UK: Court Imposes a Costs Cap

Last Updated: 19 June 2003

In a ground-breaking decision in the High Court, a costs cap has recently been ordered under the Civil Procedure Rules (CPR). The costs cap is to apply both retrospectively and prospectively up to the end of the trial. The order was made in the Nationwide Organ Group Litigation (A B & Others v Leeds Teaching Hospitals NHS Trust [2003] EWHC 1034). The judge held that in group litigation there is a clear risk that costs may become disproportionate and excessive and therefore the costs cap order was necessary to keep costs within bounds. However there seems no reason why the decision should not be followed by judges in other large-scale litigation.

Background

Since the inception of the CPR in April 1999, parties are required to provide the court and each other with estimates as to the likely costs to be incurred in conducting a matter. The estimates must be provided to the court at certain stages of the litigation and, until recently, have received little attention. In recent decisions, however, the courts have started to use their case management powers to control costs by relying on the parties' estimates. For example, the courts have begun taking into account a party's estimate filed during the course of litigation when assessing retrospectively the costs that will be allowed to be recovered by that party.

In the Nationwide Organ Group Litigation, Mr Justice Gage has gone further and for the first time used his case management powers to rely on the parties' estimates to impose a costs cap on the claimants' costs in relation to certain retrospective costs and also prospectively up until the end of trial. The parties have liberty to apply to vary the order, but only in the event of some future unforeseen and exceptional factor which affects costs.

Facts

This group litigation arises out of the practice by various hospitals to retain the organs of deceased children and adults. This practice was discovered in 1999, following which individual claims were made by claimants against the different hospitals involved through many different firms of solicitors. Because of the number of claims involved and common features of each of them, the claims were later grouped together and two Group Litigation Orders (GLOs) were made. The first GLO related to the Royal Liverpool Children's Hospital at Alder Hey, Liverpool and the second GLO, made in the current litigation, was in respect of all other hospitals and became known as the Nationwide Organ Group Litigation.

Earlier this year, Mr Justice Gage gave orders for directions for the conduct of the Nationwide Organ Group Litigation leading up to a trial commencing in January 2004 estimated to last for 4 to 6 weeks. The trial will involve four lead cases. (There have been 2,100 potential claims notified, although at the date of this judgment only 369 claims had been registered.) The causes of action are expressed as negligent failure to counsel bereaved relatives; breach of statutory duty; negligent failure to provide information; wrongful interference with a body; and deceit. Damages claimed will include aggravated and exemplary damages; and damages for breach of human rights. The parties agree that the legal issues are complex but, in the judge's view, the factual disputes are likely to be less complicated.

The costs capping order arose out of a request by the defendants. The claimants did not seek any such order in respect of the defendants' costs. At the hearing of the application, the judge sat with Senior Costs Judge Hurst, with whom he discussed the issues in this case.

Power to make a costs cap order

Gage J considered in some detail in his judgment whether the court has the power to make a costs cap order. He acknowledged that the CPR gives the court no specific power to make a costs cap order. However the Supreme Court Act 1981 (as amended) gives the court wide powers in relation to costs and the CPR also provides the court with extensive and wide-ranging general case management powers to be carried out in accordance with the overriding objective in CPR 1.1. The general case management powers are contained in Part 3 of the CPR and the powers in relation to costs are in Parts 43 and 44. Section 6 of the Practice Direction about costs also deals with estimates of costs and provides that parties and their legal representatives must take certain steps to keep the parties informed about their potential liabilities to costs and in order to assist the court to decide what, if any, order to make about costs and case management. In light of these provisions, the judge resolved that he had the power to make a costs cap order. He stated:

"In my opinion the general powers of case management and in particular CPR 3.1(2)(m) and 44.3 are sufficiently wide to encompass the making of such an order in both GLOs and other actions. In addition, the provision for Estimates of Costs in the Practice Direction about Costs is, in my view, in keeping with such a power."

The judge also referred to the Court of Appeal decision in Solutia UK Limited v Griffiths [2001] EWCA Civ 736 which he found gave "further encouragement for the controlling of costs". In that case Sir Christopher Staughton stated:

"So surely case management powers will allow a judge in the future to exercise the power of limiting costs, either indirectly or even directly, so that they are proportionate to the amount involved."

Gage J held that in group litigation the desirability of ensuring that costs are kept within reasonable bounds made it unnecessary for the court to require exceptional circumstances to be shown before exercising its discretion to make a costs cap order. However he noted that this might be required in other types of litigation, for example, administrative cases.

Factors to be taken into account
Before the order was made, the claimants argued that to impose a cap which is too draconian would be a breach of the claimants' human rights. However the judge found that the large sums which had already been spent in this case and the estimate put forward for future costs indicated that there was a clear risk that costs may become disproportionate and excessive. As at February 2003 the claimants had already spent £1.45m on generic issues (in addition to substantial sums incurred in respect of individual claimants) and the claimants estimated they would need to spend an additional £1m up to and including trial. Gage J said that the costs cap order was therefore necessary to keep the costs within bounds. In making the order, he took into account the following matters in this case:

  1. The order for costs must be proportionate with the amount at stake and the complexity of the issues. He referred to the two-fold test of proportionality, namely, a global test to see if the sum is proportionate to the amount at stake and, secondly, if the global sum is disproportionate then the court should look at the component parts in order to determine if they are proportionate (see Lownds v Home Office [2002] EWCA Civ 365).
  2. The judge accepted the claimants' estimate of damages of approximately £15m (which may be discounted for claims which fail on the facts) as being more realistic than the defendants' estimate of no more than £3m. Therefore, if the number of claimants is 2,100, the judge calculated that the average sum in damages per claim would be just over £7,000 which he said was "a not unreasonable figure".

  3. The costs cap should only relate to costs incurred in relation to generic issues.
  4. In conducting a costs cap exercise, the judge found that he must adopt a broad approach. It is not possible, nor would it be cost effective, for the court to go into the minutiae of each item.
  5. The judge found he must be careful not to assess the claimants' costs solely on the basis of the sum for which the defendants' solicitors and counsel have agreed to conduct the litigation. This may provide a guide to costs, but it should not be the sole or dominant factor.
  6. In assessing the global figure at which costs will be capped, the judge said he would do so on the basis that the trial will last no longer than 4 weeks. If it lasts for longer, this will be a factor which may give rise to an application to vary the order.
  7. Having assessed the global sum comprising the various component parts, at the conclusion of the trial, the judge stated he hoped to be able to make an order for costs which would avoid the necessity for most, if not all, of the costs to be the subject of a detailed assessment. The order would, of course, only be in respect of costs actually incurred up to the limit of the costs cap.
  8. The judge gave liberty to each party to apply to vary the order in the event of any unforeseen and exceptional additional costs arising; or in the event of an unforeseen event leading to a reduction in costs.

Component parts
The judge then made findings in relation to the following four component parts based on the costs estimates presented to the court by both parties:

  1. Solicitors' costs
  2. Counsels' fees
  3. Experts' fees
  4. Other disbursements

There were no major disputes between the parties in relation to experts' fees and other disbursements, however the claimants' estimates for solicitors' costs and counsels' fees far exceeded the defendants' estimates. In relation to the solicitors' costs, the judge assessed broadly what work had been done and was yet to be done and applied a common hourly rate of £155 per hour, rather than attempt to calculate the number of hours to be worked by each grade of fee-earner. He accepted that the preparation work by the claimants' solicitors up to trial will be greater than that of the defendants, but there would be no difference in the workload during the trial. In relation to counsels' fees, he found that counsel on each side will be involved in much the same amount of work. In calculating figures for each of the component parts, Gage J took into account advice from the senior costs judge. He concluded that there should be a costs cap on the claimants' costs from February 2003 to the end of trial in the total sum of £506,500, namely, approximately half of the sum which had been sought by the claimants.

Comment

The courts have been paying increasing attention to parties' estimates over recent months and using them to control, after the event, costs recoverable from the other parties. This decision takes this process one stage further, with the judge controlling recoverable costs in advance of their being incurred.

What this means in practice is that parties will need to take great care in preparing costs estimates. If the estimate is too low and further costs are incurred, the court may not allow their recovery on a summary or detailed assessment. Too high and the opposing parties may ask the court to impose a costs cap during the course of the litigation. The cap in this case was of course imposed in the context of a GLO, but there seems no reason in principle why a similar approach might not be taken in other large-scale litigation.

The judge's indication that he hopes to avoid the necessity for a full detailed assessment of costs is also of interest. If this approach is adopted more generally, it will further emphasize the importance of costs estimates and the care which parties will need to take in their preparation.

Article by Anna Pertoldi, Mark Terry and Kate Hurford

© Herbert Smith 2003

The content of this article does not constitute legal advice and should not be relied on as such. Specific advice should be sought about your specific circumstances.

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