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Is cost management by the courts working?

Cost management in the courts has been around now for some time. In the TCC, we have had extended pilots dating back to 2010 and, since April 2013, the new provisions courtesy of section II of CPR Part 3 and PD 3E have been in place.

With this backdrop, I am often being asked whether I think cost management is working.

The message from Mitchell

The purist’s answer to the question of whether costs management is working must be yes. Taking into account the Court of Appeal’s tough stance in Mitchell v NGN Ltd and Coulson J’s robust approach in Elvanite Full Circle Ltd v AMEC Earth & Environmental (UK) Ltd, the message to parties is clear: ignore cost budgeting at your peril.

Coupled with the new rules on relief from sanctions in CPR Part 3.9 (which emphasises the need “to enforce compliance with rules, practice directions and orders”), the requirement to file precedent H (unless you fall within the £2 million exemption) is forcing practitioners to address and estimate their costs at a very early stage (at least seven days before the first CMC).

So is it working?

We know that cost budgeting is happening but that is only half the story. The real issue is whether it is actually working. Is the mandatory requirement for parties to produce detailed cost budgets at the outset of their litigation serving the purpose for which it was intended? Are parties benefiting from the use of precedent H budgets?

Initially, I regarded myself as a supporter of cost management. Indeed I think the decisiveness and clarity of the Mitchell judgment is a good thing. Parties and their advisers need certainty and consistency in the application and enforcement of all of the Jackson reforms and cost budgeting is no exception to that.

The problem is that, even with its confirmation that a failure to provide a cost budget will not be tolerated, the Court of Appeal has not grappled with the other substantive issues that seem to be adding force to the growing voice of dissent amongst practitioners:

  • There is a complete lack of consensus at judicial level on the extent to which cost budgeting should apply across all High Court litigation.
  • Whether judges are properly able to assess cost budgets, both in terms of having sufficient relevant experience and enough available court time in which to do so.
  • Whether active cost management of this nature will actually make the costs of civil litigation more proportionate.

To explore each of these issues in any sort of detail is clearly beyond a blog post of this nature, but I offer some thoughts on why I may be falling into the dissenter’s camp.

Lack of consensus

Despite the CPRC publishing its consultation on the exemptions in June, with the appointed subcommittee due to report back in October, we are yet to hear the judiciary’s considered view on how cost management should operate across each of the High Court divisions so as to achieve parity, prevent forum shopping and deliver civil litigation at “proportionate cost”. Rumours abound that the reason for this delay is that there really is no common view as to the role cost budgeting should play.

This level of uncertainty and disagreement has the potential to undermine court users’ confidence in the judicial system. Worse still, it could manifest itself in an inconsistent application of the rules during the case management process, not just across the specialist courts but within them. This leads me on to my next point.

Are the judges able to manage costs effectively?

In its response to the consultation, TeCSA was strongly of the view that judges do not have the necessary experience to assess costs and solicitors lacked confidence in their ability to do so. Solicitors want “judges to judge cases and continue to produce first class judgments” and to leave the question of costs to solicitors who are best placed to advise their clients.

I was reminded of the TeCSA stance when I read the judgment in Willis v MRJ Rundell & Associates Ltd. This case illustrates the inevitable difficulties involved in working out what level of costs is proportionate in a relatively low value (approximately £1.1 million) defects claim:

  • Despite acknowledging that three different expert disciplines were required, Coulson J expressed the view that the experts’ costs should be half the amount the claimant suggested. On what basis, other than the value of the claim, was he making that assessment?
  • In addition, he complained that there was a complete absence of alternative figures that he might use for a reduced, approved budget. The reason for this was that both parties had assessed costs to be of a very similar magnitude (that is, they were largely in agreement as to what the costs of running the case would be).

This leaves us with the situation that, while it may be that the solicitors are best placed to know how much the case will cost to run, it is the job of the judge to then advise that it is not commercially sensible to continue with the case as the costs are disproportionate to the sums in dispute and so will not be recoverable from the other side.

Do judges have the time?

Even assuming judges do have the necessary experience, do they really have the time? One can already point to cases which suggest that lack of court time may result in the courts taking an inconsistent approach when a party fails to update its budget.

In National Museums and Galleries On Merseyside (Trustees of) v AEW Architects and Designers Ltd, Akenhead J seemed to distinguish Coulson J’s judgment in Elvanite v AMEC for reasons that were based largely on the fact that he, as judge, and the parties before him, overlooked the need to revisit the approved budgets because they were too busy and pushed for time at the PTR hearing.

While there are differences between the two cases, it seems a somewhat unsatisfactory position that the parties and the judge might simply not get round to cost budgeting at the PTR, leaving complete uncertainly as to the status of the previously approved budget.

More proportionate costs?

This really is a difficult one:

  • TeCSA’s view in its response to the consultation was that for a typical but hypothetical construction dispute cost budgeting will add to the costs. In the example given an increase of about 2% was suggested. TeCSA suggests that given costs are only seriously contested in a few cases, the savings from these rare cases would not outweigh the extra costs of budgeting for all cases.
  • Anecdotal evidence continues to suggest that CMC hearings are getting longer or additional hearings are being held, in order for cost budgets to be dealt with. This is on top of the time spent by parties and their advisers wrestling with the detail of precedent H at a stage in the litigation where it is often felt that any meaningful assessment cannot be made and significant adjustments will be required later in any event.
  • Cost management only relates to recoverable costs. It remains open to parties to continue to run litigation as before so that their legal spend will not be reduced, but they will be left unable to recover certain costs from the other side.

There is also the ongoing debate as to whether we will see an increase in satellite litigation and a lack of cooperation between parties. Despite the Court of Appeal’s view in Mitchell that its clear message will deter such behaviour, considerable commentary has followed suggesting that the impact will be an increase in court applications (resulting in additional overall litigation costs) and rafts of professional negligence claims, which will leave parties having to start over again.

Where does this leave us?

It is unsatisfactory that, over three years after the first TCC cost management pilot was introduced, there is still this level of uncertainly as to how costs will be “managed” in the sort of disputes our clients may face. It has the potential to paint the TCC in an unfavourable light. This is incredibly frustrating given that, in so many areas, the TCC is leading the way as the forum for resolving construction disputes.

There seems to be a genuine question mark over whether this form of cost budgeting will result in more proportionate civil litigation costs. However, all we can do at this stage is to continue to work closely with our clients, adhering strictly to the rules as they currently stand and see what happens.

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