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Costs management works and is here to stay

Costs management works’ and ‘is here to stay’.  These were the words of Lord Justice Jackson on 13th May speaking alongside the Master of the Rolls, Lord Dyson at the Harbour Litigation Funding annual lecture.  The purpose of the lecture was to review how the costs management regime is working two years post implementation and to suggest how the rules may be further developed. In preparation for his lecture Lord Justice Jackson canvassed the views of practitioners and judges, attended group meetings and had discussions with key judges across the country.

Both Lord Justice Jackson and Lord Dyson fully endorsed costs management however accepted that it was not without its flaws and certain problems needed to be addressed. In Lord Justice Jackson’s view in 10 years time it will be accepted as normal practice and ‘people will wonder what all the fuss is about’.  This rather makes light of all the current concerns that practitioners and judges hold across the country. And a total of 12 years for a new process to settle in is surely too long to allow for any reform to be accepted. However given that he orchestrated the costs management regime it comes as no surprise that Lord Justice Jackson is its greatest advocate. Of the 109 recommendations made by Lord Justice Jackson in the 2009 costs review, the majority have been implemented. Costs management with the amounts involved being at the discretion of the judges was one of them.

Benefits of the regime

In his lecture Lord Justice Jackson ‘respectfully invites the Coulson Committee to consider’ his findings which will in turn report back to the Rule Committee which will decide upon any amendments to the costs management rules. In his opinion the most important lesson of the last two years was that, when done properly, costs management works well and he highlighted several advantages of the regime, such as it ensures that both sides know where they stand financially (he specifically notes the advantage of the process to insurers when setting reserves), it encourages early settlement due to awareness of the financial implications of the litigation and it controls costs. There is also the benefit of elementary fairness. In a claim for damages it is fair to give the opposition notice of what damages are being claimed and costs should not be treated differently.

Undoubtedly there are benefits in costs management however in our view it is entirely dependent on it being embraced and ‘done properly’. LJ Jackson himself acknowledges that some practitioners and judges have found it tiresome, time consuming and costly.

Objection to costs management

Lord Justice Jackson attempted to defend objections to the costs management regime such as the fact that lawyers are spending more time debating costs and less time on the issues in the case itself. He counter argued that the end result matters to a client and the costs recovered are a substantial part of that end result. He said that traditionally lawyers pay insufficient regard to the costs and there should be a proper costs focus on the case from day one.

The expense of the process was also called into question due to the considerable cost of preparation of budgets and attending court for costs management. Lord Justice Jackson countered that the benefits of clarity and certainty justify the costs of the cost budgeting process.  His message is clear, the time and cost of the costs budgeting process must be embraced by practitioners. But is the same message being given to the courts? 

Delay - a reasonable solution?

Lord Justice Jackson’s most contentious comments came in relation to the delays in listing CCMCs, which are particularly acute in clinical negligence cases in London with a back log of 9 months, and where the complaints of the Masters dealing with those cases are well known. As a solution to reducing the clinical negligence backlog and possibly in other locations, Jackson LJ called for a ‘one-off release’ from costs management for all clinical negligence cases in London which already have CCMCs listed for between October 2015 and January 2016. They should instead be called in for ‘old-style case management conferences’ at the first opportunity, he said.

He found that delay was the practical consequence of the rules which had made costs management the norm. That delay was unacceptable because it inhibits access to justice and drives up costs.  It was never his intention that costs management should apply to all cases and he had originally recommended that costs management be a matter of judicial discretion. His recommendation had not been adopted and in fact CPR 3.15 had been amended to state that the court will make a costs management order.

So what was Lord Justice Jackson’s solution to delay?

He proposed repealing the amendments to CPR 3.15 and Practice Direction 3E and by doing so removing the assumption in favour of costs management.

He said that in place of those provisions, PD 3E might set out criteria to guide courts in deciding whether or not to make a costs management order. He suggested that, in formulating criteria, the committee should bear in mind the following principles:

(i)  In most contested part 7 cases and in most cases of the type identified in PD 3E paragraph 2, costs management by a competent judge or master promotes financial certainty and reduces the costs expended on the litigation to proportionate levels.

(ii) However, the court should not manage costs in any case if it lacks the resources to do so without causing significant delay and disruption to that or other cases.

He noted that some judges feared this would become an excuse for others to ‘opt out’ and would lead to forum shopping. He responded: 

I do not share these fears. I believe that, once criteria are laid down, all judges will conscientiously follow them. It is important that there should be a uniform approach across all civil courts. There will be an obligation on all judges with leadership roles to actively monitor how ‘their’ judges are exercising the discretion to costs manage. If different practices emerge, this should be drawn to the attention of the Deputy Head of Civil Justice so that he can give appropriate guidance.”

However, Lord Dyson has expressed his concern over this solution.  In his short address after the lecture, Lord Dyson said that while the proposals to deal with delay are worthy of the most careful consideration he expressed concern that the ‘lack of resources’ card will be played in many cases and that there is a real danger that costs management will become the exception and not the rule. It seems to us that the clear preference of certain judges to avoid costs management would support the Dyson view.

In brief: Problems with costs management & solutions

Some of the other problems identified with costs management and Lord Justice Jackson’s recommendations to resolve those problems were as follows:

1) Inconsistency in judicial approach: He recommends a full day refresher course on costs management to be made compulsory for all judges.

2) Unduly long hearings/ Micro management: He recommends further training.  In his view the court should not be dealing with hourly rates and hours but should have regard to them when approving a single total figure for each phase of the proceedings. It would be helpful if costs judges could assist in costs management hearings where the case managing judge does not have much experience of costs issues such as the Masters sitting in London.

3) The wide variation in costs management orders from different courts: He recommends that a standard form of costs management order be developed by the MoJ or the Rule Committee.

4) Time for filing and exchanging budgets: He recommends that the rules be amended to allow for this to be done 14 days before the first CCMC rather than the current 7 days.

5) Difficulties with reconciling the budget against bill of costs: He recommends that in the short term the receiving party lodge a summary of its bill of costs in a format that matches Form H.

6) Shortcomings with Precedent H: He recommends improvement, in particular the provisions in respect of assumptions and contingencies. There should be just one revision when the new bill of costs is introduced.

7) Conduct of case & costs management hearings: He recommends that a single hearing for both case and costs management should be the norm.

8) Costs incurred before the CCMC: He recommends that:

• Precedent H should have separate total columns for incurred and budgeted cost to avoid confusion.

• In the general run of cases, where incurred costs are a small part of the whole, the court should only budget future costs, leaving incurred costs for detailed assessment if not agreed and

• In any case where the court has sufficient information for the purpose, it should have the power (a) to comment on the incurred costs; (b) to summarily assess the incurred costs; or (c) to set a global budget figure for any phase, including both incurred and future costs.

The focus of the Rules Committee should not be one of fixing resources but to tackle important issues such as front loading and incurred costs and the need for them to address the pre-action management of costs which to date have been entirely over looked.

Other recommendations

Other recommendations included:

Agreement of budgets: The court should have a residual power to revise agreed budgets where they are obviously excessive or the assumed case management directions upon which budgets were based have changed.

Hourly Rates: Lord Justice Jackson also encouraged the CJC Costs Committee to resume its work and propose new hourly rates for the Master of the Rolls. He suggested that the committee should set out complexity uplifts for specialised areas of litigation such as clinical negligence and defamation.

Commentary

It is difficult to reconcile LJ Jackson’s solution to the problem of delay caused by having too many CCMC hearings in certain courts being the introduction of judicial discretion to avoid the exercise altogether, with his firm and continuing support for the principle of costs management. This exception of cases from the process would only stand to erode the underlying principles of the regime intended to bring about certainty and clarity of costs spent on litigation at proportionate cost. Despite the current presumption in favour of costs management, it is recognized that there has been a lack of continuity across the country with some judges failing to cost manage at all. We can be forgiven for considering that the prospects of the judiciary falling into line and conscientiously following the criteria if they are given the option of avoiding costs management are somewhat remote.

Given that LJ Jackson believes that the regime is working it is unfortunate that the momentum could be derailed by his latest plan. If the recommendations were to be implemented then the sort of protection envisaged against open ended costs risk would be lost in the cases excluded from the costs management process and a worthwhile tool ensuring access to justice but at a budgeted cost would be lost. We wait to see whether it is the Jackson or the Dyson position which wins the day on that issue.

There is also some difference between the approach of the two judges on hourly rates. Lord Justice Jackson’s approach seems to suggest that clinical negligence and defamation hourly rates should be higher than the usual rates for other litigation. The evidential basis for this is not given and its rationale could fairly be questioned.

The need to plug the hole of there being no effective costs management pre-litigation is recognised by Lord Justice Jackson as a priority now that we are two years into post-litigation costs control. He offered in his lecture to prepare a further paper to support that issue being taken forward. In our view the offer should be accepted so that proper control of these costs can be applied and the opportunity to “front load” those costs removed.

But let’s ensure that it doesn’t all take another 10 years to happen!

Contact

For further information please contact Gill Lines, Costs Barrister on +44 151 907 3069.

By Gill Lines

This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.

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