After a year has passed since the introduction of the new rules and most solicitors have encountered the Precedent H form, we look at the early development of the costs budgeting process. Drawing on the first-hand experiences of Paragon Costs Solutions’ Costs Lawyers, we will consider whether these changes have brought the clarity, consistency and proportionality to legal costs that justified their introduction.
Delayed or dispensed with?
One experience of costs management was surprisingly short and anticlimactic. The Precedent H’s were prepared and both parties entered negotiations in an attempt to agree the costs budgets. On failing to reach agreement, largely due to a large discrepancy between each party’s proposed directions, formal submissions and replies were drafted. Solicitors, Counsel and Costs Lawyers attended the CMC in anticipation of a detailed and lengthy hearing in which both directions and costs would be managed for the remainder of the claim. Shortly after introductions and initial submissions, however, the Deputy District Judge laid out his position that costs would not be managed. Admittedly this was one of the proposals that we intended to put forward in the hearing; surely the Court cannot properly manage costs until the directions had been agreed and a clear framework for future costs confirmed? [This may well be an appropriate subject for a separate article altogether] Yet the DDJ offered another reason for his decision, he simply did not feel prepared and adequately qualified to manage costs properly. Costs management was not dispensed with, instead the Judge ordered that all outstanding directions, presumably but not expressly to include costs management, were to be dealt with at the conclusion of the liability trial.
The decision produced an interesting situation that may not have been considered by the authors of CPR 3.13, and I daresay was not fully appreciated by the DDJ on making the order: if the parties want to rely on updated costs budgets when the costs are managed at the conclusion of the liability trial, should they have to file and serve revised Precedent H Forms at least seven days before the trial date? The DDJ did not dispense with the case management powers intended for the CMC but merely delayed them until the Liability Trial. It follows, one may argue, that the rule for filing and exchanging updated budgets under CPR 3.13 was also delayed so that ‘seven days before the first case management’ could become ‘seven days before the liability trial’.
Updated Precedent H forms
This leads on to another costs budgeting issue: when can you rely on a revised budget prior to approval by the Judge? At another recent CCMC in the Rolls Building a Paragon Costs Lawyer representing the Defendant was greeted on the door of the Court room by opposing Counsel who had an updated Precedent H in hand. Counsel proposed a quick exchange of information so that the Judge could manage costs based on the Claimant’s most accurate figures for incurred and estimated costs. In the event there was not enough time for such an exchange to take place, however Counsel proposed that the Judge take a copy of the updated Precedent H at the start of the CCMC and use this as the starting point for assessing the Claimant’s costs.
Despite understanding the practicality of this proposal, the Paragon Costs Lawyer submitted that any revisions to the budget should have been filed at Court and exchanged between the parties at least seven days before the CCMC and, given the heightened attention paid to Precedent H deadlines in light of Mitchell, the Claimant should be held to their most recently filed costs budget. The Master agreed with this interpretation of the CPR and proceeded to assess the Claimant’s costs based on a Precedent H that was now three months out of date. This created another interesting but considerably impractical and theoretical position; the parties made representations regarding estimated future costs as they would have been when the budgets were filed three months previous. Using witness statements as an example, the Judge had to assess what would have been the reasonable and proportionate future costs for obtaining four statements despite the fact that the Claimant had now incurred and invoiced specific costs for doing a significant volume of that work between the filing of the Precedent H and attending the CCMC.
Counsel for the Claimant was able to use the costs that had actually been incurred to try and convince the Judge what figures should be approved as appropriate “future” costs; however there were still occasions where the final figures would not account for all of the costs already incurred by the Claimant. Whilst this process reflected the strict application of the rules relating to costs management, it is hard to imagine that Lord Justice Jackson intended such a convoluted and at times counterintuitive exercise when drafting his reforms.
An additional issue that emerged from this hearing was the proper application of the new test or proportionality. On behalf of the Defendant it was submitted that the Judge was under a duty to assess the proportionality of the costs of each phase in the Claimant’s Precedent H, and each item of work within that phase. Once completed, he should then consider the total costs in the wider context of the claim, and be prepared to make further reductions should they still be disproportionate. The Judge acknowledged this two stage process as the proper assessment of proportionality under the new rules yet did not appear to apply it. Having assessed the reasonable costs of each phase individually he stood back and noted that the total value of the Claimant’s revised Precedent H certainly looked “steep”, but would not take the additional step of making any further reductions and cautiously avoided the word disproportionate, preferring to leave such reductions until all of the costs are assessed at the conclusion of the claim. This leaves us to question the purpose of the revised proportionality rule, and the reasonableness of incurring the time and costs of the entire costs management process?
It was suggested above that costs should not be managed until directions for the remainder of the claim have been agreed or ordered. Put simply, it is almost impossible to discuss, dispute or agree the estimated costs of each party’s future work when they have yet to agree on what that work will be. From split trials to the number of witnesses or fields of expert evidence, a difference in proposed directions can cause a significant discrepancy between costs budgets. No party is going to willingly concede or negotiate the costs of their opponent’s future work when that same future work is not allowed for in their own draft directions. This often leaves the Court with a difficult decision at a CCMC where both directions and costs are supposed to be managed. Logically the directions would be agreed and then costs managed on the basis of those directions, but this poses several questions: Should the parties incur the costs of preparing multiple versions of their Precedent H forms based on different directions? Should they be prepared to consider the implications of new directions and offer amendments to their budgets on the spot at the CCMC (which can require communication between conducting solicitor, costs lawyer, Counsel and an expert)? What happens if the Court runs out of time before dealing with Costs? And how do you approach the whole procedure where the Judge wants to manage costs before considering directions (this has happened)?
We have recently experienced a complicated costs management procedure where both parties arrived at a CCMC with contrasting Precedent H forms reflecting the costs of their widely differing directions. The budgets had been considered in depth by both parties and several attempts had been made to agree all or some of the costs, narrow down the issues and even agree on directions in order to assist the Court. However there were several significant clashes of opinion on key directions and so each party understandably defended their own position by asserting that their Precedent H was reasonable and proportionate. The Master and both parties were faced with the situation, and associated questions, described above. On this occasion the Master was offered an alternative solution by both the Claimant and Defendant. The value of the claim was in dispute, but both parties agreed it would at least exceed £10 million if liability was proven. Given that both budgets had a combined total of less than £1.5million in costs the parties suggested that proportionality would not be an issue and so costs management could be dispensed with. Reluctant to pass up his responsibility, the Master went on to order directions in the case and requested that each party file and serve an amended Precedent H within 7 days to reflect the agreed directions. Costs management would then be dispensed with save for an application from either party requesting costs management following receipt of the amended Precedent H forms.
What should you do?
It is noticeable how much uncertainty has arisen during the costs management process. In each of our examples, both the advocates and Judges have faced novel situations which resulted in the contentious application of the costs management rules. It is also noticeable how the parties are using the costs management process as a genuine opportunity to challenge their opponent’s costs and, as an extension, the strength of their claim or defence. We are rarely seeing a party agreeing on the Precedent H budgets as the possibility of gaining an early advantage through the limitation of costs is too attractive. Furthermore the Courts don’t appear to be approving many budgets as claimed, as Judges look to undertake their costs management responsibilities with varying levels of confidence or experience. Therefore when the combination of disputed directions, contested costs and uncertain costs management rules clash at a sixty minute hearing, it is unsurprising that many solicitors remain mystified by the Precedent H and costs budgeting process.
Here are our five top tips for costs management:
Costs management need not apply to every case.
Ensure updated budgets are filed at least 7 days before the CMC (unless they have been agreed).
Be prepared to deal with preliminary and fundamental points in respect of costs and costs management.
Have regard to the impact the directions will have on the budget which has been produced.
Be prepared to justify the steps and costs contained within the budget.