Reality bites

Litigation costs are out of control. It’s a view that has been held for some time. Lord Justice Rupert Jackson’s final report, published in January 2010, outlined a series of core proposals aimed at reducing fees in litigation, which have now been carried through.

Jackson has been described as “Woolf with teeth”. In other words, the reform of the Civil Procedure Rules by Lord Woolf in 1998, which were all about procedure, have now been given some bite. Jackson’s reforms are all about the ‘economy of litigation’.

So, the purpose of costs budgets is to control litigation costs, in particular to make them ‘proportionate’ to the value of the dispute. Parties can no longer run up huge litigation bills on relatively low-value cases.

In Re Boyes [2013], Mrs Justice Proudman disapproved strongly of the costs incurred in a claim to set aside a will where the estate itself was only worth £390,000 while the claimant’s costs alone were £500,000.

The costs budget is essentially a forecasting job. This should not be hugely problematic as clients have given costs estimates previously. However, there are a number of difficult areas and it is worth considering the below when preparing budgets:

• The court timetable or deadline for lodging the costs budget is now critical. In Mitchell v News Group (the libel action brought by Andrew Mitchell MP against The Sun in the so-called ‘Plebgate’ affair), although Mitchell’s solicitors won, the fact that they had lodged the costs budget just one day before the
  Case Management Conference (it has to be at least seven days in advance) meant they were denied their costs.

• The parties should co-operate to try to agree their budgets. If they can’t, the court will decide.

• As soon as the costs budget becomes inaccurate, the relevant party should apply to vary the budget. The point here is that you must apply rather than seek agreement from the other side and do so immediately – a significant delay risks you not being able to recover the additional costs forecast.

• Costs budgets should be amended if there have been significant developments in the litigation to warrant revision. However, whether a variation of the costs budget will be allowed may well depend on what was contemplated at the time the earlier budget was completed (the ‘assumptions’).

• In this regard, assumptions are important. The big debate will be whether the attempt to vary the budget arises out of an error (e.g. a failure to include costs for a particular step or a simple miscalculation) as opposed to an unforeseeable ‘significant’ development.
  At the moment, there is much debate as to what should be included (or left out) in the assumptions. But for now it is the safest option to include as many transparent assumptions as the case permits to enhance the chances of being able to make a successful application later on, if necessary.
  Costs budgeting does not do away with detailed assessments. It is still open to the losing party to require an assessment of the winning party’s costs, but an agreed or judicially approved budget is likely to reduce the chances of achieving a substantial reduction at assessment.

Costs budgets are here to stay and they represent a sea change in the litigation environment. In any estate and trust dispute, the costs must, more than ever, be controlled.

Lloyd Junor is a senior associate at Thomas Eggar

He writes the regular in-practice article on wealth structuring for Private Client Adviser