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Costs Budgeting

31/03/13

Reception

Atlantic Chambers' Justin Valentine provides an overview and commentary on Costs Budgeting.

As a parallel development to the intended introduction of fixed costs in relation to fast tack cases, the Government is introducing a regime of costs budgeting for most multi-track cases issued on or after 1st April 2013.  A system of budgeting should aim to remedy the problems of unpredictability and disproportionality.  It is questionable whether the system will achieve that aim.  Early indications suggest, rather, significant satellite litigation.  Interestingly, Lord Woolf considered but rejected costs budgeting in his 1996 Final Report on the basis that it may lead to inflated budgets which judges may not be able to control.

The provsions are set out in CPR 3.12 to 3.18 and a new Practice Direcion 3E.  According to CPR 3.12(2) "The purpose of costs management is that the court should manage both the steps taken and the costs to be incurred by the parties to any proceedings so as to further the overriding objective".  It is noteworhy quote how ambitious the aim is.  For judges to manage "the steps to be taken"  they will need a detailed understanding of the litigation whereas currently if there is braod agreement over what is required the court rarely interferes.

A costs budget in the form of Precedent H has to be prepared by each side and exchanged within 28 days of the date of deemed service to the Court Notice issued when a Defence is filed, CPR 3.13, in default of which the budget will be treated as comprising only of the court fees; CPR 3.14.  Draconian sanctions such as this tend to create satellite litigation.  the appeallate courts will presumably have o provide uidance as to when a party may obtain relief from sanctions in accordance with the beefed-up CPR 3.9.

According to the PD the budget must be in landscape format.  Precedent H itself is in the form of a spreadsheet.  Only the first page need be completed in cases where the budgeted costs do not exceed £25,000.

The court may make a costs management oder ("CMO") to record the fact of any agreed budgets or, more likely, an order to consider the budgets to revise/approve them.  Costs budgets must provide a detailed breakdown for each stage of the case, identifying costs and disbursements already incurred and providing estimates of future costs with details of assumptions on which he estimates are based.  The stages include pre-action, issue/statements of case, case management confernce, disclosure, witness statements, expert reports, pre-trial review, trial preparation and trial.

By CPR 3.15 the court may at any time make a CMO.  A CMO may record the extent to which the budgets are agreed or in respect of parts which are not agreed and record the court's approval after making appropriate revisions.  Where a CMO is made and save in exceptional circumstances the recoverable cosrs of completing Precedent H shall not exceed the higher of £1,000 or 1% of the approved budget and all other recoverable costs of the budgeting and costs management process shall not exceed 2% of the approved budget.  By paragrapgh 2.6 of the PD each party shall revise its budget upwards or downwards if significant developments in the litigation warrant such revisions.

It seems unlikely that parties could revise their budgets as implied at a cost not exceeding 2% of the approved budget.  This is a common theme of the Jackson amendments; strict adherence with the rules is required with draconian sanctions if there is non-compliance but recoverable costs are at the same time limited.  Again, the appellate courts will presumably have to adjudicate upon what
constitutes "exceptional circumstances". 

It may be that applications to revise budgets may be tacked on to other applications and to CMCs so that the budget can be revised in tandem with developments in the litigation.

CPR 3.16 creates a new hearing, a costs management conference.  This is merely a hearing the sole purpose of which is costs management.  CPR 3.17 provides that the court will have regard to the budgets when making case management orders.

CPR 3.18 states that when the court assesses costs the court will have regard to the receiving party's last approved or agreed budget and not depart from such budget unless satisfied that there is good reason to do so.

The expression "good reason" was dealt with by the Court of Appeal in Henry v News Group Newspapers [2012] EWHC Civ 19. 
Costs management, including the not departing from the approved budget unless satisfied that there is a good reason provision, formed part of a Defamation Proceedings pilot scheme.  The claimant was a senior social worker involved in the "Baby P" case who sued the
Sun's publisher for defamation.  The case was compromised in the claimant's favour for an undisclosed but substantial sum and an apology.  The claimant's budget had been £381,305 which was approved.  However, the claimant claimed costs of £650,137.

The judge at first instance found that the costs incurred were reasonable and proportionate.  However, the judge held that the failure of the claimant to tell the defendant that they were exceeding their budget prevented the parties from being on an equal footing.

The claimant appealed.  Lord Justice Moore-Bick, giving the judgment of the court, held that the equal footing provision "is concerned with the unfair exploitation of superior resources rather than with the provision of information about how expenditure is progressing". 
A budget is not a cap and in all the circumstances of that case the Court of Appeal held that the claimant could depart from her budget.  The first reason given was that if not then she would not be able to recover her costs of the action.  They observed that "a refusal to depart from the budget simply because the appellant had not complied with the practice direction would achieve nothing beyond penalising her".

In a new Section 3 to the PD to Part 44, it is further provided that in cases where the court has not made a CMO and where there is a difference of 20% or more between the costs claimed and the costs in the budget and the paying party reasonably relied on the budget then the court may restrict the recoverable costs to such sum as is reasonable for the paying part to pay in light of that reliance notwithstanding that such sum is less than the amount of costs reasonably and proportionately incurred by the receiving party.  It is suggested that reasonable reliance will likely be a low hurdle.

In light of the foregoing, there may be, as anticipated by Lord Woolf, an incentive for both parties to agree generous budgets.  Robustness as to challenging budgets may betray lack of confidence as to success.  However, in cases to which Qualified One-Way Costs Shifting applies, the defendant's stance may be particularly robust.  Claimants would be well-advised to keep their budgets up-to-date and the court informed.  As noted, it may be that applications to revise budgets can be tacked on to other hearings.

Costs budgeting shifts disputes about costs forwards within litigation.  It is unclear why this would reduce costs overall since a party may have greater opportunity to argue that certain procedural or evidential steps are justifiable as the issues arise.

  

JUSTIN VALENTINE