Costs budgeting works but can be tailored to cases, review finds

A major review of legal costs has concluded that budgeting should stay and that guideline hourly rates should be updated every year.

The Civil Justice Council today published the outcome of a working group’s year-long study into how costs are decided and apportioned by the courts.

A working group set up by the CJC concluded unanimously that costs budgeting, introduced 10 years ago following the Jackson report, has been a ‘significant and valuable shift’ and should be retained.

But the group also concluded that current rules do not account for the differences in civil justice and recommended that in future approaches should be varied depending on the type of case.

Only a handful of respondents to the consultation argued that costs budgeting should be abolished. The work group found evidence of ‘real and sustained progress’ in budgeting and improvements in case management, noting that this change in culture was a ‘major step forward’.

But the group did recommend tailoring the approach to suit different work types or the venue where litigation is conducted. Members ‘tentatively’ suggested that personal injury and clinical negligence, claims in the business and property courts and other specialist work could be treated differently.

A pilot scheme could test whether cases valued between £100,000 and £1m should be subject to ‘costs budget light’ and a lighter touch approach for cases above £1m in the business and property courts should also be trialled, the report said.

The majority of the working group also backed a staged approach to costs and case management where appropriate. Many lawyers felt that the listing of a joint costs and case management conference caused significant delays, and listing the two separately would allow directions to be given at a much earlier stage.

Guideline hourly rates, it was recommended, should stay in place but be adjusted annually for inflation and reviewed in detail every five years.

The working group found ‘no real appetite’ for abolishing GHR. The only changes necessary were addressing the fact that the highest band was too low for top flight commercial work, the anomaly of counsels’ fees being excluded, and bringing in a test for courts departing from guideline rates.

‘A number of respondents felt that the circumstances in which the court will be prepared to depart from GHRs were lacking in clarity, and we agree,’ said the working group.

The group said the Solicitors Act 1974 was ‘in parts clearly out of step with the reality of present-day litigation practice’.

On the issue of contentious and non-contentious costs incurred pre-action – brought into focus by the Court of Appeal ruling in Belsner – there was almost universal acceptance that the distinction was outmoded. But at the same time, there was acceptance that reform of the 1974 act, which set out the distinction, was not a government priority.

The working group said parties should be encouraged to engage in pre-action processes ‘in the fullest and most effective way possible’, with a process created to allow the courts to determine ‘pre-issue’ costs.

The master of the rolls has welcomed the report and will now consider ways to implement its recommendations.

Law Society Head of Justice Richard Miller said cost reforms must strike the right balance between encouraging settlement and fairness for all parties.

He added: ‘ The provisions of the Solicitors Act 1974 relating to costs are in many respects out of step with modern litigation practice as there is now often extensive pre-litigation work, which is not envisaged in the1974 Act. It is not clear whether the mechanisms in the act referred to by the Civil Justice Council (s56) can provide a solution in the absence of changes to primary legislation in the foreseeable future. As it seems unlikely there will be new legislation in the near future, this is worth exploring.’

c: LawGazette