Managing the costs of litigation

From 1 April 2013 most commercial litigation will be subject to new rules on how costs are dealt with. Parties and their lawyers will have to disclose to each other and the Court a detailed breakdown of all the anticipated costs of the case. This must be done at an early stage.

COSTS MANAGEMENT ORDERS

The Courts will be able to make orders approving the parties’ budgets, and will be able to interrogate or query any budgets which are not agreed by both parties.  Judges can even dictate that a party’s budget must be revised. This is potentially very significant. Once a budget has been filed at Court a party will be bound by that budget when it comes to seeking a costs order. The budget is included in a Costs Management Order (CMO).

If there is good reason for the budget to change, a party can seek an increase. However this needs to be agreed by the other party or else approved by the court. Clearly there is room for conflict here between the parties. The Courts will expect to see good evidence as to why costs are expected to increase. The case will need to have changed significantly to justify this.

FASTER DECISIONS AWARDING COSTS

Ultimately the approved budget is going to be used by the Courts to make immediate decisions on how much cost one party must pay to the other. This could remove a large cause of frustration to parties who win cases but then have to wait months for a detailed assessment of their costs. Historically the procedure for finally getting a Court to decide how much cost was payable at the end of a case was lengthy and complex.

It will be very important for parties to ensure that at any given time in the lifespan of a case the budget is up to date and under regular review. If no budget is given in the first place, a party cannot expect to recover any more than just the Court fees.

CHOOSING LAWYERS WHO MANAGE COSTS EFFECTIVELY

This new regime makes the selection of a party’s lawyers even more important than previously. Not only must there be confidence in the lawyer’s ability to achieve the litigation objective; but there must be equal confidence in that lawyer’s ability to predict and actively manage the entire litigation budget.

The stakes are so much higher in respect of cost management that lawyers with the best project management skills and financial systems in place are going to be favoured more than ever before.

At Gordons the litigation team has a project management system for effectively managing a litigation budget. This means that from the start of a case we share with our clients a detailed cost plan. That plan also doubles up as the necessary information to be agreed with the opponent and the Court and is included in the Costs Management Order. It means that if a particular element of a case changes then the data can easily be produced to show this to the Court and the other side. It also allows us and our clients to maintain an ever closer eye on costs as the case progresses. Like any other type of business project it provides an accurate forecast of costs through to completion.

INITIAL STRATEGIC REVIEW

The case management system developed by Gordons works logically with the firm’s other case management tool, called Initial Strategic Review (ISR). The team has been using this successfully with its clients for a number of years and client feedback has been very positive. It encourages a collaborative approach to both risk and project management between the client and the lawyer in order to ensure that an achievable objective is agreed and the best programme and pathway mapped out for its achievement.

SUMMARY

In conclusion, litigants need to understand that they are now going to have to provide detailed budgets for a case at the outset. The Courts will hold them to those budgets. If they overspend they are unlikely to recover the cost overrun. The Courts intend to be strict in their enforcement of this new regime. This will encourage much more discussion and planning of investment in a case between the litigant and its lawyers.

If you need help managing your litigation costs or would like to find out more about Gordons’ project management system or Initial Strategic Review tool, contact Richard Piper, partner and head of construction on 0113 227 0238 or at richard.piper@gordonsllp.com.