Putting costs under scrutiny

16 August 2023

The Civil Justice Council (CJC) released its review in May this year, outlining recommendations on four specific areas exploring the impact on costs litigation and how these changes should be implemented.

Costs budgeting

The CJC decided that “costs budgeting should be retained, however coupled with its retention should be acceptance of the hypothesis that “one size does not necessarily fit all”.

Despite the criticisms levelled at the budgeting process, the CJC’s decision demonstrates that costs budgeting can be used as an effective tool to manage litigation. We live in a climate of increasing expenditure, and this is often evident in how cases are run and managed. Responses to the consultation proved that the majority of litigators favour costs budgeting.

As such, Costs Lawyers are increasingly replied upon by fee-earners to manage budgeting throughout the lifecycle of cases, which might require budget variations, further CCMCs and the drafting of schedules of costs.

From a personal injury and clinical negligence perspective, costs budgeting certainly appears to be on the increase, dictated by the inevitable rise in the value of claims and damages sought by claimants in response to the extension of fixed recoverable costs (FRCs) to cases up to a value of £100,000.

Respondents to the CJC identified there was appetite to both continue with the budgeting process and to apply exceptions. There was greater support for budgeting to be applied, including to children’s cases in personal injury and clinical negligence; the majority of personal injury and clinical negligence matters with a value of up to £2m; and, as well as maintaining the £10m cap, some defendant personal injury respondents requested it be extended beyond that figure.

In acknowledging that cases can vary quite significantly, attention was given to new cases in which qualified one-way costs shifting (QOCS) applies, with the recommendation made that defendants need only to produce a Precedent H front sheet, save for the court having power to request a full budget from the defendant.

The CJC considered that cases up to £1m would be at the “greatest risk of incurring disproportionate costs” but do not require the Precedent H in its current form. Instead, a ‘costs budget light’ would be proposed to avoid unnecessary costs and to mitigate time constraints and burden currently experienced by the court.

Guideline hourly rates (GHR)

The majority of respondents considered GHRs were a starting point of both summary and detailed assessment and as a general indication of what should be considered reasonable. There was a fluctuating view of how they should be applied, from considering GHR as a guide only, to implementing them as a fixed hourly rate, save for exceptional and complex cases.

The CJC recommended the structure should be maintained, with a few additional recommendations, namely:

  • Creating a new band for complex, high value, commercial work;
  • Retrospective uplift to 2021 figures;
  • Counsel’s fees within a context of GHRs; and
  • Applicable test for departing from the GHRs.

It was recommended that detailed reviews would take place around every five years.

Pre-action and digitisation

The majority view is held that the pre-action process allows for early settlement of cases, therefore limiting the costs and time pressures involved in running cases.

The CJC said there should be a process in which pre-action costs recovery should be facilitated in the same was as post-issue costs. This exemplifies the point made earlier that there is not a ‘one size fits all’ approach.

A recommendation was made, starting with a pilot for housing condition claims which settle within the pre-action stage, for a potential change, subject to the Civil Procedure Rules Committee, to allow for certain claims to be considered “issued” at the point it enters the pre-action protocol.

Consequences of the extension of FRCs

The aim of a more simplified and costs-effective litigation process came derived from the Woolf reforms some 25 years ago.

In many personal injury and clinical negligence cases, there often disparity between what a claim is worth and the costs associated with the matter. Costs are not merely predicated by the value of a claim but are influenced by other factors. The resultant effect of the extension to FRC is the impact this will have on litigators, especially in smaller firms, who may decide that issuing cases is not financially viable in the context of being limited to recovery FRC.

For some, this may be seen as a positive outcome, encouraging receiving parties to reach early settlements without the need for costly litigation.

The work of the CJC is far from over, and further recommendations are likely to be made around:

  • Timescales for the exchange of budget discussion reports;
  • Simplifying the process of varying budgets;
  • Wasted costs of the budgeting process;
  • Approach to hourly rates and pre-action/incurred costs;
  • Test for the departure of GHRs; and
  • Further extension to FRCs.

Notwithstanding the above, a promise of a detailed review after five years will allow for continued discussion and adaptation to ensure the changes and recommendations work for both business and lay clients alike.

A version of this article was first published in Litigation Funding magazine, as part of the ACL’s regular series of articles for legal publications to raise the profession’s profile.

David Bailey-Vella is vice-chair of the ACL and a Costs Lawyer at Shakespeare Martineau

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16 Aug 2023

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