Costs considerations

In 2013 superstar Rihanna succeeded in preventing the use of her image on T shirts made by the retail giant Topshop, representing the first occurrence within the English jurisdiction of a celebrity succeeding in a 'passing off' claim relating to the use of an image on clothing.

The costs implications of this litigation have been as controversial as the main litigation. In September 2013 Mr Justice Birss ordered Topshop to make a payment on account of £200,000 against an estimated bill of costs of £919,000 (a figure that he found to be 'startling'). The failed appeal led to an increase in the claimant's costs to £1.5 million.

There is nothing new in judges raising their eyebrows when confronted with the costs incurred in civil litigation. However, with costs in commercial matters coming under the microscope more regularly, consideration must to be given by litigators and their clients as to what can be done to manage these costs at an earlier stage.

Budgeting benefits

The introduction of mandatory costs management to commercial claims below £10 million (with discretion on higher value cases) is only just beginning to bed in and came too late to have any application to the Rihanna case. While it is fair to say that sophisticated commercial clients already expect their cases to be carefully project managed, the requirement to prepare accurate estimates at an early stage ensures that both parties have considered the issues which have and are expected to arise in the proceedings, factoring in appropriate contingency categories and defined assumptions. Having undertaken the preparation of a detailed budget, parties are in a better position to make an informed decision as to how best to proceed with the litigation through their ability to conduct a more reliable costs-benefit analysis.

The opportunity for the parties to consider the budgets, flushing out any significant imbalances, and at least agree on elements of the budgets, or have the court set budgets in the absence of agreement, should help to shut the stable door before the horse has bolted. Where agreement is not achievable, the process enables parties to make representations on areas of spend that are considered disproportionate or unnecessary, potentially preventing the costs being incurred as well as limiting the scope of any detailed costs assessment at the end of the case.

Mediation or other forms of alternative dispute resolution are also likely to become more effective with the benefit of increased understanding of likely litigation costs and timescales through preparing a costs budget.

Challenging costs

When looking at an opponent's budget, it is best to take a pragmatic approach and remain mindful of the fact that it is not a detailed assessment in advance but a broad-brush review.

Potential challenges include:

• Proportionality: have regard to the post-April 2013 changes to the proportionality rule, which are less onerous and therefore more likely to be utilised by judges at a costs case management conference (CCMC).

• Hourly rates: some say these should not be considered at the CCMC, but experience is showing that the judiciary is taking rates into account, so be prepared for either eventuality (see Mr Justice Warby in Yeo v TNL [2015] EWHC 209 (QB).

• Look for peaks: the CCMC is likely to be a high-level assessment, and so concentrate on the peaks of high spend where the most significant reductions can be obtained.

• Seek to have specific items limited: having the number of witnesses or experts reduced, for example, which will strip all the associated work out of the budget.

• Push your opponent on their estimates: parties should obtain detailed estimates for counsel and experts - if these are not in place, you are more likely to obtain a reduction.

• Don't be afraid to work with your opponent: in a large-scale budgeting exercise, if the parties are able to present budgets that the judge can follow, or are willing to propose a joint approach to how the matter should be budgeted, they are more likely to be able to reach agreement, or if not, to assist the court with 'apples for apples' comparisons.

Detailed assessment

For cases that have not been subject to costs management orders, and in any event for costs incurred pre-budget, the ability to manage costs remains limited to the detailed assessment process. The challenges set out above will apply.

Although it has yet to be tested fully before the courts, the ability to challenge costs that have been subject to an agreed or approved budget is still intact, even when those costs are within budget.

It is important to crystallise the effective budget in any case by working out which of the budget phases and contingencies were engaged and whether this was wholly or partially; whether the assumptions in the budget were an accurate forecast of how the litigation played out; and the extent to which the court has pre-determined issues such as hourly rates and the level of counsel representation.

There is a wide scope for different approaches to the issue of how sharply budgets should bite on receiving parties on overspend and curtail arguments from paying parties if costs are within budget. We can expect further trips to the Court of Appeal as the regime settles in, unless there is a rare consistency in first instance reasoning and guidance.

James Barrett is a managing associate at Practico