Procedure and alternatives - Costs–benefit and proportionali...

Learning Outcomes

After studying this article, you will be able to evaluate procedural and non-procedural options considering cost–benefit and proportionality requirements, explain how to present practical alternatives to clients, and critically apply the concepts of proportionality and justification in recommending litigation, settlement, or ADR for SQE2 scenarios.

SQE2 Syllabus

For SQE2, you are required to understand how to assess the costs, benefits, and proportionality of different dispute resolution options (including litigation and alternatives). Particular focus should be given to:

• the meaning and application of proportionality in procedure and case management decisions
• evaluating procedural and non-procedural options in light of cost, benefit, risk, and proportionality
• advising clients effectively on whether litigation, negotiation or ADR is justified and in their best interests
• presenting recommendations and risk assessments in accordance with legal, ethical, and professional standards.

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. Which of the following would be most likely to breach the principle of proportionality in civil litigation?
   1. Spending £40,000 pursuing a £2,000 claim
   2. Recommending mediation to resolve a high-value, complex claim
   3. Settling a claim to avoid additional legal costs
   4. Discontinuing a weak case to reduce ongoing expense
2. In advising a client whether to proceed to trial or settle, which factors should you primarily consider under the costs–benefit and proportionality test?
   1. Only the potential compensation
   2. The costs, likely outcomes, risk of losing, and impact on the client
   3. The court’s preference for ADR alone
   4. Whether the client wants “their day in court” regardless of expense

3. Define 'proportionality' as it applies to civil procedure and explain its effect on cost assessment and case progression.

4. True or false? You must always advise your client to litigate if your client’s case has a reasonable prospect of success, regardless of proportionality.

Introduction

Understanding the balance between cost, benefit, and proportionality is essential when advising clients on pursuing, defending, or settling disputes. Legal professionals must weigh the options and justify recommendations to clients and courts, ensuring actions taken and costs incurred are reasonable in relation to what is at stake.

Costs–benefit analysis: Overview

A core part of your role is to consider whether the benefits of each available option outweigh their respective costs and risks. This is relevant at every decision point—from initial instructions and pre-action negotiations through to trial or settlement.

Key Term: costs–benefit analysis
A structured assessment comparing the costs, potential advantages, risks, and downsides of a proposed course of action, guiding whether to proceed, settle, or use alternatives.

Proportionality in Procedure

Proportionality is a central requirement of both the Civil Procedure Rules (CPR) and professional standards. The overriding objective (CPR 1.1) requires that cases be dealt with justly and at proportionate cost, considering the complexity, value, and importance of the matter, as well as each party's resources.

Key Term: proportionality
The requirement that steps taken and costs incurred in litigation must be reasonable and justified relative to the value, complexity, and importance of the case.

Costs

Courts have extensive powers to control costs and to sanction parties for costs that are not justified by proportionality (see CPR 44.3). Legal professionals must explain to clients the likely costs, funding options, and risks, including the possibility of adverse costs orders. Recommended actions should only be advised if the anticipated benefit reasonably outweighs the financial and other burdens.

Advising Clients on Procedure and Alternatives

Clients must be presented with all viable options, including negotiation, mediation, and litigation. It is your responsibility to evaluate each route, highlight its associated costs and benefits, and clearly recommend the most suitable course based on proportionality and risk.

Key Term: alternative dispute resolution (ADR)
Any method of resolving disputes outside of court, including negotiation, mediation, arbitration, or conciliation.

Key Term: settlement risk
The risks that may arise if a case is settled prematurely or on unfavourable terms, such as continuing risk exposure, reputational harm, or incomplete resolution.

Decision Factors: What Must You Consider?

When advising on whether to proceed, settle, or choose ADR, weigh:

• The value of the dispute relative to likely costs
• The merits and weaknesses of the case
• The likelihood of success or resolution
• The impact of litigation or settlement on the client’s business or personal situation
• The time and emotional strain involved
• Any risks of adverse costs or enforcement difficulty
• The alternative options available

Worked Example 1.1

A claimant is considering taking a breach of contract claim valued at £6,000 to trial. Legal fees for a full trial are estimated at £9,000 and the defendant is likely to contest liability. The client wants to avoid risk where possible. Should you recommend litigation, settlement, or ADR?

Answer:
Based on costs exceeding claim value and significant risk, pursuing litigation would likely fail the proportionality test. ADR or a negotiated settlement should be recommended, provided the client is aware that accepting an early settlement may require compromising on the claim’s full value.

Worked Example 1.2

You act for a defendant offered a mediation to settle a £150,000 commercial dispute. Mediation costs estimated at £3,500 per party. The legal fees to take the dispute to trial may exceed £50,000 and trial could take up to eighteen months. The case raises complex technical arguments and both parties express an interest in maintaining future business relations.

Answer:
Mediation is proportionate given its relatively low cost and the fact that settlement, if achieved, conserves resources and time. Preserving a future relationship is a clear benefit. Advising refusal to mediate would be hard to justify on a proportionality or costs–benefit analysis and may attract the court’s disapproval on costs.

Exam Warning

When advising on whether to litigate, negotiate, or use ADR, you must justify your advice in writing. If you recommend litigation, you should set out how the likely benefits strongly outweigh the costs and risks. Failure to consider proportionality may result in a breach of SRA and CPR obligations and may result in costs sanctions or misconduct findings.

Professional Conduct and Client Care

You must provide clients, at the outset and as matters progress, with up-to-date information on expected costs and proportionality. This includes advising on prospects of success, the risk of adverse costs, risk of non-recovery, and the likely time involved. Cases where costs outweigh possible benefit or where a low-value issue attracts a disproportionate sum in costs should only be litigated in exceptional circumstances.

Key Term: adverse costs
The requirement to pay the other side’s legal costs if a party's claim or defence is unsuccessful or unreasonably pursued.

Key Term: funding options
Ways to pay for litigation or settlement, such as private fees, conditional fee agreements, damages-based agreements, or legal expenses insurance.

Key Term: justification
The process of providing legally and ethically sound reasons for a decision, such as proceeding to trial rather than settling, particularly where cost and proportionality are in issue.

Revision Tip

For exam scenarios involving costs–benefit and proportionality, always: 1) quantify estimated costs, 2) state the value and importance of the dispute, 3) compare costs to benefits, 4) record alternative routes considered and reasons for recommendation.

Key Point Checklist

This article has covered the following key knowledge points:

• Proportionality requires that steps taken and costs incurred are justified in relation to case value and importance.
• Legal professionals must perform a costs–benefit analysis at each decision stage for litigation, settlement, and ADR.
• Clients must be given clear, reasoned advice on procedure and alternatives, based on costs, benefits, and risks.
• Justification for pursuing or not pursuing litigation must be documented and explained to meet professional and regulatory standards.
• Ignoring proportionality or failing to present alternatives may result in costs sanctions or professional breaches.

Key Terms and Concepts

• costs–benefit analysis
• proportionality
• alternative dispute resolution (ADR)
• settlement risk
• adverse costs
• funding options
• justification