"Well past its use-by date" – Supreme Court recommends overhaul of Litigious Costs and opens the door for more sophisticated litigation planning

Our court system work on a loser-pays system. If you lose in litigation you are likely going to be required to pay the other side's costs. Being able to estimate that cost and risk is a critical consideration when assessing an organisation's appetite for litigation and the strategy to employ. Until now, in Victoria, those costs have been assessed by reference to an archaic and complex scale (the Scale) which, save for a few clued-in costs consultants, is impenetrable. Prospectively assessing costs, therefore, has become a very inexact science which is less than satisfactory from a litigation planning perspective. How can management advise their board on litigation prospects if they cannot adequately demonstrate a robust cost: benefit analysis? On 23 August, the Supreme Court released its report on costs. Thankfully for litigants, the principal recommendation has been to replace the Scale with a time based and/or fixed cost system which reflects the way the vast majority of costs are generated by law firms running litigation. This means that any forward planning can be based on the likely scope of work (or a range of time based estimates) and not by reference to outdated and arbitrary items which no longer reflect the reality on the ground. ' Working with their lawyers, management will be much better equipped to advise their stakeholders on whether and, if so, how to proceed.

Introduction

In October 2021, Justices Jack Forrest and Kathryn Kings were appointed by the Supreme and County Courts to conduct a review of the Scale and recommend whether to continue using it or adopt a different model. On 23 August 2022, the Supreme Court and County Court released their report, recommending ' that the Scale be replaced with a costs model which combines the use of fixed recoverable costs and costs budgeting (the Report).

What is wrong with the Scale?

Not surprisingly, the Report describes the Scale as ' "well past its use-by date and is quite inadequate in today's legal landscape". In short, the Scale is opaque, ineffective, outdated and incapable of facilitating proportional costs in litigation.

Recommendations

The Report recommends that the changes occur in two stages:-

1. in the short term, the Scale be replaced with a more straightforward time-costing system similar to that used in New South Wales.
2. in the medium term, fixed recoverable costs be introduced for matters where costs are reasonably predictable, and a costs budgeting approach be introduced for more complex matters. This could be through capping costs or by reference to costs budgets submitted by parties shortly after the commencement of a proceeding.

The recommended changes aim to, within the loser-pays framework, increase transparency, encourage certainty, and promote cost effectiveness and efficiency The Supreme and County Court have endorsed the recommendations and will now proceed to further consultation around implementation.

Take-Aways

In a litigation system where predictability is at a premium, the recommended changes will assist litigants to better assess their litigation prospects, strategy and risk. The combination of fixed recoverable costs and costs budgeting has worked well in England and Wales. However, this huge overhaul of the taxation of litigious costs will no doubt cause teething issues for some legal practitioners, particularly costs lawyers and cost consultants.