WAGING WAR ON LITIGATION COSTS
By Tracey Stretton, Legal Consultant at Kroll Ontrack and Damian Murphy, Barrister at Indicium Chambers
On the evening of 19th September 2012 Andrew Mitchell MP, the chief whip, exchanged words with police officers at the gates to Downing Street as he sought to leave on his bicycle. What exactly was said in those few seconds is in debate, big debate. The direct consequences included the resignation of Mr. Mitchell MP, eight arrests, an imprisonment and two High Court actions for defamation. One indirect consequence has been the addition to the litigation lexicon of a new phrase; “to be Mitchelled”.
To understand what it means to be Mitchelled we need to step back a little further to 1 April 2013 and the implementation within the Civil Procedure Rules (the rules governing most civil litigation within England and Wales) of the “Jackson Reforms”; a wide-ranging set of amendments focused primarily on controlling (i.e. reducing) the costs of litigation. In particular we need to consider the changes to rule 3.9 or as it is often known the “relief from sanctions” rule.
Put simply, from 1 April 2013 the wording of the “relief from sanctions” rule appeared to have hardened against litigants who, having missed a deadline and suffered a sanction as a result, applied to the Court in order to have the sanction lifted. Previously the Court was asked to consider all the circumstances of the case (which in reality meant that because the consequences of a litigant being shut-out from justice usually outweighed the prejudice to the other side, relief was normally granted). Now, the rule was modified to give greater prominence to two factors:
- The need for litigation to be conducted efficiently and at proportionate cost; and
- The need to enforce compliance with rules, practice directions and court orders.
The implications of the Mitchell judgement
Back to Mr. Mitchell MP and in particular his High Court defamation claim against News Group Newspapers Limited). The claim was being run under a pilot scheme for costs budgeting (another innovation of the Jackson Reforms). At a costs management hearing the judge concluded that under the pilot rules because Mr. Mitchell’s solicitors failed to file a costs budget in time his costs budget was automatically limited to the court fees he had paid. Mr. Mitchell applied for relief from this potentially financially devastating sanction (the effect of the sanction was that even if he won, the other side very probably would only have to pay his court fees and not, for example, the fees of his lawyers).
Mr. Mitchell’s application for relief was refused and the matter ended up before the Court of Appeal. The Court of Appeal (in Andrew Mitchell MP v News Group Newspapers Limited
 EWCA Civ 1537 ) explained that that rule 3.9 had now hardened against applicants, upheld the decision of the judge below and set in train a chain of subsequent “relief” decisions. It is from those decision we can understand the meaning of the phase “to be Mitchelled”; decisions such as:
- Durrant v Chief Constable of Avon and Somerset Constabulary  EWCA Civ 1624; where the Court of Appeal overturned the decision of the judge below to grant relief from sanctions and followed the hard-line approach of it had set out in Mitchell;
- Numerous High Court cases including Singh v Singh  EWHC 4571 (Ch) (refusal of relief after a defence had not been filed by the deadline for an “unless” order (i.e. an order specifying that unless a procedural step is carried by a deadline then a sanction will automatically take effect); the decision meant the defendant could not defend a claim where the subject matter was a house);
- And many unreported (or reported by social media such as Twitter) in the County Courts.
What “to be Mitchelled” means is that a litigant fails to obtain relief from sanctions in circumstances where relief probably would have been obtained before the Jackson Reforms amended rule 3.9. What the Mitchell decision does not mean is that relief will not be granted; there are also numerous cases where relief has been granted even in the harsher post-reform environment. For example, the Courts are cautious about parties taking extreme uncooperative tactical positions in order to try and take advantage of rule 3.9 as can be seen from Rattan v UBS  EWHC 665 (Comm) where the Court rounded upon a party for its “misguided piece of opportunism”. At the case management conference the claimant sought to argue that the defendant was a day late in filing its costs budget against a background of correspondence showing the parties had agreed that budgets filed by that day would be in time. The claimant had to bear the £4,500 costs of the argument about the sanction on an indemnity basis.
Furthermore, w “to be Mitchelled” does not mean that any failure to comply with a rule will result in the party in breach being shut out from justice. Rule 3.9 applies to relief from sanctions; if there is no sanction then rule 3.9 does not apply. Many directions / orders do not contain a sanction (either in the wording of the order itself or elsewhere within the Civil Procedure Rules). For example, where a Court orders a defence to be filed by a certain date, it does not initially make the order in terms that “unless” the defence is filed by that date, the defendant is debarred from defending the claim. If a defence is not filed then the claimant might make an application for a new order this time containing a debarring provision (i.e. a sanction) or the Court might make such an order of its own motion. If that “unless” order is not complied with then the sanction takes effect and the defendant will need to apply for relief from sanctions, the sooner very much the better.
It is not right to jump to the conclusion that Rattan means that the Courts are softening their approach since Mitchell any more than it would be right to pick one example of a failure to obtain relief from sanctions and conclude that it is impossible to obtain relief from sanctions; every case will turn on its own facts. However, it would be right to conclude that “relief from sanctions” litigation in the past year shows that caution and promptness are the watchwords for all procedural deadlines. Whilst it could fairly be said that these probably always were the watchwords, the reformed rule 3.9 is aimed at making it harder for litigants to obtain relief from sanctions and the Courts are in general following that aim.
Winning the battle, losing the war
Whilst compliance with the rules of court has become the battle ground in post-Jackson litigation, the Court in Rattan sent out a warning shot about the war that needs to be waged against disproportionate costs in litigation. It should not be forgotten that the various rule changes were designed to underpin proportionality which has been written into the over-riding objective of the Civil Procedure Rules themselves. Fornearly 14 years the CPR has enabled courts to deal with cases “justly”. The mandate after 1 April 2013 is to deal with cases “justly and at a proportionate cost”. The Court noted in Rattan that the taking of futile and time-wasting procedural points was all the more unfortunate in a case where the parties’ initial costs budgets (for a combined total in excess of £2 million) were already disproportionate to the amount in dispute (the US dollar equivalent of about £1.3 million), so that the parties ought to have been concentrating on ways in which the case could be conducted at a more proportionate cost.
The mechanics of cost management
The new and detailed cost management rules designed to support the management of cases at proportionate cost include the need to file costs budgets for the Courts’ approval and budgetary control by the Courts. These rules do not currently apply to all cases – there are exemptions for larger commercial cases – but these are expected to fall away with time and we are very clearly entering a new era of cost management in all cases.
There is also a new test for proportionality set out in CPR rule 44.4(5). The old approach (before the Jackson Reforms) was to allow costs which were considered to be reasonable and necessary to the litigation. Necessity has now been removed from the proportionality test. The court will be assessing whether the costs are reasonable and proportionate. In a £1.3 million claim you cannot spend £2 million on disclosure, even if it is necessary. So budgets may yet be slashed by the Courts. (You can, of course, spend more but you won’t recover these costs from the other side.)
In order to budget effectively it is important to focus on the scope or extent of the disclosure exercise which typically has a significant impact on the e costs of the case as a whole. Up until now “standard disclosure” has been the default option requiring each party to examine its own documents and select those it thinks will help or hinder any party’s case. There has been a view for some time now that this broad approach is wasteful and has become untenable in many cases given the costs of searching for and reviewing enormous volumes of electronically stored information. The new Rule CPR 31.5 provides a menu of disclosure options. These range from no disclosure to full blown train of enquiry disclosure with issues based disclosure and reliance based disclosure somewhere in between. A year down the line parties are not straying from standard disclosure. We have seen little evidence of parties using any of the other options on Jackson’s disclosure menu. This might be because old habits die hard or because standard disclosure is the approach that ensures that key evidence is not missed.
Where to next?
Attempts to reduce the overall extent of disclosure and change the culture of litigation are taking time to take root. There is still room for the adoption of careful scoping exercises to assess the data available in a case and the impact of filtering strategies, by making use of early case assessment review tools. There is also a growing need for new technologies such as predictive coding where the software learns from human reviewers and automatically reviews and categorises documents. In the future, as the pressure that big data continues to bear down on litigation the use of advanced technology like this is going to dominate the legal battle ground.