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Costs budgeting: three years on

Costs budgeting has just had its third birthday. That birthday has been celebrated not with candles, but with the 83rd CPR update.

Recent changes

Agreed budget discussion reports must now be filed no later than seven days before the CCMC, for claims commenced after 6 April 2016. Claims relating to children commenced after 6 April 2016 are exempted from the costs budgeting provisions altogether, because it was thought that budgeting cases which might take years to get to trial was not sensible. The exception continues to apply where the child reaches majority unless the court orders otherwise. Further, the court will now ordinarily disapply costs budgeting where the claimant has a life expectancy of less than 5 years (PD 3E.2(b)), a provision designed to deal in the main with living mesothelioma claims.

April 2016 also saw the updating of the guidance to completing Precedent H and PD 3E.6(b) now expressly requires that it be followed.

Confusion in the courts

Comments in Sarpd Oil International Ltd v Addax Energy SA have caused consternation. See paragraph 47, for example:

“Strictly, by reason of para. 7.4 of PD3E the court could not approve the incurred costs element of these costs budgets in a way which would engage the effect of CPR 3.18(b). The proper interpretation of the order made in relation to each costs budget, therefore, is that the estimated costs element in each case was approved by the order (so that Part 3.18(b) was engaged in relation to that element) and the court commented on the incurred costs element in each case (and on the total figure which included that element), as it was entitled to do under the second sentence of para. 7.4, to the effect that it agreed the claim made on the face of the costs budget that those costs were reasonable and proportionate costs in the litigation. The effect of this comment was that it was likely that the incurred costs element would be included in any standard assessment of costs at the end of the day, unless good reason was shown why it should not be. There was little if any difference between the practical effect of the court’s order in relation to incurred costs and its order in relation to estimated costs.”

It is important to look at the particular context in which the case was decided (an application for security for costs), but following Sarpd parties have been asking courts to include recitals when costs management orders are made that the incurred costs and hourly rates are not agreed, to avoid any risk that they may be unable to contest incurred costs and hourly rates on assessment.

In Group Seven Ltd v Nasir, Morgan J, on making a costs management order, was persuaded to decide maximum hourly rates and counsel’s fees for trial preparation and trial. This detailed approach has been endorsed on the basis that it will mean that detailed assessment is much less likely (it has also been suggested that it is open to argument that this High Court decision binds all masters and district judges), but the approach flies in the face of CPR 3 and PD 3E.

Need for guidance

It would be helpful to have some clear guidance from the Court of Appeal on costs budgeting, where it is specifically asked to consider the relationship between incurred costs and those yet to be incurred, and the approach to hourly rates and other specific components.

Meanwhile, the chapter on case and costs management in (the enormously helpful) Costs and Funding Following the Civil Justice Reforms: Questions & Answers (Sweet & Maxwell, 2nd edition, 2016) now answers 68 separate questions, over some 48 pages.

Increased complexity

Although some cases have been excluded from costs management by the recent CPR amendments (and some of these are likely to be the very highest value personal injury and clinical negligence cases, that is those relating to children), there already appears to be a risk that the new costs management regime is itself spawning complexity and complexity’s friend, additional cost, in circumstances where the new proportionality test and the changes to costs recovery in personal injury claims will surely operate to bring down cost themselves.

In a climate where there is a drive towards the rapid expansion of fixed costs, and discussion of a separate online court for claims of up to £25,000 which is not cost-bearing at all, the risk of all of this complexity can only be that costs management is itself too complicated to do what it was supposed to do. Practitioners beware! Agree and be sensible.

39 Essex Chambers Judith Ayling

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