If the cap fits
Applications for costs capping orders could end up being as expensive and protracted as the case itself, says Andrew Butler
By an amendment to the Civil Procedure Rules which was effected on 6 April 2009, the increasingly common practice of cost capping was given formal recognition. The power to cap, described in Lord Justice Jackson's preliminary report as 'hugely controversial', is now recognised in CPR part 44.18-44.20.
The years leading up to this development have seen a polarisation of views as to the benefits of the use of the power. Judges have tended to be sceptical about it '“ for example, Keith J in Sayers v Smithkline Beecham plc (2005) PIQR P8 described it as a 'relatively dramatic course to take' '“ and the authorities generally suggest that orders will not be readily made. On the other hand, the Court of Appeal has spoken enthusiastically about the practice '“ see in particular the comments of Brooke LJ in King v Telegraph Group plc [2005] 1 WLR 2282 regarding the advantages of controlling costs prospectively rather than retrospectively.
Before a capping order can be made, three criteria must be satisfied (CPR part 44.18(5)). The court must: (a) be satisfied that it is in the interests of justice to make such an order; (b) consider that there is a substantial risk that without such an order costs will be disproportionately incurred; and (c) not be satisfied that the risk can be controlled by case management directions or detailed assessment of costs.
The first of these criteria will no doubt invite consideration of the overriding objective and differences in the relative financial positions of the parties '“ indeed, consideration of the latter is expressly invited by CPR part 44.18(6)(a). The second criterion will generally be brought into play by the costs estimates attached to allocation questionnaires or some other early indication that a litigant is conducting a case in a disproportionately expensive manner. It is the third criterion which will cause headaches for practitioners; how can one show that, for example, detailed assessment of costs will not afford one's client adequate protection against the excesses of an opponent?
Past cases do not give much guidance on this. Two situations come to mind, however. First, it may be that a litigant has a particular need to assess his or her exposure to costs in advance; a funding arrangement or even a particularly careful approach to budgeting and risk management may suffice. Second, there must be an argument that on detailed assessment judges are often confronted with a fait accompli. If a litigant has chosen to adopt a particularly expensive approach, using a highly-priced London firm and a top QC, a costs judge may be more reluctant to condemn this approach after the event than a judge who is given the opportunity to express his views beforehand. Indeed, the very existence of the cost capping rules offers an argument to such a litigant on assessment that a challenge to his approach could and should have been made at the outset.
'Expensive and time-consuming'
CPR part 44.19 sets out the procedure for the making of an order and certain requirements of an application notice. Of particular note is CPR part 44.19(3) which enables the court to give directions about how an application will be dealt with. This again reflects a divergence of views in the pre-existing case law about how applications will be handled. In one of the earliest cases, Smart v East Cheshire NHS Trust [2004] 80 BMLR 175, Gage J suggested that applications must be dealt with at a 'comparatively short hearing'. But, in Willis v Nicholson [2007] EWCA Civ 119, the Court of Appeal observed that if the exercise is done properly it may be 'as expensive and time-consuming as detailed assessment itself'.
In recognition of the fact that different cases will need different approaches, CPR part 44.19 empowers the court to direct the filing of schedules and/or written submissions and to involve an assessor to sit with the judge determining the hearing, as well as to fix the time estimate for the hearing. These provisions no doubt afford a useful level of flexibility for the court seised with determining the application. On the other hand, it will hardly encourage a potential applicant, by definition concerned about costs, that there is potential for his application itself to turn into a lengthy and expensive sideshow.
Generally, case law encourages an early application; in Willis at paragraph 22 it was suggested that an application should be made 'at a sufficiently early stage to have a real effect on expenditure'. On the other hand, an application made before a CMC may be rejected as premature; this is what happened in Eli Lilly & Co Ltd v James [2009] EWHC 198, where the judge declined to make an order until such time as crucial case management decisions could be made. Again, therefore, prospective applicants are faced with a dilemma. The best answer in many cases may be to seek an extended time estimate for a CMC and have questions of cost capping determined at the same time as other directions are given, by a judge who will necessarily be familiar with the case.