Justice for all: Cost of litigation

‘It makes no sense at all for more than £100,000 to be spent on a perfectly straightforward piece of litigation over a few thousand pounds.” That was the Court of Appeal’s comment at the end of last year about a case involving a claim of £2,000 and a counterclaim of £3,000. Similar views are frequently expressed by the courts in larger value cases. It is generally acknowledged that the High Court reforms of 1999 (the “Woolf reforms”) were broadly successful – except with regard to costs.

Against that backdrop, Lord Justice Jackson was appointed at the start of this year to carry out a review of the principles governing the costs of litigation. His weighty interim report was published in May, with the final version due by the end of the year. The interim report puts forward proposals for discussion, two of which could have a big impact on the costs of construction litigation.

The first relates to the use of pre-action protocols. The purpose of these (and there is a specific one for construction) was to force parties to talk rather than litigate. The construction protocol, for example, involves the parties setting out their claims and defences by formal letters, and then having a meeting that must include representatives from each party who have the authority to recommend settlement.

Although the protocols undoubtedly assist in the exchange of information and early settlement, the process can become lengthy and costly. Judge Jackson himself refers to one case where the process generated costs of £1m, and another where the protocol claim letter ran to 350 pages.

Certainly some parties and their lawyers behave obstructively during the protocol process, so a threat to call in the court to keep order might curtail this

Judge Jackson’s suggestion is that the protocol process could come under the supervision of the courts. In other words, the claim form is issued first, and the action is then “stayed” (suspended) while the protocol process, including meetings, takes place.

At first sight, this looks like an idea designed to escalate disputes to the court at an early stage, the very thing that the protocol was designed to avoid. However, the intention is that the claimant, in effect, simply issues the claim form to the the court so that it has the option of intervening during the protocol process. The court would thus act rather like a police officer, to be called in if someone started trouble.

Certainly some parties and their lawyers behave obstructively during the protocol process, so a threat to call in the court to keep order might curtail this. On the other hand, the danger is that parties will run off to the court crying “foul” rather too readily. Nevertheless, the idea seems worth considering.

The second suggestion by Judge Jackson is aimed particularly at assisting SMEs to go to court. He is rightly concerned that claims for, say, up to £400,000, which typically involve SMEs, can be disproportionately expensive to litigate. His suggestion is that, at the first court hearing (and subsequently) each party presents its estimated budget for each stage of proceedings. The judge dealing with the case could comment on these budgets, adversely or otherwise. The court could also put “price tags” on specific activities such as disclosure or exchange of witness evidence.

budgets would prevent the tactic of one side racking up costs by running an expensive case, and forcing both sides into an ‘arms race’

As the case progresses, parties would have to justify any overspend. At the end of the case, the budgets would be taken into account in assessing the amount that the loser pays to the winner.

The benefits, particularly for SMEs, could be significant: both sides could make proper risk assessments of the potential costs of losing – a task which is nigh-on impossible at present.

Another benefit is that lawyers would be pushed to keep costs low. Having budgets would prevent the tactic, often seen, of one side racking up costs by running an expensive case, and effectively forcing both parties into an “arms race”. Many small contractors and others cannot litigate even a strong case because of the potentially ruinous costs if they lose.

The costs budgeting idea is the subject of a pilot scheme in the Birmingham Technology and Construction Court. It will be interesting to see the results. If the costs that the loser has to pay are clear, and proportionate to the sums in dispute, the High Court may be opened up to many companies that cannot at present afford to go there.