The Civil Procedure Rule Committee has approved an amendment to the Civil Procedure Rules (CPR) to introduce “costs management” procedures more widely from next April. Although the final versions of the relevant rule and practice direction have not yet been published, we understand that the procedures will apply to all multi-track cases commenced on or after 1 April 2013 in both the county court and the High Court.
The procedures will not, however, apply to the Commercial Court (unless the court orders that they should apply in a particular case). This is consistent with Lord Justice Jackson’s view, as stated in his final report following his costs review, that no case had yet been made out for introducing costs management in the Commercial Court.
Lord Justice Jackson’s final report recommended that judges should have a discretion to adopt “costs management” procedures where these would be beneficial for a particular case. (Click here for our summary of the recommendations affecting major commercial litigation.)
Following a pilot of these procedures in the Birmingham Mercantile Court and Technology and Construction Court (TCC), the pilot was extended to all Mercantile Courts and the TCC through a new Practice Direction from 1 October 2011 (see post). A separate pilot has also been conducted in defamation cases. An interim report on the Mercantile Court and TCC pilot was published in February. This reported that there had been a low level of response to the questionnaires used to monitor the pilot, and it was too early to draw any firm conclusions.
Under the new rules, within 28 days after the defence is filed, all parties (except litigants in person) will have to file and exchange budgets setting out their estimated costs for each stage in the proceedings. Any party which fails to file a budget when required to do so will be treated as having filed a budget comprising only the applicable court fees.
The court may at any time make a “costs management order”, in which it will record the extent to which the budgets are agreed between the parties, or (to the extent not agreed) record the court’s approval of a budget, if necessary after making appropriate revisions.
When assessing costs, the court will have regard to a party’s last approved or agreed budget and will not depart from it unless satisfied that there is good reason to do so.
In his note to the Rule Committee, Lord Justice Jackson described the essential benefits of costs management as (a) bringing certainty to the parties about their financial commitment; and (b) bringing litigation costs down to a proportionate level. The procedures for costs management effectively shift the focus of costs control from retrospective, as it currently is, to prospective, with the court focusing upfront on how much should be spent (or at least recovered) in the litigation. Lord Justice Jackson’s view is that controlling costs before they are spent is a more effective process than “assessment” after the event.
It remains to be seen whether that will be the case, particularly since the costs management procedures appear to give similar status to budgets agreed between the parties and those approved by the court. If costs are to be examined at the outset, when neither party knows whether it will be on the paying or receiving end of a costs award, it may be said that there is less incentive for the parties themselves to minimise recoverable costs than if the exercise is conducted when it is clear where the liability lies.
The other key question is the likely cost of costs management. Lord Justice Jackson recognises that the main drawback of costs management is that the process itself is expensive. In his view, however, despite the additional expense, the overall effect will be to bring down the total costs of the litigation. Again, this remains to be seen, but in this context it is worth noting that the draft rules limit recoverable costs of the budgeting and costs mangement process to 2% of the approved budget.