Costs Budgeting – An update
Updates to the Civil Procedure Rules
Two updates to the Civil Procedure Rules came into force on 22 April 2014 making amendments to the costs budgeting regime. These address, respectively, the appropriate statement of truth for a Precedent H and the scope of the requirement to file and exchange budgets.
Revised Statement of Truth
The 69th Update to the Civil Procedure Rules amends both Practice Direction 3E and Practice Direction 22 to amend the statement of truth on a Precedent H. A new Precedent H has been substituted into Practice Direction 3E which provides (on its cover page) under the statement of truth: “This budget is a fair and accurate statement of incurred and estimated costs which it would be reasonable and proportionate for my client to incur in this litigation.” This replaces the previous statement of truth which provided: “The costs stated to have been incurred do not exceed the costs which my client is liable to pay in respect of such work. The future costs stated in this budget are a proper estimate of the reasonable and proportionate costs which my client will incur in this litigation.” Practitioners should now use the revised Precedent H. The inclusion of the full wording of the statement of truth on the sample form annexed to Practice Direction 3E is a welcome development from when the sample form only referred to “statement of truth”. This change should prevent parties from making the mistake made by the Claimant’s solicitors in Bank of Ireland v Philip Pank Partnership  EWHC 284 (TCC) who simply signed underneath “statement of truth” rather than inserting the correct wording. It should be noted that this mistake was not held to have rendered the budget a nullity in any event.
The 72nd Update to the Civil Procedure Rules has clarified where costs management applies. Instead of applying to “all multi-track cases commenced on or after 1st April 2013 in a County Court or the Chancery Division or Queen’s Bench Division of the High Court (except the Admiralty and Commercial Courts) unless the proceedings are the subject of fixed costs or scale costs or the court orders otherwise” it now applies to all multi track cases issued on or after 22 April 2014 with a value of less than £10 million unless the proceedings are the subject of fixed costs or scale costs or the court otherwise orders. The requirement to file and serve costs budgets will thus catch higher value claims which previously were exempt from budgeting. Despite fierce opposition from the Commercial Court, its cases are now subject to budgeting if the value of the claim is under £10 million. Civil Procedure Rule 3.12 and Practice Direction 3E paragraph 1 have been amended to take account of this change.
Mr Justice Hickinbottom held in Kershaw v Roberts  EWHC 1037 (Ch) that the requirement to file a budget does not apply to Part 8 cases (unless the court specifically orders it), thus clarifying an area that had produced some confusion amongst practitioners.
This article does not address the Court of Appeal’s decisions in Mitchell I and Mitchell II and the principles regarding civil procedure which stem from the same. Practitioners are no doubt very familiar with those decisions. However, it should be noted that in the third appeal in Mitchell II, namely, the appeal in Utilise TDS Limited v Neil Cranstoun Davies (the only one of the claims under appeal directly concerned with costs issues) the Court of Appeal held that the filing a costs budget 45 minutes late is neither serious or significant and ought to be excused. This will no doubt be a relief to practitioners but should not be taken as any indication that costs budgets can be routinely filed after the deadline.
There has been fairly limited case law on form of budgets and how to revise budgets. It may be that it is taking time for cases where Cost Management Orders have been made to get to a stage where revision is sought. Given the importance of revising budgets it is unlikely that this area will remain unconsidered. Recent articles in this update have considered the cases of Elvanite Full Circle Limited v AMEC Earth & Environmental (UK) Limited  EWHC 1643 (TCC) and Murray v Neil Dowlman Architecture Limited  EWHC 872 so they are not reconsidered here. Given the costs budgeting pilot that took place in the Technology & Construction Court it is not surprising that many of the decisions in this area are coming from that court where the issue has been live for longer.
Recent Trends: an anecdotal view
The initial horror with which budgeting was greeted by many judges (and practitioners) appears to have abated to an extent as costs budgeting has bedded in. Judges are now generally prepared to consider the budgets that have been filed and to make Cost Management Orders at the first Costs and Case Management Conference. However, there still remain instances of judges adjourning hearings or transferring cases to other courts to avoid budgeting. I have heard of a judge informing the parties in advance of the hearing of their preliminary view that their respective budgets should be sizeably reduced by roughly half, presumably as a shock tactic to encourage the parties to agree the budgets and vacate the hearing.
Practitioners are experiencing difficulties caused by wildly inconsistent approaches to budgeting across different courts and different judges. Large firms with widespread costs practices are keeping records of the favoured approach of these courts and judges which is not an option open to those operating on a smaller scale. Unhelpfully individual judges can develop a preference for certain approaches which can differ even from their colleagues in the same court. These favoured approaches include, for example, ordering the advocate to bring a laptop to court so that the budgets can be revised as the hearing progresses or requiring the parties to produce documents which are effectively points of dispute addressing each phase of the other party’s budget. Sometimes these individual preferences are not reflected in the court orders made by their colleagues. So far as is possible clarity should be sought from the court staff as to whether a judge has particular preferences when setting budgets.
In addition, there have been varied approaches adopted once the budgeting hearing is underway. As with assessment hearings, one of the key items of dispute is hourly rates with parties often disagreeing as to whether this is a matter that should be considered at the assessment stage at all. District Judge Chris Lethem explained at the ACL “Future for legal costs conference” that “Judges are unlikely to be too concerned with charge-out rates. They do not want to get involved in Wraith arguments”, a view which has been recorded in the ACL’s White Paper on the first year of costs management. This reflects the view of the editors of Cook on Costs who believe that hourly rates have “no, or at best a limited, role in budgeting”. However, this does not mean that some district judges are not setting hourly rates at an early stage, often by reference to the Guideline Rates which are both intended for summary assessment and likely to be changed shortly.
There is a recent trend for courts to separate the case management from the costs management of claims, for example, by listing two hearings one after the other. This is contrary to the Jackson Report which stated that “case management and costs management go hand in hand. It does not make sense for the court to manage a case without regard to the costs which it is ordering the parties to incur.” If a court does not have time to deal with directions and budgeting at the first hearing, a sensible approach is to deal with the budget and directions alongside each other as far as time permits. So, for example, to set both down to witness statements and then to list a further hearing which can be vacated if the parties agree directions and budgets at that point. Some claims will settle before that later hearing.
A general trend which I have noticed is for claimants to produce vastly exaggerated budgets in the hope of the Costs Management Order being set at 50% or so of the same as judges take what they believe is a firm line but baulk at any more significant reduction. Against that, defendants (especially those in claims where settlement is likely or where the defence is uncertain) produce budgets which underestimate the costs of the claim on the basis that they are unlikely ever to recover the same and their budget can simply be used as a comparator to demonstrate the excessiveness of the claimant’s budget. Some (but not all) judges are live to the tactics employed by both sides.
Unfortunately, given the varied approaches set out above, providing any kind of advice about how best to deal with budgeting is a difficult task. Without stating the obvious, some basic points of good practice are: (a) to proof-read, proof read and proofread the budget to check for errors; (b) to provide for all possible contingencies and to explain the need for these contingencies in sufficient detail in the budget; (c) where instructing Counsel or a representative not involved in preparing the budget to attend the Costs and Case Management Conference, to provide them with detailed explanations of the calculations and assumptions underlying each phase; and (d) to take a laptop with the budget saved on it just in case! It is not unusual for some courts to make a direction requiring advocates to attend with a laptop.
Pippa Manby, Barrister, 4 New Square
Costs Lawyers, Costs Draftsmen and Legal Costs Specialists