Cheap and cheerful

'We don't want satellite litigation over costs in this court and we won't allow more than one hour for assessment hearings. Settle as much as you can before coming here.'

This was the judicial welcome for the parties at a recent county court appointment. A three-hour time estimate had been agreed by the parties. We were listed for one hour at noon. We finished at 4.15pm. Is this howJackson is to be implemented, through the back door?

Before April 1999, there was a major incentive for parties to litigation to settle the resulting costs claim by negotiation or mediation. Referring the matter to court for adjudication attracted a 'taxing fee' of 7.5 per cent of the total value of the bill, half of which was paid in advance when the papers were lodged.

The Civil Procedure Rules, surprisingly, abolished this lucrative source of revenue and replaced it with a flat fee '“ originally £160, subsequently £600. Suddenly, bills in seven-figure amounts, which would have attracted an additional payment in excess of £75,000 to have a court assessment, could go through the process for a nominal sum and a sharp increase in the number of assessments resulted. Costs judges were again fully occupied and a return to higher fees was inevitable.

These fees were revised again in 2008, when a sliding scale was introduced which rises as the claimed figure increases. Although the new fees are moderate compared with the pre-CPR rates (the top rate is now £5,000 on bills over £500,000) there are still costs risks attached to fighting the process through to the end.

Party warfare

The benefits of alternative dispute resolution in litigation generally are well known. The difficult part is actually persuading both parties to agree that mediation is a good idea in the first place. With a legal system still geared to a combative approach, disputes can become very personal and the parties entrenched. Nowhere is this still the case more than in disputes over costs.

In a speech in 2003, Lord Phillips, then Master of the Rolls, referred to 'warfare between claimant and defence interests' as a result of costs-only proceedings, which led to the courts 'not only being clogged with this completely unproductive and expensive satellite litigation but the conciliatory approach to dispute resolution, which the Woolf reforms sought to engender, was being poisoned'.

The process of assessment of costs of the litigation is, of course, still part of the solicitor/client retainer and therefore still covered by references to 'mediation in litigation'. In rather the same way that an amicable divorce can turn sour when claims on the money begin, so the post-action nit-picking over costs provides an ideal breeding ground for Lord Phillips' 'warfare' scenario.

Success or failure on costs assessment can be easily identified. A starting figure is quantified. Both sides can make settlement offers under CPR part 47.19 and the 'winner' is the party who makes the most accurate guess. The court then has discretion over payment of the costs of the assessment process. Included among the revisions to the costs rules proposed in the report by Lord Justice Jackson is an attempt to bring costs proceedings within the remit of CPR part 36. This means that, theoretically at least, costs judges could penalise unreasonable failed settlement offers by ordering costs on the indemnity basis and adding punitive interest. A client knowing in advance of these additional risks at the end of litigation is likely to be amenable to the cheaper alternative of costs mediation.

Soaring costs

Both parties can incur considerable expense in pursuing the assessment option. A costs draftsman preparing a detailed bill of costs is likely to charge between £120 and £170 per hour, or perhaps six per cent of the profit costs as drawn. The paying party has to prepare Points of Dispute and the receiving party has the right to reply. Again, these are documents usually requiring the expert assistance of a costs draftsman. This is another area targeted by Jackson LJ for improvement but, for now, this represents another considerable extra expense. Up to this point, no documents have been lodged in court so no court fees have been incurred but, once the request for detailed assessment is made, the full fee is payable. This would be a good time for the client to ponder the next step.

Once these documents have been exchanged, the genuine areas of complaint in the bill of costs are usually quite obvious to both sides so a platform exists for negotiation. This is recognised in the Jackson report by a proposal that the paying party must make a settlement offer when serving Points of Dispute. Presenting those opposing views before an experienced mediator, both in joint sessions and private caucus, would give both sides a view into the strengths and weaknesses on each side of the coin and, by sidestepping the normal adversarial approach, should ease the way to settlement.

Judicial support

One common theme running through judicial pronouncements in support of mediation is that there has to be a good reason to refuse. In Painting v University of Oxford [2005] EWCA Civ 161, it was the claimant who attracted the court's disapproval for refusing to respond to settlement proposals. On appeal, Longmore LJ stated that such conduct 'would not have mattered in pre-CPR days but now matters very much.

A claimant who makes no attempt to negotiate can expect'¦ the courts to take that into account when making the appropriate order as to costs.'

More recently, Ward LJ (a very enthusiastic supporter of mediation) said, in Ezsias v Welsh Ministers [2008] EWCA Civ 874, that mediation in that particular case would 'save the Court of Appeal a great deal of work so I encourage it heartily and I add the usual direction to an order of this kind that the order note that mediation is urged upon these parties'.

Those comments can apply equally to assessment proceedings, and certainly will do so if Sir Rupert Jackson's dream of drastically reducing the costs of civil litigation ever becomes reality.

Solicitor v client

Whether or not mediation turns out to be the way forward for solving costs disputes, there is one area which carries enough risk of additional expense following an assessment as to make it almost a necessity: disputes between a solicitor and his own client.

Although the court fee for requesting a Solicitors Act detailed assessment of costs is the same as for other costs proceedings, there is a sting in the tail of the Act. If the client succeeds in achieving a reduction of 20 per cent or more in the solicitor's bill the solicitor pays the client's costs of the assessment process. If the client fails in that aim, the solicitor's costs of the action will have to be added to the assessed amount and the subsequent costs certificate can be used as the basis for entry of judgment.

When application is made out of time for a Solicitors Act assessment the applicant has to show 'special circumstances' to justify an order being made, but that requirement also exists if a party wants the court to depart from the normal order for costs. In Allen v Colman Coyle [2007] EWHC 90075 (Costs) the court found that the defendant 'was unreasonable in failing to agree to a mediation or to negotiate' and held that such failure can amount to a 'special circumstance' within the meaning of section 70(10) of the Solicitors Act.

An example from my experience shows how both sides can be winners and losers in the same case. Bills totalling £900,000 were challenged and the reduction achieved just missed the target, at 19 per cent (£171,000 taxed off) so the client had to pay his own costs and those of the solicitor. Although that combined figure amounted to £41,000, there was still a net gain to the client, and loss to the solicitor, of £130,000. Add in the court fee and the expense of a mediation seems puny by comparison.

A range of solutions

One difference between inter partes and solicitor/client disputes can be that the parties still want to maintain a professional relationship and a court assessment is likely to jeopardise that, whereas 'mediation provides a wide range of solutions'¦ including the continuation of an existing professional or business relationship, perhaps on new terms' (Jack J in Halsey).

Mediation in solicitor/client disputes, with fees based on the time involved and shared between the parties, can be far less painful in every respect than the court alternative and is considerably quicker. The mediator helps each party focus on their interests, and the interests of the other party, rather than their rights. The history of the relationship between the parties, what made it work and why it broke down, will be explored and the strength of the cases tested.

By removing the adversarial element, and identifying areas of agreement as well as disagreement, a skilled mediator can help solicitor and client resolve their differences and 'achieve a result by which the parties shake hands at the end and feel they have gone away having settled the dispute on terms with which they are happy to live' (Dunnett v Railtrack plc. [2002] EWCA Civ 303).