Tag: head of costs budgeting

What role does the hourly rate play in the budget?

Joanne ChaseLeave a comment

This continues to spark debate. The rules states that the hourly rate cannot be set (CPR 3 PD 3E, para 7.10), but further explain that the constituent elements of the budget should be considered when assessing the amount to approved (CPR 3 PD 3E, para 7.3). So, with the hourly rate falling under the umbrella of a ‘constituent element’ the hourly rate can be taken into account, but importantly, not fixed. There will usually be a number of factors that contribute to a reduction of the budget and on occasions the level of the hourly rate may be one of those contributing factors.

Parties are often working blind in respect of the logic that the case management Judge applied. If the court did take the hourly rate into account when reducing the amount of estimated costs sought, and no evidence exists to support the Judge’s thought process, what happens when the costs are finally assessed?

At the moment there is conflicting case law in this regard.

In RNB v London Borough of Newham [2017] EWHC B15 (Costs) Deputy Master Campbell said “If (as it is the case) the hourly rate is a mandatory component in Precedent H which is not and cannot be subjected to the rigours of detailed assessment at the CCMC, it makes no sense if it is automatically left untouched when the rates for the incurred work are scrutinised at the ‘conventional’ assessment.”

“Such an approach would offend against the guidance given in Harrison at paragraph 44. Indeed, as [counsel for the defendant] points out, it is only on that occasion that a paying party has an opportunity to challenge the rate.”

This was therefore a “good reason” to depart from the costs allowed in the claimant’s last approved budget.”

However in  Nash v Ministry of Defence [2018] EWHC B4 (Costs) –  Master Nagalingam found that “a reduction in hourly rates of the incurred costs is not a good reason to depart from the budget in respect of the budgeted (future) costs”.

And finally, in Jallow v Ministry of Defence [2018] EWHC B7 (Costs) Master Rowley found “that there is no good reason to depart from the budget by virtue of the reduction to the hourly rates in this case”.

How can the legal profession employ the rules as currently drafted? Is it possible to gain clarity and a clearer view of the blind logic/working approach adopted by the Judges? If, during the course of the CMC, the Judge does comment on the hourly rate, ask him/her to record a note on the case management order that the hourly rate was considered when approving the budget and that it played a role in the reduction to the rates.

You can find out more about our services here or you can contact the Costs and Litigation Funding team at CivilCosts@clarionsolicitors.com

Various Claimants v MGN – Some much needed clarity!

Andrew McAulayLeave a comment

Bespoke budgets in multi-party litigation, proportionality, updating the incurred costs included in the budget prior to the CCMC, including the costs of interim hearings in the budget, disapplying the 2% cap for costs management and the resourcing of fee earners were all points that were dealt with at the most recent CCMC in the latest phone hacking cases (Various Claimants including (1) John Leslie (2) Chantelle Houghton v MGN Limited [2018] EWHC 1244 (Ch)).

MULTI-PARTY LITIGATION – The court’s approach to this multi-party litigation avoided the need for multiple costs management hearings for similar claims. The court applied a structure that was similar to a GLO and directions were made regarding managing the costs of the claim. Common and individual costs were split, and Costs Management was dealt with by the application of template budgets for individual costs and common costs. There were 3 categories of claims for the individual costs and the court could order that there be bespoke individual budgets in place of the template budgets. In this decision the court agreed that bespoke budgets were applicable to two of the Claimants, Leslie and Houghton.

THE BUDGET AND PROPORTIONALITY – Chief Master Marsh applied the proportionality test to the Claimants’ budgets commenting that “I would emphasise that the court is not required to have regard to the constituent elements of each budget phase (it may do so) and the court’s task is to decide whether the total for each phase falls within a range of reasonable and proportionate costs…. And the court is not looking to establish what the budget figure should be objectively ascertained, but rather a figure that falls within the applicable range applying the reasonableness and proportionality tests alongside each other.”

“The court must apply both the reasonableness and proportionality tests, but the former may yield to the latter. And, in practice, although PD3E, paragraph 7.3, requires the court to consider each budget phase separately, and therefore to consider the proportionality of each phase total, the task has to be undertaken with an initial overall review of proportionality by reference to the factors in CPR44.3(5)…

The costs in the budget phases must not only be reasonable but must also bear a reasonable relationship with the proportionality factors I have indicated. The proportionality factors that are relevant are to be taken together and given notional weight as a whole. In these cases, the sums in issue are not large for High Court claims when taken in isolation. But when the proportionality factors are put together, the financial value of the claims proves to be relatively unimportant because of the wider factors. The budgets substantially exceed the sums in issue but is not a reason to conclude that the overall budgeted sums and the totals per phase are disproportionate.

It seems to me that the wider factors I have summarised, in particular the public importance and test case factors, will have the effect that if the costs are reasonable they are proportionate. That conclusion chimes with the approach the parties have adopted and avoids the court wielding a concept of uncertain application.”

UPDATING INCURRED COSTS – There was a considerable time period between the date that budgets were required to be filed and when the CCMC was listed. Mr Leslie updated his budget prior to the CCMC to include incurred costs up to 1 May 2018, however the other parties did not. The Master recognised the problems of one party updating the incurred costs and the other parties not, explaining that this approach resulted in Mr Leslie having “ousted the court’s jurisdiction to consider a significant amount of expenditure” and consequently found that “the relevant date for the purposes of incurred costs as being 17 January 2018.”

This can be avoided by agreeing a date that the incurred costs are included up to and in turn obtaining the court’s permission to update the incurred costs.

HOURLY RATES – Chief Master Marsh refused to be drawn into the debate regarding hourly rates and instead considered the allocation of work in the budget between different grades of fee earner and the total figure claimed for each phase was of greater importance.

INTERIM HEARINGS – An amount for specific disclosure had been included in the disclosure phase, the Master found that the inclusion of interim hearings in the budget were wrong in principal as they may be subject to an inter partes costs order, the costs were moved into the contingency phase.

COSTS MANAGEMENT COSTS – The costs associated with costs management are subject to a 2% cap. Chief Master Marsh was asked to consider lifting the cap, he agreed on the basis that the complexities surrounding the multi-party litigation warranted exceptional circumstances in this case.

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The practical effect of the Harrison budgeting decision

Joanne Chase1 Comment

In the eagerly awaited decision in Harrison v University Hospitals Coventry & Warwickshire NHS Trust [2017] WECA Civ 792 (see article, page 8), the key findings of the Court of Appeal were that (1) budgeted costs will not be departed from in the absence of a ‘good reason’; (2) incurred costs do not form part of the budgeted costs; and (3) the good reason test does not apply to those incurred costs. So, what does this decision mean in practice, and what further observations can we make?

Of particular interest is how the courts will deal with ‘incurred costs’. During the Court of Appeal case, the court’s attention was drawn to incurred costs when the respondent presented what was described by Davis LJ as ‘an ingenious argument’ regarding incurred costs being potentially approved ‘through the back door’ at the budgeting stage. The respondent submitted that: ‘The incurred costs will have acquired a special status: in that, while not “approved” as such, they will have been taken into account by the court at the costs management hearing in managing the future estimated costs.’ Please click here to read the full article.

Joanne Chase is a Senior Associate at Clarion. You can contact her at joanne.chase@clarionsolicitors.com or on  0113 336 3327.

The importance of the precedent H Costs Budget! Harrison on appeal – no second bite of the cherry.

Joanne ChaseLeave a comment

Jacqueline Dawn Harrison v University Hospitals Coventry & Warwickshire NHS Trust [2017] WECA Civ 792 – the Court of Appeal has found that the budgeted costs will not be departed from in the absence of a “good reason”. Davis LJ further found that incurred costs do not form part of the budgeted costs and the good reason test does not apply to those incurred costs. Davis LJ confirmed that the proportionality test can be applied to the final claim for costs. This is despite the proportionality test having been applied when the costs budget was approved, this may result in claims for costs being subject to detailed assessment on the issue of proportionality alone.

Davis LJ summarised the Applicant’s submissions regarding what reliance should be placed on the budget at detailed assessment, as follows:

“The premise underpinning Mr Hutton’s argument thus was that CMOs in effect are but summary orders which at best give no more than a snapshot of the estimated range of reasonable and proportionate costs: often reached, as Mr Hutton would have it, on a broad brush or rough and ready judicial approach after a hearing which would have been limited in time, rushed in argument and incomplete in the information advanced”.

Davis LJ considered this to be a sceptical appraisal, commenting:

“that to sanction, at detailed assessment, a departure from the budget in the absence of good reason would overlook (among other things) that budgeted costs are already required to have regard both to reasonableness and to proportionality; that the aims of costs budgeting include a reduction in detailed assessments and of issues raised in points of dispute; and that the element of certainty to clients (in the form of knowing what costs they are likely to face, in terms of payment or recovery) would be removed.

Moreover, if approval of a costs budget by a CMO has the more limited status which the appellant would ascribe to it then that would have a potentially adverse impact on parties thereafter attempting to agree matters without requiring a detailed assessment.  Although Mr Hutton queried if that was one of the perceived prospective benefits of the costs budgeting scheme, it seems to me – as it did to the editors of Cook on Costs – wholly obvious that it was indeed designed to be one of the prospective benefits of cost budgeting that the need for, and scope of, detailed assessments would potentially be reduced.”

The court’s attention was then drawn to incurred costs. The respondent presented what was described by Davis LJ as an ingenious argument to the court regarding incurred costs being potentially, in essence, approved ‘through the back door’. The respondent submitted that:

“the incurred costs will have acquired a special status: in that, while not “approved” as such, they will have been taken into account by the court at the costs management hearing in managing the future estimated costs.”

Davis LJ disagreed and found that:

“With respect, this will not do.  Either incurred costs are within the ambit of CPR 3.18 (b) or they are not.  Since they are not approved budgeted costs, by the terms of paragraph 7.4 of PD 3E and of the Rules, they are not within that sub-rule.”

Davis LJ recognised that practical problems remained surrounding incurred costs and advised that the CPR committee’s intention was to amend the rules to decouple incurred costs from budgeted costs.

In summary, a good reason is required to depart from the budget, the proportionality test can be applied to budgeted costs, thus a reason to escape the restrictions of the budget; incurred costs should be considered in isolation to the budgeted costs and the rules still require amendments regarding incurred costs to ensure that costs management works.

It is therefore essential that an accurate budget is presented to the court, this Court of Appeal decision has ruled that a budget cannot be departed from unless there is a good reason to do so, this is a difficult test to overcome. There is no second bite of the cherry.

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Calling trumps: how the court has laid its cards on the table over costs management.The interaction between costs budgeting and costs assessment – Merrix v Heart of England NHS, the appeal of the first instance ruling.

Anna LockyerLeave a comment

The interaction between costs budgeting and costs assessment has been considered again in Merrix v Heart of England NHS Foundation Trust [2017] EWHC 346 (QB) – the appeal of a first Merrix v Heart of England NHS instance ruling.

Mrs Justice Carr found that the court will have ‘regard to the receiving party’s last approved or agreed budget by respecting it or finding that there is a good reason to depart from it. So, the question to be answered is – will a receiving party’s costs
be allowed in full if they are less than the budget? Yes – for now! The Merrix decision confirms that any departure from the budget applies to both downward and upward revisions, hence parties have to show a good reason to depart from the budget.

Does Mrs Justice Carr’s finding in Merrix deny the paying parties an opportunity to challenge potentially unreasonable costs, despite it being their responsibility for the costs of challenging those costs? At the moment – yes.

Is it ‘just’ for the receiving party to request their costs in full simply because they have been incurred and fall within the parameters of the budget? What safety mechanism is in place to ensure that any receiving party does not include unreasonable and disproportionate costs in their claim for costs, simply justified on the basis that they ‘fall within budget’?

Mrs Justice Carr felt that the indemnity principle was sufficient, though perhaps it is not – unreasonable costs can be claimed from the client, hence the need for Solicitors Act assessments. Or alternatively, the client may have little regard to the constraints of the budget and request that ‘out of scope’ or disproportionate and unreasonable costs are incurred in any event.

How can restraints be imposed on a spendthrift client with deep pockets, and at the same time discourage a paying party from being overzealous in their requests for detailed assessment? Perhaps the introduction of the ‘one-fifth rule’ to costs budgeted cases could be the answer. This shares the burden of the costs consequences, rather than the traditional costs shifting rule. If the bill is reduced by more than 20%, then the receiving party is responsible for those costs rather than the paying party, but if the paying party secures less than a 20% reduction to the bill, then they become responsible for those costs.

This should encourage all parties to think seriously about committing to detailed assessment, rather than the onus being on the paying party. Not only does this tie in nicely with the rules for Solicitors Act assessments, but it is also in line with the rules surrounding provisional assessment relating to the recoverability of costs for an oral
hearing (see article, page 10). Further, it embraces Jackson’s intention to reduce the number of detailed assessments, and at the same time does not deprive parties the opportunity to challenge the costs. Just a thought.

Is this the end? Perhaps only for now. Mrs Justice Carr requested that if this decision were to be appealed, then it should be heard together with any existing listings covering the same point of principle.

In her decision, she referred to Harrison, which was soon to be heard in the Court of Appeal. The Harrison decision is listed for May, and so the paying party in Merrix may be running out of time to get this listed together with Harrison – but we await with interest.

Please click here to read the full article which was published in the April edition of the Litigation Funding magazine.

Anna Lockyer is an Associate at Clarion. You can contact her at anna.lockyer@clarionsolicitors.com or on 0113 288 5619.

Costs Budgeting is essential”, hails LJ Jackson.

Andrew McAulayLeave a comment

“Costs Budgeting is essential”, hails LJ Jackson.

Jackson told a London Common Law and Commercial Bar Association event last night that:

“Costs budgeting is an essential element of any programme to make the costs of litigation proportionate”, and that:

‘Litigation is a commercial enterprise.’  He added ‘there are no other commercial projects which people enter without a budget” and that “some form of costs management or costs budgeting is essential.’ This echoes comments he made in his 2009 final report.

In Jackson’s final report in 2009 he said “Any measures to control the costs of a project are themselves a source of some expense. Quantity surveyors have to be paid professional fees for their services in monitoring the costs of a construction project and determining what amounts are payable at each stage or what sums are due in respect of variations. But no-one suggests that quantity surveyors should be dispensed with, in order to “save” the costs of employing them. The costs of any multi-track case can be substantial, ranging from tens of thousands of pounds to tens of millions of pounds. In other words, the costs of every multi-track case, unless it settles early, are comparable to at least the costs of a small building project and sometimes they are comparable to the costs of a major building project. There is precisely the same need to control the costs of litigation as there is need to control the costs of any other project”.

After 7 years since his report was written, 1 pilot scheme and the 3 year practical application of the amended Civil Procedure Rules, Jackson’s opinion on both the effect of costs management and the costs of the same, remains constant.  Costs Management works and the costs of the same are a sensible part of the ‘project’.

Please follow this link to the Law Society Gazette’s article.

You can find out more about our services here or you can contact the Costs and Litigation Funding team at CivilCosts@clarionsolicitors.com

Costs Budgeting – claims over £10m

Andrew McAulayLeave a comment

In Signia Wealth Limited -v- Marlborough Trust Company Limited [2016] EWHC 2141 the court considered whether costs budgeting was appropriate.

Practical points

  • If there is no value on the claim form, then despite the amount of the claim – costs management applies.
  • The combined value of the claim for costs was considered when deciding whether the proportionality test was engaged.
  • Will an inequality of arms be a determining fact when deciding if costs management applies?  If making submissions regarding the same, then evidence to support the financial circumstances should be provided.

This was a high value claim and the court was asked to consider whether the claim should be taken out of the costs management regime.

The claimant identified that because neither the claim nor the additional claim had specified a monetary value in excess of the £10m limit, the claim was not automatically taken out of the costs management regime by virtue of CPR 3.12 (1)(b).

Costs budgets were filed and both parties’ claims for costs totalled £4.14m, the value of the claim was in the region of £13m. Consequently, the court found that the proportionality argument was engaged.

The court considered whether CPR 3.15(2) applied -“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.

The court commented:

“13. It is not in doubt now that this claim is within the costs management regime. That is so because neither the claim form nor the additional claim mentioned the value of £13 million, which is said to be the value of the shares which were held by the first defendant. Had the figure been mentioned in the additional claim form, then the costs management regime would not have applied.

14. It seems to me that, given that this claim is within the regime, the proper approach for the court to adopt is to apply the test set out at CPR 3.15(2), namely the court must be satisfied, if this case is to be taken outside the regime, that the claim can be conducted justly and at proportionate cost in accordance with the overriding objective without a costs management order being made. If the court is not so satisfied, then the claim must stay within the costs management regime.”

The court  further commented that the incurred costs as against the future costs needed to be considered.   “If a point had been reached at which point future costs were to be de minimus, there was little point it requesting parties to undertake the expense of costs management. Although costs management was occurring later than desirable, there were significant future costs to be incurred and therefore this was a case to make observations about costs which have been incurred”..

The defendant argued that there was an inequality of arms, the second defendant was an individual.  However, no evidence was provided to support her financial circumstances and therefore the court found that it would not be right to make a decision in relation to the costs management.

The court considered that the claim fell within the costs management regime and therefore the proper approach for the court to adopt was to apply the test set out in CPR3.15(2).

Because there were issues of proportionality which needed to be considered  and there were real benefits for the parties if there was a costs management order, the court ordered that there be a costs management hearing.

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Should the additional liabilities be included in the budget to allow the proportionality test to be applied correctly?

Andrew McAulayLeave a comment

Following the case of BNM v MGN Ltd (3rd June 2016) where it was found that the after the event insurance should be taken into account when assessing whether the costs were reasonable and proportionate, should the additional liabilities now be included in the budget to ensure that the proportionality test is applied properly at the budget stage?

According to the recent decision in  Various Claimants v MGN Ltd (21st July 2016) the Defendant accepted that under CPR, the Claimants are not obliged to disclose the amount of the success fee or ATE insurance as this could reveal the prospects of success. However, they referred to the case of  BNM v MGN Ltd (3rd June 2016) and argued that to enable the court to assess the reasonableness of the budget and apply the proportionality test then the additional liabilities now needed to be included in the budget.

Despite the court recognising that by taking into account the additional liabilities this allows a prospective view of proportionality, rather than a retrospective view, thus fulfilling the courts costs management duties, the court disagreed with the Defendant, referring to the provisions within the CPR, specifically the precedent H form and the precedent H guidance notes, concluding as follows:

  • I do not consider that the apparent change in the approach to proportionality on assessments (if there is one) means that there should be a change to the approach on the occasion of budgeting. The reasons for this are based on both the provisions of the rules and the Practice Direction and on the practicalities.
  • The provisions for costs budgeting are to be found in Part II of CPR 3. The procedures are dealt with in Practice Direction 3E. Paragraph 2(a) requires the court to have regard to the overriding objective and paragraph 6(a) provides:

“Unless the court otherwise orders, a budget must be in the form of Precedent H annexed to this Practice Direction.”

  • The first page of that precedent contains a summary which is amplified in the following pages. Below the summaries of costs under various headings there is included the following wording:

“This estimate excludes VAT (if applicable), success fees and ATE insurance premiums (if applicable), costs of detailed assessment, costs of any appeals, costs of enforcing any judgment and [complete as appropriate]”

Therefore, in light of the emerging case law on proportionality, the approach to the inclusion of additional liabilities remain the same and should be excluded from the precedent H.

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Claimant’s budget reduced to court fees; the court refused to grant relief

Andrew McAulayLeave a comment

In the case of  Jamadar -v- Bradford Teaching Hospital NHS Trust CA 21/07/2016, the Claimant failed to file a costs budget and their budget was limited to court fees.

The Defendant had admitted liability, following which the Judge revoked the notice of allocation.  The matter was listed for a CMC, therefore the Defendant complied with the rules and filed a budget, however the Claimant did not.  The Judge ordered that the Claimant’s budget be reduced to court fees, the Claimant applied for relief from sanctions and were unsuccessful.  The Claimant appealed to the Circuit Judge, which also failed and the Court of Appeal upheld that decision.

The revoking of the N149C did not mean that the case was not allocated to the multi-track.

The rules are clear, a budget must be filed before the first CMC for all multi-track claims that are less than £10m.  The rules state that a budget must be filed for cases that are likely to be allocated to the multi-track.  This was a claim for £3m, its hard to see how this claim could have been allocated to any other track – the matter had been listed for a CMC, it was suitable for the multi-track, therefore the criteria in the CPR which triggers the preparation of a budget had been met.

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How can the precedent H budget assist with any submissions for a split trial?

Joanne ChaseLeave a comment

The budget can be used in certain instances to assist with the litigation.  A request for a split trial is one of those instances.   The fundamental argument surrounding whether there should be a split trial is predominantly the additional costs associated with this extra trial.

Whether you are requesting the split trial or opposing it, the budget can help.

How can the budget assist with any submissions in support of the application? The budget can demonstrate that the costs remain proportionate and reasonable and those costs are not excessive, despite the additional costs that will be incurred.

How can the budget assist with any submissions in opposition to the application? The budget may be able to highlight that the additional costs will result in the costs being wholly disproportionate and unreasonable.

The budget can be a useful tool for litigators.

You can find out more about our services here or you can contact the Costs and Litigation Funding team at CivilCosts@clarionsolicitors.com