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Costs Budgeting – making an ‘ass’ out of ‘u’ and ‘me’

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In terms of costs budgeting and the new costs management ‘regime’, a failure to make appropriate, reasonable and realistic assumptions when preparing a Precedent H is ...

...one way to ensure difficulties being encountered in relation to legal costs on your case.

It is abundantly clear that judges will be unwilling to help those who default on their case budgets. Firms that exceed their approved budget will be in the deepest trouble in terms of costs recovery. Professor Dominic Regan Regan, who assisted Lord Justice Jackson with his civil justice reforms, has recently echoed this thinking whilst speaking at the Liverpool Law Society conference. Judges are under instruction to clamp down harshly on excess costs. The court will control the parties' budgets in respect of recoverable costs and will not allow them to depart from the agreed budget unless satisfied there is good reason. Regan pointed to two recent ‘post-April’ High Court cases, Venulum Property v Space Architecture and Fons HF v Corporal Ltd, as proof of the new hardline stance from the bench.

Whilst this places paramount importance upon the solicitor and/or Costs Lawyer/Draftsman’s ability to correctly and accurately assign time to future estimated tasks, one aspect that seems to be getting overlooked is the significance of the assumptions on page 1 of the Precedent H. This is certainly true in my own experience thus far both in terms of client’s thinking as well as with reference to opponent’s Budgets that I have seen.

Getting the assumptions right is massive. In addition to informing the court of the basis upon which the costs have been estimated within each budgeting Phase (and thus explaining why the level of work included has been included), the assumptions, if used correctly, can also (1) form the basis on which you make any application to the court to amend your budget, and (2) act as a tactical tool at the Case / Costs Management Conference and beyond.

For example, for the Experts Phase, you could indicate, among other things:

Amendments to budget

If changes occur in the case subsequent to budgets being approved such that will increase the required costs in excess of those budgeted for, the remedy a party has is to apply to the court for an amended budget. The CPR provide that budgets can be revised if "significant developments" in the litigation warrant the revision (paragraph 2.6, PD 3E).

If the assumptions within the original budget were poor, too brief, or simply not thought through; you are placing yourself at a significant disadvantage in terms of any application to amend. However if the assumptions have provided a good level of information, detail and were reasonable at the time of preparing a budget, you are more likely to justify the need for a departure from the original budget upon the case changing. The assumptions have to be specific to the individual case circumstances being dealt with.

By way of a simple example consider the witness statements Phase. It is obviously a benefit to say for example ‘assume 2 witnesses on own side’. If subsequent to the budget being approved, 6 further witnesses come to light (which was not reasonably foreseen), you would have a good basis to apply to amend the budget given the additional costs now required.

But take that thinking to the next level; how about for example “2 witnesses on own side, 2 witnesses on opponents side. All witness are known. Seek Counsel's advice on witness evidence. Assume no need for part 18 request. Budgeted on basis witness statements will not need to be revisited subsequently”. Here, you are showing the court exactly on what basis the costs estimated have been included. In this example, if your opponent acted in an unreasonable way and prepared supplemental witness evidence, or part 18 requests, do you now have a far better chance of applying to amend your budget?

Obviously there is a line to be drawn in terms of the level of detail you can go into; there is only so much space on the page! But to simply include short, none specific comments is surely suicidal in this post-April regime.

Tactics

Perhaps your particular case is crying out for mediation, ADR or a preliminary issue trial? Furthermore, perhaps quantum is not of a sufficiently high value to allow you to undertake all the work you would need to do through to a full trial and still keep costs ‘Proportionate’ under the new test?

One example of a way to make the costs budget work to your tactical advantage in such circumstances would be to make a Contingency Phase for Mediation/ADR. At the Case Management Conference (and in proposed directions etc) you could seek Mediation after for example expert evidence but before the costs of witnesses / disclosure is incurred. In this example, in your costs budget, whilst you would still include future costs estimates for all Phases through to a full trial, in the Assumptions for the Witnesses Phase, Disclosure Phase, and Pre-Trial Review, Trial Preparation, and Trial Phases, you could include a prefix like “Costs in this Phase only necessary if ADR / Mediation prove unsuccessful”.

This way the Court is aware (a) of the projected costs if the case does ultimately need to go to trial, but importantly (b) of your intention to comply with the overriding objective and seek a more costs-effective resolution, (c) aware of the lower amount of costs involved if mediation was to prove successful.

Final thoughts

The apparent knee-jerk reaction to costs budgeting by some to simply include bland, non-specific and short assumptions will not cut it. This is more so if firms simply want to prepare a large budget with massive (often disproportionate) costs in each Phase through to trial with no consideration of ADR “to make sure we don’t exceed the budget”.

You can see how giving the assumptions a considered, tailored approach and providing some key relevant detail can given you better protection in terms of the costs budget and how costs management will operate on your case. Don’t just focus on the amount of costs in each Phase. Do not let assumptions make an ass of you!
 

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