Changes ahead for costs budgeting

We now have much more clarity on what we can expect from costs budgeting than we have had previously. Unfortunately,
it is generally a stark message
to solicitors, perhaps most succinctly phrased by Mr Justice Leggatt in Kazakhstan Kagazy Plc v Zhunus [2015] EWHC 404 (Comm): 'The touchstone is not the amount of costs which it was in a party's best interests to incur but the lowest amount which it could reasonably have been expected to spend in order to have its case conducted and presented proficiently.'

There have been several
cases where costs budgets have been subject to considerable reduction. In Stocker v Stocker [2015] EWHC 1634 (QB), over £250,000 (almost half of the claimed future costs) - proportionality was a key consideration in
this case.

Proportionality was again paramount in CIP Properties
Ltd v Galliford Try Infrastructure Ltd [2015] EWHC 481 (TCC),
in which a costs budget of £9.2m, including £4.22m in incurred costs, was reduced
to just £4.28m.

High incurred costs

The cases of GSK Project Management Ltd v QPR Holdings Ltd [2015] EWHC 2274 (TCC)
and Redfern v Corby Borough Council [2015] 5 Costs LO 583 both provide a warning to practitioners in cases where there has been a significantly high amount of incurred costs, which the court cannot technically interfere with pursuant to Civil Procedure
Rules (CPR) practice direction (PD) 3E 7.4.

In these cases, the level of incurred costs was taken into account when setting the budget for future costs, and in the latter case it was acknowledged that this was lower than what might have otherwise been approved.

Guidance has also been provided in relation to applications to revise a costs budget pursuant to PD3E 7.6. In Yeo v Times Newspapers [2015] EWHC 2132 (QB), an application to revise the budget was refused on the basis that there was nothing that constituted a 'significant development in the litigation'.

This recent case law suggests that costs management is another area which has been greatly affected by the new test of proportionality. It would appear that the courts, in some instances, consider some additional costs to be a luxury and will not hesitate to disallow items considered unreasonable.

Further, we can see that 'frontloading' costs in a case
will not be a justification for incurring even further costs,
with the court willing to penalise parties by restricting future costs, potentially to amounts lower than would be necessary to continue bringing the case
to trial.

Additionally, practitioners should always be mindful of any costs management order made by the court and make sure not to incur costs which exceed any particular phase, as these are unlikely to be recoverable at the end of the case.

Recommended changes

Despite reluctance across the profession to embrace the principle, costs management is here to stay. However, there are already changes to the procedure in the pipeline, following a review by Mr Justice Coulson and the sub-management committee tasked with identifying improvements to the process. Several of these recommendations have been approved by the CPR Committee and we await their introduction this year:

• Mandatory costs management to be disapplied in cases involving minors;

• Discretion to be applied in cases involving elderly claimants or claimants with a short life expectancy;

• Deadlines for filing and exchanging costs budgets altered to 21 days before the case management conference (CMC) in cases exceeding £50,000. In cases under £50,000 this should be filed with the directions questionnaire;

• Provision will also be put into the CPR to expressly state that hourly rates should not be fixed or approved by the judge at the CMC;

• Assumptions should continue to be included in the short form precedent H; and

• An agreed budget discussion form should be filed no later than seven days before the CMC containing information as to what phases are agreed and a summary of the nature of any dispute.

These changes would largely seem to be sensible ones, though it remains to be seen whether they will encourage parties to resolve the issues and agree cost budgets prior to the hearing. However, we can be certain that with Lord Justice Briggs's civil court structure review gaining momentum, the rate of change is unlikely to slow down in 2016. SJ

Steve Davies is a costs lawyer and council member of the Association of Costs Lawyers