As courts take gradual steps to ensure litigation costs do not spiral out of control, David Locke explains why cost-capping could eventually become a powerful tool


For some years, the courts have, as Mrs Justice Hallett explained in Sheppard v Essex Strategic Health Authority [2005] EWHC 1518, been 'moving, at whatever pace, toward a system of pre-emptive strikes in order to avoid the costs of litigation spiralling out of control'.



The evolution of these cost-capping powers (there is little scope to argue a creationist theory given that there is no explicit power within the Civil Procedure Rules), particularly into the arena of general litigation rather than defamation and group actions, has been fraught. However, little by little, the authorities have mounted, and now the power to prospectively limit costs is well established.



Despite this, applications for cost caps seem to be relatively few, reserved primarily for cases where costs run into hundreds of thousands of pounds. It is unlikely that this is because costs on the whole are felt to be reasonable, but it may reflect the lack of cohesive guidance and an uncertainty as to the evidential requirements for these applications. Furthermore, at the root of it all, there are some concerns regarding the wider consequences for the administration of justice.



The recent decision in Dawson & Others v First Choice Travel [unreported] by the designated civil judge in Birmingham, His Honour Judge MacDuff, who capped the claimant's costs in a group action at 30% of their £726,000 estimated costs, demonstrates that this power has really got some teeth. It also highlights some of the fundamental issues likely to be of concern.



Finding a cap that fits

To achieve best effect, it will be necessary for cost-capping applications to be issued at the allocation stage. Of course, by then, significant costs may well have been expended already, but it is unlikely that there will be much evidence of this to hand. The first indication of a problem and the prima facie evidence for an application will come from estimates provided with the allocation questionnaire. It will clearly be important for parties envisaging such an application to secure full compliance with part 43 of the rules and, in particular, the practice direction and precedent H of the Schedule of Costs Precedents.



It was the claimant's allocation questionnaire that lit the blue touch paper in Dawson, where, having noted the 'breathtaking' estimates - a description adopted by the court- the defendant sought a direction that a detailed breakdown of costs should be provided, to assist in the determination as to whether or not a cost-capping application was merited.



Of course, even in cases where the estimates at the allocation stage are somewhat less apt to cause palpitations, appropriate directions can and should be sought if there are underlying concerns. District Judge Lethem, who is at the forefront of these issues, wrote last year in the Gazette's sister publication, Litigation Funding, that he routinely considers orders for the periodic exchange of costs estimates. There is little doubt that much greater use of such orders could and should be made.



As it happens, it would appear that it does not go without saying that it will be necessary for these estimates to be accurate. If they are not, it is likely to be pleaded as evidence that the party concerned has little reliable knowledge as to the costs that they are incurring. This was precisely what happened in Dawson.



Having obtained an accurate estimate and breakdown, this will form the evidence base for an application. However, simply pointing to a gulf between the party's respective estimated costs is very unlikely to be sufficient. In Smart v East Cheshire NHS Trust [2003] EWHC 2806, the claimant's solicitors produced evidence in rebuttal as to their own experience in the field of clinical negligence, with statistical information (albeit from their own firm) as to the average number of hours spent in such cases. Defendants may wish to start gathering similar data on settlements achieved in the cases with which they deal routinely.



It will also be necessary to highlight not only the headline figures but also to address the specific elements of spending which are deemed unnecessary or extravagant. In Knight v Beyond Properties Pty Ltd [2007] FSR 7, an issue of particular contention was the instruction of Queen's Counsel. There was a multitude of criticisms raised in Dawson, too many to be repeated in the judgment.



Disproportion between costs and anticipated damages will also be important in filling in the picture. As Judge MacDuff put it: 'Who in any other field of endeavour would spend £1.8 millions in pursuit or bounty valued at £0.4 millions, or even £1.15 millions?'



All in all, the precedents hint at a considerable amount of work being necessary in order to meet the requirement to demonstrate, by evidence, that there is a real and substantial risk that, without such an order, costs will be disproportionately or unreasonably incurred. It must not be forgotten that the precedents involve cases of considerable size, the costs of which will require long analysis. This will not always be so. District Judge Lethem suggests that he has found, when raising these issues of his own volition, that parties are often prepared to deal with the matter by way of written submissions. Clearly, applications must be kept proportionate or the cure will become worse than the illness.



Access to justice

Irwin Mitchell, which acts for the claimants in Dawson, issued a statement following the judgement - it has permission to appeal - saying it hopes the courts will support its clients in ensuring costs-capping does not fetter access to justice. Indeed, the firm opposed the application on this basis during the hearing.



The Catch-22 is that excessive costs are themselves felt to be a factor limiting access to justice. Judge MacDuff confessed his 'irritation' at this argument, noting that in the days before conditional fee agreements, the very modest individual claims which make up this group litigation would probably never have been brought. In a comment worthy of repetition in any application for a costs cap, he said: 'Access to justice does not mean that any claimant must be allowed to bring his claim, however small, at whatever cost, regardless of all sensible argument, and with no personal costs exposure.'



A particular concern appears to have been the potential for a party, having succeeded in capping the costs of their opponent, to then adopt an approach to the litigation, designed solely to cause extra work, running their opponent aground upon the costs cap. Although the judge acknowledged this as a potential problem, it seems most unlikely that any but the most unscrupulous defendant would countenance spending money in such a way. Were it really considered a problem, there seem to be two clear solutions: cap the defendant's costs as well, or reapply for a variation of the costs cap.



Although not directly applicable outside group litigation, in Dawson we have been told that the power to cap costs 'is there and available for general use'. With appropriate planning at the allocation stage, it is likely to be a highly-effective tool. Indeed, the indications are that the judiciary will increasingly be raising the issue, whatever the reluctance of the parties. The Civil Procedure Rules Committee is currently considering issuing formal guidance following the Court of Appeal decision in Willis v Nicholson [2007] EWCA Civ 99.



David Locke is a solicitor in the health law team at Browne Jacobson in Nottingham