Frustrations with the costs management regime are by this point well-established. If you’ve been lucky enough to cross paths with those engaged in the process over the last few years, you’ll have heard the horror stories of extensive delays and widespread judicial inconsistency. Some of the problems have dissipated, others were addressed by the 83rd Update to the Civil Procedure Rules (which came into force on 1st April 2016) and some still linger on. But as the dust settles on the most fundamental change to the civil justice system in over a decade, the question on everyone’s mind is: Does it actually work?
Jackson LJ himself appeared to provide a definitive answer when delivering a lecture in May last year: “Costs management works… I predict that within ten years cost management will be accepted as an entirely normal discipline and people will wonder what all the fuss was about.” But not everyone was convinced and as always, actions speak louder than words.
On 28th January 2016, the man himself returned to his soapbox and made the profound recommendation that fixed costs be extended for all civil claims worth up to £250,000. Catherine Dixon, Chief Executive of the Law Society, said that she was “astounded” by the proposal. She was not the only one, in what proved to be a very interesting day at the water cooler.
Clearly, if this vision were to become reality, it would mean the beginning of the end for costs management. With its applicability restricted only to very high value matters and with costs capping a more familiar tool for the job in such contexts, it is not difficult to foresee the process becoming “opt-in”, instead of “opt-out”, before too long.
Although further reform now seems inevitable, with a horizontal extension of fixed fees the most obvious starting point, it is a safe bet that Brexit will dominate the government’s agenda for the foreseeable future. Whilst this doesn’t exclude the possibility of further domestic reform, further consultations on fixed fees for clinical negligence/NIHL claims and on a vertical extension of the existing regime are bound to fall behind in the pecking order. As a consequence, the door may be left ajar at little longer than previously thought and costs management may yet be given the chance to prove its worth.
Signs of progress
Whilst the process was initially inhibited by arguments concerning the relevance of hourly rates (now addressed at 7.10 of PD 3E), the correct approach to contingencies (prior to the decision in Tim Yeo MP v Times Newspapers Limited  EWHC 209 (QB)) and compatibility with the existing Bill of Costs (enter Precedent Q), the view from the frontline could now hardly be clearer. Amongst those dealing with costs management on a daily basis, there is a firm belief that the process is finally finding its feet.
At this year’s ACL conference, numerous speakers lamented the lack of statistical evidence surrounding the budgeting process. But would comparisons between the parties’ initial budgets and their corresponding detailed assessment outcomes prove useful? Those seeking solace in such a comparison might be looking in entirely the wrong place.
Perhaps one of the most obvious changes is a clear reduction in the number of costs-managed cases actually proceeding to a detailed assessment hearing. Parties accept that the test as to whether there is ‘good reason’ to depart from the Court approved budget at CPR 3.18 is intended to be robust. The scope for the customary war of attrition is therefore greatly reduced and arguments are now more typically limited to hourly rates and non-budgeted costs. Proportionality too, will have already been considered as part of the budgeting exercise and whilst residual arguments will persist, the result is that there is much less to gain from an expensive day in Court than under the previous regime. Of course, it is absolutely right that litigators are held to their approved budgets and equally that are able to side-step a lengthy detailed assessment when they work within the set boundaries.
Assuming that decisions concerning the application of CPR 3.18 properly reflect the intentions of the rule-makers, this trend will continue, representing the most tangible realisation of the envisioned shift from retrospective to prospective costs control. The resulting certainty benefits both parties, with their respective liabilities crystallised before they set out on the path towards Trial. Should the unthinkable happen, the test of ‘good reason’ allows for deviation from the relevant phase of the budget if the circumstances justify it. Whilst a comprehensive fixed costs regime may provide the same degree of certainty, it will not provide anything close to the same flexibility in situations that warrant a different approach.
A statistical comparison would also mask the change in approach that costs’ budgeting is forcing upon multi-track litigators. Rest assured that one-by-one it is turning them into more frugal operators, determined not to find themselves on the receiving end of a dressing down at the CMC. Though many have returned from Court with their figurative tails between their legs, they have done so with a renewed appreciation for the commitment that the process requires. As a consequence, initial budgets are almost invariably lower in amount than they were two years ago for comparable cases. The need to be able to justify both the incurred and anticipated costs rightfully plays on the minds of fee-earners.
The impact of costs management is also being felt at board level, with explanations being sought as to why costs recoveries are so low in comparison to recorded WIPs. The truth is that traditional profitability models do not work in this new era and in a climate of fierce competition for multi-track work, a transition to phase-by-phase costs monitoring is an absolute necessity. Filing away the approved budget is simply not a viable option.
The most forward-thinking firms recognised the need to change their approach at an early stage and were able to adapt in good time. In contrast, the ‘wait and see’ approach taken by those more sceptical of the process fell flat on its face. Whilst sympathy must be reserved for local firms already struggling to meet the many demands of the post-Jackson era, the process must be unforgiving if it is to achieve its aims.
Budgeting is proving useful too, in circumstances where the size and resources of the parties are vastly different. In Socrates Training Limited v The Law Society of England and Wales  CAT 10, where Costs Budgets were utilised as part of a costs capping exercise, the Claimant’s initial budget was £417,000 less than the Precedent H submitted by the Defendant. In a scenario reminiscent of David v Goliath, the detailed breakdown contained within the parties’ budgets allowed Mr Justice Roth to scrutinise differences in the proposed spend and to strike a fair balance between access to justice and proportionate cost. Similar experiences are to be found when the Court approves the parties’ budgets in comparable circumstances. As a compulsory exercise, costs management is now assuming a leading role in ensuring that the parties are on an equal footing (CPR 1.1(2)(a)). This is a considerable achievement.
What lies ahead?
Shortly after the reforms were implemented, Mr Justice Ramsey claimed that it would take a full five years before we could assess whether they had been successful. It is a statement that is proving to be entirely accurate, though the inevitable period of transition that has taken place should not have come as such a surprise.
Those now looking to the proposed extension to fixed costs as a quick and complete solution must recognise that there is almost certainly no such thing. Serious questions remain as to the effect it would have on access to justice and equally to the ability of litigants to pursue cases in the public interest.
The multi-track represents a very different environment to what lies beneath and there is a real concern that even with certain safeguards, such a regime cannot account for the countless nuances and complexities that exist and arise in modern litigation. Costs management on the other hand arguably offers the best possible compromise.
The principles of fairness and accountability have always underpinned our much-revered civil justice system. It would therefore be a shame for decision makers to place those same principles at risk without first taking a second look at the merits of Jackson’s most cherished innovation.
There are now enough tools in the Court’s armoury, from costs management to the new proportionality test and indeed via the modified Part 36 rules through which to promote access to justice at proportionate cost. And if the budgeting process continues to stabilise, we may yet have the degree of certainty that we all crave.
Without doubt, further improvements to costs management lie ahead and it is in the interest of the entire legal profession to make it work. The only way to achieve it is through greater engagement at every stage of the process.
The vast lobbying clout of the insurance sector should not be underestimated. But if litigators roll-up their sleeves and embrace a new level of commitment and co-operation, then who knows, perhaps the tortoise might just beat the hare.
Do feel free to contact Colin Carr or any of the team at Civil & Commercial Costs Lawyers for your costs and budgeting needs. firstname.lastname@example.org or 0207 842 5969 - 07540987211
John Hilton is a Costs Lawyer at Civil & Commercial Costs Lawyers Ltd