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06 January 2014

Provisional costs assessment – is it rough justice?

The changes to detailed costs assessment under the recently implemented Jackson Reforms represent a way of dealing with contested costs quickly and efficiently for both the Court and the parties. But is it at the expense of justice? Trainee solicitor Rajiv Malhotra looks at the PCA procedure in more detail.  

The issue of costs pervades every stage of litigation and it can be one of the most influential factors in deciding how and when a civil claim is resolved. Once the main dispute has concluded either before or during court proceedings, both parties can initiate a process for a detailed assessment of the successful party's costs, if costs cannot otherwise be agreed.

Following the Jackson Reforms which came into effect on 1 April 2013, the Ministry of Justice introduced a 'provisional assessment' for costs that total £75,000 or less. There will be no hearing, and the Costs Judge will review the matter mainly based on the Bill of Costs, the other side’s response and disbursement invoices. The decision will then be sent to both parties to "agree the arithmetic". If they can't, then either party can request an oral hearing.

Costs solicitors fear that the outcome of this process may be unpredictable and unjust. This is down to three main factors.

1) Familiarity with the Case

Some may view the provisional assessment as a rushed and potentially unfair way of assessing costs. The costs judge has to familiarise himself with the matter using only the papers in front of him and no oral representations to assist.

It can be difficult for a costs judge to assess the reasonableness of a three hour conference with Counsel or the time spent instructing an expert, especially in complex litigation. It seems the decision will come largely down to the costs judge's discretion and this could mean a lack of consistency between cases. There is an argument that the assessment of costs should remain with the judge that sat at trial.

2) The cap on recoverable costs

Once the main claim has settled, both parties may have incurred significant costs in trying to agree the settlement of costs (i.e. 'costs on costs'). There may be several exchanges of letters, offers and counter-offers, as well as the time and fees spent in instructing costs draftsmen to prepare, and consider the other side's costs pleadings. Nothing here has changed and this process always had the potential to be costly.

However, the Jackson Reforms introduced a cap of £1,500 plus VAT on costs of the detailed assessment process that are recoverable from the other side. Many practitioners feel the cap is excessively limited and extremely vague. There is no supplementary guidance as to how 'costs' is to be interpreted. The CPR defines 'costs' as including fees, charges, disbursements, expenses etc and there is nothing at the moment to suggest we should deviate from this. Certainly in cases where the paying party has been unreasonable in its costs negotiations, the receiving party should not have to be unduly limited by the cap – but they are.  

3) The costs of an oral hearing 

If you've received the costs judge's decision from provisional assessment, but disagree with the decision and can’t settle it with the other side, you would now consider requesting an oral hearing.

Surprisingly, the new rules state that if the party who is requesting the oral hearing cannot beat the sum provisionally assessed by at least 20%, then they will be liable for the costs "of an incidental to that hearing", unless the court orders otherwise.

For example, if the provisional assessment says the receiving party should be awarded £55,000, the decision of the oral hearing must be at least £66,000 to avoid liability to pay the hearing's costs.

There is no guidance on circumstances where the court would order otherwise and many may think it is not worth the risk in any event.

Whilst some have welcomed particular aspects of the reforms on costs (such as an attempt to deal with excessive 'costs on costs') it is not difficult to see how the new detailed assessment process can result in rough justice for both claimants and defendants. They are encouraged to accept a provisional assessment decision from a costs judges who is unfamiliar with the case and the reforms provide little recourse against unreasonable negotiators.

If you find yourself at the tail end of civil litigation, it is often advisable to try and settle costs with the other side before experiencing the unpredictably of a costs judge. Either way, you should consider obtaining professional advice from our ligation and dispute resolution team throughout the process.

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