Judicial Costs Management – what Mediators need to know

What's happening ?

• Since the Civil Procedure Rules came into force, the Court has exercised considerable case management powers - but has not been in a position to manage or control the costs of a case until after judgement has been given.
• It has been extremely rare in larger cases for courts to stipulate how much a party should be allowed to spend on its case, or recover from its opponents, as a case has been in progress. Matters of costs have normally been left until the outcome of the case is known. This is set to change considerably as of April 2013.
• As of 1^st April 2013, all multi-track cases (normally those worth over £25,000) dealt with by the Court will be subjected to active and robust costs management by the Court.
• The exceptions to this rule will be the Commercial Court and the Admiralty Courts. The Court will expect detailed costs budgets and will in effect set the amounts which it expects a winning party to recover for aspects of the case in advance.

When must this be done in the life of a case ?

• Unless the court otherwise orders, all parties (except litigants in person) must file and exchange costs budgets. Each party must do so within 28 days after service of any defence. The parties should attempt to agree costs budgets.

What's new ? Don't allocation/listing questionnaires contain costs estimates ?

• Costs management by the Court will require the parties to complete & file at court an extremely detailed costs budget. It's important to note that this is not an estimate. It is a budget. It will include costs already incurred and predicted costs for various stages or eventualities in the life of a case.
• The costs budgets are likely to reveal a lot about how a party plans to conduct its case. The precedent is called Form H and is a five page Excel spreadsheet. This is significantly more detailed than what was required before, for allocation or listing questionnaires.
• The costs budgets do not define what Solicitors can charge their clients, just what the Court will normally allow them to recover if they win, or what the Court will order them to pay if they lose. What Solicitors charge will still be a matter for their retainer agreement with clients.
• The court will review budgets as cases progress and will manage them. Parties will have to stay alert to alterations in their costs budgets, and seek the opponent's agreement and/or the Court's approval for alterations.
• In many cases it is expected that the Court will reach a judgment on the substantive dispute - then award a fixed amount of costs based upon the winner's budget, all at the same time. It is likely that the number of detailed assessments of legal costs will decrease considerably as a result of this change.

Why is this important for mediators ?

• There will be an early focus on the possible steps which a party may have to take to get a case prepared for trial. The extremely detailed budgets will enable parties to get a much better and more realistic handle on what a case will actually cost to bring to Court. Solicitors are very likely to err on the side of caution with costs budgets as high as possible, to protect their client's ability to recover costs in the "worst case scenario". They will also tactically want to scare the opponent with heavy costs budgets.
• The Court will scrutinise the budgets - and is likely to challenge excessive estimates robustly. As the budgets will be exchanged between the parties, each side will have a far better idea of its opponent's costs than before.
• The costs of mediation will be included in these budgets.
• It is often said that litigation can be something of an unruly horse. A party whose final costs exceed its approved budget by 20% will have an uphill struggle explaining or recovering that difference. Conduct of the parties on questions of cost will become ever more relevant.
• It is also thought that the parties will, more than before, seek to "front-load" their costs by preparing their cases as much as possible before issuing them at Court. They still run the risk of the Court not approving those costs, however.
• This budgeting process and the encouragement towards mediation set out in the pre-action protocols, should provide the parties with further reasons to mediate their dispute before it becomes subject to costs control by the Court.
• As Judges spell out to litigants more & more the actual costs consequences of litigation, it is expected that their encouragement of cases towards mediation will be even more persuasive - even be that only to narrow down expensive issues in a matter.
• This process is likely to encourage the early use of ADR as a cost-effective alternative to litigation. Mediators and their panels will need to continue to work hard to communicate the benefits of mediation directly to the litigating parties.

For more information please contact James Taylor, Associate Solicitor and Mediator.