The judgment in BP -v- Cardiff & Vale University Local Health Board[i] brings detailed assessment proceedings into the post-Jackson era
Every solicitor who has practiced litigation after 1 April 2013 will be aware of the introduction of costs management as an integral part of litigation. The judgment in BP -v- Cardiff & Vale is the first step in determining the process by which costs in this post-Jackson era will be assessed.
The case related to costs in a claim in which proceedings had been commenced prior to 1 April 2013, but which settled substantially after the new rules came into force.
The judgment made two extremely important observations in relation to the way in which bills of costs are drafted:-
1. Proportionality
In cases where work has been done before 1 April 2013, but which have concluded subsequently, two different tests for proportionality apply:-
a) Under the old rules, the court would disallow costs which were not reasonably and proportionately incurred. The case of Home Office –v- Lownds[ii] held that where costs were found to be globally disproportionate, the court would apply the test of ‘necessity’, which is to say that it would allow individual items only if they were reasonable, proportionate, and necessary.
b) Under the new CPR 44.3(2)(a), the court will only allow costs which are proportionate, and the court may reduce or disallow costs which are disproportionate in amount ‘even if they were reasonably or necessarily incurred’.
In BP -v- Cardiff & Vale Master Gordon-Saker stated that, as the tests to be applied to the costs are different ‘it must be convenient and necessary for the bill to be divided into parts so as to distinguish between costs claimed for work done before 1 April 2013 and costs claimed for work done after 1 April 2013’.[iii]
It has traditionally been open to parties to argue that there was no requirement to split the bill of costs into parts, as CPR 47 PD 5.8 stated that a bill ‘may be’ divided into parts. However, the judgment is unequivocal and clearly mandates that this must now be done.
At present there is no case law regarding the consequences if the receiving party does not split the bill in this way, however two possible options available to the court are (i) to order that the bill of costs be redrafted, on the basis that the court is unable to properly assess the costs, and in such circumstances it is likely that the court would order the costs of the entire detailed assessment thrown away as a sanction; or (ii) find that as it is unable to consider which test is to be applied to which item, the court will apply the new (more stringent) test to all of the costs within the bill.
2. Phased Bill of Costs
The second, and more long-lasting, effect of the judgment is the introduction of a requirement that a bill of costs be drafted in such a way as to group work done into parts based upon which budget phase that work belongs to.[iv] The wording used is the same as that in relation to proportionality, that it is both ‘convenient and necessary’.
Again it is likely that failure to comply with the requirement to split the bill into budget phases will result in costs sanctions, which could include an order that the bill be redrafted at the receiving party’s expense.
Another, potentially more serious, consequence could be that the court applies broad brush reductions to the entirety of the bill. In the case of a phased bill, it will be clear which items have been incurred in phases where the budget has been exceeded. For example, in a case where a party has exceeded the witness statement phase, but was under budget in respect of disclosure. The court should, therefore, allow all of the costs within the disclosure phase (or take the view that those costs are in general proportionate) and therefore will simply consider whether items within that phase were reasonably incurred. The court would then look only apply the test of proportionality on an item by item basis to the costs incurred within the witness statement phase. Furthermore, it will be much easier for the receiving party to argue that there was a good reason that the costs exceeded the budget, and therefore a good reason for the court to depart from the budget.
Conversely in circumstances where the bill of costs has not been phased, the court may apply a more stringent test for proportionality[v] to every item within the bill of costs. Such an approach would undoubtedly result in a greater reduction to the amount awarded that where such test is applied only to items within a phase which has been exceeded.
Summary
A bill of costs must be drafted in such a way as to identify the costs which have been incurred pre- and post- 1 April 2013, and must also be separated into parts based upon the phases within the budget. The bill should also identify which costs were ‘incurred’ at the time of the budget, and which were ‘estimated’. Failure to draft bills in a manner which complies with this judgment is likely to result in significant repercussions in costs.
Should you have any questions, you can contact the team at CivilCosts@clarionsolicitors.com
[i] [2015] EWHC B13 (Costs)
[ii] [2002] EWHC Civ 365
[iii] Master Gordon-Saker at para. 26
[iv] Para 30
[v] CPR 44.3(2)(a); the court may disallow any costs which it finds are disproportionate even if they have been reasonably and necessarily incurred
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