One of the first questions when a dispute arises, regardless of the merits of the claim, is: “can we afford to fight this?” Faced with potentially large costs, many businesses are forced to consider compromise, particularly if the costs in money and management time are likely to be disproportionate to the sum in dispute. And, let’s face it, taking the settlement option when you have a strong claim can be galling; particularly if the main reason for avoiding court proceedings is the potential legal bill or the time it might take to resolve the issue.
Recognising that most organisations require swift, economic resolution of their disputes, two pilot schemes were introduced in October 2015 to offer cheaper and quicker claim resolution through the courts. The Shorter Trials Scheme (STS) and the Flexible Trials Scheme (FTS) have particular appeal for all businesses, but especially small and medium-sized enterprises looking at claims in the £50,000 to £500,000 bracket.
The costs of resolving a commercial claim for £500,000 are, broadly speaking, the same as those involved in resolving a £3 million claim. However, the costs incurred in the latter case may well appear proportionate, while in the former they may seem entirely disproportionate. The likelihood of costs recovery can therefore fundamentally affect how parties choose to resolve smaller, but still significant, claims.
Even where litigation is the best approach for a claim, parties may feel they have to choose alternative dispute resolution (ADR), thereby losing the benefits of judicial expertise and a court judgment.
Post-Jackson, parties often have to prepare and justify (or agree) a costs budget at the outset of a claim. Even if they win, they are unlikely to recover more than the sum budgeted, which is an unpalatable prospect given that meeting budgets can be difficult without control of pre-action procedures and other obligations, such as disclosure.
The court records are littered with examples of decisions in which parties with modest claims have ended up with costs bills disproportionate to the sums in dispute. For example, GSK Project Management Limited v QPR Holdings Limited [2015] EWHC 2274 (TCC) involved a dispute over a final account of £805,000 and a related counterclaim for defective works. The parties agreed to a four-day trial and budgeted accordingly: the claimant’s estimate of costs was £825,000 to trial and the defendant’s was £456,000. However, the court thought these budgets disproportionate and only approved a budget of £425,000 for the claimant. This was disastrous for the claimant who was, in effect, left with a budget of £115,000 after taking into account costs of £310,000 already incurred.
Another recent case, Group Seven Ltd Group Seven Ltd and another v. Nasir and others [2016] EWHC 620 (Ch), makes it clear that parties with larger claims cannot be complacent about costs either: they must still ensure their costs are proportionate to the amounts in dispute. Group Seven involved two actions that were being dealt with together with an aggregate claim value of £7 million. The judge considered that the combined costs budgets of £5 million were disproportionate, and the parties were told to come back to court after they had reviewed, or perhaps more accurately, slashed them.
In practical terms, budget decisions like those in GSK and Group Seven leave all but the most liquid of parties with a stark choice: proceed and carry the extra costs or seek an earlier settlement, quite probably on poorer terms than might have been obtained at trial.
Shorter and more flexible trial procedures
Both the STS and the FTS are being run as pilot schemes until 30 September 2017. They apply to courts found in the Rolls Building, which houses specialist courts focused on commercial dispute resolution including: the Chancery Division (including Patents Court and Companies Court), the Commercial Court, the London Mercantile Court and the Technology and Construction Court (TCC).
The STS process is largely court-led but shortens the timetable and provides that proceedings should be run by the same judge throughout. The trial should take place no more than eight months after the case management conference.
The FTS allows the parties to take more control and adapt standard High Court procedure to the needs of their specific dispute by mutual agreement. A default procedure is provided and can be used as the baseline for the parties’ agreement.
The schemes offer a middle ground between normal court proceedings and ADR procedures, such as mediation and expert determination. They are a form of “diet litigation” and raise the hope of a faster and cheaper forum of dispute resolution, with the added benefit of the court’s high-quality decision-making prowess.
The courts have already shown their support for the pilot scheme:
- In February, Birss J transferred a claim into the STS scheme, holding that under STS: “this dispute will come on to trial faster and at a lower cost than might otherwise have been the case.” Given the novelty of the scheme, he gave a full judgment.
- In a recent lecture (at paragraph 28), the Lord Chief Justice highlighted the schemes as optional “procedural innovations”, which would “increase the procedural efficiency, economy and proportionality of commercial disputes”.
Factors to consider in deciding whether to use the pilots
The two pilot schemes should be considered by businesses as alternatives to normal litigation procedures in appropriate cases where:
- The amount in dispute is between £50,000 and £500,000 or thereabouts.
- The normal court procedures appear cumbersome for the dispute in hand and slimmed down procedures tailored to the features of the case would be more appropriate.
- A swift resolution of the dispute by the courts is needed, for example to help maintain commercial relationships, to avoid reputational damage or to obtain a judicial precedent in the form of a judgment. The potential costs of using the normal procedures would be disproportionate to the value of the claim but the parties recognise that a judge’s commercial or technical experience would be valuable in deciding the issues.
- The case requires little factual and expert evidence.
- The parties do not want to be bound by the costs management rules (in the case of the STS).
- The issues do not require substantial documentary evidence or the parties want to limit the extent of the disclosure exercise and a simplified disclosure process would be practicable. (“Would-be” claimants should note that bombarding defendants with information at the outset, leaving them with insufficient time for review, will be classed as a “claimant ambush” and will likely be penalised in costs.)
When not to use the pilots
A few words of caution should be kept in mind when reviewing the pilots:
- The schemes will not be appropriate for disputes that involve multiple parties, complex issues or substantial evidence, including those cases that require an extensive disclosure exercise.
- Parties will need to know their own case thoroughly before they are in a position to choose between one of the pilot schemes. Reaching that position will inevitably require reviewing the legal issues, speaking to witnesses, and collating and analysing documents. Such preparation is expensive and might, in some cases, defeat the object of going for one of the cost-effective pilots.
- The schemes require the parties’ agreement and envisage judicial input into the procedures to varying degrees. If parties want to make the best of these innovative procedures, they should be prepared to cooperate, both with each other and the court.
Don’t forget about ADR
Finally, ADR should not be discounted if the pilot schemes are chosen. Parties should continue to review the ADR options and, wherever possible, keep avenues to settlement open.
