The final report on the costs budgeting pilot, which was published last week, gives an interesting insight into a battle going on within the judiciary. As is known, the Commercial Court managed to win itself an exemption from costs budgeting some time ago by convincing Lord Justice Jackson that, in the high-value commercial cases dealt with in the CC, such measures were unnecessary. Jackson accepted this in his 2009 reform proposals. At the Bar Council’s annual conference last year, the CC’s Mrs Justice Gloster described this in terms of having ‘won the battle’ on costs budgeting.
Then in February this year, shortly before costs budgeting came in across the board on 1 April, another carve-out was granted, for those courts dealing with similar high-value claims to the CC, which feared ‘forum shopping’ problems if they were subject to costs budgeting while the CC was not. So cases worth more than £2m in the Chancery Division, Technology and Construction, and the Mercantile Courts were also exempted.
This exemption will be reviewed in July, however, and is by no means certain to stay in place. As reported in last month’s Litigation Funding, Mr Justice Ramsay – the judge in charge of implementing Jackson – recently said that his own view was that such exemptions should not exist.
Now, the final report on a costs management pilot which has been running in the TCC and Mercantile Court since October 2011, co-authored by a monitoring group of three lawyers (Nicholas Gould, Christina Lockwood and Claire King), sheds some light on what other judges think of the exemptions from costs budgeting; and it seems the judiciary is not too impressed.
Telephone interviews with judges conducted for the report showed that ‘many judges shared the feeling that there is no principle for the exemption of the Commercial Court, and they find this very unsatisfactory’.
One specialist mercantile judge interviewed said he firmly believed that costs management should be ‘across the board’, adding that ‘no rationale’ had been given for the CC’s exemption, and describing the further exemptions announced in February as ‘illogical’. The report continues: ‘The cynical view is that there are so many foreign litigants in the Commercial Court (Berezovsky v Abramovich etc.), that the decision had been made to allow [litigators] to continue earning very high fees in the Commercial Court. Consequently big firms might choose to start proceedings in the Commercial Court for a "free for all", instead of using courts of choice such as the Mercantile Courts in Bristol or Birmingham.
‘Why should a mercantile judge be forced to tell Barclays Bank and HSBC that they cannot spend more than X on their expensive City firm of solicitors, when the Commercial Court is free from this obligation? Judges clearly resent that no guidance was given on this.’
Clearly the senior judiciary now finds itself under pressure from those in the lower ranks to remove the costs budgeting exemptions. But if you believe the ‘cynical’ view outlined above, that could have a negative impact on the profitability of City firms.
In his reform proposals, Jackson said that the large commercial businesses that litigate in the Commercial Court had informed him that they were ‘unconcerned’ about the level of legal costs. But it could be that attitudes on this differ according to whether a company is bringing a claim, or forced to defend one. It seems to me that, before any final decision is made on the exemptions, there must be some proper investigation into whether the clients in these high-value cases actually want their legal costs to be subject to the rigours of costs budgeting, or not.
Only when that is known can a decision be made.
Rachel Rothwell is editor of Litigation Funding magazine, providing in-depth coverage on costs and the financing of litigation.
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