Last week the Civil Justice Council (CJC) published the Final Report in its Costs Review, conducted by a working group led by Lord Justice Birss. Its recommendations are separate to, but take into account, the planned extension of fixed recoverable costs to cases valued at up to £100,000 which is now due to come in from 1 October this year.

Key recommendations include:

  • a pilot of a "lighter touch" approach to costs budgeting for cases in the Business and Property Courts, and cases valued at up to £1 million in other courts, though there is no detail as to what that lighter touch approach would entail;
  • creating a new band of guideline hourly rates for complex, high value, commercial work, and including counsel's fees within the guideline hourly rates regime; and
  • potential new powers for the courts to make costs orders where matters settle pre-issue but the parties have not agreed costs.

Costs budgeting

Costs budgeting rules were introduced in 2013, following recommendations made by Lord Justice Jackson in his "Review of Civil Litigation Costs: Final Report" in 2010. The CJC consultation paper noted that the implementation of costs budgeting had not been without its critics, with some calling for its immediate abolition, while supporters argue that it is critical to access to justice and allows individual claimants to manage downside cost risk.

The CJC's final report states, "Overwhelmingly, and somewhat surprisingly, responses were favourable, but with some significant tweaks recommended." Only a handful of respondents favoured abolition of costs budgeting altogether.

The report recommends that costs budgeting should be retained, while recognising that "one size does not necessarily fit all" and that a more tailored approach should be permitted to suit different work types and/or venues. Among the areas singled out for special treatment are claims progressing in the Business and Property Courts. For these cases it is recommended that a "lighter touch approach" be piloted in the Rolls Building and potentially one of the regional centres for all cases valued above £1 million where budgeting currently applies (ie typically cases up to £10 million).

A pilot of a lighter touch approach is also recommended for cases between £100,000 and £1 million, whether proceeding in the Business and Property Courts or elsewhere. As the report states, "It is thought that these cases are at greatest risk of incurring disproportionate cost, but are not so high in value that full scale budgeting, as we currently know it, needs to apply."

The report also recommends facilitating the use of a staged approach to costs and case management, so that costs management and case management tasks would not have to take place simultaneously, though it notes that there should always be costs information exchanged ahead of the first hearing, given that good case management always has regard to the likely cost of a step.

Finally the report notes that, in due course, the working group is ready and willing to provide recommendations around topics which were less controversial amongst consultees, including revisions to timescales for exchanging budget discussion reports, simplifying the process of budget variation, considering the introduction of penalties for those who default on aspects of the budget timetable, and the approach to hourly rates and to pre-action/incurred costs in the budgeting process.

Guideline hourly rates (GHRs)

GHRs are intended to provide a starting point for the summary assessment of costs, but are sometimes also used on detailed assessment. The GHRs remained unchanged for many years but were updated following a review by a committee led by Stewart J in 2021.

The CJC's task in the current review was to consider the purpose and effect of GHRs, and the proper approach to reviewing GHRs over time. The report recommends that the system of GHRs should be retained, noting that there was no real appetite amongst respondents for GHRs to be abolished and there are many advantages to retaining them, so long as they are kept up to date and "a careful eye is kept on the market (and/or sectors of the market) for any wholesale changes in billing structure".

The overarching recommendation is that the rates identified in the 2021 review should be retained, subject to a retrospective uplift to reflect the fact that some time has passed since the evidence for that review was collected, and appropriate annual index linked increases. There should then be a detailed review in approximately five years' time (and every five years thereafter). A working group should be set up now to consider the appropriate methodology and resources needed for that review. Other changes it is proposed the working group should consider before the first retailed review include:

  • the creation of a new band for complex, high value, commercial work, whether in London or elsewhere, as the current top band is widely considered to be unrepresentative of the fees charged for top flight commercial work;
  • including counsel's fees within GHRs, to address the current perception that counsel's fees are not being adequately addressed and that there is no real justification for treating them differently from solicitors' fees
  • clearly stating the test to be applied when considering a departure from the GHR – though the report noted that there are highly divergent views about what the test for departure should be, from whenever it is reasonable to requiring a clear and compelling justification.

Costs under pre-action protocols

The report notes that there was strong support in principle for a change to allow courts to deal with costs incurred in the pre-action arena, though such a change should not be universal. Two competing factors were identified: claimants should not be discouraged from participating in pre-action protocol exchanges by fear of adverse costs orders, but at the same time a party which incurs pre-action costs should be able to seek an order that those costs be paid.

The report recommends, subject to a pilot scheme, a rule change (or possibly legislation) providing for certain types of dispute to be deemed "issued" at the point that a relevant pre-action protocol is commenced – particularly where an existing pre-action protocol (such as the protocol relating to housing conditions) provides for recovery of costs where claims are settled without litigation. At the moment that obligation is unenforceable absent an agreement to pay costs, but the new rule would change that.

More generally, the report recommends that consideration should be given to whether CPR 46.14 should be amended, for some or all cases or case types, so that the courts have power to deal with the incidence of costs where a case settles pre-action but the parties have not agreed costs – not just (as currently) the quantification of costs where there is an agreement to pay costs.

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