Costs budgeting and evidence based policy

Earlier this month, two significant lectures were given on the topic of costs budgeting by Jackson LJ and Dyson MR, with the title “Confronting Costs Management”. The text of those lectures can be found here: Confronting Costs Management by Lord Justice Jackson and here Confronting Costs Management by Lord Dyson.

Although Jackson LJ in particular was careful to say that he was expressing a personal view, the message intended to be sent out was that costs management and in particular costs budgeting is here to stay. The lectures raise interesting points about the current regime and where it might be leading, which are worthy of close consideration.

When I first reviewed the Jackson proposals more than five years ago, in the aftermath of the publication of the Final Report, what struck me was the flimsy evidential base for many of the proposed reforms. In particular, the questions that I posed then, can be only slightly reformulated now. If the working hypothesis in 2010, was that costs were disproportionate and needed to be reduced, the key questions were and still are:

  1. To what degree are civil litigation costs disproportionate, both collectively across the civil justice system as a whole, and individually, in the context of particular cases?
  2. To what degree, or by how much therefore, should civil litigation costs be reduced from their current level, both collectively across the civil justice system as a whole, and individually in the context of particular cases?
  3. In the light of the answers to 1 and 2, what should any relevant rule change be seeking to achieve, through a control mechanism for the reduction of costs?
  4. What transactional or frictional costs, might be generated by such a control mechanism, which need to be offset against any reductions achieved by rule change?
  5. How can the effects of this rule change be measured by quantitative data, or other hard evidence, which enables the potential savings/increases in costs to be evaluated?

It will be noted that the above questions are posed in the context of what could be described as evidence based policy making. Evidence based policy making can be summarised thus:

Using evidence to inform policy is not a new idea. What is new and interesting however, is the increasing emphasis that has been placed on the concept in the UK over the last decade. The term EBP gained political currency under the Blair administrations since 1997. It was intended to signify the entry of a government with a modernising mandate, committed to replacing ideological driven politics with rational decision-making. EBP has now become a focus for a range of policy communities, where the government departments, research organisations or think tanks.

EBP is a discourse or set of methods which informs the policy process, rather than aiming to directly affect the eventual goals of the policy. Advocates a more rational, rigourous and systematic approach. The pursuit of EBP is based on the premise that policy decision should be better informed by available evidence and should include rational analysis. This is because policy which is based on systematic evidence is seen to produce better outcomes. The approach has also come to incorporate evidence-based practices.

(Evidence Based Policy Making: Sutcliffe and Court ODI 2005)

Evidence based policy making therefore, might be seen as a tool to fashion a set of rules which meet utilitarian goals: to produce the best and fairest rules, benefiting the widest range of groups and interests overall.

But there is of course no such thing as utility. There are only sectional interests. A common question from my students and pupils, is why rules (or laws in general) are the way they are. The answer is usually because it suits a particular interest group or collection of groupings that that is so.

Another aspect of rule change would be to consider more widely the behavioural economic and psychological consequences of changing a rule: the importance of these two interlinked disciplines is manifest in government policy both by the establishment of the behavioural insight team in the Prime Minister’s office and the way that many government policies are increasingly constructed to take into account these factors.

In the context of costs management although this may be seen by the judiciary or some elements of the judiciary as a tool by which the Holy Grail of proportionality may be achieved, conversely by liability insurers or the NHSLA costs management may well be seen as a “big stick” with which to beat claimants pursuing claims against them, offering an extra opportunity to seek to drive down costs or to limit their incurrence.

Even if the process causes delay to the civil litigation process, this again may work to the benefit of liability insurers or the NHSLA, which can enjoy possession of their funds, for a longer period of time before having to pay them out by way of damages and costs.

Notwithstanding then that there will be no such thing as a utilitarian solution but only a solution based on the interests involved, even so, it can be noted that there are benefits to be derived from an evidence based policy approach:

Given that the benefits of evaluations are hard to account for in an instrumental way (i.e that evaluations leads to improvements in the policies they evaluate), then it is hard to complain about the political expectations of politicians and officials that work for them: without such expectations it is arguable that few evaluations would ever be conducted. If there is a good chance that any report we pickup has been written under some pressure to produce favourable or non-embarrassing results-some direct, some indirect and some self imposed by researchers anticipating the reactions of those paying them-what is the value of any evaluation picked at random, aside from any political uses it might have? The value of even the most rigourous evaluation usually lies in the more indirect it may enhance our understanding of how policies and interventions work and informed debates and deliberations about policy change. The value of the research becomes a matter of how far can make this indirect contribution. In debates about how policy works, even research that might have been designed to find a preestablished position can have value if it contains a serious attempt to weigh up this position against alternatives and/or if it provides evidence of data that can be used by others to do this. Only if it does neither could one consider it junk.

(Evidence based politics. Government and the production of policy research.-The LSE GV314 group)

So when evaluating the benefits of costs budgeting and costs management more generally it might be thought logical to consider whether this rule change has worked to reduce costs, from disproportionate levels to proportionate levels and to consider how much the rule change itself has cost in terms of transactional or frictional costs.

This latter consideration could be looked at narrowly in terms of the costs of drawing up budgets, negotiating the attending costs management hearings and the ongoing process of review of costs: “the costs of the costs”. Alternatively it could consider costs more widely in terms of the effect of any delays created by the process the knock-on consequences for higher litigation costs overall and perhaps wider economic benefits and dis-benefits.

Accordingly against this backdrop one turns to consider the papers presented at the Harbour lectures.

Looking at the lecture by Jackson LJ itself it is quite apparent in terms of the material gathered to underpin it that it is based upon anecdote and conversations with a small number of judges and practitioners, and is devoid of anything approaching quantitative data.

Paragraph 2.1 of the lecture states quite baldly that “Costs management works.”, but this is a statement of hope or intent, rather than a conclusion based on data.  The benefits of costs management which are set out in the balance of section 2 of the lecture could also be regarded as aspirations rather than as observed results.

Moreover there is little sense of scale in the paper given that we know that the majority of cases or claims settle without issue, that of those that are issued the vast majority settle before trial, and yet the costs budgets requirement is imposed in every case on the multitrack requiring the expenditure of resources to produce cost budgets and to comply with the costs management rules on the basis of a scenario which will never come to pass: that all cases will go to trial.

The objections to the process are also dealt with within section 2 and it is interesting to note the way that they are dismissed.  Jackson LJ puts forward the proposition that in no other commercial project would someone embark upon their project without a budget.

That may be so but the litigation budgets which are produced will of course bear no resemblance to the likely course of litigation: which will conclude by way of settlement in the majority of cases despite an elaborate budgeting exercise which takes matters forward through to trial. No one in commercial life draws up a five year budget for a project that will last one year.

It is also interesting to note that the final point which is prayed in favour of the process is that Singapore is now in the process of introducing costs management into its procedural rules. Given the malign influence of Singaporean jurisprudence in the Mitchell debacle it seems surprising that this particular hobbyhorse is still being ridden.

If one therefore looks to consider within the lecture what the problems with costs management are at the current time, the first point to note is the problem of judicial inconsistency. What this means of course is that the district bench has widely differing approaches and attitudes to the problems and challenges of cost management.

The second problem that is noted is that the length of some cost management hearings and the micromanagement that takes place which is antithetical to what costs budgeting is trying to achieve.

The third problem noted is the wide variation in the forms of cost management orders issued by different court this is properly a refinement of the first problem: and the issue of delays and backlog is noted as a fourth problem.

This issue seems particularly acute in the context of clinical negligence cases issued in London. Indeed one of the few hard facts contained within the lecture points to a nine-month delay being added to clinical negligence cases.Jackson LJ’s proposed solution is simply to remit the requirement of costs budgeting in those cases which have already been issued: in effect providing a”get out of jail free card” to the Masters in the Queen’s bench division to deal with the backlog.

This is a stunning recognition that costs budgeting has failed in the context of an entire class of litigation.

The fifth point which is noted is that there is no effective mechanism for dealing with costs already incurred. Given that very substantial sums will already have been incurred but which are not taken into account or not dealt with at the budgeting phase the ambit of costs budgeting as currently constituted is handicapped from the start.

The further point to note is that the time for filing and exchanging budgets which is often done far in advance of any costs management hearing means that the work which is done has to be redone or is otherwise otiose in the context of costs budgeting.

Difficulties at detailed assessment are already apparent in that there is a mismatch between Precedent H and the currently constituted bill of costs. The origins of this problem can be traced back to the fact that no one seems to have considered when the rules were drafted how precedent H could be set alongside a bill of costs in the form of the schedule annexed to part 47.

If you cannot tell whether the individual parts of the budget have been exceeded or not what is the point of having individual phases of a budget and agonising over their content? The shortcomings of precedent H which has to be one of the most un-friendly and awkward forms ever devised for the purposes of civil litigation are of course well known.

The further point and perhaps the most important point contained in the lecture is that there is a suggestion in paragraph 4.5 that costs management orders should not be made in every case as rule 3.15 and practice direction 3E contemplate but should be used as a matter of discretion by the court as part of general case management. Jackson LJ further notes at paragraph 4.6

A number of judges who are skilled and swift cost management have expressed concerns about the above solution. They fear will become an excuse for certain of their colleagues to “opt out” and thus lead to forum shopping. I do not share these fears. I believe that once criteria laid down all judges will conscientiously follow them. It is important that there be a uniform approach across all civil courts. There will be an obligation on all judges with leadership roles actively to monitor how “their” judges are exercising the discretion to costs manage. If different practices emerge, this should be drawn to the attention of the deputy head of civil justice, so that he can give appropriate guidance

The lecture concludes with this prediction:

I predict that within 10 years cost management will be accepted as an entirely normal discipline and people wonder what all the fuss was about.

The oddity, is that the lecture taken as a whole seems to set out an excellent case for the abolition of costs budgeting across the bulk of civil litigation.

I think this paper put forward by Jackson LJ is to be welcomed.

It provides a comprehensive but anecdotal overview of the current issues in relation to costs management.

It provides no answers whatsoever at an empirical level as to how much cost management is costing, whether it is a worthwhile exercise in that it is reducing disproportionate costs to proportionate costs and makes no attempt to consider what the overall economic benefits and disbenefits of the process are.

What is apparent is that a rule change which has resulted in nine months of delay in clinical negligence cases obviously has significant problems.

Perhaps more significantly however is the failure both within this report and more generally to consider what the alternatives are to costs management. In particular terms although reference is made within the lecture to the introduction of fixed fees certainly in all FastTrack cases and also the lower reaches of the multitrack this is not grasped and pursued with the vigour that one might anticipate.

This is surprising. If one is looking at proportionality collectively over the entire civil justice system then fixed fees in the most numerous variants of cases will at a stroke indicate what is proportionate and what is not between the parties, provide certainty, eliminate frictional or transactional costs and enable costs budgeting to be reserved on a discretionary basis to those cases where it really matters.

In this sense costs budgeting and cost management may become what costs capping should always have been and could be utilised in a way more akin to the targeted rapier, than the sweeping broadsword it currently appears to be.



Assignment of conditional fee agreements

One of the issues that is currently under the spotlight, is whether a conditional fee agreement can effectively be assigned between solicitors firms. This issue might arise, in the context of a firm selling its work, becoming insolvent, and the work being sold off by a liquidator to another firm, or more mundanely a solicitor simply moving firms and taking the client with them.

The point matters, because to be able to transfer a pre-1st April conditional fee agreement, and retain the recoverable success fee within that agreement, could be far more profitable, than having to make a new conditional fee agreement, with the new firm of solicitors. Conversely, for a paying party, being able to limit the duration of the original conditional fee agreement, would generate an opposing financial benefit.

The starting point is to note that a contract between a solicitor’s firm and its client, might fall within that category of contracts apt to be described as personal contracts. It is a contract for the solicitor’s firm to provide a service personally to the Claimant. It is fundamentally different from a contract for the purchase of pork bellies or orange juice.

Chitty on Contracts 31st edition provides an overview of this area of law at paragraphs 19-054 to 19-055, and a number of decisions of high authority confirm that a personal contract is not capable of assignment: see in particular Griffith.v.Tower Publishing Company [1897] 1 Ch 21, Nokes.v.Doncaster Amalgamated Collieries Ltd [1940] AC 1014 and more recently the restatement of principle noted in Crane Co.v.Wittenborg AS (Court of Appeal 21st December 1999).

If however, such a contract is capable of being assigned, then matters do not end there. Every contract contains what might be called benefits and burdens.  Assignment, can the transfer of the benefit of an existing contract. but the general principle is that the burden of a contract is not capable of assignment, as burdens should not be imposed without consent. That is subject to a limited number of exceptions.

Where both parties to the existing contract and a new party agree that the new party should take over the benefits and burdens of a contract, that is not an assignment at all. Instead a novation has occurred. It is the rescission of the old contract and its replacement with a new one, on the same terms as the former contract, but with different parties.

The principles of novation are of long standing: see Southway Group Ltd.v.Wolff and Wolff [1991] CLR 33 Bingham LJ at paragraphs 52-53 and Chitty on Contracts 31st edition at paragraphs 19-086 to 19-088.

In a true case of assignment, there is a limited exception where a burden can be transferred, the “conditional benefit” cases. This principle is often misunderstood: it provides that a burden can be transferred, where the requirements set out in the Davies.v.Jones [2009] EWCA Civ 1164 case are satisfied: see the Vice Chancellor’s summary of principle at paragraph 27.

This formulation of principle is in turn derived from a chain of authority which disapproved a related principle devised in Tito.v.Waddell (No2) [1977] Ch 106 the “pure principle of benefit and burden” including Rhone.v.Stephens [1994] 2 AC 310, and Thamesmead Town Limited.v.Allotey [1998] EG 161.

The key to understanding the distinction, is that it is not enough that the benefit is provided in exchange for the burden being performed: that is true of every contract, whether it be for the fee paid for solicitors services, or price paid for the purchase of pork bellies.

Rather the receipt or enjoyment of the benefit must be relevant to the imposition of the burden, in the sense of being conditional or on reciprocal to the latter: in essence the narrow exception of “conditional benefit” is concerned with ensuring that qualifications on a benefit are transferred too.

Receiving parties however, start with the high ground in the arguments, namely the decision of Rafferty J in the case of Jenkins.v.Young Bros Transport Limited [2006] 1 WLR 3189. This is a decision of a High Court judge it is binding in the county court. The question then however, is what is its ratio decidendi that is binding?

The judgment does not purport to lay down a sweeping statement of principle that conditional fee agreements are assignable. It is limited to the peculiar facts of the case: see paragraph 31 of the judgment. The width of the ratio could be stated to be relatively narrow.

I also think that it is fair to say that the arguments for the receiving parties, do not begin and end with Jenkins; there are other points that could be made, when undertaking an analysis of these doctrines although those arguments are beyond the scope of this necessarily brief article.

Analysing the consequences of a non-effective assignment were this to be found at a hearing, I think the court would go on to find that any new firm acting for the receiving party would have made a new contract of retainer: I think the law would readily imply a contract of retainer, but this would be a novation.

On the basis that a novation took place, and all other things being equal, the terms and conditions of the retainer would be apt, to be those in the original conditional fee agreement.

But such an agreement made post 1st April 2013, must comply with the formality requirements of section 58(4)(d) of the Courts and Legal Services Act 1990 and articles 4 and 5 of the Conditional Fee Agreements Order 2013: including containing the statutory cap on the success fee. If it does not, the conditional fee agreement is unenforceable and no costs will be recoverable under it.