Litigation focus | Keeping it in proportion: Accepting the repercussions of the new costs regime

There has, in the past, been the odd case where the failure to provide a budget, or at least an adequate one, has tripped solicitors up but the courts have never shown ?a consistent approach to the issue and ?so the requirements for estimates in the ?Civil Procedure Rules (CPR) ended up being honoured more in the breach than anything else.
Now, if the judiciary is to be believed, things are going to change. The then ?Master of the Rolls, Lord Neuberger, said in 2010: “As noted in the Jackson final report, there is no great ‘groundswell of enthusiasm amongst either judges or practitioners for learning all about costs’. Unfortunately for the groundswell, such apathy can no longer continue.
“Perhaps lawyers and judges, like mankind as Rousseau saw it, have to be ‘forced to be free’ or in our case forced to love costs management. Training is the key here. Even the most sceptical now admit that judges can be trained. The Judicial Studies Board is ideally placed to train them in costs management. Lawyers can clearly be trained...
“Clear and straightforward general rules covering costs management applied consistently by the judiciary will enable a readily understood process to take hold. What is true of general case management is as true of specific costs management

Managing ‘Manhattans’

So, what more do we know about how costs management will work? Mr Justice Ramsey – who is sitting on the judicial steering group overseeing implementation of the Jackson reforms during their author’s absence through illness – recently gave first sight of the new rules. They will apply generally to all multi-track cases commenced on or after 1 April 2013 in a county court, the Chancery or Queen’s Bench Division (except the Admiralty and Commercial Courts) unless the court otherwise orders and to any other proceedings where the court so orders.

Unless the court otherwise orders, all parties except litigants in person must exchange cost budgets in precedent ?H within 28 days after service of the defence. In default the budget will only comprise applicable court fees – now there’s a scary thought.
The court may then manage the costs and make a costs management order to control the parties’ budgets in respect of recoverable costs; the order will record the extent to which the budgets are agreed between the parties and, where not agreed, record the court’s approval after making appropriate revisions. It will be kept under review throughout the case.
The presumption will be in favour of making an order, but even where it is not done, budgets will still be important. Ramsey J said that in making any case management decision, the court will have regard to any available budgets of the parties and will take into account the costs involved in each procedural step.
The costs management hearing is not a detailed assessment in advance and so while the court will consider the underlying time estimate and applicable rate in reviewing the overall cost of a stage, there will be what Ramsey J called “a lighter approach which considers whether the ?total budgeted costs of each stage fall ?within the range of reasonable and proportionate costs for a given case”. HHJ Simon Browne QC, who oversaw the Birmingham costs management pilot, likes to talk about ‘Manhattans’, the peaks in costs that jump out of the page at him and so receive his attention.
Producing a budget for the court will not be as easy as some solicitors may think. As Ramsey J put it: “Many large firms of solicitors already have sophisticated cost systems which are used to record costs and some have cost budgeting systems. However, as the pilot schemes have shown, the production of costs budgets requires a new discipline for all involved in the process – solicitors, counsel, counsel’s clerks and judges. Judicial training in costs management has already started and will continue in the run up to April 2013. Training will be required for the others involved in the process.”
The reason for this came shortly before this speech with Chief Master Hurst’s ??the introduction of costs management ?and budgeting can seriously damage ?your wealth.
The case, the first to arise out of the defamation costs management pilot being run in London and Manchester, is being appealed and I hope it will give the Court of Appeal an early opportunity to lay down guidelines and thus forestall satellite litigation that may occur once budgeting becomes the norm from next April – and it is to be welcomed that two appeal court judges are being designated to sit on all Jackson-related appeals to ensure a consistent approach.
The case arose from a defamation action started by a member of Haringey’s social services team involved in the tragic case of Baby P against The Sun. It settled in the claimant’s favour shortly before trial and, significantly, before a planned costs management hearing.
Costs budgets were approved in September 2010 and Master Hurst found that both sides exceeded their agreed figures, with the claimant coming in nearly £300,000 above its £381,305 budget (excluding trial costs) due to huge overspend on disclosure and particularly witness statements. Despite the defendant’s protestations, Master Hurst acknowledged that the “vigorous” conduct of the defence – which was amended four times, while ten lists of documents were served – contributed to this and said the claimant would have a very good chance to justifying the costs on assessment.
But, and this is crucial, that was not the point of the hearing. The hearing had to determine whether, in the words of practice direction (PD) 51D governing the pilot, the claimant had “good reason” to depart from the budget.
The judge found that the defendant, unlike the claimant, made some effort to comply with the PD. The PD requires steps such as updating the budgets and liaising on them every month, and Hurst emphasised that these are mandatory.
He said: “I am forced to the conclusion that if one party is unaware that the other party’s budget has been significantly exceeded, they are no longer on an equal footing, and the purpose of the cost management scheme is lost... The fact is ?the claimant has largely ignored the provisions of the practice direction and ?I therefore reluctantly come to the conclusion that there is no good reason to depart from the budget.”
I applaud this decision. It is a strong signal to all parties to always comply with PD 51D and is the very essence of what the pilot scheme and, in time, costs management for all is about. It can therefore be no surprise that Master Hurst has come to this decision and lawyers should ignore it at their peril.

Realistic budgets

The other element of all this is the new proportionality rule. Speaking at the same event as Ramsey J, Lord Neuberger emphasised that proportionality will apply throughout the life of a case, rather than just at the end. The rule will enable courts to judge the reasonableness of individual items in a bill and then stand back and consider whether the total figure is proportionate.

He added: “The effective, and consistent, implementation of case and costs management informed by the new costs rule should have a salutary effect on litigation conduct and costs. It should focus the minds of all involved on the need to consider the costs and benefits of each step proposed to be taken in proceedings; not least because parties will need to be made fully aware of the fact that certain steps taken may, or will, be at their own cost, or may be futile.”
The judge deliberately steered away ?from saying what precisely would constitute proportionality and how it would be assessed. “It would be positively dangerous for me to seek to give any sort of specific or detailed guidance in a lecture before the new rule has come into force and been applied…
“The law on proportionate costs will have to be developed on a case-by-case basis. This may mean a degree of satellite litigation while the courts work out the law, but we should be ready for that, and I hope it will involve relatively few cases. It will be a very small price to pay.”
move to costs management will mean more disputes during cases and fewer detailed assessments. As well as handling the ?budget carefully, costs specialists will need to draw a bill at the end which assigns each item of work done to the appropriate budget category.
For some years budgeting has been championed by a few but ignored by most. That will now have to change. As Nick Bacon QC told the Association of Costs Lawyers’ Annual Costs Conference in the spring, solicitors may hate it, but clients ?will love it.