COSTS BUDGETING

AND CPR CHANGES

an update

JUDITH AYLING

(with thanks to Katie Scott, Simon Edwards and

Jeremy Morgan QC)

Reminder: what is involved?

• Parties to exchange and file budgets in the form of Precedent H by date

specified in the allocation notice under r.26.3(1) or 7 days before 1st CMC.

• Court decides whether to make a CMO (Costs Management Order).

• If no CMO made, budgets have the same effect as costs estimates under

the old rules

• If CMO made:

– Court will approve, with or without revisions, any budget which is not agreed;

– Court will thereafter control the budgets;

– Parties to revise budgets for future costs if significant developments warrant it.

Amended budgets to be submitted for agreement and, in default, approval.

– At any assessment of costs on the standard basis the court will have regard to

the last approved/agreed budget for each phase of the proceedings and will not

depart therefrom unless satisfied there is good reason to do so.

• Whether or not CMO made the budget will be taken into consideration when

making case management decisions.

Points of detail

• If you don’t file a budget when you should, the budget will be treated as comprising only court fees – Mitchell v NGN (on appeal to CA)

• Where practicable, CMOs are to be by telephone or in writing.

• Court may not approve costs incurred before the date of any budget, but may record its comments on those costs and take them into account when considering the reasonableness and proportionality of all subsequent costs.

• Review of budgets is not a detailed assessment in advance, but a consideration of whether the budgeted costs fall within the range of reasonable and proportionate costs.

• It is the total for the phases of each budget that is approved. Over-and under-spends can be set off against each other within each phase but not as between phases.

• The costs of interim applications reasonably not included in a budget are extra.

Costs Capping

• Costs capping is wounded but not totally

dead. It has its own section of CPR Part 3

and its own PD.

• The requirement for exceptional

circumstances before a cap is imposed

remains.

Departing from the budget

Henry v NGN [2013] EWCA Civ 19Case under defamation pilot

Budgets had been approved at the outset. Then

C’s solicitor did not comply with PD at all, and D’s

only slightly. Court did not ask about budget at

later hearing.

C’s bill substantially over budget for 2 phases.

Senior Costs Judge held costs probably

reasonably incurred but disallowed excess for

failure to comply.

Henry cont

CA reversed SCJ saying:

• Whether good reason to depart involved all the

circumstances, not just compliance with rules.

• SCJ wrong in interpretation of requirement that parties be

on an equal footing. D knew figure before settling.

• Unwise to attempt exhaustive df of ‘good reason’.

• Everyone, including court, had been somewhat to blame.

• It will rarely, if ever, be appropriate to depart from a

budget if to do so would undermine the essential object of

the scheme.

• Don’t expect such leniency under the new Rules.

Murray v Neil Dowlman Architecture [2013]

EWHC 872 (TCC)

• Under the TCC costs management pilot

• Court approved C’s costs budget at £82,500

• Approved costs budget did not allow for additional liabilities and did

not state they were excluded

• C applies relief from sanctions; J treats as app to revise

• Court held that as the D had not been misled by the what was

included in the budget and was aware that the C had made a

mistake, there was an absence of prejudice to D. Also form HB used

for pilot allowed parties to exclude additional liabilities, C had simply

failed to tick that box. Fact additional liabilities excluded

automatically in Precedent H was significant.

• Revision allowed

Willis v MRJ Rundell [2013] EWHC 2923

(TCC)

• Under the TCC costs management pilot

• Professional negligence claim worth £1.1m

• C’s costs budget £897,369.67 excl VAT.

• D’s costs budget £703,130.37.

• Court held costs were neither proportionate nor

reasonable with reference to the value of the claim and

the matters in issue.

• Need to separate incurred costs and estimated costs

• Break down costs allowed for contingencies

• Court not in a position to impose different figures without

notice and supporting materials on which to rely

• Court declined to approve the budgets

Elvanite Full Circle Ltd v AMEC [2013]

EWHC 1643 (TCC) (Coulson J)• Under the TCC costs management pilot; back to J at end of trial where C had to pay

D’s costs, total was £497,593 (of which £200,000 = experts),C’s ATE = £250,000

• Court approved parties’ budgets, D’s was £264,708 (of which £30,500 = experts)

• Parties filed and exchanged higher budgets but did not seek court approval of these

• At conclusion of the case the court considered an application for revision to the costs

budget and/or to determine whether there was a good reason to depart from the

approved costs budget. The Court held:

– A formal application to the Court is required for revisions to costs budgets

– Application to be made immediately the costs budget has been exceeded more

than a minimal amount. Application certainly before trial

– Good reason to depart primarily a question for the costs Judge

– Making a mistake in original budget not likely to be a good reason

– Prejudice to the other party is relevant

– Expert overspend precisely what costs budgeting designed to avoid

• Obiter comments that a costs budget will be relevant to a costs assessment even on

an indemnity basis: but good reason to depart from it likely to be more numerous and

extensive

TIPS• Training essential and good IT a help.

• Spell out critical assumptions on Precedent H.

• Include realistic contingencies, but don’t worry about costs which are not anticipated.

• Do hearings by phone with Precedent H on the computer so changes can be made there and then, alternatively attend costs management hearings with a lap top

• Consider whether likely developments are “significant” to warrant going back to Judge, or whether “good reason” which can be dealt with by Costs Judge – eg Vos J in Phone Hackinglitigation.

• Some flexibility in the budgeting process – “the cement” is to be included in each phase.

Summary budgeting

• Master Leslie in QBD: budgets on

summary basis if both Ps agree; or will

stay so no unbudgeted costs incurred and

re-list for 2-2.5 hours in up to 3 months’

time. Asks both sides what claim is worth

and comes to a figure; sets a budget that

is proportionate (C’s of £240k reduced to

£150k, D’s was £36k)

The Leslie order

• At hearing Master will ask both Ps for best

estimate of value (w/p) and submissions

as to other factors to support budget as

proportionate

• Master will offer to make costs budget on

summary basis, CMO will approve budget

in total sum, without breakdown by phase

• If claim is settled, in order to quantify costs

will pro rata

Budgeting in the Admin Court

• A Working Group has been set up to look at the

revisions to Part 3.12 of the Civil Procedure Rules.

• The informal line is that the Admin Court will not be

applying the rule unless the Court makes an order of its

own volition or an application is made by a party. This is

the line taken by the senior Judiciary.

Recent experience

• High-value PI case where budget filed 2

days late, P having to apply under 3.9

• CMC may be listed at short notice

(directions questionnaire filed 27 Sept,

hearing listed 14 Oct)

• Allow enough time for client approval

• Contact court and other side asap if

cannot file budget in time

Changes to Overriding

Objective: Proportionality &

Relief from Sanctions• Rule 1.1 The overriding objective

• (1) These Rules are a new procedural code with the overriding objective of enabling the court to

deal with cases justly and at proportionate cost.

• (2) Dealing with a case justly and at proportionate cost includes, so far as is practicable—

• (a) ensuring that the parties are on an equal footing;

• (b) saving expense;

• (c) dealing with the case in ways which are proportionate—

• (i) to the amount of money involved;

• (ii) to the importance of the case;

• (iii) to the complexity of the issues; and

• (iv) to the financial position of each party;

• (d) ensuring that it is dealt with expeditiously and fairly; and

• (e) allotting to it an appropriate share of the court's resources, while taking into account the

need to allot resources to other cases; and

• (f) enforcing compliance with rules, practice directions and orders.

Proportionality and Relief from

Sanctions (2)

• An important change ties in with the change in the definition of

“proportionality” and the new relief from sanctions rule 3.9.

• The whole tenor is to reduce costs and make sure rules etc are

complied with making relief from sanctions harder to get.

• This amendment applies to all cases from 1 April; and the new CPR

3.9 applies to all applications made for relief from sanctions from 1

April

Proportionality and Relief from

Sanctions (2) The New Rule 3.9

Rule 3.9 Relief from sanctions

[(1) On an application for relief from any sanction imposed for a

failure to comply with any rule, practice direction or court order, the

court will consider all the circumstances of the case, so as to enable

it to deal justly with the application, including the need—

(a) for litigation to be conducted efficiently and at

proportionate cost; and

(b) to enforce compliance with rules, practice directions and

orders.]

(2) An application for relief must be supported by evidence.

Case Law on new CPR 3.9

• Judges have said that training on this issue has emphasised the

need for a change from the relatively relaxed attitude to relief from

sanctions (for example in relation to late service of witness

statements) that has prevailed so far.

• In Fred Perry (Holdings) Ltd v Brands Plaza Trading Ltd [2012]

EWCA Civ 224, Lord Justice Jackson said that when the new rule

comes into effect, litigants who substantially disregard court orders

or the requirements of the CPR will receive significantly less

indulgence than hitherto. The test for relief from sanctions is a new

one and is clearly intended to make it harder for parties who want to

obtain relief from sanctions.

No relief

• Mitchell v NGN [2013] EWHC 2179 (QB)

• Application for relief from sanctions was refused,

applying the new test under 3.9 and his costs limited

to court fees

• Small firm, very busy, cut no ice

• No effort to let court or D know of difficulties before

deadline for filing

• But Master had the material to budget by the hearing

• Appeal heard on Thursday last week: judgment

expected quickly

• Biffa Waste Services v Ali Dinler Unreported

10.10.13 (Swift J)

• The breaches had caused the trial to be adjourned

• The breaches were flagrant (e.g. Claimant’s statements

a day before trial so Biffa could not amend to plead

fraud)

• The Court had to consider all the circumstances of the

case including wasting court time and resource

• There was a lack of explanation for the breaches

• Relief from sanctions should have been refused and the

claim should have been struck out

No relief

No relief

• Dass v Dass [2013] EWHC 2520 (Haddon-

Cave J)– Appeal to J from a Master’s decision to exclude driver’s medical

evidence having concluded that the insurer had deliberately decided not

to comply with direction for 2 years

– £500,000 claim

– Disallowing was a sanction under CPR 35.13

– But delay was so could get surveillance and show the results to the

medical experts

– Master had said this was one of the most serious breaches she had

encountered

No relief

• Baker v Hallam Estates Ltd [2013] EWHC

2668 (QB) (Judge Jeremy Richardson QC)– ‘Culture of civil litigation in the process of change... Insistence on parties

complying with case management orders and the provisions of the CPR’

– Appeal against refusal of Master Gordon-Saker to refuse to set aside ex

p order granting extension of time for service of POD

– Rule = 21 days to file POD and if in default may not be involved in DA

unless permission is given by the Court

– Ex p application did not make full disclosure

– J relied on HHJ Pelling QC in Fons v Corporal Ltd [2013] EWHC 1278

(Ch): ‘courts are likely to take a very much stricter approach of the

failure to comply with directions’: focus is now on compliance

– Appeal of D allowed

No relief

• Venulum Property Investments Ltd v

Space Architecture [2013] EWHC 1242

(TCC) (Stuart-Smith J)• C fails to issue for 5 years after becoming aware of

actionable claim and thereafter fails without good

reason to serve PoC within CPR time limit

• Inappropriate to grant extension of time

• But V had good claims against other Ds; and claim

in bad faith was very vague

Relief granted• Wyche v Careforce Group [2013] EWHC 3282 (Comm)(Walker J).

• Relief from sanctions granted on the basis the breaches (failures in

e-disclosure:(disjunctive rather than conjunctive search; error in one

keyword) had been unintentional and no more than temporary,

corrected very quickly. They had not interfered with the trial

timetable

• Ryan Al Iraq v Trans Victory Marine (Unreported) 23

August 2013.

• P of C served two days late.

• Relief granted on the basis that the failure to comply was not

intentional, the slight delay had not impacted on the

administration of justice and the application for relief was made

promptly. The mistake was regrettable and inconsequential.The

defendant’s attempt to exploit the error was regrettable.

Relief granted

• Thevarajah v Riordan & Ors [2013] EWHC 3179

(Ch)

– The new rule was brought to counter the culture of

delay, but the principle was justice between the

parties and minor errors should not be exploited for

tactical gain

– The Court had to consider all the circumstances

– The breach was de minimis and so it was appropriate

to grant relief despite the fact an earlier application for

relief from sanctions had been refused.

Changes to Part 35.4• Rule 35.4 Court's power to restrict expert evidence

• (1) No party may call an expert or put in evidence an expert's report without the court's

permission.

• [(2) When parties apply for permission they must [provide an estimate of the costs of the proposed

expert evidence and] identify—

• (a) the field in which expert evidence is required [and the issues which the expert evidence will

address]; and

• (b) where practicable, the name of the proposed expert.]

• (3) If permission is granted . . . it shall be in relation only to the expert named or the field identified

under paragraph (2). [The order granting permission may specify the issues which the expert

evidence should address.]

• [(3A) Where a claim has been allocated to the small claims track or the fast track, if permission is

given for expert evidence, it will normally be given for evidence from only one expert on a particular

issue.

• (Paragraph 7 of [Practice Direction] 35 sets out some of the circumstances the court will consider

when deciding whether expert evidence should be given by a single joint expert.)]

• [(4) The court may limit the amount of a party's expert's fees and expenses that may be recovered

from any other party.]

• The underlined parts are new and apply to all applications for permission to rely on expert evidence

made from 1 April

CPR 35

• Cheeld v Alliott [2013] EWCA Civ 508– Small claim about a porch built by a blacksmith

– DJ had directed no expert evidence about the cost of

remedial works; later DJ had reached a figure looking

at the pictures

– CJ allows appeal: no proper basis for cost and further

evidence to be adduced

– CA endorses pragmatic and proportionate approach

to expert evidence (but blacksmith lost and had to

repay the money anyway)

ADR and costs

• PGF II SA v OMFS CO 1 Ltd [2013] EWCA Civ

1288– What should response of Court be where a P simply declines to

take part in ADR? Re-visits Halsey v Milton Keynes General

NHS Trust [2004] 1 WLR 2002

– D just doesn’t reply; C then accepts D’s P36 offer

– Recorder finds that D had refused; refusal unreasonable;

deprives D of costs to which due under P36 but does not order D

to pay C’s costs; both sides appeal

– Silence in the face of an invitation is unreasonable; but failure to

engage in ADR no automatic costs penalty, response may vary.

Making winning P pay other side’s costs is for most serious and

flagrant failure to engage with ADR; J’s decision w/i discretion

The future

• Ramsey J has asked for a list of what’s

wrong: high on PIBA list is likely to be

CFAs with counsel (fee-earner moves firm

or firm is swallowed up so counsel needs

new CFA; or counsel instructed after 1

April 2013 where solicitor/client have pre 1

April 2013 CFA)

• Ramsey J is turning attention to pre-issue

costs but likely to need primary legislation

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