COSTS BUDGETING PROBLEMS

on Tuesday, 05 May 2015.

Costs Budgeting continues to cause difficulties for Courts. Master David Cook of the Queens Bench Division has stated that the litigation system will “cease to function” unless radical changes are made to the cost budgeting process. He is of the opinion that the new Civil Procedure Rules came into force with little preparation for Barristers and solicitors and little training for Judges. There is no formal scheme for controlling pre-issue costs. In approximately 180 cost budget hearings overseen by Master Cook and his colleague Master Roberts, only a handful of budgets had been agreed by the parties. Defendants had a lack of confidence that they could challenge the final Bill of Costs once the budget had been set. Claimant’s solicitors simply wished to budget for every conceivable contingency in view of the fact that costs will not be recovered if they exceed the budget. Clearly these difficulties should have been foreseen when the Costs Budgeting process was implemented.

It is worth looking at a number of decisions which have recently arisen.

The case of Tim Yeo MP –v- Times Newspapers Ltd (2015) EWHC 209 (QB) dealt with the methodology of Costs Budgeting. Justice Warby heard 2 hours of oral arguments and gave guidance as to the Costs Management process.

Justice Warby concluded that he acknowledged Costs Management should not be a Detailed Assessment but that he should properly look at hourly rates and time spent as would be done on a Summary Assessment, distinguishing that approach from a Detailed Assessment. The Judge went on to reduce figures by approximately 25% as the solicitor’s hourly rates were too high and time was excessive. Ultimately, the guidance provides that:

  1. A substantive Costs Management conference should generally not be needed.

  1. Significant costs incurred prior to Costs Budgeting are outside the scope of the approval process, but the Court should take them into account to determine reasonable future costs.

  1. The general test is as to whether the overall totals for each phase are reasonable and proportionate. However, in order to assess the same, the Court will need to consider hourly rates and time to be spent.

  1. Contingencies should only be allowed where they are “more likely than not to be required”.

The Yeo decision relates to a libel case, but it is increasingly being adopted by the industry as providing guidance in all cases.

It is also worth considering the decision in the matter of Simpson –v- MGN (2015) EWHC 126 (QB). This was a defamation claim. The Claimant was seeking recovery of costs in relation to applications to list a matter for a preliminary issue. The Claimant included these costs in the Costs Budget as a contingency.

At the Directions Hearing, the Master declined to order a Preliminary Issue Hearing. However he specifically stated that neither party was precluded from issuing an application for a ruling on the Preliminary Issue. Despite this, the Master did not allow contingent costs for such an application when approving the Costs Budget. These costs were therefore not approved. Ultimately, a Preliminary Issue Hearing did take place, which was won by the Claimant. However the Claimant had failed to seek approval from the Court for the revised Costs Budget, to include costs of the hearings and failed to serve the Defendant with a Schedule of Costs for the purpose of the Costs Hearing. Therefore, the Claimant’s solicitors ended up with an order in which they were only entitled to 90% of costs which would have been approved as reasonable had the Claimant submitted his budget for approval ahead of the hearing. Ultimately, costs of the applications were reduced by 50% once deductions to time spent and hourly rates were considered.

This case raises a number of issues in relation to the use of contingencies and the approval of the same by the Courts. It may have been better for the solicitors to have simply not included any costs at all for this contingency within the Costs Budget, but simply worded the Costs Budget to state that it did not include the costs of any potential application and make reliance upon CPR Practice Direction 3E, Paragraph 7.9. This provides that costs of Interim Applications not included in any Costs Budget, should be treated as additional costs over and above those in the Budget, if it was reasonable for the party not to have included them. This decision calls into question the whole purpose of the use of contingencies on the Precedent H form as the solicitor had followed expressly the MOJ Guidance that contingent costs should be used for anticipated costs, which do not fall within the main categories set out on the form. The Guidance even states that an example may be the trial of Preliminary Issues.