Kerry Underwood

COSTS BUDGETING AND ASSESSMENT: RECENT CASES

leave a comment »


COSTS BUDGETING – PRECEDENT H AND THE BILL OF COSTS

By Robert Males, Managing Partner, Underwoods Solicitors

In Woodburn v Thomas (Costs Budgeting) (2017) EWHC B16 (Costs)

Master McCloud dealt with the relationship of costs budgeting in Precedent H and the subsequent Bill of Costs.

The Master considered the interplay between the provisions of PD 3E paragraphs D 7.2 to D 7.3 and the provisions of the Guidance Note on Precedent H which is annexed PD 3E and how that impacts upon the management of detailed assessment.

PD 3E states that parties must follow the Precedent H Guidance Note in all respects and is clear in its meaning that the guidance must be followed.

That Guidance Note provides:

“This table identifies where within the budget form the various items of work, in so far as they are required by the circumstances of your case, should be included.”

This could lead to some alternatives within the Precedent H as to where a particular piece of work may be placed in the form or it could be interpreted that it simply means that if an item of work is not required in the case it can be omitted from the Precedent H.

However the Master did not decide that particular issue although he inclined towards the narrower view.

In the Guidance Notes for the CMC phase of the Costs Budget the following items must be included within the budget for that phase:

  • Reviewing opponent’s budget;

 

  • Correspondence with opponent to agree budgets where possible.

 

The following must be excluded from the CMC phase:

  • Preparation of costs budget for the first CMC.

 

Guidance in relation to the PTR phase states the following must be included:

  • Preparation of updated costs budgets and reviewing opponent’s budget;

 

  • Correspondence with opponent to agree … costs budgets, if possible.

 

By following the guidance the budget will include in the CMC (or PTR) phases some of the items which are identified above and which relate to the costs budgeting process and the agreement of costs budgets. Those parts of the budgeting costs will themselves be budgeted as part of that phase.

PD 3E paragraph 7.2 states as follows

“Save in exceptional circumstances – (a) the recoverable costs of initially completing Precedent H shall not exceed the higher of £1,000.00 or 1% of the approved or agreed budget; and

(b) All other recoverable costs of the budgeting and costs management process shall not exceed 2% of the approved or agreed budget.”

In the costs budget phase for the CMC the assumptions made were as follows:

  • Work to date – instructing costs draftsman to prepare a costs budget;

 

  • Reviewing budget and liaising with costs draftsman;

 

  • Attempting to agree budget;

 

  • Reviewing Defendant’s budget;

 

  • Preparing for further CMC and updating and revising costs budget.

 

The assumptions for the PTR phase were as follows:

  • Liaising with costs draftsman in order to update budget;

 

  • Reviewing opponent’s budget and corresponding with opponents to agree budgets.

The matter was subsequently settled and came before the Master for detailed assessment.

The Bill of Costs was drafted in the new format which specified the costs on a phase by phase basis matching those on the Precedent H.

The bill set out in the CMC phase of the bill included all the CMC costs which did not relate to costs budgeting.

The bill provided a separate “non-phase” part of the bill which related to costs budgeting and costs management issues and this set out the costs of drafting the Precedent H under PD 3E 7.2 (a) and the costs budgeting which did not fall within the scope of that arguably fell within the 2% cap under PD 3E 7.2 (b).

Therefore in the bill as drafted the CMC phase excluded some items of costs which related to budgeting but which were required by the guidance to be included and were included in the Precedent H and formed part of the budgeted costs for that phase. Instead the costs budgeting and costs management issues were all grouped together in the non-phase part of the bill.

An objection was raised by the paying party that the non-phase costs which were included in the costs budgeting part of the bill were costs which had actually been budgeted in the CMC phase of the Precedent H and therefore should have appeared in that part of the bill rather than moved out of that part.

This was relevant because the costs claimed in the CMC part of the bill had been budgeted and were already in excess of the budgeted sum allowed for the CMC phase.

By including the relevant parts of the budgeting costs in the CMC phase this was consistent with the Precedent H guidance and would mean that the total phase of the bill exceeded the budgeted total for that phase by a greater margin.

The receiving party contended that they were correct to have separated out the costs of costs budgeting and that the costs for every item appeared once and once only in the bill and were not duplicated.

The Master recognized the tension between PD3E to follow the Precedent H guidance and the guidance of the Senior Costs Judge in relation to the need to spell out in the Bill of Costs those costs which are claimed as being within the 1% or 2% caps on budgeting costs.

The Master’s approach was that the assumptions in the Precedent H are the starting point as that is evidence of the costs budgeting decision and included in the CMC phase and the PTR phase are those costs referable to budgeting and costs management, as the guidance require.

The lawyer drafting the Precedent H must follow the guidance and consider that where a budget is approved or agreed then the assumptions on which that budget is approved or agreed are the best guide as to how the budgeting costs should be treated in the bill.

Ensuring that the bill phases include the costs which were budgeted in the Precedent H phases could avoid this confusion as to the costs included in the “non-phase” part of the bill.

The Master therefore directed that those items in the non-phase part of the bill which came within the assumptions for the CMC and PTR should be treated as if they were in that phase of the bill and that all other costs of costs budgeting and costs management remain the non-phase part of the bill and be subject to the appropriate cap.

The Master accepted that that approach was not ideal.

On the one hand it ensures that the CMC budget phase matches exactly the CMC phase in the bill but has the effect of dividing the costs budgeting costs into two parts.

Separating those costs in that way can cause difficulty in the application of the 2% cap on budgeting costs.

The Master commented that it may be helpful for the rules committee to consider amendment to the guidance for Precedent H such that any costs referable to costs budgeting and costs management are not to be included in the Precedent H other than for the purposes of the 1% and 2% caps on budgeting costs.

That would mean that the costs budgeting and costs management costs would be spelled out in one clear part of the bill to which the relevant percentage cap can then be applied.

 

COSTS BUDGETING – RECOVERY OF REASONABLE AND PROPORTIONATE COSTS

In Napp Pharmaceutical Holdings Limited v Dr Reddy’s Laboratories (UK) Ltd and Others (2017) EWHC 1433 (PAT)

Mr Justice Birss considered the issue as to whether reasonable and proportionate costs may be recovered where there is a Costs Budget in place.

This was a very substantial claim of £100 million involving an undertaking given by the Claimant when it had obtained an injunction.

The Claimant was ultimately unsuccessful and had to pay damages in accordance with the undertaking.

Among other things the court had to consider whether costs budgeting should be ordered and whether costs budgeting prevented the recovery of reasonable costs.

The Respondent submitted that although the case fell outside the provision of CPR 3.12, which excludes costs budgeting for cases with a value over £10 million, it should however be ordered in this case.

The Claimant submitted that there was no presumption for or against budgeting either way just because the claim was outside the costs budgeting regime on the ground of its value.

The judge agreed that costs budgeting is generally a good idea and can be a useful management tool.

This was a substantial case with a likelihood that the claiming party was litigating at the expense of the paying party and in a situation where the litigating party may not have to bear those costs themselves there is a good reason for costs budgeting to be applied in order to constrain the party incurring those costs.

The Claimants failed to give any good reason why costs budgeting should not be imposed other than the fact that the value of the claim exceeded £10 million.

Counsel submitted that the detailed assessment process was a sufficient safeguard in respect of the recovery of reasonable and proportionate costs and suggested that costs budgeting can prevent the recovery of reasonable and proportionate costs particularly in cases of complexity.

The judge rejected the Claimant’s submission that costs budgeting creates a problem whereby reasonable and proportionate costs may not be recovered. Budgets are often altered during the course of proceedings in order to accommodate unexpected situations.

Just because the value of the claim was substantial was no bar against Costs Budgets being provided by the parties and managed by the court.

The normal situation would be that costs budgeting would be dealt with after pleadings had closed when the issues in the case would become clear.

The judge was not satisfied that costs budgeting in this case was required at an earlier stage but after pleadings had closed the parties shall exchange statements as to the incurred costs at each stage and estimates of future costs.

At that stage an evaluation can take place of the costs and costs budgeting can be reviewed at a subsequent Case Management Conference.

The court did not order costs budgeting but left open the possibility that it could be ordered at a subsequent CMC but made it clear that having a Costs Budget was no bar to recovery of reasonable and proportionate costs.

NOTICE OF COMMENCEMENT OF COSTS – WHEN TO START

In Austin v East Sussex Fire and Rescue Service (8 August 2017)

Master Gordon-Saker refused to order that a Bill of Costs be redrafted to identify common costs and non- specific common costs on the ground that it would be disproportionate.

The judgment goes on to deal with the issue of when to serve a Notice of Commencement of costs.

The Claimant had obtained a judgment against the First Defendant by default.

He then succeeded against the Second Defendant after a trial on liability at which trial an order was made that the Second Defendant pay an interim amount on account of costs but no order was made for costs to be assessed.

The Second Defendant had previously made a Part 36 offer to settle the claim for £25,000.00. That was on 22 December 2014 and the Claimant did not accept that offer until 3 July 2015.

In the meantime on 19 March 2015 the Claimant had served Notice of Commencement of a Bill of Costs in the sum of approximately £720,000.00.

That was premature because the claim had not at that point been concluded and there was no order for detailed assessment.

After the late acceptance of the Part 36 offer the Claimant served a further Notice of Commencement with a bill totalling approximately £755,000.00 on 15 September 2015.

Once again that was premature as the late acceptance of a Part 36 offer does not trigger an order for costs.

The matter then came before the court on 17 June 2016 where an order was made that the Second Defendant pay the Claimant’s costs of the proceedings up to 12 January 2015 with such costs to be assessed if not agreed on the standard basis.

Those costs were against the Second Defendant only and that after 13 January 2015 the Claimant was ordered to pay the Second Defendant’s costs.

There was a further order that the Second Defendant pay the Claimant a sum of £150,000.00 on account of costs.

Following that order a third Notice of Commencement was served by the Claimant on 9 January 2017 for a sum just short of £800,000.00.

It should always be remembered that before commencement of assessment proceedings by way of a Notice of Commencement there must be an order that the paying party pay costs of the receiving party.

That order may be ordered by the court, whether by consent or otherwise, or otherwise be provided for by the rules such as an acceptance of a Part 36 offer within 21 days.

If there is no such authority then the Notice of Commencement will be invalid.

Advertisements

Written by kerryunderwood

August 17, 2017 at 7:58 am

Posted in Uncategorized

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: