Light at the end of the tunnel as new costs rules published

The buzz word of Lord Justice Jackson’s costs reforms is “proportionality”, and this is reflected in the amendments to the Civil Procedure Rules (CPR) that have just been published. We summarise below the main changes that will affect both practitioners and their clients following 1 April 2013. For the time being, these will affect proceedings brought in the county court, the Chancery Division and the Queen’s Bench Division (but not currently the Admiralty or Commercial Courts).

The overriding objective

The overriding objective already obliges the court to deal with cases justly. The new rules add the wording “and at proportionate cost” to focus the court’s mind on the price that the parties must pay for their case to be heard. The overriding objective (along with an amended CPR 3.9(1)) will also impose an additional requirement on the court to enforce compliance with rules, practice directions and orders, considering all of the circumstances of the case including the need for litigation to be conducted efficiently and at proportionate cost. Feedback that CMS has received from the judiciary indicates that judges are being encouraged to toughen up their stance on sanctions and to refuse to grant relief from such sanctions unless there are exceptional circumstances.

Case management

A new section is to be included in Part 3 of the CPR relating to costs management and costs capping. The idea is that the court will play an increasingly active role in managing both the case as a whole and the costs in particular going forward, so as to further the overriding objective. In particular, a new rule 3.1(8) will permit the court to contact the parties from time to time in order to monitor compliance with directions and requires the parties to respond promptly to any such enquiries. The court is also permitted to make a costs capping order limiting the amount of future costs (including any disbursements but excluding any additional liability) which a party may recover.

Costs budgets

New CPR 3.13 will require all parties, unless the court orders otherwise, to file and exchange costs budgets, either by the date specified in the court’s notice of proposed allocation of the case or, if none is specified, seven days before the first case management conference (CMC). This has been amended from the previous suggestion that it be filed within 28 days of the filing of the defence, but still requires the parties to consider up-front the likely costs involved. The court will also be able to make a so-called “Costs Management Order” at any time, recording the extent to which the costs budgets have been agreed between the parties or, where not agreed, recording the court’s approval following ‘appropriate revisions’ made by the judge. Costs management conferences, ideally by telephone or in writing, may also be used by the court to ensure that budgets are met or revised as appropriate.

Costs budgets are going to have a significant impact on recoverability of costs and as they will have to be certified by a statement of truth from a senior legal representative, it will be important to make sure they are as accurate as possible and include all of the appropriate assumptions and contingencies. When assessing costs on the standard basis following trial, the court will have regard to the receiving party’s last approved or agreed budget and will not depart from it unless satisfied that there is ‘good reason’ to do so. The recent case of Sylvia Henry v News Group Newspapers Ltd (click here for more detail) recently provided some limited guidance on what ‘good reason’ might be, although the onus must be on parties to ensure that they revise their budgets in good time and obtain either court approval or agreement from the other side to ensure that they are able to recover the costs incurred.

The statutory instrument just released does not include the proposed Practice Direction 3E that will accompany the new costs rules. However, it is anticipated that this will incorporate "Precedent H" that has already been released, and that parties should use to record their costs budget. It is also planned that it will contain further guidance on the costs recoverable for completing and updating the costs budget (the “costs on costs”) that will inevitably be incurred. Parties will only be able to recover £1000 or up to 1% of the approved budget (whichever is the higher) for the initial completion of the budget, and then only up to 2% of the approved budget for all further costs of the budgeting and costs management process.

Changes to Part 36 settlement offers

The sanctions already included in Part 36 that may be imposed on a defendant that fails to beat a Part 36 offer at trial will be supplemented by a new CPR 36.14(3), which allows for an additional amount to be recovered by a successful claimant. Where the amount awarded by the court (either in damages or in respect of costs if it is a non-monetary claim) is up to £500,000, the claimant may recover an additional 10% of the amount awarded. If the amount awarded is between £500,000 to £1 million, the claimant may recover 10% of the first £500,000 and 5% of any amount above that figure. The additional amount recoverable is capped at £75,000 but still represents an additional sanction for defendants for offers made within the Part 36 regime.

Sanctions for non-compliance

A failure by any party to submit its costs budget within the date specified will result in it being treated as having filed a budget comprising only the applicable court fees (new CPR 3.14). This is a somewhat draconian sanction which means that parties will have to ensure that they are sufficiently organised so as to obtain the data necessary to complete Precedent H in good time so as to meet the deadline set and so as to ensure that they maximise their ability to recover their costs of the proceedings.

Conclusion

It remains unclear whether judges will universally heed the encouragement to be tougher on sanctions and more involved in the case management and costs budgeting process. The rules are designed to force both the parties and the court to consider costs at a very early stage in the proceedings. However, putting all of the changes into practice may prove difficult. The courts’ resources may not stretch to permit the level of increased involvement envisaged by the new rules. Issues arising out of the new funding and costs budgeting regimes relating to, for example, potential conflicts between solicitor and client; matters of privilege; the need to obtain court approval for an updated costs budget (potentially on an urgent basis); and the potentially large gap that may open up between costs incurred by the parties and recoverable costs, have yet to be ironed out. It will be important for all those involved in litigation at every level to keep a close eye on how these reforms are put into practice following 1 April 2013 and adapt accordingly. In light of the sanctions outlined above, failure to comply could be costly indeed.

The planned reforms comprise arguably the largest overhaul of the CPR since their introduction in 1998. In particular, the entirety of Part 43 will be revoked and Parts 44 to 48 (dealing with costs) will be replaced. Other changes have been made to the CPR dealing with disclosure, evidence, the appropriate tracks on which cases should be allocated and the costs recoverable for an appeal, as well as changes specific to certain types of claims such as personal injury and clinical negligence.

Links to the relevant legislation are provided below:

LASPO

Civil Procedure (Amendment) Rules 2013

The Offers to Settle in Civil Proceedings Order 2013

The Damages-Based Agreements Regulations 2013

The Conditional Fee Agreements Order 2013

The Recovery of Costs Insurance Premiums in Clinical Negligence Proceedings Regulations 2013