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Costs budgeting: Love it? Hate it? Or is it time you changed your mind?

At the Costs Law Report Conference 2016 in London last week, Stuart-Smith J gave the key note speech, in which he revealed that when listing a case management and costs management hearing, he allows 10 minutes to accommodate the costs budgeting part of a costs and case management conference (CCMC).

It is certainly right that the days where the court was prepared to allow the parties to take up more than an hour of court time arguing about costs budgets are gone. Conducting the equivalent of a mini detailed assessment in every cost managed case was never going to be workable.

But 10 minutes?

Given how important the costs management decisions are to the parties, and where the sums in issue may be very important, this is surely concerning (even given the new Precedent R budget discussions report required by CPR 3.13(2)). With such minimal court time available, there are likely to be some difficult results on the horizon for litigants. This is all the more of a risk in circumstances where:

  • Parties find themselves (in many cases in any event) pretty much stuck with the figure in the costs budget.
  • Those  that are carrying out the costs budgeting exercise may never have conducted the type of litigation that they are budgeting, and may not have been in practice for very many years. This was clearly something very much on the mind of Stuart-Smith J in the key note speech, when he quipped that he did not consider that anyone who had been out of practice for more than two years ought to be assessing the quantum of costs.
  • Those that are carrying out the costs budgeting exercise do not have any independent audits of cases against which they can judge a particular budget. All they will have are the budgets of the parties in the case, and any knowledge they have from previous budgeting exercises or their own practice. This makes the exercise somewhat hit and miss.
  • Following the case of Sarpd Oil International Ltd v Addax Energy SA & another, the parties may well have to raise any concerns they have about incurred costs. (The practical implications of this judgment should not be overstated, because in reality, all this has led practitioners to do is to include a recital in the order that the incurred costs are not agreed, reserving their right to challenge them at a later date.)

So far, so worrying, in particular for those parties who hope to recover their costs from the other side.

But should the spate of decisions, in which the new test of proportionality has led to the courts substantially reducing the receiving party’s costs, change our suspicion about costs budgeting?

BNM v MGN is a case in point. This was a case where the claimant recovered £20,000 in damages together with an order that the defendant should pay the costs. The claimant put in a claim for costs for the sum of £241,817, which came before the Senior Courts Costs Office (SCCO) for a detailed assessment. Master Gordon-Saker carried out a line-by-line assessment (to consider whether the costs had been reasonably incurred and were reasonable in amount) and came to a figure of £167,389.45. However, he concluded that this figure remained disproportionate and reduced it to £83,964.80. Thus the claimant, who had succeeded, recovered a little over one third of its costs from the losing defendant. The case is going to appeal before a High Court judge later this autumn.

Whilst the courts are committed to reducing the cost of litigation so as to increase access to justice, there is no doubt that, at the moment, there is uncertainty as to what the courts will consider to be a proportionate spend on any given piece of litigation. Simply because costs are reasonably incurred and reasonable in amount is not enough.

This makes it very difficult for lawyers to:

  • Advise clients as to their costs exposure, even in the event that they win (gone are the days when one could simply say that a client could expect to recover between 70 and 80% of the costs from the other side).
  • Strike the right balance between doing their best for a client and running up costs that will not be recovered from the other side.

Unless of course your case is costs budgeted. A costs budget is the court’s assessment as to what the proportionate spend on your piece of litigation is, and there must be good reason to depart from it on detailed assessment.

So is it time to shelve our doubts and concerns about costs budgeting, and embrace it in the name of certainty? At least the lawyers will know in advance of spending any future sums what the recoverable costs will be.

39 Essex Chambers Katharine Scott

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