The introduction of costs budgeting in April 2013 filled many practitioners with a feeling of horror. While it is fair to say that seven years in to the process, we have got to grips with it, there are still some elements of costs budget preparation that cause confusion.
CPR 3 (specifically CPR 3.12 through to CPR 3.18) and Practice Direction 3E deal with all things costs management. Annex B to PD 3E contains the guidance notes for Precedent H, (which will be incorporated into PD 3E from 1 October 2020 following the 122nd CPR update rather than existing as a separate document), which essentially made up the bible of costs budget preparation when this all began in 2013. The notes provide guidance on preparing a budget and a summary of what work should be included in each specific phase, and what should be excluded. While the guidance note does assist, there are still some grey areas in relation to certain types of work.
Confusion can arise where work is required that doesn’t appear in the guidance note, for example, liaising with case managers or treating experts in a serious injury case, which can often amount to significant time being incurred. Of course, these examples don’t occur in every case, but when they do, in which phase should they be included? Over time, practitioners have learnt to use the “best fit” phase for work not included within the guidance. The courts have generally accepted this approach.
The other now obvious flaw to the guidance is the reference in the pre-trial review (PTR) phase to correspondence with the opponent to agree costs budgets if possible. Of course, in practical terms, very rarely are updated costs budgets ordered ahead of a PTR hearing. However, this section of the guidance has caused confusion as to whether further budgets ought to be filed at the PTR stage. Further, the guidance also makes clear that any work associated with costs budgeting is not to be included within the main budget itself.
The guidance is clear that assumptions should be brief and that those reflected in the note are not to be repeated. While none of us have a burning desire to have to read through, or indeed prepare, lengthy and wordy assumptions documents (as was often the case before the guidance was amended in 2016), it can be difficult to justify thousands of pounds of costs in a few words.
In practical terms, we need to be able to justify the costs sought not only by reference to the work that needs to be done, but also to provide some background as to what has been done so far. Those on the claimant side of the fence will be used to the challenge that, “surely as you have spent so much, you don’t need to incur much more going forwards”.
In Cliff Richard OBE v The BBC & Chief Constable of South Yorkshire Police, Chief Master Marsh made it clear that the court should be cautious about making any finding or recording that the costs incurred were disproportionate, without knowing to what exactly those costs related. It surely then follows that given that PD 3E.7.1 says that the court can take the incurred costs into account when considering the reasonableness and proportionality of all budgeted costs, there ought to be an opportunity briefly to justify those costs. Most judges are open to hearing justification of incurred costs in submissions at the costs and case management conference (CCMC), but there is an argument that it would assist the parties and the court if these points were incorporated into the budget assumptions where relevant.
There were three significant changes to the practice direction and guidance note, those being:
- Approval of settlement is now included in the alternative dispute resolution (ADR)/ settlement phase.
- Definition of budgeted and incurred costs: see CPR 3.15 and PD3E.7.4:
- incurred costs are all costs incurred up to and including the date of the first costs management order, unless otherwise ordered; and
- budgeted costs are all costs to be incurred after the date of the first costs management order.
- Counsel’s brief fee for trial should now be included in the trial preparation phase.
The amendment to provide clarity regarding approval hearings is welcome; it had often been debated as to whether the costs incurred in respect of approval hearings should form part of the ADR or trial phase. The guidance note now confirms that ADR/settlement is the correct phase.
The guidance note now provides that counsel’s brief fee for trial should be included in the trial preparation phase (assumed to include preparation time and day one of trial, as is the norm for brief fees). Refreshers for the remaining days of trial are to be included in the trial phase.
While the change of phase for counsel’s brief fee causes no real practical difficulty, the same cannot be said for the definition of budgeted and incurred costs. For some time now, the courts have taken the view that estimated costs in the CCMC phase should be moved over to the incurred section of the budget on the basis that those costs are all effectively incurred by the time of the CCMC.
On literal reading, the amendment to the rule extends this approach to all phases of the costs budget. If applied, this means that at the CCMC hearing, the parties are tasked with calculating costs incurred for each phase in the intervening period between the budget being prepared and the day of the CCMC, and effectively transferring those costs to the incurred costs part of the budget.
In reality, experience since the change to the rule is that, for the most part, the courts are not applying it to any other phase and it is very much business as usual. However, there are some exceptions to this, and parties should always be prepared to provide details of the costs incurred in the intervening period should the court require any.