Jackson: costs and benefits

Litigation costs regime will bring great rewards if lawyers approach it in the right way

Frisby

The Jackson reforms mean big changes for litigators. Costs management orders, a new approach to proportionality and funding changes all present challenges, but if we fail to get it right it is the potential impact on client relationships that is most worrying.

All commercial litigators know just how difficult it can be to provide accurate cost estimates at an early stage of the litigation. The only certainty with an estimate is that it will be wrong; it is just a question of how wrong. It is less of an issue if you are too high but problematic if you are too low. Of course, we are all used to giving clients estimates of costs and inserting broad estimates on the allocation questionnaire, but the new regime requires a more rigorous approach.

The resulting budget, once approved by the court, will be fixed and it will be difficult to move away from it. As Sylvia Henry, in her case against The Sun, found at first instance in the defamation pilot scheme, the consequences for recoverability could be draconian.

So when a lawyer gets it wrong (and many will), what is the client going to say? It would be surprising if it was anything other than ‘I paid you to get the budget right, you got it wrong and I can only recover a small percentage of my costs. What are you going to do about it?’.

Well, there’s always an appeal, but not all appellants will be as fortunate as Henry. Early discussions with the client about budgeting and regular reviews will be key, with applications to vary a budget where there have been ‘significant’ developments.

Proportionality is an unknown quantity. The principles of how it might work are reasonably clear but it is the application of these that is tricky to predict in a given case. A lawyer may take a view that costs to a certain level are likely to be proportionate. Where a client relies on that and embarks on litigation, what happens if a judge does not see it the same way? Limited recovery will mean an unhappy client.

The funding changes also present their own challenges. In the new CFA regime the client is going to look to ensure recoverable costs are maximised. Success fees, which will no longer be recoverable, will come under greater client scrutiny.

And what of DBAs? The consequences of a case failing are that only disbursements (excluding counsel fees) are recoverable. If a case succeeds, but the agreement falls foul of the regulations, it will be unenforceable. Enforceability is no bar to a challenge. DBAs can offer disproportionately high rewards to lawyers on a case that settles early. Might some clients be tempted to challenge when they face losing a large slice of damages?

There are going to be costs battles, but these are more likely to be waged by clients on their solicitors than inter partes. With costs lawyers being called on less and less to challenge inter partes bills, they will focus on solicitor-on-client disputes.

The new regime undoubtedly presents risks, but there will be great rewards if you get it right.