Costs management is here to stay

In July 2013, a sub-committee of the Civil Procedure Rule Committee held two stakeholder meetings to discuss the costs management exemption that had just been handed to Rolls Building cases worth £2m or more but which it was already reviewing.

Most of those round the table practised in the affected courts and were, unsurprisingly, emphatically against costs management and budgeting.

Their objections included that commercial judges had more important work to do; it was a very competitive market, with market forces already driving down legal costs; budgets would put a ‘straitjacket’ on litigants; international clients would not understand budgeting and would be put off litigating in the UK; and the costs budgeting exercise itself would add considerably to the costs of litigation.

For the most part, however, the same arguments could be applied to those areas of law that were already subject to mandatory costs budgeting, and papers released recently by the rule committee indicate that its members were equally unconvinced by the case for continued exemption.

As reported by the Gazette, the committee’s December meeting agreed to raise the threshold to £10m across the board – and a date has now been set for the increase to come into force.

In a joint note put to the committee, the master of the rolls, Lord Dyson, and deputy head of civil justice Lord Justice Richards said they would have had no hesitation in favouring no exemption ‘were it not for the concerns expressed so strongly by so many consultees that a requirement for costs budgeting would risk deflecting high-value cases away from London and the UK’.

They added: ‘We share the doubts that members of the committee have voiced about those concerns, but we do not feel in a position to dismiss them out of hand.’

One would indeed worry if the attraction of the UK courts were diminished by the introduction of costs management. But it is hard to see how this would happen unless there is something unusual about overseas clients that means they prefer to throw money at litigation without a good idea of what it will cost them and how much they may have to pay the other side in the event of losing. There are only so many carefree Russian oligarchs to go around.

Indeed, the suggestion is frequently made that these huge cases – which often feature numerous witness statements and queues of experts, not to say massive disclosure – are precisely the type of litigation where costs can run wildly out of control. If a massive amount is at stake, a proportionate costs budget is still going to allow for the matter to be pursued with all the bells and whistles but at least it won’t get out of hand.

The Association of Costs Lawyers supported removing the exemption and is pleased the rule committee does too. Certainty, or at the very least clarity, will benefit not just solicitors but their clients.

We see a host of advantages. Knowing in advance, with a reasonable degree of certainty, as to final recoverable costs would allow clients to make an informed decision as to whether to proceed with the litigation. It should also assist the business and financial planning of their solicitors.

This in turn is likely to mean that more cases will settle without being fully litigated, and even when they do not, the settlement of the costs issues following the litigation is likely to be considerably shortened and, indeed, could be almost instantaneous (as happened in Slick Seatings Systems & Anor v Adams & Ors [2013] EWHC B8 (Mercantile)).

As well as assisting cashflow for all successful claimants and their solicitors, it will free up a considerable amount of court time which is currently taken up with the issue of costs post judgment.

Further, such a change removes the anomaly that a clinical negligence action worth £5m is subject to mandatory costs budgeting, whilst a commercial dispute over £2.5m is not.

The introduction of costs management has not, of course, been without its difficulties since 1 April 2013, and a white paper recently published by the ACL will detail its successes and failures to date. As part of this we held a unique judicial roundtable and the judges we had there were robust in their belief that both parties and those judges who are not so keen on it either, will fall into line sooner rather than later.

But many of those difficulties are a product of unfamiliarity, rather than any fundamental flaw in the regime, and should be ironed out in the coming months and years.

The direction of travel is clear. Costs management is here to stay and litigators of all stripes had better accept it.

Murray Heining is the chairman of the Association of Costs Lawyers