PRACTITIONER VIEWS ELSEWHERE

6.1 During February 2009 my judicial assistant spoke to a small number of practitioners²⁰⁸ with experience of costs capping orders. The pertinent points that emerged during the discussions are summarised below.

6.2 Frequency. Costs capping orders are not regularly made by the courts.

Several practitioners commented that judges are reluctant to address costs issues (including costs caps) at the interlocutory stage, perhaps for fear of stifling access to justice or fettering the claimant’s ability to pursue a claim. Instead, judges opt to treat costs as a discrete task to be dealt with by post-trial assessment.

6.3 Costs management, costs estimates and case management. Several practitioners spoke of the need for the active management of costs as part of general case management. Costs capping orders (and costs estimates) are both tools by which the proper management of costs can be achieved. It was noted that costs management should be undertaken at the pre-issue stage, to counter the (often significant) costs incurred during this period. Costs management will be addressed in greater detail in chapter 48.

6.4 Access to justice: costs not disproportionate. One practitioner recounted his experience of a costs capping order in a serious personal injury case which was appealed to the Court of Appeal. In that case the claimant, a person of very limited means, was faced with the possibility of an adverse costs order if he was unsuccessful.

The claimant decided to withdraw his appeal, as the risk and implications of an adverse costs order were too great. However, the Court of Appeal then made a costs capping order limiting the costs recoverable. As a result of this limitation of risk, the claimant continued with his appeal, which was ultimately successful. Two points of note emerge. First, the costs would never have been disproportionate to the sums in issue (the personal injury was severe and the potential damages were very large).

Secondly, the fact that the claimant’s maximum exposure to costs was limited ensured that the claimant was not prevented from receiving access to justice.

207 The two practitioners in Tunbridge Wells and a number of practitioners elsewhere.

208 The practitioners included a barrister and five solicitors.

Chapter 45: Cost capping

6.5 The cost of costs capping. One practitioner spoke of his experience of costs caps in large group actions. The practitioner had experience of 10-12 costs caps over the past 18 months. In his experience, the costs of a costs capping hearing usually exceed the costs of any post-trial assessment, as the setting of the costs cap may involve two separate hearings,²⁰⁹ both of which are usually attended by counsel (and sometimes senior counsel). The costs will undoubtedly increase if either of the parties applies to vary the cap. Overall, the practitioner commented that costs caps were appropriate in certain exceptional cases (e.g. where costs are disproportionate), but that the routine ordering of caps was not appropriate.

6.6 Costs capping in arbitration. One practitioner discussed his experience of costs capping in arbitration proceedings and the wide power bestowed upon arbitral tribunals to limit recoverable costs under section 65(1) of the Arbitration Act 1996.²¹⁰ The practitioner noted that it would not be uncommon in such proceedings for arbitrators to address the issue of costs capping at the outset, for instance by raising the possibility at the first directions meeting. While it is relatively unusual for the power conferred by section 65(1) to be exercised, the practitioner noted that the availability of this power was widely welcomed in the arbitration community.

7. REVIEW

7.1 Polarisation of views. The question of costs capping is a hugely controversial one. Views range from one extreme (viz that there should be universal cost capping) to the other extreme (viz that costs should never be capped because the exercise is unfair and counter-productive). The Rule Committee when drafting the new costs capping rules has adopted a conservative approach, in the knowledge that there was about to be a fundamental review of costs.

7.2 During Phase 2, the consultation period, it seems likely that the same polarisation of views will emerge. Although the recent consultation on cost capping rules did not seek views on the principle of cost capping, the arguments on each side were submitted.

7.3 One possible approach. One possible analysis would be as follows. Costs capping cannot be used in isolation to control costs, tempting though this may seem to those who throw up their hands in horror at the present levels of costs. Costs capping may be used as an adjunct to a wider exercise of costs management in those cases where it is appropriate for the court to undertake costs management.

Otherwise, however, costs capping should be reserved for exceptional circumstances, as currently prescribed in CPR rule 44.18 and section 23A of the Costs Practice Direction. Costs capping must not be used as a shortcut or as treated as a sword to cut through the Gordian knot of civil costs.

7.4 Request for comments. I look forward to receiving the further comments of practitioners and court users on the matter of costs capping during Phase 2. It may be helpful to deal with this topic in conjunction with costs management, which is discussed separately in chapter 48.

209 One hearing to determine whether a cap is required and a further hearing to determine the level of the cap.

210 Section 65(1) of the Arbitration Act 1996 provides that: “[u]nless otherwise agreed by the parties, the tribunal may direct that the recoverable costs of the arbitration, or of any part of the arbitral proceedings, shall be limited to a specified amount.”

Chapter 46: Should the cost shifting rule be modified? CHAPTER 46. SHOULD THE COST SHIFTING RULE BE MODIFIED?

1. INTRODUCTION

1.1 Background. The principle of cost shifting has been ingrained in litigation in this jurisdiction for over two centuries. Whilst costs always remain in the discretion of the court, the general rule that “loser pays” has always been an important feature of litigation in England and Wales. Until 1999 the costs shifting rule was enshrined in order 62 rule 3 of the Rules of the Supreme Court as follows:

“(3) If the Court in the exercise of its discretion sees fit to make any order as to the costs of any proceedings, the court shall order the costs to follow the event, except when it appears to the Court that in the circumstances of the case some other order should be made as to the whole or any part of the costs.”

1.2 Lord Woolf’s Interim Report. In chapter 25 of his “Interim Report on Access to Justice” (June 1995) Lord Woolf noted that the problem of costs was the most serious problem besetting the litigation system. After summarising the adverse effects of the present costs regime, he then addressed whether we should abandon the costs shifting rule altogether. Lord Woolf identified two arguments in favour of retaining the rule:

(i) It is fairer that a party who succeeds in litigation should at least recover the major proportion of his own costs from his opponent.

(ii) The rule deters unmeritorious litigation and encourages earlier settlement.

Lord Woolf identified three arguments for abandoning the rule:

(i) The rule can deter meritorious claims. Because of the uncertainty of litigation, even the meritorious litigant may be deterred from proceeding by the costs risk.

(ii) The costs shifting rule favours wealthy litigants over the less wealthy.

(iii) Once litigation is under way, the costs at stake may be so great that the parties feel impelled to press on.

Having balanced the conflicting arguments, Lord Woolf favoured retaining the costs shifting rule but making it more effective in two ways: first, by the court making more focused costs orders rather than simply awarding to the winner all of his costs;

secondly, by the court managing litigation so as to keep down costs.

1.3 Lord Woolf’s Final Report. In chapter 7 of his “Final Report on Access to Justice” (July 1996) Lord Woolf reiterated the significance of the costs problem. He identified three factors in particular:

(i) Litigation is so expensive that the majority of the public cannot afford it without financial assistance.

(ii) The costs incurred in the course of litigation are out of proportion to the issues involved.

(iii) The costs are uncertain in amount so that the parties cannot predict their ultimate liability in the event that they lose.

Chapter 46: Should the cost shifting rule be modified?

Lord Woolf then explained that the problem of costs would be tackled by his case management reforms and by the making of more focused costs orders. In chapter 7, paragraph 5 he stated:

“Costs are central to the changes I wish to bring about. Virtually all my recommendations are designed at least in part to tackle the problems of costs.”

1.4 Civil Procedure Rules 1998. As part of the Woolf reforms the cost shifting rule was codified in the Civil Procedure Rules in the following terms:

“If the Court decides to make an order about costs –

(a) the general rule is that the unsuccessful party will be ordered to pay the costs of the successful party; but

(b) the Court may make a different order.”²¹¹

So far as costs are concerned, the principal difference between the former Rules of the Supreme Court and the present Civil Procedure Rules is that the court is now more willing than formerly to make a “different order” in cases where the victor of the litigation has lost on discrete issues.²¹²

1.5 Full Cost Shifting. It is also a feature of England and Wales that we have full cost shifting, i.e. a reasonable litigant can in principle expect to recover every penny which they have reasonably incurred in bringing or defending their case successfully.²¹³ This is in contrast to many other jurisdictions where, although cost shifting exists, the amounts recoverable are strictly regulated such that one would normally expect costs recovered from the other side to be less than costs as between solicitor and own client. The New Zealand system²¹⁴ is a good example of such an approach. Such a policy of less than full cost recovery has as one of its aims making litigation unattractive for the parties so as to encourage early and reasonable settlement.

1.6 No Cost Shifting. There are also many examples of jurisdictions, here and overseas, where either there is no costs regime at all, or there is a strong presumption that each party should bear their own costs. Such systems are considered in other parts of this report – see chapters 49 to 51 (small claims track, employment tribunals and ancillary relief proceedings respectively) and 60 (USA).

1.7 Options. A whole range of reform options could be considered for non-family litigation in this jurisdiction, including:

(i) whether cost shifting should continue at all;

(ii) whether the amount recovered should be more restricted (creating the differential with own client costs mentioned above);

211 CPR rule 44.3(2). This rule and its qualifications are discussed in chapter 3 above.

212 For a recent and graphic example, see Ratiopharm GmbH v Napp Pharmaceutical Holdings Ltd [2009] EWHC 209 (Ch). The claimants succeeded in a patent action but, having regard to the extent of the issues which they lost along the way, were ordered to pay 20% of the defendants’ costs. The substantive issues were decided differently on appeal, and so the Court of Appeal did not need to review the correctness of the original costs decision:

[2009] EWCA Civ 252.

213 This is the theory. In practice some items are always disallowed on detailed assessment.

214 Discussed in chapter 59 below.

Chapter 46: Should the cost shifting rule be modified? (iii) whether different principles should apply to cost shifting in favour of claimants

and against them;

(iv) what the principle of awarding costs should be if it is anything other than “loser pays”;

(v) whether there are particular types of case which deserve special treatment in terms of cost shifting. One way cost shifting in personal injury claims is considered in chapter 25. Other candidates include public interest cases and environmental litigation: see chapters 35 and 36

It is, however, first useful to consider what the purpose and policy of cost shifting is under the current scheme and how those policies would be affected by any potential reforms.