Civil Justice Council Costs Review 2023 Explained
Posted on 10th May 2023 at 15:36
By Sean Linley, Costs Draftsman
Costs developments continue apace with the publication of the Civil Justice Council’s costs review final report (the link to the report itself is at the bottom of this article). The same sees recommendations concerning Costs Budgeting, Guideline Hourly Rates, Pre-action and digitisation and the extension of fixed recoverable costs. The points raised are at this point recommendations so any changes would require approval, though it does provide us with an insight into what may lie ahead in the near future.
Speed-Read
As stated the detail in the CJC costs report are only recommendations. This means that there is currently no timetable when any recommendations would be enacted and whether any recommendations will be enacted at all.
The key findings can be summarised as follows:
- Hourly rates should be subject to yearly reviews linked to the general SPPI on 1 January each year. This should include retrospective updates to 2021. Detailed reviews should take place every 5 years.
- In respect of Guideline Hourly rates a new band should be introduced for complex, high value, commercial work, where in London or elsewhere.
- Counsel’s fees should be included in the Guideline Hourly Rates for the first time. These will be separate to the solicitor GHRs.
- Guidance should be given on the test to apply for departing from GHRs.
- A new ‘costs budgeting light’ scheme should be introduced to replace the current full-scale budgeting process for all claims valued between £100k to £1million. Claims in Business & Property Courts valued over £1million should be subject to a separate light touch approach. There is no agreement on what costs budgeting light or a light touch approach will be.
- In cases where QOCs apply, it’s recommended that full budgets are dispensed with for Defendants, though court will have power to order a Defendant to produce a full budget.
- Consideration should be given to bespoke budgeting processes for specialists cases (i.e. mesothelioma and media & communications claims).
- Introduction of a staged process between directions and budgeting where directions are disputed. This would see an initial directions hearing with budgeting dealt with after. However, parties will still need to file some costs information before the directions hearing. It is not agreed what this costs information would be.
- Timescales for budget discussions and negotiations should be extended.
- The Precedent T process for varying costs budgets should be revised and simplified though there is no clarity on how this will be achieved.
- There should be sanctions for parties who default on the budgeting timetable.
- Future consideration is required as to the approach, in budgeting terms, to hourly rates and to pre-action/incurred costs though no specific changes are recommended at this stage.
- Changes should be made around pre-action costs and specifically the extent of recovery of the same for new digital pre-action protocols. Crucially such changes should not impact the recovery of pre-action costs post-issue. Pre-action Protocols that provide for recovery of pre-action costs where cases settle pre-action should have a rule change providing that cases are deemed issued at the point a relevant Pre-action Protocol is commenced.
- There should be a review of the Solicitors Act 1974 in light of the digitisation of the court and the Law Society should consider a general order under Section 56 of the Act.
- A costs cap in patent cases in the Shorter Trials Scheme of £500,000.00 should be introduced.
What is the Civil Justice Council review?
It was commissioned by the Master of the Rolls in early 2022 and was seen as a tool to look over costs generally, particularly to ensure that the structures for costs reflected the digitisation of the court. Notably all the major recommendations were agreed unanimously. LJ Birss was responsible for the review. There was an initial consultation with various questions asked and stakeholders were invited to provide feedback.
Costs Budgeting
The consultation responses found that the majority are in favour of retaining costs budgeting. The report cites that the working group felt that budgeting has “improved case management and the proportionality of costs.”
The report recommends that “costs budgeting should be retained” but that it should be a “more tailored approach […] to suit different work types and/or venues where the litigation is conducted.”
There are some important changes recommended. These can be summarised as follows:
- In cases where QOCs applies, it is recommended that full budgets are dispensed with for Defendants and a front sheet only be filed and exchanged. The Court would retain the power to direct a Defendant to produce a full budget.
- A pilot scheme for what is term ‘costs budgeting light’ is recommended. In essence this would see the full scale budgeting currently applied replaced with a less detailed scheme for those cases valued between £100,000.00 to £1million.
- A further pilot scheme is recommended for Business and Property court cases which will also see a lighter touch approach for all cases valued over £1million. For cases under £1million then the scheme in the paragraph above will apply.
- Judges who operate specialists lists (such as mesothelioma, media and communications claims etc) have been invited to provide their views on more bespoke arrangements for conducting budgeting.
- The majority recommended a staged approach to costs and case management so that in cases where there are significant direction disputes, costs management would follow the setting of directions. This would save time and avoid parties exchanging “divergent budgets”. It is hoped this would lead to more agreed budgets which would save judiciary time. Costs information, however, will still have to be exchanged before a directions hearing so that such “material will be available when the directions are given”. There is no agreement at this stage on what costs information would be required to be given.
- It should be open to the court to direct that costs budgeting be referred to specialist judges. It is felt this could aid heavier cases.
- Revisions to the timescales for exchanging Budget Discussion reports are recommended, to allow parties longer to negotiate.
- Revisions to the Precedent T process are recommended as it is felt the current procedure is unpopular and could be simplified.
- Consideration is recommended to sanctions for parties who default on the budgeting timetable. It is felt certainty in any sanctions would remove satellite litigation.
- Further work is required in relation to the approach, in budgeting, to hourly rates and to pre-action/incurred costs.
Guideline Hourly Rates
The report recommends that Guideline Hourly Rates (“GHRs”) be retained, subject to appropriate annual index linked increases on 1 January each year. It is recommended that the general SPPI be used for this (which will also be used for the extended fixed recoverable costs). This includes a recommendation for a retrospective increase to reflect the fact that the GHRs have not changed since 2021. It is accepted that this change would lead to an outcome at assessment where there is an application of more than one GHR (i.e. a change each time the GHRs are uplifted for inflation). Rates are to be applied. It is recommended that the automatic uplift take place for a period of five years with a detailed review of hourly rates to follow thereafter.
The CJC report also states that the highest band of the GHRs is too low and ought to be increased. They also state that Counsel’s fees should no longer be excluded and this anomaly should be addressed. In addition, they recommend some minor changes around the applicable test to depart from the GHRs.
The future detailed review of GHRs will deal with impact of index linking, impact of remote working and potential geographic changes to smooth out rates between those inside and outside of London. A working group will be set up to address this to include how to obtain the necessary evidence. It is recommended that detailed reviews take place every 5 years.
The key recommendations can be summarised as follows:
- Hourly rates to automatically be subject to annual increases on 1 January each year and linked to general SPPI. This will include retrospective increases from 2021.
- Detailed reviews of hourly rates to take place every five years.
- A new band for complex, high value, commercial work, whether in London or elsewhere be introduced.
- Counsel’s fees should capable of assessment by reference to a guideline hourly rate. It is accepted this will be difficult to achieve but it is recommended as a priority. The CJC report states that “there is no real justification for treating [Counsels’ fees] differently from solicitors’ fees.”
- There should be clarity given on the test to be applied when the court considers a departure from GHRs. Suggestions include adopting the current case law test of providing a clear and compelling justification to depart or departures should only be considered where a case falls outside average complexity.
Pre-Action and Digitisation
The judiciary wish to encourage engagement in the pre-action processes in the hope it will help claims to settle without the need to resort litigation or at the very least allow parties to narrow the issues.
The key recommendations can be summarised as follows:
- For the new digital pre-action protocols, costs recovery pre-action should be very limited, though this will not impact recoverability of costs incurred pre-action once proceedings have commenced.
- For claims where existing Pre-Action Protocols provide for recovery of costs that settle at the pre-action stage then a rule change should be introduced so that such claims are deemed to be “issued” at the point a relevant Pre-Action Protocol is commenced. It is recommended this be subject to a pilot scheme with Housing Conditions Claims a potential vehicle for this.
- CPR 46.14 should be changed to allow the court power to deal with the incidence of costs where parties have settled a dispute but have reached no agreement over who pays costs. It is envisaged that any process for this may be summary, low-cost or even fixed costs.
- An appropriate body should be invited to report on the need to revise the Solicitors Act 1974 given the digitisation of dispute resolution.
- The Law Society should be invited consider if a general order under section 56 of the 1974 Act might usefully provide an improved, helpful and workable scheme to deal with non-contentious costs. It is envisaged that such an order would prescribe the general principles to be applied when determining the remuneration of solicitors in respect of non-contentious business.
Consequences of the Extension of Fixed Recoverable costs
You can read our analysis of the Extension of Fixed Recoverable costs to most civil litigation up to £100,000.00, the link is at the bottom of this article. The CJC costs report is not designed to challenge those conclusions but rather to look at the wider impact of the extension.
Notwithstanding proposed recommendations relating to pre-action costs and the Solicitors Act 1974, recommendations are also made in support of the proposal for a £500,000.00 costs cap in patent cases in the Shorter Trials Scheme.
What do these recommendations mean for me?
In the immediacy they mean very little. These are recommendations only and it remains to be seen what elements will be accepted and if so when they may be enacted and in what form.
The recommendations for annual reviews and more detailed reviews of hourly rates ever 5 years will be welcomed by many practitioners. Practically speaking, however, it may dilute arguments around departures from GHRs. Many firms routinely charge above GHRs so any diluting of arguments around recovery of enhanced rates could have impacts on shortfalls for clients. This will also be impacted by any guidance given, in future, on the applicable test for departing from GHRs. Presently that test is that clear and compelling justification must be given for allowing rates above guideline.
Another big recommendation is the inclusion of Counsel’s fees under GHRs for the first time. This will no doubt see barristers having to get more involved in the costs litigation as they too will have to provide justification where rates exceeding guideline are claimed. At this stage it will be sometime before workable guidelines are introduced for Counsel. There will be a need to obtain evidence on what those guidelines will be. It is almost certain that if introduced they will be distinct to the current guidelines for solicitors.
Turning to budgeting changes, what would a costs budgeting light or light touch budgeting process look like? Will it see arguments around budgeting reduce? I would dare say it will not. Parties will invariably pose the same questions and arguments but with less information may be less inclined to agree elements without an explanation of how constituent parts are reached. As there is no detail on what these processes will look like it is difficult to speculate further.
The decoupling of budgeting and directions in cases where directions are in dispute is to be welcomed. Providing budgets in such cases is tricky and agreement on budgets difficult as parties make offers based on differing scenarios. However, the recommendations state that some costs information should still be provided, even where there is this decoupling. What information would this be? Will this make the procedure more complex and if costs information is required anyway does it fundamentally address the issues? Again there is no detail on what costs information is to be provided but there are no easy answers here.
Front sheets only for Defendants in QOCs cases removes detail, crucially it will see assumptions lost. Are parties willing to agree budgets where there is no clarity on how it is modelled? How does this sit where a Defendant in such an instance looks to vary a budget when no one will be clear on what assumptions it was prepared upon in the first place. Those who have been with budgeting from the outset will recall that the original front sheet did incorporate assumptions, though this was later removed. It is not to say that such a recommendation is not workable but there are certain practical considerations which have to be given.
The changes to extend time for budget negotiations are to be welcomed. Similarly, any simplification of the process to vary costs budgets is to be welcomed but again we have no indication here as to how that will be achieved. Sanctions for parties who default on elements of budgeting will bring certainty and hopeful encourage parties to engage meaningfully.
It is interesting that in the longer term the CJC working party want to see consideration given to hourly rates and pre-action/incurred costs in budgeting. We can only speculate where this may lead.
It is right to be cautious around changes to the recoverability of costs pre-action. There is not enough detail in the report to really understand what the intended changes are and how they will operate. This displays the issues with recommendations, they set out things that should be done but crucially not how. This is something to keep an eye on.
A review of the Solicitors Act 1974 should be welcomed and it is certainly something in need of modernising. It will be interesting to see the future direction of any consultation upon it.
Extending costs capping is interesting where we have the extension of fixed recoverable costs anyway. The recommendation relates to patent claims in the Shorter Trials Scheme but reflects a wider judicial view of the need to drive down costs.
At this point it is very much a case of wait and see, whilst there are some welcome developments there are many unanswered questions (far too many to raise here). Costs continues to undergo significant reform and changes and this report shows that those changes show no signs of slowing down anytime soon.
We are at Carter Burnett are here to help. If you simply want to have a chat about the CJC recommendations and the potential impact of them or if you have any specific questions then you can give us a call on 01482 534567 or email info@carterburnett.co.uk for a friendly discussion with our experienced team.
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