The Future of Costs Management

The Future of Costs Management

By Tracey Stretton, Legal Consultant.

The cost of civil litigation is a key concern for all involved in litigation.  The Birmingham Mercantile Judge, His Honour Judge Simon Brown QC sums up the current situation as follows:

“In the dire current economic environment we are all in, like everywhere else in the economy, legal costs need to be keen and hence budgeted, and legal technology has to be employed wherever viable for example, where lawyer labour is too expensive @ £150 to £750 per hour to do disclosure and document handling. The fittest will not only survive but thrive.”1

Lord Justice Jackson, charged with reviewing the costs of civil litigation in the U.K., believes that the time has come for formal costs management in litigation. This he says will reduce the costs of litigation and ensure that costs are proportionate to the amount at stake.

Corporate clients familiar with budgeting and cost control mechanisms increasingly expect universal project management techniques like these to be used in litigation where there is a real risk that legal costs can spiral out of control.

Change is in the air

1 October 2012 is the target date for the implementation of various reforms suggested by Lord Justice Jackson including the introduction of a formal costs management process.  This will involve parties preparing and exchanging litigation budgets for approval by the Judge and the subsequent management of cases by the Judge within the boundaries of the approved budgets.  At the end of a case when the successful party will usually be awarded its reasonable costs of the case from the unsuccessful party, the successful party’s approved budget will be taken into account.

A voluntary pilot project involving costs management has been running in the Birmingham Mercantile Court and Technology and Construction Court since 1 June 2009.   A second mandatory pilot project in London and Manchester has been run for defamation proceedings.   The Civil Procedure Rules Committee recently approved the extension of the Birmingham costs management pilot to every Mercantile Court and Technology and Construction Court in the country. The Senior Costs Judge, Peter Hurst and a working party have produced a Practice Direction to underpin the costs management pilot.2  The expectation is that The Civil Procedure Rules will be formally amended and that a new practice direction on costs management will come into force in October 2012.

On 6 October 2011 the new Solicitors Regulatory Authority Code of Conduct comes into force.  Under this new Code (as under the existing 2007 Code) clients must be given the best possible information about the likely overall cost of their matter both at the outset and as the matter progresses, but the new regulatory regime will adopt on outcomes-based approach in place of the existing “duties based approach.  A litigant with a costs liability in excess of the sum at  issue in a case might therefore complain more readily to the regulator.

Lawyers will therefore need to focus even more on costs and in particular on the relationship between the estimated costs and the most likely ultimate recovery or liability at stake.  In addition they will need to provide accurate and transparent information and shape their litigation advice around this informed cost/benefit analysis.

How has it worked in practice so far?

Early feedback on the Birmingham pilot was that some lawyers did not readily adapt to completing a standard costs spreadsheet.3  General feedback from practitioners involved in the pilot has, however, been on the whole positive.  The principal benefit is that the parties know what the overall case costs might be from an early stage and what their costs liability will be if they lose the case, which allows them to carry out a more informed cost/benefit analysis.4

Costs management and e-disclosure

E-disclosure costs are almost always the largest component of the litigation budget and an area Judges are scrutinizing and questioning with increasing levels of knowledge, experience and sophistication.

So how do you persuade a Judge that you have approached e-disclosure properly?  One way is to rely on an expert to help you scope an e-disclosure exercise, budget for it properly and justify expenditure on it.  E-disclosure providers have extensive scoping expertise and use this to help lawyers not only budget for e-disclosure but also to design defensible e-disclosure approaches that meet budgetary requirements. The process of estimating e-disclosure costs can also be daunting for lawyers since it is typically based on metrics other than the “billable hour”, such as data volumes or the number of custodians holding data.  Assessing data volumes and the impact of searches for the key documents can involve many unknowns and variables and there are also various approaches to costing in the e-disclosure industry.  Technical knowhow and experience makes the process easier to understand and manage.  An effective partnership between the legal sector and the e-disclosure industry is the key to getting it right.

What costs lawyers can do to prepare for the changes

Costs lawyers have traditionally supported the detailed assessments of costs at the end of a case.  The new costs management process is front-loading the current after-the-fact detailed costs assessment process and involves the deployment of foresight in place of hindsight in assessing the reasonableness of case costs.  It is not clear what the future role of detailed assessments will be but the skill and experience of costs lawyers is likely to be valuable when it comes to the preparation of budgets at the outset of a case.

Formal training on e-disclosure is essential, especially with respect to the designing and scoping of e-disclosure projects and the estimating of e-disclosure costs.

It makes sense to nurture relationships with e-disclosure providers who have extensive knowledge of e-disclosure costs and experience providing estimates for practitioners to produce in court.  They are also able to provide statistical reports to justify the approach taken to identify the most pertinent documents for disclosure.

Costs lawyers also need to become familiar with technologies and expertise that help assess and manage e-disclosure costs.  Early Data Assessment Technologies now provide lawyers with visibility of their data collections so that they can select relevant data sources.   Consultancy is available to help lawyers use these tools properly to assess their data, formulate an approach to e-disclosure and a rational budget.   Since the review of documents by lawyers is the most expensive part of an e-disclosure exercise, costs lawyers should also be aware of the availability of new Intelligent Prioritisation Technologies which help identify key documents without lawyers having to read them all.  Outsourcing of the document review to lower cost organisations or jurisdictions has also become widespread and it is worth finding out more about the nature and services offered by Legal Process Outsourcing companies.

A vital role to play

As cost management comes under the spotlight in litigation and more detailed requirements emerge, there is an opportunity for costs lawyers to play an active and valuable role.   Those who invest in training, who keep up to date with emerging technologies and who build relationships with technical experts will be well placed to provide vital support to legal teams.

Tracey Stretton is an Legal Consultant at Kroll Ontrack.

 

Disclaimer
This document is neither designed nor intended to provide legal or other professional advice but is intended merely to be a starting point for research and information on the subject of legal technology. While every attempt has been made to ensure accuracy of this information, no responsibility can be accepted for errors or omissions. Recipients of information or services provided by Kroll Ontrack shall maintain full, professional, and direct responsibility to their clients for any information or services rendered by Kroll Ontrack.

1“Costs Management: is it a Woozle”, a paper delivered by His Honour Simon Brown QC at a Practical Law Company seminar in Birmingham on 18 March 2011.
2“Jackson’s costs management pilot to go nationwide in October” http://www.legalfutures.co.uk/news/jackson%e2%80%99s-costs-management-pilot-to-go-nationwide-in-october
3“Costs Management”, Jeremy Morgan QC, available on the PLC website at http://dispute.practicallaw.com/2-504-5224 
4“Jackson’s costs management pilot to go nationwide in October” http://www.legalfutures.co.uk/news/jackson%e2%80%99s-costs-management-pilot-to-go-nationwide-in-october


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