC and Mercantile Courts from October 2011. If anything, the surprise was that:

  • There was to be another pilot.
  • It was limited to the TCC and Mercantile Courts.

On reflection though, I think this cautious approach may be best (and Jackson LJ also thinks it is premature to make cost management permanent across all courts).

Now that we accept that cost management is a necessary part of litigation it is too important to risk getting it wrong. We need to learn from our experiences and put in place a mandatory system that applies across all courts for all multi-track actions. Differing approaches to cost management by different courts should not become a factor in a party choosing where to issue proceedings.

Goodbye to precedent form H

For parties not “volunteering” as part of the Birmingham pilot, up to now cost management in the TCC has consisted of two small boxes at Part G of the case management information sheet. These ask us to give our estimates of costs incurred to date and likely overall costs. For “substantial cases”, we are directed to CPR Part 43 and we should complete the woefully inadequate precedent form H which, in my experience, is rarely completed and doesn’t come close to offering a useful cost budgeting tool for complex, high value litigation.

We are told the Birmingham pilot has been a success, though data to support that conclusion appears elusive, and I would certainly agree that the spreadsheet used in the pilot (which is now precedent form HB attached to draft PD 51F) is a vast improvement on what we currently have. But will what is offered in draft PD 51F and form HB give our clients what they need?

Costs management will be compulsory during the pilot

The main criticism of the Birmingham pilot was that it was voluntary. Those wishing to rack up costs could avoid it. But not so with the new pilot, so this will be an improvement.

Differences from the Birmingham pilot

Draft PD 51F differs in some respects from the guidelines for the Birmingham pilot and, without proper data from that pilot, it is difficult to understand the basis for these changes.

The Birmingham pilot made it clear that parties were expected to submit their detailed budgets at all CMCs and the PTR, whereas draft PD 51F suggests that the requirement to submit the budget applies just to the first CMC. Only if a Costs Management Order (CMO) is made (paragraph 4.3), will the parties be required to revise and update their budget (paragraph 6). This raises a number of issues:

When will a CMO be made? It is not clear in what cases a CMO will be made. Draft PD 51F does not provide any criteria to determine whether a CMO is appropriate (paragraph 4.3 simply refers to the court deciding to make a CMO).

This is unfortunate as it creates a real risk that how costs are dealt with may depend more on which judge is assigned to your case, rather than on the case itself. As we know from summary assessments of costs, some judges are more adept and/or willing to turn their attention to costs than others. Judicial training will help but clearer provisions may offer a better solution.

Status of a cost budget. What is the status of a cost budget that is filed where a CMO is not made? Paragraph 8 refers only to courts having regard to “approved budgets” when assessing costs at a later date. Will a party be held to its cost budget where no CMO is made and if not, why not?

Uncertainty. Uncertainty over the making of a CMO may lead to uncertainty in other areas. For instance, there may be little incentive for a party to revise its cost budget unless there is a CMO (paragraph 6). Equally, draft PD 51F suggests the court will only monitor expenditure via subsequent cost management hearings if there is a CMO (paragraph 4.4). What happens to cost management when it doesn’t?

Other problems?

From May 2011 the JSB is “offering” judicial training on costs. This is a good thing. Jackson LJ himself saw great value in the sessions he had learning about cost budgeting. It is hoped that the JSB training is similarly practice-based. However, I do not understand why this training is being “offered” rather than being made mandatory. To operate cost management properly all judges need to have a full understanding of cost budgeting and the cost implications of the case management directions they give.

Various commentators have expressed concerns about the risk of disclosing confidential information, or parties using tactical budgeting. Through ongoing experience and strong judicial intervention in managing the process, I do not consider that such problems will outweigh the benefits to the parties of transparent and proactive cost management. Our clients operate in a world of major construction projects where project management and cost control is a fundamental part of the process. They are entitled to expect their solicitors to put the equivalent effective cost control mechanisms in place when running their litigation for them. Surely a court led cost management process will help to ensure that this is done.

The future?

We can only hope that, as part of the ongoing monitoring of this new pilot, we can benefit from some published data. When developing best practice it would be useful to see the impact the new requirements have on court time, the time and costs spent by solicitors in producing cost budgets and the extent to which parties seek the services of external costs consultants to produce the requisite information.

7 thoughts on “Costs management by the courts is here to stay

  1. Claire, you say that ‘precedent form H’ is woefully inadequate and I’d be interested to see what additional information you think it should contain.

    For my part, it goes way too far in one major respect at least: from an opposing party’s perspective and indeed from the court’s, there is no purpose in showing the breakdown of solicitors’ time between fee earners of various levels. What’s important is the overall figure – how it’s divided internally is no one’s concern but the management of that firm.

    Likewise, the form continues the arbitrary distinction between solicitors and counsel, whereas in many firms there are in-house counsel and solicitor advocates. In other cases, a single solicitor at a relatively low rate will manage a case using a top QC. We should be directed more to the overall spend figure without fussing too much how it’s broken down.

    Another dimension to the question of budgeting which this form – and indeed summary assessment of costs in general – fails to grapple with is ‘success fees’ for solicitors and counsel acting under CFAs.

    Also, a prior announcement is urgently needed so that parties in cases with CMCs coming up from 1 October can start discussing their costs budgets in good time during August and September. Otherwise it will go off at half-cock initially.

    I welcome the initiative but it is over-long in one way while coming up short in others.

  2. Many thanks for your comment. I certainly agree the new system may not be perfect and there will most definitely be teething troubles, hence my view that a further pilot at this stage is the right course. I agree with you there remain important aspects that need to be grappled with, such as CFAs, although this in itself is an area of future uncertainty.

    My view though remains that we are ready for a form of cost management by the courts that is as transparent as possible. This will best serve the parties, both in the litigation for which the cost estimate is filed, and also parties to future litigation: it will better inform the courts as to the true cost implications of case management steps/directions. I think this is best done by a form that is intuitive in terms of the way it is set out, its functionality and its level of detail.

    My main criticisms of form H, which are shared by colleagues, is that it is not user friendly. For a start it is word based rather than in a workable excel format more suited to costs estimating. I do not find it intuitive in terms of the way it is set out and find form HB much better aligned to the stages of litigation. I think we only really understand the true costs of the various stages of litigation by analysing data which is broken down into “who does what” and that an overall costs figure will not educate us (or our clients) in the same way.

  3. The extended pilot will be monitored by Mr Nicholas Gould, partner at Fenwick Elliott LLP, in his capacity as a Senior Visiting Lecturer at King’s College, London.

    Anyone wishing to share their experiences of the pilot after 1 October 2011, may send their feedback (in addition to the completed questionnaire the TCC is providing as part of the pilot) to nicholas.gould@kcl.ac.uk.

  4. To allow practitioners time to familiarise themselves with the new rules and to prepare for the changes ahead, details about the new costs management regime and proportionality test, due to be introduced in April 2013, were released at a Law Society seminar on 29 May 2012 (see Legal update, A revolution in litigation practice: details of the costs management rules taking effect in April 2013).

    Ramsey J’s speech (annexing the new rules and Precedent H) can be accessed on the Judiciary website.

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