E-disclosure is likely to be one of the largest and most difficult parts of putting together an estimate under costs management. James Morrey-Jones, an electronic evidence consultant at Kroll Ontrack UK, considers the key issues
Details of the new costs management regime due to be introduced in April 2013, were released at a Law Society seminar on 29 May 2012 in a speech by Mr Justice Ramsey. It includes the new rules  and the practice direction on costs.
In a nutshell, the new costs management process will require parties to file and exchange budgets before the first case management conference for approval by the court. Costs will be actively managed by the court within the boundaries of those approved budgets. At the end of a case the successful party will be able to recover the reasonable costs of the case and when these are assessed the court will take into account the approved budget.
As practitioners consider the application of these new rules, a number of questions arise – what steps must be taken, and when to comply and how to ensure that e-disclosure costs, which are often one of the big-ticket items on the litigation budget, are estimated properly?
What do the new rules require?
You will find them in CPR 3.11 to 3.18, practice direction 3E and the new precedent H for providing costs budgets. They apply generally to all multi-track cases in the county court and Chancery or Queen’s Bench Division, except Admiralty and Commercial Courts, unless the court so orders and to any other proceedings if the court so orders (CPR 3.12(1)). The rules require that all parties except litigants-in-person must exchange costs budgets in precedent H within 28 days, after service of the defence (paragraph 1 of PD 3E).
We know that after budgets have been filed, the court may then manage the costs and make a costs management order (CMO) in terms of which it will control the parties’ budgets in respect of recoverable costs. Irrespective of any CMO, the court will at all times have regard to any budgets available from each party and the costs of each procedural step, when making case management decisions (CPR 3.17(1)).
Underpinning the new regime is an approval process. The judiciary has indicated that the court will not undertake a detailed assessment in advance when approving budgets. Rather the court will consider whether the budgeted costs fall within the range of reasonable and proportionate costs.
What is reasonable and proportionate?
A broad view will be taken of what is reasonable and proportionate, and judges are expected to be flexible when approving budgets. The old approach was to allow costs which were considered to be reasonable and necessary to the litigation. Lord Justice Neuberger has said that necessity does not render costs proportionate and proportionality should prevail over reasonableness. If the total figure is not proportionate, the court should make an appropriate reduction.
The new proportionality test is set out in CPR 44.4(5) and balances the costs incurred against the value or importance of the case and its complexity.
There will no doubt be some uncertainty as practitioners grapple with the application of the new test principles. In the meantime, it is worth remembering that the “leaving no stone unturned” approach is not always the most proportionate route (see Nichia Corp v Argos Ltd  EWCA Civ 741 at , Jacobs LJ).
What does this mean in practice?
His Honour Judge Simon Brown QC wrote earlier this year that he looks in budgets for the “biggest Manhattans, normally disclosure and witness statements focusing on, for example, charging rates, lawyer rates and double manning”, and where it is thought reasonable and proportionate, it is possible to direct that disclosure takes place in stages (see Goodale v Ministry of Justice  EWHC B41 (QB)).
Therefore, when it comes to assessing the costs of e-disclosure and what is likely to be proportionate, this will depend on the circumstances of each case and is likely to involve a technical assessment of the electronically stored information available; and depend on:
- The accessibility of that information;
- The ease or expense of retrieving it; and
- The cost of reviewing it.
There are tools and techniques available which might reduce the burden and cost of disclosure and these have a role to play in reaching the goal of proportionality. You can achieve a lot more with technology than without it. Technical expertise from e-disclosure providers and experts is likely to be very helpful when these proportionality assessments are made.
Can I amend?
Yes and parties are required to do so, if significant developments in the litigation warrant a revision.
Budgets should be regularly updated and any revised budget needs to be re-filed. In practice, it may be difficult to estimate disclosure requirements 28 days after filing a defence, so variations to budgets will be required. Until some data has been collected, some sampling done and test searches run, the solicitor may not have much of an idea as to the number of documents likely to be disclosed, influencing the data selected for processing and how it is reviewed.
Of course, one of the consequences of the new rules will be that a lot of early debate about disclosure will be required. Practitioners will need to get a feel for their document universe as soon as possible and early discussion with e-disclosure providers and experts about the case, their disclosure objectives and the data is essential.
The practice direction does say that the parties should discuss their estimates during the estimate-building process and before each case management conference, hearing or pre-trial review. It may have once been customary to leave disclosure to a later stage in the proceedings but now it will be essential to start early so there is time for proper scoping, costing and discussion about the e-disclosure exercise and it will help to follow a systematic approach to ensure the case objectives are being met efficiently.
Overshooting the budget
Although there may be room for negotiation about what is necessary and proportionate, indications are that the courts will not depart from the agreed budgets too readily and undoubtedly case law will develop in this area.
The Senior Costs Judge’s ruling earlier this year in Sylvia Henry v News Group Newspapers Ltd  EWHC 90218 (Costs) sent out the clear message that lawyers need to have a reliable method of monitoring adherence to budgets; if they don’t, they will be vulnerable in the new world of costs management and therefore periodic budget reviews are not only recommended but are good case management.
Designing an approach to e-disclosure and scoping
The key to developing an approach to e-disclosure is to know the data and how to get to it, taking into account all applicable data sources in traditional places as well as the cloud and mobile devices. The electronic documents questionnaire (EDQ) will be a useful aide when scoping the e-disclosure exercise and preparing a budget.
Collaboration between the legal team, the client and the e-disclosure provider is fundamental to scoping success. Some of the initial steps in the process are:
- Understanding what the legal team is looking for and the disclosure obligation.
- Mapping the data universe and then preserving relevant data and selecting relevant sources.
- Considering the need for proportionality and prioritisation and what can be done to achieve them. This may mean that the process is carried out in stages, as the court said in Goodale, “to make the exercise the least expensive and most proportionate exercise possible”.
- Deploying technology to target the key data and reduce the time spent reviewing it to make reliable decisions about relevance and privilege.
- Working out what can be agreed with the other side to comply with the rules and reduce the disclosure burden without compromising the case strategy.
Many law firms are taking the approach that costs management or budgeting is something they already do or should do anyway for their clients as a universal and healthy discipline, and some already have fairly sophisticated budgeting solutions in place. What is clear is that a budget is not something one can work out on the back of an envelope and hope for the best; budgeting is a professional skill and has serious consequences.
There is time to prepare for the change coming next April by developing budgeting skills and procedures. When the time comes, the ability to gather the information needed for the budget early on and use technology effectively will make all the difference in establishing a realistic budget.