Costs Budgets – Recent Case Law and Experiences

Service of Budgets

This article is not the place for a detailed consideration of the effect of the caselaw on relief from sanctions following Mitchell v News Group Newspapers [2013] EWCA Civ 1537. Nevertheless, Mitchell itself involved the failure to file a costs budget within the deadline ordered by the court, and evidently the courts are having to deal with quite a number of these applications. One uncertainty left by Mitchell is what period of delay can be counted as “trivial”. A day may perhaps be permitted (one less well noted feature of Mitchell is that the Defendant served its budget only 6 clear days before the hearing), but what about 2 days, or 3 days? This uncertainty is particularly unsatisfactory when the party not in default has to decide whether or not to oppose the defaulting party’s application for relief from sanctions, and one strand of caselaw has been critical of parties taking unmeritorious objections: see for example Summit Navigation v Generali Romania Asigurare Reasigurare SA [2014] EWHC 398 (Comm) in which Leggatt J sought to dissuade other litigants from taking similar points. Determining in the abstract what period of delay may be regarded as “trivial” is rather difficult, and of course it will be argued that when a short time period of 7 days has been specified, any period of non-compliance may be relatively significant. Perhaps some assistance is to be gained by Leggatt J’s comment in Summit Navigation that “not material” may be a more apposite expression than “trivial” (since the court should not be thought to be trivialising any departure from the rules). “Materiality” would seem to refer to the impact of the breach, rather than its intrinsic nature, so it is suggested that the focus of the enquiry should be on whether the delay in serving the budget has deprived the other party of sufficient opportunity to consider it.

Form of budgets

In Mitchell the Court of Appeal commented that the courts should not be concerned with questions of form rather than substance. The courts have had to consider such points in the context of costs budgets. In Bank of Ireland v Philip Pank Partnership [2014] EWHC 284 (TCC) the Claimant had filed its costs budget it in time. However, where the solicitor had signed the budget, he had failed to notice that the words “statement of truth” appeared, rather than the required wording of the statement of truth itself. Stuart-Smith J held that this error did not render the budget a nullity, so CPR 3.14 was not applicable; in any event, although the absence of a statement of truth could not normally be regarded as “trivial”, this was an error of form rather than substance, so relief would be granted if required.

Nevertheless the case highlights the need to check carefully that the wording of the statement of truth complies with that specified by paragraph 2.2A of Practice Direction 22, in particular as the version of Precedent H set out in the October 2013 Supplement to the White Book does not set out that wording.

Revising budgets

So far there has been little caselaw on the question of revisions to budgets, but further disputes are to be anticipated. In Elvanite Full Circle Ltd v AMEC Earth & Environmental (UK) Ltd [2013] EWHC 1643 (TCC) Coulson J refused an application to revise a costs budget after judgment had been given at trial. Such an application had to be made as soon as it became apparent that the original budget had been exceeded by a more than minimal amount.

In Kim Murray v Neil Dowlman Architecture [2013] EWHC 872 the same judge did permit a costs budget to be rectified. The original budget had failed to specify that the figures excluded success fees or ATE premiums. The judge noted that in the ordinary case it would be extremely difficult to persuade a court that inadequacies or mistakes in the preparation of a budget, once approved by the court, should be revised or rectified. However the case was a special one because (i) there had been no prejudice because the other party had been aware of the funding arrangements and so had not been confused or misled (ii) the mistake had arisen from the version of the form used in the pilot scheme, which required a box to be ticked to indicate that success fees and insurance premiums were excluded, whereas the new precedent H form expressly excluded them automatically. It was said to be significant that the budget was revised at a time when detailed assessment was months if not a year or more away.

Therefore whilst this case does provide an example of rectification being permitted, it in fact demonstrates how difficult that may be to achieve in future cases, and certainly highlights the risks inherent in using any form other than the Precedent H. Any application to revise or rectify a budget should be made at the earliest possible opportunity.

Disputing a costs budget

The comments in this section are drawn from the writer’s own experiences at costs management hearings. Predicting the outcome can be difficult, since approaches can vary so widely between different courts and judges. Nevertheless, it can be possible to obtain a significant reduction in the opposing party’s budget.

Differences between the parties’ overall budgets are not of themselves conclusive, and the courts generally accept that allowance has to be made for factors such as the claimant bearing the greater workload, but if the figures diverge significantly this can form the basis of an argument that the higher budget may be excessive. The writer has found it can be useful to produce a table for the court to enable comparison to be made for the figures of each party for each of the stages in the budgets, particularly if there are more than two parties.

As already stated, the mere fact that one party’s estimate for a particular task is higher than the other party’s does not mean that the figure is excessive. The most successful challenges are where it can be submitted that the estimated costs is excessive for an identifiable reason, such as where there would appear to be scope for duplication between fee earners, or heavy reliance on counsel without a commensurate reduction in solicitor time.

Challenging hourly rates can be difficult at this stage, particularly since the court is unlikely to be receptive to detailed evidence of alternative rates. The writer would suggest that the Guideline Hourly Rates may be convenient in this context, albeit intended for summary assessment, and furthermore these rates may carry greater weight once the new version is published after the report of the Civil Justice Council Costs Committee, due at the end of this month: this promises to be a more detailed publication, drawing on wider sources of evidence, than previously.

Local practices

Many of the war stories told by advocates returning from the front concern instances of courts apparently adopting their own local practices for costs management hearings. A recent article by Nichola Evans in the New Law Journal on 19 February 2014 listed a number of instances of such practices, such as one county court insisting on advocates at the first CMC attending with laptops to record any revisions to the budgets then and there, and some courts refusing to deal with a budget unless the signatory of the statement of truth is in attendance. Clearly such practices are highly undesirable as they create uncertainty and inconsistency, and are particularly problematic for practitioners where they are not well publicised. At the risk of stating the obvious, one can only really advise that very effort is made to enquire of the court in advance, and of any other practitioners, whether a particular court has any special requirements.

Stephen Innes, 4 New Square

For DeNovo
Costs Lawyers, Costs Draftsmen and Legal Costs Specialist

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