On 1 October 2011 the Costs Management Pilot (the “Pilot”) started in the TCC and Mercantile Courts. As Claire King explains, the Pilot applies to any case which has its first Case Management Conference on or after 1 October 20111 and is scheduled to run until 30 September 2012.
The purpose of the Pilot, as stated by Jackson LJ in the introduction to the questionnaires being distributed by the courts to those participating in the Pilot, is to ascertain:
(a) the benefits and disadvantages of costs management; and
(b) how the process might be improved for the benefit of court users.
The Pilot has potentially wide implications for costs management in the TCC and has already been the subject of heated debate amongst practitioners regarding its potential advantages and disadvantages. It is therefore worth setting out in some detail the background behind the Pilot’s introduction as well as the provisions of Practice Direction 51G that govern the Pilot itself.
The Pilot arises out of Lord Justice Jackson’s Review of Civil Litigation Costs: Final Report (the “Final Report”) and builds on an earlier costs pilot which ran in the Birmingham TCC and Mercantile Courts from 1 June 2009 (the “Birmingham Pilot”).
In the Birmingham Pilot (which was voluntary), those who had agreed to take part had to complete an estimate of costs. Budget documents were to be lodged with the court before each Case Management Conference or Pre-Trial Review and the judge had the power to order regular hearings by telephone, if appropriate, to monitor expenditure. At each hearing, the judge would record approval or disapproval for each step of the action, either by agreement between the parties or after hearing argument. The judge would then give a direction for any party to apply to the court for assistance if it felt that another party was behaving oppressively in seeking to cause the party to spend more money unnecessarily.
As at 31 October 2009, the parties in eleven cases had voluntarily participated in the Birmingham Pilot. The results indicated that, done efficiently, the budget form took about two and a half hours for a solicitor to fill in. Solicitors commented that it was helpful in that it did force the solicitor in question to focus on the issues and what needs to be done to put up a good case. It was also reported that it was helpful to see what the other side’s costs were likely to be.
Judges had a mixed response. They generally found it to be an extremely useful aide to case management, but said that the Case Management Conference took longer with greater demands being made upon the court. Judge Brown of the Mercantile Court reported that reading and considering the costs budget form took about 15 minutes, whilst the TCC Judge, David Grant, said it took 15 to 30 minutes.
In his Final Report, Jackson LJ concluded that while no case had yet been made for introducing costs management in the commercial court, a powerful case had been made for introducing costs management in “those rather more modest multi track cases, where the level of costs is a matter of concern for the parties, or at least to the paying party”.2
In relation to the TCC, Jackson LJ did not recommend that costs management should be made compulsory but instead that a decision should be made by the judge in each case as to whether it would benefit the parties and the case.3
The Pilot is governed by Practice Direction 51G. This provides that for claims that fall within the Pilot, each party must file and exchange a costs budget in the form set out in the Precedents at the same time as filing the Case Management Information Sheet. Within the cost budget, reasonable allowances must be made for:
(i) intended activities: e.g. disclosure (if appropriate, showing comparative electronic and paper methodology), preparation of witness statements, experts reports, mediation or any other steps which were deemed appropriate to the particular case;
(ii) identifiable contingencies: e.g. specific disclosure application or existing applications made or threatened by an opponent; and
(iii) disbursements: in particular court fees, counsel’s fees, any mediator or expert fees.
The stated objective of the Costs Management Pilot is to “control the costs of litigation in accordance with the overriding objective”.4 The court will have regard to any costs budget filed pursuant to the Practice Direction at any Case Management Conference or Pre-Trial Review and will decide whether or not it is appropriate to make a Costs Management Order. If the court decides to make a Costs Management Order, it will, after making any appropriate revisions, record its approval of a party’s budget and may order attendance at a subsequent costs management hearing (by telephone, if appropriate) in order to monitor expenditure.5 Paragraph 4.5 also provides that a party may apply to the court if the party considers another party is behaving oppressively in seeking to cause that party to spend money disproportionately on costs.
The party submitting the costs budget to the court is not required to disclose it to any other party save by way of exchange. However, the parties are required to discuss their costs budget during the costs budget building process and before each Case Management Conference, Costs Management Hearing, Pre-Trial Review or trial. Where a Costs Management Order is made, then at least 7 days before any subsequent Costs Management hearing, Case Management Hearing or Pre-Trial Review, as well as before trial, a budget revision must be filed showing the reasons for any departures. The court may then approve or disapprove such departures from the previous budget.6
Seven days after any hearing, each party’s legal representative must notify its client in writing of any Costs Management Orders made at such hearing and also provide its client with copies of any new or revised budgets that the court has approved. When assessing costs on a standard basis, the court will have regard to the receiving party’s last approved budget and will not depart from such approved budget “unless satisfied that there is good reason to do so”.7
Nicholas Gould, a partner here at Fenwick Elliott, will, in his capacity as a Senior Visiting Lecturer at King’s College, London, be monitoring the effectiveness of the Pilot. He will be assisted by Claire King, an Associate of Fenwick Elliott, and also by Christina Lockwood, a lawyer and mediator with CEDR Solve, as well as by Thomas Hutchinson, an Associate of Freshfields. Nicholas and Claire previously headed up a team analysing the results of a questionnaire into the use of mediation in construction disputes that were conducted while Lord Justice Jackson was head of the TCC. Two questionnaires have been designed. First, a questionnaire for judges and second, a questionnaire for solicitors. Solicitors will be provided with the questionnaire whenever the issue of costs budgets is considered by the court as well as once the issue of who is to pay costs, and what amount, has been finally determined. They will be asked to fill in the questionnaire and then return it to the monitoring team. Judges will likewise be asked to complete a questionnaire whenever a costs budget is considered by the court. The aim of the questionnaires is to provide objective data on the effectiveness of the Pilot. Given the heated debate already generated by the Pilot, such data should prove extremely useful in determining whether or not to make costs management a permanent feature and, if so, in what form.
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