Proportionality of costs post Jackson reforms

One of the main aims of the Jackson Reforms was to promote access to justice at proportionate cost by placing limitations on frequently sought methods of funding litigation (including conditional fee agreements with 100% success fees and high after the event insurance premiums) to achieve a more collaborative and cost-effective approach. Significant changes to the Civil Procedure Rules have affected the principles which the court will apply when assessing parties’ costs, meaning the courts will only allow costs which are proportionate to the matters in issue. Costs which are disproportionate may now be disallowed or reducedeven if they were reasonably or necessarily incurred. Effectively, there is now a prima facie limit on the amount of recoverable costs. Recent case law has indicated that in applying the new cost rules, the courts are likely to adopt a strict approach; even if that results in individual cases where justice might not be achieved between the parties.

General position of the courts

A striking display of the court’s rigorous application of the new rules was seen in Mitchell v News Group Newspapers Limited [2013] EWHC 2355 (QBD). In proceedings brought under the Defamation Proceedings Costs Management Scheme by Andrew Mitchell MP against News Group Newspapers for The Sun's coverage of the 'Plebgate' scandal, the High Court considered sanctions for a party failing to file its cost budget in accordance with the deadline set out in the new court rules.

In light of the stricter approach the courts must now take, the new mandatory sanctions state that unless the court otherwise orders, any party which fails to file a cost budget will be treated as having filed a budget comprising only the applicable court fees. The High Court Master noted the court's requirement to deal with the case justly and at proportionate cost and decided the Claimant was not entitled to his costs in the case.

This decision was sent to the Court of Appeal on the court’s own motion, however the decision at first instance was upheld. The Court of Appeal agreed that the Claimant was not entitled to relief from the sanction imposed and as a result the recovery of costs in respect of the entire matter was capped at £2,000. In practice, this means that Mr Mitchell could continue his litigation but he would be unable to recover the vast majority of costs in doing so, even if he was successful.

Position of the Technology and Construction Court

In the recent case of Murray v Neil Dowlman Architecture Limited [2013] EWHC 872(TCC) heard in the Technology and Construction Court, the Claimant failed to include a success fee and after the event insurance premium in its agreed cost budget. The Defendant threatened to contest the recoverability of the Claimant’s costs in excess of the costs contained within the approved cost budget and in response the Claimant’s solicitor’s issued an application for relief from sanctions.

On the facts of this particular case the application to rectify the cost budget was approved on the basis that the wording which arose out of an earlier version of the cost budget form lent itself to amendments. However, the overriding message in Coulson J’s judgment was that “…it will be extremely difficult to persuade a court that inadequacies or mistakes in the preparation of a cost budget, which is then subsequently approved by the court, should be subsequently revised or rectified”(paragraph 17 of the judgment).

Practical implications

In order to ensure that parties’ costs remain within any approved cost budget it is important, for parties to take the time at the outset of a matter to ensure costs will be proportionate to the amount in dispute and that costs are kept under constant review. Whilst Mr Mitchell’s claim concerned defamation proceedings, Ms Murray’s case is indicative of the court’s approach to claims in the Technology and Construction Court.

Construction disputes are often document heavy and involve extensive expert evidence meaning that in many cases it is difficult, if not nigh on impossible, to provide an accurate estimate of parties’ costs at the outset. Accordingly, in these early days it remains unclear whether the new cost budgeting regime will be a success in the Technology and Construction Court.

Given that the courts are likely to take a tougher, more robust approach to rule compliance and relief from sanctions, parties may be well advised to consider at the outset of a matter whether full blown litigation is going to be the most cost-effective way of resolving their disputes. It might be, given these recent alarming decisions, parties (especially those involved in complex construction disputes) are driven more towards alternative methods of dispute resolution; for instance adjudication, arbitration or mediation.

DWF LLP’s Construction, Infrastructure and Project team contains members experienced in litigation, adjudication, arbitration and mediation.

This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.

Paul O'Kane

Partner - Head of Construction, Infrastructure & Projects

I am a Partner and head up the Construction and Infrastructure team.