Legal Costs just got even more complicated…

On 1 October 2015 there was a change to CPR 47.6, which introduced Precedent Q.

What is Precedent Q?

Precedent Q is a document which will provide details of costs incurred before a Costs Management Order (CMO) was made, together with actual versus budgeted costs in relation to costs incurred after the CMO. The document also confirms any differences between actual and budgeted costs incurred after the CMO.

The change means that for detailed assessment proceedings commenced on or after 1 October 2015, the Receiving Party must serve a breakdown of the costs claimed for each phase of the proceedings (where a CMO has been made). Precedent Q is the CPR precedent to use in order to provide this information. Here is a link to Precedent Q.

Precedent Q is a temporary measure until the new format bill of costs is introduced, which the ‘Hutton committee’ say will create all the necessary links between a costs budget and a bill of costs so that a bill of costs can be properly compared/analysed against a costs budget.

Benefits to Paying Parties

Until this change there has been no interplay between a bill of costs and a costs budget. Some Receiving Parties used common sense and prepared bills in a ‘phased format’ and some Courts ordered ‘phase’ breakdowns of bills ahead of a detailed assessment hearing. Some Receiving Parties have continued to prepare bills in a traditional format due to routine or to hide overspends. Where a bill of costs was prepared in a traditional format then a paying party was left with the difficult task of trying to forensically dissect the bill of costs in order to work out actual cost (per phase) versus budgeted cost (per phase). The effect has been that paying parties have not been able to easily identify overspends and CMO’s have had little impact on Receiving Parties in terms of recovering costs on detailed assessment. However, this has now changed and paying parties will be rubbing their hands at the rule amendment as overspends will now jump off the page. Overspends will no longer be hidden away.

CPR 3.18(b) states that, where costs are to be assessed on the standard basis, unless there is good reason to depart from an agreed costs budget, then an overspend on a phase in a costs budget will not be recoverable. I expect many Receiving Parties to now start to encounter recoverability issues on detailed assessment, as overspends will be identified when the bill of costs is prepared, but there will be no good reason/s for the overspends. The common reasons will be failure to apply for a revision to the budget (due to a clear change in assumptions or case direction) and failure to record time in phases and monitor the budget.

Since costs management was introduced most lawyers have been able to prepare their costs budgets, deal with the costs management conference and then file the costs budget in their pleadings file with little reference to it going forward. Precedent Q completely changes this as it creates an interplay between the budget and bill, and in black and white, explains any overspends to a paying party when the bill is served. It is therefore now more important than ever that lawyers prepare accurate budgets (with detailed assumptions), and that they revise their budgets where appropriate. Revision needs to be done in combination with monitoring the budget and recording time in phases (or, even better, the J Codes). This will mean no hidden surprises when the bill is prepared.

Some firms will be sitting on a ticking time bomb at the moment, and that bomb will explode when the bill of costs is prepared and they realise that they could lose thousands or even hundreds of thousands of pounds in costs because of overspends on the costs budget. In privately fee paying work this creates a real professional negligence issue.

Potential Problems with Precedent Q

What is worth mentioning about Precedent Q is that it was created by the Senior Costs judge. The form is based on how costs management should work i.e. a judge at a Costs Management Hearing can not alter the incurred costs, they can only comment on them and take them into account in terms of proportionality when determining the overall amount to be allowed for the costs budget.  The task of the judge is to set a reasonable amount for each phase for estimated costs. Precedent Q follows this logic:

  • Column 1 is the incurred cost figure before the CMO.
  • Column 2 is the actual cost incurred after the CMO for each phase
  • Column 3 is the budget allowed for estimated costs/future costs for each phase.
  • Column 4 is the difference between columns 2 and 3.

Precedent Q is therefore compatible with a costs budget where the judge correctly sets an amount for estimated costs for each phase. However, many judges around the country incorrectly allow a set sum for each phase of the budget and that sum also includes the incurred costs. In this scenario Precedent Q begins to become problematic as the Court will have simply set a figure per phase rather than a figure per phase for the estimated costs.

This is likely to cause some confusion and more than likely mean Precedent Q becomes irrelevant on such cases. If this happens then (in my opinion) all that would be required would be a ‘phased’ bill (not broken down into parts for pre and post the CMO – as recommended in BP -v- Cardiff & Vale University Local Health Board [2015] EWHC B13 (Costs) ) or a simple breakdown confirming the actual cost for each phase versus budgeted cost for each phase (with no identification of costs incurred pre and post the CMO). Hopefully, more judicial training will be delivered on costs budgeting in due course in order to create more consistency and avoid potential problems like this.

For further information regarding ‘phased’ bills, the advantages, disadvantages, and how to prepare them, read The Changing Face of Costs.

Precedent Q and updating your costs budget

It has always been important to update your costs budget before a costs management hearing. For example, if the costs budget is prepared (or dated) on 1 October 2015 and the Costs Management Hearing is not until 1 December 2015, good practice and common sense dictates that the costs budget is updated prior to the Costs Management Hearing (to include costs incurred after 1 October 2015). This all sounds very simple,  but in my experience there are many law firms who fail to update their costs budget ahead of the Costs Management Hearing. To date this has had little effect because of the inability for the paying party to properly compare a costs budget with a bill of costs and identify such costs. However, with the introduction of Precedent Q this changes. Such costs will be easily identifiable and are very likely to be irrecoverable as they would not have been properly included in the costs budget and therefore would not have formed part of the costs management order.

 

This point becomes even more important given that the time frame for service/filing of a costs budget is changing. Service/filing will change to an earlier stage in the Proceedings. See the following link for further details:

 

http://www.lawgazette.co.uk/news/new-timeframe-for-filing-costs-budgets/5052647.fullarticle

 

 

Summary

 

Receiving Parties should, therefore, now start to receive a lot more opposition to their claims for costs where there are overspends on the costs budget. Law firms who prepare accurate and detailed budgets, monitor and update them and record time in phases can easily avoid overspends but, more importantly, maintain or even enhance costs recovery.

Andrew McAulay is a Partner and head of the Costs and Litigation Funding department at Clarion Solicitors. You can contact him at andrew.mcaulay@clarionsolicitors.com, or the Clarion Costs Team on 0113 2460622.

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