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CPR 3, Section II deals with costs management generally and CPR 3.13 deals specifically with the need to file costs budgets. Only where the court makes a costs management order (CPR 3.15) are the costs in respect of both preparing the initial costs budget and the costs management process from that point onwards limited to prescribed amounts.
CPR 3 PD 7.2 states that, 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 approved or agreed budget; and
(b) all other recoverable costs of the budgeting and costs management process shall not exceed 2% of the approved or agreed budget.
The first point to note is an obvious one: the prescribed amounts constitute a cap, not a fixed fee.
The second point is a little more subtle. In both instances the rules make reference to the percentage cap being calculated against the ‘approved or agreed budget’. Reference to the word “approved” is significant.
CPR 3 PD 7.4 reads: ‘As part of the costs management process the court may not approve costs incurred before the date of any budget.’
In the case of a budget subject to court approval, as incurred costs cannot be approved then by definition it must follow that the aforementioned percentage caps are calculated by reference to the anticipated costs only.
This was the approach we recently adopted on behalf of a paying party before Regional Costs Judge Harris at the Manchester Civil Justice Centre. In response, it was argued by the receiving party that if we were correct on this issue, then a receiving party would effectively be left uncompensated for the work undertaken on preparing the incurred costs aspect of the budget.
In a reserved judgment, the Regional Costs Judge agreed with the paying party that such an approach did not leave the receiving party uncompensated in the manner stated, but that the receiving party was compensated for the whole by reference to the anticipated figures only.
It was further said that the reference in CPR 3 PD 7.1 to CPR 3.15 confirmed the paying party’s position in this regard. CPR 3.15(1) reads that ‘the court may manage the costs to be incurred by any party in any proceedings’ (emphasis added).
This is probably the correct decision; the use of the word “approved” makes it difficult to reach any other conclusion. However, whilst persuasive the decision is non-binding and it is likely that this issue will require further adjudication from a higher court in the near future.
Interestingly, the position may well have been different if the receiving party’s budget had been agreed rather than approved. Nothing in the Civil Procedure Rules precludes the parties from agreeing (as opposed the court approving) incurred costs and, in the case of agreed budgets, it would likewise have been difficult to reach any other conclusion than the percentage caps are to be calculated by reference to both incurred and anticipated costs.
This means that would-be receiving parties will probably make a notably better recovery under CPR 3 PD 7.2 if they can agree their budget with an opponent than they would by allowing the court to approve it. Whether by accident or design, such an incentive is loosely conducive with the overriding purpose of costs management.
Christopher McClure is Regional Manager at our Manchester Office and was the advocate instructed to appear on behalf of the paying party in this matter. Christopher is regularly instructed by receiving and paying parties to appear in court centres throughout England and Wales.