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Practical Costs Management Guide

View profile for Nicholas Lee
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This article should be a one stop guide for the practical side of Costs Management.

Preparing a Costs Budget

It horrifies me to see budgets with no assumptions, an expert phase without any expert fees, Court fees omitted and incurred costs incorrectly presented. Be under no illusions, you will be bound by your budget and oversights will not be easily forgiven. Unless you are certain you will not be recovering your client's costs, this needs to be carefully thought through. You can only amend your budget if significant developments in the litigation warrant such revisions. When assessing costs the Court will not depart from the agreed or approved budget unless satisfied that there is good reason to do so. The ramifications for getting this wrong are pretty significant.

Our greatest concern is under-budgeting, whether by lack of proper consideration or by being over optimistic. We do not encourage any gross inflation of estimated time, but instead encourage clients to consider how long these things realistically take. Think about the process, the evidence you will need to cross reference, the potential hurdles, what you expect to receive from the other side, timing and every associated costs which follows. If, for example, you are having a conference with Counsel think about preparing instructions, liaising with those attending, travel time, travel expenses, time spent in conference, Counsel’s fees, Experts' fees (if applicable), preparing a detailed attendance note and reporting to your client.

There is no magic formula. Each case is unique and it is vital that whoever prepares your costs budget does so with exceptional care and detail. Someone will have to defend the budget at some point, so the more information available the better.

Top Tips:

  1. Ensure incurred costs are properly phased.

  2. Set out, in detail, your assumptions.

  3. Carefully think about every step in the proceedings.

Agreeing a Costs Budget

There are some justified concerns with agreeing costs budgets. How can you agree the budgets if directions are not agreed? If you agree a budget, is that an acceptance that the costs claimed are reasonable and proportionate? We cannot offer any reassurances in this respect, but the reality is that you need to assess the risks and benefits according to each case. If your budget is broadly the same as the other sides, does the cost of a CMC outweigh the likely benefit? Probably. Can you agree the budgets based on each parties proposed directions and then agree an amendment at a later date if necessary? Probably. In a £50,000 claim where the respective budgets are in excess of £100,000, are both parties vulnerable to heavy reductions by the Court at a CMC? Probably.

Think about the facts of your case, whether it is truly complex and the view that any sensible Judge is likely to take. Costs budgets need not be argued for the sake of being argued. If the proposed reduction to your budget is 10-15%, does that have any material difference? You probably would expect to lose that on assessment in any event.  

Top Tips:

  1. If you are the likely paying party, perhaps consider the phrase "The budgets are agreed, but the costs are not accepted as reasonable or proportionate”.

  2. If you cannot agree the entire budget, try agreeing those phases which are not controversial.

  3. Think about agreeing with provision to revise if the final directions differ from those proposed.

Costs & Case Management Conference

Picture this scene. You represent the Claimant in respect of a complex clinical negligence claim. On your analysis the claim is worth about £1,000,000 due to care requirements and the uncertainties concerning your client's capacity to be employed in the future. The Defendant says the claim is worth no more than £10,000, if you can prove breach of duty, as your client was already in receipt of state funded care and employment prospects were always bleak. Directions are not agreed. The Defendant wants a split trial, but you do not agree. As for quantum, you want 4 experts, the Defendant says only 2 are needed. Your budget is £250,000, the Defendant’s is £25,000. You’ve not been before this Judge before, so you are not sure how familiar they are with the rules relating to costs management, how they approach proportionality, whether they look at the detail such as hourly rates and level of fee earner, what they want to know about incurred costs and whether you have to amend the whole budget there and then. Your opponent is witty and manipulative. You’ve had no real engagement from them on costs and have no idea what issues they are going to take.

How would you prepare for this hearing?

These scenarios are common for Costs Lawyer advocates. We have to think fast on our feet and expect the unexpected. In our experience the Court only gets round to dealing with costs in about 1 in 3 cases where there is a significant dispute regarding directions.

The most important thing when attending a CCMC is to know your case and know your budget. Knowing the Judge is often helpful. Be prepared to explain why the time spent on witness evidence appears high or why there is a fee for an expert whose report you do not appear to be relying upon. You need to be confident with the CPR and the relevant provision relating to the overriding objective, costs management and costs rules. Judges interpret the rules differently, so have to hand the relevant case law which provides some helpful guidance.

Top Tips:

  1. Be prepared for anything.

  2. Know your case and know your budget.

  3. Have an in-depth knowledge of the CPR and the relevant case law.

Amending a Costs Budget

With some costs budgets being filed with directions questionnaires, it is almost inevitable that you will need to update your costs budget. There is no restriction on amending your budget before it is agreed or approved. Therefore you should be updating your budget just before the CMC to reflect the incurred costs position at that stage.

Once the budget is agreed or approved, adjustments must be agreed or approved. You should amend your budget before you incur the costs. Remember, the Court cannot approve incurred costs, so if you apply to amend your budget, the Court can only increase the future cost allowance. So if you incur costs outside or beyond your agreed/approved budget, they are potentially irrecoverable. Act promptly. Seek your opponent’s agreement and give them a limited time-frame to respond. Apply to the Court promptly if they do not agree. If your opponent unreasonably refused an adjustment, you should seek your wasted costs.

Top Tips:

  1. Monitor your costs as against the budget.

  2. Seek agreement or approval of additional costs before they are incurred.

  3. Remember that a revised budget is only likely to be agreed or approved if there have been “significant developments”

Costs Assessments

The starting point is that the Court will not depart from the last approved or agreed budget without good reason. The first problem is the Court identifying whether the costs claimed exceeds the budget. Precedent Q was introduced in October 2015 which reflected an amendment to the CPR requiring the receiving party to provide a breakdown of the costs claimed for each phase of the proceedings. That is the only requirement at present.

But what if the costs are more than the last agreed or approved budget? If items are reduced on assessment, how do you know which phase those items were claimed within? How do you know if the assessed costs fall within the last agreed or approved budget? These are the issues facing Judges and advocates at present. A voluntary pilot scheme for the new bill of costs began on 1 October 2015, but it is not very user friendly and it seems that few have voluntarily opted in. From January 2016, a phased bill will effectively be compulsory. The bill will need to be split as “necessary or convenient”. It seems the message to receiving parties is that the onus is upon them to enable the assessment to take place having regard to the last approved or agreed budget.

So from January 2016 we can expect at least 10-part bills to reflect the Precedent H. Then bills need to be split pre/post 1 April 2013, to reflect change of rates, to reflect changes in funding & change of firms. Or better still, you may have submitted monthly interim final invoices to your client. So if you have litigation lasting for 36 months, that’s 36 parts to reflect the invoices within which there are up to 10 parts for the Precedent H phases, so as many as 360 parts to a bill.... Happy New Year all.

Sales Pitch

Paragon has been preparing budgets, attending CCMCs, applying to amend budgets and phasing bills for assessment since costs management was introduced. We have adapted our working practice to embrace these changes and minimise the disruption for our clients.  Call to find out more, arrange in-house training, talk about your working practice or to pick our brains!

Send us your views or ask us a question @paragoncosts #costsmanagement