Kerry Underwood

COSTS MANAGEMENT ORDERS & COSTS BUDGETING: REVISED

with 9 comments


 

Much of the material in this piece was prepared by my business partner Robert Males

Costs Management Orders

Simon Gibbs – simon.gibbs@gwslaw.co.uk – said on 11 February 2015: “Costs budgeting is already proving to be an expensive and counter-productive experiment.” Many share that view.

Nevertheless there is pressure for costs budgeting to spread, to Court of Protection cases as referred to in the judgement of Mr Justice Peter Jackson in A and B (Court of Protections: Delay and Costs) [2014] EWCOP 8 and in the Family Court – see the judgment in J v J [2014] EWHC 3654 (Fam).

Costs Management Orders were introduced following a pilot that ran in the Technology and Construction Courts and the Mercantile Courts from 1 October 2011 to 31 March 2013. See here for Costs Management Pilot Final Report of 1 May 2013.

Costs Management Orders were to apply to all multi-track cases commenced on or after 1 April 2013 in the County Court, Chancery Division and Queen’s Bench Division, except the Admiralty and Commercial Courts, unless the proceedings are the subject of fixed costs or scale costs or the court orders otherwise, and to any other proceedings where the court so orders (CPR3.12(1)).

When costs budgeting came in in April 2013 only claims under £2 million had to be budgeted for; that figure was subsequently raised to £10 million.

Subject to the limited exceptions, it is envisaged that costs management orders would be made in all cases except where there is good reason not to do so. Even when the exceptions in the rule and the direction apply, the use of costs management should always be considered.

CPR 3 is divided in to sections, the first containing current rules on case management (CPR3.1 to 3.11) the second containing new rules on costs management (CPR3.12 to 3.18) and the third containing rules on costs capping (CPR3.19 to 3.21).

CPR 3.12(3) states that the “purpose of costs management is that the court should manage both the steps to be taken and the costs to be incurred by the parties to any proceedings so as to further the overriding objective”.

Under the pilot scheme solicitors were expected to liaise monthly to check that their respective budgets are not being exceeded (paragraph 5.5).

Unless the court orders otherwise, all parties except litigants in person must file and exchange costs budgets in precedent H within 28 days of the date specified in the court notice, or no later than seven days before the case management conference (CPR 3.13).

In Civil Recovery Proceedings Precedent H is no longer to be used. It is replaced by the Precedent for Estimate of Costs in Relation to Civil Recovery (Precedent Q). See Practice Direction – Civil Recovery Proceedings.

The court may at any time make a Costs Management Order to control the parties’ budgets in respect of recoverable costs. The order will record the extent to which the budgets are agreed, and, where not agreed, record the court’s approval after making appropriate revisions. It will be kept under review throughout the case. (CPR3.16(1)).

Any hearing which is convened solely for the purpose of costs management, for example, to approve a revised budget, is referred to as a costs management conference (CPR3.16(1)).

Where practicable, costs management conferences should be conducted by telephone or in writing. (CPR3.16(2)).

The presumption is in favour of the court making an order, but even where this does not happen the court, in making any case management decision, will have regard to any available budgets of the parties and will take in to account the costs involved in each procedural step. (CPR3.17).

CPR 3.13 states:

“Unless the court otherwise orders, all parties except litigants in person must file and exchange budgets as required by the rules or as the court otherwise directs. Each party must do so by the date specified in the notice served under rule 26.3(1) or, if no such date is specified, seven days before the first case management conference.”

In any case where a costs management order has been made, when assessing costs on the standard basis, the court will

(a) have regard to the receiving party’s last approved or agreed budget for each phase of the proceedings; and

(b) not depart from such approved or agreed budget unless satisfied that there is a good reason to do so. (CPR3.18).

Costs Judge Master Haworth has stated, correctly in my view, that if costs budgeting is done properly:

“detailed assessment will become redundant and I will be able to spend my time fishing.”

Each party must file their costs budget ‘by the date specified in the notice served under rule 26.3(1) or, if no such date is specified, seven days before the first case management conference.’ (3.13)

The notice served under rule 26.3(1) is the notice of allocation:

“26.3

(1) If a defendant files a defence –

(a) a court officer will –

(i) provisionally decide the track which appears to be most suitable for the claim; and

(ii) serve on each party a notice of proposed allocation…”

The court failing to specify a date in the notice of allocation to file a costs budget is not a reason to fail to file a Precedent H, as set out in Aliasghar Porbanderwalla v Daybridge Limited (30/1/2014 HHJ) Worster Birmingham CC.

When completing the Directions Questionnaire (Form N181) in a multi-track claim section H in relation to costs prompts you to consider drafting Precedent H by stating:

‘If your claim is likely to be allocated to the Multi-Track form Precedent H must be filed at in accordance with CPR 3.13.’

You are then prompted to tick a box confirming that you have attached Precedent H to your Directions Questionnaire. Arguably the court is making a specific order in the Questionnaire requiring parties to file and exchange at the same time as completing the Questionnaire.

Paragraph 6 of Practice Direction 3E sets out the following guidance on the budget format:

‘Unless the court otherwise orders, a budget must be in the form of Precedent H annexed to this Practice Direction. It must be in landscape format with an easily legible typeface. In substantial cases, the court may direct that budgets be limited initially to part only of the proceedings and subsequently extended to cover the whole proceedings. A budget must be dated and verified by a statement of truth signed by a senior legal representative of the party. In cases where a party’s budgeted costs do not exceed £25,000, there is no obligation on that party to complete more than the first page of Precedent H.

COSTS BUDGETS AND PRECEDENT H: PRACTICAL GUIDANCE

 

The Civil Procedure (Amendment) Rules 2013 (SI 2013/262) brought in the amendments to Part 3 of the Civil Procedure Rules which introduced the court’s costs management powers and the requirement for all parties except litigants in person to file and exchange costs budgets.

On 22 April 2014 the Civil Procedure (Amendment No 4) Rules 2014 (SI 2014 No 867) came in to force and amended CPR 3.12(1) to read:

“This Section and Practice Direction 3E applies to all Part 7 multi-track cases……”

This confirms that the costs management provisions, including costs budgets, do not automatically apply to Part 8 claims.  Those provisions will only apply if the court makes a positive order that they should, as expressly confirmed by Rule 3.12 (1A).

Unless the court otherwise orders, all parties except litigants in person must file and exchange budgets as required by the rules or as the court otherwise directs. (3.13)

Costs budgets must be filed and exchanged in all Part 7 multi-track cases with a value of less than £10 million, other than where the proceedings are the subject of fixed costs or scale costs or where the court otherwise orders (3.12).

In any case where the parties are not required by the rules to file and exchange costs budgets, the court still has a discretion to make an order requiring them to do so. (Practice Direction 3E, paragraph 2)

Filing and Exchanging Budgets

Each party must file their costs budget ‘by the date specified in the notice served under rule 26.3(1) or, if no such date is specified, seven days before the first case management conference.’ (3.13)

The notice served under rule 26.3(1) is the notice of allocation:

“26.3

  • If a defendant files a defence –

(a) a court officer will –

(i) provisionally decide the track which appears to be most suitable for the claim; and

(ii) serve on each party a notice of proposed allocation…”

The court failing to specify a date in the notice of allocation to file a costs budget is not a reason to fail to file a Precedent H, as set out in Aliasghar Porbanderwalla v Daybridge Limited (30/1/2014 HHJ) Worster Birmingham CC.

When completing the Directions Questionnaire (Form N181) in a multi-track claim section H in relation to costs prompts you to consider drafting Precedent H by stating:

‘If your claim is likely to be allocated to the Multi-Track form Precedent H must be filed at in accordance with CPR 3.13.’

You are then prompted to tick a box confirming that you have attached Precedent H to your Directions Questionnaire. Arguably the court is making a specific order in the Questionnaire requiring parties to file and exchange at the same time as completing the Questionnaire.

If there is any doubt as to whether you should file Precedent H then you should file Precedent H; this is the safest option.

Paragraph 6 of Practice Direction 3E sets out the following guidance on the budget format:

‘Unless the court otherwise orders, a budget must be in the form of Precedent H annexed to this Practice Direction. It must be in landscape format with an easily legible typeface. In substantial cases, the court may direct that budgets be limited initially to part only of the proceedings and subsequently extended to cover the whole proceedings. A budget must be dated and verified by a statement of truth signed by a senior legal representative of the party. In cases where a party’s budgeted costs do not exceed £25,000, there is no obligation on that party to complete more than the first page of Precedent H.’

Failure to File a Budget

The draconian consequences of failing to file Precedent H when required are well documented in the case of Mitchell MP v News Group Newspapers Ltd [2013] EWCA Civ 1537 and are set out clearly in rule 3.14, which states:

 

Unless the court otherwise orders, any party which fails to file a budget despite being required to do so will be treated as having filed a budget comprising only the applicable court fees.’

Note that from 6 April 2015 this rule is modified where a defaulting party is successful in relation to its own Part 36 offer. It can then get 50% of its costs.

Cases in which the offeror’s costs have been limited to court fees

36.23.—(1) This rule applies in any case where the offeror is treated as having filed a costs budget limited to applicable court fees, or is otherwise limited in their recovery of costs to such fees.

(Rule 3.14 provides that a litigant may be treated as having filed a budget limited to court fees for failure to file a budget.)

(2) “Costs” in rules 36.13(5)(b), 36.17(3)(a) and 36.17(4)(b) shall mean—

(a) in respect of those costs subject to any such limitation, 50% of the costs assessed without reference to the limitation; together with

(b) any other recoverable costs.”

FAILURE TO SERVE COSTS SCHEDULE

In Simpson MGN Ltd v Ward [2015] EWHC 126 (QB)

the court reduced the claimant’s costs by 10% due to the failure to serve a Costs Schedule on the defendant in accordance with PD 44, paragraph 9.5(4).

Drafting Precedent H

 

The deceptively simple looking Precedent H form, a self-calculating Excel spreadsheet, is available in Practice Direction 3E together with the Guidance Notes on Precedent H.

If the estimated costs do not exceed £25,000.00 then only the first page needs completing and the matter will then be dealt with by way of provisional assessment at the end of the case, although to fill out the first page of Precedent H you will effectively have to prepare the entire nine pages of the spreadsheet.

Prior to the introduction of Form H Lord Justice Jackson estimated that it would take two hours to complete. However it is important not to treat drafting a Precedent H as simply a form filing exercise; any mistakes in your budget are likely to be costly ones.

Precedent H breaks down the costs into the following stages of litigation:

  • Pre-Action Costs;
  • Issue /statements of case;
  • CMC;
  • Disclosure;
  • Witness statements;
  • Expert Reports;
  • PTR;
  • Trial Preparation;
  • Trial;
  • ADR/ Settlement discussions; and
  • Contingent costs.

The Guidance Notes on Precedent H provide the only explanation of what each phase of work should include and this guidance is limited.

Pre-Action Costs

 

The Guidance Notes on Precedent H state that the following work is included in Pre-Action Costs:

  • Pre-Action Protocol correspondence
  • Investigating the merits of the claim and advising client
  • Considering ADR, advising on settlement and Part 36 offers
  • All other steps taken and advice given pre-action

Pre-Action costs do not include any work incurred in relation to any other phase of the budget and this is made clear in the Guidance Notes.

There is a temptation to lump all pre-action work under the pre-action section of the Precedent H. However much pre-action work in fact comes under other sections of the Precedent H; for example, in order to issue the claim you would almost certainly have had to draft a claim form and this would come under Statements of Case. Likewise, it is likely that you will have drafted witness statements and instructed medical experts prior to issuing a claim.

Issue/Statements of Case

 

  • Preparation of Claim Form
  • Issue and service of proceedings
  • Preparation of Particulars of Claim, Defence, Reply, including taking instructions, instructing
  • counsel and any necessary investigation
  • Considering opposing statements of case and advising client
  • Part 18 requests (request and answer)
  • Any conferences with counsel primarily relating to statements of case

This phase does not include amendments to Statements of Case.

Case Management Conference

 

  • Completion of AQs
  • Arranging a CMC
  • Preparation of costs budget for first CMC and reviewing opponent’s budget
  • Correspondence with opponents to agree directions and budgets, where possible
  • Preparation for, and attendance at, the CMC
  • Finalising the order

This phase does not include any subsequent CMCs.

Disclosure

 

  • Obtaining documents from client and advising on disclosure obligations
  • Reviewing documents for disclosure, preparing disclosure report or questionnaire response and list
  • Inspection
  • Reviewing opponent’s list and documents, undertaking any appropriate investigations
  • Correspondence between parties about the
  • scope of disclosure and queries arising
  • Consulting counsel, so far as appropriate, in relation to disclosure

This does not include applications for specific disclosure or applications and requests for third party disclosure.

Witness statements

 

  • Identifying witnesses
  • Obtaining statements
  • Preparing witness summaries
  • Consulting counsel, so far as appropriate, about witness statements
  • Reviewing opponent’s statements and undertaking any appropriate investigations
  • Applications for witness summaries

This does not include arranging for witnesses to attend trial, as this should be included in trial preparation.

Expert Reports

 

  • Identifying and engaging suitable expert(s)
  • Reviewing draft and approving report(s)
  • Dealing with follow-up questions of experts
  • Considering opposing experts’ reports
  • Meetings of experts (preparing agenda etc)

This does not include obtaining permission to adduce expert evidence (include in CMC or as separate application) or arranging for experts to attend trial (include in trial preparation).

PTR

 

  • Bundle
  • Preparation of updated costs budgets and reviewing opponent’s budget
  • Preparing and agreeing chronology, case summary and dramatis personae (if ordered and not already prepared earlier in case)
  • Completing and filing pre-trial checklists
  • Correspondence with opponents to agree directions and costs budgets, if possible
  • Attendance at the PTR

This does not include assembling and/or copying the bundle as this is not fee earners’ work.

Trial Preparation

 

  • Trial bundles
  • Witness summonses, and arranging for witnesses to attend trial
  • Any final factual investigations
  • Supplemental disclosure and statements (if required)
  • Agreeing brief fee
  • Any pre trial conferences and advice from Counsel
  • Pre-trial liaison with witnesses

This does not include assembling and/or copying the trial bundle as this is not fee earners’ work.

Trial

 

  • Solicitors’ attendance at trial
  • All conferences and other activity outside court hours during the trial
  • Attendance on witnesses during the trial
  • Counsel’s brief fee and any refreshers
  • Dealing with draft judgment and related applications

 

This does not include preparation for trial, as this should be included in the trial preparation phase, or agreeing brief fee.

 

ADR/Settlement discussions

 

  • Settlement negotiations, including Part 36 and other offers and advising the client
  • Drafting settlement agreement or Tomlin order
  • Advice to the client on settlement (excluding advice included in the pre-action phase)

This does not include mediation as this should be included as a contingency.

Presumably this should also not include any advice on Part 36 offers or consideration of ADR that occurred pre-issue as this should come under the pre-action phase, although the Guidance Notes are far from clear on this.

Contingent costs

 

The only guidance provided on contingent costs is at the bottom of the Guidance Notes on Precedent H as follows:

‘The ‘contingent cost’ sections of this form should be used for anticipated costs which do not fall within the main categories set out in this form. Examples might be the trial of preliminary issues, a mediation, applications to amend, applications for disclosure against third parties or (in libel cases) applications re meaning. Costs which are not anticipated but which become necessary later are dealt with in paragraph 4.7 of the Practice Direction.’

However it is clear from this that contingent costs are anticipated costs, that is costs that are an actual and real possibility rather than costs that might arise at some indistinct point in the future. Contingent costs are not an ‘everything but the kitchen sink’ scenario.

In Tim Yeo MP v Times Newspapers Limited [2015] EWHC 209 (QB) the Queen’s Bench Division of the High Court said

“70. The first point to make about contingencies is that they must involve work that does not fall within the main categories on Precedent H. Secondly, in order for work to qualify as a contingency it must be possible to identify to the opposite party and the court what that work would be. Otherwise it would be impossible to determine whether the work falls within or outside a specified category, and it is hard to see how any assessment could be made of what its cost would be. Thirdly, there is the important issue of how likely it needs to be that the work will be required, before it can properly be included as a contingency. Mr Browne submitted that the test should be whether the work was “reasonably likely” at the time the budget was approved.

  1. In my judgment work should be included as a contingency only if it is foreseen as more likely than not to be required. This seems to me a clear criterion that provides a practical solution, consistent with PD3E 7.4 and 7.9. If work that falls outside one of the main categories is not thought probable, it can reasonably and should be excluded from the budget. The time and costs involved in estimating how much work would cost are not easily justified if the work is no more than a possibility or is unlikely. If work identified as a contingency is included in a budget but not considered probable by the court no budget for it should be approved. If the improbable occurs, in the form of an unexpected interim application, the costs will be added to the budget pursuant to PD3E 7.9, unless the matter involves a “significant development” within para 7.4 in which case, if time permits, a revised budget should be prepared and agreed or approved.”

This is further highlighted by paragraph 7.6 of Practice Direction 3E:

‘Each party shall revise its budget in respect of future costs upwards or downwards, if significant developments in the litigation warrant such revisions.’ (My emphasis.)

Therefore if some unforeseen event occurs which requires additional costs to be incurred which were not envisaged when the Precedent H was drafted then parties have the ability to revise their budgets accordingly and should submit their revised budgets to the other parties for agreement.

Assumptions

 

These should concisely set out on what assumptions you have based your figures in the Precedent H in relation to each phase.

Statement of Truth

 

The statement of truth on Precedent H reads as follows:

‘This budget is a fair and accurate statement of incurred and estimated costs which it would be reasonable and proportionate for my client to incur in this litigation.’

This statement of truth ‘must be dated and verified by a statement of truth signed by a senior legal representative of the party.’ (Practice Direction 3E)

Estimated Costs

 

There is no guidance provided on how to go about calculating the future costs of a case. This is therefore a case of using your common sense and experience while taking into consideration the individual case and proportionality and should be done by somebody who is intimately familiar with the case, usually the file handler. There is little point in putting down excessive estimated costs in a claim that is only worth, say £30,000.00.

The estimate must deal with both costs and disbursements, both incurred and anticipated. As well as considering whether the amount of time spent by lawyers is necessary the courts are expected to subject to specific scrutiny the need for experts and their fees and the volume of documents.  Professor Dominic Regan advises:

“If you are looking to involve expensive experts you ought to consider seeking tenders. Let them pitch for and give quotations.”

Incidentally, it is clear that many judges are as lacking in guidance in relation to Precedent H as lawyers are and are simply not dealing with costs budgeting.

Master Gordon-Saker, the new senior costs judge, has stated that many judges do not have the “faintest idea” in relation to costs budgeting and that “for judges required to do something completely alien it’s a difficult task to give them the education and confidence to do it properly.”

How puzzling all these changes are! I’m never sure what I’m going to be, from one minute to another.”

 

  • Lewis Carroll, Alice’s Adventures in Wonderland

COMMENTS

It is most important to bear in mind that the budget relates to recoverable costs; it does not in any shape or form limit the amount chargeable to one’s own client, that sum being governed by the solicitor and own client retainer, which need bear no relation to recoverable costs.

Typically the arrangement with the client will provide for a greater sum to be charged to the client than is recovered, that being the difference between the solicitor and own client hourly rate and the between the parties hourly rate. This difference may or may not be capped by reference to damages, but unless the solicitor is stupid enough to have a lower charge to the client than appears in the budget, the indemnity principle has no application whatsoever to the budget.

It is true that an overspend on one part of the budget cannot be absorbed by an underspend on another part of the budget, but that is nothing at all to do with the indemnity principle, but rather because of CPR 3.18:

“In any case where a costs management order has been made, when assessing costs on the standard basis, the court will –

  • have regard to the receiving party’s last approved or agreed budget for each phase of the proceedings; and
  • not depart from such approved or agreed budget unless satisfied that there is good reason to do so.”

Thus the budget creates a cap on recoverability for each phase of the proceedings, not just a global cap, but none of this prevents the solicitor charging the client whatever has been agreed.

Obviously if the budget provides for 20 hours work, but only 15 hours is done, then the solicitor can only recover 15 hours work from the other side and only 15 hours from the client. That is nothing to do with the indemnity principle; rather it is the law against fraud.

Any problems with the indemnity principle are solved by the simple, standard, practice of having a solicitor and own client indemnity rate well above the between-the-parties recoverable rate.

Many commentators have got this wrong in the sense that they correctly state that you cannot operate a “swings and roundabouts” policy, but incorrectly ascribe this to the indemnity principle.

I am very happy that the esteemed Simon Gibbs – simon.gibbs@gwslaw.co.uk – shares this view.

As we will see below a losing party which is ordered to pay costs on an indemnity basis, for example because a claimant has matched or beaten at trial its Part 36 offer, is in for a nasty over-budget shock, especially if the claimant is represented in a commercial case under a Damages-Based Agreement.

The phase by phase approach also fails to recognize that law is an art and not a science. Lord Woolf, with his fixing of costs by reference to the stage reached, realised this.

The budget method is by reference to the type of work, not the stage reached. There is enormous scope for allocating vague, continuing activities such as consideration of quantum, to any phase which has an apparent underspend.

The recoverable costs for preparing the budget are the higher of £1,000 or 1% of the approved budget and for dealing with all budgetary matters through the life of the case, but not assessment, 2% of the approved budget.

In Smales v Lea and Others [2011] EWCA Civ 1325, the Court of Appeal again drew attention to CPR 52 Practice Direction emphasising the need to include only those documents specifically required with all extraneous material to be excluded. The Court of Appeal said that in future it would consider imposing sanctions on solicitors who failed to exclude irrelevant documents. Very few documents now need to be supplied on provisional assessment, just the bill, points of dispute, replies, costs orders and fee notes.

The judge will consider the budgets and may make a Cost Management Order approving the budget, or a revised version of it. If it turns out to be no longer accurate the parties must produce a revised budget showing the departures from budget and the reasons for such departures.

Detailed assessment still occurs at the end of such a case provided that the bill for assessment exceeds £75,000. If it does not exceed that sum, then it will be subject to paper assessment in the first instance. The Costs Management Order cannot approve costs incurred up to that point, but can make comments on them. In regard to costs incurred in accordance with an approval budget the court, on detailed assessment, will not depart from the budgeted figure unless for good reason.

It is not clear how this ties in with proportionality. The Costs management process implies that once the court has decided that certain steps in litigation re reasonable, the full cost of undertaking that work will be recoverable.  This is because the judge on assessment will not normally depart from the approved budget.

The proportionality test means that a judge on detailed assessment may determine that, despite a certain step within the litigation being deemed reasonable, the full cost of that work may not be recovered once the ‘global basis’ test is applied.

If the total figures are not proportionate, then the judge will only approve budget figures for each party which are proportionate.  Thereafter if the parties choose to press on and incur costs in excess of the budget, they will be litigating in part at their own expense.  It will be important for judges to apply the test consistently and for parties and their lawyers to be aware of the impact on recoverable costs.

However, there will be those who wonder what the point is of expensive and time consuming costs management and detailed assessment hearings to determine what costs are reasonable, if at the end, the judge can then knock the figure down further, on an apparently arbitrary basis.

The Costs Management Order will be based on the party’s budget, but the court can make appropriate revisions at the Case Management Conference and as the case progresses.

PROBLEMS WITH PRECEDENT H

I set out below an example of some of the problems raised by Precedent H, although this list is not exhaustive.

  • The document is not programmed properly. Changes to the entries for the claim number, party’s names and the Court will change across all 5 pages if 1 page is changed. The information relating to fee earners, disbursements and details about counsel has to be changed manually on every page.
  • The document is colour coded in a way that is counter intuitive so it is not clear where figures for disbursements should be entered. This has to be dealt with by trial and error and further adjustment of formulas to ensure that the correct totals are arrived at.
  • Administrative issues add a significant amount of time to the task of preparing the costs budget which could have been avoided with a few more hours work of testing the document before making it available. Our estimate is that this added at least 1 hours work.
  • The categories are overly simplistic given they are meant to cover all aspects of a claim:
    For example medical records. Do they go under ‘experts reports’ or ‘disclosure’?
  • ‘Quantum’ does not feature anywhere in the guidance.
  • There is little interplay between the format and categories of Precedent H and a Bill of Costs, although the development of the J-Codes and the planned new format of a Bill of Costs will (eventually) resolve this problem.
  • An entire phase of the Precedent H is dedicated to work on Settlement which includes, quite obviously, Part 36 offers. Yet the penultimate bullet point of work included in Pre-action states that “advising on settlement and Part 36 offers” should be included in Pre-action costs. Furthermore the guidance on the Settlement phase of the Precedent H states that this phase includes “advice to the client on settlement (excluding advice included in the pre-action phase).” This seems an arbitrary and unnecessary distinction; why not include all advice on settlement, whether pre-action or post-issue, under Settlement?

If I had a world of my own, everything would be nonsense. Nothing would be what it is, because everything would be what it isn’t.”

 

  • Lewis Carroll, Alice Through the Looking Glass

On 1 October 2015 CPR 47.6 was amended to provide that the documents to be served when commencing detailed assessment include “if a costs management order has been made, a breakdown of costs claimed for each phase of the proceedings.”

Simon Gibbs points out that the Rules Committee appears to have overlooked Practice Direction 44, paragraph 3.4:-

“On an assessment of the costs of a party, the court … may have regard to any other budget previously filed by that party, or by any other party in the same proceedings. Such other budgets may be taken into account when assessing the reasonableness and proportionality of any costs claimed.”

There should be a need for a breakdown by phase whenever a budget has been served, regardless of whether a costs management order has been made.

Simon Gibbs points out the problems of serving a breakdown of costs by phase:-

“Firstly, to prepare a breakdown by phase requires either the fee earner to have accurately recorded all work by phase (highly unlikely), as the case progressed, or the costs draftsman preparing the Bill to allocate each routine communication and unit of work to the appropriate phase. Once this work has been undertaken, it is surely almost as simple to simply draft the Bill itself by phase. Why force the receiving party to do all the hard work and then not require the small additional step to be undertaken to complete the process?

Secondly, is there seriously anyone on the Rules Committee naïve enough to think that were a party discovers they are over on some phases but under on others that they will not be tempted to shift some of the work over into other phases of the breakdown in the knowledge it will be an extremely difficult task for the paying party to cross-check the accuracy against the non-phased Bill?

Thirdly, what is a judge on assessment meant to do with a breakdown showing a party has gone over for some phases but where the Bill itself is not drafted by phase? Presumably they will go through the Bill in the normal way applying reductions in the ordinary manner, but then what? How are they to tell whether they have now reduced some phases below that approved by a costs management order (which normally should not happen) or whether they are still over on others and further reductions are required? Are the advocates at the assessment meant to adjourn and work out which reductions have been made to each phase before going back before the judge to consider whether he needs to increase or decrease further? Has the slightest thought been given as to how long this would take (not to mention the problems trying to apportion routine communications to any particular phase)?”

As is obvious I am grateful to Simon Gibbs for much of what appears above

 

DBAs AND COSTS BUDGETING: CURIOUSER AND CURIOUSER

The Civil Procedure Rules dealing with costs management and costs budgeting are entirely silent on the interplay with Damages-Based Agreements (DBAs).

I simply have no idea how a solicitor acting under a DBA is meant to prepare a costs budget.

There are at least three options, the apportionment one and the ordinary one, and the fixed fee one.

Let us take a case worth £100,000 with a DBA with a figure of 50% of damages recovered as the fee, that being the maximum allowed in a non-personal injury or non-employment matter.

Thus the maximum fee is £50,000.  For simplicity’s sake let us assume ten relevant sections of Form H and where the solicitor estimates the costs of £10,000 for each stage, but knowing that, due to the indemnity principle, no more than £50,000 can ever be recovered.

One approach – the apportionment one – is for the solicitor to halve each component, so that although the court may have awarded £10,000 for pre-action work, the solicitor will only be able to claim £5,000.  That would be unwise as obviously the claim may settle before £50,000 worth of between the parties costs have been incurred, so why artificially limit yourself to less than that sum?

By putting in the full amount the solicitor will get paid the correct sum if the case settles within the first five stages.  Of course it means that if the case goes beyond Stage 5 the solicitor is earning nothing, but that is the reality anyway – once the solicitor has done work equal to half of the damages he or she is working pro bono.

Furthermore if the apportionment method is used one’s own client has an obvious complaint against the solicitor.  Let us assume that the case settles at the end of Stage 5 and thus the solicitor, limited by the costs budget, receives £25,000 from the losing side and charges the client the balance of £25,000.  The client has every right to point out that he is £25,000 out of pocket compared with the situation if the solicitor had put the full, arguably correct, sum in for each stage.

An alternative is to put the full sum in for each stage, accepting that however much that comes to the actual recoverable costs will never exceed £50,000.

Obviously it would be entirely wrong artificially to front load costs to ensure maximum between the parties costs whenever the matter settles……….

The third option is to state that whatever stage the case reaches the fee is a sum equivalent to 50% of the damages and that that is the sum sought from the other side.  I advise against this as generally the judiciary are wedded to hourly rates, in spite of the clear will of Parliament that other funding options should be available.  Strictly, in my view, this is the correct option.  The client is paying a fixed lump sum and the indemnity principle means that the claimant solicitor should neither seek £5,000 or £10,000 for any given stage as the client is not liable for any sum for any given stage.

What seems to me to be crystal clear is that a claimant who matches or beats its own Part 36 offer at trial gets the full 50% DBA fee, that is he or she gets costs on the indemnity basis.

The solicitor and own client costs are unquestionably 50% and thus costs on the indemnity basis are 50% of damages.

A paying party has no prospect of arguing that a method of payment approved by Parliament, with Parliament fixing the maximum percentage, is unreasonable.

A matter is approaching trial. The costs budget, regularly updated, shows that the winning claimant’s costs will be £300,000 on £1 million claim.

Can the claimant and solicitor switch to a 50% DBA, thus triggering costs of £500,000 if the claimant’s Part 36 offer is matched?

Yes, in my view, and there is nothing to stop parties entering in to a DBA at any stage. In all cases there will have been some investigative work before a DBA is entered in to.

Supposing, very early on in a DBA case a claimant succeeds in obtaining summary judgment with an order for indemnity costs. The same principle applies, that is a sum equal to 50% of damages for what may have been relatively little work, all fully recoverable.

Supposing, in a personal injury case funded by a DBA and with costs limited to 25%, including VAT, of damages, the claimant puts in a high costs budget and subsequently the defendant finds out that the matter is being conducted under a DBA and therefore the maximum that they would ever be liable for, including costs, is 125% of damages.

Could a defendant, having fought the matter to trial, argue that if it had known that the matter was conducted under a DBA it would have settled much earlier as it would know the limit of their costs?

Suppose in a DBA case the claimant has made an offer under Part 36 to settle the whole claim for, say £100,000, and that offer remains open; is it acceptable for the claimant to put in a budget of say, £75,000, knowing full well that s/he is valuing the claim at a sum which will result in far lower costs, a matter that the defendant cannot refer to at that stage because of the Without Prejudice nature of a Part 36 offer?

Can the defendant subsequently argue that if they had known that the claimant was acting under a DBA, then they would have accepted the Part 36 offer, knowing that the claimant’s costs would be limited to 25% in personal injury cases and 50% in all other cases, including VAT and counsel’s fees?

An obvious answer is to amend the Civil Procedure Rules to provide that a claimant should notify the defendant within seven days of the signing of a DBA that the matter is being conducted under a DBA.

Even these scenarios are not clear. A personal injury claimant, knowing full well that the full value of the claim is £100,000 may nevertheless want the costs budget to give a figure of well over £25,000 as the court might decide to make an award based on the claimant getting only 50% of budgeted costs because s/he has exaggerated.

Arguably the correct order is to still allow the claimant’s lawyer the full 25%. Thus damages are in fact £100,000 where the claim was for £500,000, and the court penalizes the claimant to the extent of 50% because of this exaggeration.

Let us assume that the agreed budget was £50,000. 50% of that is £25,000 and the claimant therefore recovers costs of £25,000, which is the maximum that s/he could have recovered in any event under a DBA.

These are all reasons why DBA means Don’t Touch with a Bargepole, although if you are a claimant you may fancy a late switch to a DBA.

CPR 52.9A: ORDERS TO LIMIT THE RECOVERABLE COSTS OF AN APPEAL

“(1) In any proceedings in which costs recovery is normally limited or excluded at first instance, an appeal court may make an order that the recoverable costs of an appeal will be limited to the extent which the court specifies.

  • In making such an order the court will have regard to –

(a) the means of both parties;

(b) all the circumstances of the case; and

(c) the need to facilitate access to justice.

  • If the appeal raises an issue of principle or practice upon which substantial sums may turn, it may not be appropriate to make an order under paragraph (1).
  • An application for such an order must be made as soon as practicable and will be determined without a hearing unless the court orders otherwise.”

In the process of costs management the court has no power to reduce the hourly rate that has been agreed by the client.  That can only be done on a Solicitors Act 1974 assessment, and indeed there is a body of opinion that holds that the court has no power at all, even on a Solicitors Act 1974 assessment, to reduce the hourly rate, but rather can only restrict the number of hours claimed for to that which is no unreasonable.  I disagree; my view is that the court has a free-standing jurisdiction as part of its supervisory role of solicitors in their capacity as Officers of the Court.

Thus a court has no costs management power to reduce the amount that may be charged to one’s own client.  Obviously the court does have power to reduce the amount to be charged to the other side; indeed that is the whole point of costs management, but any such decision will not affect the hourly rate chargeable on a solicitor and own client basis.

However that does beg the question as to what rate should go in the budget.  As the budget is to determine recoverability from the other side there is no need to put the full solicitor and own client rate in.  Although the judge cannot interfere with that rate as between solicitor and client he or she can reduce it insofar as it is a potential charge to the other side and a high solicitor and own client may alienate the judge.

Clearly the rate should be well above guideline hourly rates, both to reflect the fact that guideline hourly rates are only suitable for summary assessment and also to provide an additional award as specifically sanctioned by Parliament, if you achieve indemnity costs, normally because you have matched or beaten your own Part 36 offer at trial.

With no particular magic I suggest a figure of £350 per hour plus VAT.  Although guideline hourly rates have no application, this rate can be defended on the basis of the traditional expectation that a winning client would recover approximately two thirds of costs from the other side.  Thus taking a guideline hourly rate of £220, this procures a solicitor and own client rate of £330 which I have rounded up.

This is not the whole story as of course the guideline rate of £220 is for an eight year qualified solicitor and I am suggesting that the rate be applied as a single blended rate.

There has been much discussion as to whether one even needs to put that indemnity rate in the costs budget, or can simply put the ordinary between the parties’ rate, and as yet there has been no definitive answer, but no doubt we will have one soon.

Thus my advice is as follows:-

  1. Maintain a single rate of say £400 per hour plus VAT for the client.
  2. Insert in the costs budget a blended rate of £350 plus VAT and explain that is a rate that you consider reasonable, and is not the indemnity rate. In my view there is no need to state what the indemnity rate is.

In fact, because of the restriction on the sum that solicitors normally will be charging to the client – 25% of damages in personal injury matters, say 40% in commercial matters – the true hourly rate charged to the client will almost never be anything like £400 per hour.

In my experience, generally it will work out at around £200 per hour including costs recovered from the other side, in cases that are subject to portal costs or Fixed Recoverable Costs.

 

CASE LAW

High Court Guidance re Budgeting

In Tim Yeo MP v Times Newspapers Ltd [2015] EWHC 209 (QB)

The Queen’s Bench Division of the High Court made observations on costs budgeting saying:-

  • it should not be a lengthy exercise;
  • it was appropriate to use correspondence instead of skeleton arguments;
  • rates and projected hours may well need to be considered;
  • contingencies should only be included in the budget if they are reasonably likely to occur;
  • a budget may be for part, not all, of the action;
  • sometimes it should take place at an earlier stage than usual.

The court reminded the lawyers that “where practical, costs management conferences should be conducted by telephone or in writing”. (CPR 3.16(2))

In a case that goes to trial the successful party’s costs incurred before approval of the budget will normally need detailed assessment, in the absence of an agreement.

The court also said:-

“The court has power to give directions for the filing and exchange of budgets at an earlier stage than the CMC. This is so as part of its general powers of management but is reflected in CPR 3.13, which requires parties other than litigants in person to “file and exchange budgets as required by the rules or as the court otherwise directs”. If that power is exercised the general rule will apply, that the court will make a costs management order. An early costs budgeting process may be initiated by the court or by one of the parties.”

“If a budget is required at an early stage it need not be for the entire litigation.”

Practice Direction 3E 6 says:-

“In substantial cases, the court may direct that budgets be limited initially to part only of the proceedings and subsequently extended to cover the whole proceedings.”

Queen’s Bench Division Guidance

In Stocker v Stocker [2015] EWHC 1634 (QB)
the Queen’s Bench Division gave guidance on costs budgeting.
The court said that the starting point is to look at the global costs and that an approach based purely on financial proportionality might prevent litigants from fairly presenting their cases but, in most cases, it is vital for the court to control recoverable costs.

In this libel case the defendant’s costs were disproportionate to the issues at stake and were reduced, both on the grounds of proportionality and to ensure a “reasonably level playing field” between the parties.

The defendant’s estimated future costs were reduced from £330,000.00 to £197,000.00 and the judge said that it would be absurd to suggest that this was insufficient to allow a proper defence.

The following points were also decided:-

  • A party cannot claim the maximum allowed for the costs of preparing budgets and also include budgeting costs in the estimated or incurred figures.
  • “Improbable” contingencies were not allowed; if unexpected interim applications were necessary then they could be accommodated outside the budget.
  • Assumptions could be challenged. Thus the court ruled that a seven day trial would be sufficient rather than the 10 days budgeted for and, for example, that as Witness Statements should be in the witnesses’ own words an assistant solicitor should be able to do most of the work rather than a partner.

 

Examining and Considering Documents

 

In Imtec Inviron Ltd v Loppingdale Plant Ltd [2014] EWHC 4109 (TCC)

 

Mr Justice Edwards-Stuart, sitting in the Technology and Construction Court of the High Court, summarily assessed the Claimant’s costs on the standard basis exactly as claimed.

The case contains some interesting observations on costs. In dealing with the length of time taken to examine and consider documents the judge rejected the idea that the only factor was the length of document:-

“… it is the content of the material, not its quantity, that matters.” (Paragraph 7)

The paying party also complained about a claim for a partner reviewing and amending draft proceedings. The judge had this to say:-

“In my view, this is exactly what partners are there for: to consider documents prepared by junior solicitors and make any alterations or amendments that they think fit. That does not imply that the assistant solicitor has made mistakes, rather that the partner can suggest modifications or improvements that a partner’s experience can bring.” (Paragraph 8)

 

Items not in Budget

In Simpson MGN Ltd v Ward [2015] EWHC 126 (QB)

the court allowed the successful claimant costs in relation to applications which had not appeared in the claimant’s cost budget.

The court found that there was good reasons apart from the budget, in essence holding that this was a minor fault in the context of the whole litigation which had had no appreciable impact on the efficient conduct of the litigation.

Surveillance costs in budget

In Purser v Hibbs and Another, Queens Bench Division, 19 May 2015

the High Court held that it was not necessary for an allowance of surveillance to be included in a defendant’s costs budget and the note to the contrary in the current White Book is wrong.

Whereas most litigation is to be conducted on a cards-on-the-table basis some degree of cunning was required in the administration of surveillance evidence and the court would not wish to do anything to discourage the judicious use of such evidence, or to alert fraudsters to its use.

Thus the court directed under CPR 44.2 that the defendant should be allowed the reasonable cost of surveillance, on the indemnity basis, notwithstanding that those costs had not been listed in the costs budget.

Appeals Against Cost Management Orders

 

In Havenga v Gateshead NHS Foundation Trust [2014] EWHC B25 (QB)

the Queen’s Bench Division of the High Court refused an appeal against heavy cuts in the claimant’s budget in relation to a clinical negligence case.

The claim was worth over £5 million and liability had been agreed on a 75/25 basis in the claimant’s favour. At the cost budgeting hearing the District Judge reduced the claimant’s budget from £789,854.46 to £463,915.13.

The High Court held that appeals in relation to costs management orders are subject to the criteria in

Tanfern v Cameron MacDonald [2000] 1WLR 1311

that is that

“The appellate court should only interfere when they consider that the judge of the first instance has not merely preferred an imperfect solution which is different from an alternative imperfect solution which the Court of Appeal might or would adopt, but has exceeded the generous ambit within which a reasonable disagreement is possible.”

The appeal is limited to a review of the lower court’s decision and it is not the job of the appeal court to tinker with costs budgets.

Although the appeal court here would have been more generous than the District Judge the original budget was well within the generous ambit of the original judge’s discretion and thus there are no grounds to interfere with that decision on appeal.

Here the appellate judge refused to interfere even though he found “force” in the claimant’s submission, accepted the claimant’s propositions, thought that the judge had erred on the low side, “would have been more generous than the District Judge”, “would have been persuaded to allow somewhat more time” etc.

Appeal courts rarely interfere with case management decisions and it is clear that it would be very rare indeed for an appeal to court to interfere with a costs budget.

Discretion to Order Costs Budget

In Kershaw v Roberts [2014] EWHC 1037 (Ch)

the Chancery Division of the High Court held that the requirement to lodge a costs budget does not, and never did, apply to Part 8 proceedings and the White Book’s notes to the contrary are wrong.

The court has a discretion to order a costs management conference in such claims and in any event a costs budget will be necessary if the court transfers the claim to the Part 7 procedure and allocates it to the multi-track.

When costs budgeting came in in April 2013 only claims under £2 million had to be budgeted for; that figure was subsequently raised to £10 million.

In CIP Properties v Galliford Try Infrastructure Ltd and Others [2014] EWHC 3546 (TCC), the Technology and Construction Court, part of the High Court, held that it had a discretion to order budgets in cases involving over £10 million.

Mr Justice Coulson rejected the claimant’s argument that the court had no such discretion in such claims. He held that the claim was worth £18 million and the judge accepted that budgets are not automatically required in cases worth more than £10 million as proportionality is likely to be less relevant.

However he stated that costs budgets are “generally regarded as a good idea and a useful case management tool”, and that there should be no presumption against ordering them for higher value cases. Mr Justice Coulson said that he took into account “express advice” from the President of the Queen’s Bench Division that costs management should always be considered, even where not mandatory.

The judge also pointed out that ridged observance of the limits could “easily lead to the abuse of process” as claimants wanting to avoid the regime could simply make damages estimates £1.00 over the threshold. “This would then avoid any consideration at all by the court of the proposed costs, no matter how disproportionate or inflated they were.”

The claimants had submitted that there was no power to order budgets in such cases but the court relied on the wording of CPR 3.12 which excepts certain cases unless “the court otherwise orders”. Those words give the court a discretion to order costs budgeting in any case.

In GSK Project Management Ltd (In Liquidation) v QPR Holdings Ltd [2015] EWHC 2274 (TCC)

the Technology and Construction Court of the High Court reduced the claimant’s costs budget by half and followed the decision in

CIP Properties (AIPT) Ltd v Galliford Try Infrastructure Ltd [2015] EWHC 481 (TCC)

in selecting option 2, that is setting budget figures rather than ordering a new budget, declining to approve the budget or, taking into account pre-budget costs, refusing to allow any further costs.

The judge here quoted, with approval, part of the judgment in the case of

Gotch v Enelco Ltd [2015] EWHC 1802 (TCC) as follows:-

“61. I respectfully repeat and adopt the recent observations of Edwards-Stuart J in Gotch v Enelco Ltd [2015] EWHC 1802 (TCC), where he said:

“44. It is therefore time to say, in the clearest terms, that parties and their solicitors can no longer conduct litigation in a manner which does not keep the proportionality of the costs being incurred at the forefront of their minds at all times.

  1. It is no longer acceptable – if it ever was – for the parties to pursue issues or applications that have no real impact on the issues that are central to the dispute. Further, it is no longer acceptable for solicitors to carry on a war of attrition by correspondence, whether instructed to do so or not; it is the parties who are the subject of the duty in CPR 1.3, not merely their solicitors.
  1. […]
  1. Whilst English law is an adversarial process, that goes to the issues in the case: not to every aspect of the procedure. Parties to litigation, in the TCC at least, are expected to conduct that litigation in the manner that is most expedition [sic] and economical. Bringing the right issues to trial in the most economical fashion, and taking steps to ensure that the costs are kept at a level that is proportionate to what is at stake, is to be at the heart of the process.
  1. Unreasonableness, intransigence and the taking of every point must in my view now be regarded as unacceptable, because conducting litigation in that way flies in the face of the overriding objective as it is now formulated. These habits must disappear from the landscape of litigation in the TCC. If they do not, offending litigants must expect to bear the costs.
  1. If access to justice is to have any real meaning, then the aim of keeping costs to the reasonable minimum must become paramount. Procedural squabbles must be banished and a culture of co-operative conduct introduced in their place. This will not prevent contentious issues from being tried fairly: on the contrary it should promote it.””

RELEVANCE OF COSTS ALREADY INCURRED

In Redfern v Corby Borough Council, 3 December 2014, the Queen’s Bench Division of the High Court upheld the decision of a Deputy Master that the amount of costs already incurred had a major impact upon the future costs budget.

This was an action for stress at work valued at £700,000.00; the trial was listed for 7 days with each side calling to expert witnesses.
At the costs budgeting hearing the Deputy Master said that the claimant’s costs incurred to date were excessive and disproportionate and that it was worrying that the claimant’s costs budget was equal to the value of the claim.

Consequently the approved budget would be much lower.

On appeal the judge held that the Master had not interfered with costs already incurred, but had taken them into account when considering the reasonableness and proportionality of subsequent costs, as required by Practice Direction 3 E, which the Deputy Master had applied correctly.

The only way to take into account excessive costs already incurred was to approve subsequent costs at a lower level than otherwise; it was sensible to fix a figure that was reasonable and proportionate for the entire action.

Costs outside the Costs Budget

In Excelerate Technology Ltd v Cumberbatch [2015] EWHC B1 Mercantile

the trial judge ordered payment on account of a very high percentage of the budgeted sum and also observed that certain additional costs outside the budget were, on the face of it, reasonable, as they “were quite properly incurred and were not remotely foreseeable.”

Those additional costs were in relation to specific hearings and applications and in relation to the First Defendant’s IVA.

Advocates need to be fully aware of the costs budget and also the need to ask the trial judge to consider matters outside the budget, although the court cannot increase a budget once the costs have already been incurred, as happened here. What the judge did was to record a note that on the face of it these costs were reasonably incurred and were proportionate to what was at stake.

Relief from Sanctions

 

The key case is of course Mitchell itself, that is Mitchell v News Group Newspapers Limited [2013] EWCA Civ 1537.

In Lotus Cars Limited v Mecanica Solutions Inc [2014] EWHC 76 (QB) Case no HQ13X02200

Master Kay rejected a Mitchell claim in a case where the claimant filed one costs budget covering all three cases which had been joined but where there were different defendants and the cases had not been consolidated.

Shortly before the CMC two of the claims were compromised and the claimant filed a revised costs budget in relation to the remaining action but the defendant refused to agree it as it covered all three cases.

Thus Master Kay had to consider whether the claimant had failed to file a costs budget and if so whether relief from sanctions should be granted.

Master Kay held that the claimant had complied with the order:

“17.        A significant purpose of cost budgeting is to ensure that the cases are handled as economically as possible and it seems logical that if cases are to be managed and tried together a single cost budgeting exercise should be sufficient.  The provision of three separate budgets merely adds to the costs.  If the other two claims had not been settled the single budget approach would have proved effective and it may well be that the Defendant’s multi budget approach might have been open to criticism. In my view the Claimant’s approach was not unreasonable”.

Consequently there was no need to consider the issue of relief from sanctions, but had it been necessary so to do the Master would have granted it, for the reasons set out in Paragraph 21 of the judgment:

“21.        a.            The failure to comply with the rules as found by Master McCloud in Mitchell was              much more serious and, in my view, that decision is distinguishable from the present             case where the Claimant was trying to comply with the Orders made;

  1. The dicta of Coulson J. in Stella Willis v J Rundell & Associates Ltd [2013] EWHC 2923 indicates that the court should be cautious about penalising a party in respect of non-compliance with the cost budgeting rules;
  1. I have had the opportunity to read the decision of the Court of Appeal in Mitchell [2013] EWCA Civ 1537 given on the 27th November 2013 in which it was considered that the first task is to consider whether the non-compliance is trivial, and it if is not, then to consider whether there is a good reason for the default. If there is then the court is likely to grant relief.  Applying those tests it seems to me that the default, if default it was, should be considered as trivial and even if it was not there was an understandable reason for the default which did not arise from the solicitor’s failure to act promptly or dereliction of duty.
  1. Although the decision in Mitchell indicates that a more robust approach should be taken with applications for sanction from penalty it does not provide that a party should be penalised where the balance of justice and fairness would indicate that a contrary approach is appropriate. In my view, the reality of this case was that the Claimant was trying to comply with an aspect of the Orders and the rules which were not entirely clear and if, with hindsight, it is found that it failed to do so properly I think that it would be contrary to the overriding principle to apply the penalty required by the Defendant.

In Burt v Linford Christie, Birmingham District Registry, 10 February 2014, unreported

District Judge Lumb refused relief from sanctions where the defendant filed the costs budget one day late, that is six days, not seven days, before the Costs and Claims Management Conference. CPR 3.14 therefore applies and the defendant is treated as having filed a budget comprising only the applicable court fees.

This claim is a personal injury case where liability had been admitted and the pre-allocation notice gave dates for filing the directions questionnaire and other steps.  The claimant filed a Precedent H costs budget but the defendant did not.

CPR 3.13 states:

“Unless the court otherwise orders, all parties except litigants in person must file and exchange budgets as required by the rules or as the Court otherwise directs.  Each party must do so by the date specified in the notice served under rule 26.3(1) or, if no such date is specified, seven days before the first case management conference”.

CPR 3.14 provides:

“Unless the court otherwise orders, any party which fails to file a budget despite being required to do so will be treated as having filed a budget comprising only the applicable court fees”.

On the facts of this case the District Judge held that there was no breach of CPR 3.13 occasioned by the failure of the defendant to file a costs budget with the Directions Questionnaire.

There was a clear breach of CPR 3.13 in that the defendant’s budget was filed six, not seven, days before the first case management conference.

Here the court held that that was not a trivial breach and thus imposed the full CPR 3.14 sanction, that is that the defaulting party, here the defendant but in Mitchell the claimant, stands to recover only court fees, even if wholly successful and indeed even if the other party’s case is totally unmeritorious and conducted in an appalling fashion.

Failure to serve a Costs Schedule

In Simpson MGN Ltd v Ward [2015] EWHC 126 (QB)

the court reduced the claimant’s costs by 10% due to the failure to serve a Costs Schedule on the defendant in accordance with PD 44, paragraph 9.5(4).

Indemnity Costs and Part 36

 

Costs budgeting does not deal with indemnity costs, in the sense that the budgets do not contain indemnity costs figures.

Thus a claimant who matches his or her own Part 36 offer may get a figure well in excess of the amount in the budget.

This raises the issue of whether a Mitchell/Christie party, whose budget by CPR diktat consists only of court fees, may recover costs if they are awarded on an indemnity basis.

I think not.  Generally a party will not get costs in excess of its budget.  The budget is not just about money, it is about time.  Thus an indemnity costs order will allow a party to get more per hour than in the budget, but will not be able to recover for more hours work than in the budget.  In a Mitchell/Christie situation there is no budget save for court fees, so there are no hours and thus the court will not allow for any work.
Consequently an indemnity costs order makes no difference.

With effect from 6 April 2015 the “court fees only” rule in CPR 3.14 is modified where a defaulting party is successful in relation to its own Part 36 offer. It can then get 50% of its costs.

“36.23.—(1) This rule applies in any case where the offeror is treated as having filed a costs budget limited to applicable court fees, or is otherwise limited in their recovery of costs to such fees.

(Rule 3.14 provides that a litigant may be treated as having filed a budget limited to court fees for failure to file a budget.)

(2) “Costs” in rules 36.13(5)(b), 36.17(3)(a) and 36.17(4)(b) shall mean—

(a)in respect of those costs subject to any such limitation, 50% of the costs assessed without reference to the limitation; together with

(b)any other recoverable costs.”

Indemnity Costs and Budget

In Kellie and Kellie v Wheatley and Lloyd Architects Ltd  [2014] EWHC 2866 (TCC)

the High Court looked at the interplay between costs budgets and indemnity costs.

Although this case dealt with alleged misconduct the findings concerning the interplay between costs budgeting and indemnity costs apply to indemnity costs orders arising out of a claimant matching its own Part 36 offer.

This was a professional negligence claim which was lost and the defendant sought indemnity costs on the ground of the claimant’s conduct.

CPR 44.3 reads:

“44.3 (1)               Where the court is to assess the amount of costs (whether by summary or detailed assessment) it will assess those costs –

  • on the standard basis; or
  • on the indemnity basis,

but the court will not in either case allow costs which have been unreasonably incurred or are unreasonable in amount.

(2)              Where the amount of costs is to be assessed on the standard basis, the court will –

  • only allow costs which are proportionate to the matters in issue. Costs which are disproportionate in amount may be disallowed or reduced even if they were reasonably or necessarily incurred; and
  • resolve any doubt which it may have as to whether costs were reasonably and proportionately incurred or were reasonable and proportionate in amount in favour of the paying party.

(3)          Where the amount of costs is to be assessed on the indemnity basis, the court will resolve any doubt which it may have as to whether costs were reasonably incurred or were reasonable in amount in favour of the receiving party”.

The court pointed out that whatever was previously thought it is now clear that an indemnity costs order is significantly more valuable than a standard order.

The court quoted Lord Woolf in

Lownds v Home Office [2002] EWCA Civ 365

“The fact that when costs are to be assessed on an indemnity basis there is no requirement of proportionality and, in addition, that where there is any doubt, the court will resolve that doubt (as to whether costs were unreasonably incurred or were unreasonable in amount) in favour of the receiving party, means that the indemnity basis of costs is considerably more favourable to the receiving party than the standard basis of costs”.

Here the court said that this distinction is highlighted by the CPR and Practice Direction concerning costs management.  Practice Direction 3E paragraph 7.3 provides:

“When reviewing budgets, the court will not undertake a detailed assessment in advance, but rather will consider whether the budgeted costs fall within the range of reasonable and proportionate costs”.

CPR 3.18:

“In any case where a costs management order has been made, when assessing costs on the standard basis, the court will –

  • have regard to the receiving party’s last approved or agreed budget for each of the proceedings; and
  • not depart from such approval or agreed budget unless satisfied that there is good reason to do so”.

In Henry v Group Newspapers Ltd [2013] EWCA Civ 19 the Court of Appeal said:

“The primary function of the budget is to ensure that costs incurred are not only reasonable, but proportionate to what is at stake in the proceedings.”

Here the defendant’s budget had been approved at £91,700 with the judge having refused, on proportionality grounds, to approve a budget of over £140,000.

The amount now sought on the indemnity basis was £166,469.

The court thus had to consider the relevance of a costs budget when an indemnity costs order has been made and specifically disagreed with a previous decision of the High Court in

Elvanite Full Circle Ltd v AMEC Earth and Environment (UK) Ltd [2012] EWHC 1643 (TCC).

In that case the High Court held that even on an indemnity basis the starting point is the approved budget.

The court here in Kellie disagreed, holding that

“costs management orders are designed to set out the probable limits of the costs that will be proportionately incurred.  It is for that reason, and not because of any quirk of drafting, that CPR 3.18 refers specifically to standard assessment and not to indemnity assessment.  Proportionality is central to assessment on the standard basis and it trumps reasonableness.  However, proportionality is not in issue if costs are to be assessed on the indemnity basis.”

“I therefore find it difficult to see why logical analysis requires importing the approach in CPR 3.18 into assessment on the indemnity basis. The first reason given by Coulson J, at [29], has force if at all only if an approved or agreed budget does indeed reflect the costs that the receiving party says it expects to incur. However, the present case is an example precisely of the proper use of costs management in approving a budget at a lower figure than that proposed by the receiving party, on the very ground of proportionality. To suppose that the imposition of a budget under Part 3 would create some sort of presumption as to the limits of reasonable costs would be to ignore the fact that the approval of costs budgets is done on the basis of proportionality, not mere reasonableness. The matters referred to in connection with the first reason may, accordingly, justify having regard to the amount of costs the receiving party expected to incur, but they do not justify applying the CPR 3.18 analogously to assessment of costs on the indemnity basis. Similarly, the second reason, stated at [30], seems to me, with respect, to go further than is justified by the costs management regime. When a costs management order is made, the parties know that costs within the approved budget are likely to be considered proportionate, and costs in excess of the approved budget are likely to be considered disproportionate; in either case, the burden of justification lies on the party seeking a departure from the approved budget. But the costs management regime is not intended to give litigants an expectation that they will not incur a liability for disproportionate costs pursuant to an order for costs on the indemnity basis; any such expectation must rest on a party’s own reasonable and proper conduct of litigation. It is no objection to an order for costs on the indemnity basis that it is likely to permit the recovery of significantly larger costs than would be recoverable on an assessment on the standard basis having regard to the approved costs budget; that possibility is inherent in the different bases of assessment, and costs on the indemnity basis are intended to provide more nearly complete compensation for the costs of litigation. I accept, of course, that a party seeking to recover disproportionate costs on an assessment on the indemnity basis is required to show that those costs were reasonably incurred; though that requirement is subject to the provisions of CPR 44.3(3). That does not, however, justify the analogous use of CPR3.18, which has three disadvantages. First, it is both unnecessary and contrary to the rationale of that rule. Second, it tends to obscure the fact that the nature of the justification required of a receiving party is quite different under the two bases of assessment. Third, and consequently, it risks the assimilation of the indemnity basis of assessment to the standard basis, which is not justified by the costs management regime in the CPR. In my judgment, the proper way of addressing the concern identified by Coulson J in Elvanite at [30] is, first, by ensuring that applications for indemnity costs are carefully scrutinised and, second, by the proper application of the well understood criteria of assessment in CPR 44.3(3) to the facts of the particular case. It might also be remembered that, even if there exist grounds on which an award of indemnity costs could properly be made, such an award always remains in the discretion of the court.”

In neither Elvanite or Kellie was an indemnity cost order in fact made, so both judgments are obiter, that is not relevant to the decision, and therefore not binding on other courts.

As to payment on account the judge ordered £90,000 against the approved budget of £91,700.

The court, in rejecting the application for a indemnity costs order, gave extensive guidelines as to the grounds on which such an order should be made.

“18.        In general terms, an award of costs on the indemnity basis is justified only if the paying party’s conduct is morally reprehensible or unreasonable to a high degree, so that the case falls outside the norm. The applicable principles were set out at length by Tomlinson J in Three Rivers District Council v The Governor and Company of the Bank of England [2006] EWHC 816 (Comm), at [25], in a passage on which Mr Lixenberg relied (omitting the eighth point, which was formulated with particular regard to the Three Rivers litigation):

“(1) The court should have regard to all the circumstances of the case and the discretion to award indemnity costs is extremely wide.

(2) The critical requirement before an indemnity order can be made in the successful defendant’s favour is that there must be some conduct or some circumstance which takes the case out of the norm.

(3) Insofar as the conduct of the unsuccessful claimant is relied on as a ground for ordering indemnity costs, the test is not conduct attracting moral condemnation, which is an a fortiori ground, but rather unreasonableness.

(4) The court can and should have regard to the conduct of an unsuccessful claimant during the proceedings, both before and during the trial, as well as whether it was reasonable for the claimant to raise and pursue particular allegations and the manner in which the claimant pursued its case and its allegations.

(5) Where a claim is speculative, weak, opportunistic or thin, a claimant who chooses to pursue it is taking a high risk and can expect to pay indemnity costs if it fails.

(6) A fortiori, where the claim includes allegations of dishonesty, let alone allegations of conduct meriting an award to the claimant of exemplary damages, and those allegations are pursued aggressively inter alia by hostile cross examination.

(7) Where the unsuccessful allegations are the subject of extensive publicity, especially where it has been courted by the unsuccessful claimant, that is a further ground.”

  1. More recently, in Courtwell Properties Ltd v Greencore PF (UK) Ltd [2014] EWHC 184 (TCC), Akenhead J said this:

“22. So far as indemnity costs are concerned, there are numerous authorities which address the circumstances in which these may be ordered. A helpful if not absolutely exhaustive summary was given by Mr Justice Coulson in Elvanite Full Circle Ltd v AMEC Earth & Environmental (UK) Ltd [2013] EWHC (TCC):

’16. The principles relating to indemnity costs are rather better known. They can be summarised as follows:

(a)          Indemnity costs are appropriate only where the conduct of a paying party is unreasonable “to a high degree. ‘Unreasonable’ in this context does not mean merely wrong or misguided in hindsight“: see Simon Brown LJ (as he then was) in Kiam v MGN Ltd [2002] 1 WLR 2810.

(b)          The court must therefore decide whether there is something in the conduct of the action, or the circumstances of the case in general, which takes it out of the norm in a way which justifies an order for indemnity costs: see Waller LJ in Excelsior Commercial and Industrial Holdings Ltd v Salisbury Hammer Aspden and Johnson [2002] EWCA (Civ) 879.

(c)           The pursuit of a weak claim will not usually, on its own, justify an order for indemnity costs, provided that the claim was at least arguable. But the pursuit of a hopeless claim (or a claim which the party pursuing it should have realised was hopeless) may well lead to such an order: see, for example, Wates Construction Ltd v HGP Greentree Alchurch Evans Ltd [2006] BLR 45.

(d)          If a claimant casts its claim disproportionately wide, and requires the defendant to meet such a claim, there was no injustice in denying the claimant the benefit of an assessment on a proportionate basis given that, in such circumstances, the claimant had forfeited its rights to the benefit of the doubt on reasonableness: see Digicel (St Lucia) Ltd v Cable and Wireless PLC [2010] EWHC 888 (Ch).’

To this can be added a number of other specific and general points:

(i)            The discretion to award indemnity costs is a wide one and must be exercised taking into account all the circumstances and considering the matters complained of in the context of the overall litigation (see Three Rivers DC v the Governor of the Bank of England [2006] EWHC 816 (Comm) and Digicel (as above)).

(ii)           Dishonesty or moral blame does not have to be established to justify indemnity costs (Reid Minty v Taylor [2002] 1 WLR 2800).

(iii)          The conduct of experts can justify an order for indemnity costs in respect of costs generated by them (see Williams v Jervis [2009] EWHC 1837 (QB)).

(iv)         A failure to comply with Pre-Action Protocol requirements could result in indemnity costs being awarded.

(v)          A refusal to mediate or engage in mediation or some other alternative dispute resolution process could justify an award of indemnity costs.”

In Arcadia Group Brands Ltd and Others v Visa Inc and Others [2015] EWCA Civ 883

the Court of Appeal overturned an order for indemnity costs made by the first instance High Court judge.
The Court of Appeal said that the weakness of a legal argument is not, without more, justification for an indemnity order which is in its nature penal.

The position might be different if proceedings or steps taken within them are not only based on a plainly hopeless case but are motivated by some ulterior commercial or personal purpose or otherwise for purely tactical reasons unconnected with any real belief in their merits. (Paragraph 83).

Schedule of Costs

 

In Devon County Council v Celtic Bioenergy Ltd [2014] EWHC 309 TCC

Mr Justice Stuart-Smith granted relief from sanctions when a schedule of costs was served 18 minutes late, saying it was a “substantive irrelevance”.

Statement of Truth on Costs Budget

 

In The Governor and Company of the Bank of Ireland v Phillip Rank Partnership [2014] EWHC 284 (TCC)

Mr Justice Stuart-Smith rejected an argument that an error in the statement of truth meant that the costs budget was filed late.

The claimant’s Precedent H costs budget had the words “statement of truth” immediately above the signature of his representative and the full wording was not included but a further copy was later served, in identical form, with the full statement of truth included.

17 days later and one day before the CMC the defendant took the point and the claimant applied for relief from sanctions saying that it was an error; the budget had been completed externally and the partner signing the form had failed to notice that the full statement of truth had not been included.

The defendant argued that the claimant was in breach of CPR 3.13 and that there was no reasonable excuse and that statements of truth were important.

The judge dismissed the arguments as having no merit, technical or otherwise and as bringing the rules of procedure and the law generally into disrepute.

The judge concluded that there was no breach of CPR 3.13; the claimant had filed and exchanged a costs budget on time, but the budget suffered an irregularity.

CPR 3.14 provides for a sanction in the event that a party “fails to provide a budget”.  It does not include the words:

“complying in all respects with the formal requirements laid down by PD 3E” or any similar words.

As the judge pointed out, any other finding would mean that a budget would be a nullity if, for example, one word was mis-spelled.

Relief from sanctions was not required, but had it been required the judge made it clear that he would have granted it.

Although not trivial, this was a failure of form rather than of substance.  The nature of form Precedent H was a trip for the unwary.

“The defendant’s submission is therefore rejected.  The claimant did not fail to file and exchange a costs budget on 24 January 2014.  It filed and exchanged a budget that was subject to an irregularity that has since been rectified.  No question of relief from sanctions arises.  If the taking of this issue serves to alert others to the need to change the form of Precedent H from that set out in the supplement, some useful purpose will have been served”.

 

In Willis v (1) MRJ Rondell and Associates Ltd and (2) Grovecourt Ltd [2013] EWHC 2923 (TCC)

the Queen’s Bench Division of the High Court, Technology and Construction Court (Mr Justice Coulson) held the costs budgets of both parties, which were very similar in total, to be disproportionate and unreasonable and expressly declined to approve either budget.

This was a claim for £1.1 million and the claimant’s costs budget was £821,000 and the defendant’s costs budget was £616,000 but as the defendant was not liable for VAT, causing its budget not to have VAT in, the true figures were much closer to one another.
This was a case to which Practice Direction 51G (Costs Management in the TCC applied) and the judge said:

“I apprehend that the outcome will not be uncommon under either PD51G, or the new costs budget rules which came into force in April 2013”. (Paragraph 1).

The judge noted that the total costs of both parties exceeded the value of the claim and held that on that basis alone the costs in both budgets were both disproportionate and unreasonable.

The judge also said that “……to allow a proper analysis, in order for the court to make a costs management order, the costs which have been incurred (and which therefore cannot be the subject of an order) must be separated out from those which are estimated (which can be the subject of an order)”. (Paragraph 19).

The judge said that the experts’ fees should be half those estimated; “unhappily, my recent experience is that the amount of experts’ fees in cases like this is often out of all proportion to the assistance provided”. (Paragraph 20).

The judge also had this to say about contingencies:

“…….whilst budgets of this sort can include contingent sums, it needs to be made very clear what those contingency sums are for and how they have been calculated.  For example, it may be appropriate to put in, as a contingency sum, the estimated additional costs of written submissions, if the original budget assumed that oral submissions would be made at the end of the trial.  Another example would be a contingency sum for any application for security for costs”. (Paragraph 21).

“It is not appropriate ………….to put in a single lump sum by way of a contingency figure and leave it at that.  ……….such items ought to be included in the relevant line items as a cost incurred.  For example, it is said that there is an additional cost because of the need to amend the pleadings.  That ought to be shown as an additional cost under the relevant line item within the costs budget”.  (Paragraph 22).

Generally the judge said:

“Of course in an ideal world, the court would be able to provide alternative figures for those estimated items in a costs budget which the court considers to be too high.  The alternative figures could then be included in an approved costs budget and a costs management order could be made.  But as I have already noted, I have nothing on which I could rely in order to come up with reasonably accurate alternative figures.  I do not consider that it is appropriate for the court to impose its own figures without notice and without any supporting material”.

In his conclusion, the judge said (paragraph 25):

“In all those circumstances, I expressly decline to approve either party’s costs budget.  For the reasons I have given, I consider them to be disproportionate and unreasonable.  I therefore have no option but to decline to make a costs management order”.

It appeared to be becoming clear that the courts intended to take a very hard line in relation to Costs Management Orders, with the first decision being given by the Senior Costs Judge Peter Hurst in

Henry v News Group International Ltd [2012] EWHC 90218

This was a defamation action and as such was caught by an early budgeting pilot scheme applying only to defamation cases issued in the Royal Courts of Justice or Manchester District Registry on or after 1 October 2009. Here the Claimant submitted a bill which was 18 times higher than budgeted for in relation to witness statements and eight times higher for disclosure. Overall, the extra costs were nearly £300,000.

The Senior Courts Costs Office “reluctantly” held that there was “no good reason to depart” from the court approved budget where the claimant’s costs had exceeded that budget, even though the court recognized that the claimant could probably “make out a very good case on detailed assessment for the costs being claimed”. It found that the claimant had “largely ignored” the mandatory provisions of the Defamation Costs Management Scheme set out in CPR PD 51D, although recognizing that the issue was important and needed a definitive and binding decision, the SCCO indicated that it would be prepared to grant permission to appeal under CPR 52.3(6)(b).

Professor Dominic Regan, commenting on the decision, said

“What, one might ask, is the point of imposing a budget only to ignore it? The lesson is blindingly clear. If the approved budget, for whatever reason, seems to be no longer accurate then get back to court and seek approval for revised figures.”

Speaking at the LexisNexis Costs and Litigation Forum on 31 October 2012 SCCO Master Haworth said

“I can’t imagine that the Court of Appeal is going to row back from Costs Management and Costs budgeting.”

However that is exactly what they have done, unanimously allowing the appeal and remitting the matter to the SCCO.

In Henry v News Group Newspapers Ltd [2013] EWCA Civ 19

the Court of Appeal found that that was good reason to depart from the budget, which is precisely the same test in the new CPR3.18(b) inserted by The Civil Procedure (Amendment) Rules 2013.

In relation to the future, the Court of Appeal had this to say in two paragraphs which they headed “The future”:

“ 27.       The practice direction with which this appeal is concerned applies only to proceedings for defamation. It was the first pilot scheme introduced by the Civil Procedure Rule Committee (“the Rule Committee”) and was intended both to control the costs of defamation proceedings and to provide experience of how costs management would work in practice. A similar costs management pilot scheme which reflected developments in the understanding of how costs management could most usefully be applied was subsequently introduced in the Mercantile Courts and the Technology and Construction Courts (see Practice Direction 51G).

  1. In the light of the experience gained from those pilots the Rule Committee decided to adopt Sir Rupert Jackson’s recommendation that the management of costs by the court should in future form an integral part of the ordinary procedure governing claims allocated to the multi-track. Those rules, which will become effective from 1st April 2013, differ in some important respects from the practice direction with which this appeal is concerned. In particular, they impose greater responsibility on the court for the management of the costs of proceedings and greater responsibility on the parties for keeping budgets under review as the proceedings progress. Read as a whole they lay greater emphasis on the importance of the approved or agreed budget as providing a prima facie limit on the amount of recoverable costs. In those circumstances, although the court will still have the power to depart from the approved or agreed budget if it is satisfied that there is good reason to do so, and may for that purpose take into consideration all the circumstances of the case, I should expect it to place particular emphasis on the function of the budget as imposing a limit on recoverable costs. The primary function of the budget is to ensure that the costs incurred are not only reasonable but proportionate to what is at stake in the proceedings. If, as is the intention of the rule, budgets are approved by the court and revised at regular intervals, the receiving party is unlikely to persuade the court that costs incurred in excess of the budget are reasonable and proportionate to what is at stake.”

Nevertheless it remains a fact that the Court of Appeal allowed the claimant to proceed with the full costs claim in the absence of any revised budget being submitted to the court and in the absence of any notification to the other side’s solicitors of the amount of costs being incurred.

The judge at first instance said (paragraph 67):

“……the fact is that the budget has been exceeded by a very significant amount, and there has been no attempt by the Claimant to pass this information on.  The fact that both sides exceeded their budgets does not assist the Claimant.  The Defendant kept the Claimant informed, but the Claimant gave no indication to the Defendant”.

In paragraph 28 of the Court of Appeal decision dealing with the future the court made it clear that under the post-1April 2013 regime the court has the power to depart from the approved or agreed budget if it is satisfied that there is good reason to do so, precisely the finding here.

It is clear that faced with these facts under the new regime the Court of Appeal would have made the same decision.

However in another recent case –

Ryder Plc v Dominic James Beever [2012] EWCA Civ 1737

the Court of Appeal upheld a Circuit Judge’s overturning of a Deputy District Judge’s Order striking out the claimant’s claim for failing to comply with an unless order in relation to a costs estimate.

At paragraph 53 of that Judgment the Court of Appeal said that here…….

“the delay in providing the costs schedule had not caused any real prejudice of which the defendant complained.  Nor had it delayed the progress of the action.  That is not to say that a costs schedule is not important.  It has two main purposes.  One is to enable the parties to make fully-informed decisions on Part 36 offers.  However, the powers of the court on making a costs order are wide and allowance can be made at that stage for any prejudice that a party has suffered as the result of the delayed service of a costs schedule.  The costs schedule also enables a defendant’s insurer to estimate an appropriate reserve and thereby manage its financial affairs.  However, I do not think that, in the absence of evidence, it should be assumed that the delay in service of a costs schedule could have a seriously prejudicial effect on a defendant”.

In personal injury cases – and Ryder was such a case – this will always be a one-way argument in the sense that Qualified One Way Costs Shifting means that unless and until a Defendant’s Part 36 Offer is not beaten a Claimant will generally not have to pay costs, but a Defendant will still have to provide a costs budget at a Costs Management Conference, as there are in fact many circumstances in which a claimant may be liable for the defendant’s costs, even in a Qualified One Way Costs Shifting case.

Consequently insurance companies, not always the most punctual of people in relation to court timetables, will mercilessly attack claimants’ costs budgets and any failure to supply them on time. They will have nothing to lose.

The Court of Appeal, in the two decisions, and in many ways Ryder is more significant that Henry, are making it clear that there will be no gauleiter approach by Judges to the Jackson Reforms.

Henry has been seen as a blow to the Jackson Reforms, and in some sense it is, but it is also a brave and heartwarming decision; courts are there to do justice, not to obey Government diktats.

The other side of that coin is shown in the decision of HH Judge Simon Brown in

Safetynet Security Ltd v Coppage [2012] EWHC B11 (Mercantile)

After giving judgment for the claimant the Judge decided that as the spend was within the court-approved budget a detailed assessment would be an expensive and futile exercise.

Consequently a final costs order was made within minutes of the substantive judgment being delivered.

In BP v Cardiff and Vale University Local Health Board [2015] EWHC B13 (Costs) the Senior Costs Judge, Master Gordon-Saker gave guidance as to how bills should be divided.

Different Proportionality Test

“In any case in which both approaches need to be taken it will be necessary to identify the work which falls before and after that date and to identify the sums claimed for the work done before and after that date.” that is prior to and on or after 1 April 2013.

Phases

“In order for the paying party and the court to know which items of work are claimed in relation to each phase the bill would need to be drawn in parts which reflect the phases.”

“Where a bill has already been drawn without being divided into phases, one possible course to avoid re-drawing the bill would be to serve schedules setting out the individual items of costs claimed in relation to each phase.”

Pre and Post Costs Management Order

“Within each part it will also be necessary to distinguish between the costs incurred before and after the budget was agreed or approved. This could be done without further sub-division by use of italics, bold, superscript or some other formatting device.”

Costs Budgeting Costs

“Where a costs management order has been made and the receiving party’s budget has been agreed by the paying party or approved by the court it will be both necessary and convenient that the bill be divided so as to identify the costs of initially completing Precedent H and the other costs of the budgeting and costs management process, unless those costs can be clearly identified in some other way.”

Costs of Budgeting

Practice Direction 3E, at paragraph 7.2 reads:-

“Save in exceptional circumstances-

(a)          the recoverable costs of initially completing Precedent H shall not exceed the higher of £1,000 or 1% of the approved or agreed budget;”

The Master here held that, for the purposes of Practice Direction 3E.7.2, the capped recoverable costs of the budgeting process include additional liabilities, that is in practice the success fee, but not VAT.

This remains a matter of some controversy with Simon Gibbs taking the view that capped costs include VAT.

There is also uncertainty as to whether the cap applies only to the costs to be incurred, which is all the costs management order can deal with, or the whole sum including previously incurred costs. Clearly if it is only costs going forward the cap will be a lower sum as it is percentage based and it will be a percentage of that lower sum.

However that begs the question of chargeable costs for pre costs management order budgeting work. If it is outside the capped element can it be charged on an ordinary hourly basis or does it have to be done within the cap, that is effectively for no fee at all?

High Court Guidance re Budgeting

In Tim Yeo MP v Times Newspapers Ltd [2015] EWHC 209 (QB)

The Queen’s Bench Division of the High Court made observations on costs budgeting saying:-

  • it should not be a lengthy exercise;
  • it was appropriate to use correspondence instead of skeleton arguments;
  • rates and projected hours may well need to be considered;
  • contingencies should only be included in the budget if they are reasonably likely to occur;
  • a budget may be for part, not all, of the action;
  • sometimes it should take place at an earlier stage than usual.

The court reminded the lawyers that “where practical, costs management conferences should be conducted by telephone or in writing”. (CPR 3.16(2))

In a case that goes to trial the successful party’s costs incurred before approval of the budget will normally need detailed assessment, in the absence of an agreement.

The court also said:-

“The court has power to give directions for the filing and exchange of budgets at an earlier stage than the CMC. This is so as part of its general powers of management but is reflected in CPR 3.13, which requires parties other than litigants in person to “file and exchange budgets as required by the rules or as the court otherwise directs”. If that power is exercised the general rule will apply, that the court will make a costs management order. An early costs budgeting process may be initiated by the court or by one of the parties.”

“If a budget is required at an early stage it need not be for the entire litigation.”

Practice Direction 3E 6 says:-

“In substantial cases, the court may direct that budgets be limited initially to part only of the proceedings and subsequently extended to cover the whole proceedings.”

Items not in Budget

In Simpson MGN Ltd v Ward [2015] EWHC 126 (QB)

the court allowed the successful claimant costs in relation to applications which had not appeared in the claimant’s cost budget.

The court found that there was good reasons apart from the budget, in essence holding that this was a minor fault in the context of the whole litigation which had had no appreciable impact on the efficient conduct of the litigation.

In Purser v Hibbs, Queens Bench Division, 19 May 2015 the High Court held that it was not necessary for an allowance of surveillance to be included in a Defendant’s Costs Budget and the note to the contrary in the current White book is wrong.

Whereas most litigation is to be conducted on a cards-on-the-table basis some degree of cunning was required in the administration of surveillance evidence and the court would not wish to do anything to discourage the judicious use of such evidence, or to alert fraudsters to its use.

Thus the court directed under CPR 44.2 that the Defendant should be allowed the reasonable cost of surveillance, on the indemnity basis, notwithstanding that those costs had not been listed in the Costs Budget.

Appeals Against Cost Management Orders

In Havenga v Gateshead NHS Foundation Trust [2014] EWHC B25 (QB)

the Queen’s Bench Division of the High Court refused an appeal against heavy cuts in the claimant’s budget in relation to a clinical negligence case.

The claim was worth over £5 million and liability had been agreed on a 75/25 basis in the claimant’s favour. At the cost budgeting hearing the District Judge reduced the claimant’s budget from £789,854.46 to £463,915.13.

The High Court held that appeals in relation to costs management orders are subject to the criteria in

Tanfern v Cameron MacDonald [2000] 1WLR 1311

that is that

“The appellate court should only interfere when they consider that the judge of the first instance has not merely preferred an imperfect solution which is different from an alternative imperfect solution which the Court of Appeal might or would adopt, but has exceeded the generous ambit within which a reasonable disagreement is possible.”

The appeal is limited to a review of the lower court’s decision and it is not the job of the appeal court to tinker with costs budgets.

Although the appeal court here would have been more generous than the District Judge the original budget was well within the generous ambit of the original judge’s discretion and thus there are no grounds to interfere with that decision on appeal.

Here the appellate judge refused to interfere even though he found “force” in the claimant’s submission, accepted the claimant’s propositions, thought that the judge had erred on the low side, “would have been more generous than the District Judge”, “would have been persuaded to allow somewhat more time” etc.

Appeal courts rarely interfere with case management decisions and it is clear that it would be very rare indeed for an appeal to court to interfere with a costs budget.

Discretion to Order Costs Budget

In Kershaw v Roberts [2014] EWHC 1037 (Ch)

the Chancery Division of the High Court held that the requirement to lodge a costs budget does not, and never did, apply to Part 8 proceedings and the White Book’s notes to the contrary are wrong.

The court has a discretion to order a costs management conference in such claims and in any event a costs budget will be necessary if the court transfers the claim to the Part 7 procedure and allocates it to the multi-track.

When costs budgeting came in in April 2013 only claims under £2 million had to be budgeted for; that figure was subsequently raised to £10 million.

In CIP Properties v Galliford Try Infrastructure Ltd and Others [2014] EWHC 3546 (TCC), the Technology and Construction Court, part of the High Court, held that it had a discretion to order budgets in cases involving over £10 million.

Mr Justice Coulson rejected the claimant’s argument that the court had no such discretion in such claims. He held that the claim was worth £18 million and the judge accepted that budgets are not automatically required in cases worth more than £10 million as proportionality is likely to be less relevant.

However he stated that costs budgets are “generally regarded as a good idea and a useful case management tool”, and that there should be no presumption against ordering them for higher value cases. Mr Justice Coulson said that he took into account “express advice” from the President of the Queen’s Bench Division that costs management should always be considered, even where not mandatory.

The judge also pointed out that ridged observance of the limits could “easily lead to the abuse of process” as claimants wanting to avoid the regime could simply make damages estimates £1.00 over the threshold. “This would then avoid any consideration at all by the court of the proposed costs, no matter how disproportionate or inflated they were.”

The claimants had submitted that there was no power to order budgets in such cases but the court relied on the wording of CPR 3.12 which excepts certain cases unless “the court otherwise orders”. Those words give the court a discretion to order costs budgeting in any case.

RELEVANCE OF COSTS ALREADY INCURRED

In Redfern v Corby Borough Council, 3 December 2014, the Queen’s Bench Division of the High Court upheld the decision of a Deputy Master that the amount of costs already incurred had a major impact upon the future costs budget.

This was an action for stress at work valued at £700,000.00; the trial was listed for 7 days with each side calling to expert witnesses.

At the costs budgeting hearing the Deputy Master said that the claimant’s costs incurred to date were excessive and disproportionate and that it was worrying that the claimant’s costs budget was equal to the value of the claim.

Consequently the approved budget would be much lower.

On appeal the judge held that the Master had not interfered with costs already incurred, but had taken them into account when considering the reasonableness and proportionality of subsequent costs, as required by Practice Direction 3 E, which the Deputy Master had applied correctly.

The only way to take into account excessive costs already incurred was to approve subsequent costs at a lower level than otherwise; it was sensible to fix a figure that was reasonable and proportionate for the entire action.

Costs outside the Costs Budget

In Excelerate Technology Ltd v Cumberbatch [2015] EWHC B1 Mercantile

the trial judge ordered payment on account of a very high percentage of the budgeted sum and also observed that certain additional costs outside the budget were, on the face of it, reasonable, as they “were quite properly incurred and were not remotely foreseeable.”

Those additional costs were in relation to specific hearings and applications and in relation to the First Defendant’s IVA.

Advocates need to be fully aware of the costs budget and also the need to ask the trial judge to consider matters outside the budget, although the court cannot increase a budget once the costs have already been incurred, as happened here. What the judge did was to record a note that on the face of it these costs were reasonably incurred and were proportionate to what was at stake.

Varying a Budget

 

In Murray and Stokes v Neil Dowlman Architecture Limited [2013] EWHC 872 (TCC)

the Technology and Construction Court considered “a potentially important question about the circumstances in which a costs budget, which has been approved by the court as part of a costs management order, can subsequently be revised or rectified. It comes at a critical time, as the CPR is radically amended to introduce costs budgeting and costs management for most types of civil litigation.” (Paragraph 1 of the judgment).

Although this case was conducted under the pilot costs management scheme the new provisions are very similar, a point made here by the court.

Here the claimant had failed to make it clear that their approved costs budget excluded a recoverable success fee and ATE premium, although the defendants were well aware of their existence as Form N251 had been served.

The defendant wrote to the claimant stating that it would object to recovery of these additional liabilities and the claimant made an old CPR 3.9 application for relief from sanctions.

The court said that that was not the appropriate application and treated it as an application for revision or certification or clarification of the approved budget.

Here, the court allowed the application partly on the ground that the defendant was well aware of the additional liabilities and suffered no prejudice, and partly because of the tick box nature of the old Form HB budget and partly because the new Form H specifically provides that the estimate excludes success fees and ATE insurance premiums.

This case is significant for the court’s warning in relation to post 1 April 2013 cases:

“…in an ordinary case, it will be extremely difficult to persuade a court that inadequacies or mistakes in the preparation of a costs budget, which is then approved by the court, should be subsequently revised or rectified…The courts will expect parties to undertake the costs budgeting exercise properly first time around, and will be slow to revise approved budgets merely because, after the event, it is said that particular items had been omitted or under-valued…any other approach could make a nonsense of the whole costs management regime.” (Paragraph 17).

In Elvanite Full Circle Ltd v AMEC Earth and Environmental (UK) Ltd [2013] EWHC 1643

the High Court refused to allow retrospective budget variation, after the trial had taken place, and placed tight constraints on what would constitute good reason to depart from a budget. In this case the court’s decision could cost the successful defendant £267,000.

Although the Defendant had, in advance of the trial, filed at Court and served on the Claimant a revised budget, it did not make a formal application to vary the Costs Management Order until the trial was concluded.  Coulson J held that the application was made too late, and warned that any such application should be made as soon as it becomes apparent that the budgeted costs have been significantly exceeded.

Pursuant to a CMO the Defendant’s budget had been set initially in Spring 2012 and then increased slightly in January 2013 to £268,488.  In February 2013, the Defendant revised its budget by almost doubling it to £531,946 to account for increased experts’ and counsel’s fees,  and sent it to the Claimant and the Court but did not apply to amend the CMO.  The trial took place in March 2013 and the successful Defendant sought costs of £497,593.
Coulson J held that the Defendant should have sought formal court approval of the revised budget and that such an application “ought to be made immediately it becomes apparent that the original budget costs have been exceeded by a more than minimal amount”.  He described an application to amend an approved budget after judgment at trial as a contradiction in terms:

First, it would mean that the exercise would no longer be a budgeting exercise, and would instead be based on the actual costs that have been incurred.  Secondly, it would encourage parties to ‘wait and see’; only applying to increase the budget costs if it was in their interests.  Thirdly, it would make a nonsense of the costs management regime if, at the end of the trial, a party could apply to double the amount of its costs budget.  The certainty provided by the new rules would be lost entirely if the parties thought that, after the trial, the successful party could seek retrospective approval for costs incurred far beyond the level approved in the costs management order.

He added that if he was wrong that an application to amend the CMO should not be entertained after judgment, then at the very least the Defendant would need to demonstrate a good reason why the application was made so late, and in this case the Defendant has failed to do so.

He went on to consider whether in any event there was a good reason to depart from the budget in this case, stating that there was not good reason because the case was not one “which somehow lurched off track after its commencement, or where the issues ended up being very different to those which had originally been canvassed in the pleadings.  Everything went pretty much as it might have been expected to go.  In those circumstances, it seems to me that the general scope for alleging in this case that there is good reason now to depart from the costs management order is relatively limited.

Coulson J also considered, obiter, whether the CMO would have been rendered irrelevant if he had made an order for indemnity costs:

Prima facie, whether under PD 51G paragraph 8, or CPR 3.18, the costs management order (with its approval of the costs budget) is expressed to be relevant only to an assessment of costs on a standard basis.  However, as a matter of logical analysis, it seems to me that the costs management order should also be the starting point of an assessment of costs on an indemnity basis, even if the ‘good reasons’ to depart from it are likely to be more numerous and extensive if the indemnity basis is applied.”

The judge’s point was that the approved budget should be the starting point for assessment even where indemnity costs are awarded, so as to eliminate unhelpful uncertainty.

In The Board of Trustees of National Museums and Galleries On Merseyside v AEW Architects and Designers Ltd and Others [2013] EWHC 3025 (TCC) the court adopted the same approach as in Elvanite.

In Mitchell v News Group Newspapers Limited [2013] EWCA Civ 1526, 27 November 2013

the Court of Appeal dismissed the appeal of Mr Mitchell against the refusal of Master McCloud to grant relief from sanctions.

Strictly the appeal was against two decisions, the first being the Master’s decision that as Mr Mitchell had failed to file his costs budget in time he was to be treated as having filed a costs budget comprising only the relevant court fees (CPR 3.14) and the second being the Master’s refusal to grant relief from that sanction.

The costs budget in question totalled £506,425.00 and so, apart from the court fee element, that is the amount potentially lost by Mr Mitchell as a result of this decision. Given that the defendant’s budget was for £589,558.00, this appears to be a realistic figure.

This was the first time the Court of Appeal has ruled “on the correct approach to the revised version of CPR 3.9 which came in to force on 1 April 2013 to give effect to the reforms recommended by Sir Rupert Jackson.”

At paragraph 1 the Court of Appeal said:

“The question at the heart of this appeal is: how strictly should the courts now enforce compliance with rules, practice directions and courts orders?”

Thus the Court of Appeal made no distinction between court orders and rules and practice directions, even though practice directions do not have the force of law and in many instances are hopelessly drafted, as indeed are many of the Jackson-related Civil Procedure Rules.

The Court of Appeal also accepted that the traditional approach of the courts was to excuse non-compliance if any prejudice caused to the other party could be remedied, usually by an appropriate costs order.

Here the budget was filed one day before the Case Management and Costs Budget hearing, that is six days late.

Master McCloud imposed what she described as “a mandatory sanction” of deeming the budget to comprise court fees only.

Master McCloud then dismissed the subsequent application for relief from that sanction.

The Court of Appeal dismissed the technical grounds of appeal, that is whether CPR 3.14 applied by analogy to a pre-1 April 2013 case and whether there was a difference between filing a budget late and not filing one at all.

Thus the issue is the key one set out by the Court of Appeal in paragraph 1 of its decision and which I have set out above.

The Court of Appeal held, correctly and sensibly in my view, that “the considerations to which the court should have regard when deciding whether it should “otherwise order” (CPR 3.14) – “unless the court otherwise orders”) are likely to be the same as those which are relevant to a decision whether to grant relief under CPR 3.9. “In each case, in deciding whether to “otherwise order”, the court must give effect to the overriding objective: see rule 1.2(a)” (Paragraph 32 of the judgment).

The Court of Appeal pointed out (paragraphs 34 and 35) that Sir Rupert Jackson had softened his approach between writing his Preliminary and Final Reports:

“However, I do not advocate the extreme course which was canvassed as one possibility in [the Preliminary Report] paragraph 43.4.21 or any approach of that nature.”

The “extreme course” was that non-compliance would no longer be tolerated, save in “exceptional circumstances”. Instead he recommended that sub-paragraphs (a) to (i) of CPR 3.9 be repealed and replaced by the wording which is now in the new rule, saying that the new form of words:

“does not preclude the court taking into account all of the matters listed in the current paragraphs (a) to (i). However, it simplifies the rule and avoids the need for judges to embark upon a lengthy recitation of factors. It also signals the change of balance which I am advocating.”

In a deeply worrying part of the judgment the Court of Appeal, at paragraph 39, specifically endorsed the approach – “We endorse this approach.” – set out in paragraphs 25 to 27 of the 18th implementation lecture on the Jackson reforms delivered on 22 March 2013 by the Master of the Rolls.

Before considering what approach has now been endorsed let us look at the genesis of this approach:

  • The Court of Appeal, of its own motion and without reference to , or the permission of, Parliament decides to review the civil justice system.
  • A judge, Sir Rupert Jackson, immediately elevated to the very same Court of Appeal, is appointed to prepare the report.
  • Jackson LJ’s Preliminary and Final Reports are published. The Final Report provokes a storm of criticism unmatched in recent history in relation to any report by a member of the judiciary.
  • The Master of the Rolls makes a speech saying how these extremely controversial and socially devisive reforms are to be implemented.
  • The Court of Appeal, comprising the Master of the Rolls and two other judges endorses that approach.

As Mandy Rice-Davies would have put it “They would, wouldn’t they?”

Thus the Court of Appeal has decided upon a review of the civil justice system, a Court of Appeal judge has produced a report subject to the most bitter criticism and controversy imaginable, a Court of Appeal Judge gives an implementation speech and the Court of Appeal endorses that speech.

That is not, and never should be, the way we do things in the United Kingdom.

So what approach did the Court of Appeal endorse? The following are quotes from the 18th implementation speech; and are extensively quoted in the Court of Appeal judgment.

“…Jackson reforms were and are not intended to render the overriding objective, or rule 3.9, subject to an overarching consideration of securing justice in the individual case. If that had been the intention, a tough application to compliance would have been difficult to justify and even more problematic to apply in practice.”

“…the relationship between justice and procedure has changed.”

So, procedure now triumphs over justice, although the Court of Appeal, entirely unconvincingly, denies that.

“The tougher, more robust approach to rule-compliance and relief from sanctions is intended to ensure that justice can be done in the majority of cases. This requires an acknowledgement that the achievement of justice means something different now.”

The Court of Appeal may as well have quoted Alice Through the Looking Glass.

“When I use a word, it means just what I choose it to mean.”

Justice is not a concept that should be changed by diktat of an unelected Court of Appeal judge, or indeed anyone else.

Of the tough approach and the rules and obligations

“…more importantly they serve the wider public interest of ensuring that other litigants can obtain justice efficiently and proportionately, and that the court enables them to do so.”

Given the issues raised in the Mitchell/press/police/Parliament cases it is breathtakingly Orwellian to conceive of depriving Mr Mitchell of the prospect of any costs as in “the wider public interest.”

At paragraphs 40 to 43 the Court of Appeal sets out guidance as to how the new approach should be applied in practice, although this writer takes the view that in this decision the Court of Appeal has NOT followed that guidance.

I set out those paragraphs at the end of this piece.

The court should grant relief if the non-compliance is trivial AND an application is made promptly.

The court should “usually grant relief if there has been no more than an insignificant failure to comply…failure of form rather than substance; or where the party has narrowly missed the deadline imposed by the order, but has otherwise fully complied with its terms.”

Isn’t that what happened here?

The Court of Appeal accepted that the need for solicitors to take on less work “may seem harsh especially at a time when some solicitors are facing serious financial pressures. But the need to comply with rules, practice directions and court orders is essential if litigation is to be conducted in an efficient manner. If departures are tolerated, then the relaxed approach to civil litigation which the Jackson reforms were intended to change will continue.”

The type of acceptable reason may be “that the party or his solicitor suffered from a debilitating illness or was involved in an accident.”

Entirely at odds with logic of its decision the Court of Appeal said:

“We should add that applications for an extension of time made before time has expired will be looked upon more favourably than applications for relief from sanction made after the event.”

I fail to see how that has any relevance to anything. What is the qualitative difference between an application made 6 hours before the deadline and one made 12 hours later?

That is indeed a triumph of procedure over substance, of technicality over justice, of systems over freedom, of rules over liberty.

This is demonstrated by the Court of Appeal’s criticism of Mr Justice Smith for allowing an extension of two days, yes two days, for the service of Particulars of Claim. The Judge had said:

“Nor do I accept that the change in the Rule or a change in the attitude or approach of the courts to applications of this kind means that relief from sanctions will be refused even where injustice would result.”

The Court of Appeal quoted that statement and rejected it:

“51. It seems to us that, in making this observation, the judge was focusing exclusively on doing justice between the parties in the individual case and not applying the new approach which seeks to have regard to a wide range of interests.”

Thus Mr Justice Smith is criticized for making a ruling that avoided injustice in a case of trivial breach.

The terms of the Judicial Oath are

“I do swear by Almighty God that I will well and truly serve our Sovereign Lady Queen Elizabeth the Second…and I will do right to all manner of people after the laws and usages of this realm, without fear or favour, affection or ill will.”

Right has not been done to Mr Mitchell. Right will not be done to many other fellow citizens if this wholly punitive, disproportionate and unjust decision is followed.

Shame on you.

“40. We hope that it may be useful to give some guidance as to how the new approach should be applied in practice. It will usually be appropriate to start by considering the nature of the non-compliance with the relevant rule, practice direction or court order. If this can properly be regarded as trivial, the court will usually grant relief provided that an application is made promptly. The principle “de minimis non curat lex” (the law is not concerned with trivial things) applies here as it applies in most areas of the law. Thus, the court will usually grant relief if there has been no more than an insignificant failure to comply with an order: for example, where there has been a failure of form rather than substance; or where the party has narrowly missed the deadline imposed by the order, but has otherwise fully complied with its terms. We acknowledge that even the question of whether a default is insignificant may give rise to dispute and therefore to contested applications. But that possibility cannot be entirely excluded from any regime which does not impose rigid rules from which no departure, however minor, is permitted.

  1. If the non-compliance cannot be characterised as trivial, then the burden is on the defaulting party to persuade the court to grant relief. The court will want to consider why the default occurred. If there is a good reason for it, the court will be likely to decide that relief should be granted. For example, if the reason why a document was not filed with the court was that the party or his solicitor suffered from a debilitating illness or was involved in an accident, then, depending on the circumstances, that may constitute a good reason. Later developments in the course of the litigation process are likely to be a good reason if they show that the period for compliance originally imposed was unreasonable, although the period seemed to be reasonable at the time and could not realistically have been the subject of an appeal. But mere overlooking a deadline, whether on account of overwork or otherwise, is unlikely to be a good reason. We understand that solicitors may be under pressure and have too much work. It may be that this is what occurred in the present case. But that will rarely be a good reason. Solicitors cannot take on too much work and expect to be able to persuade a court that this is a good reason for their failure to meet deadlines. They should either delegate the work to others in their firm or, if they are unable to do this, they should not take on the work at all. This may seem harsh especially at a time when some solicitors are facing serious financial pressures. But the need to comply with rules, practice directions and court orders is essential if litigation is to be conducted in an efficient manner. If departures are tolerated, then the relaxed approach to civil litigation which the Jackson reforms were intended to change will continue. We should add that applications for an extension of time made before time has expired will be looked upon more favourably than applications for relief from sanction made after the event.
  1. A similar approach to that which we have just described has been adopted in relation to applications for an extension to the period of validity of a claim form under CPR

7.6. In Hashtroodi v Hancock [2004] EWCA Civ 652, [2004] 1 WLR 3206, this court said that (i) the discretion to extend time should be exercised in accordance with the overriding objective and (ii) the reason for the failure to serve the claim form in time is highly material. At para 19, the court said:

“If there is a very good reason for the failure to serve the claim form within the specified period, then an extension of time will usually be granted….The weaker the reason, the more likely the court will be to refuse to grant the extension.”

  1. This approach should also be adopted in relation to CPR 3.9. In short, good reasons are likely to arise from circumstances outside the control of the party in default: see the useful discussion in Blackstone’s Guide to The Civil Justice Reforms 2013 (Stuart Syme and Derek French, OUP 2013) at paras 5.85 to 5.91 and the article by Professor Zuckerman “The revised CPR 3.9: a coded message demanding articulation” in Civil Justice Quarterly 2013 at pp 9 to 11.”

In The Dorchester Group ltd v Kier Construction Limited [2015] EWCH 3051 (TCC) Mr Justice Coulson considered whether there was any justification for an increase on the costs incurred in relation to disclosure where it had exceeded the Costs Budget and concluded that there was indeed no good reason for such an increase.

The judge commented on the disclosure process as follows:-

‘19.         Before coming onto the Disclosure Application, I should set out a little of the background relating to disclosure in this case. That is in part because I have concluded that Kier’s disclosure process has, at least to an extent, gone awry.

20   When I fixed the budget costs in this case, Kier asked me to fix the budget for disclosure at £146,000.00. Following debate I identified a lower figure of £120,000.00. My figure reflected the fact that disclosure was to be on the standard basis, and that the relevant documents related to one sub-contract between Kier and Mitie, relating to one London building project. In my view, disclosure should not be difficult or time consuming in a case like this.

  1. That it has moved to be both is not due to any change in the underlying nature of the case. On the fact of it, these difficulties would appear to be linked to the way which Kier have gone about the disclosure exercise. ‘

The judge then went on to set out how Kier used a third party review team based in South Africa to review some 313,000 documents of which some 303,000 were coded as irrelevant and the remainder were then reviewed by Kier’s solicitors who decided that of those remaining 45% were in fact relevant and that therefore under 5,000 documents were disclosed which was under 2% of the total amount reviewed.

There was a separate electronic review of data in respect of something in excess of 100,000 documents but only 20 of those were disclosed.

Mr Justice Coulson commented that the disclosure process had been cumbersome and inadequate which was indicated by the fact that Kier had sought an extension of time to extend the order for disclosure from 24 July to 11 September 2015 and even then the disclosure was inadequate which was accepted by Kier’s solicitors on 2 October and further disclosure was provided on 13 October only six weeks before the trial. Furthermore Kier accepted that further searches were still ongoing.

Kier stated that they had in fact spent a figure in the region of £500,000.00 on disclosure which is more than three times their original proposed budget and far beyond what Mr Justice Coulson considered to be a reasonable figure.

In this case the court had ordered Standard Disclosure and that requires that a party has to disclose

“(a) the documents on which he relies; and

(b) the documents which

(i) adversely affect his own case;

(ii) adversely affect another party’s case; or

(iii) support another party’s case.”

Counsel for the Dorchester Group argued that where the court had ordered disclosure on a standard basis, such as in this case, then it should not now permit the basis of disclosure to change to any wider or more generous basis. The judge accepted that submission but indicated that that did not mean that the search for other documents, which are within the Standard Disclosure category, should somehow be avoided and that it was still necessary to look at individual category sought, item by item.

Counsel for the Dorchester Group argued that any order for specific disclosure had to be proportionate and that the court had to consider the costs incurred in complying with such an order and the likely benefit to either party. He observed that if there were documents missing in this case then that would be to work to Kier’s disadvantage at trial since they had the burden of showing what the undisclosed or missing information might well have been.

Mr Justice Coulson said in his judgment:

  1. I respectfully agree with both the test and the additional observation. But I do not accept that the mere fact that Kier have spent so much more on disclosure than they originally intended means, of itself, that no further order should be made on the grounds of proportionality. As I have said, I have formed the view that the disproportionate costs of the Kier disclosure exercise are due to the way in which the exercise itself has been carried out.

Mr Justice Coulson then proceeded to deal with the substantive issue of the particular applications for disclosure in relation to the various categories and made a variety of orders ranging from disclosure of specific categories of documents and refusal of others based upon relevance and proportionality. In respect of some categories of documents an order was made that the party file a Witness Statement dealing with their attempts to locate those documents as they had not been able to do so.

As far as the Costs Budget was concerned the fact that the Defendant had incurred excessive costs was not a ground for increasing the Costs Budget but nor was it a ground for disallowing further disclosure.

INACCURATE COSTS ESTIMATES

I am grateful to Simon Gibbs for the following extract from his blog of February 17 2015:

“The move from costs estimates to costs budgets has left rather a mess in the rules due to the absence of transitional provisions.

Nevertheless, under the old rules, and to the extent to which the old costs estimate rules continue to apply, the response of receiving parties to objections concerning inaccurate estimates is invariably, in my experience, misplaced.

Receiving parties almost always rely on the guidance given at paragraph 29 of Leigh v Michelin Tyre Plc [2003] EWCA Civ 1766:

“In our view, para 6.6 of the practice direction gives the court the power to take matters such as these into account in deciding whether, and if so how far, to reflect them in determining what costs it is reasonable to order the paying party to pay on an assessment. We do not, however, consider that it would be a correct use of the power conferred by para 6.6 to hold a party to his estimate simply in order to penalise him for providing an inadequate estimate. Thus, if (a) the paying party did not rely on the estimate in any way, (b) the court concludes that, even if the estimate had been close to the figure ultimately claimed, its case management directions would not have been affected, and (c) the costs claimed are otherwise reasonable and proportionate, then in our view it would be wrong to reduce the costs claimed simply because they exceed the amount of the estimate. That would be tantamount to treating a costs estimate as a costs cap, in circumstances where the estimate does not purport to be a cap.”

However, the guidance given in that case concerned an earlier version of CPD 6.6:

“On an assessment of the costs of a party the court may have regard to any estimate previously filed by that party, or by any other party in the same proceedings. Such an estimate may be taken into account as a factor among others, when assessing the reasonableness of any costs claimed.”

The Leigh judgment gave guidance as to how this should be applied in circumstances where the CPD was silent as to the approach to adopt.

Following Leigh, CPD 6.6 was significantly amended:

“(1) On an assessment of the costs of a party, the court may have regard to any estimate previously filed by that party, or by any other party in the same proceedings. Such an estimate may be taken into account as a factor among others, when assessing the reasonableness and proportionality of any costs claimed.

(2) In particular, where –

(a) there is a difference of 20% or more between the base costs claimed by a receiving party and the costs shown in an estimate of costs filed by that party; and

(b) it appears to the court that –

(i) the receiving party has not provided a satisfactory explanation for that difference; or

(ii) the paying party reasonably relied on the estimate of costs;

the court may regard the difference between the costs claimed and the costs shown in the estimate as evidence that the costs claimed are unreasonable or disproportionate.”

The amended CPD did not simply mirror the guidance in Leigh. It went further and produced a more robust test. Although the CPD was, no doubt, amended as a consequence of the Leigh decision, it was not an amendment designed to simply codify the Leigh guidance. Indeed, it is difficult to see that the guidance in Leigh was (or is) of much, if any, relevance, to detailed assessments undertaken after the CPD was amended.”

Recoverability of costs of negotiating costs

In Tasleem v Beverley [2013] EWCA Civ 1805 it was suggested that issuing Part 8 costs-only proceedings was not part of the detailed assessment proceedings and thus such costs fall outside the £1,500 cap for provisional assessment:-

“The bringing of Part 8 costs-only proceedings is not the commencement of, or part of, the detailed assessment proceedings, albeit it is a necessary preliminary to that process if there are no underlying proceedings in existence.”

This raises the issue of work done in relation to negotiating costs prior to Part 8 proceedings being issued and the earlier Court of Appeal decision in Crosbie v Munroe [2003] EWCA Civ 350 was simple and logical. There were two types of costs:-

  1. Those costs incurred in relation to the substantive claim.
  1. Those costs incurred quantifying the costs of the substantive claim. This would cover all work post-settlement of the substantive claim negotiating costs, dealing with Part 8 proceedings and through the assessment process.

Brooke LJ explained at paragraph 34:

“By this route it is easy to see that even when Part 8 proceedings have to be commenced in order to obtain a court order for detailed assessment, the ‘costs of the proceedings’ within the meaning of CPR 47.19 still relate only to the costs leading up to the disposal (on this occasion by agreement) of the substantive claim. They are ‘the proceedings which gave rise to the assessment proceedings’, and the assessment proceedings cover the whole period of negotiations about the amount of costs payable through the Part 8 proceedings to the ultimate disposal of those proceedings, whether by agreement or court order.”

Some of the difficulties are created by the confusing wording in the CPR and Practice Directions:-

CPR 46.6

  • Detailed assessment proceedings are commenced by the receiving party serving on the paying party –
  • notice of commencement in the relevant practice form; and
  • a copy of the bill of costs.”

This appears to support the Tasleem decision, that is that issuing Part 8 proceedings is not part of the assessment proceedings, simply a necessary preliminary step. On this analysis, service of the N252 commences the detailed assessment proceedings and work done before this falls outside the process and therefore outside the provisional assessment cap.

However Practice Direction 47 paragraph 5.19 states:-

“The bill of costs must not contain any claims in respect of costs or court fees which relate solely to the detailed assessment proceedings other than costs claimed for preparing and checking the bill.”

Implicit in this is the fact that the costs of drafting the bill are part of the detailed assessment proceedings, even if it is permissible to include these in the bill. Clearly a bill must be drafted before an N252 is served and the only court fee that might normally be incurred before a bill is drafted is the Part 8 issue fee.

This was the reason CPR 47.15(5) was amended from:-

“The court will not award more than £1,500 to any party in respect of the costs of the provisional assessment.”

to the current CPR 47.15(5):-

“In proceedings which do not go beyond provisional assessment, the maximum amount the court will award to any party as costs of the assessment (other than the costs of drafting the bill of costs) is £1,500 together with any VAT thereon and any court fees paid by that party.”

If the costs of drafting the bill were not costs of the assessment then the issue would never have arisen; a bill will always be drafted before it is served with an N252.

The distinction between whether work does or does not fall within the detailed assessment proceedings is made more important by the fact so many cases are now subject to provisional assessment.

Example

A claim settles prior to proceedings being issued with the defendant agreeing to pay the claimant’s costs. The claimant serves a draft bill and the defendant serves draft points of dispute. The claimant serves draft replies. Negotiations continue for several months and then break down and the claimant issues Part 8 proceedings.

An order for costs is made and the bill of costs is formally served.

Can it be argued that all of the work done up until the point at which the bill of costs is formally served falls outside the detailed assessment proceedings, because it pre-dates service of the N252, and therefore the cap of £1,500 does not apply?

If it does then CPR 47.15(5) should be amended accordingly.

Another twist that has arisen in Tasleem can be found at paragraph 13:-

“We have not called upon Mr Mallalieu [for the Claimants] to respond on behalf of the respondents to this appeal, but in his written arguments it is clear that he does not quarrel with the proposition that when there is an underlying claim followed by a notice of commencement of detailed assessment proceedings and a default costs certificate, the recoverable costs are limited to those in the default costs certificate. In such a case, the costs specified in it are apt to cover the additional costs the receiving parties incurred by using the procedure, subject only to the cap of the fixed costs regime.”

If that is correct then the following situation should be considered:-

Proceedings are issued in relation to the substantive claim which settles with the defendant being liable for the claimant’s costs. A bill is informally served and several months of heated negotiations then take place in relation to costs and break down whereupon a bill is formally served.

The defendant fails to file points of dispute and the claimant obtains a default costs certificate.

Are the claimant’s costs limited to those shown on the “default costs certificate” and is nothing recoverable for the months of negotiations?

We now await clarification from the Court of Appeal or the Rules Committee…

COSTS PROTECTION / COSTS CAPPING ORDERS

 

In Black v Arriva North East Limited [2014] EWCA Civ 1115

the Court of Appeal rejected an application for a costs capping order.

Here, the appellant appealed against a judgment in a disability discrimination case but had not taken out a sufficient level of After-the-Event insurance before such insurance became unrecoverable by virtue of the Legal Aid, Sentencing and Punishment of Offenders Act 2012.  Thus any fresh premium, to cover the increased level of cover required, would not be recoverable.

Consequently the appellant sought to have Arriva’s costs capped at £50,000.00.

The Court of Appeal pointed out that this would now apply to all new cases as a result of Parliament ending recoverability of After-the-Event insurance premiums by means of LASPO 2012.

“So the argument could be raised in any appeal brought in respect of a case under that Act.  Such a result is difficult to square with the indication in the Practice Direction that an order for costs capping should only be made in exceptional circumstances” (paragraph 12).

The Court of Appeal also pointed out that it is not a function of costs capping orders to remedy the problems of access to finance for litigation.  “If for instance, the respondent’s costs were agreed to be proportionate, it would not be possible to exercise any jurisdiction to make a costs capping order simply because without it the appeal would not continue to be financially viable.”

That is because CPR 3.19(5) (b) only allows a costs capping order if “there is a substantial risk that without such an order costs will be disproportionately incurred…”

There were other fact- specific reasons for refusing a costs capping order in this case but they do not establish any new legal principles.

Interestingly one of the submissions made in favour of a costs capping order, but rejected, was that there was a lacuna in the law in that Qualified One-Way Costs Shifting applied in personal injury cases but not Equality Act cases.  As this is a disability discrimination claim in relation to the provision of services one would expect damages for injuries to feelings to be available.  The issue as to whether such damages are in fact damages for personal injuries, and thus covered by QOCS, does not appear to have been considered in this case.

“Another factor was that the potential subject of the Costs Capping Order – Arriva – had already incurred vastly more costs than £50,000.00 prior to the application being made and therefore the Costs Capping Order would have been retrospective:-

“The effect of what I have described is that by the time of the application, the major part of the solicitor’s costs of the appeal have been incurred. The effect of the order sought would, therefore, be that the respondents will have already spent what is, if the Costs Capping Order is made, in substance a budget laid down by the court without knowing that it had to stick to that insofar as it sought to recover its costs. In principle, the person who is the subject of the Costs Capping Order ought, so far as possible, to know the budget to which he must work in advance.” (Paragraph 25).

Shorter Trial Pilot Scheme

Costs Budgeting was supposed to assist the court in costs management and vastly reduce the need for detailed assessment at the end of a case. The process was supposed to operate in a similar fashion to Summary Assessment but with the difference being that Costs Budgeting was carried out  closer to the beginning of a claim where a Summary Assessment was at the end. There have been numerous problems with Costs Budgeting and readers will be well aware of these problems from the numerous cases regarding the Cost Budgeting process.

However a new shorter trial pilot scheme is being introduced in the Rolls Building which will try to reduce these problems. The process will dispense with Costs Budgeting unless the parties agree otherwise and one would assume that practioners will rarely agree to do so. The parties shall file and exchange schedules of their costs incurred in the proceedings within 21 days of the trial or such other period as ordered by the court. The schedules should contain sufficient detail in relation to each phase identified by Precedent H which will enable the trial judge to be in a position to make a Summary Assessment of the costs and that will happen save in exceptional circumstances.

The theory behind this scheme is that the cost and delay of Costs Budgeting will be avoided along with a vast reduction in the costs of assessment. However that effectively defeats the whole concept of Costs Budgeting which was that the parties would understand at a relatively early stage what costs they are likely to face as the case progresses. Summary Assessment of costs which are not dependent upon a budget will still result in the age old problem of the fact that it is an assessment of costs which have already been incurred and with all the associated arguments that have dogged the assessment process for many years.

The pilot scheme will apply to only a limited number of commercial claims but presumably it will only be a matter of time before it is extended to other areas of litigation.

Given that the test of proportionality is now the overriding factor in an assessment it seems that this process is simply a backdoor way of introducing Costs Capping at a proportionate figure.

Costs Budgeting and  the Commercial Court

On 16 October 2015 the Commercial Court Users Group Committee published details of matters discussed at its meeting on 7 October 2015.

Mr Justice Flaux noted that the practice in the Commercial Court is to allow parties to apply to amend their costs budgets retrospectively. This is because the court considers that it deals with many cases where it is not possible to produce precise budgets in advance.

He also noted that the court will consider adjourning costs budgets matters if the parties consider the first Case Management Conference to be an inappropriate time to deal with them.

 

Costs Capping and CPR52.9A

 

In Tidal Energy v Bank of Scotland plc [2014] EWCA Civ 847

the Court of Appeal rejected an application for costs capping in a forthcoming Court of Appeal hearing holding that costs capping is not generally appropriate when costs can be controlled on assessment.

CPR 3.19 reads, where relevant:-

“(5)  The court may at any stage of proceedings make a costs capping order against all or any of the parties, if –

  • it is in the interests of justice to do so;
  • there is a substantial risk that without such an order costs will be disproportionately incurred; and
  • it is not satisfied that the risk in subparagraph (b) can be adequately controlled by –
  • case management directions or orders made under this Part; and

(ii) detailed assessment of costs.”

Here the applicant applied for a costs capping order to provide that it would not have to pay the costs of leading counsel to be engaged by its opponent.

The Court of Appeal considered that the test in CPR 3.19 was not satisfied and that the costs of leading counsel could be disallowed on assessment if the court felt leading counsel to be an “unnecessary luxury”.

The Court of Appeal thus followed the decision in Eweida v British Airways Plc [2009] EWCA Civ 1025.

Comment

 

The problem with after-the-event costs control – that is by detailed assessment – is that a party will not know until the end of the case, when by definition it is too late, what costs bill it will face.

Thus a rich party can make it clear that it will incur very significant costs and use this as a threat to encourage a party to settle. This is a particular risk where the “poor” party has won at first instance (not the case here) where the rich party can use the threat of the costs of an appeal to intimidate financially the poorer party.

This is the role that CPR 52.9A is designed to remedy, but only where the appeal is from a jurisdiction where recoverable costs in the court below are limited or nil, for example employment tribunals and the Employment Appeal Tribunal.

That CPR 52.9A applies only to such cases was confirmed in

JE (Jamaica) v Secretary of State for the Home Department [2014] EWCA Civ 192

 “52.9A

 

  • In any proceedings in which costs recovery is normally limited or excluded at first instance, an appeal court may make an order that the recoverable costs of an appeal will be limited to the extent which the court specifies.
  • In making such an order the court will have regard to –

(a) the means of both parties;

(b) all the circumstances of the case; and

(c) the need to facilitate access to justice.

(3) If the appeal raises an issue of principle or practice upon which substantial sums may turn, it may not be appropriate to make an order under paragraph (1).

(4) An application for such an order must be made as soon as practicable and will be determined without a hearing unless the court orders otherwise.”

 

PROTECTIVE COSTS ORDERS

 

In R (HS2 Action Alliance and Another ) v The Secretary of State for Transport and Another [2015] EWCA Civ 203

the Court of Appeal held that local authorities can benefit from the Environmental Protective Costs Orders Regime set out in CPR 45 and Practice Direction 45.
The Environmental Protective Costs Order Regime applies to Aarhus Convention cases whereby members of the public can challenge decisions taken by public authorities in relation to environmental matters. It caps the costs that one party has to pay to the other party.

Access to environmental justice is enshrined in the Aarhus Convention on Access to Information, Public Participation in Decision-making and Access to Justice in Environmental Matters and Article 9 of that Convention gives the public the right to challenge environmental decisions made in breach of the first two parts of the Aarhus Convention, that is on Access to Environmental Information and Participation in the Environmental Decision-making Process, or in breach of other environmental legislation.

The third part includes a number of safeguards including the requirement that the judicial procedures to challenge environmental decisions must not be “prohibitively expensive”.

In England and Wales the court can order that the claimant’s liability to the defendant for costs be capped at:-

£5,000.00 for individual claimants;

£10,000.00 for organisations.

This is achieved through CPR 45 which has been in place since April 2013.
This case concerned a challenge to the proposed new High Speed 2 Rail Network.

In December 2014 the Court of Appeal dismissed an appeal by HS2 Action Alliance Ltd against the August 2014 decision of the High Court that a Strategic Environmental Assessment was not needed. The London Borough of Hillingdon was the second appellant in that appeal and the High Court had applied CPR 45 and capped the contribution that the appellants should make to the defendant’s costs at £10,000.00 each, each of the appellants being an organisation.

The defendant, the Secretary of State for Transport argued that the London Borough of Hillingdon was not a claimant under the rules because the Aarhus Convention distinguishes between “the public” and “public authorities” and that the London Borough of Hillingdon was a public authority and as such not entitled to the protection given by Article 9 of the Aarhus Convention to members of the public.

In October 2014 the High Court rejected that argument and on 11 March 2015 the Court of Appeal upheld the decision of the High Court.

The Court of Appeal said that local authorities could be claimants for the purposes of the Environmental Protective Costs Regime under CPR 45 because:-

  • once it was established that the Aarhus Convention applied the Convention was not relevant to determining the actual costs liabilities of the parties; that was a matter dealt with in CPR 45.43 and the accompanying Practice Direction:-
  • -taking into account the Government’s August 2012 response to the consultation on the Environmental Protective Costs Order Regime it would be wrong to infer that public authorities were excluded from the scope of claimants who could benefit from costs capping protection as that would undermine the legal certainty in a way which the government had wished to avoid;
  • inferring that certain claimants cannot benefit at all from the costs caps would be inappropriate as CPR 45.43 provides that the Practice Direction can prescribe a different level of costs cap for different types of claimants and thus could prescribe a higher level of costs caps for local authorities if it so wished;

The words in Practice Direction 45 should be given their natural meaning. The court accepted that this could lead to bizarre consequences, for example, that the Central Government could be entitled to costs protection if it challenged an environmental decision made by a Local Authority.

However the Court of Appeal said that it would be just as bizarre to exclude all public authority claims from costs protection as this would mean excluding the lowest level of public authority, for example Parish Councils in England, who might challenge Central Government’s environmental decisions.

 

 

Patents County Court – Caps

 

Patents County Court cases are subject to costs caps of £50,000 on the final determination of liability and £25,000 on an inquiry as to damages or account of profits.

In Azzurri Communications Limited v International Telecommunications Equipment Limited trading as SOS Communications [2013] EWPCC 22, 16 April 2013

the successful claimant argued that as the trial included a determination of liability and a decision on quantum he was entitled to £75,000, being the sum of both caps.

The court disagreed, holding that where there was only one set of proceedings with one trial then only one cap, that of £50,000, applied.  The rules only contemplated separate caps if there were separate proceedings.

Patents County Court – Conditional Fee Agreements

 

In Jodie Henderson v All Around The World Recordings Limited [2013] EWPCC 19, 27 March 2013

the claimant had entered into a conditional fee agreement with her solicitor and had taken out after-the-event insurance.

The issue was whether those recoverable additional liabilities came within the cap, or were in addition to it.

The court held that “costs” included additional liabilities, both within the cap and by reference to scale costs and therefore no additional liabilities were recoverable.

Costs Free Zones

In The Manchester College v Hazel and another [2013] EWCA Civ 281

the Court of Appeal held that the claimants, who were resisting an appeal from their win in both the Employment Tribunal and the Employment Appeal Tribunal, were entitled to a costs protection order, that is an order that whatever the outcome of the appeal there be no order for costs.

Generally the Court of Appeal is free to impose such an order as a condition of granting leave to appeal (CPR 52.3(7)).  However, here the application was retrospective, that is after leave to appeal had been given, and in those circumstances, in a pre-Jackson application there had to be a “compelling reason” to so order.

That was old CPR 52. The new CPR 52.9, in force from 1 April 2013, provides that where justice so requires the court could exclude or limit costs recovery where a case has passed from a “no costs” or “low costs” jurisdiction to a court with full costs-shifting powers.

Lord Justice Jackson decided the case under the old law and found that there was a compelling reason, but part of his reason for so finding was that the claimants could simply have waited until 1 April 2013 and made a fresh application which was bound to succeed under the new rule, designed precisely for cases such as this.

The Court of Appeal made it clear that the new rule has a wider application than just appeals from the Employment Appeal Tribunal to the Court of Appeal (paragraph 33).

At paragraph 30 the court said:

“Many individuals of modest means who litigate in “no costs” jurisdictions are often without legal representation.  It is usually unjust to subject such litigants to a risk of adverse costs when they proceed to a higher level. This is particularly so if they win at first instance and are dragged unwillingly into an appeal.  It may also be unjust to impost a costs risk if the litigant loses at first instance, but has proper grounds for bringing an appeal.”

THE FUTURE OF COSTS BUDGETING

 

I can’t go back to yesterday because I was a different person then.”

  • Lewis Carroll, Alice’s Adventures in Wonderland

In his keynote speech at the “Costs Law and Practice” Conference On 30 September 2014, Lord Justice Jackson, stated that

 

“The time has now come to take stock and to develop a scheme for fixed costs in the lower reaches of the multi-track. Such a scheme may be particularly welcome now, because it will dispense with the need for costs management and costs budgeting in cases valued at less than £250,000. At the same time litigants will have certainty as to (a) their costs exposure if they lose and (b) their future costs recovery if they win.”

Approval has recently been given to the new J-Codes. These are integral to future case management software that will be used for drafting of costs budgets, costs schedules and bills of costs. The primary aim of the new J-Codes is to enable the courts in England and Wales to summarise and analyse time worked and costs incurred by lawyers during a litigation case.

The new bill of costs format will mirror the various phases that appear within costs budgets so that it will therefore be possible to see whether there has been an overspend in any phase.

However the new J-Codes are not intended to be mandatory. Alexander Hutton QC, who sits on the committee who is developing the new bill of costs format has stated

“All that is planned is that there will be a model bill of costs in the relevant Practice Direction just like there is now but which will be our committee’s recommended bill based on the J-Code time recording system (although it will be able to construct from scratch not having used the J-Codes, just as now).”

The idea is that a firm’s time recording system will generate both a Precedent H form and a bill of costs, where the bill can easily be compared to whatever was allowed in the approved budget in relation to each phase of work.

Unfortunately this is not expected to be ready for another 12 to 18 months but what is clear is that costs budgeting is here to stay.

SPREAD OF COSTS BUDGETING

There is pressure for costs budgeting to be introduced in Court of Protection cases – see the judgment of Mr. Justice Peter Jackson in A and B (Court of Protections: Delay and Costs) [2014] EWCOP 8 and in the Family Court – see the judgment in J v J [2014] EWHC 3654 (Fam).

 

LINKS

Precedent H and Guidance Notes:

  1. Guidance Notes on Precedent H
  1. Precedent H

For some useful guidance on dealing with Precedent H and costs budgeting in general see Gordon Exall’s blogs:

  1. Costs Management Hearings and Form H: Practical Guidance and a Useful Schedule.
  1. Costs Budgeting, Case Management & Technology: Useful Documents & Free Bundle Preparation for Case Management Hearings.
  1. Precedent H and Costs Budgeting: New Links and Old Links
  1. Precedent H: Pulling It All Together: Links To The Useful Posts On Costs Budgeting
  1. Updated Guidance: Links To Help In Completing Precedent H and Costs Budgeting

 

Other links:

 

  1. Consultation Paper – Costs Budgeting and Costs Management

 

  1. Litigation Committee response to the Civil Procedure Rule Committee’s consultation on costs budgeting and costs management
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Written by kerryunderwood

November 13, 2015 at 1:17 pm

Posted in Uncategorized

9 Responses

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  1. […] Please also see my related blog: COSTS MANAGEMENT ORDERS & COSTS BUDGETING […]

  2. […] Kerry Underwood (and Robert Males) Costs Management Orders & Costs budgeting: revised […]

  3. […] Costs Management Orders and Costs Budgeting: Revised […]

  4. Dear Kerry,

    Following Provisional Assessment it was clear that we had done better than our own Part 36 offer so we sought an additional 10% from the Defendant pursuant to CPR 36.17. They declined to pay. We made an application seeking such a payment and eventually they paid before the application could be heard. Now they refuse to pay the costs of the application (including the fee) on the basis that these are part of the provisional assessment costs capped at £1,500! Surely a separate freestanding application pursuant to CPR 36.17 is not part of the PA process and the costs of it must be at large?

    Ian Foster

    Ian Foster

    December 15, 2015 at 2:00 pm

    • Ian

      I agree – and I would expect you to get indemnity costs on such an application.

      Kerry

      kerryunderwood

      December 16, 2015 at 1:11 pm

  5. Hi Kerry. Quick question. A Claimant being legally aided (a rare occurrence I know!) does not prevent him having to prepare a costs budget in a multi track case does it?
    Sue

    Sue

    January 29, 2016 at 10:35 am

    • Sue- correct- main purpose of budget is for opponent to see potential exposure which applies just as much in a legally-aided case as in any other case.

      Kerry

      kerryunderwood

      January 29, 2016 at 10:47 am

  6. Here is one for the book. I had a Allocation / Directions / Budget Hearing in Manchester last week ( Fraud RTA) .
    DJ Hayes had ordered C & D to file /serve Budgets.
    D did not bother, but I did. At the hearing we submitted that D ‘As Per Mitchell’ was reduced to Court fees only, even if the Court orders that FRC apply for failing to file the budget.

    Judge then multi tracked the case, ordered FRC and said ” In relation to second point, and that is whether or not what could be said to be a cavalier approach of D to fail to file and serve a cost budget, means that D is caught by CPR 3.14. As eloquently as Mr K puts it, having looked at 3.14/3.15/3.16 it would be illogical to reach conclusion that Mr King invites me to do so having regard to 3.12(d). If I find that the case is subject to fixed costs then the obligation has no effect. If court reaches a different conclusion then D may have found themselves in difficulties but that is not an eventuality that has arisen.”

    Basically, if you are ordered to file / serve budgets but believe FRC apply, don’t bother; the Court is completely cool with it. Sols are not ok to second guess Allocation Hearings.

    Crazy !

    Gavyn

    May 9, 2016 at 12:03 pm

  7. Thanks Gavyn! 😰

    kerryunderwood

    May 10, 2016 at 6:19 am


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