5 years have passed since the implementation of Costs Management, and while most practitioners now appreciate the practical considerations that come with it, there remains a need to ensure that budgeting is dealt with in an informed and pro-active manner, as mistakes at this stage can have very serious consequences when it comes to costs recovery, and cannot always be rectified by an application to revise the Costs Budget.
These 5 key points will help to ensure that you have Costs Management in hand to avoid any nasty surprises later on.
1. Are you ready to file your Costs Budget within time?
Costs Budgets are required in all Part 7 multi-track cases with the exception of claims valued over £10 million, or claims commenced on behalf of a child on or after 6 April 2016 (CPR 3.12). Litigants in person are not required to file Costs Budgets, but all other parties to a claim are (CPR 3.13 (1)).
Where the damages as stated on the Claim Form are £50,000.00 or more, the Costs Budget will be required to be filed and served not less than 21 days before the first Case Management Conference (CPR 3.13(1)(b)).
It is important to note that this time period is 21 clear days by operation of CPR 2.8(3). As such if the CMC were listed for 28 September 2018, the Costs Budget would be due on 6 September 2018 (not 7 September 2018 – see, for example, Burt v Christie [2014], Birmingham District Registry, unreported; Lakhani v Mahmud [2017] EWHC 1713 (Ch)).
Where the court is yet to list the CMC, but has indicated that it will be listed within a certain time period, you will of course need to ensure there is sufficient time for preparation of the Costs Budget for service 21 clear days before the earliest possible date for the CMC.
Where the damages as stated on the Claim Form are less than £50,000.00, the Costs Budget will be required to be filed and served with the Directions Questionnaire (CPR 3.13 (1)(a)).
The consequences of failing to file the Costs Budget in time are severe, namely that the party in default will be treated as having filed a Budget comprising only the applicable court fees (CPR 3.14).
If the Costs Budget is Filed Late
If the Costs Budget is filed late, even if the default is only a matter of minutes, an urgent Application for Relief From Sanction must be made (CPR 3.8(1)). Any delay will reduce the prospects of the application succeeding (British Gas Trading v Oak Cash & Carry Limited [2016] EWCA Civ 153), Lakhani v Mahmud [2017] EWHC 1713 (Ch)).
2. Is your Costs Budget sufficient to enable you to conduct the matter to conclusion?
Naturally, it is vital that the “estimated” future costs included in the Costs Budget submitted to court are sufficient to cover the work that will be required in each phase. Conversely, however, an inflated Budget can lead to swingeing reductions at the CCMC. An appropriate balance must be struck and a good Costs Lawyer can provide expertise to ensure nothing is missed and realistic amounts are sought in each phase, having regard to the particular circumstances of the case.
The consequences of getting things wrong at this juncture can be severe. In Murray v Dowlman Architecture Ltd [2013] EWHC 872 (TCC) it was stated that “it will be extremely difficult to persuade a court that inadequacies or mistakes in the preparation of a Costs Budget… should be subsequently revised or rectified”. Accordingly, if anything was inadvertently missed out of the Costs Budget, you are likely to be stuck with the Costs Budget as it stands with the consequence that the missing costs will not be recovered at the end of the case.
Where a Costs Budget is considered to be “inflated”, the judge upon Costs Management may make large reductions and even proceed to set budgeted figures for incurred costs, which would otherwise be exempt from Costs Management (see, CIP Properties (AIPT) Ltd v Galliford Try Infrastructure and others [2015] EWHC 481 (TCC), GSK Project Management Limited (in liquidation) v QPR Holdings Limited [2015] EWHC 2274 (TCC)).
3. Is your Costs Budget properly presented with sufficient detail?
Hand in hand with ensuring that your Costs Budget is sufficient in amount goes the need to ensure it contains sufficient detail. Are the “assumptions” completed with lucid breakdowns of the work which has been undertaken to date and the future work that will be required? Does the Budget set out what individual pieces of work will be required from counsel in each phase rather than simply stating a total figure? Too frequently, Costs Budgets lacking in detail are produced, with the consequence that the judge is in the dark about what work that party anticipates will be required.
The need for a clear and detailed Costs Budget is twofold: firstly, if you are unable to explain precisely what work has been done and what work is anticipated, it will be very difficult to justify the allowances sought in each phase. Secondly, should the case go on to develop in an unexpected way, such that the Costs Budget requires revision to include additional costs, you will need to be able to show that these additional costs were not accounted for in the original Budget. When it comes to preparing the Budget Discussion Report in respect of the opposing party’s (or parties’) Costs Budget, the submissions in respect of each phase should be succinct, focussed and specific to the case.
4. Does your Costs Budget require revision?
The time spent on a case, counsel’s fees and disbursements need to be carefully monitored as the case progresses, to ensure that you remain within the budgeted allowances for each phase. A suitably experienced Costs Lawyer can assist with monitoring compliance with the Costs Budget and quantifying the ongoing costs spend for each phase, and the costs of this will be included within the 2% cap for “other recoverable costs of the budgeting and case management process” set out in Practice Direction 3E, 7.2 (b). In my experience time records alone, even if ostensibly coded to reflect the phase in which the work was done, are not a reliable guide as to whether the costs remain within Budget.
If it becomes apparent that the Costs Budget is likely to be exceeded, revision should be considered. A suitably revised Budget can be prepared and submitted to the other parties in the case for agreement, however, if such agreement is not forthcoming, an application will need to be made. Such an application will only be granted if there have been “significant developments” in the litigation which warrant the revisions sought. It will be necessary to show that the additional costs sought were not included in the original Costs Budget, with reference to the detailed assumptions included in the Budget. Significant developments might include such matters as the evidence of an expert in a new discipline being required, or changes to the scale and complexity of the claim since the CCMC. A mistake in the original Budget or an inadvertent overspend are unlikely to be considered significant developments, nor are matters which could have been anticipated at the time the Costs Budget was set (Churchill v Boot [2016] EWHC 1322 (QB)).
There has been a degree of uncertainty as to whether, provided there have been significant developments, it is possible that costs which are in excess of the Cost Budget and already incurred prior to the making of an application to revise can be approved as part of any revision. In Elvanite Full Circle Ltd v AMEC Earth and Environmental (UK) Ltd [2013] EWHC 1643 (TCC) it was found that an application should have been made as soon as the Budget had been exceeded, and in Merrix v Heart of England NHS Trust Foundation [2017] 1 WLR 3399 budgeting was said to be a wholly prospective exercise. In Sharp v Blank & Ors [2017] EWHC 3390 (Ch), however, Chief Master Marsh found that such costs could be approved, notwithstanding that they had already been incurred. It should be borne in mind that Sharp is not binding on other High Court Masters, and the issue should be approached with caution. The best and safest course is always to keep a close watch upon costs and to make an application to revise the Costs Budget as soon as a significant development arises, and before the Budget is exceeded.
5. Recovering your costs: the Costs Budget vs the Bill of Costs
Following conclusion of the case it will no longer be possible to apply to revise the Costs Budget. If you have obtained a costs order in your favour, then upon detailed assessment, the Court must have regard to the approved Costs Budget and not depart from it unless satisfied there is good reason to do so (CPR 3.18). Practically speaking, this means that even if the Bill of Costs exceeds the Budget you will be limited to the budgeted amounts for each phase unless good reason can be established (see Harrison v University Hospitals Coventry & Warwickshire Hospital NHS Trust [2017] EWCA Civ 792).
The Court of Appeal in Harrison declined to proffer guidance as to what would constitute good reason in a particular case, however the question of whether a reduction to the hourly rates by the judge upon detailed assessment could be a good reason to depart from the Costs Budget, such that the costs incurred following the approval of the Budget could be reduced to reflect the allowed hourly rates, has been considered by the Courts. In RNB v London Borough of Newham [2017] EWHC B15 (Costs) it was found by Master Campbell that a reduction to hourly rates was good reason to depart. In Jallow v Ministry of Defence [2018] EWHC B7 (Costs), however, Master Rowley found that reduction to the hourly rates was not a good reason, and a similar finding was also made in Nash v Ministry of Defence [2018] EWHC B4 (Costs). An appeal against the SCCO decision in RNB was abandoned following settlement of the costs claim.
It is wise to ensure that your Costs Budget is sufficient at the outset due to the likelihood, in most cases, that your ultimate recovery will be limited to the Budget approved. Similarly, the Bill of Costs (or electronic Bill of Costs where costs have been incurred from 6 April 2018) must be carefully prepared to show the costs incurred before and after the date of the Budget, with all of the costs allocated to the appropriate phase and individual items split and apportioned between phases where necessary. If costs are carelessly allocated to the wrong phase, the Bill of Costs may incorrectly state that an allowance has been exceeded, thus limiting your recovery unnecessarily.
