Costs budgeting survey: profession unconvinced and unprepared

Not only are lawyers unconvinced by the new costs budgeting rules, there are also serious fears that judges will not have the capacity to discharge their new duty as project managers. Jean-Yves Gilg reports on a profession on the verge of a Jackson breakdown

Litigators and costs lawyers have lived with costs management since the Woolf reforms and most are willing, at least in principle, to embrace the new impending cost budgeting requirements. But large numbers still doubt that it is possible to budget accurately before a case starts, and many more are unconvinced that the courts have the capacity to actively manage costs through the life of a case.

A whopping 70 per cent of respondents to a survey conducted by Solicitors Journal and the Association of Costs Lawyers at the end of 2012 said it was not possible to give largely accurate estimates in advance of litigation. More worrying still, 87 per cent are not confident that the courts have the ability to manage costs proactively through the life of a case.

“People are concerned and rightly so,” says Francesca Kaye, partner at Russell Cooke and president of the London Solicitors Litigation Association. “There are fears about how it’s going to be approached by the court, which is perfectly justified.”

Accurate budgeting

Lawyers have been expected to provide costs estimates since the entry into force of the new civil procedure rules more than a decade ago. Already the intention then was that judges would take a proactive interest in the management of the case. But disputes over costs have been mostly left to the end of the case. With the new rules, lawyers will be required to provide accurate cost estimates before the case starts. While personal experience and clever software can help, estimating costs is not an exact science and depends on several factors.

“In most litigation it is possible to give reasonably accurate estimates if you know broadly the path litigation will take, and as showed in the Henry decision last week, it is possible to depart from agreed estimates,” says Greg Cox, litigation partner at Colemans-ccts. “The big unknown is client behaviour; the same '¨case for two different clients can be completely different. Then there is the other party’s behaviour.”

The result, according to Cox, is that lawyers will need to find out a lot more about what their client wants, in particular how far they are prepared to go with litigation and whether they would be prepared to settle or go to mediation. “The combined effect of the reforms will be that more disputes will probably be resolved '¨out of court,” he says.

Rob Williams, head of costs at Weightmans, takes a particularly determined approach, encouraging lawyers to “embrace the positives”. Because, more and more, clients want to know how much litigation will cost before they commit to it, lawyers must be able to come up with a reasonable cost schedule, which is also an opportunity to consider alternatives '¨such as arbitration. And collaboration will be key if the new rules are to work effectively, starting with litigators spending more time with their own in-house costs specialists before the dispute reaches the court, he says.

“When you go into litigation there is always the prospect that the court will challenge your costs, particularly pre-litigation, and even though the judge can’t disallow or cap the pre-litigation costs, there are ways to take these into account later. That’s another reason to work collaboratively with the other party and agree a budget at the pre-lit stage; the judge is more likely to agree to the budget once litigation starts.”

Costs lawyer Sue Nash, who runs Litigation Costs Services, agrees that the rules are “a big change” but that this should “benefit the litigation community in the long term”. Her main concern is that solicitors “lack the project management skills that will be needed in the future” – echoing remarks by Greg Cox that not all litigators know what cost estimates are.

These concerns however, are nothing compared with those arising out of the judiciary’s unreadiness to play their part in '¨the reforms.

Judicial readiness

“Lack of judicial time will be a major '¨issue, in particular with reduced sitting days, overlisting, and more deputies sitting. Will judges be able to do anything with these budgets when they are already struggling with summary assessments and will receive so little training,” asks Francesca Kaye.

Kaye may be right to worry. Judges interested in costs issues are few and far between, so training will probably be essential in encouraging an effective cost budgeting culture. Salaried judges will be given a day’s training while senior judges, who are still coming mostly from the Bar and tend to have little experience or interest in costs management, will only be given “a shorter session” on the new rules, according to the Judicial Office. Meanwhile, deputies and fee-paid judges – who are part-time, working only a few days a month, and therefore not consistently exposed to the questions of costs – will not be given any training at all.

The reason, the Judicial Office says, is mainly that “costs budgeting will apply in multi-track/high value claims, which fee paid judges wouldn’t normally be hearing”. Instead, the only information that these part-time judges will get, according to rumours circulating in litigation circles, is a DVD of HHJ Simon Brown QC, the designated mercantile judge for the Midlands circuit and a long-standing costs management advocate.

“Judges mean well but they have got a lot to do,” says an equally concerned Greg Cox. “Take a hearing which goes on all day, dealing with complex issues, then there are 20 minutes left to deal with costs. The new rules will add a significant burden on an already stretched judiciary.”

Cox agrees that training will help but says that the tendency in any adversarial system is that judges usually end up reaching a figure halfway between the costs claimed by the winner and those claimed by the loser. “There could be a lot of tactical manoeuvring, with claimants putting forward massive budgets to try and crush the defendants, leaving judges unable to arbitrate properly, which is not the spirit of the new rules,” he says.

While generally confident that the courts will adapt, Rob Williams warns that there is a risk of inconsistent approach, “with some random decisions” and “immense variations in decision making in the short term”. Ultimately however Williams reckons clear principles will emerge so that litigants and judges have a similar understanding of budgeting and proportionality. “The success of the process will depend on the level of judicial activism, but the principle of budgeting is relatively sound.”

In the meantime, these two concepts are likely to give rise to satellite litigation as the new processes bed in, eventually delivering more positives than negatives.

Positive impact

And the negatives are what the respondents to the survey seems to have focused on, with 139 saying it will prevent some litigants from pursuing their cases as they would like to, 101 fearing the cost of litigation will become disproportionate, and 72 saying it will slow down litigation.

“Lawyers will pick out the threats,” says Greg Cox, “but the question is whether litigants should be allowed to pursue their case in the way they want or in the way that is proportionate.”

According to Cox, the new rules will also help with case planning – a view that 63 respondents agreed with. “It will make lawyers think about the ‘what ifs’, such as ‘what if we end up five days in the High Court, or what if we have to do this massive disclosure exercise?’.”

But Cox accepted that bringing cost assessments to the start of a case, rather than at the end as is the case at present, could lead to some posturing over costs and litigants being more defensive.

In addition, litigation slowing down was “a genuine concern” for Francesca Kaye, but which Cox said would depend on court resources. “There is less slack in the system after the recent court consolidations and the cutbacks in deputy district judges’ days; there have also been administrative cutbacks and while staff are trying really hard, there are mistakes.”

But there is also acceptance that the new regime will bring improvements. Certainty and clarity for clients, although getting only 25 responses in our survey, was high on the list for Rob Williams. Sue Nash also thought so: “Litigation costs should become proportionate, clients will have more certainty as to the costs of their claim and what they are likely to recover, and solicitors will have a much greater insight into the profitability or otherwise of the work they do”.

The survey was carried out online in December 2012 with 201 respondents, 181 of whom were solicitors. 

 

'Changes coming thick and far too fast’ The results of the joint Solicitors Journal – Association of Costs Lawyers’ survey shine a light on the professions’ current approach to costs budgeting and in particular, the lack of preparation in the run up to the new regime. However, rather than be surprised about the lack of preparedness among solicitors – only 37 per cent of respondents report having read the rules and are actively working out what it means for them – it is just another symptom of the challenges facing the profession where changes and challenges are coming thick and far too fast. The legal sector must become proactive and not reactive to change. Come 1 April 2013, those issuing proceedings will be required to file and serve a budget within a very short time frame. When you take into account that 21 days following defence your budget must be exchanged, the first budgets will be in the system by June, so hopefully we will all have a better understanding how the tri-party approach to budgeting will evolve. While it is positive that almost half of solicitors say they intend to conduct a comprehensive review of the way they conduct litigation in light of the new rules, they may not be prepared to accept what the results might reveal. Law firms need to adopt a completely new mindset when it comes to litigation and take a far more forensic approach to costs at every stage of a case. It’s not the rules per se that should be front of mind for the profession but their practical application. The current post-event ‘finger in the air’ approach no longer has any place in litigation. Instead, firms need to realise the value of their own data. Given the many challenges facing the profession, I expect that in 18-24 months, when the full impact of costs budgeting is truly felt, we will see a mass of satellite litigation and a plethora of Court of Appeal judgments, which one can only hope will be more robust than the recent Henry v News Group Newspapers Limited judgment. Like barristers, costs lawyers are regulated persons and their involvement in a case can only minimise a firm’s chances of getting it wrong. A barrister forms an integral part of any litigation, so too should a costs lawyer. The advent of the new rules should be an opportunity for firms to revaluate the role of costs professionals as a strategic component of any litigation rather than a resource to mop up bills at the end of case.  Iain Stark is chairman of the Association of Costs Lawyers (www.associationofcostslawyers.co.uk)

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Solicitors Journal - Association of Costs Lawyers survey
ASSESSING THE PROFESSION'S READINESS FOR THE JACKSON REFORMS
1. To what extent have you previously complied with the rules on budgets in the Civil Procedure Rules?
Completely	84
To some extent	99
As little as possible	19
2. In principle, is it a better approach to deal with costs prospectively, rather than retrospectively?
Yes	86
No	88
Not sure	28
3. Do you think it is possible to give a largely accurate estimate in advance of litigation?
Yes	40
No	139
Not sure	14
4. How much do you know about the introduction of costs management?
I've read the rules and am already working out what it means for us	73
We've discussed it and will start addressing it properly soon	65
I've read a bit about it	52
What's costs management?	5
5. Do you feel you have the skills required to produce the kind of budget required under the new regime?
Yes	86
No	62
Not sure	54
6. Are you confident of the court's ability to manage costs proactively through the life of a case?
Yes	12
No	173
Not sure	15
7. What changes do you expect to make as a result of costs management? (tick all that apply)
I will bring in a costs specialist to help from the start of the case	35
My firm is looking to recruit so as to have costs expertise in house	10
My firm is looking to enhance its in-house project management skills	38
My firm is looking to buy specialist software to help with budgeting	19
We will adapt the form of our bills of costs to allow for budget categories	70
We will conduct a comprehensive review of the way we conduct litigation	99
None	21
8. What will be the main impacts of costs management? (tick up to 3)
It will make costs more proportionate	31
It will encourage lawyers to improve their case planning and focus on the important issues	63
It will restrict some parties' ability to pursue their cases as they want	139
It will give clients more certainty and make them less scared of litigation	25
The 'costs of the costs' will be disproportionate	101
Lawyers will manage their time more effectively	23
It will slow down litigation	72
The profession will adopt standard approaches to methodology and reporting	52
It will not make much impact at all	8
9. Lord Justice Jackson said litigators should have to undergo training in costs budgeting and management as part of their CPD requirements. Do you agree?
Yes	118
No	53
Not sure	22
10. Do you think damages-based agreements (DBAs) will take the place of conditional fees after April 2013?
Yes	70
No	67
Not sure	64
11. How many solicitors do you think will offer conditional fees after April?
All of them	9
The majority	89
A large minority	44
A small minority	43
Virtually none	18
12. Are the caps on DBAs (25 per cent for personal injury cases, 50 per cent for commercial) high enough?
Yes	58
No	96
Not sure	47
13. Will the ATE insurance industry be 'decimated' by the Jackson reforms?
Yes	79
Not entirely	97
Not at all	5
Not sure	19
14. Will lawyers cover the costs of the claims they lose on behalf of claimants without charging claimants a percentage of the damages or a conditional fee on successful outcome?
Yes	29
No	127
Not sure	42