Source: http://kerryunderwood.wordpress.com/2013/07/15/costs-management-orders-and-costs-budgeting/
Timestamp: 2014-07-31 05:21:33
Document Index: 649689308

Matched Legal Cases: ['EWCA ', 'art 36', 'art 3', 'art 44', 'art 36', 'art 7']

COSTS MANAGEMENT ORDERS AND COSTS BUDGETING INCLUDING THE NEW CPR | Kerry Underwood
Costs Management Orders have been introduced following a pilot that ran in the Technology and Construction Courts and the Mercantile Courts from 1 October 2011 to 31 March 2013. See here for Costs Management Pilot Final Report of 1 May 2013.
However even before the new rules came in they were amended so that they do not now apply to cases in the Chancery Division or Technology and Construction Court or the Mercantile Courts where the amount in dispute is greater than £2 million, excluding interest and costs. This decision has been described as “unnecessary and inappropriate” by a sub-group of the Civil Procedure Rule Committee and in less polite terms by many others. The Senior judiciary are reported to be very unhappy with the decision and have indicated that on appeal they may consider whether the opted-out courts have erred in the exercise of their discretion in failing to order costs budgets in any given case.
It is unquestionably the most divisive and politically-charged of the Jackson Reforms, with Lord Dyson, MR, stating that he is anxious for the exemptions to be reconsidered and Mr Justice Ramsey, who is now in charge of the Jackson Reforms, publicly expressing his personal view that the exemptions should be removed. A Civil Procedure Rules sub-committee, chaired by Mr Justice Coulson, said that its preliminary view was that the exemptions are “unnecessary and inappropriate.” – See Consultation Paper – Costs Budgeting and Costs Management.
The City of London Law Society (Litigation Committee response to the Civil Procedure Rule Committee’s consultation on costs budgeting and costs management) defending the exemptions, referred to “significant practical differences “between the Commercial Court and all other courts and claimed that costs management could threaten the competitiveness of England and Wales as a jurisdiction for hearing international disputes, arguably one of the most economically illiterate claims of all time.
The Society’s response stated:-
“It is often difficult to predict at the outset what shape complex commercial litigation will take.”
It also said that costs budgets for high-value cases will take up considerable time at case management conferences, and may pose difficult tactical questions for the parties and their lawyers, who may not wish to reveal details to the other side at an early stage in the proceedings. It also questioned whether judges are better able than commercial clients to determine appropriate rates for lawyers.
Quite why the City of London Law Society thinks that none of these matters applies to all other litigation, which is subject to costs management, is unclear.
All references to CPR are to the CPR as amended by The Civil Procedure (Amendment) Rules 2013, and by The Civil Procedure (Amendment No 2) Rules 2013, which excluded all of the big cases.
This followed the 18 February 2013 statement of the President of the Queen’s Bench Division and the Chancellor the High Court:
“Costs Management is being introduced as an important part of the reforms arising from Lord Justice Jackson’s Review of Civil Litigation Costs. He identified a general view that costs management would not be appropriate for the high value cases which generally pass through the Commercial Court. He therefore considered that whether costs management should be adopted in Commercial Court litigation should be left to the discretion of judges in individual cases but said he encouraged judges actively to adopt costs management in any lower value cases which are brought in the Commercial Court. This led to the Admiralty and Commercial Courts being exempted from the costs management rules by the version of rule 3.12(1) which was included in The Civil Procedure (Amendment) Rules 2013 to come into effect in April 2013.
On further reflection, it has been recognised that it is undesirable for an exception from automatic costs management to apply only to the Admiralty and Commercial Courts, when in many commercial cases there is an element of concurrent jurisdiction between that court, the Chancery Division, the Technology and Construction Court and the London Mercantile Court, all of which function in the Rolls Building. Equally, outside London, he Chancery Division, Technology and Construction Court and Mercantile Courts have a similar concurrent jurisdiction.
(1) This Section and Practice Direction 3E apply to all multi-track cases commenced on or after 1 April 2013, except –
(b) such cases in the Chancer Division as the Chancellor of the High Court man direct; and
(c) such cases in the Technology and Construction Court and the Mercantile Courts as the President of the Queen’s Bench Division may direct,
Pursuant to CPR rule 3.12(1)(b) and (c), the Chancellor of the High Court directs that in the Chancery Division and the President of the Queen’s Bench Division directs that in the Technology and Construction Court and Mercantile Courts, Section II of CPR 3 and Practice Direction 3E shall not apply to cases where at the date of the first case management conference the sums in dispute in the proceedings exceed £2,000,000, excluding interest and costs, except where the court so orders.
Subject to the limited exceptions which will be dealt with in the direction, it is envisaged that costs management orders would be made in all cases except where there is good reason not to do so. Even when the exceptions in the rule and the direction apply, the use of costs management should always be considered.”
CPR3 is divided in to sections, the first containing current rules on case management (CPR3.1 to 3.11) the second containing new rules on costs management (CPR3.12 to 3.18) and the third containing rules on costs capping (CPR3.19 to 3.21).
This is achieved by Rule 5(a) to (c) and (h) of The Civil Procedure (Amendment) Rules 2013.
I set out at the end of this piece the new CPR3.12 to 3.18 dealing with Costs Management, together with supporting Costs Practice Directions at CPD 3E and CPD 6.
The proposed scheme, which has been piloted successfully, is based on Lord Justice Jackson’s proposals, which themselves were based on the recommendations in the Woolf Report, a fact recognized by Lord Justice Jackson who said “The present project is essentially a matter of building upon Lord Woolf’s work and proposing reforms where, (after ten years’ experience) these appear to be appropriate.
Mrs Justice Gloster, speaking at the Bar Conference 2012, said that the scheme may lead to “ill-informed” decisions on costs and that judges must be realistic about legal fees and what it costs to bring a case and that there was a tendency for judges who had made a good living as barristers to become “kind of mean” when it comes to the assessment of costs.
Mrs Justice Gloster also said that she had “won the battle” to ensure that the Commercial Court was exempt from costs management. Now the Mercantile Court, Technology and Construction Court and Chancery Divisions have largely exempted themselves from Costs Management.
Many of the rest of us feel that these are the courts where costs management is most necessary; it is those courts more than any other which bring the legal system in to disrepute as far as high levels of costs are concerned.
Where no Costs Management Order has been made, whether that be a fast-track matter or in the Commercial Court, an amended version of CPR 6.5(a) states that where the costs claimed are more than 20% over budget, the court may limit the costs to “such sum as is reasonable for the paying party to pay in light of that reliance, notwithstanding that such sum is less than…………the costs reasonably and proportionately incurred”.
CPR3.12(2) states that the “purpose of costs management is that the court should manage both the steps to be taken and the costs to be incurred by the parties to any proceedings so as to further the overriding objective”.
Budgets must be on new Precedent H, a self-calculating spreadsheet and verified by a Statement of Truth. From 1 October 2013 there will be a yet further new Precedent H. This is achieved by the 66th Update – Practice Direction Amendments.
In Civil Recovery Proceedings Precedent H is no longer to be used. It is replaced by the Precedent for Estimate of Costs in Relation to Civil Recovery (Precedent Q). See Practice Direction – Civil Recovery Proceedings
Unless the court orders otherwise, any party which fails to file a budget despite being required to do so will be treated as having filed a budget comprising only the applicable court fees. This draconian approach has been approved by the Court of Appeal in Mitchell v News Group Newspapers Limited [2013] EWCA Civ 1526, 27 November 2013 – see below. See my blog Grim Day for Justice: Mitchell considered.
Any hearing which is convened solely for the purpose of costs management, for example, to approve a revised budget, is referred to as a costs management conference (CPR3.16(1).
The court may order an amended budget to be filed and serviced (Practice Direction 3E, paragraph 2.7) and set a review timetable. Amended budgets must be submitted where there are significant developments in the litigation (Practice Direction 3E, paragraph 2.6). An approved budget can only be varied with court approval.
The new Directions Questionnaire, Section H, states:
“I confirm Precedent H is attached” and “If your claim is likely to be allocated to the Multi-Track Precedent H must be filed in accordance with CPR 3.13.”
The notice being sent out with the Questionnaires states:
“Each questionnaire has different and specific questions the judge requires answering in relation to the type of claim. Therefore the correct form must be used.”
There has been some debate as to whether the Directions Questionnaire is therefore wrong as Precedent H does not need to be attached to it, or rather if no date is specified then it does not need to be filed or exchanged until seven days before the first case management conference.
Another interpretation is that the court is making a specific order in the Questionnaire requiring parties to file and exchange at the same time as completing the Questionnaire.
PD 3E, paragraph 2.3 states:
It is unclear as to how and when the court establishes the agreement, or otherwise, of all parties. Is this before or after the first Costs Management Conference?
Simon Gibbs, in his 5 September 2013 blog on the subject, refers to two cases where he was instructed to challenge the other side’s budgets. In each case the court approved the directions without dealing with the budgets, and appeared to have no intention of making a Costs Management Order. I have had exactly the same experience. NO court has yet made a Costs Management Order in a case that my firm is dealing with.
The courts are not obliged to make Costs Management Orders but it was assumed that they would.
The cases that Simon Gibbs refers to , and the two that we have had, involve very substantial costs. I have heard the same from those attending my lectures.
As Simon Gibbs says:
“If courts are not bothering to make Costs Management Orders in cases of this size (and £2 million cases are exempt in the Chancery Division, Technology and Construction Court, and Mercantile Court) where can we expect them to be made?”
By Rule 22(14) The Civil Procedure (Amendment) Rules 2013, dealing with transitional provisions, any proceedings in the Mercantile Courts and the Construction Courts commenced before 1 April 2013 that are within the scope of the Costs Management in Mercantile Courts and Construction Courts Pilot Scheme provided for by Practice Direction 51G supporting CPR51 will proceed and be completed in accordance with that scheme.
New Form H, effective 1 October 2013, is an Excel Spreadsheet nine pages long and Lord Justice Jackson estimates that it will take two hours to complete. However if the estimated costs do not exceed £25,000.00 then only the first page needs completing and the matter will then be dealt with by way of provisional assessment at the end of the case. In all other cases the parties are required to break down the costs in each of the following stages of litigation:
issue of proceedings and pleadings;
pre-trial review;
settlement discussions and ADR; and
a provision for contingencies.
The short-form budget for claims of £25,000 or less dovetailed with the proposals for provisional assessment of all bills of £25,000 or less. Unexpectedly the provisional assessment limit has now been raised to £75,000, that is all bills of £75,000 or less submitted since 1 April 2013 are subject to paper only assessment in the first instance. It remains to be seen whether the short-form budget limit will also be raised from £25,000 to £75,000 in due course.
It is most important to bear in mind that the budget relates to recoverable costs; it does not in any shape or form limit the amount chargeable to ones own client, that sum being governed by the solicitor and own client retainer, which need bear no relation to recoverable costs.
True it is that an overspend on one part of the budget cannot be absorbed by an under spend on another part of the budget, but that is nothing at all to do with the indemnity principle, but rather because of CPR 3.18:
In Smales v Lea and Others, the Court of Appeal again drew attention to CPR 52 Practice Direction emphasising the need to include only those documents specifically required with all extraneous material to be excluded. The Court of Appeal said that in future it would consider imposing sanctions on solicitors who failed to exclude irrelevant documents. Very few documents now need to be supplied on provisional assessment, just the bill, points of dispute, replies, costs orders and fee notes.
The new proportionality test means that a judge on detailed assessment may determine that, despite a certain step within the litigation being deemed reasonable, the full cost of that work may not be recovered once the ‘global basis’ test is applied.
In the pilot such orders have been made in most cases. The pilot was introduced by Practice Direction 51G and applied in the Mercantile and Technology and Construction Courts. In Birmingham Mercantile Court a typical Costs Management hearing has lasted 45 minutes.
28. In the light of the experience gained from those pilots the Rule Committee decided to adopt Sir Rupert Jackson’s recommendation that the management of costs by the court should in future form an integral part of the ordinary procedure governing claims allocated to the multi-track. Those rules, which will become effective from 1st April 2013, differ in some important respects from the practice direction with which this appeal is concerned. In particular, they impose greater responsibility on the court for the management of the costs of proceedings and greater responsibility on the parties for keeping budgets under review as the proceedings progress. Read as a whole they lay greater emphasis on the importance of the approved or agreed budget as providing a prima facie limit on the amount of recoverable costs. In those circumstances, although the court will still have the power to depart from the approved or agreed budget if it is satisfied that there is good reason to do so, and may for that purpose take into consideration all the circumstances of the case, I should expect it to place particular emphasis on the function of the budget as imposing a limit on recoverable costs. The primary function of the budget is to ensure that the costs incurred are not only reasonable but proportionate to what is at stake in the proceedings. If, as is the intention of the rule, budgets are approved by the court and revised at regular intervals, the receiving party is unlikely to persuade the court that costs incurred in excess of the budget are reasonable and proportionate to what is at stake.”
In personal injury cases – and Ryder was such a case – this will always be a one-way argument in the sense that Qualified One Way Costs Shifting means that unless and until a Defendant’s Part 36 Offer is not beaten a Claimant will generally not have to pay costs, but a Defendant will still have to provide a costs budget at a Costs Management Conference, as there are in fact many circumstances in which a claimant may be liable for the defendant’s costs, even in a Qualified One Way Costs Shifting case. (See http://kerryunderwood.wordpress.com/2013/05/17/qualified-one-way-costs-shifting-qocs/).
The Court of Appeal, of its own motion and without reference to , or the permission of, Parliament decides to
42. A similar approach to that which we have just described has been adopted in relation to applications for an extension to the period of validity of a claim form under CPR
43. This approach should also be adopted in relation to CPR 3.9. In short, good reasons are likely to arise from circumstances outside the control of the party in default: see the useful discussion in Blackstone’s Guide to The Civil Justice Reforms 2013 (Stuart Syme and Derek French, OUP 2013) at paras 5.85 to 5.91 and the article by Professor Zuckerman “The revised CPR 3.9: a coded message demanding articulation” in Civil Justice Quarterly 2013 at pp 9 to 11.”
New CPR 52.9A
(4) An application for such an order must be made as soon as practicable and will be determined without a hearing unless the court otherwise orders.
Below is the text of the new CPR3.12 to 3.18 which came in to force on 1 April 2013 in relation to proceedings commenced on or after that date. These are completely new provisions and not just a re-numbering of existing Rules.
Set out below is the new rule as created by The Civil Procedure (Amendment) Rules 2013, themselves amended by The Civil Procedure (Amendment No 2) Rules 2013 before they came in to force.
3.12.—(1) This Section and Practice Direction 3E apply to all multi-track cases commenced on or after 1st April 2013, except
unless the proceedings are the subject of fixed costs or scale costs or the court otherwise orders. This Section and Practice Direction 3E shall apply to any other proceedings (including applications) where the court so orders.
3.13. Unless the court otherwise orders, all parties except litigants in person must file and exchange budgets as required by the rules or as the court otherwise directs. Each party must do so by the date specified in the notice served under rule 26.3(1) or, if no such date is specified, seven days before the first case management conference.
3.14. Unless the court otherwise orders, any party which fails to file a budget despite being required to do so will be treated as having filed a budget comprising only the applicable court fees.
3.15.—(1) In addition to exercising its other powers, the court may manage the costs to be incurred by any party in any proceedings.
(2) The court may at any time make a “costs management order”. By such order the court will—
3.16.—(1) Any hearing which is convened solely for the purpose of costs management (for example, to approve a revised budget) is referred to as a “costs management conference”.
3.17.—(1) When making any case management decision, the court will have regard to any available budgets of the parties and will take into account the costs involved in each procedural step.
3.18. In any case where a costs management order has been made, when assessing costs on the standard basis, the court will—
(Attention is drawn to rule 44.3(2)(a) and rule 44.3(5), which concern proportionality of costs.)
New Practice Direction 3E and 3F
ANNEX A – PRACTICE DIRECTION 3E – COSTS MANAGEMENT; PRACTICE DIRECTION 3F – COSTS CAPPING “PRACTICE DIRECTION 3E – COSTS MANAGEMENT This Practice Direction supplements Section II of CPR Part 3
Contents of this Practice Direction Title Number
Budget format 1 Unless the court otherwise orders, a budget must be in the form of Precedent H annexed to this Practice Direction. It must be in landscape format with an easily legible typeface. 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. A budget must be dated and verified by a statement of truth signed by a senior legal representative of the party. In cases where a party’s budgeted costs do not exceed £25,000, there is no obligation on that party to complete more than the first page of Precedent H.
Costs management orders 2.1 If the court makes a costs management order under rule 3.15, the following paragraphs apply.
All other recoverable costs of the budgeting and costs management process shall not exceed 2% of the approved budget.
2.3 If the budgets or parts of the budgets are agreed between all parties, the court will record the extent of such agreement. In so far as the budgets are not agreed, the court will review them and, after making any appropriate revisions, record its approval of those budgets. 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.
2.7 After its budget has been approved, each party shall re-file and re-serve the budget in the form approved with re-cast figures, annexed to the order approving it.
2.9 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 budgets.
Section I of this Practice Direction – General rules about costs Capping When to make an application
Section II of this Practice Direction – Costs capping in relation to trust funds Costs capping orders in relation to trust funds
When to make an application 1.1 The court will make a costs capping order only in exceptional circumstances.
Costs budget 2 The budget required by rule 3.20 must be in the form of Precedent H annexed to this Practice Direction.
Schedule of costs 3 The schedule of costs referred to in rule 3.20(3)—
Assessing the quantum of the costs cap 4.1 When assessing the quantum of a costs cap, the court will take into account the factors detailed in rule 44.5 and the relevant provisions supporting that rule in the Practice Direction supplementing Part 44. When considering a party’s budget of the costs they are likely to incur in the future conduct of the proceedings, the court may also take into account a reasonable allowance on costs for contingencies.
Costs capping orders in relation to trust funds 5.1 In this Section, “trust fund” means property which is the subject of a trust, and includes the estate of a deceased person.
(a) the parties to consider whether to apply for; and (b) the court to consider whether to make of its own initiative,
“Why does Precedent H clearly state “This estimate excludes VAT (if applicable), Court fees, success fees and ATE Insurance premiums (if applicable), costs of detailed assessment, costs of any appeals, costs of enforcing and judgment and [complete as appropriate]” but on the next 4 pages have a row for “Court fees””.
The formulas across the document are inconsistent. This means that when additional information is provided in respect of fee earners time costs (which is something specifically asked for by the standard wording of the document) all formulas have to be readjusted. This can involve changing up to 52 separate formulas in order to have correct figures in the summary section if a number of different grades of fee earners are involved.
There are various formatting inconsistencies. Primarily with how cells are formatted to display numbers. This makes picking out individual entries from the pages of figures unnecessarily complicated.
The main problem being that these are administrative issues that add a significant amount of time to the task of preparing the costs budget which could have been avoided with a few more hours work of testing the document before making it available. Our estimate is that this added at least 1 hours work.
‘Considering ADR, advising on settlement and Part 36 offers’ appears in both the pre-action phase and the settlement phase. The guidance note is contradictory.
Written by kerryunderwood July 15, 2013 at 1:25 pm
« JUDICIAL REVIEW: NEW TIME LIMITS
PATENTS COUNTY COURT AND CAPPED COSTS »
Kerry can you comment on the continued practice of Defendant’s filing Notices of Funding seeking success fees on CCFA’s entered as long as 2009. It would appear that they can charge inter partes a success fee despite the April changes forever more! That said so might trade unions and other commercial claimant organisations but the ability to charge a success fee would have to be budgeted appropriately.
July 24, 2013 at 8:59 am	Reply	Not so. Section 44(4) LASPO inserts a new Section 58A(A)6 into the Courts and Legal Services Act , so that it now reads:
(6) A costs order in proceedings may not include provision requiring the payment by one party of all or part of a success fee payable by another party under a conditional fee agreement.
However Section 44(6) provides:
The amendment made by subsection(4) does not prevent a costs order including provision in relation to a success fee payable by a person (“P”) under a conditional fee agreement entered into before the day on which that subsection comes into force (“the commencement day”) if – (a) the agreement was entered into specifically for the purposes of the provision to P of advocacy or litigation services in connection with the matter that is the subject of the proceedings in which the costs order is made, or
(b) advocacy or litigation services were provided to P under the agreement IN CONNECTION WITH THAT MATTER (my capitals) before the commencement day.
The commencement day was 1 April 2013.
Few things about Jackson are clear, but this is.
July 24, 2013 at 2:30 pm	Reply	Can you clarify another matter with regard to DBA’s and budgets, if you are acting on a large commercial claim on a 50% DBA but you have a trial on liability, make a Pt 36 offer in respect of liability , say 75% but you achieve 100% at trial, so that you are entitled to indemnity costs – given that you were acting on a DBA, is the costs entitlement 50% of the damages to be assessed? I am sure you could secure an interim order for costs at that point but If the damages are subsequently agreed or assessed at £1M , are the applicable costs pursuant to the successful Pt 36 offer £500K? Also what would you say regarding costs budgetting when the issue is liability not damages on a DBA? Many Thanks
July 25, 2013 at 4:46 pm	Interesting point. I think this is all dealt with in my blog DBAs AND COSTS BUDGETING: CURIOUSER AND CURIOUSER – http://kerryunderwood.wordpress.com/2013/07/10/dbas-and-costs-budgeting-curiouser-and-curiouser/
July 25, 2013 at 4:57 pm	Reply	Fantastic piece. I note that you state, “The Senior judiciary are reported to be very unhappy with the decision and have indicated that on appeal they may consider whether the opted-out courts have erred in the exercise of their discretion in failing to order costs budgets in any given case”. I wonder if you have a reference for this or could indicate when such a suggestion was made?
September 12, 2013 at 11:09 am	Reply	Thank you Jack. I get to hear things……………
September 12, 2013 at 11:22 am	Reply	Great piece as always Kerry (hope that doesn’t sound as sycophantic as I think it might). A basic question I think but one with which I keep going round and round in circles with without being sure of the same answer I keep logically (I think) coming to. Where does the fee/time go for preparing the Precedent H Form? (i.e. the 1% of budgeted costs allowed or £1,000). I can see no other way of correctly presenting it than under the CMC phase in the Form H. Is my reading of the same correct? If not, where do you suggest the fee/time goes? Thanks.
November 13, 2013 at 10:39 pm	Reply	Craig, you can be as sycophantic as you want!
In answer to your question CPR 3.12(1) states that this Section and Practice Direction 3E apply to all Part 7 multi-track cases.
In relation to the costs involved in preparing a costs budget paragraph 7.2(a) Practice Direction 3E states that “the recoverable costs of initially completing Precedent H shall not exceed the higher of £1,000 or 1% of the approved or agreed budget”.
Practice Direction 3E includes at the bottom of the Direction “Guidance Notes for Precedent H”. The document provides a breakdown of each stage and the type of work that is included in it. Under the stage “CMC” a list of work expected under this stage is provided including the costs under paragraph 7.2(a) for preparation of the costs budget for the first CMC and subsequent CMCs after that.
However, there is no reference to the Guidance Notes in either Practice Direction 3E or in CPR 3 and thus is not binding authority. Therefore any reference made to the Guidance Note is exactly that – “guidance”. The closest CPR 3 comes to shedding light on the issue is with CPR 3.17(1):
“When making any case management decision, the court will have regard to any available budgets of the parties and will take into account the costs involved in each procedural step”.
The CMC phase requires preparation of a costs budget. Thus any costs incurred through its preparation are inherently involved with that phase of proceedings including completion of Precedent H.
So, to answer your question, the fee/time for preparing the Form Precedent H, that is the higher of £1,000 or 1% of the approved budget, does indeed go into the CMC phase.
July 18, 2014 at 5:05 pm	Reply	[…] http://kerryunderwood.wordpress.com/2013/07/15/costs-management-orders-and-costs-budgeting/ […]
ON-LINE GUIDANCE ON FILLING OUT FORM H | Civil Litigation Brief
January 6, 2014 at 1:59 pm	Reply	Kerry – have you had any cases which have been allocated from the fast track to the multi-track? What would the position be if the case gets re-allocated, no CMC in multi-track just directions issued on the Courts own motion and the next stage step is Trial. Without any Orders for budgeting, and no CMC in the multi-track when would the parties need to file budgets?
January 10, 2014 at 2:58 pm	Reply	Leave a Reply Cancel reply
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