COSTS BUDGETING: LATEST NEWS

Kerry Underwood offers consultancy services in relation to this and other matters and details are here.

 

I am grateful to Simon Gibbs and his excellent blog – COSTS BUDGETS AND EXPERTS’ TRIAL FEES for much of the comment that appears in this piece.

 

Costs Budget and Trial Fees and Trial Preparation Fees

On 1 October 2019, the update to Practice Direction 3E, of 7.4, came into force and the new Guidance Notes on Precedent H, following that update, moved trial brief fees from the Trial phase to the Trial Preparation phase, no doubt on the basis that the brief is delivered before the trial commences and generally that delivery creates a liability for the brief fee as between solicitor and counsel, whether or not any trial ever takes place.

Simon Gibbs notes that the Guidance Notes do not give any indication as to what phase any experts’ fees for attending trial should be placed in.

Traditionally, these fees have also been placed in the Trial phase, just like trial brief fees previously were, but most experts expect payment of part, if not all, of their fee for the trial, even if the matter settles early, on exactly the same basis that counsel do.

Simon Gibbs raises the point that, on that basis, experts’ fees should also be placed in the Trial Preparation phase, rather than the Trial phase.

Given the very substantial level of experts’ fees, this is no academic point and may result in very significant sums being recovered, or not, depending upon the phase where the fees truly belong, and the actual approved budget.

 

Leading Counsel’s Fees Can Still Be Recovered, Even If Not Approved 

As will be seen in the case I report here, the fact that a particular expenditure is not approved by the court will not prevent it being recovered provided the costs for that phase are not exceeded.

In

Easteye Ltd v Malhotra Property Investments Ltd and others [2019] EWHC 2820 (Ch)

the Chancery Division of the High Court held that the statement by the Deputy District Judge in a costs management decision, where there had been no oral hearing, that:

“£120,000 is allowed in respect of the Claimant’s trial phase and instruction of leading Counsel is not approved”

was adequate so as to satisfy the test in

English v Emery Reimbold & Strick Ltd [2002] EWCA Civ 605

“It is not, in general, conducive to the efficient and cost-effective dispatch of costs management decisions if every part of those decisions has to be justified with extensive reasons like a judgment after trial” (Paragraph 34).

It was clear that the judge had preferred the defendant’s submission to those of the claimant and that was sufficient.

Furthermore, such an order did not prevent the claimant from recovering costs in relation to leading counsel.

 

“27.  In this case, the total budget fixed by Deputy District Judge Pescod was £120,000 for the claimant’s trial phase and it is up to the claimant whether it spends all of that on junior counsel, or spends some of it on junior counsel and some on leading counsel, or indeed spends all of it on leading counsel. If they succeed in obtaining a costs order, they can expect to receive £120,000 for the trial phase. It would be possible to depart from the budgeted amount only if good reason is shown. So I do not regard that, in itself, as being a flaw in the Deputy District Judge’s order. Rather, I agree with Mr Pryor. The words which the Deputy District Judge has added to paragraph 5(iv) in his order are not intended to limit recoverability below the £120,000 so that nothing could be recovered in respect of leading counsel, but are intended to explain why the figure of £120,000 has been approved rather than the higher figure sought of £210,000; and that is because the Deputy District Judge was not satisfied it was appropriate to employ leading counsel.”

 

First Page of Precedent H Only

Practice Direction 3E, Paragraph 6(C) reads:

“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.”

Fairly obviously the need to complete only the first page where the budgeted costs do not exceed £25,000 is that it would be disproportionate for a full budget to be prepared and in a budget of £25,000 or less the summary page will allow the court to make whatever decision is necessary.

I now quote from Simon Gibbs’ blog on the second part of the quoted section from the Practice Direction.

“The logic behind the first part of the provisions, that only the first page of a costs budget needs to be completed where the budgeted costs do not exceed £25,000, is presumably fairly straightforward.  Where the costs being sought in the budget are relatively modest, it would be an unnecessary additional expense to prepare a full budget.  It should be possible for a court to either approve the budget as drafted, or make minor amendments to it, based on the summary page alone.

The logic behind the second part of the provision, that only the first page of a costs budget needs to be completed where the value of the claim is stated to be less than £50,000 is harder to discern.  At first blush, it might be viewed that where the value of the claim is less than £50,000 this would indicate that the matter is likely to relatively straightforward in terms of complexity and a full costs budget, showing a detailed breakdown of the estimated work and the assumptions behind the figures, is likely to be unnecessary to control costs through the costs management process.

However, the primary purpose of costs management is to control the overall level of costs that may be incurred.  Outside of fixed costs matters (that are not subject to costs management in any event), there is not necessarily any direct link between the level of costs that may be incurred and the value of the claim.  If the purpose of costs budgeting is to control excessive costs, why would the value of the claim be relevant as to the amount of detail that is required within the costs budget?  The trigger point is surely the level of costs being sought, not the value of the claim.

Further, in addition to controlling the overall level of costs being incurred in litigation in general, a central part of costs management is to ensure that the recoverable costs are proportionate to the amounts and issues in dispute.  Costs management therefore becomes much more important where the risk of  disproportionate costs being incurred is greatest.  Which of these two examples shows the greatest risk of disproportionate costs:

a commercial claim valued at £1,000,000 where the Claimant’s costs budget is claimed at £100,000, or

a clinical negligence claim valued at £30,000 where the Claimant’s costs budget is claimed at £100,000?

Surely it is the latter.

If that is so, where is the logic in requiring a full costs budget in the first example but only the first page in the second?  The same amount of costs are claimed within each budget but the danger of disproportionality is greater in the second example.  The task of the judge at the CCMC to set a proportionate budget in the second example is made much harder if the first page of the budget alone has been completed, meaning no assumptions are set out.  Trying to tailor the directions so as to control the costs, and thereby reduce the proposed budget, becomes a much more difficult task with the first page only completed.”

Simon Gibbs states that the value of any claim should be irrelevant as to the issue of how detailed the costs budget needs to be and it is only the issue of the amount of costs to be claimed which should determine whether or not only the first page of Precedent H should be completed.

That must be right.

That is presumably also the logic as to why claims of £10 million or more do not require costs budgets, although my view is that all cases of all clients, except where fixed recoverable costs apply, should be subject to costs budgeting.