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.

PD 47 para.5.19 states:

“The bill of costs must not contain any claims in respect of costs or court fees which relate solely to the detailed assessment proceedings other than costs claimed for preparing and checking the bill.”

Implicit in this is that the costs of preparing and checking the bill are part of the detailed assessment proceedings.

This is consistent with the Court of Appeal’s comments in Crosbie v Munroe [2003] EWCA Civ 350:

“the assessment proceedings cover the whole period of negotiations about the amount of costs payable through the Part 8 proceedings to the ultimate disposal of those proceedings”

However, CPR 47.6 states:

“(1) Detailed assessment proceedings are commenced by the receiving party serving on the paying party –

(a) notice of commencement in the relevant practice form; and
(b) a copy of the bill of costs.”

Self-evidently, in this context, the bill must be drafted before the detailed assessment proceedings are “commenced”.

Precedent H, the document used for costs budgeting, states at the bottom of page one:

“This estimate excludes … costs of detailed assessment…”

Should the costs of preparing a bill therefore be included or excluded from a budget?

The wording of the CPR remains confusing and contradictory as to what work falls within the definition of detailed assessment proceedings (and continues to cause confusion relating to issues over recovery of Part 8 costs and what is included in the provisional assessment cap).

Come on Rules Committee. Sort it out.

The recent decision in O’Brien v Shorrock & The MIB [2015] EWHC 1630 (QB) deals with a number of interesting costs issues.

One of these concerned an application for relief from sanctions by a party who had given incorrect information concerning the date a CFA had been entered into.

Pre-Jackson, one could be fairly confident that a defaulting party would have to pay the cost of such an application even if successful. Post-Mitchell, the position was believed to be the same except for the fact the prospects of obtaining relief were significantly diminished. Post-Denton, the position appears to be more complex. The problem comes from the following warning in Denton:

“We think we should make it plain that it is wholly inappropriate for litigants or their lawyers to take advantage of mistakes made by opposing parties in the hope that relief from sanctions will be denied and that they will obtain a windfall strike out or other litigation advantage. In a case where (a) the failure can be seen to be neither serious nor significant, (b) where a good reason is demonstrated, or (c) where it is otherwise obvious that relief from sanctions is appropriate, parties should agree that relief from sanctions be granted without the need for further costs to be expended in satellite litigation. … Heavy costs sanctions should, therefore, be imposed on parties who behave unreasonably in refusing to agree extensions of time or unreasonably oppose applications for relief from sanctions. An order to pay the costs of the application under rule 3.9 may not always be sufficient. The court can, in an appropriate case, also record in its order that the opposition to the relief application was unreasonable conduct to be taken into account under CPR rule 44.11 when costs are dealt with at the end of the case. If the offending party ultimately wins, the court may make a substantial reduction in its costs recovery on grounds of conduct under rule 44.11. If the offending party ultimately loses, then its conduct may be a good reason to order it to pay indemnity costs. Such an order would free the winning party from the operation of CPR rule 3.18 in relation to its costs budget.”

The innocent party now appears to be at risk of paying for an application caused by the other party’s default.

In O’Brien, relief from sanctions was granted. As to the costs of the application, the judge ruled:

“The costs of the application for relief from sanctions are small, because it was served so late. Nevertheless, I consider that in principle they must be paid by the claimant (or his solicitors) because it was their default in giving an erroneous date on the Notice of Funding which required the application.”

A sensible decision, although this was in the context that the judge had ruled the breach to be “significant”.