Would budgets work better if they were prepared after directions? asks Sue Fox
Lord Justice Jackson’s intention was to create a legal system which provided more clarity and certainty regarding legal costs. But despite this, there is still much contention surrounding costs. Indeed, it is still not uncommon for legal costs to be the focus of all attention, even following the introduction of the costs management rules under Civil Procedure Rules Part 3.
Lawyers can be reticent to provide information about their case,and understandably so. But this is in direct conflict with the approach needed to achieve the best costs budget, which invariably results in more legal costs becoming recoverable.
It was initially recognised by the judiciary that predicting costs at the outset would be a challenging task, but this recognition was limited to the complex commercial litigation cases, and it was expected that all other cases could be successfully budgeted. For this reason, all claims issued in the Commercial Court and Admiralty Court were exempt.
That exemption was temporarily extended to claims worth more than £2m issued in the TCC, Mercantile and Admiralty Court, for three reasons:
(1) in many commercial cases, there can be an element of concurrent jurisdiction between the courts, namely the Chancery Division, the TCC Court and the Mercantile Court;
(2) to avoid the inevitable surge of cases which would be issued in the courts that were exempt, in an attempt to avoid cases being budgeted; and
(3) the judges at that point did not have enough experience to budget these more complicated cases.
These exemptions were removed in the amended CPR, published in April 2014. The only exemptions that now remain are for all claims worth more than £10m. It has always been the position that, despite the set criteria, the court could order that costs budgeting applies to any case. The case of CIP Properties v Galliford Try Infrastructures Ltd  EWHC 3546 highlighted the relevance of costs management for high-value cases, and confirmed that the costs of a case where the claim for damages exceeded £10m could indeed be cost managed.
This is proof that the judiciary anticipated from the outset that there would be difficulties and challenges surrounding high-value claims, and recognised that it would be a time-consuming process to budget these cases. In reality, this is being encountered on a daily basis in all levels of claims, as anticipated by many in the legal profession. Lawyers are experiencing a considerable proportion of the case management conference being taken up by arguments surrounding the costs budget, and are having difficult tactical questions posed, with many parties not wishing to disclose the amount of information which is ideally required to prepare the perfect budget, and achieve the optimum result.
A question of timing
What is the solution to this ever more time-consuming exercise? Surely the costs management process can be streamlined and improved, to become more cost effective?
Perhaps the answer is that the Precedent H costs budgets should be prepared once the order for directions has been made. This would enable all parties to cost their budget from the same case plan, thus avoiding the difficult tactical questions and disclosure of excessive information. Having an order detailing the directions made avoids parties drafting budgets with assumptions that differ, which naturally makes drawing comparisons a challenging task – and negotiations sometimes impossible.
Preparing the budget following the directions order can also avoid the inevitable amendments which will be needed to reflect the directions made, and also the subsequent hearing which may be necessary – surely a much simpler and more cost effective process?
‘Hear, hear’, comes the cry from costs lawyers.
Why was this more sensible approach not adopted? Possibly because the courts are – or should be – guided by the costs of a particular task or aspect when determining the directions, which was certainly the intention of the Jackson reforms. The purpose of Jackson LJ’s reforms was to allow the courts to manage cases to ensure that matters were dealt with in a proportionate and reasonable manner.
What a quandary. Should the courts be implementing a system which results in a more cost-effective solution – utopia for the costs lawyer – or should the courts implement the Jackson Reforms correctly, thus ensuring that the courts are managing the cases properly, by determining the cost of each direction sought before assessing whether it is proportionate to make that direction? This certainly opens up a very interesting discussion.
It is questionable whether claims are actively being managed by the court, or whether budgets are simply being prepared to ensure compliance with the rules, with no management in sight. Are budgets simply being dusted off and relied on at the final hearing or during any costs negotiations, rather than throughout the lifetime of the case? Experiences certainly seem to confirm that they are.
The contradictory nature of the rules makes a mockery of the ideology that a case can be managed. This is evident in the CPR, which actively encourages parties to negotiate and agree the budget between themselves, with those agreed costs being approved. How can the court actively manage a case if the parties have the right to agree those costs between themselves? To compound this further, the parties are also able to agree any revisions to the budgets between themselves, and file copies of the agreed revised budget with the court for approval, with no hearing required. This is another example of inconsistencies within the rules, which are in direct contradiction with the point of the reforms.
The expansion of budgeting
Despite all the problems that the legal profession is encountering following the Jackson reforms, the judiciary continues to believe that costs management is working. It is becoming evident that the costs management regime is paving the way in relation to how costs are managed by the court, and that other courts that are not subject to automatic costs budgeting are understanding those benefits, and are expressing their views. At the moment, costs management can apply to any CPR case, but there are still many areas of law to which it does not apply.
The recent judgments of Peter Jackson J in A & B (Court of Protection: Delay & Costs)  EWCOP 8 and of Mr Justice Mostyn in J v J  EWHC 3654 (Fam) and V v V  EWHC 1190 (Fam) all discuss the need for costs management.
Peter Jackson J expressed the view that costs of £9,000 per month were ‘extravagant’ and ‘there is a direct correlation between delay and expense’. He further commented that ‘the court and the parties have a duty to ensure that the costs are reasonable’.
The costs claimed in the family proceedings were described by Mr Justice Mostyn as ‘grotesque’ and ‘absurd’.
Peter Jackson J requested that the president of the Court of Protection review the management of Court of Protection cases, and said he believed ‘that the time has come to introduce the same disciplines in the Court of Protection as now apply in the Family Court’.
It is essential in both the Court of Protection and the Family courts, that cases are managed properly, and costs do not escalate as a result of poor management. The OPG’s recent report to Parliament (December 2014) supports the drive towards costs budgeting, and has outlined important changes that the OPG has introduced – with other changes in planning – with the creation of a fundamentally new delivery model:
‘The new model will include better control of professional deputy charges. OPG has stakeholder support for several new measures, such as requiring annual plans, with work and cost estimates, which can be scrutinised both beforehand and after the fact, and a comparison made. There is also work underway to explore with the Senior Court Costs Office whether there would be benefit from more sophisticated relationships, so that we understand each other’s domains better. It is the intention that these several measures will address MPs’ concerns on the level of charges, and we will review whether they have done that.
‘Work continues on initiatives to ensure the provision of an accessible and proportionate deputyship service.’
The costs management regime, if adopted properly by all parties and the courts, can successfully ensure that costs remain proportionate. But for Jackson LJ’s vision to succeed, then further amendments to the rules are needed. To achieve efficient management of a claim, the matter needs to be project managed, with continual monitoring of the budgets. That said, the provision of budgets does provide the client with greater certainty regarding their liability for their legal representative’s costs – and also their potential liability for the
opponent’s costs should they not succeed. We must remember that costs budgets relate only to the costs which are recoverable from the losing opponent, particularly when advising the client of their overall potential liability for costs.
In a marketplace which is increasingly being driven by the client’s need for sophisticated information regarding fees, surely transparency regarding costs can only be considered to be an improvement in the provision of costs information.
Sue Fox is head of costs budgeting at Clarion Solicitors in Leeds.
Source: Litigation Funding - February 2015
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