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What is the Court’s new “capped costs” pilot scheme?

Posted by Michael Axe

10-09-2019

You may or may not have heard about a new “capped costs” pilot scheme which the Courts are running, but there is still very little awareness in the business community generally about what the pilot scheme is, which type of cases it applies to, and what the potential advantages (and disadvantages) to businesses are.

So what is it?

It’s a two year voluntary pilot scheme, running from January 2019 to January 2021, in the London Circuit Commercial Court, and the Business & Property Courts in Leeds and Manchester.  Only cases with a value of up to £250,000 are eligible to join the pilot scheme, and because it is entirely voluntary, both parties to a dispute must agree to join the pilot scheme.

How does it work?

The general principle in litigation is that at the end of Court proceedings, the successful party can recover its legal costs from the unsuccessful party.  In normal cases, if these costs can’t be agreed between the parties, the Court may have to assess the costs to determine how much the unsuccessful party should pay the successful party.

However, for cases in the pilot scheme, the level of costs that a successful party can recover from the unsuccessful party is “capped”, with different “sub-caps” set for each stage of the proceedings, and an “overall cap” for the entire case set at £80,000 (excluding VAT, court fees and other exclusions).

Because the level of costs which a successful party can recover is capped, the Courts’ usual processes and procedures have also been streamlined, so that parties do not have to spend the time (and incur the level of costs) that they would otherwise have to if they had to follow the usual Court procedures.  In particular, under the pilot scheme the length of certain Court documents will be limited, there will be a set list of issues, factual and witness evidence will be limited, parties will follow a streamlined disclosure process, and trial lengths will be limited.

Is it suitable for all claims for less than £250,000?

No.  In addition to the value of the claim being a key factor, the pilot scheme is also not suitable for cases where the streamlined procedures are not appropriate.

Such cases could include, for example, claims involving complex issues requiring detailed or extensive witness or documentary evidence, or where expert evidence is needed, or where a trial length of more than two days is needed, or where there are allegations of fraud or dishonesty, or where there are multiple issues or multiple parties involved.

What are the potential advantages of the pilot scheme?

The primary potential advantage is certainty in relation to costs.  Under the pilot scheme, you would have more certainty in relation to (i) what costs you might be able to recover from the other side if you are successful, and (ii) what costs you may have to pay the other side if you are unsuccessful.  This latter point will be particularly helpful to smaller businesses involved in disputes with larger corporate entities, where the larger business might otherwise have attempted to wage a “war of attrition” by increasing the level of costs that the smaller party is at risk of paying if it loses at trial (referred to as “adverse costs”).

The pilot scheme should also speed up the litigation process with its streamlined new procedures.

Some have speculated that it might also help to reduce the amount of costs which clients have to pay their own solicitors.  However, it is important to remember that the cap only applies to what a party can recover from its opponent (and vice versa), and so it does not automatically mean that a solicitor cannot charge their own client more than the capped amount, depending on the terms of their retainer with their client.

What are the potential disadvantages of the pilot scheme?

Because the pilot scheme is entirely voluntary, it can only be used if both parties agree.  Therefore, if a larger corporate entity did want to use the potential risk of adverse costs to apply pressure to a smaller opponent, it would simply refuse to agree to use the pilot scheme.  This would mean that one of the main intended benefits of the pilot scheme (in terms of levelling the playing field between parties with unequal financial resources) would only apply if the larger entity voluntarily chose to give up its potential financial advantage.

Also, as mentioned above, the pilot scheme only caps the level of costs that a successful party can claim from the other (unsuccessful) party.  This means that, potentially, a successful party could be left even more out of pocket under the pilot scheme than it otherwise would be, if its solicitors were forced (perhaps due to unforeseen complications arising) to incur costs in excess of the relevant caps, and then the successful party would have to pay those additional “irrecoverable costs” incurred over the cap.

So is the pilot scheme a good idea?

The short answer is, probably – but it’s too soon to tell for sure.

The pilot scheme certainly has the potential to provide a streamlined process for parties to (voluntarily) use to limit their respective adverse costs risks while also getting to trial quicker.

But on the other hand, it remains to be seen how well the streamlined procedures will work in practice, and how realistic the cost caps are for the various stages of the litigation process.  There remains a risk that if the cap levels are unrealistically low, it may mean that successful parties have to pay a higher amount of “irrecoverable costs” themselves than they would otherwise have had to (for example, if they could have recovered more costs from their unsuccessful opponent outside of the pilot scheme).  In extreme cases, and if the pilot scheme ever became compulsory rather than voluntary, it could even mean that some law firms find that they cannot viably take on certain cases on a cost effective basis.

But regardless of what the future holds after January 2021, for the time being while the pilot scheme remains voluntary, the potential advantages offered by the pilot scheme mean that it could be a cost-effective option worth considering in suitable cases.

For more information on this or any other issue relating to litigation and commercial disputes, please contact Michael Axe.

This article is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from taking any action as a result of the contents of this article.


Michael Axe

Senior Associate
Commercial Disputes

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