Natalie Johnston, Keith Conway, Peter Bourke and Bryan Johnston report on the debate about the impact of the Jackson reforms on litigation costs
One of the objectives of the Jackson reforms was to make litigation more cost-effective. By this benchmark the reforms have failed – they are actually making litigation more expensive.
This conclusion is drawn from a survey conducted by the Property Litigation Association and presented to its membership before a panel of senior judges on 5 November 2014. A summary of the discussion can be found on the PLA website (see below).
An overwhelming 86% of property litigation solicitors, barristers and cost draftsman who responded to the survey believe that the Jackson reforms have not resulted in an overall reduction in the cost paid by clients to their instructed firm of solicitors. An emphatic 80% do not believe the Jackson reforms will drive firms to greater efficiency and a near-unanimous 94% believe that cost budgeting has increased the costs incurred and charged to the client. This is a gloomy response to the reforms by those at the coal face.
The cost of the new procedure
The court now manages the costs to be incurred by the parties to proceedings as a tool to promote effective case management at a proportionate cost. The parties prepare and exchange budgets at the outset of litigation using a court-approved form (Precedent H) that requires the parties to set out hourly rates and the hours likely to be incurred for every step in proceedings such as disclosure and witness statements. If the parties do not agree all of each other’s budget the court has jurisdiction to control any aspect of the budget.
Precedent H is reviewed at a costs management conference and the court sets the budgets. The judges who are now asked to perform this task have had limited training and, generally, little experience of the work solicitors need to carry out; this is because most judges are or were barristers. The outcome has been a new layer of costs for the parties to bear which can often be out of proportion to what is achieved. Further, there is anecdotal evidence that parties are at times using Precedent H and cost management conferences to achieve tactical collateral advantages.
The work required to complete Precedent H is significant because each stage needs to be priced by the time required, level of fee earner carrying out the task and hourly rate. The parties will not be able to recover from the other side any costs incurred in excess of the budget unless they make an application to court and have a good reason to persuade the judge to increase the budget.
Importantly, the parties are capped at the amount budgeted for each stage of the litigation. This means that if, for example, more time is spent on disclosure than budgeted but less time is spent on witness statements the excess time incurred on disclosure will not be recoverable from the other side.
The significant point that came out of the debate on 5 November was that the review of Precedent H is meant to be a “high level review of budgets” and judges in practice will not look at hourly rates or hours but at the overall sums to see if it feels right. The courts do not have the time to review the budgets in any real detail: for example, Central London County Court limits such hearings to 45 minutes.
The judges are forming opinions of what is a proportionate sum by looking at the value of the claim and the nature of the dispute. The message from the panel was that the court will set case management directions based on what the case requires whether or not the approved budget is sufficient to cover all of the costs of compliance with those directions.
The result is that if a client wants to pursue a case that is particularly complex but not of a high value the court will set a budget that is proportionate and not one that necessarily allows the client to recover all of its costs. This is a profound change to the concept that a winner in litigation is entitled to its costs and is likely to exclude certain claimants from seeking justice.
A missed goal but some positive potential
The survey responses showed that only 56% of respondents agreed or strongly agreed that cost budgeting gives the client better cost protection against the other side’s costs. The previous system where the parties set out their overall expected costs in the “Allocation Questionnaire” meant the client knew how much the litigation was likely to cost; the courts could have limited the costs recoverable to this figure but chose not to. The significant change is that the courts can now impose a lower costs figure on the parties.
The reforms have the potential to be positive. Giving clients better cost protection has to be good. Unfortunately, it is clear that they have increased and front loaded costs by including a detailed cost budgeting stage at the outset of litigation. This is an expensive way of setting a cap on recoverable costs and it does not achieve finality as costs can still be assessed at the conclusion of a case.
It is likely that some issues will become clearer with time. However, if the goal was to give clients better protection against the other side’s costs, this could have been achieved at a much lower cost and with a much simpler procedure.
Cases where cost budgeting does not automatically apply
In these categories of cases, the court has the discretion to apply costs budgeting or not:
- money claims commenced on or after 22 April 2014 worth £10m or more or not fully quantified;
- low-value money claims that are the subject of fixed costs;
- cases that proceed under CPR 8 (Alternative Procedure for Claims), which will include unopposed business lease renewals.
For a summary of the discussion at the PLA debate see: www.pla.org.uk/images/uploads/library_documents/Summary_of_Costs_Debate.pdf
Natalie Johnston is a senior property litigator; Keith Conway is a partner at Clyde & Co; Peter Bourke is a partner at Wilsons Law; and Bryan Johnston is a partner at Dentons. All are writing on behalf of the Property Litigation Association.
