This year’s ACL roundtable covered a lot of ground, from budgeting reform and the value of proportionality, to vulnerability and the use of AI in costs
The ACL roundtable has become an annual event bringing together many of the best-known names in costs from across the bench and the legal profession to debate current issues in the market.
This year’s was held at the offices of London law firm Bolt Burdon Kemp and was chaired by Costs Lawyer editor Neil Rose. Taking part were:
Lord Justice Birss, Deputy Head of Civil Justice
Senior Costs Judge Gordon-Saker
Costs Judge Jason Rowley
Jack Ridgway, Chair, ACL
Victoria Morrison-Hughes, Council Member, ACL
Steven Green, Costs Lawyer, Partner and National Head of Costs, Irwin Mitchell
Shaman Kapoor, 39 Essex Chambers
Samuel Hayman, Partner and Head of Costs, Bolt Burdon Kemp
Roger Mallalieu KC, 4 New Square Chambers
David Marshall, Senior Partner, Anthony Gold, solicitor member of the Civil Procedure Rule Committee and chair of the Law Society’s civil justice committee
The CJC costs review – a year on
With the most straightforward changes having been made, like increasing the guideline hourly rates (GHR), Lord Justice Birss said the focus is now on the longer-term projects. There are two workstreams: the first to pilot the idea of costs budgeting lite, and the second to bring counsel into the GHR.
For Jack Ridgway, the main change in budgeting over the last year has been the willingness of masters to order parties to exchange budgets and then have their costs experts try and agree them. “The county courts are not necessarily moving as quickly, but some of them are starting to realise that there is a better approach.”
David Marshall said he too has seen more flexibility, with masters undertaking directions and then asking the parties to go away and try to agree the budgets, while Steven Green thought costs budgeting-lite would help: “It would be easier to prepare and easier to talk to the client about.”
GHR for counsel were welcomed by Shaman Kapoor for introducing greater predictability. Roger Mallalieu was more guarded but accepted that they were coming either way – “It’s quite hard for counsel to mark themselves out as a special case, even if they wanted to” – but wondered where the evidence would come from to set the figures; after all, it has proven hard enough over the years to establish solicitors’ hourly rates. He also questioned the use of geographical areas: “It’s not working very well for solicitors; it is even harder to see that working when it comes to barristers.”
Currently, Shaman Kapoor added, the assessment of barristers’ fees tended to be based just on level of call, with no thought to overheads: “It is a fairly blunt tool.”
But for Judge Rowley, when solicitors’ hourly rates stopped being A+B, “you lost a whole load of nuance about the weight of the case and all the rest of it. I think the same thing will happen with brief fees, however much we talk about it depending on all sorts of factors. It will end up being how many hours were spent and that will either be reasonable or not”.
Sir Colin Birss explained that idea of the GHR extension was mainly to assist in the summary assessment of counsel’s fees. “I do not know whether we are going to end up with guideline hourly rates for counsel. Maybe we will. Maybe we will not. Maybe it will be broken down by specialisms. Maybe it will not. We need to have a better way of doing it than we currently have, which cannot be difficult because, currently, there is not anything. In terms of what it is, I am absolutely open to offers.”
Negotiating budgets
Victoria Morrison-Hughes said she too was seeing more openness to discussing budgets but timing made it difficult. “We are receiving instructions quite late in the day because courts are increasingly issuing notices late, as well as solicitors trying to avoid the expense of having to do the budget at all and settle the case instead.”
It is clear that judges are now more comfortable with budgeting than they were five years ago, said Samuel Hayman, but this may have unexpected consequences. “My concern is that this familiarity might lead to a fixing of costs in one way or another. My experience is that judges have a feel. ‘This is what I will allow for this sort of case, for this sort of work.’ How often does that get uprated in their mind for hyperinflation or market pressures? You have a fixing of costs, which is completely opaque.
“Then you end up with a lottery of which judge you end up before and what costs you might get, with little transparency as to how it has been reached. At least the actual fixed costs process is transparent.”
Birss LJ was pleased to hear that parties were talking to each other more, explaining this more mature approach – 11 years on from the introduction of costs management – was why he felt able to introduce some flexibility into the regime; initially, the rigidity such as having budgeting at the same time as directions, was seen as necessary to ensure it actually happened.
Indeed, costs management has been a sufficient success to turn Steven Green, who was originally opposed, into a believer, for the reason that “it gives some certainty to clients”.
“I have always seen the budget as a bespoke fixed cost, in a way. You either have a fixed cost, which is a level across the board, or you have a bespoke fixed cost, which is tailored to every single case. I prefer that to fixed cost across the board but, for a client, at least you know broadly what you are going to recover because, within a margin, you can advise them. Without that, I would not know where to start advising the client in terms of, ‘At the end, this is what you are going to recover’. It is guesswork.”
Sam Hayman retains concerns over the role of proportionality in budgeting the types of serious injury cases his firm handles. “It does get to a point where, if you are dealing with a 15-expert child brain injury case – which probably will be automatically exempt, but we are seeing some be brought in – it can be the starkness of the costs, rather than a consideration of whether they are proportionate, that strikes the judges. They are used to seeing things on a more measured basis, but these are big, difficult cases and they are being brought into budgeting.”
While, from a claimant’s perspective, it is almost certainly proportionate to do that work, he says, a paying party is always going to say that the figure needs to come down because of proportionality. “It can be difficult when you get one shot at it in a one-hour hearing, because appeals are notoriously tough on these things. If you cannot get the judge to appreciate the points that are important and the difficulty with the case, and you do not get the right budget, it can deeply affect how you run that case and getting justice for that client. It seems very unjust if money is the thing preventing them from realising the full value of their claim.”
He argued that there should be a point at which cases are sufficiently serious to warrant a detailed assessment instead, especially as there are likely to be large incurred costs by the point it gets to the CMC anyway.
Steven Green agreed, saying this was why he and others had argued for the upper threshold for budgeting to be less than £10m (£3m would be his suggestion for personal injury cases); he questioned whether budgets were needed in very high-value cases where the costs were generally proportionate.
“This is Kerry Underwood’s, ‘You have the budget for a shed, but not for a palace’,” responded Judge Rowley. “If you have an inadequate budget, the assumption always was that you would have to cut your cloth. Is that the conversation that you have? Or is it telling the client they are going to be responsible for more than you originally thought?”
It is difficult, Sam Hayman responded. “We fix the pathway of the case because this is what is required in our experience of dealing with these complex cases. It is not really an option to say, ‘We just will not do those bits of work’. It is really, ‘We are going to have to suck it up’.”
The advantage of being on the bench, Judge Rowley went on, is that you get to see how different solicitors handle the same issue. “Judges may not have had the experience of dealing with a particular kind of case but they will have a broader view of how people seem to deal with them.”
Victoria Morrison-Hughes said that, although the budgeting process is meant “to create that situation where you would have the conversation, where you would cut the cloth accordingly”, the reality is different for serious injury cases. “What I am seeing is that solicitors are just running the cases with the original case plan and saying, ‘We will park that argument for a later date and take our chances’.”
You can easily have this conversation with privately paying clients, said Jack Ridgway, but not so with protected parties. “The other issue with protected parties is you have to work out what the judge at the approval hearing – who is not the same judge who cost managed this – is going to decide is the minimum you actually have to do for them to approve a settlement.
“There is a good chance that judge will not be an expert in personal injury or clinical negligence. They are going to be more cautious, questioning, ‘Why have you not explored this issue? Why have you gone down that route?’ You still have to convince a judge that this is a settlement they can approve, whether I think I have the budget to do that or not. That is where the conflict comes from.”
For Roger Mallalieu, the difference is that costs budgeting is intended to exercise prospective control over behaviour, and it does this to a far greater extent in personal injury cases than in, for example, commercial cases. “In personal injury cases, the issue is much more acute for firms. They are much more reliant on what they get paid for a case and what they recover from the other side.
“They face particular difficulties in recovering costs in protected party cases, whereas, in commercial cases, I think there is much greater flexibility to simply go to the client and say, ‘The judge has said this is all you are going to recover by way of these costs, but you want to win your case. This is what we think we need to spend’.”
It is also the case that PI is simply a costs battleground – that might be why, he went on, in response to an example given by Jack Ridgway, there is nothing like the same fight over a £1.5m budget in a £30m commercial case likely to settle for £20m as there is over a £1.5m budget in a £30m child brain injury case where approval will probably be in excess of £20m.
Birss LJ suggested that, “if there are lawyers who have failed to persuade a judge to do something, I understand why, at a human level, you want to blame the judge, but speaking from a judge’s point of view, maybe you failed to persuade the judge. In that sense, it is not different from the detailed assessment process. At the end, one may fail to persuade a judge that that exercise was the right thing to do.”
Sam Hayman pushed back on this – at detailed assessment “it is far easier to put together a persuasive argument, where everything can be disclosed and discussed. At case management stage, you might not be able to explain everything you are planning to do and why”.
Another difference, added Steven Green, was that “I find you get more sympathy on complexity at a detailed assessment than you do at a budgeting hearing”, where value is the predominant factor considered by the court.
Vulnerability progress
Where there has been some progress, it was suggested, is in making provision for extra work caused by the client’s vulnerability, although there could be a practical problem of proving it because this is not something historically recorded by fee-earners.
“There is also the issue that you are asked that prospectively,” said Sam Hayman. “How many times am I going to have to be on the phone for 15% longer with this client, because it is really difficult for them? I don’t know.”
Victoria Morrison-Hughes, who has been at the forefront of trying to educate solicitors about the vulnerability rules, suggested recording the fact of a vulnerability at the start, and then coming back to it later as a good reason to depart from the budget. Then, rather than calculating it on a time-spent basis, the court could apply a broad-brush uplift, akin to the old ‘care and conduct’ uplift.
Shaman Kapoor thought it better to deal with vulnerability at the end of the budgeting hearing, after the judge has set the budget in the usual way, so they can then reflect again on what is a proportionate figure: “You almost want to test the judge, to get a figure on the budget first without addressing the issue of vulnerability, and then go back for more.”
This would deal with concerns of double recovery – that the other party would not know whether the vulnerability was already built into the figures.
The problem, said Victoria Morrison-Hughes, is that the vulnerability is not always known at this stage. “It may have only just come to light, before the costs budget is being prepared, and there might not be any evidence from that particular case of how that vulnerability has required additional support or caused additional work.” Either way, said Steven Green, it is vital to have it recorded whether or not the court took vulnerability into account.
For David Marshall, “it’s great that the rules now specifically acknowledge the importance of making sure vulnerable parties have proper access to justice, even if that increases costs, but the Ministry of Justice from a policy perspective have been reluctant to spell out what this means in practice either for proportionality or in fixed recoverable costs. That means that we will need some judicial decisions to guide us on how to deal with this in practice.”
Sam Hayman raised a specific difficulty of advising a vulnerable client through a provisional assessment when there is a fixed £1,500 recoverable for it. “I struggle to see that any firm can really do those at cost, never mind profitably, for all the work that is required.”
When are costs proportionate but not reasonable?
Judge Rowley then took the discussion into the difference between reasonableness and proportionality. Jack Ridgway said: “I have never in 11 years of budgeting seen a judge sit down and go, ‘This is what I consider as reasonable, but this is proportionate’. I am not sure most budgeting judges could tell you the difference between reasonable and proportionate. I think, in their head, it is the same concept.”
Roger Mallalieu observed: “I could not tell you the difference between reasonable and proportionate and we argue about it. I have entirely failed to understand how you could ever end up at a level of costs that is said to be reasonable, taking into account complexity, value and all the other factors, but is also then said to be disproportionate.
“If you arrive at that decision, it means you have not taken into account all of the factors in signing them off as reasonable in the first place.”
Proportionality was meant to be an additional controlling factor but has simply not achieved that, he went on: “Conceptually, the idea that proportionality means that costs should only ever be a small percentage of the value of the case is clear, but that is not what proportionality is in the rules. Proportionality says value is only one factor. You take into account all the other factors, which are all the same other factors that you take into account for reasonableness.”
Jack Ridgway saw proportionality as “a wider test that says there are cases where we are not going to allow the little guy to be bullied, just because they do not have the resources. That is why it goes beyond value. How well that works in practice is another thing entirely”.
It is too early to talk about the impact of last year’s fixed costs extension because there has been little litigation so far. Steven Green said he is starting to see the beginning of a “huge battle” around allocations to the tracks and complexity bands. Might it end up in the Court of Appeal? “It is a discretionary point but I assume there will be some ground rules and some points appealed from it.”
Shaman Kapoor said: “I cannot imagine the Court of Appeal will enjoy having its time taken up with how discretion should be applied.”
Birss LJ responded: “The fact that things are discretionary and therefore difficult to appeal does not seem to have stopped all sorts of other appeals.” But, curiously, not over budgeting, the Senior Costs Judge, Andrew Gordon-Saker, observed.
Roger Mallalieu recalled a couple of budgeting cases in the early days which did not go well for appellant. “Therefore, there was a general, strong discouragement from trying again. I do not know whether that was deliberate or not but, if it was, it was very effective.”
Permission to appeal is sought in plenty of cases, said Jack Ridgway, and then used as a hook to do a deal. “A lot of people, where they are dealing with large baskets of cases, will take the long view: ‘Is it worth just paying a bit more on this one to avoid a decision I am not going to like for the next 1,000 cases?’”
ADR and costs – a good mix?
There is an ever-greater push for ADR – not least after last year’s Court of Appeal ruling in Churchill – but Judge Gordon-Saker did not anticipate making ADR orders himself. “By the time a case comes to me, the parties have had an opportunity to talk to each other. You would think that mediation of costs would be an obvious thing. You are just arguing about how much. It is going to be somewhere in the middle. We are not arguing about the rights and wrongs of people’s behaviour. Of course, I do not see the cases that have been mediated successfully, but I do not get that impression.”
Shaman Kapoor, a member of the CADR panel since its inception, said he does half a dozen cases a year and finds mediation “extremely effective in costs work”. Steven Green was very keen too, saying a lot of costs disputes that settle close to the hearing would settle earlier if there was more ADR: “It is crying out in many cases for sensible parties, who broadly understand the issues, to sit down with costs professionals, who know broadly what the court will allow, around a table.”
The problem he has found with ADR is agreeing terms of the mediation and particular whether each side should bear their own costs; this can make it an expensive exercise if the mediation fails – and if it is due to one party’s bad behaviour, the court cannot be told.
“As a compromise, we say, if we settle at the mediation, each side bear their own costs. If we do not, it becomes cost in the case and we think that is a reasonable term, but many parties will not accept that. They will only mediate on the basis of each side bearing their own costs. Agreeing terms has become a stumbling block to volumes.”
“The only thing the court, it seems to me, can control is where a party refuses to participate in mediation, because that is obvious through the correspondence,” said Shama Kapoor. “After they get to mediation, it seems to me there is no way of controlling it.”
Judge Rowley said he was “not averse” to making an ADR order, “but it seems to me that the impetus should come from the parties themselves”.
Who needs to draft a bill when we’ve got AI?
You cannot gather lawyers in a room at the moment without asking about AI. For Jack Ridgway, bill drafting is the main area where it could be deployed. “Bill drafting is, at its core, an accounting exercise with a lot of standardisation in terms of phases, tasks, activities, etc. Most people should be using electronic cases management systems of some sort and AI can make quite a significant difference. You still need to have someone go through the bill at the end, but the process of putting it together is ultimately a relatively menial task. It is not necessarily where a Costs Lawyer adds the most value.
“When you get to the advice and advocacy, that is where, even if AI could do it, you might not want it to. It is a bit like aeroplanes. Your plane can land itself, but you want a pilot in the cockpit still when it comes time to land.”
Steven Green reckoned the debate is little different to the one a decade or more ago on electronic bills and time recording. “You can have all the AI you want, but if time recording is not pulling things through into budgets or bills, it just does not work. It is that behavioural, cultural thing. If people recorded the time, AI would have an impact.”
There are practical considerations too, said Sam Hayman, with firms having to overhaul the way they store data, with a single ecosystem, a set language protocol and specific meta-tags – this goes for all of a firm’s work, not just costs. “It is not as simple as just saying, ‘We have all this data here. The computer can sort it out’. It has to be in a specific place and in a specific way for it to work.
“I am not saying that will not be overcome. Probably in a very short while it will, because it moves very quickly but, if it can be overcome, it is a huge cost. In another year, it might be half the price or a tenth of the price, doing something way better. When do we invest? When do we not? How should we gather data? What data should we gather? What should it look like?
“No doubt it plays a role, and it is something I am acutely interested in, but trying to make it work is the problem at the moment. That is a huge capital investment that you might not get back.”
In theory, AI would allow firms to ask, for example, ‘How many cases of this particular injury have we dealt with? What happened in that? Where are our claimants coming from for that type of work? Should we market in that area?’. “The issue is quality of data before you get there,” Mr Hayman continued. “Now that people are being shown the opportunity, it is going to take five to 10 years to get the quality of data there to make it do anything worthwhile.”
David Marshall added: “This is, of course, flavour of the month, but it is very early days. I agree that a lot of the problem is a data input/analysis issue but given the length of big cases take it will take some years before this problem is resolved even if we started doing it perfectly tomorrow. Even then, whilst AI will definitely play a part, especially in very fast analysis of a bill and summarising where it differs from the norm, human intervention will still be required for some considerable time to come to sense check the outputs.”
Birss LJ concluded that many of the issues the group had debated were actually data problems. “When the judge says, ‘Of course vulnerability is incredibly significant, but tell me what difference it makes to the costs budget’. That is a very fair question to which data is the answer. I am not surprised necessarily that a firm cannot answer that question today, but I would be astonished if a firm could not answer that question in five years from now. That is not AI. That is IT.”