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I’ve commented before on the fact that whatever the merits of the Jackson costs reforms, the implementation process has been truly botched. Nowhere is this more apparent than the introduction of costs budgeting.
There are obviously myriad problems with costs budgeting as it currently stands but one of the most serious issues, that is only now becoming truly apparent, is the introduction of costs budgeting without amending the bill of costs format.
Although work progresses with a new bill of costs format, to mirror the phases of costs budgeting, we are still many months away from anything being formally introduced.
This is not simply a dry theoretical issue, but a problem that is beginning to cause serious problems as part of the detailed assessment process.
CPR 3.18 states:
“In any case where a costs management order has been made, when assessing costs on the standard basis, the court will –
(a) have regard to the receiving party’s last approved or agreed budget for each phase of the proceedings; and
(b) not depart from such approved or agreed budget unless satisfied that there is good reason to do so.”
The first problem stems from the fact that it is “each phase” of the proceedings the court must consider and not depart from the same. This means it is not sufficient for a budget to be approved at £100,000 and for the costs to come in at £99,000. The court must consider whether costs have come in on budget for each phase (Precedent H containing 10 main phases plus contingencies).
For a judge on assessment to fulfil their duties under CPR 3.18 they therefore need to know what costs have actually been incurred for each phase. The “good reason” to depart from the budget must, in this context, clearly refer to each phase. For example, if a case was budgeted based on a one-day trial but the case runs into two days, that may be a good reason to depart from the Trial phase of the budget. It would be no reason to depart from the budget in relation to the Witness Statements phase, Disclosure phase, etc.
The second problem comes from PD 3E para.7.4:
“As part of the costs management process the court may not approve costs incurred before the date of any budget.”
This provision is easily overlooked. What is often referred to as an approved budget, is often a budget consisting of two elements. The first being the “incurred” costs that the court has not (and cannot) “approve”. Those costs are subject to detailed assessment in the ordinary way. The second part of the budget is the future estimated costs that are the part the court has approved and which are subject to CPR 3.18(b).
This means that a judge on assessment needs to know not only what costs have been incurred by phase, but also how this is split between pre and post-costs management order. It might be arguable that there is no need to split the pre-costs management order work between phases, as this is all open to assessment in the normal way, but this is unlikely. Where a budget has been served showing incurred costs by phase, it would be doubtful a court would allow a party more costs that those shown in the budget for that phase and period. It does not mean the figures would be allowed as reasonable between the parties simply because they mirror the costs shown in an estimate for incurred costs, but it is likely they would act as a cap (the purpose of the “incurred” section of the budget being to allow the other party to know what their potential liability is for the work done to date).
The problem with the implementation process is that there has been no formal amendment to the standard bill of costs format and the current rules contain no requirement to draft a bill by phases or identify pre and post-costs management order work. A bill that enables the court to undertake its job properly would potentially need to be divided into 20 parts (10 phases each divided between pre and post-costs management work) plus further phases for any contingencies.
Anecdotal evidence suggests some courts are already striking out/ordering to be redrawn bills that are not properly divided where there has been a costs management order made. Other anecdotal evidence is that some courts are striking out bills that are clearly divided by phase on the basis that such bills do not correspond with the current rules (this is nuts as PD 47 para.5.8 is drafted widely enough to give a discretion to divide bills into two or more parts where this is necessary or convenient to do so).
I’ve previously commented on Lord Justice Jackson’s recent recommendations concerning costs budgeting that:
“Until the new form bill of costs is developed, in those cases where detailed assessment proceedings are commenced, the receiving party should lodge a summary of its bill in a format which matches Precedent H”
That appears to be the absolute minimum as to what should be expected but why are we now over two years down the road since costs budgeting was introduced (more if you count the pilots schemes) with still no proper rules to deal with this? Common sense dictated that the existing bill of costs format would no longer be fit for purpose when the costs budgeting rules were introduced in April 2013.