Costs Capping
After the
introduction of the CPR there was initially some debate as to whether or not
the Courts had the power, in individual cases, to make orders before the
conclusion of proceedings that had the effect of capping the costs that could
ultimately be recovered inter partes. It also took some time for judges and
practitioners to come alive to the idea that such a costs capping order could
be a useful weapon in a litigant’s armoury. Things have now moved on.
Any doubt
about the existence of such a power was finally removed by the Court of Appeal
in King v Telegraph Group Ltd [2005] 1 WLR 2282. This was a defamation
claim brought by a claimant who had entered into a CFA with his lawyers without
the benefit of ATE cover – the defendant was understandably concerned about
recovering its costs in defending what it considered to be an unmeritorious
claim.
After
referring to section 6 of the Practice Direction about Costs supplementing CPR
Pts 43 to 48 (information to be provided about costs at various stages of
proceedings) and some earlier decisions on costs capping orders, Brooke LJ
summarised the position thus at para. 85 of the judgment: ‘The language of
section 51 of the Supreme Court Act 1981 is very wide, and CPR r3.1(2)(m)
confers the requisite power.’ This section of the CPR simply confers a power
to, ‘take any other step or make any other order for the purpose of managing
the case and furthering the overriding objective.’
At one
point Brooke LJ referred to, ‘the introduction of this novel costs-capping
regime,’ (para. 102) and was enthusiastic about its merits: ‘I have equally no
doubt…that it would be very much better for the court to exercise control over
costs in advance, rather than to wait reactively until after the case is over
and the costs are being assessed’ (para. 92).
A costs
capping order was described as the first weapon of choice for a party who was
concerned about ‘extravagant conduct’ by the other side. A detailed assessment
after the event and a wasted costs order against the other party’s lawyers were
the only other two options. It was further suggested that the total amount of
recoverable costs that was prescribed by the Court should be inclusive of any
additional liability.
Having
underlined the importance of costs capping in this way, what guidance is
available as to when it should be used and how it should be exercised in
practice?
This
second stage enquiry has begun and troubled the Court of Appeal most recently
in the case of Willis v Nicolson (by his litigation friend) [2007] EWCA
Civ 199, Buxton LJ recognising explicitly that, ‘however attractive costs
capping orders may be in theory, in practice they present some formidable
problems’ (para. 10).
The claim
itself involved a catastrophically injured young claimant which proceeded to a
contested liability trial with quantum still to be determined. The claimant’s
solicitors produced an estimate of costs to the conclusion of a quantum hearing
in the sum of £959,342. That prompted the defendant to issue an application for
a costs capping order on the grounds that, ‘there is a real and substantial
risk that without such an Order costs will be disproportionately or
unreasonably incurred.’ That order was refused.
The
appeal was shortly disposed of on the basis that there was no appeal against
the judge’s finding that he could not conclude that, ‘there is a real risk that
the future costs incurred from 31 July will be unreasonable and
disproportionate.’ It is noteworthy that the test applied – i.e. a real and
substantial risk of unreasonable and disproportionate costs – seems to have
been adopted uncritically.
Having
dealt with the matter in hand the Court of Appeal went on to make some general
observations, starting with the comment that: ‘The very high costs of civil
litigation in England & Wales is a matter of concern not merely to the
parties in a particular case, but for the litigation system as a whole.’
Notwithstanding
that conditional fee agreements and modern insurance arrangements often do not
leave claimants with any real interest in the level or recovery of their own
lawyers’ costs – and defendants are usually insurance backed – the evil which
emanated from high costs was said to be a deterrent effect on litigants who may
be deterred from bringing a meritorious claim by the prohibitively expensive
cost of litigation.
Buxton LJ
went on to identify, ‘the expectations as to annual income of the professionals
who conduct it,’ as one element in the present high cost of litigation. An
apparent distinction was drawn between ‘the market rates charged by the
professions’ and ‘an objective value on the work’ although this is a highly
contentious stance to adopt. It was acknowledged with seeming regret that by
retaining the concept of market rates charged by professionals within the
concept of reasonableness the present system was unable to change this
situation.
At the
same time, limiting the way in which those professionals were able to conduct a
case was said to be a ‘delicate matter’ because a cap would inevitably inform
the way in which the litigation could be conducted.
A number
of applicable observations can be derived from the comments that were made.
They can be summarised as follows:
1) Costs capping has to
focus on the amount of work that is allowed (i.e. the way the case is to be
conducted) rather than the rates charged, which are fixed;
2) Any such restriction
should be carefully imposed, especially when dealing with a catastrophically
injured claimant;
3) The Court must have
reliable information about, and a good understanding of, the nature of the
particular case as well as cases of that type generally;
4) A cap cannot be imposed
retrospectively (for reasons of fairness and practicality);
5) An enquiry into the
likely costs of the litigation has to take place at a sufficiently early stage
and so there has to be careful selection of the right moment in the litigation
process for the consideration of a costs cap;
6) The costs of evidence
should be controlled by restricting the number of experts and the amount of
their costs (under CPR 35.4(4)).
Intriguingly
the judgment concluded with the revelation that the Court of Appeal had,
‘drafted a comprehensive set of principles to be applied in personal injury
cases, which are the most obvious candidates for costs capping….’ However, it
now seems unlikely that this draft will ever see the light of day (at least in
the form in which it was produced) because on reflection, and consultation with
the other members of the Court, including the Master of the Rolls and the
Deputy Head of Civil Justice, it was concluded that such guidance was a matter
for the Civil Procedure Rules Committee to address after ‘extensive
consultation’.
The
present position seems to be that unless and until the Rules Committee decides
to act, this very important control mechanism is left somewhat in limbo. It
remains to be seen whether it proves a white elephant in practice and if so,
for how long.
Ben
Leech
12 King’s Bench Walk
April 2007
