Court of Appeal sanctions greater use of costs controls

In the case of Leigh v. Michelin Tyre plc the claimant’s firm filed an allocation questionnaire in which it estimated its overall costs were likely to be £6,000. The action eventually settled for £48,000 before trial and the firm eventually sought costs of £21,741.28. It then argued that it was not possible to estimate accurately future costs at allocation questionnaire stage. The Court of Appeal rejected this view on the grounds that it should be possible to provide a reasonably accurate costs estimate at that stage.

“There is considerable pressure to reduce costs and this judgment provides a real opportunity to do so,” commented Simon Denyer, partner and head of disease litigation at Ricksons’ Manchester office. “However, the decision needs to be widely considered as soon as possible, and where procedures are not presently being implemented that comply with the Court of Appeal’s guidance, urgent changes are needed.” He was instructed by Michelin Tyres’ insurers.

The appeal judges, including Master of the Rolls Lord Phillips of Worth Matravers, offered a non-exhaustive guide as to the circumstances when a costs estimate might be taken into account.

First, the estimates made by solicitors of the overall likely costs of the litigation should usually provide a “useful yardstick”, by which the reasonableness of the costs finally claimed may be measured. If there is a substantial difference between the estimated costs and the costs claimed, that difference calls for an explanation. Second, the court may take the estimated costs into account if the other party shows that it relied on the estimate in a certain way – for example, where the defendants relied on a relatively low estimate not to make an offer of settlement. Third, the court may take the estimate into account in cases where it decides that it would probably have given different case management directions if a realistic estimate had been given.

In May this year, Mr Justice Gage, on the advice of senior costs judge Peter Hurst, capped costs in a multiparty action concerning organ retention, both retrospectively and prospectively, until the trial in the New Year. Judge Gage also took issue with the firm’s suggestion that it needed 3,410 hours on the cases and went on to cap the total budget to £506,500 and the fees at £271,250. At the time of that ruling, one leading claimant solicitor told The Lawyer that it was a “fairly sinister development” at the time. This new ruling also looks likely to be controversial, and the appeal judges acknowledged “the danger of satellite litigation”.

Denyer commented: “The steps that have been taken this year in this judgment and [the organs retention litigation] are both further steps towards costs caps becoming more commonly found, both generally and in those cases where costs estimates have shown there are problems.”