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Achita Singh from our Ilkley Office gives a brief overview of the ACL White Paper on Costs Management, matters that still need to be clarified and suggested solutions.
• In May 2012, Mr Justice Ramsey suggested that in most cases, there would be a presumption in favour of making a costs management order. Whilst cases in the Commercial and Admiralty Court, and cases worth more than £2 million in the Chancery Division, Technology and Construction Court and the London Mercantile Court, are currently exempt from automatic costs management, this is likely to change to a blanket exemption for all cases worth more than £10 million.
• There is no requirement for a costs management order to be made – Rule 3.17 is clear that budgets will be required as a part of the costs management process.
• Some District Judges are trying to avoid the costs management process by adjourning matters in the hope that the case settles; not raising budgets once directions are concluded; or, simply refusing to deal with budgets. A lot of judges see costs management as a wasted exercise and believe the old process of detailed assessment was adequate. Clinical negligence masters in particular are not keen. However, other judges are keen to engage in cost management and appreciate the fact that it is no longer incumbent on the Court to enforce the rules upon the parties as the burden of compliance has been increased. The Judicial College training suggests that judges should be making costs management orders and be giving reasons for not doing so.
• Different Courts seem to require different documents in support of budgets, such as details of pre-action costs. Some judges want to see a skeleton of the parties’ points of disagreement on a budget.
• Parties should attempt to agree budgets to the extent possible as it keeps the agreed parts of the budget out of reach of the Court; however, judges can still comment on the agreed figures if they think they are too high for later consideration at detailed assessment, and some judges include these comments as a recital in the order. Certain judges will direct Solicitors to serve a copy of the order on the client, whilst others have ordered clients to attend with the legal representatives. It has been suggested that the budget include a signed statement to the effect that the Solicitors have gained approval of their client. Defendants seem unwilling to agree budgets as they are unsure of the consequences of the same, particularly whether or not the paying party can, at the recovery stage, challenge the parts that have been agreed.
• Budgets should be prepared through to Trial and the assumptions should clarify the perceived route to Trial. The Budget should not be prepared anticipating early settlement, or on the basis that certain elements of the process to Trial will cease to exist.
• Assumptions are not justifications – they should detail how much work will be required, not how it will be undertaken (eg. the number of experts giving evidence, not the work required in obtaining that evidence).
• A common error is the inclusion of all work in the Pre-action costs phase. Another is that work is incorrectly attributed to phases (eg. Amended Particulars of Claim should be included as a Contingency phase rather than in Statements of Case). Judges suggest that phasing is particularly important, and the 3 phases they are particularly interested in are Disclosure, Witness Statements, and Expert Reports. They are looking in particular to restrict the costs relating to disclosure and evidence. Some judges are also looking for more information regarding pre-action costs in order to be able to manage the same, especially in clinical negligence cases.
• Judges have found that solicitors are still not filing budgets on time. Solicitors are also trying to circumvent the costs management procedure by filing Consent Orders for directions which make no mention of cost budgeting. This has led to an increased number of applications for relief from sanctions. Judges believe that the rules should provide for a mechanism whereby the parties can tell the Court in advance whether not the budgets have been agreed, as in certain cases where the budgets are reasonable and agreed, no CMC may be required.
• Small firms in particular are struggling with costs management. Even some of the big firms struggle, despite possibly having received some training, as they misunderstand the rules.
• Judges seem to think that a hearing listed for 1.5 hours is generally enough to deal with both case management and costs management; however, lawyers have suggested that more time is required to properly deal with costs management. Prior agreement of budgets, or a narrowing down of disagreements on the budget, should reduce the time spent on costs management in future.
• Judges are not concerned with hourly rates when considering a budget – they are not conducting a detailed assessment and are only concerned with whether the final figure is proportionate.
• The introduction of Qualified One-way Costs Shifting has a raised a problem, particularly in clinical negligence and PI claims, as the Defendants are unlikely to recover any costs and so tend to purposefully under-budget in order to make the Claimant’s budgeted costs look ridiculous.
• Practitioners seem uncertain about the relationship between budgeting and assessment given that costs allowed at the end might be less than the approved budget (Troy Food case).
• At the moment, judges are assessing a bill of costs in whatever form it is filed; however, it is suggested as good practice to prepare bills in phases or, at the very least, provide a comparison between the approved budget and the bill in each phase. A committee set up at the behest of Lord Justice Jackson is working on producing a new electronic form of the bill of costs, which will be broken down in phases and will be comparable to the costs budget.
• The costs of costs management will, in the short term, be high. This is, however seen as a shifting of costs from the end of the process to the beginning, as it is hoped that fewer bills will go to assessment.
• Costs management is not envisaged for fast-track cases and judges believe that such claims should be subject to fixed fees.
• It is too early to assess whether costs management is working although the general feeling amongst practitioners seems to be that the process has created more work and costs, for little benefit. Regardless, costs management is here to stay and the profession will have to learn to engage with it.
• Elements of the Bill which the judges will be examining are: the assumptions; proportionality of the overall sum; the budget phases and which ones are the costliest; whether there has been duplication between phases. Guidance suggests that judges will not be concerned with hourly rates when considering budgets.
• Good practice suggested by judges: for parties to discuss their budgets in advance of the CMC; to budget properly for disclosure after having discussed the same with the opposing party; to send someone to the CMC with the budget in electronic form so it may be updated during the hearing.
• The final report on the Costs Management Pilot which ran from October 2011 to March 2013 found that the average time spent by judges on preparing for a CMC was around 1 hour, of which 16 minutes were spent studying the budget; the average hearing lasted 45 minutes, with 14 minutes spent on the budget; judges were keener on costs management than solicitors, and; solicitors took 2-4 hours to complete the budget.
ISSUES IDENTIFIED BY THE ACL AS STILL TO BE CLARIFIED AND SUGGESTED SOLUTIONS:
1. As it is likely that there will be no detailed scrutiny of the receiving party’s costs where they are under-budget, paying parties need to have assurance that the receiving party’s bill does not included irrecoverable costs such as solicitor/own client costs and costs for those aspects of the proceedings where an adverse or costs-neutral order for costs has been made. PD 3E should be amended to provide more clarity and/or the statement of truth should be amended.
2. Concerns have been raised about the Court’s powers where parties have agreed budgets and the Court feels that the budgets agreed are disproportionate. Rule 3.15(2)(a) should be amended to include a provision allowing the Court to make appropriate revisions to budgets when it has concerns regarding the proportionality of agreed budgets.
3. Parties are not required to complete electronic documents questionnaires until ordered to do so, and it seems unreasonable to expect them to accurately budget for the disclosure phase until this exercise has been completed.
4. Pre-issue costs in many cases, such as clinical negligence and PI matters, tend to form a considerable proportion of the costs, and at the CMC can make the costs incurred look disproportionate. In this event, how is the Court to consider future estimated costs in comparison to the incurred costs?
5. Until fixed recoverable costs are made applicable to fast-track cases, the costs incurred on fast-track cases are likely to be more disproportionate than those incurred in multi-track cases. Since the aim of costs management is said to be to control the costs of litigation, it seems incongruous for costs to be managed only on multi-track cases.
6. There are no specific provisions governing costs management for group litigation and more clarity is required on how the process will be undertaken in such cases.
7. Some judges have suggested that parties be required to certify that the client has approved the budget. This can be achieved by an amendment to the statement of truth.
8. When serving budgets, should parties also be required to serve a schedule of incurred costs and/or a schedule of issues in the case?