By Kevin Barrett

“In some areas of civil litigation costs are disproportionate and impede access to 

justice. I therefore propose a coherent package of interlocking reforms, designed to 

control costs and promote access to justice.”

So said Lord Justice Jackson in his Review of Civil Litigation Costs: Final Report. One aspect of the proposed interlocking reforms advanced a step further late in 2010 with the introduction of Practice Direction 51G – Costs Management in Mercantile Courts and Technology and Construction Courts – Pilot Scheme. 

PD51G is a development of the earlier pilot scheme undertaken in the Birmingham Mercantile and Technology and Construction Courts and is not to be mistaken for the power under CPR Part 44.18 to make costs capping orders.

Lord Justice Jackson recognised, based on the limited information available from the Birmingham pilot scheme and other contributions to his deliberations, that there are negative and positive factors to costs management but on balance he concluded that effective costs management is in the interests of clients. Given the limited data from the Birmingham pilot scheme rolling out the pilot scheme across all Mercantile and Technology and Construction Courts is the next logical step – and this is what PD51G achieves.

The PD51G pilot scheme lasts from 1st October 2011 until 30th September 2012. Appropriate adjustments are made to Practice Direction 29 (The Multi Track) and the Costs Practice Direction. 

The purpose of costs management in accordance with PD51G is to enable the court to manage the costs in accordance with the overriding objective. For this purpose the parties are obliged to file detailed costs budgets with the court in accordance with Precedent HB to PD51G. The parties are only required to disclose their costs budget to one another by exchange, but they must to discuss their budgets with one another during the costs building process. This should ensure no activity is overlooked so that when comparing budgets the court will be comparing apples with apples. It also means that each party is likely to obtain a clear understanding of the reasons for any significant difference and therefore have the opportunity to prepare focused submissions on any points of difference.

The court must decide if a costs management order should be made at all and, if so, the court is required to record its approval, with any revisions, of each party’s costs budget and then to monitor expenditure at future costs management hearings. Any party may apply to the court if it believes that another is behaving oppressively in causing it to spend money disproportionately on costs. Quite how the court will react to such applications is unclear but the court has wide ranging case management powers and can be expected to use them to control costs so far as it is consistent with the overriding objective.

Once a costs management order is made if a party considers that its costs budget is no longer correct then it must file a budget revision 7 days before any further costs management hearing, CMC, PTR or trial showing the departures from the budget and the reason therefore. The court may then approve or disapprove the proposed revision. If no further CMC or PTR is planned then it may be appropriate to make a specific application for a costs management hearing (which the court will deal with by telephone in appropriate cases).

The court cannot approve costs incurred before the date of the first costs management order, but it can record its comments on those costs and take them into account when considering the reasonableness and proportionality of all future costs. In a recent case that I was involved in this had the effect of the court recording its comments on pre-action costs and the costs of issue/pleadings (two of the discrete elements listed in Precedent HB) where there was a significant imbalance between the costs incurred by the parties under these headings. The comment was recorded by way of the court fixing an overall budget up to and including the trial based upon a significantly lower sum than one of the parties had allowed in its budget for pre-action costs and costs of issue/pleadings, but giving that party permission to show cause why figures in excess of the revised (and much lower) allowances made by the court were reasonable. This piece of judicial pragmatism was obviously fair to both parties.

When assessing costs on the standard basis the court will have regard to the receiving party’s last approved budget and will not depart from it unless satisfied that there is a good reason to do so. This may mean that at the end of the trial, or some other hearing, it may be appropriate for an application to be made for an order or direction to the costs judge as to matters that constitute a good reason for departing from an approved costs budget.

Perhaps one of the most powerful features of PD51G is the requirement, if the court makes or revises a costs management order, that each party’s legal representative should notify his or her client of any such order and provide copies of the approved budgets. This should focus the mind of the legal representative and the client on the importance of keeping to approved budgets and of the need to apply promptly to the court in the event that a budget is exceeded or is likely to be exceeded. In this respect costs budgeting will therefore become an important part of the costs risks jigsaw and assist clients in accurately factoring costs into any decision about the settlement of the proceedings.

This new procedure is still in its infancy, and one year is a relatively short period in which to garner sufficient data to judge its benefits, but my limited experience of it indicates that it has significant benefits and is therefore likely to find favour with the court, practitioners and clients. It is certainly a feature of litigation in the Mercantil Court and the TCC that practitioners need to get to grips with.