Over the last year or so, we have posted a number of pieces about costs management. Initially we looked at the extension of the Birmingham costs pilot into all TCC and Mercantile Courts and, subsequently, sought to encourage practitioners to take part in the survey that was reporting on the extended pilot. Michael Mendelblat also drew parallels with the pilot running in defamation actions, and cautioned parties about the need to maintain up-to-date budgets during that pilot.
As the date for the “big bang” of the Jackson LJ reforms looms closer and the current costs management pilot is set to continue until the end of March 2013, we thought it was time to consider what is next for costs management.
Fifteenth and sixteenth lectures in the implementation programme
Back in May 2012, Lord Neuberger, Master of the Rolls, and Ramsey J gave the fifteenth and sixteenth lectures in the implementation programme for the Jackson LJ reforms. Lord Neuberger spoke on the subject of proportionate costs, Ramsey J on costs management.
As Lord Neuberger explained, “proportionality underpins both costs management, and the court’s approach to litigation costs generally”. In essence, this is likely to mean an end to litigator’s being able to argue that costs incurred were necessary, even if they were not proportionate to the sums in dispute. As Lord Neuburger said, “necessity does not render costs proportionate”. Instead, the focus will be on the reasonableness of the work done and a new CPR Part 44.4(5) will be introduced, defining proportionality by reference to reasonableness in the context of factors such as:
- The sum in issue.
- The complexity of the litigation.
- The paying party’s conduct in creating additional work.
- Wider factors, like reputation or public importance.
Proportionality will operate throughtout the life of a piece of litigation, from before the claim form is issued to the assessment of costs. The aim is for the courts to use their new costs management powers, as well as their existing case management powers, to ensure that litigation is managed properly and that all steps taken “can be achieved at proportionate cost”. If that cannot be achieved, a party may have to consider whether it proceeds, knowing that it bears the risk of the costs of that step, irrespective of the outcome of the litigation.
This probably all sounds frightening, and it seems that may be the intention. Jackson LJ identified a need for a cultural shift in litigation. Proportionality and costs management is one way to achieve that. As Lord Neuburger said:
“it should focus the minds of all involved on the need to consider the costs and benefits of each step proposed to be taken”.
Ramsey J’s paper is essential reading for any practitioner likely to be affected by costs management. Rather than setting out selected highlights here, we recommend you read it for yourself. Ramsey J explains himself clearly and cogently.
The new draft rules on costs management are attached to his paper. In essence, the courts will encourage the parties to exchange costs budgets and greater reliance will be placed on them. Costs management will be the tool that is used to ensure litigation becomes proportionate.
For practitioners who have taken part in the TCC pilot, the new rules will be familiar (although shorter). However, there will be another Precedent H to get used to. It is also notable that in the draft practice direction, in situations where the court does not make a costs management order (CMO) (and it has discretion as to whether it makes a CMO or not), there is a right for the court to restrict recoverable costs if there is a difference of more than 20% between a party’s last budget and the costs claimed. In addition, that party will have to explain the difference and, if no reasonable explanation is provided, those costs will be considered unreasonable or disproportionate.
If nothing else, this factor alone should encourage parties to keep their budgets and their opponent up-to-date with costs!
“Big bang” is schedule for April 2013. Only time will tell how parties and the courts deal in practice with costs management and get to grips with proportionality, along with all the other big bang changes. Whatever happens, it looks like litigation as we know it will be revolutionised forever (or until the next set of reforms).
The success of this round of reforms lies with the parties themselves, although it has to be recognised that the courts will also play an important role and, at least as far as costs management is concerned, must make consistent decisions so the whole system is not undermined. As Ramsey J concluded:
“The pilot schemes have shown that [costs management] is a new disclipline which can and is being learnt. With proper training, solicitors, barristers, barristers’ clerks and judges can each play an important role in the management of the costs of litigation”.