Automatic costs management exception to be extended to further high-value claims

A new practice direction (2-page / 41KB PDF) issued by the President of the Queen's Bench Division and the Chancellor of the High Court extends an exclusion from the new regime to cases in the named specialist courts where more than £2 million is at stake. The £2m figure excludes interest and costs. The new regime will come into force from 1 April 2013.

Cases in the Admiralty and Commercial Courts were already excluded from the new regime. Last week the Government published a statutory instrument, which will implement the necessary changes to the Civil Procedure Rules (CPR). According to the practice direction, a new statutory instrument will be published to implement the amendment.

The introduction of automatic costs management is being imposed as part of wide-ranging changes to court costs and procedures, as recommended by Lord Justice Jackson in his 2010 review. From 1 April, most parties in civil court actions will be required to prepare and exchange costs budgets for agreement by the court. Parties that do not file a budget will be heavily penalised. Parties will be able to submit amendments to the court at any time; however approval will be at the discretion of the court. Costs recoverable by the winning party will be linked to the court-approved budget.

According to the practice direction, the introduction of costs management procedures was an "important part" of Jackson's proposals. However, Jackson himself identified that budgeting would not be appropriate in high value cases, such as those that generally pass through the Commercial Court.

"[Jackson] therefore considered that whether costs management should be adopted in commercial court litigation should be left to the discretion of judges in individual cases but said he encouraged judges actively to adopt costs management in any lower value cases which are brought in the Commercial Court," the document said. "This led to the Admiralty and Commercial Courts being excepted from the costs management rules."

"On further reflection, it has been recognised that is it undesirable for an exception from automatic costs management to apply only to the Admiralty and Commercial Courts, when in many commercial cases there is an element of concurrent jurisdiction between that court, the Chancery Division, the Technology and Construction Court and the London Mercantile Court ... Given these concurrent jurisdictions, the Civil Procedure Rule Committee approved ... a similar exemption from automatic costs management in all of those jurisdictions."

Courts will retain the discretion to apply fixed costs or scale costs to actions excepted from the new regime, or to order parties to file costs budgets where appropriate.

Litigation costs expert Keith Levene of Pinsent Masons, the law firm behind Out-Law.com, said that the amendment was a logical one and made sense.

"Practitioners found it illogical that the reforms excluded high value claims in the Admiralty and Commercial Courts from the new automatic costs management regime, but not those which began in the TCC, Mercantile Courts or Chancery Division," he said. "Costs management issues are different for commercial businesses involved in high value claims than they are for the individual litigants the reforms are designed to protect."

"It begs the question, of course, why the new exception was not included in the original rules, which were published only a week ago," he said.