It seems not a month goes by without a new development emerging in the rules on costs. In May we reported on the publication of new draft rules for the extended fixed recoverable costs regime. This has been quickly followed by the Civil Justice Council Working Party on costs reform publishing its final costs review report.

The Working Party was charged with considering, amongst other things, the current approach to costs budgeting and the guideline hourly rates. The Working Party has not suggested any major changes to current practice, but it has made a number of recommendations for reform aimed at addressing concerns expressed by practitioners about the current regimes.

Key recommendations by the Working Party

  • Cost budgeting should be retained but work is required to create a more tailored approach that matches the budgeting process to the nature of the dispute. Some would say this should have been the approach from the start. Pilot schemes are recommended to assess a "lighter" approach for some cases. This includes cases in the Property and Business Courts. Further recommendations are to follow, including in relation to the simplification of the Precedent T process, potential penalties for non-compliance with the budget timetable, and the approach in the budgeting process to hourly rates and pre-action/incurred costs.
  • Guideline hourly rates provide a useful function and should be retained but they need to be updated. It is recommended (a) that they are updated annually and properly reflect the legal services market by reference to a suitable annual index; and (b) that a more detailed review is carried out in five years and then regularly at five yearly intervals. In what is likely to be welcome news across the City, the report recommends that a new band for complex, high value, commercial work, in London or elsewhere, should be created, with appropriate rates sitting above existing rates. A clear test for when departure from guideline hourly rates is appropriate is also recommended and, for the first time, it is also suggested that counsel fees be considered for assessment by reference to a guideline hourly rate.
  • The distinction between contentious/non-contentious costs and pre-action costs should be abandoned. Of particular interest to commercial cases is the recommendation that consideration be given to effecting a rule change so that certain claims are deemed to be issued when parties engage in pre-action conduct further to a Pre-Action Protocol. In making this recommendation however the Working Party does recognise that a balance must be struck: parties should be encouraged to engage in meaningful pre-action correspondence to resolve disputes, rather than heading straight to proceedings to maximise costs entitlement, but not discouraged by a pre-action space more akin to court litigation.

It seems to us that the Working Party has made a number of positive recommendations which, if adopted, should help to bridge the current gap between the mechanics of the costs regime and the realities of running complex, high value litigation.