INTRODUCTION

1. This seminar will chart the implementation of costs management since their

introduction on 1 April 2013, following the review of civil litigation by Lord

Justice Jackson. Costs management was rolled out nationwide after

successful pilots (the first being in Birmingham).

2. Costs management has, for many practitioners, become a minefield.

However, any hope of the rules being revoked and litigation being rolled back

to how it was before the reforms, is a false hope.

3. On 13 May 2015, Jackson LJ delivered the Harbour Lecture, entitled

confronting costs management, in which he set out the benefits the new rules

have brought litigants and the legal profession. While he spoke in a personal

capacity, it was quite clear that the consensus was that costs management

had proved successful.

THE JUDICIAL PERSPECTIVE

The first and most important conclusion to be drawn from the experience of

the last two years is the same as that which was drawn from the pilots. Costs

management works. When an experienced judge or master

costs manages litigation with competent practitioners on both sides, the costs

of the litigation are controlled from an early stage. Although some

practitioners and judges regard the process as tiresome, it brings substantial

benefits to court users.1

4. Despite acknowledging criticisms, Jackson LJ said:

The civil justice system exists to deliver civil justice to the public at

proportionate cost, not to promote the contentment or convenience of

lawyers.2

5. Ouch.

6. The evidence collected by the senior judiciary is that providing it is done

properly, costs management produces tangible benefits. It is worth

considering these to see how costs management can be best used to your

advantage:

Provides parties of their respective financial positionsthis provides them

with a figure on winning and losing and also helps make decisions about

litigation.

Encourages early settlement. Not the same as the above but a likely

consequence.

It controls costs. Despite the additional costs of producing budgets etc., it

drives down costs for each party. The very act of preparing a budget for

1 Harbour lecture, paragraph 2.1 2 Ibid., at paragraph 10.3.

critical scrutiny tempers behaviour. It also fleshes out the overriding

emphasis on proportionality.

Focuses on costs from the outset (or at least, very early in the litigation).

Encourages more active case management by the judge.

It is fairerproviding the parties with information on what is at stake.

7. Feedback from the North East and West, together with Bristol, Leeds and

Birmingham (BLS, by name) shows that the regime has worked well and

focused both the clients and the lawyers mind on costs. It was also

suggested that preparing a precedent H was a helpful way of estimating costs

for the client.

8. Savvy solicitors had a costs budget drawn up at engagement and included it

with their terms of engagement.

9. Not only does Jackson LJ refer to parties in complex litigation preceding costs

management voluntarily asking for it to apply to their case, he also points out

that Singapore is now also introducing its own regime on the back of the one

introduced here.

DRAWBACKS AND FURTHER CONSIDERATION

10. Despite the positive feedback, there are a number of complaints over costs

management. I address each in turn.

11. A common complaint is that costs management is wasteful.

More time is spent on costs than the issues. However, it is not

unusual that costs exceed the sums claimed! It is firmly the view of senior

judges 3 that even where it adds to the cost, this exercise is beneficial

because of the advantages cited above.

12. Costs management also front-loads costs, which is hugely wasteful as most

cases settle. Some courts apply CPR 3.13 and 26.3(1)(b)(i) to require a

budget with the DQ. This means that the work often has to be repeated

before the CCMC. Jackson LJ has recommended that the period be

increased from 7 to 14 days before the CCMC to allow for discussion

between the parties.

13. Cases are complex, or unpredictable, so lawyers cannot properly chart the

costs all the way to trial. This results in additional work, for example, in

amending budgets etc.

14. Judicial inconsistency is a major problem, acknowledged as much. A new full

day training module is available for judges but is not compulsory (Jackson LJ

recommends that it should become compulsory).

15. Judges should not prescribe hours or ratessomething which often leads to

a micromanagement of the litigation as well as increasing the length of

hearings.

The number of hours/rates may be a reason to reduce the end figure.

Also, the end figure may be reduced to keep costs proportionate: CPR

44.3(5).

3 Chief Chancery Master specifically, see paragraph 2.3 Ibid.

16. There are many issues with Precedent H (for example, it arguably should not

include ADR costs, where should the costs relating to an expert go etc.)

which are likely to result in an amendment to the precedent as well as a

simplification of the rules by the Civil Procedure Rule Committee.

17. Costs management has caused significant delays in various court centres,

which are suffering acute backlogs. For example, London and Birmingham

have waiting times about 9 months before the first CCMC. To resolve this

Jackson LJ has suggested

EXCESSIVE INCURRED COSTS (FRONT LOADING)

18. Costs management explicitly relates to prospective costs, not those already

incurred (CPR 3.12(2) also CPR 3EPD 7.4). How do you deal with excessive

costs before the CCMC?

19. The court can comment on these costs: CPR 3EPD 7.4. This states:

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.

20. This is often forgotten. Ask the judge to consider the incurred costs. If they

are excessive, at the very least, he should record his comments to his effect

on the costs and case management order (i.e. in a recital). See Tim Yeo MP

v Times Newspapers Limited [2015] EWHC 209 (QB).

21. However, is this a help or a hindrance? If you succeed, you may

get your comments from a judge which could persuade a specialist costs

judge on detailed assessment, or be ignored by him altogether. If you fail, a

sharp opponent may ask for the refusal of your application to be recorded

on the order, which can then be raised on detailed assessment to prevent an

attack there.

22. Thought should be given to whether arguments about the reasonableness or

proportionality of the incurred costs are best raised at the CCMC or on

detailed assessment.

23. Better still, the judge should be invited to fix the budget taking into account

excessive costs had already been incurred: Redfern v Corby Borough

Council [2014] EWHC 4526 (QB). In this case the Deputy Master the

emphasised and will take those costs into account when considering the

reasonableness and proportionality of all subsequent costs when reducing

the budget for incurred costs.

24. In both cases above, the budget was reduced because of front-loaded costs.

Warby J explained this logic as follows:

The court may reduce a budget for reasons which apply equally to

incurred costs, or for reasons which have a bearing on what should be

recoverable in that respect, for instance, that so much had been spent

before the action began that the budgeted cost of preparing witness

statements is excessive.4

FRONT-LOADED COSTS AND SUSPICIOUS BUDGETS

4 Paragraph 61, Tim Yeo MP v Times Newspapers Limited [2015] EWHC 209 (QB)

25. Costs budgets hit the headlines (well, relatively speaking) when Coulson J

slashed a 9.2 million budget to a mere 4.3 million in CIP Properties (AIPT)

Ltd v Galliford Try Infrastructure Ltd & Ors [2015] EWHC 481 (TCC). This

is even more startling when the party in question had claimed its incurred

costs were 4.22 million!

26. The judge considered the figures to be suspicious, wholly uncertain and the

budget unreliable. He also said:

What is more, given the deliberate absence of any explanation for the huge

increase in the costs incurred and estimated, and the Schedule of

Assumptions which can only be designed to give the claimant's legal team

the maximum room for manoeuvre later on, I am driven to conclude that the

claimant's costs budget has been deliberately manipulated. The claimant did

not and does not wish the court to make costs management orders. I find that

the production of the costs budget in this format and in this way is a

continuation of that stance by other means.5

27. He therefore considered that he had five options:

Order the preparation of a new budget. However, the cost and delay of

this option made it undesirable for the parties concerned.6

Decline to approve the budget (Coulson J did exactly that in one of the

first published decisions on case management in Willis v MRJ Rundell

[2013] EWHC 2923 (TCC)). However, this would not preclude the party

from recovering costs at all on assessment. This may be tactically better. 7

5 At paragraph 35. 6 Paragraphs 85-86. 7 Paragraphs 87-89.

Approve a budget with robust comments on incurred costs. However, this

would place the losing parties at risk if the comments were ignored on

assessment.8

Set a nil budget. However, this could cause a winning party to recover

substantially less if the incurred costs are assessed down.9

Make findings on the incurred costs, setting out what was expected to be

incurred in each phase, and then set a budget taking into account the

costs that should be incurred overall.10

CONTINGENCIES

28. Lawyers should be realistic and include contingencies to save themselves

form the risk of seeking retrospective approval, the existence of which is

debateable, through amended budgets.

29. Budgets should continue to be reviewed and if necessary amended: CPR 3E

PD2.6. Unless directions are also required, costs management conferences

should be conducted by telephone or in writing: CPR 3.16(2).

30. A revised budget should be agreed or approved before the current budget is

exceeded by more than a minimal amount: Elvanite Full Circle Limited v

Amec Earth and Environmental (UK) Ltd [2013] EWHC 1642 (TCC).11 A

8 Paragraphs 90-91. 9 Paragraphs 92 to 95. 10 See his conclusions at paragraphs 96-98. 11 Paragraphs 34 and 37.

good reason will be required to persuade the court to agree to the revision

(unless it is agreed).

31. Costs cannot be approved under a budget once incurred, even if they result

from unforeseen contingencies (see above): Excelerate Technology Ltd v

Lindsey Cumberbatch and Red Foot [2015] EWHC 204 (QB). However, a

judge may record that the costs were reasonable and properly incurred.12

Whether this is a benefit is questionable.

32. Revisions as a result of inadvertent error are unlikely to be granted. However,

see Murray v Dowlman Architecture Ltd [2013] EWHC 872 (TCC). This

case was probably a one-off!

33. Budgets deliberately omitting certain costs (e.g. covert surveillance) are likely

to be considered untruthful. Given that each Precedent H must include a

statement of truth, this is a serious issue. Practically speaking, such costs

should be considered unrecoverable.

34. Contingencies can also cleverly be used to inflate a budget. This has been

the cause of swinging cuts to budgets, the prime example being CIP

Properties. Coulson J stated in that case that contingencies should only be

included where they are (1) reasonably likely to occur and (2) fall outside of

any other part of the budget.

CONCLUSIONS

12 Excelerate Technology Ltd v Lindsey Cumberbatch and Red Foot [2015] EWHC 204 (QB)

at 15 to 18.

35. If you are thinking of investing in software for time recording, which fits with

costs budgeting, read Jackson LJs lecture. The rules may soon change as

well as the Precedent H. However, the regime is here to stay.