Counting the costs

A good number of CILEX Lawyers have made the journey through civil litigation and into the specialist world of costs. But in an era of more fixed costs, where bill drafting and allied skills are not needed, Neil Rose examines what the future holds

At September’s Costs Law Reports conference, the big news – this is the world of costs, let us remember – was that this year the number of reported cases on solicitor/client assessments has so far exceeded that of the perennial leader, part 36 rulings, by 10 to eight.

There were still three months to go, so plenty of time for the lead to change hands, but with over 100 new cases added to the Costs Law Reports database this year, it is a small indication of just what an incredibly active corner of practice costs is.

The introduction of conditional fee agreements (CFA) in 1995 and then the Access to Justice Act in 1999 – allowing for the recovery of additional liabilities from losing defendants in CFA cases – sparked what had hitherto been something of a legal backwater into life. The first decade of the century saw what were dubbed the ‘costs wars’, as defendants issued ever more legally imaginative challenges to recoverability, before the courts and government clamped down on them.

This all led to the review of the costs of civil litigation by the then Court of Appeal judge Sir Rupert Jackson, which in turn led to reform enshrined in the Legal Aid, Sentencing and Punishment of Offenders Act 2012, which came into force on 1 April 2013.

As well largely ending recoverability, this introduced prospective costs budgeting, contingency fee arrangements (called damages-based agreements) and much more besides.

“The desire to keep tightening up the rules to curb costs remains strong” 

You would think that would be enough to be getting on with, but the desire to keep tightening up the rules to curb costs remains strong – next April, on the back of a further report from Sir Rupert in 2017, the Ministry of Justice will introduce fixed recoverable costs for most types of money claims worth up to £100,000, with separate fixed costs regimes for sub-£25,000 clinical claims and for noise-induced hearing claims on the cards too.

And yet that’s still not enough. A Civil Justice Council working group has been charged by the Master of the Rolls, Sir Geoffrey Vos, to conduct yet another review, looking specifically at costs under pre-action protocols/portals and the digital justice system, costs budgeting, guideline hourly rates, and the consequences of the extension of fixed recoverable costs.

Quirk of fate

There are nearly 700 costs lawyers and their regulator, the Costs Lawyer Standards Board (CLSB), revealed last year that 13 were also practising Chartered Legal Executives. Undoubtedly there are a good number more who qualified with CILEX but no longer hold practising certificates, and among the significant if uncountable ranks of unregulated costs professionals.

This is because there has been a long history of CILEX members who work in civil litigation carving out a niche in costs – take Michael Kain, who gave his name to one of the best-known costs firms, Kain Knight, and started his legal life with the institute.

It’s not always like that, however. For one dual-qualified lawyer, Michael Fletcher, a partner and head of advocacy and costs at Glaisyers in Manchester, it was a “sheer quirk of fate”. He explains: “As an office junior with Dickinson Dees [now Womble Bond Dickinson], I played five-a-side football in their lunchtime league. The person who ran the football team was also second-in-charge of the costs department and, when a vacancy arose in that department, it was a case of not what you know but who you know.”

Another dual-qualified lawyer, Claire Kretzmann of Bristol-based Paragon Costs Solutions, started working as a case handler in the after-the-event insurance department of a large legal expenses insurer after completing her law degree. “I progressed to the position of senior case handler some 18 months later,” she recounts. “As I was dealing with various case types on a day-to-day basis, I quickly developed a good working knowledge of general litigation and the issues involved in each claim type.

“Whilst working as a senior case handler, I often dealt with the payment of adverse costs and of own-solicitor disbursements. As I have always been comfortable working with numbers, this piqued my interest. I subsequently took a role as a costs draftsman and I found it to be a great fit. I enrolled on the costs lawyer course shortly afterwards and I have never looked back. It is certainly the field where I feel most at home.”

One of the long-running issues facing the costs world is that you do not need to be regulated to do most of the work of a regulated costs lawyer. In theory, unregulated persons – better known as costs draftsmen (a term largely resisting de-gendering, curiously) – should not be allowed to appear before costs judges because they do not have rights of audience, unlike costs lawyers. But, in practice, a long-established ‘legal fiction’ that draftspeople are temporary employees of the law firms that instruct them means that they are.

It was a fiction established long before costs lawyers came into existence and has now arguably run its course, but the judiciary has not been keen on ditching it, perhaps because of the disruption it would cause.

Existential threat

Fixed costs obviously pose something of an existential threat to costs specialists. While there will be arguments – for example, about which band of fixed costs a case should be in, or whether they are not appropriate for a particular matter – the reality is that most cases will not require their expertise.

Mr Fletcher says their extension will “resonate acutely” beyond just costs to the whole of civil litigation. He explains: “Further fixed costs will inevitably mean clients will be worse off, because they will end up funding more of the far greater difference between own-client, and between-the-parties’ costs. Litigation will therefore become less attractive.

“They will inevitably incentivise delay by paying parties [so as to ramp up irrecoverable costs for the other side], and the ability of costs penalties to regulate behaviours will be eroded. I consider that to be potentially highly adverse to the overriding objective [in the Civil Procedure Rules].”

Another hot topic is costs budgeting, both its current state and whether it has a future. Ms Kretzmann highlights questions around varying budgets and whether parties can show good reasons to depart from them. “The goalposts with regards to these issues are constantly developing and the outcome is often very case specific, meaning that it is difficult to predict what approach the court may take.

“The outcome of these issues will, of course, have a significant effect on the litigation and the recovery of costs in each case, meaning that it is a process that simply must be dealt with as efficiently and accurately as possible.”

The future of costs budgeting is probably the most discussed aspect of the Civil Justice Council review. The general sense is that, though still unpopular, it is seen as far better than the alternative – more fixed costs.

But there is likely to be reform. Speaking at the Costs Law Reports Conference, the Senior Costs Judge, Andrew Gordon-Saker, floated the idea of separating case management from costs management. This would mean the court issuing the directions needed to get a case to trial and then handing it off to a costs judge to “form a view on the reasonable and proportionate costs of giving effect to them”, he said.

Exerting control

Notwithstanding fixed costs, however, specialist lawyers still have a significant role to play in exerting downward pressure to address “out of control” legal costs, according to a report by legal market consultancy Hook Tangaza, published in June. It was commissioned by the CLSB after the regulator successfully bid for a £58,000 grant from the government’s Regulators Pioneer Fund to research whether, if regulation or legislation were different, costs lawyers could help reduce the cost of legal services.

The report concluded that action undertaken through civil justice reforms over the past two decades “has yet to successfully address the challenges of ever-rising costs”. It said: “Many commentators and stakeholders in the system believe it is out of control. Terms such as ‘Wild West’, tales of shocking behaviour by claimant lawyers effectively gambling away proposed settlements for their clients on litigation and reports of judges pleading to litigation funders for help to bring costs under control, were all part of the evidence that was given to us in the production of this report”.

“Specialist lawyers still have a significant role to play in exerting downward pressure to address “out of control” legal costs” 

The message from users and suppliers of costs law services was “not only that many stakeholders do not feel that the Jackson reforms are working as they were intended to do, but also that they do not believe that further civil litigation reform is the answer (or at least the whole answer)”.

Rather, there was more for regulators to do to support better control of costs earlier in the process – even before costs budgeting – not least in the form of better pricing/valuation services for clients and transparency about potential costs in a much more comprehensive way.

The report, which said there was an “under-awareness” of the benefits of using costs lawyers, found the profession already helped control costs, rather than simply shifting liability for who paid them. But there was “a great deal of evidence” that they have the potential to have a much bigger impact.

The research highlighted “a need for a more visible and assertive costs profession – one which recognises that there are different potential modes in which a costs lawyer could operate: as the agent of a solicitor (as at present), as an independent counsel or as a direct access lawyer for consumers”.

Jack Ridgway, chair of the Association of Costs Lawyers, says the report “validates the opportunities we see for our members to expand the services they offer beyond traditional bill drafting and ultimately help clients control their costs more effectively than now”.

He continues: “More than a decade on from the Jackson review, there is clearly a growing clamour from the courts and clients to get an even greater grip on costs, and our members have the training and experience to be at the heart of that push.”

The costs lawyer profession, he acknowledges, “needs to do more to make solicitors understand the value we add to the litigation process from the start, and not just at the end”, and he welcomed the report’s recommendations for a greater focus on the ultimate client, rather than just the professional client. “It sets costs lawyers in an exciting direction. Our skills have never been more needed.”

A digital future

Michael Fletcher says the huge changes that have hit the market repeatedly make it very difficult to plan. “It has felt like the world of costs law has had the Sword of Damocles hanging over it since I started in costs in 1990. However, despite that, the costs profession still morphs, develops and thrives. That is testament to the capabilities, flexibility, and pragmatism of those who work in costs.”

There will always be costs litigation, “and there will always be good work for good people”, he continues. “Once more, adaptability will be needed. If fixed costs are extended, there will be less work to go around. However, the application and exemptions from fixed costs will stimulate argument and satellite litigation. That has always happened over the last 30 years and will happen again.”

“Adaptability will be needed. If fixed costs are extended, there will be less work to go around” 

Nonetheless, with the current uncertainty, he would “hesitate”, currently, to advise CILEX members to specialise solely in costs. “The costs profession will streamline, but there will always be a need for it.”

Claire Kretzmann says the constant change – in areas such as proportionality, part 36 and costs budgeting – ensures she never gets bored. “I really enjoy the technical considerations that come with these elements”.

She agrees that, despite more fixed costs, “there will still be significant input required on costs issues”. She says: “Updates to the CPR are often made to clarify the costs provisions and there will always inevitably be a level of ambiguity that requires further analysis and submissions. This is certainly one of the most interesting aspects of my role. I have no doubts that the costs sector will continue to be an interesting, constantly evolving and very relevant area of law.”

Beyond fixed costs, though, is a challenge that faces every litigator – digitisation. This may be starting with e-filing, electronic bundles and the online resolution of small claims, but it is far from the end. Ultimately, this is about all disputes being managed and resolved digitally, with physical hearings taking place only where necessary.

Concluding his speech, Judge Gordon-Saker recounted how he had come to the conference from presiding over day 86 of a mammoth detailed assessment hearing. He forecasted: “Eventually, in the digitised world of litigation, there will be no place for detailed assessment hearings like that. There will be short hearings to decide discrete points that require evidence or detailed arguments about the retainer.

“But we won’t need days arguing about what is reasonable or proportionate, because in cases where the costs are not fixed, what is reasonable and proportionate can be decided by an algorithm or whatever replaces an algorithm.

“And Lord Justice Jackson’s vision of a bill being produced at the touch of a button, which hasn’t happened yet, will come to pass, except that the computer will do it automatically and nobody will have to push a button. Everything will be recorded by blockchain or whatever replaces blockchain and eventually there will be no need for time records, bills, costs budgets and points of dispute – the computer will do it all.”

Costs specialists do not need to panic quite yet. Judge Gordon-Saker said this vision was still a long way off. But the journey is beginning. “My advice to anybody coming into costs now is to learn some serious IT skills because I suspect that is the way this is going to go.”