The interim report in Lord Justice Jackson's year-long review of English civil litigation costs was published on 8 May. We have previously published two e-bulletins on the report: the first, sent out the day the report was published, summarised key points from the consultation which could affect the conduct of major commercial litigation; the second, dated 20 May, considered Lord Justice Jackson's proposals relating to the methods of funding litigation and the rules governing recovery of costs.
This e-bulletin considers the report's proposals relating to the management and assessment of costs, as follows:
We will shortly be publishing a further bulletin considering the sections of the interim report relating to procedural issues such as disclosure, witness statements and pre-action protocols.
1. Costs management
Lord Justice Jackson puts forward various proposals for enhanced "costs management" by the courts, for example requiring parties to file detailed costs estimates or budgets at regular intervals and providing for the court to make various types of costs management order, such as: approving a party's budget; requiring the budget to be certified by a statement of truth or belief by the legal representative; or directing that a party must give notice if costs incurred exceed the budget by 20% or more (in addition to the more draconian possibility of making a costs capping order).
He notes that it would be possible to develop these proposals by making it the norm for the court to cap the costs of each stage of the litigation process. In other words, when giving directions for disclosure, witness statements, etc, the court would specify the maximum recoverable cost of each stage (as agreed by the parties or fixed by the court after argument).
The report invites views as to whether the court should be given greater power to manage and control costs, and as to what further amendments are required to the rules to enable the court to carry out effective costs management. It notes however that, from all the indications received to date, it seems that costs management would have no place in the general run of cases in the Commercial Court.
A pilot of Lord Justice Jackson's costs management proposals commenced on 1 June in the Birmingham Technology and Construction Court (TCC) and Mercantile Court. Under the guidelines for the pilot project, parties are required to submit detailed estimates of costs at various stages, including the case management conference and with pre-trial check lists. There is also a new template for the preparation of costs estimates, which breaks down the costs into various stages (pre-action, pleadings, disclosure, etc).
The pilot guidelines provide that the judge is to take into account the costs involved in each proposed step when giving case management directions, and will (either by agreement between the parties or after hearing argument) record approval or disapproval of each side's budget for each step in the action. He may also hold regular hearings to monitor expenditure. If any party exceeds the costs previously estimated for any activity, it must notify all other parties and the court.
At the end of the case, the judge assessing costs "will have regard to the budget estimates of the receiving party and will generally approve as reasonable and proportionate any costs claimed which fall within the previously approved total".
Comment: Our principal concern with these proposals is the potential costs involved in costs management.
The report asserts that costs management should not involve the kind of expense and waste that practitioners have experienced in the exercise of cost capping, since solicitors are required to prepare cost estimates for their clients in any event. The pilot guidelines state: "It is intended that a party’s budget will be no more detailed than that which the solicitor provides to his client for the purposes of paragraph 2.03 of the Solicitors Code of Conduct 2007. Accordingly, no costs should be involved on either side in the preparation of such estimate." We do not think this is realistic in large commercial claims. The pilot procedures will require parties not only to produce detailed estimates for each stage of the litigation, but to monitor time spent on each stage against the estimates submitted. We note that whereas Lord Justice Jackson's report talked about notifying the court and opponents where a submitted budget was exceeded by 20% or more, the pilot procedures require notification whenever the costs for any activity exceed those previously estimated. This leaves no reasonable margin for error.
There is also the potential for additional costs being incurred as a result of disputes relating to the costs management process. For example, parties are likely to argue over the level at which budgets should be approved and the adequacy of explanations given where they are exceeded.
The theoretical benefit of the pilot procedures is that, if the court approves the estimates given for each stage of the case, it should obviate the need for a detailed assessment of costs at its conclusion. However, this benefit must be weighed against the additional costs of the cost management procedures. As with the front-loading of costs experienced as a result of the Woolf reforms, once again costs that might be incurred in the later stages of the action (if the dispute and/or the costs issues are not settled by agreement between the parties) are being brought forward to the earlier stages of the case.
For sophisticated parties, new costs management procedures would be likely to introduce an unnecessary (and costly) level of bureaucracy as the case progresses. We welcome the report's indication that, from initial indications, costs management would be inappropriate in most Commercial Court cases. We consider that the same principle should extend to large commercial disputes tried in other parts of the High Court. It will be interesting therefore to see what the feedback is from parties involved in the larger cases before the Birmingham TCC and Mercantile Court. (According to Lord Justice Jackson's report, most cases in the Birmingham Mercantile Court are worth about £1 million and cases of up to £4 million are not unusual.)
2. Summary assessment of costs
Summary assessment is the procedure whereby the costs of a hearing (whether interlocutory or final) are dealt with at the conclusion of that hearing by the trial (or hearing) judge. For any hearing of a day or less, to assist the court in making a summary assessment, each party intending to claim costs must file and serve a written statement of its costs in advance of the hearing.
Lord Justice Jackson notes the benefits of summary assessment as including greater speed, cost savings, and discouraging tactical meritless interim applications. Drawbacks include being arbitrary, rushed and inconsistent. There is also a view that summary assessment increases costs, due to the preparation required.
The report sets out various options, including replacing summary assessment with provisions encouraging judges to order an interim payment on account of costs, or a provisional assessment of costs which would then become final unless either party applied for detailed assessment. The report also recognises the possibility that no change is required, stating that "it is not the function of this review to make change for change's sake".
Comment: Due to the difficulties with the detailed assessment process (see below), we see benefit in the wider use of summary assessment. One option might be to introduce summary assessment in all cases, with a residual discretion for the judge to order a detailed assessment if there were special circumstances. There may also be merit in the proposal of a provisional assessment which would then become final unless either party applied for detailed assessment. These proposals would mean that, in most cases, the significant (and generally disproportionate) costs of the detailed assessment process could be avoided.
A further advantage is that the trial judge is generally in the best position to take a view on the staffing of a matter and the time spent on particular tasks. We consider however that the judiciary should receive further training on the assessment of costs. At present, where costs are summarily assessed, this does not always receive the time and attention it deserves. There is a perception that judges are inconsistent in their approach and generally award less than if the matter went to detailed assessment. These problems might be alleviated to some extent if the judge were to sit with a costs judge for the purposes of the assessment.
3. Detailed assessment of costs
Detailed assessment is the process by which the court decides the amount of costs payable by one party to another in litigation, generally after the case concludes. The procedure is, as the name suggests, very detailed, involving a close examination of every minute spent on a case.
Lord Justice Jackson puts forward various options for reform, which include: introducing a new bill format to present the relevant information more clearly and transparently than the format currently used; a compulsory offer procedure, whereby the paying party would have to make an offer in respect of the costs at the same time as disputing an opponent's costs; and introducing an "intermediate procedure", which takes a more broad-brush approach to assessing costs than the detailed assessment system but which applies more broadly than the current summary assessment procedure.
Comment: We consider that the current detailed assessment process generates disproportionate costs. It is not cost effective in most cases to take a matter to detailed assessment. As well as looking at measures to broaden the use of summary assessment, we would also support efforts to streamline the detailed assessment process including developing an improved bill format.
4. Court fees
Lord Justice Jackson expresses disagreement with the Ministry of Justice's current policy of "full-cost pricing" (whereby litigants pay for the court service they receive). He suggests that it is wrong in principle that the entire cost or most of the cost of the civil justice system should be shifted from taxpayers to litigants.
The report refers to a common theme in the submissions received by Lord Justice Jackson that the concept of full-cost pricing is fundamentally wrong. There is a strong view that it is the function of the state to provide and fund the machinery for dispute resolution. Lord Justice Jackson says that he sees considerable force in these submissions. The civil courts play a vital role in the maintenance of social order and the functioning of the economy. The maintenance of the civil justice system and the proper resourcing of the courts is the function of the state.
Comment: We endorse Lord Justice Jackson's comments and hope that they will lead the government to reconsider its policy of full-cost pricing. We consider that the government's current policy, and in particular the possibility which remains under consideration of introducing daily trial fees in larger civil cases, risk making the English court a less attractive forum for resolution of international commercial disputes.