Ian’s Top 10 Tips – Number 4: The New Problem Files
Low-end Multi-Track Claims are the New Problem Files
Proportionality in the New Era
It was LJ Jackson’s idea that all litigation is a project where both parties are involved for commercial ends. LJ Jackson also noted in his final report that the effect of Lownds v Home Office, where necessity trumps proportionality, was still resulting in disproportionate costs. LJ Jackson therefore recommended the decision in Lownds be reversed. That Jackson recommendation has now effectively been implemented by the new proportionality test at CPR 44.3(2):
The very important wording in that rule is:
“Costs which are disproportionate in amount may be disallowed or reduced even if they were reasonable or necessarily incurred”
That wording effectively reverses the decision in Lownds and means that proportionality now trumps necessity.
The risk for Claimant Personal Injury Lawyers is that there will be strict interpretation of “proportionality trumps necessity” when the Court of Appeal finally provides guidance on how the new test of proportionality will work.
So what comes first – the price or the project? If necessity trumps proportionality, then the requirements of the project come first and the costs are a consequence of that. However, if proportionality trumps necessity, then it is the price that dictates what happens in the project.
The implications of proportionality trumps necessity need to be taken very seriously by all fee earners, particularly those acting under a retainer which limits solicitor/ own client costs recovery. It will be ingrained into every fee earner’s soul that necessity trumps proportionality. However, that thinking has now been reserved and the risk is that if you proceed on the basis that the costs of what is necessary will be recoverable at the end of the claim you may well be incurring irrecoverable costs.
Proportionality and Costs Budgeting are intrinsically linked.
You are no longer working on cases in the traditional sense. You are now working on legal projects, each of which has a commercial end. And, since all properly conducted commercial projects have a costed business plan, so should your legal projects. The trick in the new era is to decide, at an early stage, what you (or rather your client) can proportionately afford to spend on each case and then to monitor the costs spend against the original budget as the case progresses. Although we still don’t have any Court of Appeal guidance on how the new test of proportionality will work, I suggest a useful yard-stick is to aim to take each claim up to and including trial without net base costs much exceeding the realistic damages. See my earlier Tip Number Two for more details.
Low-end Multi-Track Claims
When talking about his new approach to proportionality LJ Jackson said that “some cases will not be worth the candle”. What he means by that is, some cases will not be economic to run because the costs far exceed the likely damages. LJ Jackson said:
“Most civil litigation is a form of business project in which the parties invest substantial sums in order to achieve a just outcome. However, even justice must have a price. It is not rational to spend £1,000 to recover a £100 debt, however strong and virtuous your claim. Outside litigation, no normal business project is conducted on an open-ended basis, with costs simply being added up at the end. The time has now come to apply sensible budgetary control to the recoverable costs of litigation”.
And that will be a problem in many low end damages multi-track cases. The reasonable (or even necessary) net base costs of a £50,000.00 damages clinical negligence claim up to and including trial could easily be £200,000.00, if for instance the case involved four expert witnesses on each side and several lay witnesses. But what are the proportionate costs? Even without Court of Appeal guidance, the proportionate costs recoverable between the parties in the new era are clearly not £200,000.00 or anything approaching that. For example, at the IBC Solicitor’s Costs Conference in early 2014 Mr Justice Ramsey suggested that the combined costs of the parties should not normally exceed the sum in dispute.
Claims in the low end of the multi-track (both PI and clinical negligence) are the new problem files. I’m sure all of us would agree that every Claimant deserves access to justice and, I am sure, with clever thinking that can always be achieved.
Traditional Multi-Track Directions and a Low Costs Budget
Be very wary of usual, or traditional, case management directions in lower value multi-track claims. Be wary of proposing such directions and be alert to the dangers of Judges making such directions without tandem regard to the costs of those directions.
Currently some District Judges are making usual multi-track directions in low end multi-track claims, often including multiple expert witnesses on each side with trial estimates of several days, without considering, at the time of making or approving those directions, what costs will be incurred by the parties to comply with those directions. Those Judges are then listing a subsequent costs management hearing to set the party’s budgets several weeks or months down the line. That approach is not only wrong, but puts you at risk of incurring disproportionate costs working out the previously made directions, only to potentially be limited to a costs budget at the subsequent costs management hearing which only reflects the value of the claim, not the directions made.
LJ Jackson said in his report:
“When making case management decisions the court will have regard to any available budgets and will take into account the costs involved in each procedural step. When a judge directs parties to undertake tasks, it is obvious good practice that the judge should appreciate the costs consequences of what he/she is ordering. The court should not generally compel parties to incur disproportionate costs in the furtherance of their litigation”.
My advice is that you always ask for the directions and costs budgets to be dealt with at the same hearing and considered in tandem. You should also avoid proposing directions which will compel your client to incur disproportionate costs.
It is not my job as a Costs Lawyer to suggest how you are going to approach those low end multi-track claims, but clearly you will have to do something proactive to avoid irrecoverable disproportionate costs. However, to get you started I suggest the following innovate solutions:
- Have a costs and case planning meeting between the conducting fee earner and a Partner at the outset of such cases. You may also wish to consult a Costs Lawyer at that time.
- Form a plan of action aimed at cutting out all but the most necessary work and evidence – to home in quickly on the main issues
- Make an early realistic Part 36 offer aimed at putting the Defendant at risk of indemnity basis costs. (Remember that the indemnity basis of assessment does not have any regard to proportionality. That test only looks at the reasonableness of the costs).
- In the Claimant’s proposed directions consider, perhaps, excluding or limiting disclosure, limiting the number of experts or witnesses, excluding expert discussions and/ or limiting the trial to specific issues or questions.
- Consider joint instruction of expert witnesses
- Consider if one of the various forms of ADR could narrow the issues at less expense than Court litigation
At the time of deciding whether to take on a client’s case under a Conditional Fee Agreement, you should also consider whether the case is worth the candle. As LJ Jackson indicated, it might not be economic for your firm to take on a case where the damages are likely to be low and the costs high. If you do take on such a case, I suggest you choose a suitability profitable fee earner (some competent fee earners will no longer be profitable fee earners in the new era. More on that in a further e-short article).
What to do after a Costs Budget has been served
Regardless of whether a Costs Budget is served, your client’s inter partes costs claim will still be subject to the new test of proportionality. Once a Costs Budget is served, regardless of whether it is agreed or approved, it creates a ceiling above which any final claim for costs cannot easy go above. Once your client’s Costs Budget is agreed/approved by the Court it provides confirmation of the proportionate costs for each phase in the claim and overall.
Here’s the carrot: If your client’s claim ends successfully within budget, then his costs recovery should be near maximum. That is because the Judge who approved the Costs Budget has stated what he considers the proportionate costs to be and, theoretically at least, the only further costs test to be applied at the end of the case will that of reasonableness. It is, therefore, not only protective, but highly beneficial to monitor expenditure on the case after the Budget is served. (And a very effective tip is to have a costs and case planning meeting between a Partner and the conducting fee earner after the costs and case management conference, because you might need to re-think your approach to the case if the available budget has been slashed).
There are various fancy computer programs available which will help you monitor the costs incurred under each phase of the Budget. However, those programs tend to be expensive and in my opinion unnecessary. Your Costs Lawyer can quickly and cheaply prepare mini management costs reports for you, which state simply how much you have spent under each phase of the Budget to date and how much you have left available. The cost of preparing those short reports are recoverable as part of the 2% fixed fee for budget management.
Solicitor/Own Client Costs Advice
If you are acting for your client under a CFAlite or similar retainer which limits your own client’s liability to pay your costs, then you need to be alert to potential conflicts between you and your client arising over expenditure on the case. There is nothing written anywhere which limits the amount each party can spend on the preparation of their own case – the costs rules only limit the amount of costs recoverable from an opponent in litigation. Your own client’s expectations might exceed the recoverable proportionate costs causing a conflict about what you are willing to spend on the case. I suggest you review your solicitor/own client costs advice as soon as possible to make sure your own client’s expectations are managed under CFAlites or similar retainers.