PD 3E para.7.2 is a deceptively simple provision:

“Save in exceptional circumstances-

(a) the recoverable costs of initially completing Precedent H shall not exceed the higher of £1,000 or 1% of the approved or agreed budget”

Without any further qualification, the £1,000 figure must be taken to be inclusive of any success fee or VAT claimed. (Readers will recall a similar issue arose with the first version of the rules concerning the £1,500 provisional assessment cap. It required an amendment to allow for VAT in addition but remains inclusive of any success fee.) This means that for a costs budget of up to £100,000, the base costs recoverable (assuming a 100% success fee and VAT are claimed) would be limited to £416.67 for preparing Precedent H.

The 1% figure is more problematic.

Again, without qualification, this must be taken to include VAT and any success fee. However, Precedent H expressly excludes VAT and success fee. This would appear to mean, for example, that for an approved or agreed budget totalling £150,000 the recoverable costs are limited to £1,500 fully inclusive, even if with success fee and VAT the recoverable costs at the end of the case (once VAT and success fee is allowed) might be well in excess of £300,000.

The problems do not stop there. What is the total of the approved or agreed budget?

As explained in Cook on Costs 2015:

“There appears to be some confusion as to what constitutes the ‘approved budget’ for the purposes of the percentage calculation. As the court may only budget costs to be incurred, it seems clear that the percentage is only of the sum approved by the court/agreed by the parties as the ‘to be incurred’ costs within those phases budgeted. This view is supported by the fact that CPR PD 3E, para 7 refers back to CPR 3.15. CPR 3.15(1) makes it clear that a costs management order may only be made in respect of costs to be incurred and CPR 3.15(2) makes it clear that budget for these purposes relates to the agreed or court approved figure after revision by the court. As the court cannot revise ‘incurred’ costs’, then the agreed or approved budget seems to be “only the figures included in any costs management order.”

So, for example, a budget is prepared totalling £200,000 (excluding VAT and success fee). Of this, £50,000 represents costs already incurred and £150,000 costs to be incurred. If the budget is approved/agreed in full, the 1% is calculated on the £150,000. This equates to base costs recoverable (assuming a 100% success fee and VAT are claimed) limited to £625. All the work undertaken calculating the incurred costs is irrecoverable.

Since writing the above post, but before posting, the Senior Costs Judge Master Gordon-Saker handed down judgment in BP v Cardiff & Vale University Local Health Board [2015] EWHC B13. In relation to the above issue, he stated:

“In my view the caps imposed by paragraph 7.2 of Practice Direction 3E include additional liabilities but do not include value added tax. In practice the only additional liability that will be relevant is a success fee.

…

It seems to me that value added tax also falls within the expression ‘recoverable costs’. As between the receiving party and its solicitor value added tax is tax for which the solicitor must account. As between the paying party and the receiving party it is not tax but a sum recoverable by the receiving party under the indemnity provided by the costs order (i.e. costs).

On that basis the capped ‘recoverable costs’ would include both success fees and value added tax. However it would seem highly unlikely that the intention of the Civil Procedure Rule Committee was not to follow the only other example where a cap is imposed: CPR 47.15(5). The cap on the costs of provisional assessment is £1,500, including additional liabilities, but excluding value added tax and any court fee.”

Although Master Gordon-Saker may well be correct as to what the intention of the Rules Committee would have been if they had given any thought to the issue, the fact remains that the wording of the rules is silent as to VAT being payable in addition and has not, yet, being amended to mirror the wording of the rules concerning the provisional assessment costs cap.

Master Gordon-Saker does share my views that VAT is an item of costs (thus making the £75,000 provisional assessment cap inclusive of any VAT).

The Association of Costs Lawyers is inviting members to apply to join a Fixed Recoverable Costs Working Party to consider the potential extension of the fixed recoverable costs regime and draft a consultation paper.

What are the odds the response to any consultation paper is overwhelmingly that the extension of fixed fees is a “bad thing”?

The Civil Proceedings Fees (Amendment No.2) Order 2013 read:

“Fees 2.1 and 2.2 [being the fees payable when filing a Directions Questionnaire and Listing Questionnaire] are payable once only in the same proceedings.”

The Civil Proceedings Fees (Amendment) Order 2014 has dropped the fee for filing a Directions Questionnaire. However, I can no longer see a note stating the Listing Questionnaire fee is payable only once. This issue sometime arises where there has been a split trial and more than one Listing Questionnaire was filed. In the past, if a claimant wrongly paid the Listing Questionnaire fee twice, there was no doubt the defendant would not be liable for the second fee.

Is the omission of a similar note in the 2014 Order an oversight?

I’ve commented before on Regional Costs Judge Middleton’s view that the £75,000 provisional assessment limit does not include VAT.

He expands on this in the White Book supplement Costs & Funding following the Civil Justice Reforms: Questions & Answers.

“Q8. Does the £75,000 limit for provisional assessment include or exclude VAT?

This is a purely procedural point. CPR 47.15 and its PD provisions describe the limit of £75,000 as being in respect of costs. The definition of ‘costs’ in CPR 44.1 does not include a reference to VAT – in fact, VAT is defined separately in the same rule. Accordingly, it seems that the £75,000 limit does not include VAT and refers to the total profit costs and disbursement sum.”

CPR 44.1 is actually headed ‘Interpretation and application’ rather than ‘Definitions’.

‘Costs’ is defined as:

“‘costs’ includes fees, charges, disbursements, expenses, remuneration, reimbursement allowed to a litigant in person under rule 46.5 and any fee or reward charged by a lay representative for acting on behalf of a party in proceedings allocated to the small claims track”

‘VAT’ is defined as:

“‘VAT’ means Value Added Tax”

It is actually rather a stretch to say this “defines” VAT. It does no more than explain, if it was not otherwise self-evident, what the abbreviation stands for.

This section also defines ‘fixed costs’:

“‘fixed costs’ means costs the amounts of which are fixed by these rules whether or not the court has a discretion to allow some other or no amount”

I believe this highlights Regional Costs Judge Middleton’s error. There can be no doubt that ‘fixed costs’ falls within the wider definition of ‘costs’ even if it is also given its own separate definition. ‘Fixed costs’ is simply a subcategory of ‘costs’. Equally, ‘VAT’ is also a subcategory of ‘costs’. The definition of ‘costs’ is not an exhaustive list, it simply states some of the subcategories it includes. ‘VAT’ clearly falls within ‘charges’ in any event. HM Revenue & Customs’ guides use the word ‘charge’ in relation to VAT (eg “You should charge VAT at the rate of 20 per cent on any sales of standard rated goods or services that you make on or after 4 January 2011”).

In any event, as previously mentioned, if I am wrong about this and VAT is not included within the definition of ‘costs’, on what basis can VAT be recovered on the back of an order for ‘costs’ alone?

Another massive step in the direction of fixed fees across the board with the announcement the government intends to consult on introducing fixed fees for clinical negligence claims of up to £250,000, with it envisaged they will be introduced in October 2016.

And there was people worrying about the introduction of a new bill of costs format.

Mr Justice Warby in Stocker v Stocker [2015] EWHC 1634 at paragraph 63:

“Witness statements are meant to be in the witness’s own words, and an assistant solicitor should be able to do the majority of the work”

Interesting blog post from Andrew Hogan suggesting that an oral hearing following a provisional assessment is by way of a “review” rather than a rehearing, and that the court should not consider additional documents that were not before the court at the provisional assessment stage. The basis for this suggestion is the wording of CPR 47.15(8):

“The written request referred to in paragraph (7) must – (a) identify the item or items in the court’s provisional assessment which are sought to be reviewed at the hearing”

This is not the interpretation put on the rules by the authors of Cook on Costs 2015:

“At the hearing the court will consider afresh the issues raised.”

I seem to recall this issue arising at the Association of Costs Lawyers’ Annual Conference and the view being expressed that the term “reviewed” is not meant to be viewed in the technical sense of “review”, as used when referring to appeals, but has an ordinary meaning.

As a matter of common sense, this makes sense. Different courts have different procedures as to what documents should be filed in advance of the provisional assessment. It would be odd if courts at an oral hearing were differently restricted as to what documents they were entitled to consider at an oral hearing where the rules make no such limitation.

Nevertheless, this does appear to be another example of a badly drafted element of the rules. If an oral hearing was to be by way of an appeal, the rules should clearly state as much. Equally, if it is by way of a rehearing, the wording should refer to “reconsidered” rather than “reviewed”.

The committee developing the new bill of costs format has released the following documents:

Guidance Document

Blank Template

Example Data

Print Version

This was accompanied by the following:

“We are inviting comments/suggestions on the draft new bill of costs by 18.9.15. It is planned that there will be a Practice Direction in force from the start of October 2015 which will enable parties to use the new bill of costs in cases in the SCCO instead of the existing model (although at this stage there is no requirement to use the new bill, only that it is voluntary and you would not be in breach of the rules if you adopted it). The longer term plan at present is that there will be a pilot in all SCCO cases where the costs order giving rise to the right to costs has been made on or after 1st April 2016 where the new bill of costs will be the recommended form of bill in place of the existing model.

Please email any such comments or suggestions to alexander.huttonqc@hailshamchambers.com and david.nelson@pathfinderconsulting.com (both please) by 4pm on 18.9.15. Please do not expect an instant response from us as we will be collating comments together and considering them as a whole. But we value your help in hopefully improving the current draft of the new bill. Please also read the guidance documents carefully before you email as some of the answers to queries may well be in them.”

I previously commented on the Coulson J, in CIP Properties (AIPT) Ltd v Galliford Try Infrastructure Ltd & Ors (Costs No. 2) [2015] EWHC 481 (TCC), as to the suggestion a defendant might try to submit a knowingly low costs budget:

“In his written submissions on behalf of the claimant, one of the points made … was that the court should not have any great regard to the costs budget figures put forward by the defendant and the additional parties because they had ‘an incentive’ to advance low figures in their costs budgets. This suggestion of manipulation of the figures by the other parties was, understandably, the subject of considerable protest. It seemed to me to be an unwarranted accusation. In truth, the party who was most vulnerable to such an accusation was the claimant itself.”

We can now add the comments of Stuart-Smith J in GSK Project Management Ltd v QPR Holdings Ltd [2015] EWHC 2274:

“Counsel for the Claimant in the present case submitted (rather faintly in the end) that the Defendant had underestimated the resources that were necessary. To my mind, if such a submission is to be made at all in the face of a Solicitor’s statement of truth that his costs budget is a fair and accurate statement of incurred and estimated costs ‘which it would be reasonable and proportionate for my client to incur in this litigation’, it needs to be properly substantiated; and that substantiation will probably require evidence and not mere assertion. It has not been substantiated in the present case.”

We all have our own bugbears about the things our opponents do.

What really annoys me is an opponent who threatens to do a certain thing (eg prepare a formal bill, issue Part 8 proceedings, make an application for relief from sanctions, set a matter down for assessment, etc) if they have not heard from me (eg making an improved offer, consenting to relief being granted, etc) by a certain date. The threat is often reinforced with the statement that this step will be taken “without further notice” in the absence of a response. The deadline passes. I then receive a chase-up.

Feel free to threaten to take a certain step by a certain date in the absence of a particular response. If you have had no response, you can take it as read that I am happy for you to proceed as threatened. What annoys me is threatening to take the step and then simply sending a chase-up.