The importance of avoiding a late cost budget submission
Ivan Goodsell explains when a cost budget is required and how a late submission can be remedied.
A cost budget, also referred to as a ‘precedent H’, is a document often required during part 7 multi-track cases. The filing and exchange of a cost budget remains one of the most critical components litigators consider during multi-track cases.
It is vital for compliance that a cost budget is fully understood and executed accurately and promptly, especially in cases where a court directs it. The outcome and consequences of not getting a cost budget submission right can be severe and negatively impact the ability to recover costs that are outside of court fees.
When is a cost budget required?
For the vast majority of cases, and all parties except litigants in person, the filing and exchange of budgets are necessary for setting out estimated costs for each stage of the legal proceedings (for part 7 multi-track cases). In exceptional circumstances or when the court rules it, the filing of cost budget can be manoeuvred.
Once a party has filed and exchanged their budget, all other parties relating to the case must file an agreed budget discussion report no later than 7 days before the first case management conference (CMC).
For multi-track cases where the claim value is under £50,000 (which must be stipulated on a claim form), including if the claim value is £49,999,99, the current rules clearly state that the cost budget must be filed with the directions questionnaire. If the claim value is exactly £50,000, then the cost budget can be filed 21 days before the first CMC.
For cases where the claim value pleaded exceeds £50,000, the cost budget must be filed 21 days before the first CMC, following any other order, or unless stated otherwise by the courts.
What does a cost budget include?
A cost budget details all base costs incurred to date and all future costs to be incurred for the totality of the case up to and including trial. VAT and any additional liabilities should be excluded from the budget figures.
Additionally, the cost of preparing the budget and the costs management process do not form part of these central figures, but should be stated at the bottom right of the front sheet.
The costs of any interim application that take place should also be sought separately from any budget submitted.
When is a cost budget not required?
A cost budget is not required in instances where the value of the claim pleaded is more than £10m, or in instances where the claim is brought to court on behalf of someone who is under 18 – also known as a minor claim. Another long-standing matter where a cost budget can be forgone is when the claimant has limited or severely impaired life expectancy of five years or less.
The court can choose in exceptional circumstances to disapply budgeting. As the court has complete discretion to disapply the exceptions, the only way to guarantee an outcome in this area is to seek clarification directly from the courts. Parties must not contract out cost budgeting and the court retains complete power to make orders in relation to cost management when it considers them appropriate.
Types of cost budget submissions
It is important to consider the different kinds of precedent H documents required for the specific case being worked on.
What type of precedent H documents should be filed for a cost budget submission is based on the value of the claim. For example, in cases where the costs exceed £25,000.01 or where the claim value exceeds £50,000, a full precedent H submission is required.
Where the claim value is £50,000 or more, standard recommendations usually require a full precedent H filing. To be on the safe side, you should not file a partial cost budget as the courts may rule you have not followed protocol and decide you have not filed one altogether. The sanctions of such an improper filing could severely negatively affect the outcome of the case.
In cases where the costs do not exceed £25,000, or the value of the claim form is less than £50,000, then you are only required to use and submit the first of the precedent H (CPR PD3E 4(b)). There may be circumstances where the litigator finds it appropriate or tactical to file and exchange more than just the front page; however, this is not the standard rule laid out by the court system.
Filing a cost budget late
The importance of filing a precedent H on time cannot be understated. As per CPR 3.14, if a party fails to file a precedent H on time, it will be treated as if a budget had been filed comprising only of the applicable court fees. This means that any money that was previously potentially recoverable is lost as in any entitlement to it. This is why it is imperative that all stages of the cost budget are followed to the letter unless the court otherwise orders.
Once a cost budget is filed late, you are essentially running a claim without the ability to recover the substantive portions of the costs. Thanks to CPR 36.23, some portion of costs may be rescued as it permits recovery of 50 per cent of the costs assessed, as long as the party is successful in beating the part 36 offer during the final hearing.
There is another way of remedying the breach. However, this must be immediate and prompt through the filing of an application for relief. Relief is only granted in the right circumstances which is why it is imperative litigators have submitted budgets on time. To be granted relief the court considers the following three-stage test:
- Identifying and assessing the seriousness or significance of the breach?
- Considering why the failure occurred?
- Considering all the circumstances of the case.
Finally, to highlight the severity of filing a cost budget late, consider the case of BMCE Bank International Plc v Pheonix Commodities PVT Ltd & Anor EWHC 3380 (Comm). This case involved the late filing of a cost budget and the high court refused the defendant relief from the sanctions of CPR 3.14 meaning they were only eligible to recover court fees.
In this case, the defendant had filed their budget two weeks late and did not even apply for relief from sanctions until the morning of the costs CMC. The judge presiding over the case, Mr Justice Bryan, found the breach serious and significant and couldn’t find any just reason why such an error had been made. He found the application for relief had not been made promptly and rejected it.
Despite clear and concise rules regarding multi-track cases and filing of a precedent H, mistakes still happen like the one highlighted above. This negatively affects the claimant, even if the mistake of a late filing is made and the judge grants leniency. The expectation that all costs will be recovered is very slim and significant penalties would still apply.
Ivan Goodsell is a costs draftsman at IG Legal iglegal.co.uk