The Master of the Rolls Lord Dyson has recommended raising the cost budgeting limit from £2m to £10m for Commercial Court cases.
Debate is heating up over civil litigation costs with the issue of cost budgeting levels for high-value commercial cases being pushed to the centre stage.
The year-long review of civil litigation costs by Lord Justice Jackson in 2010 led to the introduction of a costs budgeting regime for cases valued under £2m across the Chancery, Mercantile and Technology and Construction Courts (18 January 2010). The Commercial Court and the Admiralty Court avoided the regime following opposition from the bench.
The regime has come in for criticism, however, with some litigators complaining that a two-tier justice system was emerging, while litigants flocked to the Commercial Court in an effort to avoid the costs budgeting measures.
A subsequent review by the Civil Procedure Rules Committee (CPRC) has ended with proposals to bring more high-cost cases under the strict rules. Its 14 members, which included chair Lord Justice Richards and costs silk 4 New Square’s Nicholas Bacon QC, have gone up against commercial barristers to fight to raise the threshold.
A number of its members wanted to see the current £2m regime raised to £15m, a move that would require a raft of litigators to set out budgets. However Lord Dyson MR and Richards LJ said £10m was a good “starting point, subject to review”.
The committee in charge of setting the civil rules is taking a hard line on the contentious decision to exempt £2m cases from budgeting, arguing that it “was agreed by the CPRC in something of a hurry”.
The CPRC has established a sub-committee to consult on the cost reforms, chaired by Mr Justice Coulson. Other members are Mr Justice Sales, District Judge Lethem, St Philips Chambers’ Edward Pepperall QC and solicitor Qasim Nawaz. Mr Justice Hamblen has been co-opted to represent the Commercial and Mercantile Courts.
In a June 2013 consultation paper the subcomittee stated: “There was no doubt that this was something of an emergency solution. The Master of the Rolls and the Deputy Head of Civil Justice were anxious that the whole issue be re-considered as soon as possible.”
The Jackson reforms were designed to crack down on the swelling costs of litigation, overhauling how civil cases are run and making proportionate costs a priority. The changes are embodied in the new Civil Procedure Rules 3.12-3.18 and accompanying practice direction. They require both parties to project manage litigation from beginning to end and budget the costs at the outset.
But the CPRC has been consulting on amending the £2m cost budgeting regime since the Jackson review was first published and a new threshold is on the horizon.
A line in the sand has been drawn by those who argue that litigants will be put off coming to the UK if Jackson’s clampdown on costs is extended to high-cost cases and those who say claims are getting out of hand.
At the recent meeting of the CPRC several of the 14 argued that the cost budgeting should apply across the board and that “any monetary value set would be of an artificial nature”.
Several cases last year have highlighted the fault lines of the argument. In November, former chief whip Andrew Mitchell MP hit with restricted costs of £2,000 after Atkins Thomson did not file a costs budget in the required time (27 November 2013).
A month later the court was hit by a mammoth $8bn case brought by Norway’s Sebastian Holdings against banking giant Deutsche Bank which saw Sebastian Holdlings hit with £60m in indemnified costs (12 November 2013).
Cooke J emphastically declared Deutsche Bank the winners, having carefully considered the mega costs issue at hand and issued warnings to both sides about the dangers of witness manipulation.
The case fell outside of costs budgeting restrictions but the Judge said: “The costs are so large,” the judge said, “it may be that it would be appropriate in this case to treat pursuit of some of the issues as ‘outside the norm’ and to make indemnity costs orders in respect of them, in the probably forlorn hope that it may discourage other litigants from pursuing hopeless points.”
The CPRC has not yet made concrete plans to scrap the exemption but new rules could be on the horizon.