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Blackstone Brief Volume 12

Legal Costs - England v Australia

Joe Rose, a UK Costs Lawyer, has joined Blackstone’s Sydney office following 4 years managing the London office of an affiliated UK costing firm, Partners in Costs. The UK and Australian legal costs regimes follow remarkably similar rules and authorities. In this article Joe casts his eye over the more significant differences, raising questions about where legal costs are headed down under.

There are some things upon which Brits and Aussies just don’t see eye to eye.
Vegemite or marmite? Who is better at cricket? How do you pronounce data? The list can go on and on.
Proportionality in costs is another, less commonly debated, point of difference.

Rules

In simple terms, factors to be taken into account when determining the reasonableness in each jurisdiction include:

England and Wales Australia
S.44.3(5) Civil Procedures Rules: S.172 (2) Legal Profession Uniform Law (NSW) 2015
The sums in issue in the proceedings.

Value of any non-monetary relief.

The complexity of the litigation.

Additional work generated by the paying party, and

Wider factors e.g. reputation or public importance.

The skill, experience, and expertise of the lawyers involved.

The complexity/novelty of the issues involved, including public interest.

The labour/responsibility involved.

The case circumstances, including;

its urgency.

the time spent.

the place where the work was done.

The quality of the work done.

Similarities

When it comes to consideration about whether costs incurred are proportionate to a matter, both jurisdictions centre on the complexity and public importance. Few will argue these are factors that shouldn’t be taken into account.

It is also important to note that, regardless of proportionality, both jurisdictions similarly determine the allowance of costs by considering whether they are fair and reasonable. However, that is effectively where similarities end.

CPR44.4(3) does sound much like the Australian rules, with recognition given to both the skill and expertise of the lawyers involved as well as the time spent on the case when considering the overall reasonableness of the costs claimed. Yet, the jurisdictions diverge significantly on interpretation and application of rules relating to proportionality.

The sheer amount of time spent by England and Wales, in applying, revising, amending and generally arguing over the issue of proportionality provides one major contrast with the Australian experience. Entire days can be spent at a preliminary hearing simply determining whether costs are proportionate. Whereas in Australia decisions on proportionality tend to be made much more succinctly and are of relatively less importance in decision-making on costs, certainly involving far less adversarial work.

Another significant difference: upon deciding that costs are disproportionate, Australian costs assessors generally have far greater discretion in deciding how to apply this to the costs claimed. In contrast, Costs Judges in England and Wales apply far more strictly the relevant rule as to proportionality, CPR 44.3(2)(a):

“…on the standard basis, the court will –

(a) only allow costs which are proportionate to the matters in issue. Costs which are disproportionate in amount may be disallowed or reduced even if they were reasonably or necessarily incurred”.

Damages vs Costs Analysis

British practitioners will be surprised that, in practice, costs assessors in Australia place much less emphasis on considering the relationship between verdict sums in issue and costs claimed than their English and Welsh cousins.

“How can it be reasonable to have incurred X in costs when only Y was at stake” is, aside from the usual questions over the retainer, invariably the most important issue a paying party raises with a costs assessor in England and Wales, and it is an issue that resonates throughout assessment proceedings there.

There is obviously commercial sense to this. If you are defending a claim worth $100,000 you would obviously prefer not to spend $150,000 in legal costs and risk having to incur all these costs, plus those of the winning party if you lose.

Yet purely basing the outcome of a costs assessment on proportionality overlooks countless other factors and almost ignores basic principles like access to justice.

To consider how strict rules on proportionality create injustice, take the case of two sets of parties involved in property disputes. In each case ownership is the sole basis of the dispute. The only difference is one property is located in Penrith, where it is valued at $1,000,000, with the other located in Bondi, where that property is valued at $2,000,000. How can it be just to assert that one winning party is restricted to one-half of the legal costs of another party despite being just 65 kilometres away? In England and Wales, this can often be the reality.

The value of any claim can be significantly impacted by numerous socio-economic factors unrelated to the amount of legal work required to prosecute it. This is presumably why Aussies have disagreed with the Brits and decided such a system, regardless of the cost, just wouldn’t be fair.

The Necessity Test

In England and Wales, necessity played a key role in determining which costs were to be allowed. That was the case until the introduction of the Jackson reforms in 2013 when, to all intents and purposes, the requirement of necessity was scrapped. This was because it was considered that any costs that are reasonably incurred will be necessarily incurred and vice versa, making the distinction redundant. This was the view of Lord Jackson, the driving force behind the biggest costs reforms in England and Wales in over 20 years. The introduction of CPR 44.3(2)(a) above clearly sets aside the question of necessity.

Australia has also done away with necessity, but for different reasons. It had only been applicable in relation to Federal Court costs up to 2011, at which point the rule makers decided the test was too onerous on parties entitled to costs of litigation and the threshold to satisfy was that costs should simply be those that have been fairly and reasonably incurred by the party in the conduct of the litigation.

Budgeting

In England and Wales, since April 2013 Costs Lawyers have been involved from the point of initial directions hearings, at which point costs budgets are prepared for the anticipated duration of each matter and fixed by the Court. It is generally very difficult to deviate from budgets once set by the Court. Given that costs budgeting in Australia don’t yet exist the difference here is quite clear.

There are many assertions that budgeting has been a rip-roaring success in ensuring proportionate costs, most notably from Lord Jackson, the architect of the reforms which included costs budgeting. Unfortunately, the fact that the Courts in England and Wales have been slow to take up computerised filing means there has been no central benchmarking to verify such claims. Furthermore, the process has in some areas increased costs as an assessment process at the end of cases invariably proceeds, creating further costs in addition to those incurred in preparing a budget (which can be considerable).

Despite attestations by some individuals that various new costing rules have worked, it remains unclear whether these new rules have successfully lowered costs or maintained them at a fair and reasonable level. It is unlikely this will never unlikely be proved one way or another until or unless proper benchmarking is carried out at a centralised level.

Implications for Australia

Australia has the benefit of being able to wait and see how new policy reforms in the UK develop and how they impact litigation. The opportunity to consider how the Jackson Reforms have affected England and Wales, to learn what has worked and what hasn’t, is truly beneficial to policymakers here. The ripple effect of further changes, including the introduction of fixed costs based on the concept of proportionality, may be enormous and is already starting to be felt in terms of access to justice. These effects include a reduction in the level of work for the junior bar, a reduction in the number of valid claims and an increase in the number of litigants in person as a consequence of law firms seeing little or no profit to be made in claims. An important question for Australia is whether it wants to achieve reductions to legal costs in litigation at the expense of access to justice, which appears to have been the case in England and Wales following the Jackson Reforms.