From 1st October the Technology and Construction Court ("TCC ") will have new powers to control legal costs in construction and other complex cases. A pilot scheme will allow the court to make costs management orders, the effect of which will be to approve parties' costs budgets. At the end of the case, costs awarded to a successful party will be in accordance with the budget unless there is good reason to depart from it.

The courts do have some more limited powers at present to control costs. Estimates are routinely filed at the first case management conference when the court gives directions as to how a matter is to proceed. At present, the estimate has no binding status at the end of the case when detailed assessment of the costs takes place. The court may, however, have regard to the estimate at the detailed assessment; in particular, if there is a 20% difference between the costs claimed and the estimate the court may regard that as evidence that the costs claimed are unreasonable or disproportionate. The court is more likely to reach this conclusion if there is no reasonable explanation for the discrepancy or it is shown that the paying party relied on the estimate in conducting its own case.

The court also has power to order a cap on costs but can only do so in a limited range of circumstances, in particular when the risk of incurring higher costs cannot adequately be controlled by the court's directions or detailed assessment. The effect is that a party cannot recover costs from other parties beyond the cap unless a change in circumstances or some other compelling reason is shown.

The pilot scheme has been adopted following the recommendations of Lord Justice Jackson in his report on costs issues published in early 2010 and a voluntary pilot in the Birmingham TCC and Mercantile Court. In the first place, the pilot scheme adopts a similar approach to the current position and requires a costs budget to be filed for the first case management conference. However, the information for the budget is more detailed than that previously required. The court can either proceed as under the present provisions or it can make a costs management order ("CMO").

If the court is to make a CMO (and it can do so at any hearing in the matter) it must decide whether it is appropriate to do so and can then revise the budget to a figure which it approves. Approval relates only to future costs but the court can comment on and take into account past costs in giving its approval. The court can also order attendance at a future hearing (or hearings) to monitor expenditure.

Once the CMO has been made (and initial indications are that it will be routine in most cases) any party which wishes to revise its budget must apply to the court for this purpose with reasons and the court may approve or disapprove revisions. If one party considers that the other party is acting oppressively in seeking to cause that party to spend money disproportionately on costs, it can apply to the court.

The effect of the CMO is that when assessing costs the court has regard to the receiving party's last approved budget and will not depart from it unless satisfied that there is a good reason to do so. It would appear that this has a similar effect to a cost capping order. The result may be that, effectively, a cost cap is routinely imposed in most cases.  

It is likely that the results of the pilot (in operation from 1st October) will be closely monitored by the Ministry of Justice and other interested parties. The pilot may be a precursor to implementation on a wider basis. For the present, it applies to all cases in the Technology and Construction Court (where almost all High Court construction cases are heard) and Mercantile (business) courts in England and Wales.