Avoiding circular arguments in costs budgeting disputes
Eleanor Kilner explains why prevention rather than cure is the best strategy
The new civil justice reforms have bought with them a strict costs management regime. The regime has seen some markedly tough decisions on non-compliance, such that
this area is fast becoming a hotbed for complaints and claims against solicitors, particularly in light of the severe sanctions imposed for non-compliance.
Confusing rules
The rules can however be confusing, as the allocation notice will usually direct the parties to file directions questionnaires which themselves contain a section requiring the production of a costs budget. So, where the allocation notice is actually silent on costs budgets, the situation can become somewhat circular.
This recently played out in the case of Porbanderwalla v Daybridge, where the claimant, supported by the defendant, appealed a decision to impose sanctions for failure to file costs budgets.
The claimant successfully argued that CPR 3.13 was clear: since there was no direction within the allocation notice to file costs budgets, a budget did not need to be provided until seven days before the case management conference.
The case highlighted that there are clearly two forms of allocation notice in circulation, one which provides for costs budgets to be produced and the other which does not. While this does endorse the approach of the parties in Porbanderwalla, it nevertheless does not provide a solution to the problem: consider an example where the parties file direction questionnaires without costs budgets (where the allocation notice is silent) but the court lists the first CMC within seven days.
In that situation, the costs budgets are already late and sanctions may be imposed. Thus it seems prudent to file costs budgets with the directions questionnaire in any event.
A close eye on costs
Of course deadlines are not the only potential pitfall; keeping a close eye on your costs is essential all the way through the claim. This is particularly since applications to revise or amend costs management orders cannot be made retrospectively.
Where a party considers it may exceed its costs budget, an application to revise or amend a costs management order should be made in advance of those costs being incurred.
Coulson J in the case of Elvanite Full Circle Limited v AMEC Earth & Environmental (UK) held that the application must be made as soon as it becomes apparent that the original costs budget has been exceeded by more than a minimal amount.
Of course, this case also underlines the importance of getting a budget right at he outset.
The costs management regime is strict and the sanctions are severe, thus prevention rather than cure is the best policy.
Points to consider
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Firms should incorporate a costs budgeting exercise right at the outset of every contentious matter. One option is to incorporate a form which automatically generates within each case management system on matter opening
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Diary reminders should be set at regular intervals to check the costs position
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Key dates such as the deadline for filing of directions questionnaires and the date of the CMC should be diarised with reminders for the tasks required to be completed
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You may also wish to change firm policy so that only senior fee earners may prepare and/or oversee the costs budgets to ensure that the budget reflects the degree of work required to investigate and resolve the issues in dispute which are clearly case sensitive