We have been living with budgeting and costs management for over seven years. There have been some unpleasant growing pains as practitioners have learnt the sometimes harsh reality of the significance of the rules, and a failure to comply with them.
I have been surprised that, whilst practitioners have adjusted to the need of budgeting, there is still a significant lag in the willingness to engage with the second part of the process: costs management. There appears to be relief once the first costs and case management conference (CCMC) has taken place and the budget is approved. Time to mop the brow and put the budget at the back of the file until the case concludes.
That was never a good idea as the onus has always been on the practitioner to maintain the budget; that is, to ensure that it does not deviate unless something unforeseen happens. The only way to ensure that the phase totals are kept within the amounts set (or identify the need to revise the budget) is to regularly update them by costing the file. Judges continue to express surprise at how few requests or applications to amend budgets they see. Waiting for a detailed assessment to plead for an increase is unlikely to succeed, as the court will rightly ask why you did not do anything about it at the time you became aware of an issue. You are suddenly out of pocket by many thousands of pounds.
The Civil Procedure Rule Committee has clearly taken this on board with the publication of the 122nd Practice Direction (PD) Update. The casual observance of the costs management process is at an end.
The Civil Procedure (Amendment No 3) Rules 2020 and the 122nd Update hit the Civil Procedure Rules (CPR) homepage on 24 July 2020. They set out changes to “Costs Budgeting and Variations”, with the aim of:
“[rationalising] the current structure of the rules on variations to cost budgets. The changes have reduced the existing structure which involved three sources of rules (CPR Rules, a PD and a lengthy Guidance Note) into two documents, a set of rules and a PD which is intended only to include practice guidance.”
Of significance is the introduction of a new Precedent T (budget variation summary sheet), as part of the changes to PD 3E effective from 1 October 2020, to be used in the event of variation of a budget.
The statutory instrument introduces a new provision (CPR 3.15A) to deal with variation, and codifies the practice currently set out in PD 3E.7.6. By way of reminder, PD 3E.7.6 provides that:
“Each party shall revise its budget in respect of future costs upwards or downwards, if significant developments in the litigation warrant such revisions. Such amended budgets shall be submitted to the other parties for agreement. In default of agreement, the amended budgets shall be submitted to the court, together with a note of (a) the changes made and the reasons for those changes and (b) the objections of any other party. The court may approve, vary or disapprove the revisions, having regard to any significant developments which have occurred since the date when the previous budget was approved or agreed.”
The new CPR 3.15A retains the concepts of “significant developments” and inter partes agreement. However, as to the latter, parties can no longer simply agree revisions between themselves. While the new rule provides that any budgets revised in accordance with CPR 3.15A(1) “must be submitted promptly by the revising party to the other parties for agreement” (emphasis added), it is qualified: the revised budget must be submitted “subsequently to the court” for approval.
Further, the new rule now directs that a party “must” (not “shall”) revise its budget, and adds that such revisions must be done “promptly” and using the new form (Precedent T).
The change addresses the issue of budget variation by, in effect, upgrading PD 3E.7.6 to rule status and, in so doing, determines the process which must be followed. The varying party must submit a Precedent T to the other side without delay. The Precedent T will allow the parties (and ultimately the court) to understand, in a recognisable format, what the proposed variations to the budget are.
The peremptory instruction, that a budget “must” be revised, applies equally to upward and downward revisions. It remains to be seen how this will play out, given that downward revisions are uncommon in practice, but practitioners will need to engage in active costs management and be aware that significant developments may go beyond the assumptions which underpin their budget such that they need to take action. Indeed, the effect of the change is to place costs management and budgets (and their variation) at the forefront of practitioners’ minds.
Further, given the peremptory instruction, the likelihood is that the saving provision at CPR 3.18, of good reason, may well become a higher threshold to overcome at detailed assessment (that is, where a party could, and should, have varied their budget during the substantive case). Conversely, a paying party could use this to its advantage, to reduce the bill on assessment, by establishing good reason to depart from the approved budget where the receiving party failed to revise a budget.
One could argue that the change is coming at the right time or, with equal force, that this is inopportune. COVID-19 has affected litigation across the board, and we don’t need a crystal ball to predict the impact on budgeting. There will be swathes of cases where the pandemic has caused delays, departures from (previously safe) assumptions, additional steps being taken (including additional remote hearings) and the loss of trial windows or vacation of hearings.
It is already important that budgets are maintained, but the changes bring this into keener focus. You must revise a budget promptly (that is, upon determining that a significant development in the litigation warrants a revision). It is insufficient simply to agree this with the other side, as the revised budget must be submitted to the court for approval.
COVID-19 has changed the way we all work, but citing the pandemic as a “good reason” to depart from a budget at detailed assessment may be given short shrift.
Engage in robust costs management and revise budgets promptly when necessary during the course of the substantive case. You have been warned!