Kerry Underwood

COSTS BUDGETS: NEW RULES

with 26 comments


New rules in relation to costs budgeting came in on 6 April 2016, but only apply to proceedings issued after that date and so will only now be starting to have effect.

 

Dates for filing costs budgets

 

New CPR 3.13 provides:-

 

“3.13.

  • Unless the court otherwise orders, all parties except litigants in person must file and exchange budgets—

 

  • where the stated value of the claim on the claim form is less than £50,000, with their directions questionnaires; or

 

  • in any other case, not later than 21 days before the first case management conference.

 

  • In the event that a party files and exchanges a budget under paragraph (1), all other parties, not being litigants in person, must file an agreed budget discussion report no later than 7 days before the first case management conference.”

 

The sanction remains the same,  that is that failure to file the budget on time results in the defaulting party having its own costs budget limited to court fees, unless relief from sanction is granted.

 

In those circumstances, that is where the costs budget is limited to court fees, this rule has been softened in relation to the situation where a claimant matches or beats its own Part 36 offer at trial.

 

By virtue of CPR 36.23 such a claimant can get 50% of its assessed costs without reference to that limitation.

 

Likewise a defendant who makes an offer which a claimant fails to beat shall receive 50% of its assessed costs from the period from the expiry of the time for accepting the Part 36 offer until settlement or court order stop.

 

There is little problem with CPR 3.13(1) (a) as the parties know when the Directions Questionnaires are to be filed, but (b) can cause problems as the costs budget has to be filed 21 days before the first Case Management Conference, even if the court only gives little notice, due to the frequent and lengthy time gap between the court making the order and the order being sent out.  

 

Simon Gibbs, in his excellent Legal Costs Blog states in his post on 19 July 2016 – Date to File Costs Budgets

 

“It is difficult to see the logic behind the different dates for when the budgets should be filed and exchanged.  To do so with the directions questionnaire, for lower value claims, is inevitably a costs front-loading step.  It is likely to be a more disproportionate additional cost for these lower value claims than it would be for higher value ones.  It is also more likely to be an additional wasted cost as lower value claims are, on average, more likely to settle at an early stage in proceedings and often well before a CMC (when a costs management order might actually be made).

 

The latter problem is compounded by the fact that the courts continue to struggle to list matters for CMCs at an early stage.  The consequence of this is that by the time the matter does reach a CMC the earlier costs budgets will often be out-of-date and largely redundant (with the work therefore either being wasted or having to be repeated with up-to-date budgets).

 

It is unfortunate that the rules have been drafted in such a way as to generate a largely unnecessary and unhelpful front-loading of costs.  Unless you are a costs lawyer or law costs draftsman I suppose.”

 

It has also been pointed out that the “unless the court otherwise orders” provision still remains in force and that courts are still sending out the Notice of Allocation which contains a provision that budgets are to be filed with the Directions Questionnaire regardless of the value. On the face of it this conflicts with CPR 3.13, but is arguably allowed under the “unless the court otherwise orders” provision, even though no one will have actually made a decision.

 

Changes to Practice Direction 3-E Costs Management

 

Sub-paragraph (b) provides that “parties must follow the Precedent H Guidance Notes in all respects”.

 

(c) states:-

 

“(c) In cases where a party’s budgeted costs do not exceed £25,000 or the value of the claim as stated on the claim form is less than £50,000, the parties must only use the first page of Precedent H.”

 

Thus if the value of the claim as stated on the Claim Form is less than £50,000.00 then only the first page of Precedent H must be completed.

 

Even if the value of the claim stated on the Claim Form is £50,000.00 or more then only first page of Precedent H must be completed if the party’s budgeted costs are £25,000.00 or less.

 

In non-multi track claims and fixed costs cases there is no requirement to file a budget. Consequently claims for damages for £25,000 or less, which will normally be fast-track claims, do not require a budget unless allocated to the multi-track. A higher value claim not allocated to the multi-track does not require a budget either.

Fixed Costs cases can be allocated to the multi-track, for example if there is an allegation of fraud, but do not require a budget unless the court so orders, which it may well do in those circumstances.

 

Budget discussion report

 

New Practice Direction 3 – E – C – 6A provides:-

 

“The budget discussion report required by rule 3.13(2) must set out—

 

(a)          those figures which are agreed for each phase;

 

(b)          those figures which are not agreed for each phase; and

 

(c)           a brief summary of the grounds of dispute.

 

The parties are encouraged to use the Precedent R Budget Discussion Report annexed to this Practice Direction.”

 

Precedent R is here.

 

Other changes

 

Exemption for children

 

A new CPR 3.12(1 )(c) is inserted:-

 

“(c)         where in proceedings commenced on or after 6th April 2016 a claim is made by or on behalf of a person under the age of 18 (a child) (and on a child reaching majority this exception will continue to apply unless the court otherwise orders); or

 

  • where the proceeding are the subject of fixed costs or scale costs; or

 

(e) the court otherwise orders.”

 

CPR 3.12 is the exception provision and the full rule may be found here.

 

This new provision may well apply to fatal accident cases where a claim is brought on behalf of a child, even where the child is not a party as the rules state “made by or on behalf of a child”. Thus in a fatal accident case where one of the dependents is a child this provision may apply. The action may be brought by the executors, administrators or other dependents, but the claim is brought on behalf of all of the dependents.

 

Impaired life expectancy

 

As we have seen the exemption for children is part of the Civil Procedure Rules. The Practice Direction provides another potential exemption in that it states that the court will “normally dis-apply” costs management in a case where the claimant has limited or severely impaired life expectancy.

 

The relevant Practice Direction is PD 3E-2(b) which reads:-

 

“(b) In cases where the Claimant has a limited or severely impaired life expectation (5 years or less remaining) the court will ordinarily disapply cost management under Section II of Part 3.”

 

No fixing of hourly rates

 

Generally courts have not set hourly rates at the costs budgeting stage and there is a new Practice Direction at paragraph 7.10 of Practice Direction 3-E:-

 

“7.10 The making of a costs management order under rule 3.15 concerns the totals allowed for each phase of the budget. It is not the role of the court in the cost management hearing to fix or approve the hourly rates claimed in the budget. The underlying detail in the budget for each phase used by the party to calculate the totals claimed is provided for reference purposes only to assist the court in fixing a budget.”

 

Bill of Costs to show each phase

 

In Practice Direction 47 – Procedure for Assessment of Costs and Default Provisions – new sub-paragraphs 5.8(7), (8) and (9) are inserted as follows:-

 

“(7) Where the case commenced on or after 1 April 2013, the bill covers costs for work done both before and after that date and the costs are to be assessed on the standard basis, the bill must be divided into parts so as to distinguish between costs shown as incurred for work done before 1 April 2013 and costs shown as incurred for work done on or after 1 April 2013.

 

(8) Where a costs management order has been made, the costs are to be assessed on the standard basis and the receiving party’s budget has been agreed by the paying party or approved by the court, the bill must be divided into separate parts so as to distinguish between the costs claimed for each phase of the last approved or agreed budget, and within each such part the bill must distinguish between the costs shown as incurred in the last agreed or approved budget and the costs shown as estimated.

 

(9) 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, (a) the costs of initially completing Precedent H and (b) the other costs of the budgeting and costs management process must be set out in separate parts.”

 

The amendment rules are the Civil Procedure (Amendment) Rules 2016 and are here 

The 83rd Update – Practice Direction Amendments – are here.

I am very grateful to Gordon Exall for his indispensable blog – Civil Litigation Brief and to Simon Gibbs for his excellent Legal Costs Blog.

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Written by kerryunderwood

July 28, 2016 at 7:23 am

Posted in Uncategorized

26 Responses

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  1. Thanks, Kerry, for this timely and useful article – but you write “In sub- £25,000.00 claims … there is no requirement to file a budget” whereas CPR Practice Direction 3E actually provides that in such cases “the parties must use only the first page of Precedent H.”

    TimothyP

    August 3, 2016 at 2:42 pm

    • Timothy

      There is no requirement to file a budget in a fast track claim or in a fixed costs case, although if a sub- £25,000 claim is allocated to the multi-track then there is a requirement to file a budget.

      What CPR Practice Direction 3E deals with is the situation where the BUDGETED COSTS, not the damages, do not exceed £25,000. Then, indeed, the first page of Precedent H must be completed. Likewise if DAMAGES are less than £50,000 on the claim form, then again only the first page of Precedent H need be completed.

      However in a sub- £25,000 claim not allocated to the multi-track there is indeed no requirement to file a budget.

      Kerry

      kerryunderwood

      August 3, 2016 at 3:05 pm

  2. Hi Kerry,
    Where damages are pleaded at less than £50,000.00 but the costs claimed within the budget are more than £25,000.00 would we file just the front sheet of the budget or the whole budget?
    The Defendant in one of my cases raised issue with us filing just the front sheet, but PD 3E para 6 (c) seems clear to me that front sheet only should be filed.
    Thanks
    Robert

    Robert

    October 11, 2016 at 11:27 am

  3. Hi Robert

    Yes that is correct, only the first page of Precedent H must be completed in this situation because the damages pleaded in the case are less than £50,000.

    This is confirmed in the Civil Procedure Rules at Practice Direction 3E and also the guidance notes provided with precedent H.

    Practice Direction 3E Paragraph 6(c) states;

    “In cases where a party’s budgeted costs do not exceed £25,000 or the value of the claim as stated on the claim form is less than £50,000, the parties must only use the first page of Precedent H.”

    The Guidance notes on Precedent H state;
    “1. Where the monetary value of the case is less than £50,000 [or the costs claimed are less that £25,000] the parties must only use the first page of Precedent H.”

    Kerry

    kerryunderwood

    November 17, 2016 at 4:21 pm

  4. Hi… a little bit confused….(I’m a LIP btw)… but as far as I can see, the new rules state that unless otherwise ordered by the court, the costs budget shall be filed at least 21 days before the first CMC.

    In my claim in the High Court, (value exceeds £50k), the court has ordered that the costs budget be filed just 10 days before the first CMC, but the rules don’t state, or at least I can’t find anything, mentioning whether those should be calendar days or business days…I would appreciate any advice.

    Theda Bara

    Theda Bara

    February 19, 2017 at 7:31 am

  5. Many thanks, Kerry…

    Theda.

    Theda Bara

    February 19, 2017 at 11:25 am

  6. I have a notice of Proposed Allocation to the multi track. Value of the claim is 36k and not at all a complex case so parties agree for it to be a fast track. However, Notice of Proposed Allocation to multi-track requires a costs budget. you state, “A higher value claim not allocated to the multi-track does not require a budget either.” Whilst this seems sensible and I am inclined to agree, do you have any authority for this? Don’t want to be in breach of an Order

    Kim Bailey

    February 22, 2017 at 10:59 am

    • CPR 3.12(1) – only applies to multi-track, but court has power to order budget in any case.

      Kerry

      kerryunderwood

      February 22, 2017 at 3:59 pm

  7. Kerry, what would be the result of failing to file/serve a Budget Discussion Report?

    James

    February 28, 2017 at 2:10 pm

    • James

      Good question.

      CPR 3.13 reads:

      “(1) Unless the court otherwise orders, all parties except litigants in person must file and exchange budgets—

      (a) where the stated value of the claim on the claim form is less than £50,000, with their directions questionnaires; or

      (b) in any other case, not later than 21 days before the first case management conference.

      (2) In the event that a party files and exchanges a budget under paragraph (1), all other parties, not being litigants in person, must file an agreed budget discussion report no later than 7 days before the first case management conference.”

      Thus the obligations in relation to a budget discussion report are clear.

      However the section dealing with the penalty is CPR 3.14 which reads, in full:

      “Failure to file a budget

      3.14 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.”

      That draconian provision is well-known.

      However it does not refer to failure to file a budget discussion report and I suspect that when the requirement was inserted concerning budget discussion reports, no one thought to amend CPR 3.14.

      It is a moot point. On the face of it CPR 3.14 does not prescribe any punishment for failing to file a budget discussion report.

      However, no one should take the risk as a court may find that the word “budget” encompasses budget discussion reports and, as we have seen, failure to file a budget results in a very great penalty.

      Any other thoughts out there on this topic?

      Kerry

      kerryunderwood

      March 7, 2017 at 10:43 am

  8. Kerry,

    If you have issued a non-money claim would a budget be required to be filed and served with the DQ or would it be ‘any other case’ and 21 days before the first CMC?

    Many thanks.

    Sean

    March 1, 2017 at 10:04 am

    • Sean

      CPR 3.13 reads:

      “(1) Unless the court otherwise orders, all parties except litigants in person must file and exchange budgets—

      (a) where the stated value of the claim on the claim form is less than £50,000, with their directions questionnaires; or

      (b) in any other case, not later than 21 days before the first case management conference.

      (2) In the event that a party files and exchanges a budget under paragraph (1), all other parties, not being litigants in person, must file an agreed budget discussion report no later than 7 days before the first case management conference.”

      In a non-money claim there is no stated value of the claim on the claim form, let alone one for less than £50,000.00, and therefore CPR 3.13(1)(a) does not apply and the relevant provision is CPR 3.13(1)(b), that is indeed “any other case” and therefore the time period is not later than 21 days before the first case management conference.

      Kerry

      kerryunderwood

      March 7, 2017 at 10:42 am

  9. I’d be interested to know what approach people are taking re bill format where a CMO has been made. On any reading of CPD 5.8(8) a bill setting out the costs into separate parts for each phase, and then split between incurred/estimated costs in each part (which would also then be separated into individual correspondents as normal) could be a gigantic dog’s breakfast, and more so the more phases are relevant and the greater the number of correspondents. Precedent A offers no assistance and there is no other Precedent to offer guidance as to what is really expected in such instances – are fellow draftsmen preparing 7/8/9/10+ part bills, with correspondence/attendance items to each recipient split in two? I.E. Claimant – Letters out – 20 (est)/15 (inc); Calls – 10 (est)/3 (inc) and so on? Could those writing the rule not simply have said that the bill should enable the Court to distinguish between the costs incurred in each phase, and between incurred/estimated costs, and left the detail to the experts? How have others found the Court dealing with the requirements of 5.8(8), insofar as are they expecting strict adherence to the requirements of 5.8(8) even if it makes for bills that are horrible to assess? I have not had any that have had to go before the Court yet!

    On a slightly separate issue, how are others dealing with cases where the budgeting process began pre April 2016 and then a bill is required (where a CMO has been made) post April 2016? I began budgeting work on a catastrophic injury case back in 2013, and whilst doing so did my calculations etc in such a way as to enable me to both prepare the budget and preparation of the bill post settlement (should the need arise), so as to provide sufficient detail as then required for the budget and a subsequent bill and without the need to redo the work. 3 years later CPD 5.8(8) came along, and despite the level of detail captured during the budgeting process I would not have been able to provide that particular level of detail in a bill without redoing much of the work. This was a case with in excess of £1/2m in costs and 50-60 correspondents (around 20 experts alone), so to go back and redo the work required for the additional level of detail would have been massively time consuming and expensive. Thankfully my opponent was prepared to deal with the matter on the basis of a bill split pre/post budget and a precedent Q (which interestingly still seems to be required by CPD 5.1A and 5.2(f) despite the requirements of 5.8(8)), and of course I have rectified the level and nature of detail captured during the budgeting process since last April, but others’ thoughts/experience would be interesting.

    Thankfully as a sole practitioner with a small client base (but sadly decreasing case load) it has not caused me any significant problems, and most cases that would be affected by the second point have now been resolved, but there is the potential for the introduction of 5.8(8) to adversely affect others with similar cases.

    Duncan Paine

    April 10, 2017 at 3:59 pm

    • Duncan

      Costs Budgeting is not my specialist area but as I understand it, and in my firm’s experience in dealing with Costs Practice Direction 47 5.8(8), post-April 2016 a bill should be submitted in the form of Precedent Q where there has been a Costs Management Order.

      In a case where the Costs Budget was prepared some time earlier, without sufficient detail, then unfortunately further work will have to be done in relation to the costing of the file in order to produce a bill in the form required by Precedent Q.

      As you correctly state this is still required under the rules.

      Following the decision in Merrix, there is more incentive for paying parties to settle costs which are within the original budget and which will have included both incurred and estimated costs.

      The Merrix decision is not being appealed but a case on similar facts is due to be heard by the Court of Appeal next month, that is May 2017.

      I appreciate that this deals with the second paragraph, rather than the first paragraph of your comment.

      The first paragraph raises a number of points and your comments make perfect sense.

      Costs budgeting, especially in higher value claims, is bound to involve a lot of work and in my view fails to achieve the certainty that was intended.

      That is one of the main reasons why I am in favour of Fixed Recoverable Costs for absolutely everything.

      Kerry

      kerryunderwood

      April 25, 2017 at 1:13 pm

  10. Hi Kerry,

    In regard to completing the Precedent Q, are the amounts recorded in each phase supposed to include both profit costs and disbursements totals (excluding VAT on both of course)?

    jason

    June 14, 2017 at 1:02 pm

  11. Pleasure

    kerryunderwood

    June 30, 2017 at 1:15 pm

  12. Dear all

    If one has a split trial, does the existing budget get extended so as to include quantum or does the court order new budgets for that particular issue?

    Kind regards

    David

    David Withers

    October 23, 2017 at 9:47 pm

    • David

      As far as I am aware there is no specific guidance in relation to Costs Budgets when there is a split trial.

      However if a decision is made to order a split trial, then that requires case management by the court, which will give the court the opportunity to consider the Costs Budget.

      CPR Practice Direction 3E6 states:

      “(a) 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.”

      That gives the court the power to limit the budget to liability only matters and then to extend the budget if necessary to cover a quantum trial

      In practice it will usually make little difference as to whether the existing budget is extended or the court orders new budgets for the quantum trial.

      Either way the budget can be altered to cover that situation.

      Note that generally the courts are now discouraging split trials.

      Kerry

      kerryunderwood

      November 9, 2017 at 9:38 am

  13. Good Morning Kerry,

    I am involved in a case well over 50K and we have our first CMC on the 1st of December 2017. We have served our cost budget yesterday 9 November 2017 and filed at court on the 8th November. Making a count of 21 day ending on the 30 Nov NOT including the 1st Dec day of the CMC. Was this correct?

    As of today we have not received the cost budget from the defendants. What would you say about this?

    Thank you for your comments in advance

    Dom

    Dom Esposito

    November 10, 2017 at 11:06 am

    • Dom

      Looks to me as though claimant has complied, but obviously defendant has not. Suggest wait and see if they file a budget late, or not at all. Either way they will need to apply for relief from sanctions. Whether they get it or not may well depend on how late it is filed.

      Kerry

      kerryunderwood

      November 10, 2017 at 5:03 pm

      • Thank you very much for your answer

        Dom Esposito

        November 10, 2017 at 5:05 pm

  14. Pleasure 🙂

    kerryunderwood

    November 10, 2017 at 5:09 pm


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