- One of the principal objects of the Woolf reforms was the control of costs.
The Civil Procedure Rules include a number of innovations which were designed
to enable the court to limit recoverable costs and thereby further the overriding
objective defined in CPR r. 1.1. One of the innovations was the requirement
that parties provide cost estimates at important stages of litigation (notably
the allocation and listing questionnaire stages), and the conferring on the
court of the power to take the parties’ estimates into account on an assessment
of costs. At the heart of this appeal lies CPR 43 PD para 6.6 which provides:
"On
an assessment of the costs of a party the court may have regard to any
estimate previously filed by that party, or by any
other party in the same proceedings. Such an estimate may be taken into account
as a factor among others, when assessing the reasonableness of any costs
claimed."
- In the present
case, the claimant’s solicitors filed an allocation questionnaire in which
they
said that they estimated the claimant’s solicitors’ profit
costs to date at £3000 plus VAT, and their overall profit costs as likely
to be £6000 plus VAT. The practice direction in force at that time (February
2000) did not state that the estimate should include disbursements in accordance
with the definition of "costs" in CPR 43.2(1)(a). The practice
direction has since been changed to spell out that estimates must include
disbursements. The claimant’s solicitors never revised their estimates. In
the event, the litigation was eventually settled, and they lodged a bill
of costs in which they claimed £21,741.28. This comprised £14,482.80 in respect
of profit costs, £4314.70 for disbursements and £2943.78 for VAT. The first
of these figures included £11,744 for their profit costs in respect of the
period after the allocation questionnaire stage. This should be compared
with the estimate of £3000 given at the allocation questionnaire stage for
future solicitors’ profit costs. The district judge assessed the claimant’s
recoverable costs at £20,488.83 inclusive of VAT. He made no deduction to
reflect the fact that the claimant’s solicitors had previously given what
proved to be a wholly inadequate estimate for their future profit costs.
The defendant says that the district judge erred in not reducing the assessed
costs to reflect the earlier estimate. It failed to persuade Judge Mitchell
that the district judge was wrong. Permission to appeal was given because
it seemed that the appeal raised an important point of principle as to the
relevance of costs estimates in the assessment of costs.
The Rules and the Practice Direction
- At the date
of the allocation stage in the present case, the practice direction supplementing
CPR 26
provided that the allocation questionnaire should be
in Form N150, which required estimates to be given of costs incurred by legal
representatives to date and of the overall costs. CPR 26 PD para 2.1 provided: "attention
is drawn to the Costs Practice Direction, para 4.5(1) which requires an estimate
of costs to be filed and served when an allocation questionnaire is filed".
CPR 43 PD section 4 dealt with estimates of costs. Para 4.1 provided:
"This section sets out certain steps which parties
must take in order to keep the parties informed about their potential liability
in respect of costs and in order to assist the court to decide what, if any,
order to make about costs and about case management".
- By the time
the listing stage had been reached, some significant changes had been made
to the practice
direction. In particular, section 4 of CPR
43 PD had been replaced by section 6. The new para 6.1 was in almost the
same terms as its predecessor para 4.1. An "estimate of costs" was
now given a wider definition: it was an estimate of "base costs (including
disbursements)". "Base costs" were defined by para 2.2 of
the practice direction as costs other than the amount of any additional liability
as defined by CPR r. 43.2. Paras 6.3 to 6. 6 of the amended practice direction
provided:
"6.3 The court may at any stage in a case order
any party to file an estimate of costs and to serve copies of the estimate
on all other parties. The court may direct that the estimate be prepared
in such a way as to demonstrate the likely effects of giving or not giving
a particular case management direction which the court is considering, for
example a direction for a split trial or for the trial of a preliminary issue.
The court may specify a time limit for filing and serving the estimate. However,
if no time limit is specified the estimate should be filed and served within
28 days of the date of the order.
6.4(1) When a party to a claim which is outside the
financial scope of the small claims track, files an allocation questionnaire,
he must also file an estimate of base costs and serve a copy of it on every
other party, unless the court otherwise directs. The legal representative
must in addition serve an estimate upon the party he represents.
(2) Where a party to a claim which is being dealt
with on the fast track or the multi track, or under Part 8, files a listing
questionnaire, he must also file an estimate of base costs and serve a copy
of it on every other party, unless the court otherwise directs. Where a party
is represented, the legal representative must in addition serve an estimate
on the party he represents.
(3) This paragraph does not apply to litigants in
person.
6.5 An estimate of base costs should be substantially
in the form illustrated in Precedent H in the Schedule of Costs Precedents
annexed to the Practice Direction.
6.6 On
an assessment of the costs of a party the court may have regard to any
estimate previously filed by that party, or
by any other party in the same proceedings. Such an estimate may be taken
into account as a factor among others, when assessing the reasonableness
of any costs claimed."
- The other important new elements were (a) the requirement that legal representatives
should serve on their clients their estimates of costs; and (b) the provision
in para 6.6 that cost estimates may be taken into account on an assessment
of costs when assessing the reasonableness of any costs claimed. Section
6 of the PD has not been further amended, and governs the position today.
- The only rule relating to the assessment of costs to which we need refer
is CPR r. 44.5 which provides for the factors that are to be taken into account
in deciding the amount of costs:
- The notes in the current edition of the White Book state at para 44.7.2:
"On
completing the allocation questionnaire and the listing questionnaire the
party must set out an estimate of costs incurred
to date and an estimate of likely future costs, Section 6 of the Costs Practice
Direction deals with this. Considerable care and precision is required in
the preparation of such estimates since the estimates of opposing parties
are likely to be compared one with another. An over generous estimate may
result in an opponent recovering a similar amount, while an under-generous
estimate may result in a recovery on behalf of the client which does not
reflect the actual costs involved."
The facts
- The claimant,
who at the material times was employed by the defendant, suffered injuries
at
work in May 1996 and July 1997. On 27 May 1999, he issued
proceedings alleging that the injuries were caused by the defendant’s negligence
and/or breach of statutory duty. The claim form and particulars of claim
were served on 2 September 1999. By its defence served on 2 February 2000,
the defendant denied liability, causation and loss. Both parties completed
and filed allocation questionnaires, and on 24 February, the claim was allocated
to the multi-track. Apart from the costs estimates to which we have already
referred, the claimant’s allocation questionnaire included the statement
that he intended to use one expert witness, a consultant orthopaedic surgeon.
The defendant said that it intended to use two experts, an engineer and an
orthopaedic surgeon. It also stated that its estimate of costs incurred to
date was £2500, and that it estimated the likely overall costs at £7500.
- There was a
listing hearing on 6 April 2001. Neither party filed or served on the other
side
an updated estimate of costs as required by CPR 43 PD para
6.4(2). At the hearing, the claimant was given permission to rely on the
report of an employment expert. This was because the defendant’s witness
statements asserted that the claimant would have been made redundant and
would therefore have lost his employment even if he had not been injured.
The trial date was set for 23 July 2001. On 16 July, the claim was settled
on terms that the defendant pay £48,000 less CRU benefits plus costs.
- As we have
said, the claimant’s bill of costs was lodged in the sum of £21,891.28.
The defendant submitted Points of Dispute on 6 December 2001. It raised a
number of points of detail, but the principal point of dispute was the defendant’s
contention that the claimant should not be permitted to receive more than
the amount of the costs estimate contained in the allocation questionnaire
plus 15%, ie £6900 in total. The argument was put in two ways. First it was
said that, since the claimant had not approved an increase in the amount
of the estimate given by his solicitor in the allocation questionnaire, the
claimant’s solicitor would not be able to recover from him more than that
estimate plus 15% (see Wong v Vizards [1997] 2 Costs LR 46), and on
an application of the indemnity principle, the defendant was not liable to
pay the claimant more than the claimant was liable to pay his solicitor.
Secondly, it was said that, regardless of the indemnity principle, the defendant
should not be liable to pay more than the amount of the costs that had been
estimated, because it was entitled to rely on the cost estimates that had
been given by the claimant’s solicitors.
- The claimant’s solicitors responded as follows. They explained why the
costs were so much higher than had been estimated at the allocation stage.
Late disclosure of documents by the defendant’s solicitors had obliged them
to carry out unexpected investigations and further work. The redundancy issue
had not been foreseen: this too needed to be considered. Further, it had
not been foreseen that engineering expert evidence would be required: in
the event, an engineering expert had to be instructed. The claimant’s solicitors
also explained (in answer to the indemnity principle point) that the prosecution
of the claimant’s claim was funded by the TGWU. The Union gives the solicitors
general authority to proceed with any claim which has a reasonable prospect
of success, and does not require them to provide an estimate of costs.
- District Judge
Chapman held the assessment on 9 May 2002. At this hearing, he dealt with
the points
of detail and, subject to the point of principle
raised by the defendant in relation to the claimant’s solicitors’ costs estimate,
he assessed the claimant’s reasonable and proportionate costs at £20,488.83.
At the same hearing, he heard argument on the point of principle, but he
reserved judgment on this until 21 May. In his reserved judgment, he distinguished Wong
v Vizards on the ground that in that case the client had expressly required
the solicitor to give costs estimates. He held that the claimant’s solicitors
had failed to comply with CPR 43 PD para 6.4(1) in that they had failed to
serve on the claimant or his Union a copy of the costs estimate which they
had given in the allocation questionnaire. He also noted that neither party
had complied with the requirement of CPR 43 PD para 6.4(2) that there be
filed with the listing questionnaire an estimate of costs at that stage.
The district judge said that he "did not believe that the defendant’s
solicitors or insurers (the paying party as it turns out) relied at any stage
upon the claimant’s solicitors’ costs estimate in the AQ in deciding whether
to continue to conduct the litigation as they did. Indeed it is not so suggested.
The defendant’s decision to agree the compromise settlement figure was not
influenced by the claimant’s solicitor’s costs estimates in the AQ".
- The nub of the district judge’s reasoning is contained in the following
passage of his judgment:
"(vi) The requirements to provide costs estimates from
time to time are confusing. It has been common practice it seems for Solicitors
to provide at AQ stage an estimate of profit costs only excluding vat and
disbursements and further not to provide any estimate of costs when filing
the LQ. The AQ form itself simply asks what the overall costs are likely
to be. CPR43 PD6.2 defines an "estimate of costs" which should
include disbursements (but there is no reference to vat). Precedent H provides
for costs, vat and disbursements including estimates of trial costs. The
precedent includes inter alia counsel’s brief and refresher fees, experts’
fees, expenses of witnesses of fact, attendances on all those people and
perhaps others. In many cases, of which this is one, it will simply not be
possible at the AQ stage which follows shortly after the defence and is before
exchange of experts’ reports, disclosure of documents, exchange of witness
statements of fact and many other possible developments in the proceedings,
for either party to estimate with any degree of accuracy the costs and disbursements
which are likely to be incurred if the claim proceeds to trial. Costs estimates
are required by the Court primarily to assist in all aspects, including costs,
of the proper management of the case and as a reminder to the parties of
the potential costs of the litigation they are undertaking. The Court has
the power, not exercised in this case, under CPR43 PD6.3 to direct costs
estimates to be prepared at any time in the course of proceedings. I anticipate
that a more clearly defined process will evolve as Courts pay more attention,
as the present Practice Direction allows, to the costs estimates which are
provided during the course of proceedings.
(vii) However, whereas it is entirely appropriate that estimates
of costs already incurred should be accurate, it would in my judgment be
an unintended and unfair consequence of complying with PD6 to the extent
of filing and serving on the other party (but not the Client) if the Solicitors
estimating future costs (and disbursements) at such an early stage of the
action were at the conclusion of the action to be tied to that estimate as
against the other party unless there is clear evidence that the other party
relied upon that estimate.
(viii)
In the absence of any evidence that the Defendant in this case relied upon
the Claimant’s Solicitors estimate of further costs
and so informed the Claimant’s Solicitors, I have concluded that the Claimant’s
Solicitors should not be bound to that estimate and should be entitled to
recover from the Defendant the costs which have been assessed at the hearing
on 9 May 2002."
- The defendant appealed. Judge Mitchell gave judgment on 27 February 2003.
He held that the Solicitors’ Practice Rules and the indemnity principle had
no part to play here. So far as CPR 43 PD para 6.6 is concerned, the judge
said this:
"16.
The contents of a number of the Practice Directions have served to engender
satellite litigation of which the Costs Practice
Direction has been a fruitful source. Furthermore, the stipulated procedures
have of themselves added to the costs of proceedings. To produce a costs
estimate with the detail in Form H requires an expenditure of chargeable
time. The purpose and effect of requiring such estimates to be provided is
not clearly stated. If the intended purpose is to limit the recoverable costs
by reference to the estimate that is something which, in my judgment, requires
a clear statement in the Rules themselves rather than something which is
to be attempted by a Practice Direction, the effect of which would be to
govern or fetter the exercise of the court’s discretion under the statutory
rules in the manner which is implied by PD 43.6.6.
17. I have recited the District Judge’s express finding
that, at the allocation questionnaire stage, an estimate could not have been
provided with any degree of accuracy. That finding will have been informed
by this District Judge’s recent and extensive experience of conducting personal
injury litigation, mainly on behalf of defendants. I would observe that,
if solicitors are to be bound by such estimates in the manner which is submitted
by the Defendants, all that is likely to be achieved is that ever more time
will be expended and costs incurred in connection with them. Moreover, it
is likely that the estimates of future costs will either be routinely inflated
to provide for every eventuality or will be so qualified as to be meaningless.
18. I reject, therefore, the first and primary basis for
Mr Brown’s attack on the District Judge’s assessment. Equally, it follows
from what I have said that I do not consider that any material breach of
the Civil Procedure Rules themselves has been demonstrated which should have
been penalised by a reduction of the Claimant’s costs.
19. So far as his final fall-back position, I agree that
a substantial departure from the costs estimate called for an explanation.
I think it is evident from the District Judge’s decision that he was satisfied
by the explanation provided by the Claimant’s solicitors.
20.
In conclusion, the Defendants have failed to satisfy me that the decision
of the District Judge was wrong. Accordingly, the appeal
will be dismissed."
The rationale for costs estimates
- The provisions relating to the giving of estimates of costs at significant
stages of litigation are important in assisting the court to achieve the
overriding objective stated in CPR r. 1.1 and to control the costs of litigation.
The purpose of requiring costs estimates is, as is made clear by CPR 43 PD
para 6.1, to keep the parties informed about their potential liability in
respect of costs, and to assist the court to decide what, if any, order to
make about costs and case management. Realistic costs estimates will also
enable the parties to settle costs issues: they should therefore reduce the
need for assessments of costs. In his final report on Access to Justice,
Lord Woolf said at para 32:
"32.
It is important that the court is aware of the parties’ estimate of the
expenditure which has been or will be incurred when
considering the future conduct of a case. The parties’ estimates will be
dependent on how they are proposing that the case should be conducted. If
one method of dealing with the case would be beyond the resources of one
of the parties, then dealing with the case justly may involve not adopting
that procedure. This could be particularly important where, for example,
one party wishes a case to remain on the fast track but the other is arguing
for the case to be transferred to the multi track.
33.
Estimates need not go into detail and would therefore not disclose confidential
information
which might be of tactical value to
an opponent. That would fall far short of the radical proposal set out by
Adrian Zuckerman in the issues paper. The estimates would be indications
to help the procedural Judge decide the best course of action rather than
budgets which limited what parties could recover. My other recommendations
need to be "bedded down" before proceeding further in this direction
on costs."
- Costs estimates are an important part of the machinery of case management.
At the first case management conference, the court will have the parties’
statements of case, and will therefore be aware of the issues in the case.
The allocation questionnaires will inform the court how many witnesses, and
in particular how many expert witnesses, each party wishes to call at the
hearing. The parties’ costs estimates are part of the material that is placed
before the court at this early stage of the litigation to enable it to form
a view as to what measures it should take in order to manage and control
the case in the interests of what is reasonable and proportionate. In Jefferson
v National Freight Carriers plc [2001] 2 Costs LR 313 at para 40, Lord
Woolf CJ approved the following statement by Judge Alton:
"In modern litigation, with the emphasis on proportionality,
there is a requirement for parties to make an assessment at the outset of
the likely value of the claim and its importance and complexity, and then
to plan in advance the necessary work, the appropriate level of person to
carry out the work, the overall time which would be necessary and appropriate
[to] spend on the various stages in bringing the action to trial and the
likely overall cost. While it was not unusual for costs to exceed the amount
in issue, it was, in the context of modest litigation such as the present
case, one reason for seeking to curb the amount of work done, and the cost
by reference to the need for proportionality."`
- We accept, of course, that it will not always be possible at the allocation
questionnaire stage to provide a reasonably accurate estimate of the likely
overall costs. But it should usually be possible to do so even at that stage,
especially in run of the mill cases. Where it becomes clear during the course
of the litigation that the estimate was inaccurate, it is all the more important
to comply with the obligation in CPR 43 PD para 6.4(2) to file an updated
estimate at the listing questionnaire stage.
- If it is true, as the district judge in the present case suggested, that
it is common practice for solicitors to provide costs estimates only at the
allocation questionnaire stage, then that practice should cease. Until and
unless CPR 43 PD para 6.4(2) is removed, solicitors should also file an estimate
of costs at the stage of the listing questionnaire, unless the court otherwise
orders.
- The provisions about the purpose of costs estimates and their relevance
in relation to the assessment of costs appear in practice directions, and
not in the rules themselves. This seems to have influenced the judge in his
interpretation of CPR 43 PD para 6.6. He referred to passages in the judgments
of this court in Re C (Legal Aid: Preparation of Bill of Costs) [2001]
1 FLR 602, and Godwin v Swindon Borough Council [2002 1 WLR 997. In
the former, Hale LJ said at para 21:
"(21).
Unlike the Lord Chancellor’s orders under his ‘Henry VIII’ powers, the
Civil Procedure Rules 1998 themselves and the 1991
Remuneration Regulations, the Practice Directions are not made by
Statutory Instrument. They are not laid before Parliament or subject to either
the negative or positive resolution procedures in Parliament. They go through
no democratic process at all, although if approved by the Lord Chancellor
he will bear ministerial responsibility for them to Parliament. But there
is a difference in principle between delegated legislation which may be scrutinised
by Parliament and ministerial executive action. There is no ministerial responsibility
for Practice Directions made for the Supreme Court by the Heads of
Division. As Professor Jolowicz says, loc cit, p 61, ‘It is right that the
court should retain its power to regulate its own procedure within the limits
set by statutory rules, and to fill in gaps left by those rules; it is wrong
that it should have power actually to legislate’."
- In the latter, May LJ said at para 11:
"Practice
directions are not the responsibility of the Civil Procedure Rule Committee,
whose responsibility under section 2
of the Civil Procedure Act 1997 is limited to making civil procedure rules.
Practice directions are subordinate to the rules: see paragraph 6 of Schedule
1 to the 1997 Act. They are, in my view, at best a weak aid to the interpretation
of the rules themselves."
- It is true
that the ground rules which set out the relevant criteria for the assessment
of
costs are contained in the rules, not the practice directions.
But the rules are, to some extent, open-textured. In particular, CPR r. 44.5(1)
provides that the court is to have regard to "all the circumstances" in
deciding whether the costs were proportionately and reasonably incurred,
or were proportionate and reasonable in amount. Without prejudice to that
general injunction, the court must also have regard to the various factors
mentioned in CPR r. 44.5(3), of which the first is the conduct of the parties.
In our judgment, the provisions in the practice direction as to the giving
of estimates of costs at various stages of the litigation are made pursuant
to the power in the court to regulate its own procedure within the limits
set by the statutory rules and to fill in gaps left by those rules. CPR 43
PD para 6.6 does not purport to, nor does it, introduce criteria for the
assessment of costs which are inconsistent with, or additional to, those
contained in CPR r. 44.5 itself. The provision has been drafted conservatively:
the court may have regard to any estimate previously filed, and such
estimate may be taken into account as a factor among others when assessing
the reasonableness of any costs claimed. In our judgment, this merely spells
out explicitly what is implicit in the broad power conferred on the court
by CPR r. 44.5(1). For completeness, we should also mention CPR r. 44.14
which gives the court the power to disallow all or part of the costs which
are being assessed where a party or his legal representative fails to comply
with a rule or practice direction.
- The judge questioned the purpose of the provision of costs estimates. As
we have said, it is to enable all parties to the litigation to know what
their potential liability for costs may be. That enables them to decide whether
to attempt to settle the litigation, or to pursue it, and (in the latter
case) what resources to apply to the litigation. But at least as importantly,
it also enables the court to take account of the likely costs in determining
what directions to give. In so far as the judge was suggesting that costs
estimates are unnecessary, and will merely add to the costs of the litigation,
he was wrong to do so. The practice direction is expressed in clear mandatory
terms: costs estimates must be provided. It is also to be noted that it requires
the legal representatives to serve the costs estimates on their clients.
Apart perhaps from cases such as the present where a solicitor acts for a
client who makes it clear that he or she does not require such estimates,
it is also part of a solicitor’s ordinary professional duty to provide the
client with an estimate of future costs.
- Nor do we agree with the judge in so far as he seems to have been of the
view that CPR 43 PD para 6.6 fetters the exercise of the court’s jurisdiction
in relation to the assessment of costs. The language plainly does no such
thing.
Taking costs estimates into account on an assessment of costs
- So how should CPR 43 PD para 6.6 be applied where there is a substantial
difference between the amount of the costs estimate and the costs claimed
on an assessment? If there is no substantial difference between the two figures,
then para 6.6 will have no significance. But, if there is a substantial difference
as there was in the present case, the practice direction gives no guidance
as to how that difference should be taken into account in determining
the reasonableness of the costs claimed. It is clear that some guidance is
required. In a valuable article "Costs in Personal Injury Cases" (Journal
of Personal Injury Law 2002 issue 2/02) Professor John Peysner said this
of costs estimates:
"Cost
estimates, like building estimates, have a potential to make costs more
predictable and controllable. In project management proper
estimating is crucial, contingencies are built in and if the estimate is
exceeded the contractor must explain. In cost assessment terms estimation,
in effect, should shift the burden of proof onto the potentially receiving
party to estimate correctly (always bearing in mind the litigators duty to
the court) and to re-estimate. The author was very exercised in the run up
to the Civil Procedural Rules about this idea and thought that it would be
of great value. In fact it appears to have been a damp squib. Anecdotal evidence
suggests that litigators are uncertain as to how the information disclosed
is used, judges suspect that the estimating process is not rigorous and there
seems little evidence of judges revisiting estimates on assessment."
- If costs estimates
have proved to be a "damp squib", it may be
that the reason for this is that judges simply do not know how to take them
into account when assessing costs. Another factor may be that, as Judge Mitchell
said in the present case, there is a concern that, if para 6.6 is taken seriously,
it will merely encourage satellite litigation.
- What follows is not intended to provide an exhaustive guide as to the circumstances
in which a costs estimate may be taken into account in determining the reasonableness
of the costs claimed, but it should assist judges in the application of para
6.6 of the practice direction. First, the estimates made by solicitors of
the overall likely costs of the litigation should usually provide a useful
yardstick by which the reasonableness of the costs finally claimed may be
measured. If there is a substantial difference between the estimated costs
and the costs claimed, that difference calls for an explanation. In the absence
of a satisfactory explanation, the court may conclude that the difference
itself is evidence from which it can conclude that the costs claimed are
unreasonable.
- Secondly, the court may take the estimated costs into account if the other
party shows that it relied on the estimate in a certain way. An obvious example
would be where A shows that he relied on the relatively low estimate given
by B not to make an offer of settlement, but carried on with the litigation
on the basis that his potential liability for costs was likely to be of the
order indicated in B’s estimate. In our judgment, it would be a proper use
of para 6.6 of the practice direction to take such a factor into account
in deciding what costs it was reasonable to require A to pay B on an assessment.
- Thirdly, the
court may take the estimate into account in cases where it decides that
it would
probably have given different case management directions
if a realistic estimate had been given. To take a rather crude example: suppose
that at the allocation questionnaire stage the claimant provides an estimate
of overall costs in the sum of £20,000, and claims £50,000 at the assessment.
The court might conclude that, if it had known that the claimant’s costs
were likely to be of the order of £50,000, rather than £20,000, it would
probably have given different directions from the ones it gave, and that
these would have had the effect of reducing the claimant’s costs. It might,
for example, have trimmed the number of experts who could be called, and
taken other steps to slim down the complexity of the litigation in the interests
of controlling costs in a reasonable and proportionate manner.
- In our view, para 6.6 of the practice direction gives the court the power
to take matters such as these into account in deciding whether, and if so
how far, to reflect them in determining what costs it is reasonable to order
the paying party to pay on an assessment. We do not, however, consider that
it would be a correct use of the power conferred by para 6.6 to hold a party
to his estimate simply in order to penalise him for providing an inadequate
estimate. Thus, if (a) the paying party did not rely on the estimate in any
way, (b) the court concludes that, even if the estimate had been close to
the figure ultimately claimed, its case management directions would not have
been affected, and (c) the costs claimed are otherwise reasonable and proportionate,
then in our view it would be wrong to reduce the costs claimed simply because
they exceed the amount of the estimate. That would be tantamount to treating
a costs estimate as a costs cap, in circumstances where the estimate does
not purport to be a cap.
- Nor is there any justification for interpreting the provisions in the CPR
as equating costs estimates with costs budgets or caps. There is, however,
much to be said for costs budgeting and the capping of costs. Some judges
have made prospective costs cap orders exercising the general power conferred
by section 51(1) of the Supreme Court Act 1981: see, for example, Gage J
in AB v Leeds Teaching Hospitals NHS Trust (in the matter of the Nationwide
Organ Group Litigation) [2003] EWHC 1034. This is not the place to review
these decisions. Suffice it to say that, whatever the scope of the jurisdiction
to make such orders, it is quite different from the jurisdiction that is
exercised retrospectively at the stage of costs assessment, and when the
court is required to decide the amount of reasonable and proportionate costs.
Costs estimates can also alert the judge responsible for case management
to the need to take appropriate action to prevent disproportionate costs
from being incurred.
- We acknowledge the concerns about the danger of satellite litigation. It
might be said that the guidance that we have sought to give will foster disputes.
Did the paying party who alleges that he relied on the estimate in fact rely
on it, and to what extent? Would the court in fact have made different case
management decisions if it had been provided with a realistic costs estimate,
and what effect would that have had on the litigation and the parties’ costs?
What is the explanation for the difference between the costs estimate and
the costs claimed at the assessment stage, and does the explanation satisfactorily
account for the difference? These are all valid questions to ask. But these
concerns do not justify setting at nought the important CPR provisions relating
to the making of costs estimates. If costs estimates are not taken into account
at the assessment stage, then they will be entirely nugatory. It should not
be difficult for the court to determine whether, and if so how, the paying
party has relied on the costs estimate given by the receiving party without
conducting an elaborate and detailed investigation. Likewise, in most cases
the court should be able without prolonged investigation to form a judgment
as to whether, and if so how, the case would have been managed differently
if a realistic costs estimate had been given.
- If, applying the guidance given in this judgment, the court is satisfied
that the costs claimed should be reduced having regard to the costs estimate,
the question remains: by how much should the costs be reduced? This will
always depend on the circumstances of the individual case. It is a matter
for the judgment of the court to decide what reduction to make. Regard should
be had to the costs estimate when considering whether the costs claimed were
reasonably incurred and reasonable in amount. Moreover, where justice so
requires, specific deductions can be made from the costs recoverable to reflect
the impact that erroneous and uncorrected estimates have had on case management
or on the conduct of the other party.
- We consider that, contrary to what occurred in the present case, the costs
judge should determine how, if at all, to reflect the costs estimate in the
assessment before going on to decide whether, for reasons unrelated
to the estimate, there are elements of the costs claimed which were unreasonably
incurred or unreasonable in amount. This will avoid the danger of "double
jeopardy" referred to in the context of a discussion about proportionality
by Lord Woolf CJ in Lownds v Home Office [2002] 1 WLR 2450, [2002]
EWCA Civ 365 at para 30.
- We recognise that the use of CPR 43 PD para 6.6 to control costs by taking
costs estimates into account at the assessment stage is not the most effective
way of controlling the cost of litigation. It seems to us that the prospective
fixing of costs budgets is likely to achieve that objective far more effectively.
The question of costs budgets was raised before the Civil Procedure Rule
Committee in June 2001. It is contentious and important. The committee decided
to explore the issue, but has not reached any conclusion about it. We invite
the committee to re-examine the provisions relating to costs estimates to
see whether they should be amended to make them more effective in the control
of costs; and also to reach a conclusion on the issue of cost budgets.
The present case
- On behalf of the defendant, Mr Guy Mansfield QC does not seek to challenge
the finding by the district judge that the defendant did not rely on the
costs estimate given by the claimant in the allocation questionnaire, nor
does he suggest that, if a realistic estimate had been given, the court would
probably have managed the case differently. Furthermore, he does not submit
that the costs estimate was a reliable guide as to the amount of costs that
it would be reasonable to award at the assessment stage. On the contrary,
he submits that the estimate was an obviously unreliable guide as to the
costs that it would be reasonable to award: it was, he says, a hopeless estimate.
He points out that the estimate of costs to be incurred by the claimant after
the allocation stage was based on an estimate of 25 hours’ work, whereas
the estimate of costs to be incurred by the defendant was based on 50 hours’
work. It is common ground that ordinarily a claimant’s legal representative
shoulders a greater burden than his counterpart. In so far as the district
judge was satisfied that there was an explanation for the difference between
the amount in the costs estimate and the amount finally claimed, Mr Mansfield
submits that he was in error. The only features of the case that were not
foreseeable when the claimant completed the allocation questionnaire were
(a) the site visit, and (b) the point raised by the defendant that the claimant’s
employment would have been terminated by reason of redundancy even if he
had not been injured. This latter point led to the appointment of an employment
expert. But neither feature explained the gulf between the two figures for
solicitors’ profit costs. He accepts that the costs assessed by the district
judge were reasonable and proportionate if the costs estimate is left out
of account. But the claimant should be bound by that estimate.
- Mr John Foy QC submits that the district judge was entitled to conclude
that the claimant should not be bound by the costs estimate, that the circuit
judge was right not to interfere with that decision, and that this court
should follow the same course. He also submits that the costs estimate was
made on the footing that the case would be settled at an early stage, so
that the overall costs estimated were those up to the time when it was thought
that the case was likely to settle.
- We should say at once that all costs estimates are required to include
estimates of the overall costs to be incurred on the assumption that the
case will not settle, and not merely estimates of future costs up to some
(unspecified) date on which it is thought that the case is likely to, or
might, settle. There is no warrant for interpreting the provisions as to
costs estimates in any other way.
- Despite the persuasive way in which Mr Mansfield puts his case, we are
in no doubt that this appeal must be dismissed. We are prepared to accept
his submission that the costs estimate was hopelessly inadequate and that
there is no satisfactory explanation for the gulf between the estimate and
the final figure. But the essence of his argument is that the claimant should
be bound by the estimate for no other reason than that the
estimate was made and it was hopelessly too low. In other words, the claimant
should be penalised because the estimate was seriously inadequate. For the
reasons given at paras 26 – 30 above, that is not a sufficient reason to
hold that a party should be bound by his estimate.
- It follows that this appeal must be dismissed.