4.6 Costs management - further detail

Question 1

What are the five basic stages of costs management?

Answer 1

1.
Budgets
2.
Budget Discussion Reports
3.
Case / Costs Management Conference
4.
Directions Order or Costs Management Order

Question 2

Which Part of the CPR sets out the court’s main case and costs management powers?

Answer 2

Part 3 CPR

Question 3

Which Rule sets out the types of multi-track cases to which the costs management process does not apply?

Answer 3

CPR 3.12

Question 4

To which multi-track cases do the costs management rules not apply?

Answer 4

CPR 3.12(1) [summarised]
1.
£10 million quantified in the claim form
2.
£10 million not quantified in the claim form
3.
Children
4.
Fixed or scale costs
5.
The court orders

(a) claims for £10 million or more commenced on or after 22nd April 2014; or
(b) partially or wholly unquantified monetary and non-monetary claims commenced on or after 22nd April 2014, where the claim form states the value is over £10 million; or
(c) claims made by or ob behalf of children commenced on or after 6th April 2016; or
(d) where the proceedings are the subject of fixed costs or scale costs; or
(e) the court otherwise orders.

Question 5

When should the parties’ costs budgets be filed and exchanged if the value of the claim is under £50,000?

Answer 5

CPR 3.13(1)(a)

With the directions questionnaire.

Question 6

When should the parties’ costs budgets be filed and exchanged if the value of the claim is over £50,000?

Answer 6

CPR 3.13(1)(b)

Not later than 21 days before the first CMC.

Question 7

What is meant by a ‘budget’?

Answer 7

Budget’ is defined in the CPR Glossary as:

“An estimate of the reasonable and proportionate costs (including disbursements) which a party intends to incur in the proceedings.”

Question 8

What comes at the end of the budget?

Answer 8

22 PD 2.2A

A statement of truth that costs are fair, accurate, reasonable and proportionate.

Question 9

Does the actual payment to the solicitor have to match the amount in the costs budget?

Answer 9

No - which can lead to awkward conversations with clients.

Question 10

Which documents must the parties lodge for costs budgeting purposes?

Answer 10

3E PD 3(a)
Save in exceptional circumstances or where the court orders otherwise, the parties are not expected to lodge any documents other than Precedent H and the budget discussion report.

Question 11

What are usually the big ticket items in a costs budget?

Answer 11

1. disclosure;
2. witness statements;
3. expert evidence;
4. trial.

Question 12

What is a Precedent H?

Answer 12

The costs budget

Question 13

What is a Precedent R?

Answer 13

The budget discussion report

Question 14

Are costs budgets never exchanged in exempted cases?

Answer 14

CPR 13.3(3)
The court has discretion to order costs budgets in exempted cases (a) on its own initiative, or (b) by the agreement of the parties.

Question 15

What happens if a party incurs an unexpected cost that is not in the approved budget?

Answer 15

CPR 3.18
… the court will -
(b)
Not depart from such approved or agreed budgeted costs unless satisfied that there is good reason to do so

Question 16

What are the court’s powers in relation to incurred costs?

Answer 16

CPR 3.15(4)
The court can comment on incurred costs. at the CMC.
CPR 3.18(c)
The court will have regard to comments made at the CMC when it assesses costs.
3E PD 7.4
The court may not alter incurred costs but it may comment on them and take these comments into account when considering the reasonableness and proportionality of subsequent budgeted costs.

Question 17

What if a party discovers that it needs to make an interim application which is not in the approved costs budget?

Answer 17

3E PD 7.9
If interim applications are made which, reasonably, were not included in a budget, then the costs of such interim applications shall be treated as additional to the costs budgets.

Question 18

What is the simplified costs budget requirement on smaller cases?

Answer 18

3E PD 6(c)
In cases where a party’s budgeted costs do not exceed £25,000 or the value of the claim as stated on the claim form is less than £50,000, the parties must only use the first page of Precedent H.

Question 19

When is the deadline for filing budget discussion reports (Precedent R)?

Answer 19

CPR 3.13(2)

No later than seven days before the first CMC.

Question 20

What does the Precedent R show?

Answer 20

1. The areas of costs that are agreed and disputed for each phase of the litigation;
2. A summary of the grounds of the dispute.

Question 21

Why is the Precedent R important?

Answer 21

It allows the court to focus on the areas in dispute.

Question 22

What is a costs management conference?

Answer 22

CPR 3.16(1)
Any hearing which is convened solely for the purpose of costs management (for example, to approve a revised budget) is referred to as a “costs management conference”.

Question 23

By what medium should CMCs be conducted?

Answer 23

CPR 3.16(2)
Where practicable, costs management conferences should be conducted by telephone or in writing.

[In practice this is likely to be mean costs management conferences under one hour will be conducted by phone.]

Question 24

When does the court usually consider costs budgets?

Answer 24

At the first case management conference, which is therefore a case and costs management conference (CCMC).

Alternatively a costs management conference can be held separately.

Question 25

What must the court take into account in any case management decision?

Answer 25

CPR 3.17(1)
When making any case management decision, the court will have regard to any available budgets of the parties and will take into account the costs involved in each procedural step.

Question 26

Which Rule deals with the court’s power to make costs management orders (CMOs)?

Answer 26

CPR 3.15

Question 27

When can the court make a CMO?

Answer 27

CPR 3.15(2)

The court may at any time make a “costs management order”…

Question 28

Under what circumstances will the court usually make a CMO?

Answer 28

CPR 3.15(2)
… Where costs budgets have been filed and exchanged the court will make a costs management order

unless

it is satisfied that the litigation can be conducted justly and at proportionate cost

in accordance with the overriding objective

without such an order being made.

Question 29

What does a CMO contain?

Answer 29

CPR 3.15(2)
… By a costs management order the court will—
(a)
record the extent to which the budgeted costs are agreed between the parties;
(b)
in respect of the budgeted costs which are not agreed, record the court’s approval after making appropriate revisions;
(c)
record the extent (if any) to which incurred costs are agreed.

Question 30

What degree of scrutiny will the costs budgets undergo in the CCMC?

Answer 30

3E PD 7.3
…When reviewing budgeted cots, the court will not undertake a detailed assessment in advance, but rather will consider whether the budgeted costs fall within the range of reasonable and proportionate costs.

Question 31

What role do the costs budgets play in the court’s decisions on CMOs?

Answer 31

CPR 3.18
In any case where a costs management order has been made, when assessing costs on the standard basis, the court will -
(a) [have regard]
have regard to the receiving party’s last approved or agreed budgeted costs…
(b) [good reason]
not depart from such approved or agreed budgeted costs unless satisfied that there is good reason to do so; and
(c) [comments]
take into account any comments made pursuant to rule 3.15(4) or paragraph 7.4 of Practice Direction E and recorded on the face of the order.

Question 32

What is the fundamental principle of costs recovery?

Answer 32

The recovering party cannot recover more than it incurred.

Approved and agreed budgets therefore act as a cap, not an entitlement.

Question 33

Which provision covers revising costs budgets?

Answer 33

3E PD 7.6 [out of date]

Question 34

What must a party do to revise its costs budget?

Answer 34

3E PD 7.6
… amended budgets shall be submitted to the other parties for agreement.

In default of agreement, the amended budgets shall be submitted to the court,

together with a note of

(a) the changes made and the reasons for those changes and
(b) the objections of any other party.

Question 35

What will the court do when a party applies to revise its costs budget?

Answer 35

3E PD 7.6
The court may approve, vary or disapprove the revisions, having regard to any significant developments which have occurred since the date when the previous budget was approved or agreed.

Question 36

What happens after a revised budget has been approved or agreed?

Answer 36

3E PD 7.7
…each party shall re-file and re-serve the budget in the form approved or agreed with re-cast figures,

annexed to the order approving the budgeted costs or recording the parties’ agreement.

Question 37

What is the test for when costs budgets can be revised?

Answer 37

3E PD 7.6
… if significant developments in the litigation warrant such revisions.

[Case law indicates that mistakes will not suffice after a budget has been approved by the court.]

Question 38

What are the consequences of failing to file a budget?

Answer 38

CPR 3.14
Unless the court otherwise orders, any party which fails to file a budget despite being required to do so will be treated as having filed a budget comprising only the applicable court fees.

Commentary 3.14.1
[This rule] is not engaged if a party merely fails to exchange a budget with the other party.

Question 39

What are the consequences of filing a costs budget late in breach of CPR 3.13?

Answer 39

Mitchell v News Group Newspapers Ltd [2013] EWCA Civ 1537
The costs budget may be treated as having not been filed at all - see CPR 3.14.

However, where the breach is neither serious nor significant the court may exercise its discretion not to sanction or the breaching party can apply for relief from sanctions.

The Denton principles apply, whether you are applying to the court to exercise its discretion under CPR 3.13 or give relief from sanctions.

Question 40

How much can a party recover for preparing a costs budget?

Answer 40

3E PD 7.2
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 total incurred costs (as agreed or allowed on assessment) and the budgeted costs (agreed or approved);
(b)
all other recoverable costs of the budgeting and costs management process shall not exceed 2% of the total of the incurred costs (as agreed or allowed on assessment) and the budgeted (agreed or approved) costs.

Question 41

When must the disclosure report be filed and served?

Answer 41

CPR 31.5(3)

Not less than 14 days before the first case management conference.

Question 42

What are the stages in a CCMC?

Answer 42

1. Costs budgets - 21 days pre-CCMC;
2. Disclosure reports - 14 days pre-CCMC;
3. Draft directions and budget discussion reports - 7 days pre-CCMC;
4. CCMC;
5. Directions and/or CMO.

Question 43

What is the worst that can happen if you try to game the costs management process for tactical advantage?

Answer 43

Findcharm Limited v Churchill Group Limited [2017] EWHC 1108 (TCC)
Facts: D filed an ‘unrealistically low budget’ and offered a very low estimate of C’s costs in its Precedent R.
Held: The court entirely disregarded D’s Precedent R and allowed the entire sum claimed by C in its costs budget.

Question 44

Does the cost of interim applications have to be included in the precedent H / costs budget in order to be recovered?

Answer 44

3E PD 7.9
If interim applications are made which, reasonably, were not included in a costs budget, then the costs of such interim applications shall be treated as additional to the approved budgets.