Our technical working group at Paragon Costs has been thrashing through the implications of these changes and the decision. Here you will find our practical guidance!
If in doubt- file and serve your budget
The rules say that costs budgeting will not apply where the claim is brought on behalf of a minor and will not normally apply where the Claimant has a limited or impaired life expectancy. But what if you receive a standard order requiring you to provide a costs budget? PD 3E provides that the Court has discretion to make an order requiring costs budgets in a case where it would not ordinarily be applicable. Our view is that if you receive such an order, file and serve a costs budget. If you have time then you may want to query this with the Court in advance, but in the absence of a response, our advice would be to err on the side of caution and prepare the costs budget.
When to file with the Directions Questionnaire
The rules make it clear that where the value on the claim form is less than £50,000 you should file and serve your costs budget with the DQ. But what if no value is stated? Or what about non-monetary claims? Again our view is that where there is doubt, file and serve your budget. So unless the value is expressly stated to be a sum of £50,000 or more, we would suggest that you file and serve your budget.
Serving Budgets 21 days before the CMC
This makes sense as it allows a greater period of time for the parties to discuss the respective costs budgets. The parties must allow plenty of time for the preparation of the budgets and should engage in discussions as to directions in advance of preparing the budget. So often we are faced with budgets that are poles apart due to the discrepancy with directions. Directions are then agreed at the last minute but there is insufficient time to amend the budgets to reflect the agreed directions. Allow yourself plenty of breathing space and engage in discussions regarding directions as soon as DQs are exchanged.
Parties must follow the Precedent H Guidance Note in all respects. That should be fine in most cases, but there is always work that does not fit squarely within any phase. Historically we have claimed such costs as either Pre-Action or Trial Preparation. That logic will not be accepted moving forward, so we will now claim non-phaseable work in the most appropriate phase at that time.
The guidance allows for updated budgets at the PTR stage. This seems to be in addition to the initial budget, for which 1% is allowed, and work up to and including the first Costs Management Conference, for which 2% is allowed. We will therefore be including time at the PTR stage to update the budget, but were not quite sure why this is necessary as a matter of course….
Our annex has been an invaluable document between our Costs Lawyers and our Solicitor clients in plotting the future costs. It has also been invaluable at the CMC in terms of answering questions as to what has been incurred and how future costs have been calculated. But, the Court no longer wants to see it. The new guidance expressly states that no documents other than the Precedent H and budget discussion report should be filed, save in exceptional circumstances. We will continue producing an annex given its valuable nature to our clients and the advocate at the CMC, but it will not be filed at Court. Instead we will now include the key assumptions within the costs budget. We will use the annex as evidence if ever we need to apply to amend the budget and need to demonstrate what was and was not included.
New Precedent H format
We quite like it in principle. There are some obvious problems in that you cannot include incurred costs for PTR, Trial Preparation or Trial, but there may be circumstances in which you are updating a budget during those phases. But we are confident we can work around this. One change we will be adopting to accommodate the phased bill, is to express within the budget the cut-off between incurred and estimated costs. So for example we will say "Costs Budget of X dated Y (incurred costs to Z)". That provides a clear division for the purpose of the bill of costs matching the costs budget.
Sarpd Oil International Ltd v Addax Energy SA and another  EWCA Civ 120
It will be very interesting to see how this decision is applied in practice at CMCs, Trials, Assessments and applications for payments on account of costs. Will parties be discouraged from agreeing budgets? Will agreements carry conditions or caveats? Will those conditions or caveats carry any weight? Must comments be reflected in the order? What is the inference if no comment is made? Is an assessment redundant if actual costs are approved and no adverse comments have been recorded? How will a Judge assessing costs actually approach the assessment? Where the costs are within budget, does the onus shift to the paying party to demonstrate good reason to depart?
More questions than answers. One thing is certain is that there are some major tactical advantages that can now be gained and some serious adverse consequences to be suffered in respect of both incurred and estimated costs when it comes to costs management. Parties will need to carefully consider their case strategy alongside their costs strategy in advance of agreeing a budget or attending a CMC.
Interim Payments on account of costs
Sarpd should be the lead authority for seeking interim payments on account of costs where there has been an approved or agreed budget. The starting point should be that costs within the approved or agreed budget are reasonable and proportionate. Furthermore the agreed or approved budget should be treated as a strong guide as to the likely costs to be awarded to the receiving party. A receiving party should be pushing for at least 90% of their agreed or approved costs budget, having regard to what has been incurred.
To arrange in-house training at your offices to consider these latest developments, please contact firstname.lastname@example.org.