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Rule changes can limit litigation costs

New civil procedure rules on costs aim to limit the cost of litigation.

It has long been recognised that litigation – especially large, complex commercial litigation – is a project, and therefore needs to be managed like any other large commercial project. 

Under the present regime, there is little in the way of effective control over potentially recoverable costs the other side is running up.

New rules on budgets

This is all about to change with the introduction of the new Civil Procedure Rules on costs which provide that:

  • All parties are to exchange costs budgets within 28 days after service of any defence. Where the budget is not agreed, the court must approve it. The court may make revisions as it sees fit, having regard for what is reasonable and proportionate.
  • Where circumstances change which require an increase or reduction in the costs budget, the parties need to either agree that budget, or submit the budget to the court, who may vary or disapprove the revisions.
  • When costs are determined, the court will (a) have regard to the receiving party’s last approved or agreed budget, and (b) not depart from such approved or agreed budget unless satisfied there is “good reason to do so”.

What constitutes a good reason?

It remains to be seen what will constitute a “good reason”. Guidance may be found in Henry v News Group Newspapers Limited, which was a case decided under a recent pilot scheme for the new costs management rules.

“If done properly, the principle is that it will save substantially more costs than it generates”

Although the Court of Appeal found that the first instance judge had taken too narrow a view of “good reason to do so”, it made clear that under the new rules, costs budgets were likely to act as a cap on recovery of costs.

Some may say that cost management in itself generates additional costs and makes additional demands on parties’ legal representatives and on the resources of the court. 

There is also the possibility that the regime will be used tactically to pin opponents to unrealistically low estimates. Others have questioned the draconian effect of the failure to revise costs budgets.

Notwithstanding this, there are powerful factors in support of cost management. If done properly, the principle is that it will save substantially more costs than it generates. Time will tell.

Julia Strettell is a senior associate in the real estate, construction and engineering team at Speechly Bircham

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