Commercial costs and reform

This is a hot topic for FE colleges with learners and employees being just two types of claimant who can bring claims against colleges in the civil courts. The general position in civil courts is that the loser pays the winner’s costs. Recent reforms in this area allow courts to make orders on costs and what they are at various stages of the process. It will be interesting to see how this is operated in practice, particularly around breach of contract claims brought by learners and staff alike.

Those familiar with the further education sector know that colleges are not merely education providers; they are also employers and businesses and must therefore concern themselves with the commercial costs involved. Colleges may find themselves forced to defend claims such as discrimination, unfair dismissal or breach of contract which can prove costly, not least in terms of management time and legal fees.

Employment tribunals operate differently from the civil courts in that the unsuccessful party is rarely required to pay the costs of the successful party. Employees can only bring breach of contract claims in the employment tribunal as long as their employment has terminated. The time limit for bringing such a claim in the tribunal is three months from the date of termination of employment and damages for breach of contract claims are subject to a maximum award of £25,000.

Alternatively, employees (and others) can bring claims for breach of contract in the civil courts where they have six years from the date of the breach within which to bring the claim. There is no limit on the amount of damages they could be awarded if successful. There is however a great deal more certainty of the unsuccessful party being subject to a costs award.

Reforms came into effect in April 2013 concerning costs management in the civil courts whereby in most multi-track claims the courts will manage cases to stay within approved budgets. It is hoped that this will lead to greater certainty and efficiency and it could help colleges facing such claims with their financial planning.

The transition to the new costs management approach, where the courts have more control over costs prospectively as opposed to retrospectively, has not gone as smoothly as some may have hoped. In Henry v News Group Newspapers Ltd [2013] the court was required to apply the rules of a costs management pilot scheme. The parties had each submitted a costs budget, which was approved by the court at the first case management conference. The rules of the scheme required subsequent revised budgets at various stages and for the solicitors to liaise monthly to make sure the budgets were not exceeded. In this case however both parties exceeded their initial budgets without seeking approval of a revised budget.

Under the rules that applied to the scheme, when assessing the costs to be paid by the unsuccessful party to the successful party, the court was not to depart from the successful party’s approved budget without good reason. The claimant sought to recover all of her costs from the defendant. However, the defendant argued that it should only be liable to pay the claimant’s costs as were in her original approved budget. The claimant argued that the defendant’s behaviour had caused her to incur further costs, which could not have been reasonably predicted when the budget was prepared. The defendant argued that the claimant had not sought approval for a revised budget and was therefore in breach of the rules.

The Court of Appeal held that the failure of a party to comply with all of the requirements of the scheme did not prevent the court from finding good reason to depart from the approved budget, although it was a factor to be taken into account. The failure of the claimant’s solicitors to comply with the rules did not lead her to incur costs that were disproportionate and she should be allowed to recover her costs in excess of the approved budget for a variety of reasons. Where budgets are approved and regularly revised, the court is unlikely to be persuaded that costs in excess of the budget are reasonable and proportionate. However, just because a budget is approved does not mean the parties can conduct litigation in an unnecessarily expensive way.

In the more recent case of Troy Foods Ltd v Manton [2013] the Court of Appeal considered an application for leave to appeal made. This was on the basis that the judge below had adopted the wrong approach when considering the parties’ budgets in the context of a costs management pilot scheme. The judge appeared to have approved the figures on the basis that they were not grossly disproportionate; an approach the court found had been over-generous in some respects.

Whilst acknowledging the defendant’s concern that an approach by which approval of a budget means costs would be considered reasonable if they fell within that budget, the court stated that it did not believe this approach would be adopted and referred to Henry v News Group Newspapers Ltd that an approved budget is not a licence to conduct litigation in an overly expensive way. Permission to appeal was granted and invited the Court of Appeal to comment further on the issue. The case was subsequently settled and we will have to wait for another case to come before the Court of Appeal to obtain any further guidance.

Colleges should bear in mind that costs management will apply only to claims over £25,000 and will not apply to litigants in person. Where it does apply, colleges should be mindful of the potential consequences of non-compliance, even where they find the requirements of continually monitoring and revising budgets a burden on already overstretched resources.

Matt Kelly is a partner at Thomas Eggar, the law firm