All Change! Are You Ready? - The New Cost Management Rules
The way in which litigation costs are managed is about to fundamentally change in the UK. From 1 April 2013 new costs management rules will require litigants to prepare and exchange litigation budgets before the first case management conference. The courts will thereafter approve and actively manage cases within the parameters of these budgets.
Which Cases Will Be Affected?
The new regime was initially going to apply to cases in various courts across England and Wales except for cases in the Commercial Court.
In a statutory instrument laid before parliament on 12 February the new rules were set to apply to all multi-track cases commenced on or after 1 April 2013 in a county court or the Chancery Division or Queen's Bench Division of the High Court (except the Admiralty and Commercial Courts), unless the proceedings are the subject of fixed costs or scale costs or the court otherwise orders.
See http://www.legislation.gov.uk/uksi/2013/262/made
In a last minute change to the rules announced on 21 February high value cases worth more than £2 million will also now be exempt from the new cost management regime unless the court so orders.
This means that cases before the Chancery Division, Technology and Construction Court (TCC) and Mercantile Courts, worth more than £2 million will not be subject to automatic cost management.
As is normally the case, the Courts have retained the discretion to apply the new regime to “any other proceedings where the court so orders”. A Court might therefore embark on active costs management as part of case management and order budgets to be prepared. Of course, a budget is not something that can be put together on the back of envelope, so there is some advantage to being prepared ahead of time.
How Will the New Rules Affect Your Cases?
If the new regime does apply to a case then only costs that have been budgeted for and approved by the court will be recovered at the end of a case. The Courts have indicated in early case law that they will not depart from the budget without good reason (Sylvia Henry v News Group Newspapers Ltd [2013] EWCA Civ 19). Costs will need to be tracked accurately and budgets will need to be living documents that are kept up to date.
The key concept underpinning the change is that of proportionality when it comes to litigation costs and this is now made clear in the overriding objectives of the rules. Even costs that are reasonably or necessarily incurred might not be recoverable if they are out of proportion to the value of the claim or the issues at stake in a case. You will therefore need to focus more on costs from the outset of a case, particularly on the relationship between the estimated costs of running the case and the most likely ultimate recovery at the end, and shape your litigation strategy around an informed cost/benefit analysis.
What About Disclosure?
In order to budget effectively, you will need to consider and quantify disclosure requirements early on in the life of a case rather than leaving it to the last minute, which tends to be the current practice. Importantly, you will need to focus on the scope or extent of the disclosure exercise from the outset because that will shape the cost of the exercise which follows. That is where the new CPR rule 31.5 comes into the picture. It applies to all cases (except for personal injury cases) and requires that:
- no less than fourteen days before the first case management conference each party must file and serve a serve a report verified by a statement of truth, describing what documents exist, how and where they are located and stored and estimating the broad range of standard disclosure costs.
- not less than seven days before the first case management conference, parties must agree a proposal in relation to disclosure.
- a new menu of disclosure options will allow the courts the flexibility to adopt a far more tailored approach in substantial cases. This includes limiting the exchange of documents to those related to specific issues only or other novel approaches such as simply handing over the “keys to the warehouse” and allowing the other side to find the documents they need.
What Now?
Even before their introduction, the anticipated changes to the CPR are already being changed. There is no doubt, however, that we are entering a new era of cost management in litigation and that cases will require a greater degree of management from the outset. The need to file a report and cost estimate on disclosure is still a fundamental change even if the need to file case budgets under the cost management rules has been restricted. Technical expertise is likely to be very helpful as approaches to edisclosure are designed and costed. Innovative technologies and techniques such as Technology Assisted Review and outsourced review can reduce the burden and cost of disclosure and these have a role to play in reaching the goal of proportionality. We are primed and ready to help you when the new rules are implemented.