COSTS BUDGETING – THE RIGHT APPROACH

JUDITH AYLING4th February 2015

The basics

• CPR 3 Section II• CPR 3.12

– (1) Section II and PD 3E apply to Part 7 MT cases except where begun on or after 22 April 2014 and amount of money claimed as on CF = £10 million or more or

– Commenced on or after 22 April 2014 and for monetary claim which is not quantified or not fully quantified or for monetary claim and in any such case CF contains st claim valued at £10m or more or

– Where proceedings are subject of fixed costs or scale costs or where the court otherwise orders

– (2) Section II and PD3E will apply to any other proceedings (including applications) where the court so orders

Discretion re CMOs• CIP Properties (AIPT) Ltd v Galliford Fry

Infrastructure Ltd [2014] EWHC 3546 (TCC) (Coulson J): complete discretion where the precise financial limits not engaged

• Multiple cases where no GLO and lead case/costs-sharing problems – Master Roberts has agreed in individual cases not to make CMOs, where all parties agree

CPR 3.13 and 3.14

• Unless court otherwise orders all Ps except LIPs to exchange and file budgets as required by Rules or as court otherwise directs, = by date specified in the allocation notice under r.26.3(1) or if no such date is specified 7 days before 1st CMC.

• If you don’t, treated as having filed budget with only applicable court fees

CPR 3.15• Where budgets have been filed and exchanged

the court will make a CMO unless it is satisfied that the litigation can be conducted justly and at proportionate cost in accordance with the OO without such an order being made

• By such CMO the court will record extent to which budgets are agreed; in respect of budgets or parts of budgets which are not agreed records the court’s approval after making appropriate revisions

• If a CMO has been made the court will thereafter control the Ps’ budgets in respect of recoverable costs

CPR 3.17

• 3.17(1) When making any case management decision the court will have regard to any available budgets of the Ps and will take into account the costs involved in each procedural step

• 3.17(2) Para (1) applies whether or not the court has made a CMO

CPR 3.18

• In any case where a CMO has been made, when assessing costs on the standard basis the court will have regard to the P’s last approved or agreed budget for each phase of the proceedings; and not depart from such approved or agreed budget unless satisfied there is good reason to do so

PD 3E 6

• In substantial cases the court may direct that budgets be limited initially to part only of the proceedings and subsequently extended to cover the whole proceedings

PD 3E 7

• 7.1 If the court makes a CMO the following paras shall apply

• 7.3 If the budgets or parts of the budgets are agreed the court will record the extent of such agreement. Insofar as the budgets are not agreed the court will review them and after making any appropriate revisions record its approval of those budgets.

PD 3E 7.3

• The court’s approval will relate only to the total figures for each phase of the proceedings although in the course of its review the court may have regard to the constituent elements of each total figure

• When reviewing budgets the court will not undertake a detailed assessment in advance but rather will consider whether the budgeted costs fall within the range of reasonable and proportionate costs

PD 3E 7.4

• As part of the costs management process the court may not approve costs incurred before the date of any budget. 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 subsequent costs

PD 3E 7.9

• If interim applications are made which, reasonably, were not included in a budget, then the costs of such interim applications shall be treated as additional to the approved budget

• Interim payment applications in heavy PI or clin neg cases?

• See Simpson v MGN Limited [2015] EWHC 126 (QB) where D argued fact no costs for application in successful C’s budget meant could recover nothing; argument rejected, but see the facts

MOJ Guidance Notes on Precedent H

• Contingent Costs section is for anticipated costs which do not fall within main categories

• E.g. mediation does not go in under Settlement but as a Contingency

The approach to take?

• Most Masters and DJs will refuse to determine HRs. Some do determine HRs

• Many/most will go through the hours and the split between fee-earners, and make specific allowances

• Many/most will look at expert fees and counsel’s fees, and make specific allowances

• But 3E 7: not a DA and point is only to arrive at a reasonable and proportionate figure for each phase????

The first cases

• Havenga v Gateshead NHS Foundation Trust [2014] EWHC B25 (HHJ Freedman sitting as High Court Judge in QB)

• Redfern v Corby BC [2014] EWHC 4526 (QB) (HHJ Seymour QC also as High Court Judge)

Havenga v Gateshead NHS Foundation Trust

• Havenga v Gateshead NHS Foundation Trust [2014] EWHC B25

• HHJ Freedman on appeal from DJ Kramer on 20 May 2014, appeal hearing 26 November

• DJ reduced C’s budget from £769,854 to £463,915. He had found trial likely to be 5 days not 10.

Havenga

• Child CP case, C puts at >£5million• Liability agreed at 75/25 in C’s favour

and approved • Each P 6 quantum experts + 2 joint • DJ disallowed junior, QC only – not

appealed but ‘the prism’ through which rest to be seen

Havenga

• Grounds of appeal v detailed– Reduction in solicitor time re statement of case

(68.15 to 30 hours)– Reduction in solicitor time re expert reports

(A326.7 and C103.10 to A100 and C40)– Reduction in experts’ fees (£66,975 to

£49,000, so £7k per expert)– Reduction in solicitor time for trial prep and

trial (prep C time reduced 74.5 to 25; trial C time of 79 hours deleted altogether). Claimant said it was likely to be a 10-day trial

Havenga

• J reminds hs DJ v wide discretion partic in DA or budgeting: did DJ exceed generous ambit of discretion or did revised budget fall outside range of what is reasonable and proportionate?– Time on statement of case was low if no junior

counsel– Would have been more generous re time with

experts– Expert allowances were right, though

conceivable fees for each inc expenses would be more

– Would have allowed some grade C time at trial

Havenga

• BUT not the role of an appellate court to tinker with costs budgets, only whether budget was reasonable and proportionate

• Some sympathy but budget still c£500k, a very substantial sum, and nearly 3x D’s budget

• DJ well within discretion though J might have been a little more generous

Havenga

• But look at the entire approach both at first instance and on appeal

• The point is only to arrive at figures for each phase, see PD 3E 7.3

Redfern v Corby BC

• Claim for bullying, harassment and stress at work• Worth £700,000 tops inc general damages, 7-15

witnesses. • Budget of C = £744,923 + VAT (so for both

incurred and estimated costs; and so plus SF and ATE).D’s budget = £150,915.65.

• Court offered summary process, C declines• Claim issued after 1 April 2013 and so new

proportionality test applies

.

Redfern

• C’s incurred costs £128,485, Master calls ‘a gigantic sum’

• Master starts by proposing budget for C of £220,000 without a breakdown inc costs incurred

• Then broke down into phases. Said he could not budget past costs but must take into a/c

Redfern

• C’s budget was set at £226,796.20 and the D’s at £138,115

• C says has effectively budgeted past costs and has worked back from overall figure he first proposed rather than setting budget for each phase

• C accepts open to J on appeal to find some phases ok and some too wrong

Redfern• Appeal dismissed• The deputy master had not sought to approve or

disapprove costs which had already been incurred. • He had recorded his comments on those costs and had

taken them into account when considering the reasonableness and proportionality of all subsequent costs, as he was bidden to do by Practice Direction 3E (Costs Management).

• It had been sensible to fix a figure which would be reasonable and proportionate for the costs of the whole action. The practice direction had been applied correctly.

• The only way in which one could take into account excessive costs already incurred was to limit approved subsequent costs at a lower level than would have otherwise been approved. The deputy master had not erred in principle

Redfern

• C seeking permission for second appeal to Court of Appeal

• Practical problem: by the time the case had got to the first appeal witness statements were about to be exchanged, v substantial costs. By time of any CA hearing the case will practically be over!

Willis v MRJ Rundell [2013] EWHC 2923 (TCC)

• Under the TCC costs management pilot • Professional negligence claim worth £1.1m• C’s costs budget £897,369.67 excl VAT.• D’s costs budget £703,130.37.• Court held costs were neither proportionate nor reasonable

with reference to the value of the claim and the matters in issue.

• Need to separate incurred costs and estimated costs• Break down costs allowed for contingencies• Court not in a position to impose different figures without

notice and supporting materials on which to rely• Court declined to approve the budgets

Remember to revise?

• In late November 2014 Master Roberts had not heard any applications to revise budgets

Elvanite Full Circle Ltd v AMEC [2013] EWHC 1643 (TCC) (Coulson J)

• Under the TCC costs management pilot; back to J at end of trial where C had to pay D’s costs, total was £497,593 (of which £200,000 = experts),C’s ATE = £250,000

• Court approved parties’ budgets, D’s was £264,708 (of which £30,500 = experts)

• Parties filed and exchanged higher budgets but did not seek court approval of these

cont…

At conclusion of the case the court considered an application for revision to the costs budget and/or to determine whether there was a good reason to depart from the approved costs budget. The Court held:

– A formal application to the Court is required for revisions to costs budgets

– Application to be made immediately the costs budget has been exceeded more than a minimal amount. Application certainly before trial

– Good reason to depart primarily a question for the costs Judge– Making a mistake in original budget not likely to be a good

reason– Prejudice to the other party is relevant– Expert overspend precisely what costs budgeting designed to

avoid• Obiter comments that a costs budget will be relevant to a costs

assessment even on an indemnity basis: but good reason to depart from it likely to be more numerous and extensive

Elvanite Full Circle Ltd v AMEC [2013] EWHC 1643 (TCC) (Coulson J) cont…

Budgeted case at DA stage

• Budget phases do not match the phases of a traditional bill

• New bill with J codes still c12 months away

• ??

Departing from the budget

Henry v NGN [2013] EWCA Civ 19Case under defamation pilotBudgets had been approved at the outset. Then C’s solicitor did not comply with PD at all, and D’s only slightly. Court did not ask about budget at later hearing.C’s bill substantially over budget for 2 phases.Senior Costs Judge held costs probably reasonably incurred but disallowed excess for failure to comply.

Costs Management at the Coal Face

SIMON EDWARDS

Chaos in the Masters’ Corridor

• Long delays• Different approaches• Exasperated judges

Master Cook’s Lecture

• 6 reasons for the problem• 13 suggestions to make it better• Something has to be done.• Or scale fees will be inevitable

Master Leslie’s Alternative

• Summary budgeting• Short (30 minutes) and sweet• But it will take two to tango

Or Master McCloud

• Just look at the final figure• Forget the rest

Google’s Big Bill

• Edis J reduces Google’s trial costs.

• Counsels’ fees reduced by more than 50%

Outside London

• Havenga. Hours and hourly rates considered.

• Manchester. Just the totals for each phase.

• Norwich. Costs managed only to the next cmc.

The Future

• Control incurred costs by limiting pre cmc experts (via the protocol?).

• Stage by stage budgeting.• Provisional approval of budgets.• Scale fees.

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