Costs Budgeting Update

14th May, 2015

Now over 2 years’ in, Costs Budgeting continues to be an issue that Claimants, Defendants and more so the Courts continue to struggle with. We have seen the parties tackling costs budgets in various ways, from the simplistic and frankly entirely inaccurate budgets to the exceptionally detailed and overzealous budgets. The Court’s consistency as a whole needs much improvement, as does the approach in which individual courts and judges tackle CCMCs. Master of the rolls Lord Dyson has said judges have all received training in respect of the Jackson reforms and that ‘similar training may also be needed for the legal profession’. Given the decisions and orders made at CCMCs there does still seem some way to go before the impact of the training will really be seen. In the initial discussions between the parties regarding budgets we are continuing to see a variety of tactics from paying parties in their arguments and approach in what is clearly an attempt at reducing the Claimant’s budget by as much as possible, which is quite different to the supposed aims of this new process. From detailed Points of Dispute to providing their own excessively low costs budgets, the paying parties are trying a whole host of methods to gain an advantage for their client. It continues to be a matter for specialist costs draftsman and we do not appear to have seen the light at the end of the tunnel in terms of the courts finally getting a measure of control of the whole costs budgeting process. Master David Cook, of the Queen’s Bench Division, has recently called for radical changes to the current system stating that the entire costs budgeting process needs to be re-drawn and parties given detailed guidance about what is expected of them. He concluded that

“Unless something is done or there is a radical change in culture the system will cease to function.”

Some have argued it has already ceased to function with the waiting time for CMCs in clinical negligence cases in the Queen’s Bench Division now up to 9 months (compared to 6 weeks prior to March 2013). Master Cook was also critical of Jackson’s vision of a gradual implementation of costs budgeting. Rather, the reality was that the changes coming into force April 2013 had allowed only minimal preparation for practitioners, little training for judges, no budgeting pilot in the Royal Courts of Justice, and no formal scheme for controlling pre-issue costs. Consequently, given the lack of any guidance generally, the approach to budgeting in the courts has varied wildly from judge to judge. Of the 180 costs budgeting hearings overseen by Cook and his colleague Master Roberts, just a ‘handful’ of budgets had been agreed between both parties. He said

“Defendants must attempt to be more proactive and realistic in their attempts to agree budgets. Claimants must initiate the process of budgetary discussion much sooner.”

Unfortunately that is probably a simplistic view as historically, the issue of costs has been notoriously adversarial, and Defendants have always felt they are being ripped off. Therefore it is difficult to see what system could be introduced that would change that culture, other than perhaps a further extension to fixed costs. It is our experience that the Claimant does attempt to instigate discussions early, however the Defendant is often unwilling to respond as they are so often unlikely to recover costs, they are understandably less incentivised to deal with these discussions at an early stage.

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A criticism of the current process is that the costs budget has to be filed at too early a stage with every eventuality up until trial having to be accounted for prior to the first CMC.

Consequently it can be that every part of the budget, from time spent to expert’s fees, is maximised to avoid the potential risks associated with underestimation resulting in budgets far exceeding the costs that are actually likely to be recovered even if the case does go to trial. Often the parties’ respective assumptions as to the course the litigation will take (split trial, reliance on certain experts etc.) is not what is ordered, meaning the budgets have to be re-drafted.

One solution would be for budgets to be prepared after directions have been made in order to reflect the actual directions in the case and avoid the need to re-draft budgets. An additional suggestion by Master Cook was for costs estimates of costs already incurred in investigating the claim to be provided in the letter of claim.

The Precedent H in its current format mixes both chronological steps (Pre-action, pleadings, directions etc.) and non-chronological aspects (expert evidence, disclosure, negotiations etc.) This allows a certain amount of discretion as to which phase to allocate work to e.g. work associated with updating a schedule of loss/counter-schedule could feasibly go in ‘issue/statement of case’, or ‘preparation for trial’. Without consistency between the parties a like for like comparison is not possible, which is surely one of the intentions of the new regime.

Also, the general consensus is that the layout of Precedent H is confusing. It is evident some judges are only really interested in the summary page of the budget and the phase totals but, again, that does not enable a like for like comparison because any discrepancy in the Claimant’s and Defendant’s hourly rates will fetter any attempt to compare the actual time spent. A way around that may be that hourly rates be put aside (and dealt with separately) and for the budgets to be considered in terms of ‘time spent’ only.

The worry for Defendants is that by agreeing a Claimant’s budget, or any of the phases in it, means they will be committed to paying those sums upon conclusion. That is, of course, nonsense. Agreement to a budget does not secure the receiving party any entitlement to the sums contained in it, and the same procedure for detailed assessment remains whereby costs claimed will be subject to the test of reasonableness.

Approved budgets merely determine a ceiling allowing the court to get to grips with issues of proportionality early, and take an active role in ensuring costs to do not spiral out of control.

It is imperative Claimant’s maximise their costs budgets so as not to limit themselves and avoid the need to constantly amend or update. Notwithstanding the Defendants’ instincts to challenge, that means sums contained in the budget are likely to appear ‘challengeable’. This leads to a consistent lack of agreement and the inevitable additional costs of CCMCs some of which are turning into miniature detailed assessments. Some courts are even directing the parties to prepare formal Points of Dispute and Replies.

Claimant’s are also finding that in cases where the Defendant has admitted liability and effectively conceded a liability for costs, the Defendant’s budget usually comes in very low in an attempt to highlight to the judge how high the Claimant’s budget is in comparison.

Lord Jackson has recently defended his reforms, citing endorsements from the judiciary and practitioners, and predicting that costs management would be accepted as an entirely normal discipline within ten years. He said the process would also improve as solicitors became more familiar with it.

He also rejected criticism that some litigation is too complex for the budgeting process stating that the rules allow the courts to order staged budgets if appropriate to deal with that scenario.

Lord Jackson acknowledged that there were problems but called for increased training for judges which would resolve issues of inconsistency, long hearings and judicial micro-management. The industry as a whole would no doubt welcome this however given the difficulties experienced to date it’s not something we will be relying on to happen any time soon.


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