Are rocketing costs killing the Commercial Court?
19 March 2014 | By Jonathan Ames
9 April 2014
25 September 2013
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20 November 2013
Khawar Qureshi wants to start a debate about costs in the Commercial Court and he’s not afraid to ruffle some of the more conventional legal profession feathers in the process.
The QC from Lincoln’s Inn chambers Serle Court recently published research into the court in double-quick time after being asked by the Lord Chief Justice to gauge the mood of in-house lawyers and top flight litigation solicitors and barristers.
His initial findings hint at significant concern that London’s pole position as the dispute resolution centre of choice for Russian oligarchs, Persian Gulf sheiks and other international heavyweights is under threat.
Despite being conducted over the span of only a few weeks, the research elicited high response numbers from the top City litigation law firms as well as leading silks. General counsel from major corporates also chipped in their views.
All of which leads Qureshi to conclude “there is an active interest on the part of lawyers to ensure the Commercial Court maintains its pre-eminent position”.
That position is threatened by a growing international perception that litigating at London’s Rolls Building is prohibitively expensive, a position exacerbated to some extent by government plans to impose daily court fees on litigants.
Other more systemic issues also worry a significant minority of Qureshi’s survey respondents. Disclosure is viewed as running out of control, with litigants forced to employ hordes of predictive coding boffins to trawl through mountains of electronic documents in a bid to find a smoking gun.
And the most sensitive issue of all around Square Mile litigation departments was aired in the research – suggestions that some firms in some cases engage in “churing”, the unholy practice of assigning as many junior assistants to a case as possible to ramp up hourly billing figures.
There is a rarely spoken consensus in the City that churning is a problem – if not so much in reality as, again, in perception. “If there is an issue of perception internationally, it should be of concern to us,” warns Qureshi. “Especially if that perception is that litigation in England is disproportionately expensive compared with other fora.”
Qureshi acknowledges that his first round of research was just a taster and that more comprehensive work is required. The silk hopes his efforts will kick start the Ministry of Justice into action to launch a further study that would tackle a range of issues.
Top of the agenda, says Qureshi, should be an assessment of whether corporate in-house counsel are gradually inclining away from the Commercial Court and towards arbitration, regardless of the reasons why. Private practice transactional partners also need to be quizzed as to whether they are increasingly incorporating dispute resolution clauses into contracts that specify arbitration over the Commercial Court.
Qureshi is keen to gather a range of Commercial Court statistics for last year, covering the number of applications issued, categories of dispute, the number of applications going to trial, the average time between issuing an application and trail, and the average length of trials.
Costs data for interim applications and contested trials will also be crucial, he says. And again controversially, Qureshi maintains that data needs to be gathered on cost schedules and scales.
Currently in the Commercial Court, costs are awarded against the losing party in two stages – on a summary bases in the aftermath of an application, and then on detailed assessment. For both, the court relies on solicitor-produced costs schedules, and, according to Qureshi, there are concerns that the process needs improving. “It doesn’t provide the right kind of information for the court to evaluate whether the costs were necessary and reasonable,” explains the silk.
Cost scales is an area where some arbitral institutions – and even competing courts from other European jurisdictions – are thought to be stealing a march on the Commercial Court, with the most prominent example being the International Chamber of Commerce’s arbitration court. It applies a broad scale of costs for arbitrator’s fees and institutional costs.
Indeed, there is a suggestion that the German authorities are to launch an English-language commercial court that will operate with fixed cost scales. “So if a claim is worth less than X,” explains Qureshi, “the maximum recoverable costs will be identified. That is novel from the English perspective. Costs in England are assessed on the basis of whether they are reasonable. Although we are seeing in recent decisions from the courts greater regard to proportionality.”
Last November, Mr Justice Males sent a sobering message to litigants and their lawyers. In the costs judgment in Vitol Bahrain EC v Nasdec General Trading LLC and others, the judge awarded the defendants less than 50 per cent of their costs on the grounds that the costs incurred by both side were “grossly disproportionate”. That meant the defendants took a hit of about £90,000.
Qureshi acknowledges that among its peers, London is not alone in being an expensive venue to litigate, as anyone dipping a toe into New York’s commercial courts can attest. But he is adamant that the government and London’s Commercial Court itself must not be complacent – or shoot themselves in the foot.
Indeed, he says litigation lawyers are for the most part united in opposition to Whitehall proposals for considerably increased fees to get through the Commercial Court doors. It has been mooted that a 10-day trial could cost £21,000 in fees alone, and while that would be a drop in the bucket of a multi-million pound claim, lawyers maintain it sends the wrong message to the hordes of foreign litigants weighing up where to fight their battles.
The Commercial Court also needs to step on misperceptions about costs and blow its own trumpet a bit more loudly, argues Qureshi. “It may not be clear to foreign parties,” says the silk, “that the judges in the commercial court are former practitioners with substantial international practice experience.
“It might not be clear to international users, that the commercial court actually has a very short timeline from issuing of application to trial – often less than two years for complex commercial disputes where a trial can take many weeks.
“It might not be clear to commercial parties that with the commercial court if there is a genuine basis for appeal there is a recourse to the Court of Appeal and ultimately to the Supreme Court.”
In the realm of globalised litigation marketing is becoming increasingly important, London’s Commercial Court needs to get its message across.