There are differences between substantive litigation and costs litigation which are critical to explaining why parties might be resistant to alternative dispute resolution (ADR) in costs matters. The primary difference is that in the costs litigation the liability for substantive costs has already been determined and the paying party is already feeling the pain of footing the bill. Any additional step in the detailed assessment proceedings is perceived (not without cause) as merely adding to the costs.
The presumption in favour of the receiving party when it comes to detailed assessment costs, pursuant to CPR 47.20(1), also means that the receiving party is at negligible risk of having to pay any of the paying party’s detailed assessment costs, unless and until the paying party makes a strong offer. The receiving party therefore has no great incentive to control or minimise the costs of assessment, save perhaps in provisionally assessed cases where their costs are capped.
Whilst a paying party might be much more willing to consider ADR if the parties agree that the costs of the ADR will be neutral (that is, not recoverable between the parties), the receiving party is rarely going to be interested in engaging with ADR on this basis because they already have the presumption in their favour in respect of detailed assessment costs. Why should they forego costs to which they would otherwise be entitled?
In a costs matter, unlike a substantive case, the receiving party has complete information from the outset. It has (or should have) perfect knowledge of its own file, retainer and reasons for the costs incurred. The paying party has perfect knowledge of its own file and it has sight of the bill of costs and accompanying documents. Whereas in substantive litigation the claimant is required to provide full disclosure in support of their case, in detailed assessments the receiving party has to provide only the bill narrative and disbursement vouchers by way of evidence in support of the costs claimed in the bill.
Whilst some bills of costs provide an excellent level of detail, which helps both the court and the paying party to understand why work has been done and time spent, in my experience many bills do not provide sufficient detail. Yet points of dispute are required to set out particularised challenges. This creates a very uneven playing field in detailed assessment proceedings which affects settlement negotiations and attitudes towards ADR.
Given the asymmetry of information between the parties in costs matters, it is not entirely surprising that the parties do not always reach an overlapping assessment of what are reasonable and proportionate costs. In my experience, the more detailed the bill and the more detailed the points of dispute, the more likely it is that the parties will narrow the issues and reach a settlement, without the need either for ADR or recourse to assessment.
In general, it is only when it has become apparent that there is a substantial gap between the parties’ respective positions that either party gives any serious consideration to formal ADR. This is unsurprising, since many cases are capable of being settled without any need for formal ADR, so why incur the cost?
What this means, however, is that by this stage the paying party usually already feels it has made not just a good offer but a generous offer. In short, the paying party already feels slightly aggrieved that it has offered too much. How likely is such a party to want to sign up to the costs of formal ADR when there is no obligation to reach agreement and the paying party is penalised heavily with 8% interest during the extra time taken before the costs are formally assessed?
When the parties are far apart like this, it is also quite usual in my experience for the receiving party’s solicitor to be feeling very personally aggrieved by how much the paying party is seeking to reduce their costs. One of the great benefits of instructing a costs lawyer is that it makes the negotiations much less personal. Unlike substantive litigation, where the solicitor is arguing on behalf of their client, in costs litigation the challenges to a bill of costs are often perceived as, and intrinsically are, a very personal attack on the conducting fee earner.
Quite often, the receiving party themselves take little or no part in the detailed assessment proceedings as in many cases they are not actually footing the bill. A claimant solicitor can be relatively unused to having their time challenged by their own client, due to the nature of funding arrangements, legal aid and expectation of costs recovery at the end. It can therefore come as quite a shock when the person who is going to foot the bill (the paying party) comes into direct contact with the receiving party’s solicitor. Both parties can take it very personally.
There is a sound argument that this is a good reason to engage with formal ADR. In general, however, where both parties instruct costs lawyers to act on their behalf this is often sufficient to ensure objectivity and more productive negotiations. It is the costs lawyer’s job to advise their clients of the risks and the prospects on assessment, as well as the potential costs of proceeding to detailed assessment. Where such advice results in settlement, perhaps with the benefit of not only offers but also without prejudice discussions between costs lawyers, there is no need for formal ADR.
Where an impasse is reached and both parties are already instructed by costs lawyers, this could be another juncture at which to consider ADR. For a paying party, however, this is not appealing for reasons set out above. They have already paid for specialist advice and offered the maximum recommended. Why would they then want to incur further costs on formal ADR? Why not just proceed to assessment if they do not have any intention of making an increased offer? What further information could the receiving party provide in support of their costs in the course of formal ADR which they could or should not already have provided in the bill of costs and Replies?
Similarly, a receiving party which believes strongly that the paying party has not offered enough will not wish to delay matters with ADR and would prefer to crack on to detailed assessment in high confidence that they will recover all their costs of doing so, often with a very high profit margin on the fees charged by their costs lawyer.
Short of threatening parties that there will be a clear and unambiguous costs penalty for any party requesting an assessment without first engaging with ADR, in most cases formal ADR will not happen.
The position is slightly different in provisionally assessed matters. The cap on detailed assessment costs means that the receiving party has more incentive to see a swift and cost-effective end to the litigation and the paying party has the protection of the cap to control the costs. Though, unless the parties agree to have a binding paper assessment by an ADR provider or there is a key issue on which an arbitrator could give an opinion, in most cases the receiving party will prefer to request assessment because the court fee can be recovered in addition to the £1,500 + VAT cap whereas an arbitration or mediation fee cannot.
