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Counting the cost

Litigation costs in England's courts are not just a problem for domestic parties, as the recent multi-million pound bill following the battle between two high-profile Russians illustrates. Emilie Woolley reports on moves to lower the figures

Boris Berezovsky: deep pockets

Boris Berezovsky: deep pockets Natalia Mikhaylova/Shutterstock.com

Even billionaire Russian oligarchs are likely to wince at receiving a legal bill running into the tens of millions. So as the dust settles on the London High Court case between Boris Berezovsky and Chelsea Football Club owner Roman Abramovich, the sums involved illustrate the costs involved in pursuing high-profile commercial dispute resolution.
The $6bn litigation – the largest private case ever brought – was heard in the Commercial Court and centred on a row between the two Russians over business dealings stretching back to the 1990s. The court found for Mr Abramovich in August, with the costs hearing deferred to October, when Mr Berezovsky agreed to pay £35m in costs to the other side.
While this total should not be such a surprise for a action of this scale, the dispute has brought the topic of how expensive it is to run and cost a complicated, wide-ranging case. Generally, the cost of English litigation was put on the agenda in 2010 following Lord Justice Jackson’s civil litigation reforms. He was tasked with reigning in litigation legal bills, which are sometimes seen as disproportionate, resulting in the concept of a ‘costs management’ initiative.

Transparency

Costs management means lawyers may prepare and exchange budgets, outlining incurred and future costs for each step of a case as the matter progresses. Not doing so accurately could result in the failure to recover a substantial amount of legal fees. The idea is that costs are transparent and do not spiral out of control. It also avoids both sides wrangling over the final bill at the end of a case.
Since the Jackson proposals were first mooted, costs management pilots have been used in cases involving personal injury, defamation, technology and construction cases. Cost budgeting is likely to become more common in larger disputes as all multi-track cases in England’s High Court and the level below will be subject to costs management from April 2013. It is not mandatory in the Commercial Court, although it is worth noting that a judge does have the discretion to utilise costs budgeting if the case requires it.
This means lawyers fighting future cases of the Berezovsky v Abramovich scale could have to deal with an intricate, court-approved budgeting process for their fees. The likely challenges that lawyers would face in such a scenario can be found in Mrs Justice Gloster’s ruling in Berezovsky v Abramovich. She stated: ‘Given the substantial resources of the parties, and the serious allegations of dishonesty, the case was heavily lawyered on both sides…That meant that no evidential stone was left unturned, unaddressed or unpolished.’

Deep pockets

Litigants with deep pockets, comprehensive insurance or generous conditional fee arrangements may not be perturbed by this. However, the judge went on to say those features ‘not surprisingly, resulted in shifts or changes in the parties’ evidence or cases, as the lawyers microscopically examined each aspect of the evidence and acquired a greater in-depth understanding of the facts’.
And Mrs Justice Gloster continued: ‘It also led to some scepticism on the court’s part as to whether the lengthy witness statements reflected more the industrious work-product of the lawyers, than the actual evidence of the witnesses.’
In other words, costs management in commercial litigation could be more multifarious than Jackson had intended (which is why he said the Commercial Court should keep autonomy on costs management). Complex cases may require many witness statements but not all may be central to the case. In a predictive costs regime, those witnesses may be considered and filtered out accordingly, which can result in the opposing side being privy to vital information before the case is heard in court.
To compound this, many law firms still lean towards hourly billing. Lawyers can clock up vast amounts of time working on disputes but if law firms are to be expected to establish an accurate draft of what the legal bill is for each stage of the litigation, it becomes harder to use the ‘as long as it takes’ approach.
Instead, they must predict how long the various procedures, from discovery to deposition to preparing witnesses, would probably take and how much it will cost. Likewise, Jackson also established a ‘proportionality test’ for fees, which would apply in commercial litigation. At present, the winning side only has to prove that legal costs were reasonable to run the case, irrespective of the level of the fees. Instead, the new regime (which has still to be finalised) would see costs deemed ‘disproportionate’ not recoverable.

Proportionate budgets

It is very difficult for lawyers – especially expensive partners wrapped up in the case or junior lawyers not experienced in time-management or predictive costs – to present authoritative ‘proportionate’ legal budgets for such cases, especially those where ‘no evidential stone’ can be left unturned. Not least because, under the costs management regime, if a law firm gets its predictions wrong, it may not be able to recover all the costs from the losing party.
The appetite of the Commercial Court for costs management in complex disputes will not be known for a few years. It could be that such cases are simply too large for a realistic budget to be set, but lawyers will still have to be prepared for the chance of costs budgeting.
The Berezovsky v Abramovich case shows how expensive litigation can be. Clients and law firms may already be familiar with internal legal budgeting but, as of April 2013, this could well move from the boardroom to the courtroom. They need to be ready.


 

Posted by:

Emilie
Woolley

22 October 2012

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