The case management of costs

District Judge Stephen Gerlis discusses the judiciary's power to control litigation costsThe concept of costs estimates is pretty new - even to the Civil Procedure Rules 1998 (CPR).

Pre-Woolf costs estimates rarely, if ever, arose.

The parties battled on and at the end of the day the winner presented their bill which could then be challenged on taxation.

It was all a bit 'after the event'.Since the courts took over the management of cases on 26 April 1999, procedural judges have been concerned to check costs as the case has progressed rather than wait for some horror story after trial.

This is well within the principle of the overriding objective and proportionality in particular.There were originally some provisions for estimates of costs to be mentioned in the allocation questionnaire but these did not always command the judge's attention.

Costs estimates was one topic for discussion in multi-track case management conferences but, again, without any real teeth to the provisions this was a subject that might often be relegated lower down the list of priorities.Teeth insertedBeefed up provisions for costs estimates were introduced to the CPR somewhat late in the day.

It is a general principle of the CPR that a party should keep other parties informed as to their potential liability, not only in respect of the claim or counterclaim, but also about costs.Practice direction (PD) 43 also provides for the filing and service of costs estimates at various stages of the proceedings.

Costs estimates are also used to assist the court to decide what, if any, order to make about costs and for the purposes of case management.It is the additional intention that the exercise of providing a costs estimate should encourage parties and their legal representatives to be aware of the costs that are being incurred and to accordingly take steps to limit them.

And now it is provided that if the court is assessing costs, it may take any previous estimate into account when deciding whether the costs claimed are reasonable (PD43, paragraph 6.6).There is a perception that insufficient attention is still given to costs estimates by practitioners and even judges may be skimming over them without sufficient regard to their implications.

If so, Griffiths & Ors v Solutia UK Ltd (2001) 26 April LTL, CA, should provide a salutary lesson.A group of 161 residents had brought claims against the defendant company following a chemical leak from the company's premises in their vicinity.

Claims by two other groups in respect of a previous leak had been settled without proceedings.

The claims by the third group were finally settled for payouts totalling 90,000.

The residents' solicitors thereafter put in their bill to be paid by the defendants.

The bill totalled 210,000 - two-and-one-third times the amount they had recovered.

Two of the appeal judges described the sum claimed as 'ludicrous', especially as it was 'only for one side's costs' adding that it was 'even more remarkable when one bears in mind that [these] claimants are said to have the benefit of investigatory work done in respect of [the other claims] without charge'.The quantum of the costs has yet to be decided by the costs judge, so we do not know by how much the 'ludicrous' sum is going to be reduced and much of the appeal was concerned with whether the claimants should have instructed London solicitors rather than those based locally in Manchester.

In the event, the Court of Appeal upheld the use of London solicitors (they had, without complaint, dealt with the previous claims and done a 'significant amount of background work which therefore did not need to be repeated') but, bearing in mind what was clearly the disproportionality of the costs to the amount recovered, the appeal judges were concerned to ensure that such a situation did not arise again in the future.The power of rule 3.1(6)Lord Justice Latham dealt with the location of the solicitors and it was left to Sir Christopher Staughton and Lord Justice Mance to comment on case managing costs.

Sir Christopher pointed out that the power of a tribunal to limit costs had been recognised pre-CPR in relation to arbitration matters as a result of section 65 of the Arbitration Act 1996.

He was surprised to find no power to limit costs expressly provided for in the CPR but felt clearly that rule 3.1(6) would allow a judge to 'exercise the power of limiting costs, either indirectly or even directly, so that they are proportionate to the amount involved' in a non-rule 3.1(5) situation.

In other words, to take a proactive step in limiting costs before the conclusion of proceedings as well as a reactive one once those proceedings have been concluded.He acknowledged that group litigation may give rise to more costs than there might otherwise be, but warned that any increase in the amount of administrative management which did not perhaps require any particular legal skill 'could give rise to dispropor-tionate expense unless controlled'.

He counselled more control over such expenses 'than [there] apparently has been in the past'.For his part, Lord Justice Mance encouraged judges 'to make full use of their powers under the practice direction' relating to costs estimates 'to keep costs within the bounds of the proportionate in accordance with the overriding objective'.So how should practitioners approach the question of estimates? For a start, the court is only interested in the base costs and not any additional liability (for example, a success fee) but disbursements (including counsel's fees) must be included (PD43, paragraph 6.2(1)).

To make matters more interesting, a copy of the estimate must also be served on the client (PD43, paragraph 6.4(1)).

Perhaps, understandably, litigants in person are not covered under the rule (PD43, paragraph 6.4(3)) nor does it apply to small claims cases (PD43, paragraph 6.4(2)) where, usually, the 'no costs' regime applies.A precedent for the estimate (form H - appendix A) is provided for in the schedule of costs precedents annexed to the PD.

This is quite detailed and calls for more than just a global figure - a detailed breakdown is required.

The estimate must show costs incurred to date and proposed final costs if successful.

Perhaps this is an area where a costs draftsman ought to be involved.Solicitors should also be more willing to confront the other side's estimate if it is clearly unreasonable.

If the court does not itself pick up the point practitioners should apply to the court for directions so that the question of escalating costs can be properly addressed.

The decision in Griffiths highlights that, where appropriate, the court may order a limit on the costs in order to prevent them getting out of hand.The procedural judge's approach is likely to be exactly the same as the costs judge on an assessment - reasonableness of steps taken and proposed to be taken, proportionality, etcetera.

Better a warning shot now rather than a disaster of Griffiths proportions when solicitors have lost sight of the big picture and already committed unwarranted and disproportionate resources, much of which they will be unable to recover from the other side.Pitching it rightThis all raises the question of pitching costs at just the right level.

It might be thought that there may be a temptation to overestimate costs 'just in case'.

The problem in doing so is that the court could jump on the estimate as soon as it sees it and suggest a ceiling on costs if it would appear that they are projected to get out of hand or disproportionate, in order to prevent a Griffiths situation.Furthermore, if the costs ultimately come in at somewhat less than the estimate the winning party will be open to challenge that the overestimate was deliberate and designed to intimidate the other side which might give rise to a claim of misconduct, or that the estimate was irresponsible and reckless.

In any event, the court will be urged to reduce the actual costs by way of 'punishment'.

And don't forget the client.

'You promised me that I would recover X amount of costs - why am I getting less than that?' No one pretends that pitching will be an easy exercise.District Judge Stephen Gerlis sits at Barnet County Court