Keeping the lid on costs
Mike Willis, Leeds, examines how the courts have helped to keep down excessive costs in professional negligence litigation.
Litigation is expensive; professional indemnity disputes more than most. The starting point to keep costs reasonable is efficient case management; but the judiciary has also developed important tools. In May 2004 Brooke LJ summarised the costs containment opportunity in King v Telegraph Group Ltd (2004) as follows:- “There are three main weapons available to a party who is concerned about... extravagance. The first is a prospective costs capping order... The second is a retrospective assessment of costs conducted toughly... The third is a wasted costs order against another party’s lawyers...”.
Retrospective assessment
Protective offers
After the issue of proceedings, for a defendant to be sure of obtaining cost protection under CPR Part 36, an offer must be effected by a payment into court because “that way lies clarity and certainty” (Amber v Stacey 2001). However, in Crouch v King’s Healthcare NHS Trust (2004) the Court of Appeal opened a potentially important tactical door for defendants by upholding the courts’ discretion to take “without prejudice save as to costs” offers into account, even if money has not been paid in. The paying NHS Trust maintained it was indubitably good for the money, but it was better used for public benefit until accepted by the receiving party, rather than tied up in court. In principle, there is no reason why other financially-sound defendants, particularly insurance companies, should not make similar arguments, especially if there are other defendants with whom the value of the claim cannot be agreed.
On the other foot, in Read v Edmed (2004) liability was apportioned 50:50, thus matching the split offered by the claimant pre-issue. The claimant did not beat her offer, so Part 36 did not strictly apply, but the court claimed and exercised its discretion to award indemnity costs nonetheless.
Costs penalties for unreasonable refusal to mediate
In Halsey v Milton Keynes NHS Trust (2004), the Court of Appeal upheld the principle of costs sanctions where parties unreasonably refused mediation. The court gave (non-exhaustive) examples where refusal might be reasonable, but made it clear mediation will be reasonable in most situations.
AQ costs estimates
The relevance of costs estimates provided to the court, particularly with allocation questionnaires, has recently gather momentum. In Leigh v Michelin Tyres (2003) the Court of Appeal emphasised that parties which file radical under- or over-estimates risk being penalised later on costs.
But the AQ estimate should not be treated as a strict guarantee if costs reasonably exceed it, especially if case management decisions of other parties or he court are affected. The decision has been applied in Burns v Novartis Grimsby Limited (2004), where departure from early estimates was justified by unforeseen later complications, and in Tee-Hillman v Heppenstalls (2004), where the successful defendant’s early under-estimate was disregarded because the claimant could not show reliance on it.
In Lynch v Taylor (2004) a costs estimate provided by solicitors proved well below the amount allowed on detailed assessment of their own-client bill. The award was nevertheless approved on appeal because estimates driving inter-party summary awards could not undermine solicitors’ entitlements to recoup reasonable costs from their own clients under s74(3) Solicitors Act 1974.
CFAs
Conditional fee agreements are justifiably a central plank of modern litigation funding. But since their introduction, there have been challenges to receiving parties’ entitlements to recover costs, insurance premiums or success fees. Whilst less frequent since the Court of Appeal’s review in Hollins v Russell (2003), the obligation carefully to observe the CFA Regulations 2000 has been underlined in Bowen v Bridgend County Borough Council (2004) where a successful claimant’s (excessive) costs were disallowed for disproportionality and procedural non-compliance.
Prospective
Costs management
The court has other powers to influence parties’ conduct and costs provision before expenditure is incurred. It can level the playing field of resources, speed up progress, or accommodate justice/public policy by imposing costs caps: see Solutia UK Limited v Griffiths (2001) where Sir Christopher Staughton stated: “Case management powers will allow a judge to exercise the power of limiting costs, either directly or even indirectly, so that they are proportionate to the amount involved”. Costs capping orders have so far been considered primarily in substantial group litigation, but in AB v Leeds Teaching Hospital (2003), Gage J recognised they will sometimes be appropriate elsewhere; and the range of cases likely to be considered appropriate for court intervention seems set to increase.
Wasted costs
The Court of Appeal recognised in Ridehalgh v Horsefield (1994) and the Law Lords have confirmed in Medcalf v Mardell (2003), that an often conclusively obstructive evidential problem arises if production of relevant material is disallowed by the client party to whom rights of privilege are reserved. Legal advisers can nevertheless never ignore the risk of being penalised personally for costs incurred wastefully through their wrongful conduct.
Beachcroft Wansbroughs
March 2005
C o m m e n t :
It is rarely possible to manage a professional negligence action with rigorous adherence to a fixed cost plan, but there is increasing pressure to try. The courts, assisted by other governing institutions, are showing a developing inclination to provide the judicial tools to facilitate that approach, which practitioners disregard at their peril.
[This article first appeared in The Lawyer, 7 February 2005]