Who has the power when it comes to enforcing costs-capping?

Solutia v Griffiths [2001] 2 Costs LR 247; King v Telegraph Group [2004] EWCA Civ 613 (18.5.04), 154 NLJ 823; Elliott Smart v East Cheshire NHS Trust [2003] EWHC 2806 (QB)


Costs-capping - the procedure under which the court imposes in advance a limit on the costs that will be recoverable by one party to litigation against the other - is not provided for expressly in the civil procedure rules (CPR). This omission, when compared with the express power in section 65 of the Arbitration Act 1996, enacted so shortly before the CPR, led some to believe that a civil court had no power to impose costs-capping.


However, starting from an obiter dictum of Sir Christopher Staughton in Solutia v Griffiths [2001] 2 Costs LR 247, and proceeding via several first-instance decisions in group litigation, costs-capping has now received the formal approval of the Court of Appeal in King v Telegraph Group [2004] EWCA Civ 613 (18.5.04), 154 NLJ 823.


Strictly speaking this approval is obiter, as the appeal was dismissed on other grounds, but anyone who believes that this carefully thought out judgment of Lord Justice Brooke - with whom Lord Justice Parker and Lord Justice Kay agreed - will not be followed, is living in cloud cuckoo land.


While King's immediate effects are confined to defamation litigation, it nevertheless establishes authoritatively that there is power under the CPR to impose costs-capping. That power is derived from section 51 of the Supreme Court Act 1981 coupled with rule 3.2(m), which confers a power to 'take any other step or make any other order for the purpose of managing the case and furthering the overriding objective'.


This ruling as to jurisdiction is of general application. The jurisdiction being established, it will be for the courts to work out when and in what circumstances to impose costs-capping on a case-by-case basis.


The particular concern in King related to the use by the claimant's solicitors of a conditional fee agreement (CFA) which, it was suspected, provided for a 100% success fee but was not backed by after-the-event (ATE) legal expenses insurance.


This meant that, if the claimant won, the defendant faced a bill calculated at an effective hourly rate put at £750 an hour. But if the defendant won, it would be unlikely to recover any costs in view of the financial position of the claimant.


The court accepted, as had the specialist judge below, that this situation had a potentially chilling effect on investigative journalism and thus risked breach of the right of freedom of expression under article 10 of the European Convention on Human Rights.


Although the problem was clearly identifiable, as the court said, 'Simple palliatives are not easy to identify.' It held that the judge below had been correct to refuse to give summary judgment for the defendant or to impose a conditional order for security for costs under rule 24.6, because of the difficulty of establishing the merits at an interlocutory stage in the litigation.


The court held that in defamation cases initiated under a CFA without ATE cover, the master should make a costs-capping order at the allocation stage. If for those or other reasons costs-capping was required, he should refer the issue of imposing a cap to a costs judge, who would determine what sum was reasonable and proportionate to fix as the recoverable costs of the action. Despite the language of costs practice direction (CPD) paragraphs 11.5-11.9, any such cap should be inclusive of any additional liability, such as a success fee.


The court accepted that the effect of this new regime might be that CFA-assisted claimants in defamation cases find themselves unable to obtain the services of an expensive advocate or a litigation partner in an expensive law firm. Likewise, it may become difficult to get a solicitor to accept a case on CFA terms unless the chances of success were significantly greater than evens. However, that was a small price to pay compared with the present state of affairs.


Costs-capping is clearly an idea on the march. On the policy front it is being considered in detail by the Civil Justice Council, which has just completed a consultation exercise on the subject.


The issue will be given greater impetus by this decision, though one should not forget the decision of Mr Justice Gage, the pioneer of costs-capping, in Elliott Smart v East Cheshire NHS Trust [2003] EWHC 2806 (QB). In that routine substantial clinical negligence case, the judge refused to impose a cap.


He ruled that outside group litigation the court should only consider making a costs cap order where the applicant shows by evidence that there is a real and substantial risk that without such an order costs will be disproportionately or unreasonably incurred, that this risk may not be managed by conventional case management and a detailed assessment of costs after trial, and that it is just to make such an order.


How much of that thinking will survive King remains to be seen.


By Jeremy Morgan QC, 39 Essex Street, London