Gavin is a specialist Costs Lawyer and member of the Association of Costs Lawyers.
CPR Update - Costs Management (Revised 11/10/19)
The 109th update to the CPR comes into effect on 1 October 2019. Among the changes is a revision to paragraph 7.4 of Practice Direction 3E. It currently reads:
“As part of the costs management process the court may not approve costs incurred before the date of any costs management hearing. The court may, however, record its comments on those costs and will take those costs into account when considering the reasonableness and proportionality of all budgeted costs.”
In practice this has led to some inconsistencies during costs and case management conferences (CCMC’s) as to what costs should be costs managed by the Court. Some judges simply manage all costs that were estimated to be incurred when the budget was prepared, whereas some judges look at the estimated costs set out in the CMC phase and take them out of the costs management process on the basis that by the time of the hearing those costs had already been incurred.
The wording of the Practice Direction will change on 1 October to:
“As part of the costs management process the court may not approve costs incurred up to and including the date of the costs management hearing. The court may, however, record its comments on those costs and will take those costs into account when considering the reasonableness and proportionality of all budgeted costs.”
This confirms that the latter approach should be adopted which would not cause a problem if the only costs incurred between the date the budget is prepared and the CCMC are costs that were estimated in the budget (and would be claimed in a bill) under the CMC phase. In most cases however, it would be very unusual for a party not to incur any costs to be claimed under other phases, such as in relation to disclosure or witness statements, before the hearing.
Where a claim is limited in value to less than £50,000 the costs budget must be filed and served with a party’s directions questionnaire and this can be a considerable time before a CCMC.
We recommend consideration is given to updating the budget before attempting to agree it with opponents prior to the CCMC, particularly if there has been a lengthy delay in the Court listing the claim for a CCMC on receipt of the directions questionnaires, or if a significant amount of work has been undertaken, but the budget will always be out of date by the time the hearing arrives and a line needs to be drawn at some point in order for the parties to discuss budgets and attempt to agree them prior to the hearing.
A further issue arises where an agreement is reached in respect of some but not all phases of the budget prior to the hearing. If the agreed figures are confirmed in the costs management order made by the Court the cut-off date as far as incurred and estimated costs for the agreed phases will likely be the date the budget was prepared, whereas in accordance with Paragraph 7.4 of PD 3E the cut off date for the budget phases which are dealt with by the Court will be the date of the hearing. This will lead to confusion and inconsistencies when it comes to bill drafting.
I have seen suggestions on social media from some costs lawyers or draftsmen that one way of overcoming these issues would be to include any costs likely to be incurred up to and including the CCMC in the incurred costs when preparing the budget however that means when it comes to preparing a bill of costs at the end of the claim there are likely to be discrepancies between the incurred costs as set out in the budget and those claimed in the bill which will undoubtedly lead to concerns being raised by the paying party over the accuracy of the budget and bill of costs, and also the certification of those documents by the receiving party’s solicitor.
Hopefully there will be some further guidance from the Courts or perhaps in the form of future updates to the CPR but in the meantime I believe that the best approach will be to only include as incurred costs of the budget, costs actually incurred at the time the budget is prepared and make it clear when any phases of the budget are agreed with opponents prior to the CCMC whether that agreement relates to the costs estimated at the time the budget was prepared, or those costs likely to be incurred after the CCMC.
Thankfully in the majority of cases where costs management orders have been made an electronic bill of costs will be required at the conclusion of the claim. In an electronic bill it is easy for parties to filter costs claimed in the bill to see costs claimed during various periods so they and the Court can check to see if those costs incurred before or after a specific date exceed those agreed and/or approved by the Court. The ability to filter costs quickly will also enable the receiving party to address any issues that might be raised during the assessment process.
Whilst this preferred approach may change once further guidance is available the difficulties likely to be encountered mean that it would be sensible to ensure that the person who is likely to be preparing the bill at the conclusion of the case is also tasked with the preparation of the costs budget, and is involved with the costs management process to ensure that any issues can be addressed at the earliest opportunity and challenges raised during the detailed assessment process overcome.
We are experienced in the preparation of costs budgets and electronic bills of costs and can assist through the entire costs budgeting and detailed assessment processes to maximise costs recovered and help to ensure costs are dealt with swiftly at the conclusion of the claim.
UPDATE 11 OCTOBER 2019
The Guidance Note for use with the preparation of costs budgets annexed to Practice Direction 3E has now been updated to confirm at paragraph 10 that:
"Definition of budgeted and incurred costs: see CPR 3.15 and PD3E para 7.4.
a. Incurred costs are all costs incurred up to and including the date of the first costs management order, unless otherwise ordered.
b. Budgeted costs are all costs to be incurred after the date of the first costs management order."
It is now clear that when preparing a costs budget it will be necessary to include, as incurred costs, any costs that will be incurred between the preparation of the costs budget and the first CMC, to include the hearing itself and the preparation of the order after the hearing. Estimated costs must only be those to be incurred after the hearing. Whilst this clarification is welcome it would have been useful if the guidance had been updated before the revision to the Practice Direction came into effect on 1 October 2019.
Our experienced team of Law Costs experts are here to help.