UK: Why Should You Have To Sue In The Commercial Court To Avoid Costs Budgeting?

Last Updated: 7 December 2012
Article by Richard Langley

The latest attempt to control litigation costs is fast on its way and the profession is seemingly sleepwalking its way towards it.

On 1 April 2013 CPR Part 3 will be amended to introduce costs budgeting to all multi-track cases in the High Court and county courts, the only exception being the Commercial (and Admiralty) Courts.  This is a really significant change that it will not be safe to ignore.

CPR 3.14 will provide that any party which fails to file a budget shall be treated as having filed a budget comprising only the applicable court fees.  On any subsequent assessment, the court will not depart from the budget (ie nothing for solicitors and counsel) unless satisfied that there is good reason to do so.

There can be no doubt therefore that most parties will dutifully comply; and solicitors will labour over the completion of Precedent H ("in landscape format with at least 12 point typeface").  For most the labour will be very much manual.  In his Final Report, Lord Justice Jackson stated how impressed he had been by costs budgeting software that had been demonstrated to him, by a firm specialising in construction litigation.  That was three years ago and since then IT providers have not been rushing to offer software packages that will tailor with the variety of different time-recording systems that firms use.  Even if the software was available, many firms would not be able to justify the investment.

Like all the previous civil justice reforms, this one introduces additional processes and is bound to add to the time spent in the conduct of litigation and hence the costs.  There will be exceptions of course.  Those judges who have the time, inclination and ability to do so may well use cost budgets to make case management decisions that cut out whole swathes of cost.  But these exceptions will be few and far between.  Anecdotal evidence of the costs management pilot scheme in the Technology and Construction Court (a court at the forefront of case management, with docketed judges, and deep familiarity with budgets from construction projects) has been that the parties file budgets but neither side have any interest or desire to cut back the other's budget since that might only undermine your own budget.

As for Precedent H, once examples start circulating we can predict that these will get recycled for the next case.  Of critical importance will be the list of assumptions on which the budget is based.  The longer and more detailed the list, the more scope there will be for justifying a deviation from the budget figure later down the line.  The lists of assumptions will grow as time goes by and more examples circulate.  The preparation of costs budgets will become an exercise focused on ensuring that every potential cost item is either included in the budget or expressly excluded by reference to an assumption that might later be resiled from.  Once budgets are approved, the costs embodied in those budgets are legitimised and are that much more likely to be actually incurred.  My prediction is that costs budgeting is going to lead, on average, to an increase in litigation costs, certainly when you factor in the additional costs generated by the budgeting process itself.

This brings us back to the Commercial Court.  Why is the Commercial Court exempt from all this?  In a recent seminar on the subject, costs management evangelist, HHJ Simon Brown QC, explained that it was not appropriate to impose such a regime on Russian oligarchs who did not care how much money was spent on litigation. So why should such admirable freedom of choice not be extended to other litigants and not just the users of the Commercial Court?  Why not give all litigants the chance to opt-in or out of different regimes of costs management and case management?

The way forward may be something along the lines of a quietly effective experiment that has been operating since 2010 called the Patents County Court.  This provides parties with a strict regime of case management (for example, there is no standard disclosure) and the total recoverable costs are limited to £50,000.  In a recent case (Gimex International Groupe Import Export v Chill Bag Co Limited and others [2012] EWPCC 34), the successful claimant, which had actually incurred costs of £119,000, pointed out that the defendants had formed two camps with separate representation and it therefore sought about £45,000 from each camp.  Judge Birss QC refused.  He acknowledged the injustice to the claimant but pointed out that, if the claimant wanted full costs recovery, it could have sued in the High Court.  Instead, it had opted in to the Patents County Court regime, where it had benefitted from the case management innovations and capped its own potential liability to the defendants for costs at £50,000 also.  The Patents County Court is for intellectual property claims.  How long before all litigants are given the chance to opt in to something similar?

This article was first published in New Law Journal on 16th November 2012.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Richard Langley
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